-----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, UrivfC8Yt+prXChZmmROyR4dQmGsoVwN01xPJIT54r5dytK6J7/sR6Ud6ReVMB9a tBbIW9YTwKEcp6ko5gdwAg== 0000950135-99-002545.txt : 19990512 0000950135-99-002545.hdr.sgml : 19990512 ACCESSION NUMBER: 0000950135-99-002545 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990402 FILED AS OF DATE: 19990511 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-Q SEC ACT: SEC FILE NUMBER: 001-05492 FILM NUMBER: 99617460 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-Q 1 NASHUA CORPORATION 1 FORM 10-Q -------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended APRIL 2, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ COMMISSION FILE NUMBER 1-5492-1 NASHUA CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 02-0170100 (State of Incorporation) (IRS Employer Identification No.) 44 FRANKLIN STREET 03061-2002 NASHUA, NEW HAMPSHIRE (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (603) 880-2323 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. AS OF MAY 1, 1999, THE COMPANY HAD 5,922,529 SHARES OF COMMON STOCK, EXCLUDING 1,023,238 SHARES IN TREASURY, PAR VALUE $1 PER SHARE, OUTSTANDING. -1- 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NASHUA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) April 2, 1999 December 31, ASSETS: (Unaudited) 1998 - ------- ------------- ------------ Cash and cash equivalents $ 27,728 $ 31,965 Restricted cash 5,000 5,000 Accounts receivable 19,702 18,232 Inventories Materials and supplies 5,659 6,326 Work in process 3,219 2,503 Finished goods 5,528 5,847 -------- -------- 14,406 14,676 Other current assets 13,695 13,474 -------- -------- Total current assets 80,531 83,347 -------- -------- Plant and equipment 73,009 73,057 Accumulated depreciation (34,470) (33,727) -------- -------- 38,539 39,330 -------- -------- Intangible assets 1,991 1,991 Accumulated amortization (1,524) (1,484) -------- -------- 467 507 -------- -------- Other assets 9,185 10,155 Net non-current assets of discontinued operations 756 756 -------- -------- Total assets $129,478 $134,095 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: - ------------------------------------- Current maturities of long-term debt $ 511 $ 511 Accounts payable 8,659 9,028 Accrued expenses 25,610 27,934 Income tax payable 180 -- -------- -------- Total current liabilities 34,960 37,473 -------- -------- Long-term debt 894 1,064 Other long-term liabilities 20,331 20,331 -------- -------- Total long-term liabilities 21,225 21,395 -------- -------- Common stock and additional capital 21,995 21,995 Retained earnings 64,289 64,071 Treasury stock, at cost (12,991) (10,839) -------- -------- Total shareholders' equity 73,293 75,227 -------- -------- Commitments and contingencies -- -- -------- -------- Total liabilities and shareholders' equity $129,478 $134,095 ======== ======== The accompanying notes are an integral part of the condensed consolidated financial statements. -2- 3 NASHUA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED) (In thousands, except per share data) THREE MONTHS ENDED -------------------- April 2, April 3, 1999 1998 --------- -------- Net sales $42,649 $44,486 Cost of products sold 32,362 34,735 ------- ------- Gross margin 10,287 9,751 Research, selling, distribution and administrative expenses 10,093 10,492 Interest expense 204 113 Interest income (376) (8) ------- ------- Income (loss) from continuing operations before income tax provision (benefit) 366 (846) Income tax provision (benefit) 148 (356) ------- ------- Income (loss) from continuing operations 218 (490) Loss from discontinued operation, net of taxes -- (301) ------- ------- Net income (loss) 218 (791) Retained earnings, beginning of period 64,071 76,935 ------- ------- Retained earnings, end of period 64,289 76,144 ======= ======= Earnings per share: Income (loss) from continuing operations $ .04 $ (0.08) Income (loss) from discontinued operation -- (0.04) ------- ------- Net income (loss) per common share $ .04 $ (0.12) ======= ======= Average common shares 5,909 6,391 ======= ======= Income (loss) per common share from continuing operations assuming dilution $ .04 $ (0.08) Income (loss) per common share from discontinued operations assuming dilution $ -- $ (.04) ------- ------- Net income (loss) per common share assuming dilution $ .04 $ (0.12) ======= ======= Average common and potential common shares 5,926 6,391 ======= ======= The accompanying notes are an integral part of the condensed consolidated financial statements. -3- 4 NASHUA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) THREE MONTHS ENDED ----------------------- April 2, April 3, 1999 1998 -------- -------- Cash flows from operating activities of continuing operations: Net income (loss) $ 218 $ (791) Adjustments to reconcile net income (loss) to cash provided by (used in) continuing operating activities: Depreciation and amortization 1,444 1,737 Loss from discontinued operations -- 301 Net change in working capital and other assets (2,383) (2,947) ------- ------- Cash used in continuing operating activities (721) (1,700) ------- ------- Cash flows from investing activities of continuing operations: Investment in plant and equipment (858) (2,007) ------- ------- Cash used in investing activities of continuing operations (858) (2,007) ------- ------- Cash flows from financing activities of continuing operations: Proceeds from borrowings -- 2,100 Repayment of borrowings (170) (84) Proceeds and tax benefits from shares issued under stock option plans -- 292 Purchase of treasury stock (2,152) -- ------- ------- Cash provided by (used in) financing activities of continuing operations (2,322) 2,308 ------- ------- Proceeds from the sale of discontinued operation 6,000 Cash provided by (used in) activities of discontinued operation (336) 251 Effect of exchange rate changes on cash -- 5 ------- ------- Increase (decrease) in cash and cash equivalents (4,237) 4,857 Cash and cash equivalents at beginning of period 31,965 3,736 ------- ------- Cash and cash equivalents at end of period $27,728 $ 8,593 ======= ======= Interest paid $ 26 $ 102 ======= ======= Income taxes paid $ 348 $ 51 ======= =======
The accompanying notes are an integral part of the condensed consolidated financial statements. -4- 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INDEBTEDNESS On April 22, 1999, the Company entered into a new secured financing agreement with Fleet Bank - NH, increasing the Company's revolving line of credit to $15 million from $8 million. This agreement with Fleet - NH replaces the Company's existing credit facility, which was scheduled to expire April 30, 1999. The agreement contains certain financial covenants with respect to consolidated tangible net worth, capital expenditures and earnings before depreciation, interest, income taxes, depreciation and amortization (EBITDA). Borrowings under this facility are collateralized by a security interest in the Company's receivables and inventory. Interest on amounts outstanding under the secured line of credit is payable at the prime rate or at the Company's election, at LIBOR plus a certain fixed percentage. The maturity of this financing agreement is April 27, 2001. 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 greater than determined amounts, guarantees or sale of certain assets. RECLASSIFICATION Certain amounts from the prior year have been reclassified to conform to the current year presentation. STOCK OPTIONS At April 30, 1999, options for 553,170 shares of common stock were outstanding. Stock options for an additional 24,253 shares may be awarded under the Company's 1996 Stock Incentive Plan. In addition, the Company's stockholders approved the 1999 Shareholder Value Plan at their annual meeting held on April 30, 1999. Stock awards may be made under the 1999 Shareholder Value Plan for up to 600,000 shares of common stock (subject to adjustments for stock splits, stock dividends or other changes in the Company's capitalization). No options or shares have been awarded under this plan. SHAREHOLDER'S EQUITY On June 24, 1998, the Company's Board of Directors authorized the repurchase from time to time in the open market of up to one million shares of its common stock, subject to financial and market conditions, Securities and Exchange Commission rules and regulations and financial covenant limitations with the Company's lender. During the first quarter of 1999, Nashua repurchased 177,500 shares of the Company's common stock in open market transactions. In addition, the Company repurchased 170,000 additional shares in open market transactions in April bringing the total shares repurchased to 999,154 as of April 30, 1999. SEGMENT AND RELATED INFORMATION In the fourth quarter of 1998, the Company adopted Statement of Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information." The table below presents information about reported segments.
(In thousands) Net Sales From Pretax Income (Loss) From Continuing Operations Continuing Operations ------------------------------- -------------------------------- April 3, 1999 April 2, 1998 April 3, 1999 April 2, 1998 ------------- ------------- ------------- ------------- Imaging Supplies $14,365 $16,695 $ (480) $ (784) Specialty Coated and Label Products 28,192 27,760 1,921 1,665 Reconciling items: Other 92 31 (42) (207) Unallocated corporate expenses, including interest - - (1,033) (1,520) ------- ------- -------- ------- Consolidated $42,649 $44,486 $ 366 $ (846)
OTHER These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial -5- 6 position as of April 2, 1999, the results of operations for the three month periods ended April 2, 1999 and April 3, 1998 and cash flows for the three month periods ended April 2, 1999 and April 3, 1998. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales in the first quarter of 1999 were $42.6 million, compared with $44.5 million in the first quarter of 1998. The Imaging Supplies Segment sales in the first quarter of 1999 were $14.4 million, compared with $16.7 million in the first quarter of 1998. The sales decline was a result of lower volume in the toner and developer, cartridge and paper product lines. The toner and developer sales decline was due to lower order rates from large international customers and decreased selling prices on two of the segment's high volume products. The cartridge and paper product sales decline was a result of lower selling prices across all channels as well as reduced volume in the dealer agent and international channels. The Specialty Coated and Label Products Segment sales in the first quarter of 1999 were $28.2 million, compared with $27.8 million in the first quarter of 1998. The increased sales were a result of higher volume in the thermal paper and label products, compared to the same period last year. Gross margins improved to 24.1 percent of sales in the first quarter of 1999 from 21.9 percent of sales during the same period in 1998. The improvement in gross margin was primarily a result of reduced manufacturing costs, increased manufacturing efficiency and improved product mix in both the Imaging Supplies Segment and the Specialty Coated and Label Products Segment. Research, selling, distribution and administrative expenses in the first quarter of 1999 decreased 4 percent, or $.4 million, compared to the same period of 1998. Research expense decreased 25 percent, or $.4 million, selling and distribution expense decreased 4 percent, or $.2 million, and administrative expenses increased 7 percent, or $.2 million. Pretax loss in the Imaging Supplies Segment decreased $.3 million, or 38 percent, compared to the first quarter of 1998 as a result of improved gross margins, reduced research, selling and distribution expenses. Research expense declined due to reduced new product testing costs. Selling and distribution expense declined as a result of lower sales impacting variable expenses. Pretax profit in the Specialty Coated and Label Products Segment improved $.3 million as a result of improved gross margins, partially offset by higher administrative expenses. The administrative expense increase in the first quarter was a result of costs related to employee training and payroll, compared to the first quarter of 1998. Net income in the first quarter of 1999 was $.2 million ($.04 per share), compared to a net loss of $.8 million ($.12 per share) in the first quarter of 1998. Net income from continuing operations in the first quarter of 1999 was $.2 million ($.04 per share), compared to a loss of $.5 million ($.08 per share) in the first quarter of 1998. Pretax income from continuing operations in the first quarter of 1999 was $.4 million, compared to a loss of $.8 million in the first quarter of 1998, reflecting a $.5 million improvement in gross margin, a $.4 million reduction in operating expenses and a $.3 million increase in net interest income derived from the investment of cash generated by the sale of the Photofinishing Group. Details of the charges related to continuing operations and the activity recorded during the first quarter of 1999 follows.
Balance Current Current Balance (In thousands) Dec. 31, Period Period April 2, 1998 Provision Charges 1999 -------- --------- ------- -------- Provisions for severance related to workforce reductions $472 $ -- $329 $143 Other 149 -- 26 123 ---- ---- ---- ---- Total $621 $ -- $355 $266 ==== ==== ==== ====
-6- 7 All charges, excluding asset write-downs, are principally cash in nature and are expected to be funded from operations. The estimated annual effective income tax rate was 40.5 percent for the first quarter of 1999 and is higher than the U.S. statutory rate principally due to the impact of state income taxes. YEAR 2000 The Year 2000 ("Y2K") issue is the result of computer programs being written for, or microprocessors using, two digits (rather than four) to define the applicable year. Company computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in system failures or miscalculations. The Company is currently working to mitigate the Y2K issue and has established processes for assessing the risks and associated costs. The Company categorizes its Y2K efforts as follows: hardware, software, embedded processors, vendors and customers. Progress in assessing and remediating information technology systems (hardware and software) and non-information technology systems (embedded processors) is being tracked in phases including inventory, identification of non-compliant systems, risk assessment, project plan development, remediation, testing and verification. The Company's Y2K project team has completed the risk assessment phase for all major systems, including hardware, software and embedded processors. Remediation efforts of approximately two-thirds of the Company's major systems have been completed. The Company expects that the internal remediation work and testing for all systems critical to run the Company's businesses will be completed by July 1999. The Company will use internal and external resources to remediate and test its systems, and to develop contingency plans to mitigate risks associated with the Y2K issue. The Company has initiated communications with significant vendors and customers to coordinate the Y2K issue and is in the process of determining the Company's vulnerability if these companies fail to remediate their Y2K issues. The Company is reviewing responses and expects to complete its analysis in the second quarter. There can be no guarantee that the systems of other companies will be timely remediated, or that other companies' failure to remediate Y2K issues would not have a material adverse effect on the Company. It is currently estimated that the aggregate cost of the Company's Y2K efforts will be approximately $1.1 million, of which, approximately $.6 million has been spent to date. These costs are being funded through operating cash flows and include the costs of normal system upgrades and replacements for which the timing was accelerated to address the Y2K issue. These amounts do not include any costs associated with the implementation of contingency plans, which are in the process of being developed; nor do they include internal Y2K program costs. The Company does not separately track internal Y2K program costs. These costs are principally the related payroll costs for the management information systems group. The Company has not yet developed a contingency plan for dealing with the operational problems and costs (including loss of revenues) that would be reasonably likely to result from failure by the Company and certain third parties to achieve Y2K compliance on a timely basis. The Company currently plans to complete its analysis of the problems and costs associated with the failure to achieve Y2K compliance and to establish a contingency plan in the event of such a failure by September 30, 1999. -7- 8 The Company presently believes that with remediation, testing and contingency planning, Y2K risks can be mitigated. However, although the Company is not currently aware of any material internal operational or financial Y2K related issues, the Company cannot provide assurances that the computer systems, products, services or other systems upon which the Company depends will be Y2K ready on schedule, that the costs of its Y2K program will not become material or that the Company's contingency plans will be adequate. The Company is currently unable to evaluate accurately the magnitude, if any, of the Y2K related issues arising from the Company's vendors and customers. If any such risks (either with respect to the Company or its vendors or customers) materialize, the Company could experience serious consequences to its business which could have material adverse effects on the Company's financial condition, results of operations and liquidity. The foregoing assessment of the impact of the Y2K problem on the Company is based on management's best estimates as of the date of this Form 10Q, which are based on numerous assumptions as to future events. There can be no assurance that these estimates will prove accurate, and actual results could differ materially from those estimated if these assumptions prove inaccurate. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION Working capital decreased $.3 million to $45.6 million from December 31, 1998. Cash and cash equivalents declined $4.2 million, primarily as a result of payment of certain year end accrued expenses in the amount of $2.3 million and the repurchase of 177,500 shares of common stock in open market transactions for $2.2 million pursuant to the Company's open market stock repurchase program as detailed in the Shareholder's Equity section of the Notes to the Condensed Consolidated Financial Statements. Other changes affecting working capital included the $1.5 million increase in accounts receivable and the $.3 million decline in accounts payable from December 31, 1998. During April 1999, the Company entered into a new $15 million secured financing agreement as detailed in the Indebtedness section of the Notes to the Condensed Consolidated Financial Statements. PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION MATTERS AFFECTING FUTURE RESULTS This Form 10Q may contain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. When used in this report, the words "believe," "expects," "to be," "will" and similar expressions are intended to identify such forward-looking statements. Any such forward-looking statements and the Company's future results of operations and financial condition are subject to risks and uncertainties which could cause actual results to differ materially from those anticipated and from past results. Such risks and uncertainties include, but are not limited to, fluctuations in customer demand, intensity of competition from other vendors, timing and acceptance of new product introductions, general economic and industry conditions, delays or difficulties in programs designed to increase sales and return the Company to profitability, risks associated with the failure by the Company and certain third parties to achieve Year 2000 compliance on a timely basis, and other risks detailed in the Company's filings with the -8- 9 Securities and Exchange Commission. The Company assumes no obligation to update the information contained in this Form 10Q. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.01 Amended By-laws of the Company, effective as of April 13, 1999. 4.01 Amendment No. 3 to the Company's Rights Agreement, effective as of April 30, 1999. 10.01 Amended 1996 Stock Incentive Plan of the Company, effective as of April 13, 1999. 10.02 1999 Shareholder Rights Plan, effective as of April 30, 1999. 10.03 Loan Agreement between the Company and Fleet Bank - NH, dated as of April 22, 1999. 10.04 Revolving credit promissory note between the Company and Fleet Bank - NH, dated as of April 22, 1999. 10.05 Security Agreement between the Company and Fleet Bank - NH, dated as of April 22, 1999. -9- 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NASHUA CORPORATION ------------------------------------------ (Registrant) Date: MAY 11, 1999 BY: /s/ John L. Patenaude ---------------------- -------------------------------------- John L. Patenaude Vice President-Finance, Chief Financial Officer and Treasurer (principal financial and duly authorized officer) -10- EX-3.01 2 BY-LAWS 1 Exhibit 3.01 BY-LAWS OF NASHUA CORPORATION (a Delaware Corporation) ---------- ARTICLE I. OFFICES SECTION 1. REGISTERED OFFICE IN DELAWARE. The registered office of NASHUA CORPORATION (hereinafter called the "Corporation") in the State of Delaware shall be in the City of Wilmington, County of New Castle, and the registered agent in charge thereof shall be The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. SECTION 2. OTHER OFFICES. The Corporation may have such other office or offices at such other place or places, either within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be necessary or appropriate for the conduct of the business of the Corporation. ARTICLE II. MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETING. All meetings of the stockholders shall be held at such place or places, within or without the State of Delaware, as may from time to time be fixed by the Board of Directors, or as shall be specified in the respective notices or waivers of notice thereof. SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders shall be held at 10:00 a.m. on the fourth Friday of April in each year or at such other date and time as may be fixed by the Board of Directors for the purpose. At each annual meeting the stockholders entitled to vote shall vote with respect to the election of a Board of Directors and may transact any other proper business. SECTION 3. SPECIAL MEETINGS. A special meeting of the stockholders, or of any class thereof entitled to vote, for any purpose or purposes, may be called at any time by the Chairman of the Board or the President or by order of the Board of Directors. SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly required by law, written notice of each meeting of stockholders, whether annual or special, stating the place, date and hour of the meeting shall be given not less than ten days nor more than fifty days before the date on which the meeting is to be held to each stockholder of record entitled to vote thereat by delivering a notice thereof to him personally or by mailing such notice in a postage 2 -2- prepaid envelope directed to him at his address as it appears on the stock ledger of the Corporation. Every notice of a special meeting of the stockholders, besides stating the place, date and hour of the meeting, shall state briefly the purpose or purposes thereof. Notices of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy unless such attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened; and, if any stockholder shall, in person or by attorney thereunto authorized, in writing or by telegraph, cable or wireless, waive notice of any meeting of the stockholders, whether prior to or after such meeting, notice thereof need not be given to him. If a meeting is adjourned to another time or place and if an announcement of the adjourned time and place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the adjournment is for more than thirty days or the Board of Directors, after adjournment, fixes a new record date for the adjourned meeting. SECTION 5. LIST OF STOCKHOLDERS. It shall be the duty of the Secretary or other officer of the Corporation who shall have charge of the stock ledger to prepare and make, at least ten days before every meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in his name. