-----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, FVdIfOufLp4ng2FLbFPIm3MZW4RhehEJVeL4mVlNQpDEEMAyoBnHmVVWDaSy7FVe N+JnWcGxAEUQiVw/NJiX7g== 0000950135-99-005103.txt : 19991111 0000950135-99-005103.hdr.sgml : 19991111 ACCESSION NUMBER: 0000950135-99-005103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991001 FILED AS OF DATE: 19991110 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: 99745902 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 OCTOBER 1, 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 03064 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 NOVEMBER 3, 1999, THE COMPANY HAD 5,891,949 SHARES OF COMMON STOCK, EXCLUDING 1,023,818 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)
October 1, 1999 December 31, ASSETS: (Unaudited) 1998 - ------- --------------- ------------ Cash and cash equivalents $ 20,800 $ 31,965 Restricted cash 5,000 5,000 Accounts receivable 21,896 18,232 Inventories Materials and supplies 6,156 6,326 Work in process 3,513 2,503 Finished goods 6,191 5,847 -------- -------- 15,860 14,676 Other current assets 16,592 13,474 -------- -------- Total current assets 80,148 83,347 -------- -------- Plant and equipment 75,590 73,057 Accumulated depreciation (36,773) (33,727) -------- -------- 38,817 39,330 -------- -------- Intangible assets 1,182 1,991 Accumulated amortization (800) (1,484) -------- -------- 382 507 -------- -------- Investment in unconsolidated affiliates 226 -- Other assets 9,621 10,155 Net non-current assets of discontinued operations 756 756 -------- -------- Total assets $129,950 $134,095 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: - ------------------------------------- Current maturities of long-term debt $ 511 $ 511 Accounts payable 11,009 9,028 Accrued expenses 25,253 27,934 -------- -------- Total current liabilities 36,773 37,473 -------- -------- Long-term debt 638 1,064 Other long-term liabilities 19,905 20,331 -------- -------- Total long-term liabilities 20,543 21,395 -------- -------- Common stock and additional capital 22,086 21,995 Retained earnings 65,455 64,071 Treasury stock, at cost (14,907) (10,839) -------- -------- Total shareholders' equity 72,634 75,227 -------- -------- Commitments and contingencies -- -- -------- -------- Total liabilities and shareholders' equity $129,950 $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 Nine Months Ended ------------------------ ------------------------- Oct. 1, Oct. 2, Oct. 1, Oct. 2, 1999 1998 1999 1998 ------- -------- -------- -------- Net sales $43,668 $ 42,420 $128,890 $126,987 Cost of products sold 33,330 31,528 97,843 97,145 ------- -------- -------- -------- Gross margin 10,338 10,892 31,047 29,842 Research, selling, distribution and administrative expenses 9,169 9,785 28,958 30,729 Loss from equity investment 53 -- 53 -- Restructuring and unusual charges 138 15,000 138 15,000 Interest expense 197 24 614 246 Interest income (314) (524) (1,041) (1,201) ------- -------- -------- -------- Income (loss) from continuing operations before income taxes (benefit) 1,095 (13,393) 2,325 (14,932) Income taxes (benefit) 443 (5,326) 941 (5,899) ------- -------- -------- -------- Income (loss) from continuing operations 652 (8,067) 1,384 (9,033) Loss from discontinued operation, net of taxes -- (2,261) -- (4,347) Gain on disposal of discontinued operation, net of taxes -- -- -- 1,052 ------- -------- -------- -------- Net income (loss) 652 (10,328) 1,384 (12,328) Retained earnings, beginning of period 64,803 74,935 64,071 76,935 ------- -------- -------- -------- Retained earnings, end of period 65,455 64,607 65,455 64,607 ======= ======== ======== ======== Earnings per share: Income (loss) from continuing operations $ 0.12 $ (1.27) $ 0.24 $ (1.41) Loss from discontinued operation -- (0.35) -- (0.68) Gain on disposal of discontinued operation -- -- -- .16 ------- -------- -------- -------- Net income (loss) per common share $ 0.12 $ (1.62) $ 0.24 $ (1.93) ======= ======== ======== ======== Average common shares 5,633 6,374 5,744 6,404 ======= ======== ======== ======== Income (loss) per common share from continuing operations assuming dilution $ 0.12 $ (1.27) $ 0.24 $ (1.41) Loss per common share from discontinued operations assuming dilution -- (0.35) -- (0.68) Gain on sale of discontinued operation per common share assuming dilution -- -- -- 0.16 ------- -------- -------- -------- Net income (loss) per common share assuming dilution $ 0.12 $ (1.62) $ 0.24 $ (1.93) ======= ======== ======== ======== Average common and potential common shares 5,635 6,374 5,754 6,404 ======= ======== ======== ========
