<PAGE> 1
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
DECEMBER 31, 1998
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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COMMISSION FILE NUMBER 1-5492-1
NASHUA CORPORATION
(Exact name of registrant as specified in its Charter)
DELAWARE 02-0170100
(State of incorporation) (IRS Employer Identification Number)
44 FRANKLIN STREET
PO BOX 2002
NASHUA, NEW HAMPSHIRE 03061-2002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 880-2323
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $1.00 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.(X)
Continued
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 22, 1999 was approximately $70,901,614. The number of
shares outstanding of the registrant's Common Stock as of March 22, 1999 was
6,084,159 (excluding 853,238 shares held in treasury).
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II - Portions of Registrant's Annual Report to Stockholders for
the year ended December 31, 1998.
Part III - Portions of the Registrant's Proxy Statement dated March 24,
1999 for the Annual Meeting of Stockholders to be held on April 30, 1999.
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PART I
ITEM 1. BUSINESS
GENERAL
Nashua was incorporated in Massachusetts in 1904 and changed its state of
incorporation to Delaware in 1957. The Company has its principal executive
offices at 44 Franklin Street, PO Box 2002, Nashua, New Hampshire 03061-2002
(Telephone: (603) 880-2323) and its Internet address is www.nashua.com.
References to the "Company" or to "Nashua" refer to Nashua Corporation and its
consolidated subsidiaries, unless the context otherwise requires.
In the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("FAS 131"). In accordance with FAS 131, the Company has
two reportable segments for financial reporting: (1) Imaging Supplies and (2)
Specialty Coated and Label Products. The information for 1997 and 1996 has been
restated from the prior years' presentation in order to conform to the 1998
presentation. Consolidated net sales for 1998 from continuing operations were
$167.8 million.
On April 9, 1998 the Company completed the sale of its Photofinishing
Group. The Company received net proceeds of $49.9 million for the net assets of
the Photofinishing Group and, after recording taxes of $7.9 million, recorded a
gain of $1.1 million. On September 15, 1998, Cerion Technologies Inc.
("Cerion"), a publicly owned company of which the Company owns 37.1 percent of
the outstanding common stock, announced its decision to cease operations in the
fourth quarter of 1998 and it is currently in the process of liquidation.
Accordingly, the Company no longer accounts for its investment in Cerion under
the equity method of accounting and has accounted for its interest in Cerion
based on the expected net realizable value at an after tax basis, since the
third quarter of 1998. During 1998, the Company recognized charges of $4.5
million, net of $2.2 million in taxes, of which a portion related to Nashua's
share of Cerion losses and the remainder related to the reduction in the
Company's investment in Cerion to its expected net realizable value, net of
taxes. Results of operations for Cerion and the Photofinishing Group are
reported as discontinued operations for all periods presented in the
accompanying consolidated financial statements.
The Note entitled "Information About Operations" in the Company's
Consolidated Financial Statements, which appears on pages 33 and 34 of the
Company's Annual Report to Stockholders, contains financial information
concerning Nashua's business segments.
MATTERS AFFECTING FUTURE RESULTS: This Form 10-K contains forward-looking
statements as that term is defined in the Private Securities Litigation Reform
Act of 1995. When used in this report, the words "expects," "believes," "can,"
"will" or similar expressions are intended to identify such forward-looking
statements. Such forward-looking statements are subject to risks and
uncertainties which could cause actual results to differ materially from those
anticipated. Such risks and uncertainties include, but are not limited to, the
Company's future capital needs, stock market conditions, price of the Company's
stock, 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, the possibility of a final award
of material damages in the Cerion securities litigation, risks associated with
the failure by the Company and certain third parties to achieve Y2K compliance
on a timely basis and other risks detailed herein and in the Company's filings
with the Securities and Exchange Commission. The Company assumes no obligation
to update the information contained in this Form 10-K.
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As noted previously, the Company has two segments: (1) Imaging Supplies and
(2) Specialty Coated and Label Products.
IMAGING SUPPLIES SEGMENT
The Imaging Supplies Segment manufactures and sells a variety of consumable
products used in the process of producing hard copy images. Nashua's imaging
supply product line is comprised of toners, developers, remanufactured laser
printer cartridges and copy paper. The Imaging Supplies Segment sales were
approximately $58 million for 1998, $67 million for 1997 and $88 million for
1996.
Nashua markets its products worldwide under both the Nashua brand and major
private labels. Products are sold through a variety of distribution channels.
Sales of high-speed toner and developer to government agencies, machine service
providers, and print-for-pay type customers are made through both direct and
agent sales forces. Nashua aligns itself with strategic partners to market toner
and developer to low and mid-speed segments. Laser cartridges and copy paper are
sold primarily through an extensive network of dealers and distributors.