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall be kept and produced at the time and place of the meeting during the whole time thereof and subject to the inspection of any stockholder who may be present. The original or duplicate stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or the books of the Corporation or to vote in person or by proxy at such meeting. SECTION 6. QUORUM. At each meeting of the stockholders, the holders of record of a majority of the issued and outstanding stock of the Corporation entitled to vote at such meeting, present in person or by proxy, shall constitute a quorum for the transaction of business, except where otherwise provided by law, the Certificate of Incorporation or these By-Laws. In the absence of a quorum, any officer entitled to preside at, or act as Secretary of, such meeting shall have the power to adjourn the meeting from time to time until a quorum shall be constituted. At any such adjourned meeting at which a quorum shall be present any business may be transacted which might have been transacted at the meeting as originally called, but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. SECTION 7. VOTING. Except as otherwise provided in the Certificate of Incorporation, at every meeting of stockholders each holder of record of the issued and outstanding stock of the Corporation entitled to vote at such meeting shall be entitled to one vote in person or by proxy 3 -3- for each such share of stock entitled to vote held by such stockholder, but no proxy shall be voted after three years from its date unless the proxy provides for a longer period. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Nothing in this Section shall be construed as limiting the right of the Corporation to vote its own stock held by it in a fiduciary capacity. At all meetings of the stockholders, a quorum being present, all matters shall be decided by majority vote of the shares of stock entitled to vote held by stockholders present in person or by proxy, except as may be otherwise required by the Certificate of Incorporation, these By-Laws or the laws of the State of Delaware. Unless demanded by a stockholder of the Corporation present in person or by proxy at any meeting of the stockholders and entitled to vote thereat or so directed by the Chairman of the meeting or required by the laws of the State of Delaware, the vote thereat on any question need not be by ballot. SECTION 8. BUSINESS. At any meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this Section 8, who shall be entitled to vote at such meeting, and who complies with the notice procedures set forth in this Section 8. For business to be properly brought before a stockholder meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' prior disclosure of the date of the meeting is first given or made (whether by public disclosure or written notice to stockholders), notice by the stockholder to be timely must be received no later than the close of business on the 10th day following the day on which such disclosure of the date of the meeting was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder and (d) any material interest of the stockholder in such business. Notwithstanding anything elsewhere in these By-Laws to the contrary, no business shall be conducted at a stockholder meeting except in accordance with the procedures set forth in this Section 8. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of these By-Laws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 8, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. 4 -4- ARTICLE III. BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The property, business and affairs of the Corporation shall be managed by the Board of Directors. SECTION 2. NUMBER AND TERM OF OFFICE. The number of directors shall be fixed from time to time by resolution of the Board of Directors, but shall not be less than five nor more than fifteen. Directors need not be stockholders. Each director shall hold office until the annual meeting of the stockholders next following his election and until his successor shall have been elected and shall qualify, or until his death, resignation or removal. SECTION 3. QUORUM AND MANNER OF ACTING. Unless otherwise provided by law, the presence of one-third of the total number of directors shall be necessary to constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the directors present may adjourn the meeting from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. At all meetings of directors, a quorum being present, all matters shall be decided by the affirmative vote of a majority of the directors present, except as otherwise required by the laws of the State of Delaware. SECTION 4. PLACE OF MEETINGS, ETC. The Board of Directors may hold its meetings and keep the books and records of the Corporation, at such place or places within or without the State of Delaware, as the Board may from time to time determine. SECTION 5. ANNUAL MEETING. As promptly as practicable after each annual meeting of stockholders for the election of directors and at the place thereof, the Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business. Notice of such meeting need not be given. If such meeting is held at any other time or place, notice thereof must be given or waived as hereinafter provided for special meetings of the Board of Directors. SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such time and place, within or without the State of Delaware, as shall from time to time be determined by the Board of Directors. After there has been such determination, and notice thereof has been once given to each member of the Board of Directors, regular meetings may be held without further notice being given. SECTION 7. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, the President, a Vice President, the Secretary or the Treasurer or by a majority of the directors. Notice of each such meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least two days before the date on which the meeting is to be held, or shall be sent to him at such place by telegraph, cable, radio or wireless, or be delivered personally or by telephone, not later than the day before the day on which such meeting is to be held. Each such notice shall state the time and place of the meeting but need not state the purposes thereof except as 5 -5- provided in Article VIII hereof. In lieu of the notice to be given as set forth above, a waiver thereof in writing, signed by the director or directors entitled to said notice, whether prior to or after the meeting in question, shall be deemed equivalent thereto for purposes of this Section 7. No notice to or waiver by any director with respect to any special meeting shall be required if such director shall be present at said meeting. SECTION 8. RESIGNATION. Any director of the Corporation may resign at any time by giving written notice to the Chairman of the Board, the President or the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office including those who have so resigned shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. SECTION 9. VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, unless otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware. SECTION 10. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more directors of the Corporation, which shall have and may exercise such powers of the Board of Directors in the management of the business and affairs of the Corporation (including the power to authorize the seal of the Corporation to be affixed to all papers which may require it) as the Board may provide in the respective resolutions appointing them, subject to such restrictions as may be contained in the Certificate of Incorporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. The committees shall keep regular minutes of their proceedings and report the same to the Board when required. A majority of all the members of any such committee may fix its rules of procedure, determine its action and fix the time and place, whether within or without the State of Delaware, of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall otherwise by resolution provide. In the absence or disqualification of any member of any such committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. The Board of Directors shall have power to change the membership of any such committee at any time, to fill vacancies therein and to discharge any such committee, either with or without cause, at any time. SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a 6 -6- meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes or proceedings of the Board or committee. SECTION 12. NOMINATIONS OF DIRECTORS. Subject to the rights of holders of any class or series of stock having a preference over the common stock of the Corporation as to dividends or upon liquidation, only persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible to serve as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 12, who shall be entitled to vote for the election of directors at the meeting, and who complies with the notice procedures set forth in this Section 12. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' prior disclosure of the date of the meeting is first given or made (whether by public disclosure or written notice to stockholders), notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such disclosure of the date of the meeting was made. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 12 or in accordance with Section 9 in connection with filling a vacancy in the Board of Directors or any newly created directorship resulting from any increase in the authorized number of directors. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these By-Laws and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 12, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section. 7 -7- ARTICLE IV. OFFICERS SECTION 1. NUMBER. The principal officers of the Corporation shall be a President, one or more Vice Presidents, a Treasurer, a Secretary and, at the discretion of the Board of Directors, a Chairman of the Board and a Controller. The Corporation may also have, at the discretion of the Board of Directors, such other officers as may be appointed in accordance with the provisions of these By-Laws. One person may hold the offices and perform the duties of any two or more of said offices. SECTION 2. ELECTION AND TERM OF OFFICE. The principal officers of the Corporation shall be chosen annually by the Board of Directors at the annual meeting thereof. Each such officer shall hold office until his successor shall have been duly chosen and shall qualify, or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. SUBORDINATE OFFICERS. In addition to the principal officers enumerated in Section 1 of this Article IV, the Corporation may have one or more Assistant Treasurers, one or more Assistant Secretaries and such other officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period, have such authority, and perform such duties as the Chairman of the Board, the President, or the Board of Directors may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees. SECTION 4. REMOVAL. Any officer may be removed, either with or without cause, at any time, by resolution adopted by the Board of Directors. SECTION 5. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Chairman of the Board or to the Board of Directors or to the President or to the Secretary. Any such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6. VACANCIES. A vacancy in any office may be filled for the unexpired portion of the term in the manner prescribed in these By-Laws for election or appointment to such office for such term. SECTION 7. CHAIRMAN OF THE BOARD. If there is a Chairman of the Board, he shall preside at all meetings of stockholders and at all meetings of the Board of Directors. Unless the Board of Directors shall otherwise specify, he shall be the chief executive officer of the Corporation and as such shall have general supervision of the affairs of the Corporation, subject to the control of the Board of Directors. He shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 8 -8- SECTION 8. PRESIDENT. In the absence of the Chairman of the Board or if there is no Chairman of the Board, the President shall perform the duties and exercise the powers given to the Chairman of the Board under these By-Laws. He shall perform such other duties and have such other powers as the Chairman of the Board or the Board of Directors may from time to time prescribe. SECTION 9. VICE PRESIDENTS. The Vice Presidents in the order of their seniority, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President. They shall perform such other duties and have such other powers as the Chairman of the Board, the President or the Board of Directors may from time to time prescribe. SECTION 10. TREASURER. The Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation and shall deposit all such funds in the name of the Corporation in such banks or other depositories as shall be selected by the Board of Directors. When requested by the Board of Directors, he shall render a statement of the condition of the finances of the Corporation at any meeting of the Board or at the annual meeting of stockholders; shall receive, and give receipt for, moneys due and payable to the Corporation from any source whatsoever; and in general, shall perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Chairman of the Board, the President or the Board of Directors. The Treasurer shall give such bond, if any, for the faithful discharge of his duties as the Board of Directors may require. SECTION 11. SECRETARY. The Secretary, if present, shall act as secretary at all meetings of the Board of Directors and of the stockholders and keep the minutes thereof in a book or books to be provided for that purpose; shall see that all notices required to be given by the Corporation are duly given and served; and in general, shall perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Chairman of the Board, the President or the Board of Directors. SECTION 12. CONTROLLER. If there is a Controller, he shall have immediate charge of the Accounting Department of the Corporation and shall keep a record of all accounts and accounting matters of the Corporation and shall prepare such statements and reports as may be required of him by the Chairman of the Board, the President or the Board of Directors; and in general, shall perform all the duties incident to the office of Controller and such other duties as from time to time may be assigned to him by the Chairman of the Board, the President or the Board of Directors. 9 -9- ARTICLE V. SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR STOCK. Every stockholder of the Corporation shall be entitled to a certificate or certificates, to be in such form as the Board of Directors shall prescribe, certifying the number of shares of the capital stock of the Corporation owned by him. SECTION 2. STOCK CERTIFICATE SIGNATURE. The certificates for such stock shall be signed by the Chairman of the Board or the President or any Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation and its seal shall be affixed thereto. If such certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or, (2) by a registrar other than the Corporation or its employee, the signatures of such officers of the Corporation and its seal may be facsimiles. In case any officer of the Corporation who has signed, or whose facsimile signature has been placed upon, any such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. SECTION 3. STOCK LEDGER. A record shall be kept by the Secretary or by the transfer agent or by any other officer, employee or agent designated by the Board of Directors of the name of the person, firm or corporation holding the stock represented by such certificates, the number of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. SECTION 4. CANCELLATION. Every certificate surrendered to the Corporation for exchange or registration of transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificates until such existing certificate shall have been so cancelled, except in cases provided for in Section 7 of this Article V. SECTION 5. REGISTRATIONS OF TRANSFERS OF STOCK. Registrations of transfers of shares of the capital stock of the Corporation shall be made on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation or with a transfer clerk or a transfer agent appointed as in Section 6 of this Article V provided, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation; PROVIDED, HOWEVER, that whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. 10 -10- SECTION 6. REGULATIONS. The Board of Directors may make such rules and regulations as it may deem expedient, not inconsistent with the Certificate of Incorporation or these By-Laws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any principal officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates of stock to bear the signature or signatures of any of them. SECTION 7. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. As a condition of the issue of a new certificate for shares of stock in the place of any certificate theretofore issued and alleged to have been lost, stolen, mutilated or destroyed, the Board of Directors, in its discretion, may require the owner of any such certificate, or his legal representatives, to give the Corporation a bond in such sum and in such form as it may direct to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft, mutilation or destruction of any such certificate or the issuance of such new certificate. Proper evidence of such loss, theft, mutilation or destruction shall be procured for the Board of Directors, if required. The Board of Directors, in its discretion, may authorize the issuance of such new certificates without any bond when in its judgment it is proper to do so. SECTION 8. RECORD DATES. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix in advance a date as a record date for any such determination of stockholders. Such record date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. ARTICLE VI. INDEMNIFICATION The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware, indemnify each person who is or was a director, officer or employee of the Corporation from and against any and all of the expenses, liabilities or other matters referred to in or covered by said Section. The Corporation may, but shall not be obligated to, maintain insurance at its expense, to protect itself and any such persons against any such expenses or liabilities. In addition to and without limiting the foregoing provisions of this Article and except to the extent otherwise required by law, any person seeking indemnification under or pursuant to this Article shall be deemed and presumed to have met the applicable standard of conduct required for such indemnification unless the contrary shall be established. 11 -11- ARTICLE VII. MISCELLANEOUS PROVISIONS SECTION 1. CORPORATE SEAL. The Board of Directors shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and the words "Corporate Seal" and "Delaware". The Secretary shall be the custodian of the seal. The Board of Directors may authorize a duplicate seal to be kept and used by any other officer. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be as specified by the Board of Directors. SECTION 3. VOTING OF STOCKS OWNED BY THE CORPORATION. The Board of Directors may authorize any person in behalf of the Corporation to attend, vote and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock. SECTION 4. DIVIDENDS. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor, at any regular or special meeting declare dividends upon the capital stock of the Corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the Board of Directors shall deem conducive to the interests of the Corporation. ARTICLE VIII. AMENDMENTS These By-Laws of the Corporation may be altered, amended or repealed by the affirmative vote of a majority of the stock of the Corporation issued and outstanding and entitled to vote in respect thereof and represented in person or by proxy at any annual or special meeting of the stockholders or by the Board of Directors at any regular or special meeting of the Board of Directors, provided that notice of the proposed alteration, amendment or repeal, or an appropriate summary thereof, is contained in the notice of such meeting of stockholders or directors, as the case may be. By-Laws, whether made or altered by the stockholders or by the Board of Directors, shall be subject to alteration or repeal by the stockholders as provided in this Article. 4/99 EX-4.01 3 AMENDMENT #3 TO RIGHTS AGREEMENT 1 Exhibit 4.01 AMENDMENT NO. 3 TO RIGHTS AGREEMENT This amendment, dated as of April 30, 1999, amends the Rights Agreement (the "Rights Agreement"), dated as of July 19, 1996, between Nashua Corporation, a Delaware corporation (the "Company"), and The First National Bank of Boston, a national banking association (the "Rights Agent"). Terms defined in the Rights Agreement and not otherwise defined herein are used herein as so defined. WITNESSETH: - ----------- WHEREAS, on July 19, 1996, the Board of Directors of the Company authorized the issuance of Rights to purchase, on the terms and subject to the provisions of the Rights Agreement, one one-hundredth of a share of the Company's Series B Participating Preferred Stock; WHEREAS, on July 19, 1996, the Board of Directors of the Company authorized and declared a dividend distribution of one Right for every share of Common Stock of the Company outstanding on the Record Date and authorized the issuance of one Right (subject to certain adjustments) for each share of Common Stock of the Company issued between the Record Date and the Distribution Date; WHEREAS, on July 19, 1996, the Company and the Rights Agent entered into the Rights Agreement to set forth the description and terms of the Rights; and WHEREAS, pursuant to Section 27 of the Rights Agreement, the Board of Directors now desire to amend certain provisions of the Rights Agreement. NOW, THEREFORE, the Rights Agreement, as amended to date, is hereby further amended as follows: (1) Delete Section 23(c) in its entirety; (2) Delete the proviso at the end of the second sentence of Section 27; and (3) Delete Section 31 in its entirety and substitute the following: "Section 31. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void, or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated." 2 - 2 - IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to the Rights Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Attest: NASHUA CORPORATION By ____________________________ By _____________________________ Peter C. Anastos, Secretary Gerald G. Garbacz Chairman, President and Chief Executive Officer Attest: THE FIRST NATIONAL BANK OF BOSTON By ____________________________ By _____________________________ EX-10.01 4 STOCK INCENTIVE PLAN 1 Exhibit 10.01 AMENDED 1996 NASHUA CORPORATION STOCK INCENTIVE PLAN 1. NAME OF PLAN The Plan shall be known as the 1996 Nashua Corporation Stock Incentive Plan (the "Plan"). 2. PURPOSE OF THE PLAN The purpose of the Plan is to attract and retain key personnel for positions of substantial responsibility and to provide additional incentive to certain officers, key employees and directors of Nashua Corporation or any Affiliated Corporation to promote the success of the Company. 