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)
Nine Months Ended ------------------------- Oct. 1, Oct. 2, 1999 1998 -------- -------- Cash flows from operating activities of continuing operations: Net income (loss) $ 1,384 $(12,328) Adjustments to reconcile net income (loss) to cash provided by (used in) continuing operating activities: Depreciation and amortization 4,414 4,681 Gain on sale of discontinued operation -- (1,052) Loss from discontinued operations -- 4,347 Loss from equity investment 53 -- Restructuring and unusual charges 138 -- One-time charge related to damages awarded in Ricoh Litigation -- 15,000 Net change in working capital and other assets (5,522) (14,766) -------- -------- Cash used in continuing operating activities 467 (4,118) -------- -------- Cash flows from investing activities of continuing operations: Investment in plant and equipment (4,075) (4,418) -------- -------- Cash used in investing activities of continuing operations (4,075) (4,418) -------- -------- Cash flows from financing activities of continuing operations: Repayment of borrowings (426) (2,340) Proceeds and tax benefits from shares issued under stock option plans 91 2,135 Purchase of treasury stock (4,068) (5,283) -------- -------- Cash used in financing activities of continuing operations (4,403) (5,488) -------- -------- Proceeds from the sale of discontinued operation -- 49,858 Cash used in activities of discontinued operation (3,154) (1,021) Effect of exchange rate changes on cash -- 4 -------- -------- Increase (decrease) in cash and cash equivalents (11,165) 34,817 Cash and cash equivalents at beginning of period 31,965 3,736 -------- -------- Cash and cash equivalents at end of period $ 20,800 $ 38,553 ======== ======== Interest paid $ 61 $ 189 ======== ======== Income taxes paid $ 5,050 $ 6,441 ======== ========
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 replaced the Company's 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 interest, income taxes, depreciation and amortization (EBITDA). Borrowings under this facility are collateralized by a security interest in the Company's accounts 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 22, 2001. 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 without prior consent of the lenders. RECLASSIFICATION Certain amounts from the prior year have been reclassified to conform to the current year presentation. RESTRUCTURING AND UNUSUAL CHARGES In the third quarter, the Company recorded a $.5 million pretax charge associated with the Company's decision to cease manufacturing fax papers in the Specialty Coated and Label Products Segment, which was partially offset by a gain of $.4 million resulting from the completion of the partial sale of the Company's Microsharp imaging technology. The Company decided to cease manufacturing fax paper due to the loss of two significant fax paper customers attributable to the acquisition of these customers by larger firms and a consolidation of their fax purchases. STOCK OPTIONS At October 1, 1999, options for 496,835 shares of common stock were outstanding. Stock options for an additional 72,753 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 half of 1999, Nashua repurchased 348,060 shares of the Company's -5- 6 common stock in open market transactions for $4.0 million. The total shares repurchased under this program totaled 999,734. SEGMENT AND RELATED INFORMATION In the fourth quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information." The tables below present information about reported segments.