Nashua's major competitors for toners and developers include Xerox
Corporation, Ricoh Corporation and Eastman Kodak Company, each of which sell
supplies for use in machines manufactured by it. The Company also competes with
other smaller independent manufacturers of toner and developer products. This
market segment is competitive, with more sophisticated toner formulas and
shorter copier machine life cycles requiring timely product development and
marketing.
The segment's primary competitor for its remanufactured laser printer
cartridges is Canon, Inc. which manufactures new laser printer cartridges
principally for sale to large original equipment manufacturers, for resale under
their brand names. In addition, there are approximately 4,000 small laser
printer cartridge rechargers which provide low volumes to small customers.
The Imaging Supplies Segment depends on outside suppliers for most of the
raw materials used to produce toners, developers and laser printer cartridges.
The segment purchases materials from several suppliers and believes that
adequate quantities of supplies are available. The laser printer cartridge
product line is dependent on the continued availability of empty cartridges.
Products purchased in finished form (including certain toners, developers,
papers, and laser printer cartridges) are available from a variety of sources.
There are no assurances that the Company's operating results will not be
adversely affected, however, by future increases in the cost of raw materials or
sourced products.
SPECIALTY COATED AND LABEL PRODUCTS SEGMENT
Sales for the Specialty Coated and Label Products Segment were
approximately $110 million for 1998, $107 million for 1997 and $111 million for
1996. The Specialty Coated and Label Products Segment is made up of two
operating divisions, Specialty Coated Products and Label Products.
The Specialty Coated and Label Products Segment manufactures and sells: (1)
thermal papers to printers and converters; (2) pressure-sensitive labels to
merchants and converters; (3) pressure-sensitive laminated papers to label
converters; and (4) non-thermal papers, thermosensitive labels, Davac(R)
dry-gummed labels, ink jet papers and carbonless papers primarily to merchants,
resellers and converters.
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Thermal papers develop an image upon contact with either a heated stylus or
a thermal print head. Thermal papers are used in point of sale printers, airline
and package identification systems, gaming and ticketing systems, medical and
industrial recording charts and for conversion to labels. Another application
for these papers is for use in thermal facsimile machines. Competitors include
major integrated companies such as Appleton Papers, Inc., Kanzaki Paper Mfg.
Co., Ltd., Jujo Paper Co., Ltd. and Ricoh Corporation, as well as several other
manufacturers in the United States, Japan and Europe.
Significant uses of pressure-sensitive labels include grocery scale
marking, inventory control and address labels. The Specialty Coated and Label
Products Segment is a major supplier of labels to the supermarket industry and
of labels used in the distribution and manufacture of a wide variety of other
products. The label industry is price-sensitive and competitive and includes
competitors such as Moore Corporation Ltd., Rittenhouse Paper Company Inc.,
Hobart Corporation, Avery Dennison Corporation and UARCO, Inc., as well as
numerous small regional converters.
Pressure-sensitive laminated paper is sold to label converters and to
end-user in-house converting departments primarily in the supermarket industry.
Laminated paper is a sandwich of two papers. One paper is a carrier strip called
a liner upon which is laminated a face sheet. A variety of adhesives bind the
face sheet and the liner. Printing is done directly on the face sheet using
impact printing devices, thermal activism or a variety of ink deposition
techniques. Major competitors in the pressure-sensitive laminated paper industry
include: Avery Denison Corporation, Spinnaker Industries Inc., Green Bay
Packaging, Inc., Ricoh Corporation and Kanzaki Paper Mfg. Co.
The Segment's thermosensitive label papers are coated with an adhesive that
is activated when heat is applied. Those products are usually sold through fine
paper merchants who, in turn, resell them to printers who convert the papers
into labels for use primarily in the pharmaceutical industry. Thermosensitive
label papers are also used in the bakery and the meat packaging industries.
Davac(R) dry-gummed label paper is a paper which is coated with a
moisture-activated adhesive. Davac(R) dry-gummed label paper is sold primarily
to fine paper merchants and business forms manufacturers. It is ultimately
converted into various types of labels and stamps. Major competitors in the
thermosensitive and dry-gummed label industries include Brown-Bridge Company and
Ivex Corporation.
Wide format ink jet paper is a premium quality heavy weight paper treated
with resin and non resin coatings which is sold to merchants and resellers for
use in graphic applications, including point-of-sale, signs, posters and
presentations. Major competitors in the wide format ink jet industry include
Rexam PLC., and Azon Corporation.
Carbonless paper is a coated paper used in the production of multi-part
business forms which produce multiple copies without carbon paper. The product
is sold in sheet form through fine paper merchants and in roll form directly to
the printing industry, where it is converted into multi-part business forms.