3. DEFINITIONS As used herein, the following definitions shall apply: (a) "AFFILIATED CORPORATIONS" shall include members of the controlled group of corporations within the meaning of Section 424(e) and 424(f) of the Code. (b) "AWARD" means a grant or award under Section 7, 8 or 10 of the Plan. (c) "COMPANY" and "CORPORATION" means Nashua Corporation. (d) "BOARD" means the Board of Directors of the Company. (e) "COMMON STOCK" means common stock, par value $1.00 per share, of the Company. (f) "CODE" means the Internal Revenue Code of 1986, as amended. (g) "COMMITTEE" means the Executive Salary Committee of the Board, as described in Section 5(a) hereof. (h) "CONTINUOUS EMPLOYMENT" or "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any interruption or termination of employment with the Company or with an Affiliated Corporation. (i) "EFFECTIVE DATE" means the date specified in Section 11 hereof. (j) "EMPLOYEE" means any person employed by the Company or an Affiliated Corporation. (k) "FAIR MARKET VALUE" means the closing price listed on the New York Stock Exchange on the date an Option is granted. (l) "INCENTIVE STOCK OPTION" means a stock option grant that is intended to meet the requirements of Section 422 of the Code. 2 -2- (m) "NON-STATUTORY STOCK OPTION" means a stock option grant that is not intended to be an Incentive Stock Option. (n) "OPTION" means an Incentive Stock Option or a Non-Statutory Stock Option granted pursuant to this Plan. (o) "OPTIONED STOCK" means the Common Stock purchasable by an Employee or Director of the Corporation pursuant to an Option. (p) "OPTIONEE" means an Employee or Director of the Corporation who receives an Option. (q) "PERFORMANCE BASED RESTRICTED STOCK" means shares of Common Stock contingently granted to an Employee under Section 8 of the Plan. (r) "PLAN" means the 1996 Nashua Corporation Stock Incentive Plan. (s) "SHARE" means one share of the Common Stock. (t) "SUBSIDIARY" means a subsidiary of the Company as defined under Section 424(f) of the Code. 4. SHARES SUBJECT TO THE PLAN Subject to adjustment as provided in Section 11(h), the aggregate number of shares of Common Stock which may be issued pursuant to awards made under the Plan shall not exceed 660,000 shares. Any Shares subject to an Option which for any reason expires or is terminated unexercised as to such Shares and any Shares reacquired by the Company pursuant to forfeiture or a repurchase right hereunder may again be the subject of an Award under the Plan. The Shares subject to Awards under this Plan may, in whole or in part, be either authorized but unissued Shares or issued Shares reacquired by the Company. 5. ADMINISTRATION OF THE PLAN (a) COMPOSITION OF COMMITTEE. The Plan shall be administered by the Executive Salary Committee of the Board of Directors of the Company. Employees who are designated by the Committee shall be eligible to receive Awards under the Plan. All persons designated as members of the Committee shall be "disinterested persons" within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934. (b) POWERS OF THE COMMITTEE. The Committee is authorized (but only to the extent not contrary to the express provisions of the Plan or to resolutions adopted by the Board) (i) to interpret the Plan, (ii) to prescribe, amend and rescind rules and regulations relating to the Plan, (iii) to determine the Employees to whom Awards shall be granted under the Plan, the amount and terms of such Awards and the time when Awards will be granted, and (iv) to make other determinations necessary or advisable for the administration of the Plan, and shall have and may exercise such other power and authority as may be delegated to it by the Board from time to 3 -3- time. A majority of the entire Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. Officers of the Company are hereby authorized to assist the Committee in the administration of the Plan and to execute instruments evidencing Awards on behalf of the Company and to cause them to be delivered to the Employees. (c) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and interpretations of the Committee shall be final and conclusive on all persons affected thereby. 6. ELIGIBILITY Awards may be granted by the Committee only to those officers and key Employees of the Company and of any Affiliated Corporation who are in positions in which their decisions, actions and counsel significantly impact upon the profitability of the Company. Directors who are not otherwise Employees of the Company or an Affiliated Corporation shall be eligible to receive Awards only under Section 10 hereof, and not under other Sections. An Employee who has been granted an Award may, if otherwise eligible, be granted an additional Award or Awards. In no event, however, shall the aggregate number of Shares which may be issued under the Plan to any one individual exceed 150,000, during the term of the Plan subject to adjustment as provided in Section 11(h). For the purpose of calculating such maximum number, an Option shall continue to be treated as outstanding notwithstanding its cancellation or expiration. 7. STOCK OPTIONS (a) GRANT. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine each Employee to whom an Option shall be granted, the number of Shares to be covered by each Option, the option price and the conditions and limitations applicable to the exercise of the Option. The Committee shall have the authority to grant Incentive Stock Options or to grant Non-Statutory Stock Options, or to grant both types of Options. The terms and conditions of Awards of Incentive Stock Options shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code, as from time to time amended, and any regulations implementing Section 422. (b) OPTION PRICE. The price per Share at which each Option granted under the Plan may be exercised shall not, as to any particular Option, be less than 100% of the Fair Market Value of a Share at the time the Option is granted. The exercise price at which Options are granted under the Plan may not be reset except for adjustments as provided in Section 11(h). Options that lapse because of employee terminations or other reasons may be replaced with new Awards. (c) RESTRICTIONS ON INCENTIVE STOCK OPTIONS. Incentive Stock Options granted under this Plan shall be designated specifically as such and, for so long as the Code shall so require, shall be subject to the additional restriction that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are 4 -4- exercisable for the first time by an Optionee during any calendar year shall not exceed $100,000. If an Incentive Stock Option which exceeds the $100,000 limitation of this Section 7(c) is granted, the portion of such Incentive Stock Option which is exercisable for Shares in excess of the $100,000 limitation shall be treated as a Non-Statutory Stock Option pursuant to Section 422(d) of the Code. In the event that such Optionee is eligible to participate in any other stock incentive plans of the Company, its parent, if any, or a Subsidiary which are also intended to comply with the provisions of Section 422 of the Code, such annual limitation shall apply to the aggregate number of Shares for which options may be granted under all such plans. (d) EXERCISE OF OPTION. An Option shall be exercisable at such times and under such conditions as shall be permissible under the terms of the Plan and of the Option granted to an Optionee; however, in no event may any Option granted hereunder be exercisable after expiration of 10 years and one day from the date of such grant. The Committee shall have the power to permit in its discretion, the acceleration of the exercise of an Option, or any portion thereof, under such circumstances and upon such terms as it deems appropriate. An Option may not be exercised for a fractional Share. An Option may be exercised, subject to the provisions hereof relative to its termination and limitations on its exercise, from time to time only by (i) written notice of intent to exercise the Option with respect to a specified number of Shares, and (ii) payment to the Company (contemporaneously with delivery of each such notice), either in cash or, if permitted by the Committee, by the surrender and delivery to the Company of Shares with a fair market value (based on the New York Stock Exchange closing price on the date of payment) equal to or less than the total Option price plus cash for any difference of the amount of the Option price of the number of Shares with respect to which the Option is then being exercised plus any state and federal withholding tax required, as provided under Section 11(a) or by any other means (including without limitation, by delivery of a promissory note of the Optionee payable on such terms as are specified by the Committee) which the Committee determines are consistent with the purpose of the Plan and with applicable laws and regulations (including without limitation, the provisions of Regulation T promulgated by the Federal Reserve Board). Each such notice and payment shall be delivered, or mailed by prepaid registered or certified mail, addressed to the Secretary of the Company at the Company's executive offices. (e) TERMINATION OF EMPLOYMENT. Each Option shall terminate and may no longer be exercised if the Optionee ceases to perform services for the Company or an Affiliated Corporation in accordance with the following: (i) If an Optionee ceases to be an employee of the Company or any Subsidiary other than by reason of death, retirement or disability, absent a determination by the Committee to the contrary, any Options which were exercisable by the Optionee on the date of termination of employment may be exercised any time before their expiration date or within six months after the date of termination, whichever is earlier, but only to the extent that the Options were exercisable when employment ceased. In the event an Optionee fails to exercise an 5 -5- Incentive Stock Option within three months after the date of termination, such Option will be treated as a Non-Statutory Stock Option pursuant to Section 422 of the Code. (ii) In the case of death or disability of the Optionee, Options which were exercisable by the Optionee on the date of employment termination may be exercised at any time before their expiration date or within one year after the date of termination, whichever is earlier. (iii) If an Optionee's employment terminates because of retirement, any Options which were exercisable by the Optionee on the date of termination of employment may be exercised any time before their expiration date or within three years after the date of termination, whichever is earlier, but only to the extent that the Options were exercisable when employment ceased absent a determination by the Committee to the contrary at the time any such Options were granted or prior to their expiration date, as provided hereunder. Notwithstanding the foregoing, in the event an Optionee fails to exercise an Incentive Stock Option within three months after the date of his or her retirement, such Option will be treated as a Non-Statutory Stock Option. 8. PERFORMANCE BASED RESTRICTED STOCK (a) All shares of Performance Based Restricted Stock granted hereunder (including any shares received in respect of the Performance Based Restricted Stock as a result of stock dividends, stock splits or any other forms of recapitalization) shall be subject to the following restrictions: (1) No shares of Performance Based Restricted Stock or any interest therein shall be transferred or disposed of either voluntarily or involuntarily, directly or indirectly, by sale, gift, pledge or otherwise, unless such shares of Performance Based Restricted Stock shall have then been released from such restrictions on transfer, and any attempted transfer or disposition of shares of Performance Based Restricted Stock while they are restricted shall be null and void and of no effect. (2) The restrictions imposed under Paragraph (a)(1) above upon shares of Performance Based Restricted Stock shall terminate within times determined by the Committee only upon the attainment of performance conditions such as earnings, share price or other targets set by the Committee at time of grant. (b) If such performance conditions are not met by dates set by the Committee at time of Award, all of the Performance Based Restricted Stock subject to restrictions under said grant at such dates, together with accumulated dividends thereon, shall be forfeited and revert to the Company. 6 -6- (c) Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Employees to whom Shares of Performance Based Restricted Stock shall be granted, the number of Shares of Performance Based Restricted Stock to be granted to each Employee, and the other terms and conditions of such Awards. (d) Shares of Performance Based Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as herein provided, during the restricted period. Certificates issued in respect of shares of Performance Based Restricted Stock shall be registered in the name of the Employee and deposited by such Employee, together with a stock power endorsed in blank, with the Company. At the expiration of the restricted period, the Company shall deliver such certificates to the Employee or the Employee's legal representative. (e) Unless otherwise determined by the Committee at or after grant, if an Employee's employment terminates for any reason, the Performance Based Restricted Stock which is unvested or subject to restriction shall thereupon be forfeited. (f) Subject to adjustment as provided in Section 11(h), Awards of Performance Based Restricted Stock may not exceed an aggregate of 150,000 shares under this Plan. Any shares reacquired by the Company pursuant to a forfeiture of Performance Based Restricted Stock may again be the subject of an Award of Performance Based Restricted Stock under the Plan. 9. CHANGE IN CONTROL The Committee may provide that certain or all Options granted under Section 7 of the Plan shall become exercisable in full and that any time limitation (but not performance condition) applicable to any Performance Based Restricted Stock shall lapse, in the event of a Change in Control of the Corporation (as hereinafter defined). Options granted under Section 10 shall become exercisable in full for the aggregate number of Shares covered thereby in the event of 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 person (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 the Exchange Act) of 30% 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 (i) 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 7 -7- subsidiaries or (ii) 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 June 14, 1996, 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 June 14, 1996 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 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 8 -8- 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. 10. NON-EMPLOYEE DIRECTOR OPTIONS AND STOCK AWARDS Notwithstanding any of the other provisions of the Plan to the contrary, the provisions of this Section 10 shall only apply to a non-employee member of the Board. The other provisions of the Plan shall apply to grants of Options under this Section 10 to the extent not inconsistent with the provisions of this Section. (a) Each non-employee member of the Board shall receive Non-Statutory Stock Options in accordance with the provisions of this Section 10. (i) Recipients of Options under this Section 10 shall enter into a stock option agreement with the Corporation, which agreement shall set forth, among other things, the exercise price of the Option, the term of the Option and provisions regarding exercisability of the Option granted thereunder. The Options shall be exercisable only by the recipient or the recipient's estate. (ii) On the Effective Date and the date after each succeeding annual stockholders meeting of the Corporation each non-employee member of the Board shall be granted a Non-Statutory Stock Option to purchase 1,000 shares of Common Stock subject to adjustment as provided in Section 11(h). The Option Price per share of Common Stock purchasable under such Options shall be equal to the Fair Market Value of the Common Stock on the date of grant subject to adjustment as provided in Section 11(h). Such Option shall remain exercisable by the Optionee or the Optionee's estate until the earliest of 10 years and one day from the date of grant, or one year after the last day of any directorship with the Corporation. Such Options shall become exercisable on the day before the annual stockholders meeting following the date of grant, providing the recipient is then a director, by payment in full in cash or in Shares of Common Stock having a fair market value (based on the New York Stock Exchange closing price on the date of payment) equal to the Option Price or in a combination of cash and such Shares. (b) Each non-employee member of the Board shall receive Shares in lieu of annual cash compensation as follows: On the Effective Date and the date after each succeeding annual stockholders meeting of the Corporation each non-employee member of the Board shall be granted a number of (unrestricted) Shares determined by dividing the amount of 9 -9- the annual cash retainer authorized for directors (currently $15,000) by the closing price listed on the New York Stock Exchange on such date without taking into account fractional shares. Non-employee members of the Board who become members of the Board between annual stockholders meetings shall be granted a number of (unrestricted) Shares determined by dividing the amount of annual cash retainer (as prorated for periods less than one year) by the closing price listed on the New York Stock Exchange on such date without taking into account fractional shares. Additional annual cash compensation payable to a non-employee member of the Board elected by the Board to additional offices such as Chairman or Lead Director may be paid in cash on the date of his or her election or reelection (the "Payment Date") to such office, or any such member of the Board may elect (a "Share Election") to be granted a number of (unrestricted) Shares determined by dividing the amount of such additional annual cash compensation by the closing price listed on the New York Stock Exchange on such date without taking into account fractional shares. To receive Shares in lieu of additional annual compensation, a non-employee member of the Board must make a Share Election at least six months prior to the Payment Date. Any reversal of a Share Election (the "Share Election Reversal") will not be effective until a period of at least 6 months from the date of such Share Election Reversal. 11. GENERAL PROVISIONS (a) WITHHOLDING. Each participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in connection with Awards to such participant no later than the date of the event creating the tax liability. Participants may, to the extent then permitted under applicable law, satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their fair market value. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a participant. (b) NONTRANSFERABILITY. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the participant, shall be exercisable only by the participant. References to a participant, to the extent relevant in the context, shall include references to authorized transferees. (c) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a participant the right to be retained in the employ of the Company. Further, the Company expressly reserves the right at any time to dismiss a participant without any liability under the Plan, except as provided herein or in any agreement entered into with respect to an Award. 10 -10- (d) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable Award, no Optionee shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed under the Plan until he or she has become the holder thereof. Notwithstanding the foregoing, in connection with each grant of Performance Based Restricted Stock hereunder, the applicable Award shall specify if and to what extent the Optionee shall not be entitled to the rights of a stockholder in respect of such Performance Based Restricted Stock. (e) CONSTRUCTION OF THE PLAN. The validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined solely in accordance with the laws of New Hampshire. (f) EFFECTIVE DATE. Subject to the approval of the stockholders of the Company within one year thereof, the Plan shall be effective on June 14, 1996. Although Options and Awards may be granted prior to such stockholder approval, no Option or Award may be exercised until such approval is obtained. No Options or Awards may be granted under the Plan after June 13, 2006 (g) AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN. The Board of Directors at any time may terminate, and at any time from time to time, and in any respect, may amend or modify, the Plan provided: (a) that no such termination or amendment shall adversely affect or impair any then outstanding Option or Award without the consent of the holder of such Option or Award; (b) no such amendment shall be made to Section 10 more frequently than once in any six-month period, unless an amendment is required in order to comport with the requirements of the Code or Rule 16(b)-3 of the Exchange Act; and (c) that any such amendment which: (i) increases the maximum number of Shares subject to this Plan; (ii) changes the class of persons eligible to participate in this Plan; or (iii) materially increases the benefits accruing to executive officers and directors of the Company under this Plan shall be subject to approval by the shareholders of the Company within one year from the effective date of such amendment and shall be null and void if such approval is not obtained. (h) ADJUSTMENTS AND ASSUMPTIONS. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, 11 -11- consolidation, distribution of assets, or any other change in the corporate structure or shares of the Company, the Committee shall make such appropriate adjustments in the number and kind of shares authorized by the Plan, in the number and kind of shares covered by the Awards granted, and in the purchase price of outstanding Options. In the event of any merger, consolidation or other reorganization in which the Company is not the surviving or continuing corporation, all Awards granted hereunder and outstanding on the date of such event shall be assumed by the surviving or continuing corporation with appropriate adjustment as to the number and kind of Shares and purchase price of the Shares. (i) PROVISION FOR FOREIGN PARTICIPANTS. The Committee may, without amending the Plan, modify Awards or Options granted to participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters. (j) IMPACT ON OTHER BENEFITS. The value of any Award (either on its grant date, vesting date or exercise date) shall not be includable as compensation or earnings for purposes of any other benefit plan of the Company. As Amended 4/13/99 EX-10.02 5 1999 SHAREHOLDER AGREEMENT 1 Exhibit 10.02 NASHUA CORPORATION 1999 SHAREHOLDER VALUE PLAN --------------------------- 1. PURPOSE The purpose of this 1999 Shareholder Value Plan (the "Plan") of Nashua Corporation, a Delaware corporation (the "Company"), is to advance the interests of the Company's stockholders by enhancing the Company's ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives and thereby better aligning the interests of such persons with those of the Company's stockholders. Except where the context otherwise requires, the term "Company" shall include any of the Company's present or future subsidiary corporations as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code"). 2. ELIGIBILITY All of the Company's employees, officers, directors, consultants and advisors (and any individuals who have accepted an offer for employment) are eligible to be granted options, restricted stock awards, or other stock-based awards (each, an "Award") under the Plan. Each person who has been granted an Award under the Plan shall be deemed a "Participant". 3. ADMINISTRATION, DELEGATION (a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered by the Board of Directors of the Company (the "Board"). The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board's sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith. (b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by applicable law, the Board or any Committee as defined in Section 3(c) may delegate to one or more executive officers of the Company the power to make Awards and exercise such other powers under the Plan as the Board may determine, provided that the Board shall fix the maximum number of shares subject to Awards and the maximum number of shares for any one Participant to be made by such executive officers. (c) APPOINTMENT OF COMMITTEE. The Board shall appoint a committee or subcommittee of the Board (a "Committee") consisting of not less than two members, each member of which shall be an "outside director" within the meaning of Section 162(m) of the Code and a "non-employee director" as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") 2 and shall delegate its powers under the Plan to such Committee. All references in the Plan to the "Board" shall mean the Board or a Committee of the Board or the executive officer referred to in Section 3(b) to the extent that the Board's powers or authority under the Plan have been delegated to such Committee or executive officer. 