For the Quarter: - ---------------- (In thousands) Net Sales From Pretax Income (Loss) From Continuing Operations Continuing Operations ------------------------------ ------------------------------- Three Months Three Months Three Months Three Months Ended Ended Ended Ended Oct. 1, 1999 Oct. 2, 1998 Oct. 1, 1999 Oct. 2, 1998 ------------ ------------ ------------ ------------ Imaging Supplies $ 15,136 $ 15,032 $ 139 $ 7 Specialty Coated and Label Products 28,507 27,357 2,701 2,677 Reconciling items: Other 25 31 1 (112) Unallocated corporate expenses, Including interest (1,608) (965) Restructuring and unusual charges (138) (15,000) -------- -------- ------ -------- Consolidated $ 43,668 $ 42,420 $1,095 $(13,393) ======== ======== ====== ======== For the Nine Months: - -------------------- (In thousands) Net Sales From Pretax Income (Loss) From Continuing Operations Continuing Operations ------------------------------ ------------------------------- Nine Months Nine Months Nine Months Nine Months Ended Ended Ended Ended Oct. 1, 1999 Oct. 2, 1998 Oct. 1, 1999 Oct. 2, 1998 ------------ ------------ ------------ ------------ Imaging Supplies $ 43,650 $ 45,573 $ (407) $ (1,428) Specialty Coated and Label Products 85,094 81,352 7,411 5,907 Reconciling items: Other 146 62 (122) (565) Unallocated corporate expenses, Including interest (4,419) (3,846) Restructuring and unusual charges (138) (15,000) -------- -------- ------ -------- Consolidated $128,890 $126,987 $2,325 $(14,932) ======== ======== ====== ========
Segment pretax income (loss) from continuing operations for the first two quarters of 1999, included intercompany charges related to certain corporate expenses that are not included in the primary performance measure used by management in making decisions about allocating resources to each segment and in assessing its respective performance. In accordance with Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," the Company has adjusted its results for the nine months ended October 1, 1999. The net impact to pretax income (loss) from continuing operations of the Imaging Supplies and Specialty Coated and Label Products Segments is $287,000 and $266,000, respectively. -6- 7 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 position as of October 1, 1999, the results of operations for the three and nine month periods ended October 1, 1999 and October 2, 1998, and cash flows for the nine month periods ended October 1, 1999 and October 2, 1998. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: FOR THE QUARTER: Quarterly sales increased to $43.7 million, a 2.9 percent increase over third quarter 1998 sales of $42.4 million due to improvements in both the Imaging Supplies and Specialty Coated and Label Products Segments. Gross margin decreased to 23.7 percent for the quarter compared to 25.7 percent for the third quarter of 1998, primarily due to volume shortfalls impacting manufacturing efficiencies in the laser printer cartridge product line in the Imaging Supplies Segment. Research, selling, distribution and administrative expenses, as a percent of sales, improved to 21.0 percent from 23.0 percent for the third quarter of 1998, primarily due to the restructuring of selling channels in the Imaging Supplies Segment. Net interest income decreased to $.1 million for the third quarter compared to $.5 million a year ago, primarily a result of the decreased cash balance due to the share repurchase program discussed further in the Liquidity, Capital Resources and Financial Condition section of this report and the accrual of interest expense related to the Ricoh litigation as described in the Company's 10-K filing. Income before taxes for continuing operations, as a percent of sales, was 2.5 percent compared to a loss of 31.6 percent last year. Net income in the third quarter of 1999 increased to $.7 million, $.12 per share, compared to a net loss of $10.3 million, $1.62 per share, in the third quarter of 1998 due to improvements in both the Imaging Supplies and Specialty Coated and Label Products Segments. Net income in the third quarter of 1999 reflected an unusual charge of $.1 million due to the Company's decision to discontinue manufacture of fax papers in the Specialty Coated and Label Products Segment, which more than offset the gain resulting from the completion of the sale of a portion of the Company's Microsharp imaging technology. Net income in the third quarter of 1998 reflected an unusual charge of $15.0 million for damages awarded by the U.S. District Court, District of New Hampshire in a patent infringement lawsuit brought against the Company by Ricoh Corporation, Ricoh Electronics, Inc. and Ricoh