Within the carbonless paper market, Nashua generally competes with large
integrated manufacturers including Appleton Papers, Inc., The Mead Corporation
and Imation Corporation.
The segment depends on outside suppliers for most of the raw materials used
to produce labels and label papers, carbonless papers and thermal papers,
including paper to be converted and chemicals to be used in producing the
various coatings which Nashua applies. The Company purchases materials from
several suppliers and believes that adequate quantities of supplies are
available. There are no assurances that the Company's operating results would
not be adversely affected by future increases in cost of raw materials or
sourced products.
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DEVELOPMENT OF NEW PRODUCTS
The Company's success depends in part on its continued ability to develop
and market new products. There can be no assurance that the Company will be able
to develop and introduce new products in a timely manner or that such products,
if developed, will achieve market acceptance. In addition, the Company's growth
is dependent on its ability to penetrate new markets and sell through
alternative channels of distribution. There can be no assurance that the markets
being served by the Company will continue to grow; that existing and new
products will meet the requirements of such markets; that the Company's products
will achieve customer acceptance in such markets; that competitors will not
force prices to an unacceptably low level or take market share from the Company;
or that the Company can achieve or maintain profits in its markets.
INTELLECTUAL PROPERTY
The Company's ability to compete may be affected by its ability to protect
its proprietary information, as well as its ability to design products outside
the scope of its competitor's intellectual property rights. The Company holds a
limited number of U.S. and foreign patents and there can be no assurance that
its patents will provide meaningful protection, nor can there be assurance that
third parties will not assert infringement claims against the Company or its
customers in the future. In the event a third party does assert an infringement
claim, the Company may be required to expend significant resources to develop
non-infringing alternatives or to obtain licenses in respect to the matters that
are subject to the litigation. There can be no assurance that the Company would
be successful in such development or that any such licenses would be available
on commercially acceptable terms, if at all. In addition, such litigation could
be lengthy or costly and could have an adverse material effect on the Company's
financial condition or results of operations regardless of the outcome of such
litigation.
MANUFACTURING OPERATIONS
The Company operates manufacturing facilities in Nashua, New Hampshire;
Merrimack, New Hampshire; Omaha, Nebraska; and Nogales, Mexico. All of these
sites are unionized, except for the Nogales, Mexico plant. There can be no
assurance that future operating results will not be adversely affected by labor,
political and regulatory risks in Mexico, or changes in labor wage rates or
productivity.
RESEARCH AND DEVELOPMENT
Nashua's research and development efforts have been instrumental in the
development of many of the products it markets. The research efforts of each of
the Company's operating units are directed primarily toward developing new
products and processes and improving product performance, often in collaboration
with customers. The Company's research and development efforts support each
operating units' patent and product development work focusing primarily on new
thermal coating technologies in respect to the Specialty Coated and Label
Products Segment and new toner and developer formulations and cartridge design
in respect to the Imaging Supplies Segment. Nashua's research and development
expenditures were $5.9 million in 1998, $7.7 million in 1997 and $8.9 million in
1996.
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ENVIRONMENTAL MATTERS
The Company (and its competitors) are subject to various environmental laws
and regulations. These include the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act ("CERCLA"), the Resource Conservation and Recovery Act
("RCRA"), the Clean Water Act and other state and local counterparts of these
statutes. The Company believes that its operations have been and continue to be
operating in compliance in all material respects with applicable environmental
laws and regulations. (Violation of these laws and regulations could result in
substantial fines and penalties.) Nevertheless, in the past and potentially in
the future, the Company has and could receive notices of alleged environmental
violations. The Company has endeavored to promptly remedy any such violations
upon notification.
For the past four years, the Company has spent approximately $1 million per
year for compliance with pertinent environmental laws and regulations. In
addition, for those sites which the Company has received notification of the
need to remediate, the Company has assessed its liability and has established a
reserve for estimated costs associated therewith. At December 31, 1998 the
reserve for potential environmental liabilities was $1.5 million. Liability of
"potentially responsible parties" (PRP) under CERCLA and RCRA, however, is joint
and several, and actual remediation expenses at sites where the Company is a PRP
may exceed current estimates. The Company believes that based on the facts
currently known and the environmental reserve recorded, its remediation expense
with respect to those sites and on-going costs of compliance are not likely to
have a material adverse effect on its consolidated financial position or results
of operations.
EMPLOYEES
Nashua and its subsidiaries had approximately 725 full-time employees at
March 1, 1999. Approximately 432 employees of the Company are members of one of
several unions, principally the United Paperworkers International Union. There
are three agreements with the United Paperworkers International Union covering a
majority of the Company's hourly employees. These agreements generally have a
duration of two years and expiration dates in the first quarter of the
respective year.