4. STOCK AVAILABLE FOR AWARDS (a) NUMBER OF SHARES. Subject to adjustment under Section 8, Awards may be made under the Plan for up to 600,000 shares of common stock, $1.00 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitation required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares. (b) PER-PARTICIPANT LIMIT. Subject to adjustment under Section 8, the maximum number of shares of Common Stock with respect to which an Award may be granted to any Participant under the Plan shall be 150,000 per calendar year. The per-Participant limit described in this Section 4(b) shall be construed and applied consistently with Section 162(m) of the Code. 5. STOCK OPTIONS (a) GENERAL. The Board may grant options to purchase Common Stock (each, an "Option") and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. An Option which is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock Option". Notwithstanding anything contained herein to the contrary, without the prior approval of the Company's shareholders, no option issued hereunder shall be repriced, replaced or regranted through cancellation, or by lowering the option exercise price of a previously granted award. (b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an "incentive stock option" as defined in Section 422 of the Code (an "Incentive Stock Option") shall only be granted to employees of the Company and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) which is intended to be an Incentive Stock Option is not an Incentive Stock Option. (c) EXERCISE PRICE. The Board shall establish the exercise price at the time each Option is granted at not less than 100% of the fair market value of the Common Stock, as determined by the Board, at the time the Option is granted ("Fair Market Value"), and shall specify that option price in the applicable option agreement. 2 3 (d) DURATION OF OPTIONS. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement, provided, however, that no Option will be granted for a term in excess of 10 years. (e) EXERCISE OF OPTION. Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised. (f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows: (1) in cash or by check, payable to the order of the Company; (2) except as the Board may, in its sole discretion, otherwise provide in an option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price; (3) by delivery of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board in good faith ("Fair Market Value"), provided (i) such method of payment is then permitted under applicable law and (ii) such Common Stock was owned by the Participant at least six months prior to such delivery; (4) to the extent permitted by the Board, in its sole discretion by (i) delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or (5) by any combination of the above permitted forms of payment. 6. RESTRICTED STOCK (a) GRANTS. The Board may grant Awards entitling recipients to acquire shares of Common Stock, subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, a "Restricted Stock Award"). (b) TERMS AND CONDITIONS. The Board shall determine the terms and conditions of any such Restricted Stock Award, including the conditions for repurchase (or forfeiture) and the issue price, if any. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration 3 4 of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant's death (the "Designated Beneficiary"). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's estate. 7. OTHER STOCK-BASED AWARDS The Board shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Board may determine, including the grant of shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights. 8. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS (a) CHANGES IN CAPITALIZATION. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a normal cash dividend, (i) the number and class of securities available under this Plan, (ii) the per-Participant limit set forth in Section 4(b), (iii) the number and class of securities and exercise price per share subject to each outstanding Option, (iv) the repurchase price per share subject to each outstanding Restricted Stock Award, and (v) the terms of each other outstanding Award shall be appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is necessary and appropriate. If this Section 8(a) applies and Section 8(c) also applies to any event, Section 8(c) shall be applicable to such event, and this Section 8(a) shall not be applicable. (b) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation or dissolution of the Company, the Board shall upon written notice to the Participants provide that all then unexercised Options will (i) become exercisable in full as of a specified time at least 10 business days prior to the effective date of such liquidation or dissolution and (ii) terminate effective upon such liquidation or dissolution, except to the extent exercised before such effective date. The Board may specify the effect of a liquidation or dissolution on any Restricted Stock Award or other Award granted under the Plan at the time of the grant of such Award. (c) ACQUISITION EVENTS (1) DEFINITION. An "Acquisition Event" shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which the Common Stock is converted into or exchanged for the right to receive cash, securities or other property or (b) any exchange of shares of the Company for cash, securities or other property pursuant to a statutory share exchange transaction. (2) CONSEQUENCES OF AN ACQUISITION EVENT ON OPTIONS. Upon the occurrence of an Acquisition Event, or the execution by the Company of any agreement with 4 5 respect to an Acquisition Event, the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof). For purposes hereof, an Option shall be considered to be assumed if, following consummation of the Acquisition Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Acquisition Event, the consideration (whether cash, securities or other property) received as a result of the Acquisition Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Acquisition Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Acquisition Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Acquisition Event. Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall, upon written notice to the Participants, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Acquisition Event and will terminate immediately prior to the consummation of such Acquisition Event, except to the extent exercised by the Participants before the consummation of such Acquisition Event; provided, however, that in the event of an Acquisition Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition Price"), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Acquisition Event and that each Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options. (3) CONSEQUENCES OF AN ACQUISITION EVENT ON RESTRICTED STOCK AWARDS. Upon the occurrence of an Acquisition Event, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company's successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Acquisition Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award. 5 6 (4) CONSEQUENCES OF AN ACQUISITION EVENT ON OTHER AWARDS. The Board shall specify the effect of an Acquisition Event on any other Award granted under the Plan at the time of the grant of such Award. 9. GENERAL PROVISIONS APPLICABLE TO AWARDS (a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees. (b) DOCUMENTATION. Each Award shall be evidenced by a written instrument in such form as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan. (c) BOARD DISCRETION. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly. (d) TERMINATION OF STATUS. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, the Participant's legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award. (e) WITHHOLDING. Each Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. Participants may, to the extent then permitted under applicable law, satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant. (f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant. (g) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the 6 7 Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations. (h) ACCELERATION. The Board may at any time provide that any Options shall become immediately exercisable in full or in part, that any Restricted Stock Awards shall be free of restrictions in full or in part or that any other Awards may become exercisable in full or in part or free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be. 10. MISCELLANEOUS (a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award. (b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to such Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend. (c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on the date on which it is approved by the Company's stockholders. No Awards shall be granted under the Plan after the completion of ten years from the date the Plan was approved by the Company's stockholders, but Awards previously granted may extend beyond that date. (d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that to the extent required by Section 162(m) of the Code, no Award granted to a Participant designated as subject to Section 162(m) by the Board after the date of such amendment shall become exercisable, realizable or vested, as applicable to such Award (to the extent that such amendment to the Plan was required to grant such Award to a particular Participant), unless and until such amendment shall have been approved by the Company's stockholders as required by Section 162(m) (including the vote required under Section 162(m)). (e) GOVERNING LAW. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law. As Amended - 4/30/99 7 EX-10.03 6 LOAN AGREEMENT 1 Exhibit 10.03 LOAN AGREEMENT LOAN AGREEMENT ( the "Agreement") dated as of this 22nd day of April, 1999 by and between NASHUA CORPORATION, a Delaware corporation with a principal place of business of 44 Franklin Street, Nashua, New Hampshire 03061-2002 (the "Borrower") and FLEET BANK-NH, a bank incorporated under the laws of the State of New Hampshire with a principal place of business at 1155 Elm Street, Manchester, New Hampshire 03101 (the "Bank"). W I T N E S S E T H : WHEREAS, the Borrower has requested and the Bank has agreed to make a certain Fifteen Million Dollars ($15,000,000) Revolving Line of Credit Loan (the "Line of Credit" or the "Loan") to the Borrower; and WHEREAS, the parties wish to set forth in writing the terms and conditions upon which the Bank will make the Loan to the Borrower; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, the parties covenant, stipulate and agree as follows: ARTICLE I. THE LINE OF CREDIT. The Bank agrees to make, the Line of Credit available to the Borrower subject to and upon the following terms and conditions: 1.1 BORROWER. The Borrower under the Line of Credit shall be NASHUA CORPORATION. The Borrower shall sign a promissory note (the "Line of Credit Note" or the "Note") evidencing its obligation to pay and perform the Line of Credit. 1.2 AMOUNT. Under the Line of Credit, the Bank agrees to loan the Borrower an amount up to Fifteen Million Dollars ($15,000,000); PROVIDED, HOWEVER, the availability under the Line of Credit for direct borrowings shall be reduced by the aggregate amount of all outstanding foreign exchange facilities and letters of credit issued by the Bank or any affiliate thereof for the benefit or on behalf of the Borrower. 1.3 USE OF PROCEEDS. The proceeds of the Line of Credit shall be used by the Borrower for general corporate purposes, including, but not limited to, direct borrowings, letters of credit and foreign exchange facilities. 1.4 INTEREST RATE. Sums advanced under the Line of Credit shall bear interest in accordance with the terms of Article II hereof. 1.5 REPAYMENT. Unless demand is sooner made due to an Event of Default (as hereinafter defined) or the Line of Credit is renewed by the Bank, the Line of Credit shall mature on April 22, 2001 (the "Maturity Date"). On or before each anniversary date of this Agreement, the Bank shall review the Line of Credit to determine whether it will renew the 2 Line of Credit for an additional one (1) year period so that such annual renewal will result in a "rolling" two (2) year Line of Credit. If the Bank, in its sole discretion, elects not to renew the Line of Credit on or before each anniversary date of this Agreement, then the Line of Credit shall mature on the date which is one (1) year from the date of the anniversary date of this Agreement upon which the Bank elected not to renew the Line of Credit, unless demand is sooner made due to an Event of Default. Prior to maturity, the Borrower shall make payments of interest only to the Bank on a monthly basis, in arrears, with the first such payment being made on that date thirty (30) days from the date hereof (or on such other date as the parties may agree upon in writing to provide for a convenient payment date) with subsequent payments being made on the corresponding day of each succeeding month. All payments required under this Agreement, the Note or any other Loan Document shall be in lawful money of the United States in immediately available funds. The due dates of all payments required under the Agreement, the Note or any other Loan Document are subject to adjustment in accordance with the Modified Following Business Day Convention. Modified Following Business Day Convention means the convention for adjusting any relevant date if it would otherwise fall on a day that is not a Business Day to the date that will be the first following day that is a Business Day (unless that day falls in the next calendar month, in which case that date will be the first preceding day that is a Business Day). The term "Business Day" means, in respect to any date that is specified in the Agreement or the Note to be subject to adjustment in accordance with applicable Modified Following Business Day Convention, a day on which commercial banks settle payments in (a) London, if the payment obligation is calculated by reference to any LIBOR Rate (as hereinafter defined) or (b) New York, if the payment obligation is calculated by reference to the Prime Rate (as hereinafter defined). 1.6 SECURITY. Borrower's payment and performance of the Line of Credit shall be secured by a perfected first priority security interest in all of the Borrower's accounts receivable and inventory. 1.7 GUARANTY, SECURITY THEREFOR. The payment and performance of the Line of Credit by the Borrower shall be unconditionally guaranteed by the Guarantors (as defined in Section 4.22 hereof). 1.8 FEES AND EXPENSES. In connection with the Loan, the Borrower agrees to pay the Bank the following fees: (a) A Twenty Thousand Dollar ($20,000) closing fee payable at closing; (b) An unused facility fee equal to one quarter of one percent (1/4%) per annum on the average daily principal amount of the unused portion of the Line of Credit to be paid quarterly in arrears; and (c) The letter of credit fees for any usage under the Line of Credit for letters of credit shall be 1.25% per annum of the face amount of such letter of credit. 2 3 1.9 CROSS DEFAULT. The Borrower's obligations to the Bank with respect to the Line of Credit shall be and hereby are cross defaulted with all loans, letters of credit, foreign exchange facilities or other obligations, now existing and hereafter arising, of the Borrower or any Guarantor, owed to the Bank or any affiliate thereof, including the Line of Credit and the Master Agreement (as hereinafter defined), as the same may be hereafter amended. ARTICLE II. INTEREST RATE AND OTHER APPLICABLE LIBOR PROVISIONS 2.1 Subject to the terms of Section 2.2 hereof, the Borrower shall have the option to elect that the sums advanced under the Line of Credit shall bear interest at a variable per annum rate equal to the Prime Rate, (the "Floating Rate Option"). The term "Prime Rate" means the variable per annum rate of interest so designated from time to time by Fleet Bank-NH as its Prime Rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. Each time the Prime Rate changes, the interest rate on such Loan shall change. Interest under the Floating Rate Option and under the LIBOR Fixed Rate Option (as hereinafter defined) shall be calculated and charged on the basis of actual days elapsed over a banking year of three hundred sixty (360) days. 2.2 As a material inducement for the Borrower to enter into this Agreement, the Borrower shall also have the option to elect (the "LIBOR Fixed Rate Option") that the interest rate payable under the Line of Credit shall be equal to the LIBOR Rate (as hereinafter defined) plus one and three quarters percent (1 3/4%) per annum. If the Borrower maintains compensating balances in its accounts with the Bank of at least Five Hundred Thousand Dollars ($500,000), the LIBOR Fixed Rate Option shall automatically be reduced to equal the LIBOR Rate plus one hundred sixty basis points (1.60%) per annum. The election of the LIBOR Fixed Rate Option shall be fixed for one (1), two (2), three (3) or six (6) month periods (the "LIBOR Rate Interest Period(s)") and shall be in the minimum amount of One Hundred Thousand Dollars ($100,000) and, if greater, in additional increments of Fifty Thousand Dollars ($50,000). In the absence of an election by the Borrower to exercise the LIBOR Fixed Rate Option, the Line of Credit shall bear interest at a rate equal to the Floating Rate Option and said interest rate shall apply to the entire principal amount outstanding thereunder. No LIBOR Rate Interest Period shall extend beyond the maturity of the Line of Credit. Any LIBOR Interest Rate Period chosen by the Borrower will be so structured such that the principal amount to be repaid at maturity hereunder shall either bear interest at the Floating Rate Option or bear interest at a LIBOR Fixed Rate Option having a LIBOR Rate Interest Period which terminates on the day such principal repayment is to be made. Any LIBOR Rate Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next Business Day unless that day falls into the next calendar month, in which case, that day will be the first preceding Business Day, or, provided that the Bank shall have given reasonable notice to the Borrower, as otherwise determined by the Bank in accordance with the then current foreign banking practice. At the expiration of each LIBOR Rate Interest Period, any part of the principal amount of the Line of Credit bearing interest based under LIBOR Fixed Rate Option as to which no notice of renewal has been received as provided below shall automatically be converted to the Floating Rate Option. The Bank shall attempt to notify the Borrower of any such 3 4 automatic conversion. If the Bank offers and the Borrower elects to do so, then the Borrower and the Bank may exchange the LIBOR Fixed Rate Option (one (1) month LIBOR only) pursuant to an interest rate swap contract (in the form of an International Swap Dealer's Association Master Agreement and Confirmation Agreement between the Borrower and Fleet National Bank ("FNB"), both of which are referred to as the "Master Agreement") for a fixed rate of interest. 2.3 "LIBOR RATE" shall mean the per annum rate as determined by the Bank (rounded upward, if necessary, to the nearest 1/32 of one percent) as determined on the basis of the offered rates for deposits in U.S. dollars, for the applicable LIBOR Rate Interest Period, which appears on the Telerate page 3750 as of 11:00 a.m. London time on the day that is two (2) London Business Days preceding the first day of such LIBOR Rate Interest Period; provided, however, if the rate described above does not appear on the Telerate System on any applicable interest determination date, the LIBOR Rate shall be the rate (rounded upwards as described above, if necessary) for deposits in dollars for a period substantially equal to LIBOR Rate Interest Period on the Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that service for the purpose of displaying such rates), as of 11:00 a.m. (London Time), on the day that is two (2) London Business Days prior to the beginning of such interest period. If both the Telerate and Reuters system are unavailable, then the rate for that date will be determined on the basis of the offered rates for deposits in U.S. dollars for a period of time comparable to such LIBOR Rate Interest Period which are offered by four major banks in the London interbank market at approximately 11:00 a.m. London time, on the day that is two (2) London Business Days preceding the first day of such LIBOR Rate Interest Period as selected by the Bank's calculation agent. The principal London office of each of the four major London banks will be requested to provide a quotation of its U.S. dollar deposit offered rate. If at least two such quotations are provided, the rate for that date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that date will be determined on the basis of the rates quoted for loans in U.S. dollars to leading European banks for a period of time comparable to such LIBOR Rate Interest Period which are offered by major banks in New York City at approximately 11:00 a.m. New York City time, on the day that is two (2) London Business Days preceding the first day of such LIBOR Rate Interest Period. If the Bank is unable to obtain any such quotation as provided above, then it will be deemed that LIBOR Rate cannot be determined and the Bank will have no obligation to make LIBOR Rate based loans. If the Board of Governors of the Federal Reserve System shall impose a Reserve Percentage with respect to LIBOR deposits of the Bank, then for any period during which such Reserve Percentage shall apply, LIBOR Rate shall be equal to the amount determined above divided by an amount equal to 1 minus the Reserve Percentage. Reserve Percentage means the rate (expressed as a decimal) at which the Bank is required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System against Eurodollar liabilities outstanding. 2.4 Notwithstanding the foregoing, if as a result of any change in any foreign or United States law or regulation (or change in the interpretation thereof) it is determined by the 4 5 Bank that it is unlawful to maintain a LIBOR Rate based loan, or if any central bank or governmental authority (foreign or domestic) shall assert that it is unlawful to maintain a LIBOR Rate based loan, then such LIBOR Rate based loan shall terminate, be automatically converted to an advance under the Floating Rate Option and the Borrower shall have no further right hereunder to elect the LIBOR Fixed Rate Option. If for any reason a LIBOR Rate based loan is terminated or prepaid by the Borrower prior to the end of the applicable LIBOR Rate Interest Period for which the LIBOR Rate is to be in effect, then the Borrower shall, upon demand by Bank, pay to Bank any amounts required to compensate Bank for any additional losses, costs, or expenses which it may reasonably incur as a result of such termination or prepayment, including, without limitation, any losses, costs, or expenses incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Bank to fund or maintain such LIBOR Rate based loan. If the Bank determines that by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for determining the LIBOR Rate in the relevant amount and for the relevant maturity are not available to the Bank in the London interbank market, with respect to a proposed LIBOR Rate based loan, then the Bank shall give the Borrower prompt notice of such determination. Until such notice has been withdrawn, the Bank shall have no obligation to make LIBOR Rate based loans, or maintain outstanding LIBOR Rate based loans. 2.5 If, due to any one or more of: (i) the introduction of any applicable law or regulation or any change in the interpretation or application by any authority charged with the interpretation or application thereof of any law or regulation; or (ii) the compliance with any guideline or request from any governmental central bank or other governmental authority (whether or not having the force of law), there shall be an increase in the cost to the Bank of agreeing to make or making, funding or maintaining LIBOR Rate based loans, including, without limitation, changes which affect or would affect the amount of capital or reserves required or expected to be maintained by the Bank, with respect to all or any portion of the LIBOR Rate based loans, or any corporation controlling the Bank, on account thereof, then the Borrower from time to time shall, upon written demand by the Bank within ninety (90) days of an event which gives rise to such increased costs, pay the Bank additional amounts sufficient to indemnify the Bank against such increased cost as such increased costs relate to the Borrower. A certificate as to the amount of the increased cost and the reason therefor submitted to Borrower by the Bank in the absence of manifest error, shall be conclusive and binding for all purposes. 