Company, Ltd. Net income, as a percent of sales, was 1.5 percent for the third quarter of 1999, as compared to a net loss of 24.4 percent for the same period last year. Net income from continuing operations in the third quarter of 1999 totaled $.7 million, $.12 per share, compared to a net loss from continuing operations of $8.1 million, $1.27 per share, in the third quarter of 1998. -7- 8 RESULTS OF OPERATIONS BY REPORTABLE OPERATING SEGMENT: FOR THE QUARTER: IMAGING SUPPLIES SEGMENT: The Imaging Supplies Segment reported a slight increase in sales for the third quarter of 1999 as compared to the same period last year. The sales improvement resulted from higher volume in the paper product lines, which more than offset declines in both the toner and developer and the laser printer cartridge product lines. Paper sales increased 18.1 percent compared to the third quarter of last year as a result of higher volume driven by the market's reaction to an anticipated rise in paper prices. Toner and developer sales declined 3.9 percent from the same period last year as a result of volume shortfalls of older products in the value added, dealer-agent and international channels partially offset by higher volume from new product initiatives in the private label channel. Laser printer cartridge sales declined 6.8 percent in the third quarter of 1999 compared to the third quarter of 1998 due to volume shortfalls in the dealer-agent and private label channels mostly due to the loss of two significant customers, which more than offset volume improvements in the international channel. The Segment's pretax profit in the third quarter of 1999 improved $.1 million compared to the third quarter of 1998. The pretax improvement over the third quarter of 1998 was primarily a result of reduced selling and administrative expenses in the toner and developer product line related to the restructuring of the dealer-agent selling channel earlier this year and lower distribution expense mostly due to lower volume in the toner and developer and laser printer cartridge product lines. SPECIALTY COATED AND LABEL PRODUCTS SEGMENT: The Specialty Coated and Label Products Segment reported a 4.2 percent increase in sales for the third quarter of 1999 compared to the same period last year due to higher volume in the custom EDP and thermal paper product lines. The custom EDP converted label sales improvement over the third quarter 1998 is primarily due to more favorable average selling prices. Thermal paper sales, which are used primarily for conversion into supermarket labels and ticket and tag applications, improved over the third quarter 1998 due to customer retention, new customer initiatives and new product offerings. The Specialty Coated Products Division of this segment experienced sales declines across three of five product lines including fax paper, dry gum and heat seal due to lower volumes which were attributed to declining demand in mature markets. Fax paper sales have been in decline since last year after two significant customers, Quill and Viking, were acquired by Staples and Office Depot, respectively, and decided to consolidate their purchases of fax paper from other suppliers. In turn, Nashua made the decision to exit the fax paper manufacturing business. Dry gum and heat seal products sales declined in the third quarter from the same period last year due to lower volume in a highly competitive, price sensitive market. The Segment's pretax income increased slightly compared to the third quarter of 1998, primarily the result of higher volume, lower raw material costs, improved manufacturing efficiency and a favorable mix of products sold. RESULTS OF OPERATIONS: FOR NINE MONTHS YEAR-TO-DATE: Sales for the first nine months of 1999 were up 1.5 percent to $128.9 million compared to $127.0 million in the corresponding period of 1998 due to higher sales in the Specialty Coated and Label Products Segment offset by a decline in sales in the Imaging Supplies Segment. Gross Margin improved to 24.1 percent for the first nine months from 23.5 percent for the same period last year. The increase was due -8- 9 to manufacturing cost reduction programs, improved manufacturing efficiency, reduced raw material prices, improved product mix and income related to the Company's pension plans. Research, selling, distribution and administrative expenses, as a percent of sales, improved to 22.5 percent from 24.2 percent for the first nine months of 1998, primarily due to the reduction in commission expenses attributable to restructuring the dealer-agent channel earlier this year and income related to the Company's pension plans. Net interest income decreased