FOREIGN OPERATIONS
The Company sold its Photofinishing Group on April 9, 1998, and as a result
disposed of significant foreign operations as described more fully in the Note
to the Company's Consolidated Financial Statements entitled "Business Changes"
which has been incorporated by reference into Item 8 of Part 2 of this Report.
Accordingly, information regarding long-lived assets by geographic region
relating to the Photofinishing Group is reported as discontinued operations in
the Note to the Company's Financial Statements entitled "Information About
Operations" which appears on pages 33 and 34 of the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1998.
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ITEM 2. PROPERTIES
Nashua's manufacturing facilities are located in the United States and
Mexico. Nashua considers its properties to be in good operating condition and
suitable for the production of its products. Nashua sold its Photofinishing
Group in April 1998. The Photofinishing Group had manufacturing facilities
located in the United States, Canada, the United Kingdom and Northern Ireland.
The principal manufacturing facilities of the Company are listed by
industry segment, location and principal products produced. Except as otherwise
noted, each of these facilities is owned by the Company.
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PRINCIPAL PROPERTIES
<TABLE>
<CAPTION>
TOTAL
SQUARE PRINCIPAL
LOCATION FOOTAGE PRODUCTS PRODUCED
- -------- ------- ------------------
<S> <C> <C>
CORPORATE
- ---------
Nashua, New Hampshire 212,000(1)
SPECIALTY COATED AND LABEL SEGMENT
- ----------------------------------
Merrimack, New Hampshire 471,000(2) carbonless paper, thermal, non-thermal,
thermosensitive and dry-gummed label
papers, chemicals
Omaha, Nebraska 170,000 pressure-sensitive labels and laminate
paper
IMAGING SUPPLIES SEGMENT
- ------------------------
Nashua, New Hampshire 238,000 dry toners and developers, chemicals
Merrimack, New Hampshire 112,000(3) dry toners
Nogales, Mexico 55,000(4) re-manufactured laser printer cartridges
</TABLE>
(1) Corporate offices occupy approximately 21,000 square feet. Approximately
47,000 square feet is leased to third parties, approximately 15,000 square feet
is utilized by the Projection Systems Division, and approximately 129,000 square
feet is unoccupied.
(2) The Specialty Coated Products Division utilizes approximately 301,000 square
feet and the remainder square footage is leased to third parties.
(3) The Imaging Supplies Division utilizes approximately 50,000 square feet.
Approximately 18,000 square feet is leased to third parties, and the remainder
square footage is unoccupied.
(4) Leased facility.
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ITEM 3. LEGAL PROCEEDINGS
In April 1994, Ricoh Company, Ltd., Ricoh Electronics, Inc., and Ricoh
Corporation (collectively "Ricoh") brought a lawsuit in the United States
District Court of New Hampshire ("District Court"), alleging the Company's
infringement of the U.S. patents 4,611,730 and 4,878,603 relating to certain
toner cartridges for Ricoh copiers. In March 1997, the District Court enjoined
Nashua from manufacturing, using or selling its NT-50 and NT-6750 toner
cartridges. Sales of these products in 1996 amounted to one percent of Nashua's
total sales. The Company disagreed with the District Court's decision and
appealed to the United States Court of Appeals for the Federal Circuit ("Court
of Appeals"). On February 18, 1999, the Court of Appeals affirmed the March 1997
ruling of the District Court that the Company infringed a patent held by Ricoh.
Separately, on September 30, 1998, the District Court issued an order awarding
damages in the amount of $7,549,000 related to the Company's sales of NT-50 and
NT-6750 toner cartridges through December 3, 1995, additional damages relating
to the Company's sales of such products through March 1997, certain of Ricoh's
costs relative to the suit, and interest on such damages. The Company disagrees
with the District Court's decision on the issue of damages and has appealed the
decision to the Court of Appeals. The Company has adequate financial resources
to pay the District Court's award of damages should its appeal on damages be
unsuccessful. In connection with the damages award, the Company recorded a $15.0
million pretax charge in the third quarter of 1998 and is accruing interest on
such award. In addition, in the fourth quarter of 1998, the Company posted a
$16.0 million bond and placed $5.0 million in escrow to secure such bond. The
$5.0 million is classified as restricted cash in the balance sheet.