2.6 In order for the Borrower to elect the LIBOR Fixed Rate Option, the following conditions must be met: (i) The Bank shall have received a written notice (the "LIBOR Fixed Rate Request") from the Borrower at least two (2) London Business Days prior to the first day of any LIBOR Rate Interest Period requested, such notice to specify the first day and length of the LIBOR Rate Interest Period (a "LIBOR Fixed Rate Period"), the dollar amount of the LIBOR Portion and as to which Loan the LIBOR Fixed Rate Request shall apply; and 5 6 (ii) The Bank shall not have determined in good faith that it is unable to determine the LIBOR Rate in respect of the requested LIBOR Fixed Rate Period. 2.7 If, at any time (i) the interest rate on the Loan is a fixed rate, and (ii) the Bank in its sole discretion should determine that current market conditions can accommodate a prepayment request, then the Borrower shall have the right at any time and from time to time to prepay such Loan in whole (but not in part) and the Borrower shall pay to the Bank a yield maintenance fee in an amount computed as follows: The current rate for United States Treasury securities (bills on a discounted basis shall be converted to a bond equivalent) with a maturity date closest to the term chosen pursuant to the LIBOR Fixed Rate Option as to which the prepayment is made, shall be subtracted from the "cost of funds" component of the fixed rate in effect at the time of prepayment. If the result is zero or a negative number, then there shall be no yield maintenance fee. If the result is a positive number, then the resulting percentage shall be multiplied by the amount of the principal balance being prepaid. The resulting amount shall be divided by 360 and multiplied by the number of days remaining in the term chosen pursuant to the LIBOR Fixed Rate Option as to which the prepayment is made. Said amount shall be reduced to present value calculated by using the number of days remaining in the designated term and using the above-referenced United States Treasury securities rate and the number of days remaining in the term chosen pursuant to the LIBOR Fixed Rate Option as to which the prepayment is made. The resulting amount shall be the yield maintenance fee due to the Bank upon prepayment of the fixed rate loan. If the Bank elects to declare the Loan to be immediately due and payable upon the occurrence of an Event of Default, then any yield maintenance fee with respect to such Loan shall become due and payable in the same manner as though the Borrower had exercised such right of prepayment. If the interest rate under the Loan is swapped pursuant to the Master Agreement, the Master Agreement sets forth additional restrictions, limitations, and penalties associated with prepayment under said Loan. In the event any prepayment is made by the Borrower, the amount thereof will be applied first to delinquency charges, costs of collection and accrued interest and thereafter to principal in the reverse order of maturity. 2.8 In the event that the Borrower fails to pay any amount that is due and owing to FNB under and pursuant to the Master Agreement (after giving effect to any applicable grace period), then upon demand by FNB, in its sole discretion, the Bank shall pay such amount directly to FNB for the account of the Borrower and the Borrower hereby authorizes and consents to such payment by the Bank. The Borrower agrees that (i) FNB shall have no obligation to demand the Bank to advance such funds on behalf of the Borrower, (ii) the making of such a demand by FNB will not create any obligation to make such a demand in the future, and (iii) at all times FNB may choose not to make such demand and choose, instead to exercise its rights under the Master Agreement. It shall be an additional obligation of the Borrower to reimburse the Bank for any amount the Bank may pay on account of any amount that is due and owing by the Borrower to FNB. Such additional obligation shall be due upon demand and shall bear interest at a rate per annum equal to the default rate set forth in the Note from, and including, the date of payment by the Bank to, but excluding, the date the Borrower reimburses the Bank for such additional obligation. FNB is an intended third-party beneficiary of the Bank's obligations under this Section. It is expressly agreed by the parties hereto that 6 7 the terms of this Section shall apply to any and all Master Agreements entered into by the Borrower with respect to any Loan. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BORROWER AND GUARANTORS. To induce the Bank to enter into this Agreement and to make the Loan, the Borrower and the Guarantors warrant and represent to the Bank that: 3.1 LEGAL EXISTENCE. The Borrower is a corporation duly organized and validly existing under the laws of the State of Delaware with the power to own its property and to carry on its business as it is now being conducted. In addition, the Borrower is duly qualified to do business and is in good standing in New Hampshire and in each jurisdiction in which the character of the properties owned by it therein or in which the transaction of its business makes such qualification necessary. 3.2 AUTHORITY OF BORROWER. The Borrower has full power and authority to enter into this Agreement and to borrow hereunder, to execute and deliver this Agreement, and any other documents the purpose of which is to evidence or secure the Loan (the foregoing, including, without limitation, this Agreement, being hereinafter sometimes collectively referred to as the "Loan Documents" and the security described therein sometimes hereinafter collectively referred to as the "Collateral") and to incur the obligations provided for herein and in the Loan Documents, all of which have been duly authorized by all proper and necessary corporate or other action. Any consent or approval of stockholders, or of any agency or of any public authority, or of any other party required as a condition to the legal validity of this Agreement or the Loan Documents has been obtained. 3.3 AUTHORITY OF GUARANTORS. Each Guarantor has full power and authority to enter into, to execute and deliver all of the Loan Documents and to incur the obligations provided for herein and in the Loan Documents, all of which have been duly authorized by all proper and necessary action. Any consent or approval of any agency or of any public authority, or any other party required as a condition to the legal validity of this Agreement or the Loan Documents has been obtained. 3.4 BINDING AGREEMENT. This Agreement and the Loan Documents constitute the valid and legally binding obligations of the Borrower and each of the Guarantors enforceable in accordance with their terms; PROVIDED, that the enforceability of any provisions in the Loan Documents, or of any rights granted to the Bank pursuant thereto may be subject to and affected by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and that the right of the Bank to specifically enforce any provisions of the Loan Documents is subject to general principles of equity. 3.5 LITIGATION. Except as disclosed on Schedule 3.5 attached hereto, there are no suits pending or, to the knowledge of the Borrower or the Guarantors, threatened, against or affecting the Borrower or any of the Guarantors or any of the Borrower's or the Guarantors' assets which, if adversely determined, would have a material adverse effect on the condition, financial or otherwise, or business of the Borrower or any of the Guarantors and which have not been disclosed in writing to the Bank. There are no proceedings by or before any governmental commission, board, bureau or other administrative agency pending, or, to the knowledge of the Borrower or any of the Guarantors, threatened against the Borrower or any of the Guarantors, which, if adversely determined, would have a material adverse effect on the condition, financial or otherwise, or business of the Borrower or any of the Guarantors and which have 7 8 not been disclosed in writing to the Bank. Notwithstanding the above, there are certain suits pending or threatened which are listed on Schedule 3.5 and which have been disclosed by Borrower or the Guarantors to Bank ("Disclosed Suits"). 3.6 CONFLICTING AGREEMENTS. There is no charter provision or bylaw of the Borrower, and no provision(s) of any existing mortgage, indenture, contract or agreement binding on the Borrower or any of the Guarantors or affecting any of the Borrower's or Guarantors' property, which would conflict with, be in contravention hereof, have a material adverse effect upon, or in any way prevent the execution, delivery, or performance of the terms of this Agreement or the Loan Documents. 3.7 FINANCIAL CONDITION. The annual financial statements heretofore delivered to the Bank by Borrower and the Guarantors have been prepared in accordance with generally accepted accounting principles, consistently applied, are complete and correct, and fairly present the financial condition and results of the Borrower and the Guarantors. There are no material liabilities, direct or indirect, fixed or contingent, of the Borrower or the Guarantors which are not reflected therein or in the notes thereto which would be required to be disclosed therein in accordance with Generally Accepted Accounting Principles ("GAAP") and there has been no material adverse change in the financial condition or operations of the Borrower since the date of such financial statements. Except as set forth on Schedule 3.7, to the best of Borrower's knowledge, the Borrower's and the Guarantors' assets are free of encumbrances of any nature. 3.8 TAXES. The Borrower and the Guarantors have filed all federal, state and local tax returns required to be filed by the Borrower and the Guarantors and have paid or have made adequate provision for the payment of all taxes shown by such returns to be due and payable on or before the due dates thereof except such that are being contested in good faith. Except as set forth on Schedule 3.8, there are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction and the Guarantors and the officers of the Borrower know of no basis for any such claim. 3.9 LICENSES, FRANCHISES, ETC. The Borrower possesses all material permits, approvals, licenses, franchises, patents, trademarks, service marks, trademark and service mark rights, trade names, trade name rights and copyrights necessary to conduct its business substantially as now conducted, and as proposed to be conducted, in each case subject to no mortgage, pledge, lien, lease, encumbrance, charge, security interest, title retention agreement or option which is not permitted by this Agreement to exist, and, without any known conflict with any such rights or assets of others. 8 9 3.10 NO PURCHASE OF MARGIN STOCK. No part of the proceeds received by the Borrower from the Loan will be used directly or indirectly for the purpose of purchasing or carrying, or for payment in full or in part of indebtedness which was incurred for the purposes of purchasing or carrying any margin stock, as such term is used and defined in Regulation U of the Board of Governors of the Federal Reserve System. 3.11 SOLVENCY. The present fair saleable value of the Borrower's assets is greater than the amount required to pay its total liabilities, the amount of Borrower's capital is adequate in view of the type of business in which it is engaged and the Borrower is able to pay its debts as they mature. 3.12 NOT A SUCCESSOR. Except as set forth on Schedule 3.12, the Borrower has not, within the six year (6) period immediately preceding the date of this Agreement, changed its name, been the surviving corporation of a merger or consolidation, or acquired all or substantially all of the assets of any person, corporation, partnership or entity. 3.13 BROKERAGE. There are no claims against the Borrower or any of the Guarantors for brokerage commissions, finder's fees or similar compensation arising out of or due to any act of the Borrower or any of the Guarantors in connection with the transactions contemplated by this Agreement; and the Borrower or any of the Guarantors will defend, indemnify and hold the Bank harmless against any liability or expenses arising out of any such claim. 3.14 EMPLOYEE BENEFIT PLANS. The Borrower has not incurred any material accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), has not incurred any material liability to the Pension Benefit Guaranty Corporation established under ERISA (or any successor thereto) in connection with any profit sharing, group insurance, bonus, deferred compensation, percentage compensation, stock option, severance pay, insurance, pension or retirement plan or other oral or written agreement or commitment relating to employment or fringe benefits or perquisites for employees, officers or directors of the Borrower (an "Employee Benefit Plan"), and no Employee Benefit Plan which is subject to ERISA had, as of its latest valuation date, accrued benefits (whether or not vested) the present value of which exceeded the value of the assets of such Employee Benefit Plan, based upon actuarial assumptions utilized for such Plan. 3.15 SUBSIDIARIES. The Borrower does not have any subsidiaries other than those identified on Schedule 3.15 hereof (the "Subsidiaries"). The Subsidiaries listed on Schedule 3.15 under the column "Material Subsidiaries" on said Schedule 3.15 constitute any Subsidiaries which alone account for five percent (5%) or more of the Borrower's consolidated total assets or account for five percent (5%) or more of the Borrower's consolidated total revenue for continuing operations for the immediately preceding fiscal year. 3.16 OWNERSHIP AND LIENS. The Borrower has title to, or valid leasehold interests in, all of its properties and assets, real and personal, including the properties and assets and leasehold interest reflected in the financial statements referred to in Section 3.7 (other than any properties or assets disposed of in the ordinary course of business), and none of the properties 9 10 and assets owned by the Borrower and none of its leasehold interests is subject to any lien, except such as are provided on Schedule 3.7 attached hereto or may be permitted pursuant to Section 5.6 of this Agreement. 3.17 STATUTORY COMPLIANCE. The Borrower is in compliance, in all material respects, with all statutes, regulations, ordinances, directives, and orders of every federal, state, municipal or other governmental authority which has or claims jurisdiction over them, any of its assets, or any person in any capacity under which it would be responsible for the conduct of such person where the failure to so comply would have no material adverse effect on the Borrower. 3.18 YEAR 2000 REPRESENTATION. The Borrower has (i) initiated a review and assessment of all areas within the business and operations of the Borrower and each of its Subsidiaries that could be adversely affected by the "YEAR 2000 PROBLEM" (that is, the risk that computer applications used by it or any of its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to an any date after December 31, 1999), (ii) developed a plan and time line for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented such plan in accordance with such timetable. The Borrower reasonably believes that all of its computer applications that are material to the business or operations of the Borrower or any of its Subsidiaries will on a timely basis be able to perform properly date-sensitive functions for all dates before and from and after January 1, 2000, except to the extent that a failure to do so could not reasonable be expected to have a material adverse effect on the Borrower or its Subsidiaries. 3.19 FULL DISCLOSURE. None of the information with respect to the Borrower and any of the Guarantors which has been prepared and furnished by the Borrower and any of the Guarantors to the Bank in connection with the transactions contemplated hereby is false or misleading with respect to any material fact, or omits to state any material fact necessary in order to make the statements therein not misleading. ARTICLE IV. AFFIRMATIVE COVENANTS OF BORROWER AND GUARANTORS. Until payment in full of the indebtedness now existing or hereafter incurred under this Agreement and the performance of all its obligations hereunder, the Borrower and the Guarantors agree that, unless the Bank shall otherwise consent in writing, the Borrower and/or the Guarantors (as applicable) shall: 4.1 PROMPT PAYMENT. Pay promptly when due all amounts due and owing to the Bank under this Agreement. 4.2 USE OF PROCEEDS. Use the proceeds of the Loan only for the purposes set forth herein and will furnish the Bank such evidence as it may reasonably require with respect to such use. 4.3 FINANCIAL STATEMENTS. (a) The Borrower shall furnish the Bank within forty-five (45) days after the end of each quarter during Borrower's fiscal year internally prepared quarterly (including year to date) financial statements of the Borrower and its affiliates, 10 11 including a balance sheet and a profit and loss statement. All such statements shall be prepared in the format previously approved by the Bank. (b) The Borrower shall furnish the Bank within one hundred twenty (120) days after the close of each fiscal year (i) a statement of stockholders' equity and a statement of changes in financial position of the Borrower for such fiscal year; (ii) an income statement of the Borrower for such fiscal year; and (iii) balance sheets of the Borrower as of the end of such fiscal year. All such annual statements shall be prepared in accordance with generally accepted accounting principles consistently applied, and shall present fairly the financial position and result of operations of Borrower. The annual financial statements of Borrower shall be prepared on an audited basis, by an independent certified public accountant selected by Borrower and reasonably acceptable to the Bank. Such financial statements shall be accompanied by an opinion of the auditor which (i) shall not disclaim the auditor's obligation to address the Year 2000 Risk as it relates to the Borrower's liabilities or contingent liabilities and (ii) shall not be qualified due to the Borrower's possible failure to take all appropriate steps to successfully address the Year 2000 Risk. The Bank shall have the right, from time to time, to discuss the affairs of Borrower directly with Borrower's accountant after reasonable notice to Borrower and opportunity of Borrower to be represented at any such discussions. (c) Promptly deliver to the Bank upon receipt thereof, copies of any reports submitted to Borrower by Borrower's accountants in connection with any examination of the financial statements of Borrower made by such accountants. (d) On an annual basis prior to Borrower's fiscal year end, furnish the Borrower's business plan and budget for the upcoming fiscal year which include a projected profit and loss statement, balance sheet, cash flow projections and a capital budget. (e) Furnish the Bank with a fully executed compliance certificate substantially in the form of covenant compliance certificate attached hereto as Schedule 4.3(e), within forty-five (45) days after the end of each fiscal quarter (the "Covenant Compliance Certificate"). (f) Furnish the Bank with such other financial information or reports (such as agings and inventory) as the Bank may reasonably request. 4.4 MAINTENANCE OF EXISTENCE. Take all necessary action to maintain the Borrower's existence, including the filing of required reports and tax returns with the Secretary of State of the State of New Hampshire and with the appropriate authorities in any other state where required. 4.5 MAINTENANCE OF PROPERTY, PLANT, EQUIPMENT AND COLLATERAL. Maintain the Borrower's property, plant and equipment, including the Collateral, in good working order, subject only to reasonable wear and tear and make all necessary repairs thereto and replacements therefor so that operations may be properly conducted in accordance with prudent business management. 11 12 4.6 MAINTENANCE OF INSURANCE. Maintain insurance on the Borrower's property (including real estate, machinery, equipment and inventory) and other related insurance reasonably satisfactory to the Bank with such insurance companies as are reasonably satisfactory to the Bank. Such insurance shall be payable to the Bank as its interest may appear. All policies of insurance shall provide for not less than thirty (30) days' written notice of cancellation to the Bank. Upon the request of the Bank, the Borrower shall escrow payments on account of its insurance premiums with the Bank. 4.7 INSPECTION BY THE BANK. Upon prior reasonable notice (other than in emergencies when no notice shall be required), permit any person designated by the Bank to inspect any of its properties, including its books, records, and accounts during regular business hours (and including the making of copies thereof and extracts therefrom). 4.8 PROMPT PAYMENT OF TAXES. Accrue the Borrower's and the Guarantors' tax liability in accordance with GAAP and pay or discharge (or cause to be paid or discharged) as they become due all taxes, assessments, and government charges upon its property, operations, income and products (as well as all claims for labor, materials or supplies), which, if unpaid might become a lien upon any of its property; PROVIDED, that the Borrower and/or the Guarantors (as applicable) shall, prior to payment thereof, have the right to contest such taxes, assessments and charges in good faith by appropriate proceedings so long as the Bank's interests are protected by the Borrower having established adequate reserves therefor. 4.9 NOTIFICATION OF DEFAULT UNDER THIS AND OTHER LOAN OR FINANCING ARRANGEMENTS. Promptly notify the Bank in writing of the occurrence of any Event of Default under this Agreement (or any occurrence that would, with the passage of time, constitute an Event of Default) or any other loan or financing arrangement. 4.10 NOTIFICATION OF LITIGATION. Promptly notify the Bank in writing of any litigation that has been instituted or is pending or threatened against the Borrower involving aggregate amounts in excess of Five Hundred Thousand Dollars ($500,000) or more or the outcome of which might have a material adverse effect on the Borrower's or any of the Guarantors' continued operations or condition, financial or otherwise. 4.11 NOTIFICATION OF GOVERNMENTAL ACTION. Promptly notify the Bank in writing of any material governmental investigation or proceeding that has been instituted or is pending or threatened and the outcome thereof, including without limitation, material matters relating to the federal or state tax returns of the Borrower, compliance with the Occupational Safety and Health Act, or proceedings by the Treasury Department, Labor Department, or Pension Benefit Guaranty Corporation with respect to matters affecting employee welfare, benefit or retirement programs. 4.12 NOTIFICATION OF MATERIAL ADVERSE CHANGE. Promptly notify the Bank in writing of (a) any material adverse changes in the business prospects or financial condition of the Borrower or any of the Guarantors; and (b) any accounting rule change that would have a material adverse effect on the business or financial condition of the Borrower. 12 13 4.13 PRESERVATION OF THE COLLATERAL. Take all reasonably necessary steps to keep the Collateral current and not obsolete and free of unpermitted liens and give the Bank access to and permit it to inspect the same during all business hours and other reasonable times. 4.14 MAINTENANCE OF RECORDS. Keep adequate records and books of account, in which appropriate entries will be made in a manner reasonably acceptable to the Bank and consistently applied, reflecting all financial transactions of the Borrower required to be stated therein. 4.15 COMPLIANCE WITH LAWS; ENVIRONMENTAL MATTERS. Comply in all material respects with all applicable material laws, rules, regulations, and orders; PROVIDED, HOWEVER, that Borrower shall be entitled to contest the same in good faith so long as such action does not have an adverse effect upon the Bank's rights hereunder or the security furnished therefor. Without limiting in any manner the scope or generality of the foregoing, each of the Borrower and the Guarantors agrees to comply in all material respects with all federal, state and other laws and regulations regarding the generation, treatment, storage, disposal or transportation of hazardous waste or materials, as defined under applicable federal and state law; and agrees to defend, indemnify and hold the Bank harmless from and against any and all liabilities, costs and expenses (including reasonable attorneys' fees) attributable to or in any way connected with the failure to comply with such laws and regulations. 