to $.4 million for the first nine months compared to $1.0 million a year ago, primarily a result of the decreased cash balance due to the share repurchase program completed in the second quarter this year, as well as higher interest expense accrued in the first nine months of 1999 related to the Ricoh litigation. Income before taxes for continuing operations, as a percent of sales, was 1.8 percent compared to a loss of 7.1 percent a year ago. Net income in the first nine months of 1999 was $1.4 million, $.24 per share, compared to a net loss of $12.3 million, $1.93 per share, in the same period in 1998. Net income, as a percent of sales, was 1.1 percent for the first nine months of 1999 and a net loss of 9.7 percent for the same period last year. Net income from continuing operations in the first nine months of 1999 totaled $1.4 million, $.24 per share, compared to a net loss from continuing operations of $9.0 million, $1.41 per share, in the first nine months of 1998. Net income in the first nine months of 1999 included an unusual charge of $.1 million due to the Company's decision to discontinue manufacture of fax papers in the Specialty Coated and Label Products Segment which more than offset the gain resulting from the completion of the sale of a portion of the Company's Microsharp imaging technology. Net income in the first nine months of 1998 included an unusual charge of $15.0 million for damages awarded by the U.S. District Court, District of New Hampshire in a patent infringement lawsuit brought against the Company by Ricoh Corporation. RESULTS OF OPERATIONS BY REPORTABLE OPERATING SEGMENT: FOR NINE MONTHS YEAR-TO DATE: IMAGING SUPPLIES SEGMENT: The Imaging Supplies Segment reported a 4.2 percent decrease in sales for the first nine months of 1999 compared to the same period last year. The sales decline was a result of a reduction in volume in the toner and developer and laser printer cartridge product lines, as well as a reduction in selling price in the toner and developer product line which more than offset volume improvements in the paper product line. The toner and developer decline was due to lower volume from international customers. The laser printer cartridge sales decline was primarily due to the volume decline due to the loss of two significant customers in the dealer-agent channel. The Segment's pretax loss in the first nine months of 1999 improved 72 percent over the same period in 1998. The pretax improvement over the first nine months of 1998 resulted primarily from lower selling and administrative expenses related to the restructuring of the dealer-agent selling channel in the toner and developer product line which was completed earlier this year and income related to the Company's pension plans. SPECIALTY COATED AND LABEL PRODUCTS SEGMENT: The Specialty Coated and Label Products Segment reported a 4.6 percent increase in sales for the first nine months of 1999 compared to the same period last year. The increased sales were a result of higher volume in the thermal paper and converted label products, compared to the same period last year. Customer retention and new customer initiatives, primarily in the supermarket thermal product line, were the primary drivers of the first nine months sales improvement. The Specialty Coated Products Division of this segment had declining sales in the fax paper, heat seal and dry gum product lines in the -9- 10 first nine months of 1999 compared to the same period in 1998. Fax paper sales have been in decline since last year after two significant customers, Quill and Viking, were acquired by Staples and Office Depot, respectively, and decided to consolidate their purchases of fax paper from other suppliers. In turn, Nashua made the decision to exit the fax paper manufacturing business. Dry gum and heat seal sales decline is primarily due to lower volume mostly due to technological changes in the marketplace. The Segment's pretax income increased 25.5 percent compared to the first nine months of 1998, primarily a result of higher sales volume and an improvement in the Segment's gross margin. Lower manufacturing costs, improved manufacturing efficiency, a favorable mix of products sold and income related to the Company's pension plans were the primary reasons for the improvement. RESTRUCTURING AND UNUSUAL CHARGES The current period provision for restructuring and unusual charges included $.5 million associated with the Company's decision to cease manufacturing fax papers in the Specialty Coated and Label Products Segment. Details of the charges related to continuing operations and the activity recorded during the first nine months of 1999 follows.