In August and September 1996, two individual plaintiffs initiated lawsuits
in the Circuit Court of Cook County, Illinois against the Company, Cerion,
certain directors and officers of Cerion, and the Company's underwriter, on
behalf of classes consisting of all persons who purchased the common stock of
Cerion between May 24, 1996 and July 9, 1996. These two complaints were
consolidated. In March 1997, the same individual plaintiffs joined by a third
plaintiff filed a Consolidated Amended Class Action Complaint (the "Consolidated
Complaint"). The Consolidated Complaint alleged that, in connection with
Cerion's initial public offering, the defendants issued materially false and
misleading statements and omitted the disclosure of material facts regarding, in
particular, certain significant customer relationships. In October 1997, the
Court on motion by the defendants, dismissed the Consolidated Complaint. The
plaintiffs filed a Second Amended Consolidated Complaint alleging substantially
similar claims as the Consolidated Complaint seeking damages and injunctive
relief. On May 6, 1998, the Court, on motion by the defendants, dismissed with
prejudice the Second Amended Consolidated Complaint. The plaintiffs have filed
an appeal of the Court's ruling. The Company continues to believe that this
lawsuit is without merit and plans to vigorously defend itself in this matter on
appeal.
The Company is involved in certain environmental matters and has been
designated by the Environmental Protection Agency ("EPA") as a potentially
responsible party ("PRP") for certain hazardous waste sites. In addition, the
Company has been notified by certain state environmental agencies that some of
the Company sites not addressed by the EPA require remedial action. These sites
are in various stages of investigation and remediation. Due to the unique
physical characteristics of each site, the technology employed, the extended
timeframes of each remediation, the interpretation of applicable laws and
regulations and the financial viability of other potential participants, the
ultimate cost to the Company of remediation for each site is difficult to
determine. At December 31, 1998, based on the facts currently known and the
Company's prior experience with these matters, the Company has concluded that
there is at least a reasonable possibility that site assessment, remediation and
monitoring costs will be incurred by the Company with respect to those sites
which can be reasonably estimated in the aggregate range of $1.0 million to $1.5
million. This range is based, in part, on an allocation of certain sites' costs
which, due to the joint and several nature of the liability, could increase if
the other
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PRPs are unable to bear their allocated share. At December 31, 1998, the Company
has accrued $1.5 million which represents, in management's view, the most likely
amount within the range stated above. Based on information currently available
to the Company, management believes that it is probable that the major
responsible parties will fully pay the costs apportioned to them. Management
believes that, based on its financial position and the estimated environmental
accrual recorded, its remediation expense with respect to those sites is not
likely to have a material adverse effect on its consolidated financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the present executive officers of the Company for
purposes of Section 16 of the Securities Exchange Act, their ages and their
positions held with the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gerald G. Garbacz 62 Chairman, President and Chief Executive Officer
John L. Patenaude 49 Vice President-Finance, Chief Financial Officer and Treasurer
Joseph I. Gonzalez-Rivas 43 Vice President/President, Imaging Supplies Division
John J. Ireland 47 Vice President/President, Specialty Coated Products Division
Eugene P. Pache 48 Vice President/President, Label Products Division
Bruce T. Wright 49 Vice President, Human Resources
Joseph R. Matson 51 Vice President, Corporate Controller
Peter C. Anastos 37 Vice President, General Counsel and Secretary
</TABLE>
Mr. Garbacz has been Chairman of the Board of Nashua since June 1996 and
President and Chief Executive Officer since January 1996. He was a private
investor from 1994 through 1995 and Chairman and Chief Executive Officer of
Baker & Taylor Inc. (information distribution) from 1992 to 1994.
Mr. Patenaude has been the Vice President-Finance, Chief Financial
Officer and Treasurer of Nashua since May 1998. From July 1996 to May 1998, he
was Assistant Treasurer and from 1993 to July 1996 he was the Director of Taxes.
Mr. Rivas has been a Vice President of Nashua since February 1996,
President of the Imaging Supplies Division since April 1998 and General Manager
since March 1996. From October 1994 to February 1996, he was President of the
Label Group of Engraph Inc. and prior to October 1994, he was President of the
Patton Division of Engraph Inc.
Mr. Ireland has been a Vice President of Nashua since November 1995,
President of the Specialty Coated Products Division since April 1998 and General
Manager since April 1994. Prior to 1994, Mr. Ireland held various positions with
Raychem Corporation.
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Mr. Pache has been a Vice President of Nashua since December 1996,
President of the Label Products Division since April 1998 and General Manager
since December 1995. From April 1994 to December 1995, he was the Vice
President/General Manager of Sales and Marketing for the Company's Commercial
Products Group. Prior to 1993, Mr. Pache was the Director of Sales, Electronics
Division, of Raychem Corporation.
Mr. Wright has been Vice President-Human Resources of Nashua since October
1994. Prior to October 1994, he was Vice President of Barry Controls (a division
of Applied Power Inc.), a custom manufacturer of vibration and control systems.
Mr. Matson has been a Vice President of Nashua since May 1998 and Corporate
Controller since July 1988.