4.16 COMPOSITION OF MANAGEMENT. Maintain current role and management responsibilities of senior management of the Borrower listed on Schedule 4.16; PROVIDED, HOWEVER, the failure of any of the aforesaid individuals to continue their current role or responsibilities shall not constitute a default hereunder if such individual is replaced, within a period of six (6) months, with another individual of comparable skill and experience. 4.17 ACCOUNTS AND DEPOSITS. Maintain the Borrower's primary operating and deposit accounts with the Bank. The Borrower hereby authorizes the Bank to charge such accounts directly for payments of principal, interest and fees due under the Loan Documents. The Borrower shall also compensate the Bank for certain services to be provided to the Borrower by the Bank through the payment of the Bank's standard service charges, such services to include monthly checking account activity, cash management services and electronic funds transfers. 4.18 APPRAISALS. The Bank shall have the right to appraise all of Borrower's assets at reasonable times and upon reasonable notice and at reasonable frequency at the expense of the Borrower. 4.19 SUBORDINATION OF SUMS PAYABLE. All of the Borrower's obligations, if any, to any of the Guarantors, shareholders, officers or directors of the Borrower for borrowed money shall be subordinated to the Borrower's performance of its obligations to the Bank with respect to the Loan. 13 14 4.20 MAINTENANCE OF SELECTED FINANCIAL RATIOS AND MEASURES. Maintain or achieve the following financial ratios or measures determined or computed in accordance with GAAP with respect to the Borrower: (a) MINIMUM EBITDA: The Borrower's earnings before interest, taxes, depreciation and amortization expenses on a consolidated basis shall be at least $1,000,000 per quarter as of the end of each fiscal quarter and at least $7,500,000 per fiscal year as of the end of each fiscal year. (b) MINIMUM TANGIBLE NET WORTH. At all times, the Borrower's stockholders equity (as reflected on the Borrower's balance sheet delivered pursuant to Section 4.3 hereof) minus general intangibles included as assets on such balance sheet shall not be less than $65,000,000. (c) MAXIMUM CAPITAL EXPENDITURES. Tested as of the end of each fiscal quarter, the Borrower's annual capital expenditures shall not exceed $13,500,000 for fiscal year 1999. The maximum capital expenditure limitation for each fiscal year thereafter will be determined by the Bank, but shall not be less than $13,500,000 in any one fiscal year. (d) MAXIMUM OTHER INDEBTEDNESS. Except as permitted pursuant to Section 5.4 hereof, the Borrower's indebtedness (not to include Accounts Payable and Accrued Expenses as defined by GAAP) to parties other than the Bank shall not exceed $5,000,000 in the aggregate at any one time. 4.21 SPECIAL COVENANTS RELATING TO INVENTORY AND ACCOUNTS. (a) At such intervals as the Bank may reasonably request in writing, the Borrower shall notify the Bank of all Collateral which has come into existence or changes in Collateral since the date of the last such notification and shall provide the Bank with schedules of the Collateral (which notification and schedules shall be in such forms as the Bank may specify). (b) The Borrower shall accord the Bank and the Bank's representatives with access from time to time (including periodic audits performed at the Bank's reasonable discretion) as the Bank and such representatives may reasonably require to all properties owned by or over which the Borrower has control, for the purposes of auditing the Borrower's books and records. The Borrower shall pay the Bank such fees and expenses as it customarily charges in connection with such audits which are incurred in connection with not more than one (1) audit per year, during the term of this Agreement. The Bank and the Bank's representatives, shall have the right, and the Borrower will permit the Bank and such representatives from time to time as the Bank and such representatives may reasonably request, to examine, inspect, copy and make extracts from any and all of the Collateral, and any and all of the Borrower's books, records, electronically stored data, papers and files, and to verify the Collateral or any portion thereof (such verification, including, without limitation, through contact with account debtors). (c) The Borrower may grant such allowances or other adjustments to the Borrower's account debtors as the Borrower may reasonably deem to be in accord with sound business practice; provided, however, the authority granted the Borrower pursuant to this 14 15 paragraph may be limited or terminated by the Bank upon the occurrence of an Event of Default which has not been remedied within any applicable cure period. (d) At such intervals as the Bank may reasonably request, the Borrower shall promptly furnish the Bank with detailed reports in such form as the Bank may prescribe of all allowances, adjustments, returns, and repossessions concerning the Borrower's accounts and accounts receivable and its inventory, and of any downgrading in the quality of any of the inventory or event affecting the marketability of the inventory, and of all inventory detained from, refused entry into, or required to be removed from the United States by the appropriate governmental authorities. (e) Upon the occurrence of an Event of Default which has not been remedied within any applicable cure period, the Bank shall have the right to notify any of the Borrower's account or contract debtors, either in the name of the Bank or the Borrower, to make payments directly to the Bank, and to advise any person of the Bank's security interest in and to any of the Collateral, and to collect all amounts due on account of the Collateral. Upon the occurrence of an Event of Default which has not been remedied within any applicable cure period and upon request by the Bank, the Borrower agrees to provide written notification to any or all of the Borrower's account or contract debtors regarding the Bank's security interest in the receivables Collateral and will request that such account or contract debtors forward payment thereof to the Bank. The within obligations on the part of the Borrower directly, being unique, shall be specifically enforceable by the Bank. (f) Upon the occurrence of an Event of Default which has not been remedied within any applicable cure period, the Borrower hereby irrevocably constitutes and appoints the Bank as the Borrower's true and lawful attorney, with full power of substitution, to convert the Collateral into cash at the sole risk, cost and expense of the Borrower. The rights and powers granted the Bank by the within appointment include, but are not limited to, the right and power to compromise, settle, or execute releases with any of the Borrower's account debtors, and to prosecute, defend, compromise, or release any action relating to the Collateral; to receive, open, and dispose of all mail addressed to the Borrower and to take therefrom any remittances on or proceeds of any Collateral in which the Bank has a security interest; to notify Post Office authorities to change the address to which the Borrower's mail is to be sent as the Bank shall designate; to endorse the name of the Borrower in favor of the Bank upon all checks, drafts, money orders, notes, acceptances, or other instruments of the same or different nature; to sign and endorse the name of the Borrower on, and to receive as a secured party, any of the Collateral, invoices, schedules of Collateral, freight or express receipts, or bills of lading, storage receipts, warehouse receipts, or other documents to title of a same or different nature relating to the Collateral; to sign the name of the Borrower on any notice to the Borrower's account debtors for verification of the receivables Collateral; and to sign and file or record on behalf of the Borrower any financing or other statement in order to perfect or protect the Bank's security interest. The Bank shall not be obligated to do any of the acts or to exercise any of the powers authorized herein, but if the Bank elects to do any such act or to exercise any such power, it shall not be accountable for more than it actually receives as a result of such exercise of power, and shall not be responsible to the Borrower except for the Bank's gross negligence or willful misconduct. All powers conferred upon the Bank by this Agreement, 15 16 being coupled with an interest, shall be irrevocable until the within Agreement is terminated as provided herein. 4.22 MATERIAL SUBSIDIARY GUARANTORS. The Borrower shall immediately notify the Bank of the addition of any new Subsidiaries and whether such Subsidiary is a Material Subsidiary (as defined in Section 3.15 hereof). Upon the Bank's request, the Borrower shall cause such Material Subsidiary to execute a guaranty of the Borrower's obligations hereunder and a Subordination Agreement (if applicable) each in the form attached hereto, and to deliver all such financial statements, information and reports as the Bank may reasonably request. Such Material Subsidiary or Material Subsidiaries, as the case may be, are on occasion referred to herein individually as a "Guarantor" or collectively as the "Guarantors". 4.23 LINE OF CREDIT BALANCE. Maintain a Debit Balance, as defined in the Line of Credit Note, of not more than the maximum principal sum provided for in such note or under this Agreement at any time. ARTICLE V. NEGATIVE COVENANTS OF BORROWER AND GUARANTORS. Until payment in full of the indebtedness now existing or hereafter incurred under this Agreement and the performance of all obligations hereunder, the Borrower and the Guarantors (as applicable) will not, without the express prior written consent of the Bank, engage in the following: 5.1 NATURE AND SCOPE OF BUSINESS. The Borrower shall not enter into any type of business other than that in which it is presently engaged, or otherwise significantly change the scope or nature of its business. 5.2 MERGER, CONSOLIDATION OR ACQUISITIONS. The Borrower shall not be a party to any merger, consolidation or any other reorganization, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any person, partnership, corporation or entity. 5.3 SALE OR DISPOSITION OF ASSETS. The Borrower shall not sell, lease, transfer or otherwise dispose of all or, a substantial portion of the Borrower's assets and properties, except in the ordinary course of business. 5.4 ADDITIONAL INDEBTEDNESS. The Borrower shall not incur indebtedness for borrowed money (or lease expense or issue or sell any of its bonds, debentures, notes or similar obligations) except: (a) Borrowings under this Agreement; (b) Other obligations to the Bank; (c) Borrowings used to prepay in full borrowing under this Agreement; 16 17 (d) Accounts Payable and Accrued Expenses (as defined by GAAP). (e) Borrowings disclosed to the Bank in the financial statements previously delivered to the Bank described in Section 3.7. (f) Borrowing from parties other than the Bank provided the same do not exceed an aggregate of $5,000,000 at any time ("Permitted Other Indebtedness"). 5.5 GUARANTIES, ENDORSEMENT AND CONTINGENT LIABILITIES. Except as set forth in Schedule 5.5 and except for guarantees, endorsements or liabilities for the obligations of others which do not exceed $250,000 in the aggregate at any one time, the Borrower and the Guarantors shall not guarantee, endorse or otherwise become absolutely or contingently liable for the obligations of any other person, partnership, corporation or other entity. 5.6 LIENS AND MORTGAGES. The Borrower shall not incur, create, assume or suffer to exist any mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of their respective assets, now or hereafter owned, other than (a) the security interests, liens or mortgages, granted to the Bank pursuant to the Loan Documents; (b) deposits under Workmen's Compensation, Unemployment Insurance and Social Security laws; (c) liens imposed by law, such as carriers, warehousemen's or mechanic's liens and other liens incurred in good faith in the ordinary course of business; (d) liens evidencing the Permitted Other Indebtedness as defined in Section 5.4(f) above; (e) those presently existing liens and encumbrances permitted under the Borrower's Security Agreement of even date (the "Security Agreement"); or (f) deposits or pledges securing the performance of bids, tenders, contracts, leases, surety and appeal bonds and other obligations of like nature make in the ordinary course of business. 5.7 LOAN AND ADVANCES. Except for intercompany loans which do not exceed $1,000,000 in the aggregate at any one time, the Borrower shall not make any loans or advances to any individual, firm or corporation, including, without limitation, any parent, affiliate, subsidiaries, shareholders, directors, officers and employees; PROVIDED, HOWEVER, that the Borrower may make advances to its employees, including its officers, with respect to reasonable expenses incurred by such employees, which expenses are reimbursable by the Borrower and directly related to the conduct of the Borrower's business. 5.8 DIVIDENDS AND DISTRIBUTIONS. The Borrower shall not declare or pay dividends, or make any other payment or distribution on account of its capital stock if there is a violation of or after such distribution or dividend there would be a violation of any of the financial covenants set forth in Section 4.20 hereof. 5.9 CONVERSION; CAPITAL STRUCTURE; ACQUISITION OF STOCK. The Borrower and the Guarantors shall not alter, amend or convert the Borrower's form of organization or capital structure. Furthermore, the Borrower shall not purchase, obligate itself to purchase, redeem or otherwise acquire for value any of its outstanding capital stock or any other of its equity securities if there is a violation of or after such action there would be a violation of any of the financial covenants set forth in Section 4.20 hereof. 17 18 ARTICLE VI. CONDITIONS PRECEDENT TO MAKING OF LOAN 6.1 CONDITIONS PRECEDENT TO INITIAL DISBURSEMENT. (a) The obligation of the Bank to make the Loan and make disbursements of the proceeds of the same to the Borrower is subject to the satisfaction by the Borrower or its representatives of the following conditions precedent: (i) The Borrower's and the Guarantors' warranties and representations as contained herein shall be accurate and complete, in all material respects, as of the date of Closing. (ii) The Borrower and the Guarantors shall not be in default under any of the covenants contained herein as of the date of Closing. (iii) The Borrower and the Guarantors shall have executed and delivered all of the Loan Documents as described herein. Without limiting the foregoing, the Borrower shall have delivered to the Bank all of those items identified as Borrower's and the Guarantors' Documents" on the Closing Agenda attached hereto as Schedule 6.1(a)(iii) and made a part hereof, all of which must be reasonably acceptable, in form and substance, to the Bank. (b) Without limiting in any manner the scope or generality of the foregoing, certain of said items are more particularly described as follows: (i) All of the Borrower's obligations, if any, to the Guarantors shall have been subordinated to the Borrower's performance of its obligations to the Bank with respect to the Loan. (ii) The Bank shall have received: (A) acknowledgment copies of proper financing statements (Form UCC-1) duly filed under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of the Bank, desirable to perfect the security interests created under the Loan Documents; and (B) certified copies of Requests for Information or Copies (Form UCC-11) listing the financing statements referred to in paragraph (i) above and all other effective financing statements which name the Borrower (under its present name and any previous names) as debtor and which are filed in the jurisdictions referred to in said paragraph (A), together with copies of such other financing statements (none of which shall cover the Collateral purported to be covered by the Security Agreement). (iii) The Borrower shall pay the costs and fees of the Bank hereinbefore described herein. 18 19 (iv) The Borrower shall deliver a Covenant Compliance Certificate in accordance with Section 4.3(e) hereof. (v) Counsel to the Borrower and the Guarantors shall deliver an opinion to the Bank to the effect that (A) the Borrower is a business corporation duly organized and validly existing under the laws of the State of Delaware and is duly qualified to do business in New Hampshire and all jurisdictions in which the nature of its business or assets make such qualification necessary; (B) that the Loan Documents constitute binding obligations of the Borrower or the Guarantors enforceable in accordance with their terms; (C) that the Borrower's and the Guarantors' entrance into the obligations evidenced by the Loan Documents does not constitute a breach of the articles of incorporation or bylaws of the Borrower or, to the knowledge of such counsel, any other arrangements or agreements by which Borrower or any of the Guarantors is bound and that the Borrower's and the Guarantors' entrance into and performance of the Borrower's loan obligations will not require any further approvals or consents; (D) that there is neither pending nor, to the knowledge of such counsel, threatened any litigation, administrative proceedings or investigations that would have a material adverse effect on the Borrower or any of the Guarantors or the Borrower's or any of the Guarantors' condition, financial or otherwise; (E) that the security interests granted to the Bank in connection with the Loan constitute a valid perfected security interest in the collateral described therein; and (F) addressing such other matters as deemed appropriate by the Bank. (c) Borrower shall furnish the Bank with such other documents, opinions, certificates, evidence and other matters as may be requested by the Bank at or prior to Closing. 6.2 SUBSEQUENT BORROWING. The obligation of the Bank to make each Loan to be made by it hereunder (including the initial Loan) is subject to the following conditions precedent: (a) At the time of each Loan (as evidenced by a certificate executed on behalf of the Borrower if the Bank shall so require): (i) The Borrower shall have complied and shall then be in compliance in all material respects with all the terms, covenants and conditions of this Agreement which are binding on it; (ii) There shall exist no Event of Default or no event (including an event caused by such Loan) which would be an Event of Default but for the requirement that notice be given or time elapse or both; (iii) The representations and warranties contained in this Agreement shall be true and correct in all material respects as of the date of such Loan; and 19 20 (iv) There shall have been no material adverse change in the Borrower's financial condition as evidenced by the financial information submitted to the Bank pursuant to this Agreement. (b) All of the Loan Documents shall remain in full force and effect and the validity of any Loan Document shall not have been contested. 6.3 DISBURSEMENT OF THE LOAN. The Bank shall credit the proceeds of the Loan to the deposit accounts of the Borrower with the Bank for the benefit of the Borrower or as otherwise directed in writing by the Borrower, including payments to third parties through electronic funds transfers. Advances under the Line of Credit shall (1) be made in accordance with the disbursement procedures set forth in the Line of Credit Note; (2) shall not cause the Debit Balance, as defined in the Line of Credit Note, to exceed Fifteen Million Dollars ($15,000,000); PROVIDED, HOWEVER, the availability under the Line of Credit for direct borrowings shall be reduced by the aggregate amount of all outstanding foreign exchange facilities and letters of credit issued by the Bank or any affiliate thereof for the benefit or on behalf of the Borrower; and (3) shall be for a purpose defined in Article I herein. ARTICLE VII. EVENTS OF DEFAULT; ACCELERATION; REMEDIES 7.1 The occurrence of any one or more of the following events shall constitute an event of default (an "Event of Default") after the expiration of applicable notice and cure periods, if any, under this Agreement: (a) If any statement, representation or warranty made by the Borrower or any of the Guarantors herein or in the Loan Documents shall prove to have been false or misleading when made, or subsequently becomes false or misleading, in any materially adverse respect. (b) Default by the Borrower in payment after three (3) days of its due date of any principal or interest called for under its payment obligations with respect to the Loan. (c) Default by the Borrower or any of the Guarantors, in any material respect, in the performance or observance of any of the other provisions, terms, conditions, warranties or covenants of the Loan Documents. (d) The dissolution, termination of existence, death, merger or consolidation of the Borrower or any of the Guarantors or a sale of the Borrower's or any of the Guarantors business or the assets of the Borrower or any of the Guarantors out of the ordinary course of business. (e) The Borrower shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of it or any of its property, (ii) admit in writing its inability to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, (v) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed 20 21 against it in any proceeding under any such law or (vi) offer or enter into any composition, extension or arrangement seeking relief or extension of its debts. (f) Proceedings shall be commenced or an order, judgment or decree shall be entered, without the application, approval or consent of the Borrower, in or by any court of competent jurisdiction, relating to the bankruptcy, dissolution, liquidation, reorganization or the appointment of a receiver, trustee or liquidator of the Borrower, of all or a substantial part of its assets, and such proceedings, order, judgment or decree shall continue undischarged or unstayed for a period of sixty (60) days. (g) A final and unappealable judgment for the payment of money, not covered by insurance, in excess of Two Hundred Fifty Thousand Dollars ($250,000) shall be rendered against the Borrower and the same shall remain undischarged for a period of thirty (30) days, during which period execution shall not be effectively stayed. (h) The Collateral is materially injured or destroyed by fire or otherwise which casualty is not insured. (i) Any attachment or mechanic's, laborer's, materialman's architect's, artisan's or similar statutory liens or any notice thereof shall be filed against any Collateral and shall not be discharged within thirty (30) days of such filing. (j) The Line of Credit is hereby cross-defaulted as more fully set forth in Section 1.19 hereof, to the end that a default under one loan or obligation shall constitute a default under all of such loans and obligations. 7.2 Upon the occurrence of any Event of Default (which, in the case of an Event or Default listed in Section 9.1(a) or 9.1(c) above remains unremedied for a period of ten (10) days after the earlier of the date of notice thereof to the Borrower by the Bank or the date the Borrower becomes aware of such default), the Bank's commitment to make further loans under this Agreement or any other agreement with the Borrower will immediately cease and terminate and, at the election of the Bank, all of the obligations of the Borrower to the Bank under this Agreement will immediately become due and payable without further demand, notice or protest, all of which are hereby expressly waived. Thereafter, the Bank may proceed to protect and enforce its rights, at law, in equity, or otherwise, against the Borrower, and any other endorser or guarantor of the Borrower's obligations, either jointly or severally, and may proceed to liquidate and realize upon any of its security in accordance with the rights of a secured party under the Uniform Commercial Code, or any Loan Document, any agreement between the Borrower and the Bank relating to the Loan, or any other agreement between any guarantor or endorser of the Borrower's obligations to the Bank hereunder. 