Balance Current Current Balance (In thousands) July 2, Period Period Oct. 1, 1999 Provision Charges 1999 ------- --------- ------- ------- Provisions for severance related to workforce reductions $246 $156 $208 $194 Provisions for assets to be sold or discarded -- 266 -- 266 Other 120 130 34 216 ---- ---- ---- ---- Total $366 $552 $242 $676 ==== ==== ==== ====
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 nine months 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. 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 has established processes for assessing the risks and associated costs of the Y2K issue. 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 contingency planning. -10- 11 All aspects related to assessing, remediating and testing mission critical systems have been completed and are Y2K compliant. Mission critical systems are systems necessary to take customer orders, manufacture and ship product, collect accounts receivable and report financial information. The Company is in communication with and has conducted several analyses with significant vendors and customers to ensure their Y2K compliance. In addition, the Company continues to evaluate its vulnerability if these companies fail to remediate their Y2K issues. The Company is in the process of assessing supply chain risk and building safety stock where feasible by ordering raw materials and seeking alternative sources in the event of non-compliance. 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 estimated that the aggregate cost of the Company's Y2K efforts will be approximately $1.1 million, of which, substantially all 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 have been developed and 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 developed contingency plans 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. These plans will continue to be updated throughout the remainder of 1999. Activity outlined in the plans will increase in mid-December to take the recommended precaution prior to January 1, 2000. 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. In addition, the Company believes the analyses conducted to ensure Y2K compliance of vendors and customers will lessen the Y2K risk, however, there is no guarantee this will completely eliminate the potential for disruption. 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 $2.5 million to $43.4 million from December 31, 1998. Cash and cash equivalents declined $11.2 million, primarily as a result of payment of certain year end accrued expenses in the amount of $2.3 million, payment of Advanced Corporation Tax to the U.K. in the amount of $2.6 million, payment of certain state taxes in the amount of $2.3 million, and the repurchase of 348,060 -11- 12 shares of common stock in open market transactions for $4.0 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 a $3.7 million increase in accounts receivable, a $1.2 million increase in inventories, primarily in the Specialty Coated and Label Segment, and a $2.0 million increase 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 ANNUAL MEETING OF STOCKHOLDERS The Company's Annual Stockholders' Meeting will be held on April 25, 2000 at the Crowne Plaza, 2 Somerset Parkway, Nashua, NH, at 10:00 a.m. 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 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 10.01 Change of Control and Severance Agreement dated July 19, 1999 between Nashua Corporation and John J. Ireland. 27.01 Financial Data Schedule for the period ending October 1, 1999. (b) Reports on Form 8-K None -12- 13 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: November 10, 1999 By: /s/ John L. Patenaude ----------------- ----------------------------------------------- John L. Patenaude Vice President-Finance and Chief Financial Officer (principal financial and duly authorized officer) -13- EX-10.01 2 SEVERANCE AGREEMENT 1 CHANGE OF CONTROL AND SEVERANCE AGREEMENT ----------------------------------------- AGREEMENT by and between NASHUA CORPORATION, a Delaware corporation (the "Company") and JOHN J. IRELAND (the "Executive"), dated as of the 19th day of July, 1999. RECITALS: WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company or other reasons of uncertainty; WHEREAS, the Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and business concerns and to encourage the Executive's full attention and dedication to the Company; and WHEREAS, in order to accomplish these objectives, the Board believes it is in the best interests of the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall be the first date during the "Change of Control Period" (as defined in Section 1(b)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive's employment with the Company is terminated or the Executive ceases to be an officer of the Company prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination of employment (1) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (2) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" is the period commencing on the date hereof and ending on the third anniversary of such date; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2 -2- 2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of l934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) (a "Person") of 30% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Company Voting Securities"), PROVIDED, HOWEVER, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any corporation with respect to which, following such acquisition, more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, shall not constitute a Change of Control; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such Business Combination do not, following such Business Combination, beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and Company Voting Securities, as the case may be; or (d) (i) a complete liquidation or dissolution of the Company or of (ii) sale or other disposition of all or substantially all of the assets of the Company other than to a 3 -3- corporation with respect to which, following such sale or disposition, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). 4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. 