Mr. Anastos has been Vice President, General Counsel and Secretary of
Nashua since May 1998. He was Associate General Counsel from December 1996 to
May 1998. From June 1995 to December 1996 he served as Group Counsel and prior
to June 1995, Mr. Anastos was Associate Counsel.
Executive officers are generally elected to their offices each year by the
Board of Directors shortly after the Annual Meeting of Shareholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCK-
HOLDER MATTERS
None.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the heading "Five Year Financial Review" on
page 12 of the Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1998 is incorporated by reference in this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 13 through
17 of the Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1998 is incorporated by reference in this Form 10-K. This
information should be read in conjunction with the related consolidated
financial statements incorporated by reference under Item 8.
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.
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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 one-third 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 early 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 $.4 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.
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 Annual Report, 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.
-12-
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained in the consolidated financial statements, notes
to consolidated financial statements, and report of independent accountants on
pages 18 through 35 of the Company's Annual Report to Stockholders for the
fiscal year ended December 31, 1998 is incorporated by reference in this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Nominees for Election as Directors," which appears on
pages 1 through 3 of the Company's Proxy Statement dated March 24, 1999, is
incorporated by reference in this Form 10-K. See also the section entitled
"Executive Officers of the Registrant" appearing in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The sections entitled "Compensation of Directors" and "Compensation of
Executive Officers," which appear on pages 4 through 6 of the Company's Proxy
Statement dated March 24, 1999, is incorporated by reference in this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections entitled "Security Ownership of Management" and "Security
Ownership of Certain Beneficial Owners," which appear on pages 11 through 14 of
the Company's Proxy Statement dated March 24, 1999, are incorporated by
reference in this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-13-
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
Page
<S> <C>
(1) FINANCIAL STATEMENTS:
Consolidated statements of operations and retained earnings for each of the
three years in the period ended December 31, 1998 18*
Consolidated balance sheets at December 31, 1998 and December 31, 1997 19*
Consolidated statements of cash flows for each of the three years in the
period ended December 31, 1998 20*
Notes to consolidated financial statements 21-34*
Report of independent accountants 35*
(2) FINANCIAL STATEMENT SCHEDULE:
Report of independent accountants on financial statement schedule 18
Schedule II - Valuation and qualifying accounts for
each of the three years in the period ended December 31, 1998 19
</TABLE>
The financial statement schedule should be read in conjunction with the
financial statements in the 1998 Annual Report to Stockholders. All other
schedules have been omitted as they are not applicable, not required, or the
information is included in the consolidated financial statements or notes
thereto.
*Page references are to the 1998 Annual Report to Stockholders. The 1998
Annual Report to Stockholders is not to be deemed filed as part of this Report
except for those parts thereof specifically incorporated by reference into this
Report.
(3) EXHIBITS:
3.01 Composite Certificate of Incorporation of the Company, as
amended. Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989, and incorporated herein by
reference.
3.02 By-laws of the Company, as amended. Exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989,
and incorporated herein by reference.
4.01 Loan and Security Agreement between the Company and Citizen's
Bank New Hampshire dated as of March 28, 1997. Exhibit to the
Company's Form 10-Q for the quarterly period ended March 28, 1997
and incorporated herein by reference.
4.02 Revolving Credit Promissory Note between the Company and
Citizen's Bank New Hampshire dated as of March 28, 1997. Exhibit
to the Company's Form 10-Q for the quarterly period ended March
28, 1997 and incorporated herein by reference.
4.03 First Amendment to Revolving Credit Promissory Note between the
Company and Citizen's Bank New Hampshire dated August 17, 1998.
Exhibit to the Company's Form 10-Q for the quarterly period ended
October 2, 1998, and incorporated herein by reference.
-14-
<PAGE> 16
4.04 First Amendment to Loan and Security Agreement between the
Company and Citizen's Bank New Hampshire dated August 17, 1998.
Exhibit to the Company's Form 10-Q for the quarterly period ended
October 2, 1998, and incorporated herein by reference.
4.05 Rights Agreement, dated as of July 19, 1996, between the Company
and The First National Bank of Boston, as Rights Agent, which
includes as Exhibit A the Form of Certificate of Designations, as
Exhibit B the Form of Rights Certificate, and as Exhibit C the
Summary of Rights to Purchase Preferred Stock. Exhibit to the
Company's Form 8-K dated August 28, 1996 and incorporated herein
by reference.
4.06 Amendment No. 1 to the Company's Rights Agreement effective as of
June 24, 1998.
4.07 Amendment No. 2 to the Company's Rights Agreement effective as of
December 15, 1998.