21 22 ARTICLE VIII. MISCELLANEOUS PROVISIONS 8.1 ENTIRE AGREEMENT; WAIVERS. This Agreement and the Loan Documents together constitute the entire agreement between the Borrower and the Bank and no covenant, term, condition or other provision thereof nor any default in connection therewith may be waived except by an instrument in writing signed by the Bank and the Borrower and delivered to the Borrower. The Bank's failure to exercise or enforce any of its rights, powers or privileges under this Agreement or the Loan Documents shall not operate as a waiver thereof. In the event of any conflict between the terms, covenants, conditions and restrictions contained in the Loan Documents, the term, covenant, condition or restriction which confers the greatest benefit upon the Bank shall control. The determination as to which term, covenant, condition or restriction is more beneficial shall be made by the Bank in its sole discretion. 8.2 REMEDIES CUMULATIVE. All remedies provided under this Agreement and the Loan Documents or afforded by law shall be cumulative and available to the Bank until all of the Borrower's obligations to the Bank have been paid in full. 8.3 SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations and warranties made herein and in certificates delivered in connection herewith shall be deemed to have been relied on by the Bank, notwithstanding any investigation made by the Bank or in its behalf, and shall survive the execution and delivery of this Agreement and the Loan Documents until payment in full of the Loan. All such covenants, agreements, representations and warranties shall be joint and several obligations of the Borrower and bind and inure to the benefit of the Borrower's and the Bank's successors and assigns, whether so expressed or not. 8.4 GOVERNING LAW; JURISDICTION. This Agreement and the Loan Documents shall be construed and their provisions interpreted under and in accordance with the laws of the State of New Hampshire. The Borrower and the Guarantors, to the extent they may legally do so, hereby consent to the jurisdiction of the courts of the State of New Hampshire and the United States District Court for the State of New Hampshire, as well as to the jurisdiction of all courts from which an appeal may be taken from such courts for the purpose of any suit, action or other proceeding arising out of any of their obligations hereunder or with respect to the transactions contemplated hereby, and expressly waive any and all objections they may have to venue in any such courts. THE BORROWER AND THE BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ACCEPT THIS AGREEMENT AND MAKE THE LOAN. 8.5 ASSURANCE OF EXECUTION AND DELIVERY OF ADDITIONAL INSTRUMENTS. The Borrower agrees to execute and deliver, or to cause to be executed and delivered, to the Bank all such further instruments, and to do or cause to be done all such further acts and things, as the Bank 22 23 may reasonably request or as may be necessary or desirable to effect further the purposes of this Agreement and the Loan Documents. Upon receipt of an affidavit of an officer of the Bank as to the loss, theft, destruction or mutilation of the Note or any other security document which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon surrender and cancellation of such Note or other security document, Borrower will issue, in lieu thereof, a replacement Note or other security document in the same principal amount thereof and otherwise of like tenor. 8.6 WAIVERS AND ASSENTS BY THE BORROWER AND THE GUARANTORS. With the exception of specific notices provided in the Loan Documents (if any), the Borrower and any guarantor or endorser of the Borrower's obligations to the Bank hereunder hereby waive, to the fullest extent permitted by law, demand, notice, protest, notice of acceptance of this Agreement, notice of loans made, credit extended, collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description with respect both to the Loan Documents and Collateral. The Borrower and the Guarantors assent to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of Collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payments thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Bank may deem advisable. Any demand upon or notice to the Borrower that the Bank may be required or may elect to give shall be mailed by registered or certified mail, return receipt requested, postage prepaid and shall be effective on the date of the first attempted delivery thereof by the U.S. Postal Service, as shown on the registered or certified mail return receipt for such notice addressed to the Borrower at their address as set forth at the beginning of the Agreement. 8.7 NO DUTY OF THE BANK WITH RESPECT TO THE COLLATERAL. The Bank shall have no duty as to the collection or protection of Collateral security furnished to it hereunder or any income thereon, nor as to the preservation of rights against prior parties, nor as to the preservation of any rights pertaining thereto, beyond the safe custody thereof. 8.8 ELECTION OF THE BANK. The Bank may exercise its rights with respect to the Collateral without resorting or regard to other collateral or sources of reimbursement for the liabilities. 23 24 8.9 ASSIGNMENT BY THE BANK. The Bank may assign its rights and obligations under the Loan Documents with the prior consent of the Borrower which consent shall not be unreasonably withheld. If at any time, by permitted assignment , the Bank transfers its rights in the Borrower's obligations hereunder and its rights in the security therefor, in whole or in part, such transfer shall carry with it the powers and rights of the Bank under this Agreement and the Collateral so transferred and the transferee shall become vested with such powers and rights whether or not they are specifically referred to in the instrument evidencing the transfer. If, and to the extent that the Bank retains such rights and Collateral, the Bank shall continue to have the rights and powers herein set forth with respect thereto. This Agreement shall be binding upon and inure to the benefit of the Bank, the Borrower, and their successors, permitted assigns, heirs and personal representatives; provided, however, the rights and obligations of the Borrower hereunder are not assignable, delegable or transferable without the consent of the Bank. All of the rights of the Bank hereunder shall inure to the benefit of any participating bank or banks and its or their successors and assigns. The Bank shall have the unrestricted right at any time and from time to time, and without the consent of or notice to Borrower or any Guarantor, to grant to one or more banks or other financial institutions (each, a "Participant") participating interests in the Bank's obligation to lend hereunder and/or any or all of the Loan held by the Bank hereunder. In the event of any such grant by the Bank of a participating interest to a Participant, whether or not upon notice to the Borrower, the Bank shall remain responsible for the performance of its obligations hereunder and the Borrower shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations hereunder. The Bank may furnish any information concerning the Borrower in its possession from time to time to prospective assignees and Participants, provided that the Bank shall require any such prospective assignee or Participant to agree in writing to maintain the confidentiality of such information. 8.10 EXPENSES; PROCEEDS OF COLLATERAL. The Borrower covenants and agrees that it shall pay to the Bank, on demand, any and all reasonable out-of-pocket expenses, including reasonable attorneys' fees incurred or paid by the Bank in protecting and enforcing its rights under this Agreement, the costs of preparation of this Agreement and its supporting documents including all filing and appraisal fees. Without limiting the foregoing, the Bank shall have the right to recover its out-of-pocket costs in connection with the administration of the Loan, and to recover its reasonable out-of-pocket costs and/or collect fees in connection with requests for consents and waivers of compliance with covenants, or other material changes in the Loan. After deducting all of said reasonable expenses and the reasonable expenses of retaking, holding, preparing for sale, selling and the like, the residue of any proceeds of collections of sale of the Collateral shall be applied to the payment of principal of or interest on the Loan in such order or preference as the Bank may determine, and any excess shall be returned to the Borrower (subject to the provisions of Section 9-504 of the Uniform Commercial Code) and the Borrower shall remain liable for any deficiency. 8.11 THE BANK'S RIGHT OF SETOFF. Borrower and any Guarantor hereby grant to the Bank, a lien, security interest and right of setoff as security for all liabilities and obligations to the Bank, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of 24 25 the Bank or any entity under the control of Fleet Financial Group, Inc., or in transit to any of them. Upon an Event of Default or upon notice of issue of any legal process by which process any of the Borrower's or Guarantor's assets in the possession or control of the Bank or any entity under the control of Fleet Financial Group, Inc., may be trusteed, attached or levied upon, the Bank may without demand or notice set off the same or any part thereof and apply the same to any liability or obligation of the Borrower and any Guarantor even though unmatured and regardless of the adequacy of any other collateral securing the loan. ANY AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. IN WITNESS WHEREOF, the BANK and the BORROWER have executed this Agreement by their duly authorized officers. FLEET BANK-NH ______________________________ By:__________________________________ Witness Amy LeBlanc Hackett, Its Duly Authorized Vice President NASHUA CORPORATION ______________________________ By:__________________________________ Witness John L. Patenaude, Its Duly Authorized Vice President-Finance, Chief Financial Officer and Treasurer 25 26 SCHEDULE 3.5 Litigation [To Be Completed By Borrower] 2 27 SCHEDULE 3.7 Liens [To Be Completed By Borrower] 3 28 SCHEDULE 3.8 Taxes [To Be Completed By Borrower] 4 29 SCHEDULE 3.12 Successor [To Be Completed By Borrower] 5 30 SCHEDULE 3.15 Subsidiaries [To Be Completed By Borrower] I. MATERIAL SUBSIDIARIES (Those Subsidiaries which alone account for five percent (5%) or more of the Borrower's consolidated total assets or five percent (5%) or more of the Borrower's consolidated total revenue): II. OTHER SUBSIDIARIES: 6 31 SCHEDULE 4.16 Senior Management NAME TITLE [To Be Completed By Borrower] 7 32 SCHEDULE 4.3(e) Covenant Compliance Certificate Fleet Bank-NH 1155 Elm Street Manchester, NH 03101 Attention: Amy LeBlanc Hackett, Vice President Dear Ms. LeBlanc Hackett: Pursuant to the provisions of a certain Loan Agreement dated as of April 22, 1999 with respect to a line of credit loan in the amount of $15,000,000 (collectively, the "Loan Agreement") by and between Nashua Corporation (the "Borrower") and Fleet Bank-NH (the "Bank"), the undersigned hereby certifies as follows: 1. That the financial statements (the "Financial Statements") of the Borrower and/or Guarantors delivered to the Bank with this Certificate fairly present the financial condition of the Borrower in all material respects for the periods covered therein as of the date hereof. 2. That the undersigned is a duly elected, qualified and acting __________ of the Borrower and as such officer is authorized to make and deliver this Covenant Compliance Certificate. 3. That during the period set forth in the Financial Statements, the Borrower was in compliance with all financial covenants of the Loan Agreement. As of __________, 199__, the Minimum EBITDA (as defined in the Loan Agreement) is $__________. As of _______________, 199__, the Minimum Tangible Net Worth (as defined in the Loan Agreement) is $____________. As of ___________, 199__, the amount of the Maximum Capital Expenditures (as defined in the Loan Agreement) incurred during the current fiscal year to date is $__________. As of __________, 199_, the amount of the Maximum Other Indebtedness (as defined in the Loan Agreement) is $_________________. 4. The representations and warranties contained in the Loan Agreement and the representations and warranties of the Borrower and the Guarantors contained in each of the other Loan Documents are to the best of the Borrower's knowledge, true, correct and complete in every material respect on and as of the date hereof with the same force in effect as though made on and as of the date hereof. All covenants contained in the Loan Agreement have been and continue to be met in all material respects. 5. To the best of the Borrower's knowledge, no event has occurred or is continuing which constitutes a default or an Event of Default. Terms defined in the Loan Agreement which is not otherwise expressly defined herein are used herein with the meaning so defined in the Loan Agreement. 8 33 IN WITNESS WHEREOF, the undersigned has executed this Covenant Compliance Certificate on this _____ day of ___________, 1999. NASHUA CORPORATION _________________________ By:_________________________________ Witness John L. Patenaude, Its Duly Authorized Vice President-Finance, Chief Financial Officer and Treasurer 9 34 SCHEDULE 5.5 Guaranties, Endorsements and Contingent Liabilities [To Be Completed By Borrower] 10 35 SCHEDULE 6.1(a)(iii) Closing Agenda 11 EX-10.04 7 REVOLVING CREDIT PROMISSORY NOTE 1 Exhibit 10.04 REVOLVING CREDIT PROMISSORY NOTE $15,000,000 April 22, 1999 Manchester, New Hampshire FOR VALUE RECEIVED, NASHUA CORPORATION, a Delaware corporation with its principal place of business at 44 Franklin Street, Nashua, New Hampshire 03061-2002 (the "Borrower"), promises to pay, to the order of FLEET BANK-NH, a bank incorporated under the laws of the State of New Hampshire with an office at 1155 Elm Street, Manchester, New Hampshire 03101 (the "Bank") (the Bank and any subsequent transferee of this Note, whether taking by negotiation or otherwise, are sometimes referred to herein as the "Holder") at such place of business or such other place as may be designated hereafter by the holder hereof, the principal sum of Fifteen Million Dollars ($15,000,000) (or so much thereof as may be advanced or readvanced by the Bank to the Borrower from time to time hereafter, such amounts defined as the "Debit Balance" below), together with interest as provided for below, in lawful money of the United States of America at the times provided for in the Loan Agreement, as defined below. This Note is being executed and delivered in accordance with the terms of a certain Loan Agreement of even date between the Borrower and the Bank (the "Loan Agreement") and the documents defined therein as the "Loan Documents". The payment and performance of the obligations contained in the Loan Agreement and the Loan Documents are secured by the collateral granted to the Bank therein and the security granted to the Bank therein (the "Collateral"). Until such time as this Note becomes due and payable, interest shall be payable monthly in arrears commencing on that date thirty (30) days from the date hereof (or on such other date as may be agreed upon by the Borrower and the Bank to provide for a convenient payment date) and continuing on the corresponding day of each succeeding month thereafter. All payments shall be in lawful money of the United States in immediately available funds. The maximum principal amount outstanding under this Note shall be limited to Fifteen Million Dollars ($15,000,000). Pursuant to the Loan Agreement, there shall be due and payable from the Borrower to the Bank, and the Borrower shall immediately pay to the Bank, without demand, any amount by which the Debit Balance exceeds Fifteen Million Dollars ($15,000,000). Interest shall be calculated and charged daily on the basis of a three hundred sixty (360) day banking year and the actual number of days elapsed on the unpaid principal balance outstanding from time to time. The Borrower shall have the option to elect (i) that sums advanced under this Note shall bear interest at a variable per annum rate equal to the Prime Rate (as defined in the Loan Agreement) (the "Floating Rate Option") or (ii) that the interest rate payable under this Note, for periods of one (1), two (2), three (3) or six (6) months (the "LIBOR Rate Interest Period(s)"), in the minimum amount set forth in the Loan Agreement, shall be equal to the LIBOR Rate (as defined in the Loan Agreement) plus one and three quarters 2 percent (1 3/4%) per annum (the "LIBOR Fixed Rate Option"). If the Borrower maintains compensating balances in its accounts with the Bank of at least Five Hundred Thousand Dollars ($500,000), the LIBOR Fixed Rate Option shall automatically be reduced to equal the LIBOR Rate plus one hundred sixty (1.60%) basis points per annum. In the absence of an election of the LIBOR Fixed Rate Option, this Note shall bear interest at a rate equal to the Floating Rate Option and said interest rate shall apply to the entire principal amount outstanding thereunder or such amount thereof as to which no election has been made. If the Bank offers and the Borrower elects to do so, then the Borrower and the Bank may exchange the LIBOR Fixed Rate Option (one (1) month LIBOR Rate only) pursuant to an interest rate swap contract (in the form of an International Swap Dealer's Association Master Agreement and Confirmation Agreement between the Borrower and Fleet National Bank ("FNB"), both of which are referred to as the "Master Agreement") for a fixed rate of interest. The Borrower may prepay any amounts outstanding under this Note, which bear interest at the Floating Rate Option, in whole or in part, at any time without the payment of any penalty, premium or charge of any nature whatsoever. The Borrower may prepay amounts outstanding under this Note, which bear interest at the LIBOR Fixed Rate Option only in accordance with the terms and conditions of the Loan Agreement. If the interest rate hereunder is swapped pursuant to the Master Agreement, the Master Agreement sets forth additional restrictions, limitations and penalties associated with prepayment under this Note. In the event that any such prepayment shall be made by the Borrower, the amount thereof shall be applied first to delinquency charges, costs of collection, and accrued interest, and thereafter to principal. Notwithstanding anything herein to the contrary, in the event that the interest rate hereunder, as aforesaid, violates any applicable usury or similar statute, the interest rate shall then automatically be deemed to be the highest rate of interest then permitted. The Borrower agrees that the Bank may make loan advances to the Borrower upon verbal authority (which, if the Bank so requires, shall be followed by written confirmation) of any officer executing this Note on behalf of the Borrower or any other officer of the Borrower who is authorized in writing to borrow money from the Bank and may deliver such advances by direct deposit to any deposit account of the Borrower with the Bank or otherwise as so authorized in the Loan Agreement. Notwithstanding anything to the contrary herein, the Bank may require written notice of requests for loan advances as may be provided in the Loan Agreement. All such advances shall represent binding obligations of the Borrower. The Borrower's "Debit Balance" shall mean the debit balance in an account on the books of the Bank, maintained in the form of a ledger card, computer records or otherwise in accordance with the Bank's customary practice and appropriate accounting procedures wherein there shall be recorded the principal amount of all advances made by the Bank to the Borrower, all principal payments made by the Borrower to the Bank hereunder, and all other appropriate debits and credits (the "Loan Account"). The Bank shall render to the Borrower a statement of account with respect to the Loan Account on a monthly basis. Such statement shall indicate the Borrower's then current Debit Balance and any interest amounts due and payable from the Borrower to Bank. Such statement may be based on estimates of the 2 3 principal amount outstanding and the interest rate for the applicable payment period. Any required adjustments between such estimates and actual amounts shall be reflected in subsequent statements. The Borrower acknowledges that this Note is to evidence the Borrower's obligation to pay the Debit Balance, plus interest, as determined from time to time and that it shall continue to do so despite the occurrence of intervals when no Debit Balance exists because the Borrower has paid the previously existing Debit Balance in full. At the option of the Bank, this Note shall become immediately due and payable in full, without further demand or notice, on the earlier of (i) the Maturity Date (unless renewed, in which case, the Maturity Date as extended), or (ii) the occurrence of an Event of Default under the Loan Agreement or any of the Loan Documents after applicable notice and cure periods (if any). The Holder may impose upon the Borrower a delinquency charge of five percent (5%) of the amount of interest and principal not paid on or before the tenth (10th) day after such installment is due. The entire principal balance hereof, together with accrued interest, shall after the earlier of an Event of Default or after maturity, whether by demand, acceleration or otherwise, bear interest at the contract rate of this Note plus an additional two percent (2%) per annum. The Borrower agrees to pay on demand all reasonable out-of-pocket costs of collection hereof, including reasonable attorneys' fees, whether or not any foreclosure or other action is instituted by the Holder in its discretion. No delay or omission on the part of the Holder in exercising any right, privilege or remedy shall impair such right, privilege or remedy or be construed as a waiver thereof or of any other right, privilege or remedy. No waiver of any right, privilege or remedy or any amendment to this Note shall be effective unless made in writing and signed by the Holder. Under no circumstances shall an effective waiver of any right, privilege or remedy on any one occasion constitute or be construed as a bar to the exercise of or a waiver of such right, privilege or remedy on any future occasion. The acceptance by the Holder hereof of any payment after any default hereunder shall not operate to extend the time of payment of any amount then remaining unpaid hereunder or constitute a waiver of any rights of the Holder hereof under this Note. All agreements between the Borrower and the Bank are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to Bank for the use or the forbearance of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then this Note shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of Borrower and the Bank in the execution, delivery and acceptance of this Note to contract in strict compliance with the laws of the State of New Hampshire from time to time in effect. If, 3 4 under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the Loan Documents at the time of performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law, then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under or from circumstances whatsoever the Bank should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest. This provision shall control every other provision of all agreements between the Borrower and the Bank. All rights and remedies of the Holder, whether granted herein or otherwise, shall be cumulative and may be exercised singularly or concurrently, and the Holder shall have, in addition to all other rights and remedies, the rights and remedies of a secured party under the Uniform Commercial Code of New Hampshire. Except as otherwise provided by law, the Holder shall have no duty as to the collection or protection of the Collateral or of any income thereon, or as to the preservation of any rights pertaining thereto beyond the safe custody thereof. Surrender of this Note upon payment or otherwise, shall not affect the right of the Holder to retain the Collateral as security for the payment and performance of any other liability of the Borrower to the holder. THE BORROWER AND THE BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ACCEPT THIS NOTE AND MAKE THE LOAN. Except as otherwise specifically provided for herein or in the Loan Agreement, the Borrower waives, to the fullest extent permitted by law, presentment, notice, protest and all other demands and notices and assent (1) to any extension of the time of payment or any other indulgence, (2) to any substitution, exchange or release of Collateral, and (3) to the release of any other person primarily or secondarily liable for the obligations evidenced hereby. The Bank may at any time pledge all or any portion of its rights under the loan documents including any portion of the promissory note to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release the Bank from its obligations under any of the Loan Documents. This Note and the provisions hereof shall be binding upon the Borrower and the Borrower's heirs, administrators, executors, successors, legal representatives and assigns and 4 5 shall inure to the benefit of the Holder, the Holder's heirs, administrators, executors, successors, legal representatives and assigns. This Note may not be amended, changed or modified in any respect except by a written document which has been executed by each party. This Note and all rights and obligations hereunder, including matters of construction, validity and performance, shall be governed by the laws of the State of New Hampshire. IN WITNESS WHEREOF, the Borrower, acting by and through its duly authorized officer, has executed this Promissory Note on this 22nd day of April, 1999. NASHUA CORPORATION ______________________________ By:__________________________________ Witness John L. Patenaude, Its Duly Authorized Vice President-Finance, Chief Financial Officer and Treasurer 5 EX-10.05 8 SECURITY AGREEMENT 1 Exhibit 10.05 SECURITY AGREEMENT SECURITY AGREEMENT dated as of this 22nd day of April, 1999, by and between NASHUA CORPORATION, a Delaware corporation with a principal place of business at 44 Franklin Street, Nashua, New Hampshire 03061-2002 (the "Debtor"), and FLEET BANK-NH, a bank incorporated under the laws of the State of New Hampshire with a principal place of business at 1155 Elm Street, Manchester, New Hampshire 03101 (the "Secured Party"). W I T N E S S E T H : WHEREAS, incident to a Loan Agreement of even date by and between the Debtor and the Secured Party (the "Loan Agreement"), the Secured Party may make loans and financial accommodations to the Debtor (collectively, the "Loan"), all as set forth in the Loan Agreement; and WHEREAS, the obligations of the Secured Party to make the Loan to the Debtor are subject to the condition, among others, that the Debtor shall execute and deliver this Agreement and grant the security interests hereinafter described; NOW, THEREFORE, in consideration of the willingness of the Secured Party to make the Loan to the Debtor and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. SECURITY INTEREST. As security for the Secured Obligations described in Section 2 hereof, the Debtor hereby grants to the Secured Party a security interest in and lien on all of the property described below (hereinafter referred to collectively as the "Collateral"): (a) All inventory wherever located (including in transit), including, but not limited to, goods, merchandise and other personal property, held for sale or lease or furnished or to be furnished under a contract of service, or constituting raw materials, work in process, or materials used or consumed in the Debtor's business, or consigned to others or held by others for return to the Debtor, whether now owned or subsequently acquired or manufactured and wherever located; (b) All accounts, accounts receivable, demand deposits, "cash collateral" (as defined in 11 U.S.C. Section 363(a)), contracts, contract rights, notes, bills, drafts, chattel paper, acceptances, instruments, tax refunds, insurance proceeds, and all other debts, obligations, and liabilities in whatever form, owing to the Debtor from any person or entity, rights of the Debtor, earned or to be earned, under contracts to sell goods or render services, all of which now belong, have belonged, or will belong to the Debtor for goods sold by it or for services rendered by it, together with all guaranties and securities therefor, all right, title and interest of the Debtor in the merchandise giving rise thereto, including the right of stoppage in transit, and all goods subsequently acquired by the Debtor by way of substitution, replacement, return, repossession or otherwise; 2 (c) Any and all products and proceeds of any or all of the foregoing, including, without limitation, cash, cash equivalents, tax refunds and the proceeds of insurance policies providing coverage against the loss or destruction of or damage to any of the Collateral; (d) All of the Debtor's after-acquired property of the kinds and types described in paragraphs (a)-(c) herein; and (e) All records and data relating to any of the property described above, whether in the form of a writing, photograph, microfile, microfiche, or electronic media, together with all of the Debtor's right, title and interest in and to all computer software required to utilize, create, maintain and process any of such records or data or electronic media. The purpose of this Security Agreement is to make the Secured Party a secured party and provide it with a continuing first priority interest under the Uniform Commercial Code of the State of New Hampshire in property of the Debtor, as more particularly described above. 2. SECURED OBLIGATIONS. The security interest granted herein shall secure the following (the "Secured Obligations"): (a) The Debtor's payment and performance of a certain loan and other extensions of credit (including without limitation foreign exchange facilities and letters of credit issued by the Secured Party or any affiliate thereof on behalf or for the benefit of the Debtor) in the aggregate amount of Fifteen Million Dollars ($15,000,000) to the Debtor by the Secured Party pursuant to the Loan Agreement and the obligation of the Debtor pursuant to the Master Agreement (as defined in the Loan Agreement). (b) The payment of all other sums with interest and charges thereon advanced in accordance herewith to protect the validity, security and priority of this Security Agreement; (c) The Debtor's payment or other performance of its obligations under the Loan Agreement, notes evidencing the Loan (the "Note"), the Master Agreement, this Security Agreement and any and all other loan documents and instruments described in and contemplated thereby (collectively, the "Loan Documents") as the same may be amended, modified, extended, renewed, replaced or restated. The Debtor agrees that the Collateral granted to the Secured Party pursuant to this Security Agreement shall, in addition to securing any Loan, advance or indebtedness which may be made contemporaneously with the execution of the Loan Agreement, also secure all future advances, loans, liabilities, and extensions of credit of every nature made by the Secured Party and indebtedness of the Debtor to the Secured Party pursuant to the Loan Agreement. 3. WARRANTIES AND REPRESENTATIONS OF THE DEBTOR. The Debtor warrants and represents to the Secured Party as follows (which shall survive the execution and delivery of this Agreement and shall be continuing warranties and representations as long as any Secured Obligations remain outstanding): 2 3 (a) Each representation or warranty made in the Loan Documents relating to the Debtor, the Collateral or the security furnished hereunder is true, accurate and complete in all material respects. (b) The Debtor conducts business only under and through the business and trade names and entities set forth in the introductory paragraph of this Security Agreement and as set forth on Exhibit A hereto. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or other person is required either (a) for the grant by the Debtor of the security interests granted hereby or for the execution, delivery or performance of this Security Agreement by the Debtor or (b) for the perfection of or the exercise by the Secured Party of their respective rights and remedies hereunder, except the filing of financing statements. (d) The Debtor has not performed any acts which might prevent the Secured Party from enforcing any of the terms and conditions of this Security Agreement or which would limit any of them in any such enforcement except for existing liens and encumbrances disclosed in Exhibit C. (e) The address shown at the beginning of this Agreement is the principal place of business of the Debtor and all of the Debtor's additional places of business, if any, and the locations of all the Collateral, are listed in Exhibit B attached hereto. The Debtor will not change its principal or any other place of business, or the location of any Collateral, without at least thirty (30) days' prior written notice to the Secured Party. (f) The Collateral is and, if acquired hereafter, will be, lawfully owned by the Debtor, free and clear of all other liens, encumbrances and security interests, except as may be disclosed to the Secured Party on Exhibit C hereto and as permitted by the Loan Agreement, and the Debtor will warrant and defend title to the same against the claims and demands of all persons. 4. AFFIRMATIVE COVENANTS OF THE DEBTOR. (a) The Debtor shall promptly notify and provide the Secured Party with a complete description of the opening of any new places of business, the closing of any existing places of business, the conduct of business under any names or through any entities other than those set forth herein, the relocation of any of the Collateral to any new place of business, which would affect the financing statements filed by the Secured Party. The Debtor will furnish to the Secured Party from time to time such statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral, as such Secured Party may reasonably request, all in reasonable detail. (b) The Debtor shall continuously take all steps that are necessary or prudent to protect the security interests of the Secured Party in the Collateral. 3 4 (c) The Debtor shall defend the Collateral against the claims and demands of all persons. (d) The Debtor shall deliver and pledge to the Secured Party, endorsed or accompanied by instruments of assignment or transfer satisfactory to the Secured Party, any instruments, documents and chattel paper which the Secured Party may specify. (e) The Debtor shall keep and maintain the Collateral in good condition and repair and adequately insured (as provided in the Loan Documents) and permit the Secured Party and its agents to inspect the Collateral at any reasonable time. The Debtor shall be permitted to make normal replacement of its fixed assets. (f) The Debtor shall comply, in all material respects, with all governmental regulations applicable to the Collateral or any part thereof or to the operation of the Debtor's business; provided, however, that the Debtor may contest any governmental regulation in any reasonable manner which shall not, in the reasonable opinion of the Secured Party, adversely affect the Secured Party's rights or the priority of its security interest in the Collateral. (g) The Debtor shall pay promptly when due, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind, except that no such charge need be paid if (i) the validity thereof is being contested in good faith by appropriate proceedings, (ii) such proceedings do not involve any danger of the sale, forfeiture or loss of any of the Collateral or any interest therein; and (iii) such charge is adequately reserved against in accordance with the generally accepted accounting principles. (h) The Debtor shall advise the Secured Party promptly, in reasonable detail, (i) of any lien, security interest, encumbrance or claim made or asserted against any of the Collateral that is not permitted by this Agreement, (ii) of any material change, substantial loss or depreciation in the composition of the Collateral, and (iii) of the occurrence of any other material adverse effect on the aggregate value, enforceability or collectability of the Collateral or on the security interests created hereunder. (i) The Debtor shall give, execute, deliver and file or record in the proper governmental offices, any instrument, paper or document, including but not limited to, one or more financing statements under the Uniform Commercial Code, satisfactory to the Secured Party, or take any action, which the Secured Party may deem necessary or desirable in order to create, preserve, perfect, extend, continue, modify, terminate or otherwise effect any security interest granted pursuant hereto, or to enable the Secured Party to exercise or enforce any of its rights hereunder, including without limitation, upon the occurrence of an Event of a Default, the establishment of one or more lockbox accounts with the Secured Party or others who are, and in a manner which is, satisfactory to the Secured Party. 4 5 (j) The Debtor shall keep, and stamp or otherwise mark, any of its documents, instruments and chattel paper and its books relating to any of the Collateral in such manner as the Secured Party may reasonably require. (k) The Debtor shall pay, or reimburse the Secured Party, in the amount of all expenses (including reasonable fees and expenses of attorneys, experts and agents) incurred in any way in connection with the exercise, defense or assertion of any of its rights or interests hereunder, the enforcement of any provisions hereof or the management, preservation, use, operation, maintenance, collection, possession, disposition or enforcement of any of the Collateral (all such expenses shall be treated as Secured Obligations hereunder). (l) Upon any failure of the Debtor to comply with its obligations above, the Secured Party may, at its option, and without affecting any of its other rights or remedies herein or as a secured party under the Uniform Commercial Code, procure the insurance protection it deems necessary and/or cause repairs or modifications to be made to the Collateral, the cost of either or both of which shall be a lien against the Collateral added to the amount of the indebtedness secured hereby and payable on demand with interest at a per annum rate computed on the same basis as the Secured Obligations. (m) The Debtor hereby assigns to the Secured Party any and all moneys which may become due and payable under any policy insuring the Collateral, including return of unearned premiums, and directs any such insurance company to make payment directly to the Secured Party, and authorizes the Secured Party to apply such moneys in payment on account of the indebtedness secured hereby, whether or not due, or, at the sole option of the Secured Party, toward replacement of the Collateral, and to remit any surplus to the Debtor. 5. NEGATIVE COVENANTS OF THE DEBTOR. Except as otherwise provided in the Loan Agreement, without the prior written consent of the Secured Party, the Debtor shall not: (a) Transfer, sell or assign any of the Collateral except for the sale of inventory in the ordinary course of business. (b) Allow or permit any other security interest or lien to attach to any of the Collateral, except those liens listed on Exhibit C. (c) File, or authorize or permit to be filed, in any jurisdiction any financing statement relating to any of the Collateral unless the Secured Party is named as sole secured party, except those interests already filed and listed on Exhibit C and those permitted by the Loan Agreement. (d) Permit any of the Collateral to be levied upon under any legal process. (e) Permit anything to be done that may materially impair the value of any of the Collateral or the security therein intended to be afforded hereby. 5 6 6. EVENTS OF DEFAULT. The Debtor shall be in default under this Security Agreement upon the occurrence of an event of default under any Loan Document, including the Loan Agreement (herein called "Events of Default"). 7. RIGHTS OF SECURED PARTY ON DEFAULT. Upon the occurrence of any Event of Default, the Secured Party may declare all of the Secured Obligations to be immediately due and payable and shall then have the remedies of a secured party under the Uniform Commercial Code or under any other applicable law, including, without limitation, the right to take possession of the Collateral, and in addition thereto, the right to enter upon any premises on which the Collateral or any part thereof may be situated and remove the same therefrom. The Secured Party may require the Debtor to make the Collateral (to the extent the same is moveable) available to the Secured Party at a place to be designated by the Secured Party which is reasonably convenient to all parties. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Secured Party will give the Debtor at least ten (10) days' prior written notice by registered or certified mail at the address of the Debtor set forth above (or at such other address or addresses as the Debtor shall specify in writing to the Secured Party) of the time and place of any public sale thereof or of the place and time after which any private sale or any other intended disposition thereof is to be made. Any such notice shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition. After deducting all reasonable costs and expenses of collection, storage, custody, sale or other disposition and delivery (including reasonable legal costs and attorneys' fees) and all other charges against the Collateral, the residue of the proceeds of any such sale or disposition shall be applied to the payment of the Secured Obligations in such order of priority as the Secured Party shall determine or held in escrow to apply to any contingent obligations of the Debtor to the Bank, as required, and any surplus shall be returned to the Debtor. In the event the proceeds of any sale, lease or other disposition of the Collateral hereunder are insufficient to pay all of the Secured Obligations in full, the Debtor will be liable for the deficiency, together with interest thereon, at the maximum rate provided in the Note and the reasonable cost and expenses of collection of such deficiency, including (to the extent permitted by law), without limitation, reasonable attorneys' fees, expenses and disbursements. 8. RIGHTS OF THE SECURED PARTY TO USE AND OPERATE COLLATERAL, ETC. Upon the occurrence of any Event of Default, but subject to the provisions of the Uniform Commercial Code or other applicable law, the Secured Party shall have the right and power to take possession of all or any part of the Collateral, and to exclude the Debtor and all persons claiming under the Debtor wholly or partly therefrom, and thereafter to hold, store, and/or use, operate, manage and control the same. Without limiting the generality of the foregoing, the Secured Party shall, have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by the Secured Party to enforce its rights and remedies hereunder in order to manage, protect and preserve the Collateral and continue the operation of the business of the Debtor and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership including the 6 7 compensation of the receiver and to the payment of the Secured Obligations as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated. 9. COLLECTION OF ACCOUNTS RECEIVABLE, ETC. Upon the occurrence of any Event of Default, the Secured Party may notify or may require the Debtor to notify account debtors obligated on any or all of the Debtor's accounts receivable, whether now existing or hereafter arising, to make payment directly to the Secured Party, and may take possession of all proceeds of any accounts in the Debtor's possession, and may take any other steps which the Secured Party deem necessary or advisable to collect any or all accounts receivable or other Collateral or proceeds thereof. 10. WAIVER, ETC. The Debtor hereby waives presentment, demand, notice, protest and, except as is otherwise provided herein, all other demands and notices in connection with this Security Agreement or the enforcement of the Secured Party's rights hereunder or in connection with any Secured Obligations or any Collateral; consents to and waives notice of the granting of renewals, extensions of time for payment or other indulgences to the Debtor or to any account debtor in respect of any account receivable, or substitution, release or surrender of any Collateral, the addition or release of persons primarily or secondarily liable on any Secured Obligation or on any account receivable or other Collateral, the acceptance of partial payments on any Secured Obligation or on any account receivable or other Collateral and/or the settlement or compromise thereof. No delay or omission on the part of the Secured Party in exercising any right hereunder shall operate as a waiver of such right or of any other right hereunder. Any waiver of any such right on any one occasion shall not be construed as a bar to or waiver of any such right on any such future occasion. THE BORROWER AND THE BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ACCEPT THIS AGREEMENT AND MAKE THE LOAN. 11. TERMINATION; ASSIGNMENTS, ETC. This Agreement and the security interest in the Collateral created hereby shall be terminated when all of the Secured Obligations have been (a) fully and finally paid and performed and (b) delivery of a final discharge in writing by the Bank (this Agreement and such security interest shall continue in full force and effect notwithstanding any temporary payment of the Secured Obligations under a revolving credit instrument). In the event of a sale or assignment by the Secured Party of all or any of the Secured Obligations held by it to the extent permitted by the Loan Agreement, the Secured Party may assign or transfer its rights and interests under this Security Agreement in whole or in part to the purchaser or purchasers of such Secured Obligations, whereupon such purchaser or purchasers shall become vested with all of the powers and rights of the Secured Party 7 8 hereunder, and the Secured Party shall thereafter be forever released and fully discharged from any liability or responsibility hereunder, with respect to the rights and interests so assigned. 12. NOTICES. Except as otherwise provided herein, notice to the Debtor or to the Secured Party shall be deemed to have been sufficiently given or served for all purposes hereof if mailed, certified or registered mail, return receipt requested, postage prepaid to the parties at the addresses set forth above in this Security Agreement or at such other address as the party to whom such notice is directed may have designated in writing to the other parties hereto. 13. MISCELLANEOUS. (a) The powers conferred on the Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for monies actually received by it hereunder, the Secured Party shall not have any duty as to any Collateral or as to the taking of any necessary steps to preserve any right of it or of the Debtor against other parties pertaining to any Collateral. (b) No provision hereof shall be amended except by a writing signed by the Secured Party and the Debtor. (c) Any provision of this Security Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. (d) This Security Agreement shall be binding upon and shall inure to the benefit of the permitted assigns and successors of the Secured Party and the Debtor. (e) No delay, failure to enforce, or single or partial exercise on the part of the Secured Party in connection with any of its rights hereunder shall constitute an estoppel or waiver thereof, or preclude other or further exercises or enforcement thereof and no waiver of any default hereunder shall be a waiver of any subsequent default. (f) This Security Agreement shall be governed as to its validity, interpretation and effect in accordance with the laws of the State of New Hampshire. IN WITNESS WHEREOF, acting by and through its duly authorized agent the parties hereto have executed this Security Agreement on the day and year first hereinbefore stated. NASHUA CORPORATION _____________________________ By:__________________________________ Witness John L. Patenaude, Its Duly Authorized Vice President-Finance, Chief Financial Officer and Treasurer 8 9 FLEET BANK-NH ______________________________ By:__________________________________ Witness Amy LeBlanc Hackett, Its Duly Authorized Vice President 9 10 EXHIBIT A Business and Trade Names [To Be Completed By Borrower] 10 11 EXHIBIT B Location(s) of the Collateral [To Be Completed By Borrower] 11 12 EXHIBIT C Other Liens, Etc. [To Be Completed By Borrower] 12 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 APR-02-1999 1 32,728 0 19,702 0 14,406 80,531 73,009 (34,470) 129,478 34,960 0 0 0 6,938 66,355 129,478 42,649 42,649 32,362 42,455 0 0 204 366 148 218 0 0 0 218 0.04 0.04
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