4 -4- (b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other peer executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" includes any company controlled by, controlling or under common control with the Company. (ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year beginning or ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average bonus paid or payable, including by reason of deferral, to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Effective Date occurs (annualized for any fiscal year during the Employment Period consisting of less than twelve full months or with respect to which the Executive has been employed by the Company for less than twelve full months) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. In addition to Annual Base Salary and Annual Bonus payable as hereinabove provided, the Executive shall be entitled to participate during the Employment Period in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive, savings and retirement benefit opportunities, in each case, less favorable, in the aggregate, than (x) the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date to other peer executives of the Company and its affiliated companies. 5 -5- (iv) WELFARE BENEFIT PLANS. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent generally applicable to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than (x) the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or (y) if more favorable to the Executive, those provided at any time after the Effective Date generally to other peer executives of the Company and its affiliated companies. (v) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer incentives of the 6 -6- Company and its affiliated companies. 5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 15(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" means the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" means (i) an action taken by the Executive involving willful and wanton malfeasance involving specifically a wholly wrongful and unlawful act, or (ii) the Executive being convicted of a felony. (c) GOOD REASON. The Executive's employment may be terminated during the Employment Period by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" means: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B) hereof; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or 7 -7- (v) any failure by the Company to comply with and satisfy Section 14(c) of this Agreement. For purposes of this Agreement, any good faith determination of Good Reason made by the Executive shall be conclusive. (d) NOTICE OF TERMINATION. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen days after the giving of such notice). In the case of a termination of the Executive's employment for Cause, a Notice of Termination shall include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and reasonable opportunity for the Executive, together with the Executive's counsel, to be heard before the Board prior to such vote), finding that in the good faith opinion of the Board the Executive was guilty of conduct constituting Cause. No purported termination of the Executive's employment for Cause shall be effective without a Notice of Termination. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. (e) DATE OF TERMINATION. "Date of Termination" means the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; provided, however, that (i) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (ii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than the following obligations: (i) payment of the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (ii) payment of the product of (x) the greater of (A) the Annual Bonus paid or payable, including by reason of deferral, (and annualized for any fiscal year consisting of less than twelve full months or for which the Executive has been employed for less than twelve full months) for the most recently completed fiscal year during the Employment Period, if any, and (B) the Recent Annual Bonus (such greater amount hereafter referred to as the "Highest Annual 8 -8- Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (iii) payment of any compensation previously deferred by the Executive (together with any accrued interest thereon) and not yet paid by the Company and any accrued vacation pay not yet paid by the Company (the amounts described in paragraphs (i), (ii) and (iii) are hereafter referred to as "Accrued Obligations"). All Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. In addition, the Executive's estate or designated beneficiaries shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any survivor benefits paid to the Executive's estate or designated beneficiary under the Retirement Plan. Anything in this Agreement to the contrary notwithstanding, the Executive's estate and family shall be entitled to receive benefits at least equal to the most favorable benefits provided generally by the Company and any of its affiliated companies to the estates and surviving families of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect generally with respect to other peer executives and their estates and families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect on the date of the Executive's death generally with respect to other peer executives of the Company and its affiliated companies and their families. (b) DISABILITY. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations. All Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. In addition, the Executive shall be entitled to receive the Executive's Annual Base Salary for the balance of the Employment Period; PROVIDED, HOWEVER, that such payments of Annual Base Salary shall be reduced by any benefits paid to the Executive under the Retirement Plan by reason of Disability. Anything in this Agreement to the contrary notwithstanding, the Executive shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period other than for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations. In such case, all Accrued Obligations 9 -9- shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. (d) GOOD REASON; OTHER THAN FOR CAUSE OR DISABILITY. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment during the Employment Period for Good Reason, the Company shall pay to the Executive in a lump sum in cash within 60 days after the Date of Termination, and subject to receiving an executed irrevocable Release as described in Section 11, the aggregate of the following amounts: A. all Accrued Obligations; and B. the product of (x) three and (y) the sum of (i) Annual Base Salary and (ii) the Highest Annual Bonus; and C. a lump-sum retirement benefit equal to the difference between (a) the actuarial equivalent of the benefit under the Nashua Corporation Retirement Plan for Salaried Employees (the "Retirement Plan") and any supplemental and/or excess retirement plan providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested, and (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP; for purposes of determining the amount payable pursuant to this Section 6(d)(i)C the accrual formulas and actuarial assumptions utilized shall be no less favorable than those in effect with respect to the Retirement Plan and the SERP during the 90-day period immediately prior to the Effective Date. In addition, for the remainder of the Employment Period (if the termination took place during the Employment Period under this Section 6), the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families. For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period. Notwithstanding the foregoing, if a Change of Control shall have occurred before the Date of Termination, the aggregate amount of "parachute payments", as defined in Section 280G of the Internal Revenue Code of 1986, as amended from time to time (the 10 -10- "Code") payable to the Executive pursuant to all arrangements with the Company shall not exceed one dollar less than three times the Executive's "base amount", as defined in Section 280G of the Code (the "cut back amount"); provided, however, that if Executive would be better off by at least $25,000 on an after-tax basis by receiving the full amount of the parachute payments as opposed to the cut back amount (notwithstanding a 20% excise tax) the Executive shall receive the full amount of the parachute payments. 7. SEVERANCE BENEFITS. Notwithstanding anything contained in this Agreement to the contrary, if, before or after the Employment Period, the Executive's employment is terminated by the Company for reason other than misconduct, the Company shall pay to the Executive one year's salary continuation and continue medical and dental benefits during such continuation period. 8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any other agreements with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program except as explicitly modified by this Agreement. 9. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Internal Revenue Code of l986, as amended (the "Code"). 10. OTHER AGREEMENTS. The parties agree that this Agreement supersedes and replaces the Change of Control and Severance Agreement between the parties dated as of the 24th day of June, 1998 and any and all other agreements, policies, understandings or letters (including but not limited to employment agreements, severance agreements and job abolishment policies) between the parties related to the subject matter hereof. 11. RELEASE. Prior to receipt of the payment described in Sections 6(d) or 7, the Executive shall execute and deliver a Release to the Company as follows: The Executive hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, agents and employees from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorneys' fees and costs), of every kind 11 -11- and nature which he ever had or now has against the Company, its officers, directors, stockholders, corporate affiliates, agents and employees, including, but not limited to, all claims arising out of his employment, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.2000e ET SEQ., the Age Discrimination in Employment Act, 29 U.S.C., ss.621 ET SEQ., the Americans With Disabilities Act, 42 U.S.C., ss.12101 ET SEQ., the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. ss.354-A:1 ET SEQ. and similar state antidiscrimination laws, damages arising out of all employment discrimination claims, wrongful discharge claims or other common law claims and damages, provided, however, that nothing herein shall release the Company from Executive's Stock Option Agreements or Restricted Stock Agreements. The Release shall also contain, at a minimum, the following language: The Executive acknowledges that he has been given twenty-one (21) days to consider the terms of this Release and that the Company advised him to consult with an attorney of his own choosing prior to signing this Release. The Executive may revoke this Release for a period of seven (7) days after the execution of the Release and the Release shall not be effective or enforceable until the expiration of this seven (7) day revocation period. At the same time, the Company shall execute and deliver a Release to the Executive as follows: The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Executive from any and all claims which it ever had or now has against the Executive, other than for intentional harmful acts. 12. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 12 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 13. ARBITRATION. Any controversy or claim arising out of this Agreement shall be settled by binding arbitration in accordance with the commercial rules, policies and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court of law having jurisdiction thereof. Arbitration shall take place in Nashua, New Hampshire at a mutually convenient location. 14. SUCCESSORS. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable 12 -12- by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 15. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EXECUTIVE: John J. Ireland 27 Pine Street Exeter, NH 03833 IF TO THE COMPANY: Nashua Corporation 44 Franklin Street Nashua, New Hampshire 03064 Attention: President or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's failure to insist upon strict compliance with any provision hereof or the failure to assert any right the Executive may have hereunder, including, without limitation, the right to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v), shall not be deemed to be a waiver of such provision or right or any other provision or right thereof. 13 -13- (f) This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. The Executive and the Company acknowledge that the employment of the Executive by the Company is "at will" and, prior to the Effective Date, both the Executive's employment and this Agreement may be terminated by either the Company or the Executive at any time. In the event that this Agreement is terminated by the Company prior to the Effective Date and the Executive remains employed by the Company, the Executive would be entitled to the same severance benefits as set forth in Section 7 of this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. NASHUA CORPORATION EXECUTIVE By _____________________________________ __________________________________ President and Chief Executive Officer Name: John J. Ireland EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS DEC-31-1999 JUL-02-1999 OCT-01-1999 1 25,800 0 21,896 0 15,860 80,148 75,590 (36,773) 129,950 36,773 0 0 0 6,947 65,687 129,950 43,668 43,668 33,330 42,690 0 0 (117) 1,095 443 652 0 0 0 652 0.12 0.12
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