10.01 1987 Stock Option Plan of the Company. Exhibit to the Company's
Proxy Statement dated March 24, 1987, and incorporated herein by
reference.
10.02 Amendments to the 1987 Stock Option Plan of the Company effective
as of April 28, 1989. Exhibit to the Company's Form 10-Q for the
quarterly period ended June 30, 1989, and incorporated herein by
reference.
10.03 Amendments to the 1987 Stock Option Plan of the Company effective
October 24, 1997. Exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, and incorporated
herein by reference.
10.04 1993 Stock Incentive Plan of the Company. Exhibit to the
Company's Proxy Statement dated March 19, 1993, and incorporated
herein by reference.
10.05 1996 Stock Incentive Plan of the Company. Exhibit to the
Company's Proxy Statement dated May 15, 1996, and incorporated
herein by reference.
10.06 Amended 1996 Stock Incentive Plan of the Company effective
December 15, 1998.
10.07 Amended 1996 Stock Incentive Plan of the Company effective
March 9, 1999.
10.08 Change of Control and Severance Agreement dated as of June 24,
1998 between the Company and Gerald G. Garbacz. Exhibit to the
Company's Form 10-Q for the quarterly period ended July 3, 1998
and incorporated herein by reference.
10.09 Change of Control and Severance Agreement dated as of June 24,
1998 between the Company and John L. Patenaude. Exhibit to the
Company's Form 10-Q for the quarterly period ended July 3, 1998
and incorporated herein by reference.
10.10 Change of Control and Severance Agreement dated as of June 24,
1998 between the Company and Bruce T. Wright. Exhibit to the
Company's Form 10-Q for the quarterly period ended July 3, 1998
and incorporated herein by reference.
10.11 Change of Control and Severance Agreement dated as of June 24,
1998 between the Company and Joseph R. Matson. Exhibit to the
Company's Form 10-Q for the quarterly period ended July 3, 1998
and incorporated herein by reference.
-15-
<PAGE> 17
10.12 Change of Control and Severance Agreement dated as of June 24,
1998 between the Company and Eugene P. Pache. Exhibit to the
Company's Form 10-Q for the quarterly period ended July 3, 1998
and incorporated herein by reference.
10.13 Change of Control and Severance Agreement dated as of June 24,
1998 between the Company and Peter C. Anastos. Exhibit to the
Company's Form 10-Q for the quarterly period ended July 3, 1998
and incorporated herein by reference.
10.14 Change of Control and Severance Agreement dated as of June 24,
1998 between the Company and Joseph I. Gonzalez-Rivas. Exhibit to
the Company's Form 10-Q for the quarterly period ended July 3,
1998 and incorporated herein by reference.
10.15 Change of Control and Severance Agreement dated as of June 24,
1998 between the Company and John J. Ireland. Exhibit to the
Company's Form 10-Q for the quarterly period ended July 3, 1998
and incorporated herein by reference.
10.16 Management Incentive Plan of the Company.
10.17 Master Asset Purchase Agreement dated as of March 10, 1998
between the Company and District Photo Inc. Exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference.
10.18 U.S. Asset Purchase Agreement dated as of March 10, 1998 between
Nashua Photo Inc., Promolink Corporation and District Photo Inc.
Exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference.
10.19 U.K. Asset Purchase Agreement dated as of March 10, 1998 between
Nashua Photo Limited and District Photo Inc. Exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference.
10.20 Canada Asset Purchase Agreement dated as of March 10, 1998
between Nashua Photo Limited and District Photo Inc. Exhibit to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.
11.01 Statement regarding Computation of Earnings Per Share and Common
Equivalent Share.
13.01 Nashua Corporation 1998 Annual Report to Shareholders, certain
portions of which have been incorporated herein by reference.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Independent Accountants.
24.01 Powers of Attorney.
(b) Reports on Form 8-K:
On January 7, 1999, the Company filed a report on Form 8-K regarding an
amendment to the Company's Rights Agreement.
-16-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NASHUA CORPORATION
Date: March 29, 1999 By /s/ John L. Patenaude
-------------- -----------------------------------------
John L. Patenaude
Vice President-Finance,
Chief Financial Officer and Treasurer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Gerald G. Garbacz Chairman, President and March 29, 1999
- --------------------------- Chief Executive Officer
Gerald G. Garbacz
/s/ John L. Patenaude Vice President-Finance, March 29, 1999
- --------------------------- Chief Financial Officer
John L. Patenaude and Treasurer
/s/ Joseph R. Matson Vice President, Corporate Controller March 29, 1999
- --------------------------- and Chief Accounting Officer
Joseph R. Matson
Sheldon A. Buckler* Director
- ---------------------------
Sheldon A. Buckler
Charles S. Hoppin* Director
- ---------------------------
Charles S. Hoppin
John M. Kucharski* Director
- ---------------------------
John M. Kucharski
David C. Miller, Jr.* Director
- ---------------------------
David C. Miller, Jr.
Peter J. Murphy* Director
- ---------------------------
Peter J. Murphy
James F. Orr III* Director
- ---------------------------
James F. Orr III
*By /s/ John L. Patenaude March 29, 1999
----------------------
John L. Patenaude
Attorney-In-Fact
</TABLE>
-17-
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
TO THE BOARD OF DIRECTORS OF
NASHUA CORPORATION
Our audits of the consolidated financial statements referred to in our report
dated February 5, 1999, appearing in the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 1998 (which report and consolidated
financial statements are incorporated by reference in this Form 10-K) also
included an audit of the Financial Statement Schedule listed in Item 14(a) of
this Form 10-K. In our opinion, the Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 5, 1999
-18-
<PAGE> 20
SCHEDULE II
NASHUA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Balance at
Previous Balance at
Description End of Year Additions Deductions End of Year
- ----------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998:
Allowance for doubtful accounts $ 1,193 $ 176(a) $ (503)(b) $ 866
Valuation allowance on deferred tax assets 328 2,340(e) (28)(c) 2,640
DECEMBER 31, 1997:
Allowance for doubtful accounts $ 1,884 $ 79(a) $ (770)(b)(d) $ 1,193
Valuation allowance on deferred tax assets 328 -- -- 328
DECEMBER 31, 1996:
Allowance for doubtful accounts $ 2,397 $ 558(a) $(1,071)(b) $ 1,884
Valuation allowance on deferred tax assets 3,300 -- (2,972)(c) 328
</TABLE>
(a) Charged to costs and expenses.
(b) Accounts deemed uncollectible.
(c) Tax assets deemed unrealizable.
(d) Includes decreases of $116 due to restatement of discontinued operations.
(e) Represents the valuation allowance for foreign tax credits related to
discontinued operations.
-19-
<PAGE> 1
Exhibit 4.06
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
This amendment, dated as of June 24, 1998, 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 Continuing
Directors now desire to amend certain provisions of the Rights Agreement in
order to modify certain provisions contained therein;
NOW, THEREFORE, the Rights Agreement is hereby amended by deleting "10%" in all
places where such term is used and substituting therefor "20%".
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 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 /s/ Peter C. Anastos By /s/ Gerald G. Garbacz
------------------------------ ------------------------------
Secretary Gerald G. Garbacz
Chairman, President and
Chief Executive Officer
Attest: THE FIRST NATIONAL BANK OF BOSTON
By /s/ James P. Mitchell By /s/ Carol A. Mulvey-Eori
------------------------------ ------------------------------
Carol A. Mulvey-Eori
Administration Manager
<PAGE> 1
Exhibit 4.07
AMENDMENT NO. 2 TO RIGHTS AGREEMENT
This amendment, dated as of December 15, 1998, 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 in order to
modify certain provisions contained therein;
NOW, THEREFORE, the Rights Agreement, as amended to date, is hereby further
amended as follows:
1. Delete Section 1(i) in its entirety;
2. Delete Section 23 in its entirety and substitute therefor a new
Section 23 as follows:
"Section 23. REDEMPTION AND TERMINATION.
(a) The Board may, at its option, at any time prior to the earlier
of (i) the close of business on the tenth Business Day (or such
later date as may be determined by the Board pursuant to clause
(i) of the first sentence of Section 3(a) with respect to the
Distribution Date) following the Stock Acquisition Date (or, if
the Stock Acquisition Date shall have occurred prior to the Record
Date, the close of business on the tenth Business Day following
the Record Date) or (ii) the Final Expiration Date, redeem all but
not less than all the then outstanding Rights at a redemption
price of $.01 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price"). The
redemption of the Rights by the Board may be made effective at
such time, on such basis and with such conditions as the Board in
its sole discretion may establish. The Company may, at its option,
pay the Redemption Price in cash, shares of Common Stock (based on
the "current market price," as defined in Section 11(d)(i) hereof,
of the Common Stock at the time of redemption) or any other form
of consideration, or any combination of any of the foregoing,
deemed appropriate by the Board. Notwithstanding anything
contained in this Agreement to the contrary, the Rights shall not
be exercisable after the first occurrence of a Section 11(a)(ii)
Event until such time as the Company's right of redemption
hereunder has expired.
<PAGE> 2
- 2 -
(b) Immediately upon the action of the Board ordering the
redemption of the Rights, evidence of which shall have been filed
with the Rights Agent and without any further action and without
any notice, the right to exercise the Rights shall terminate and
the only right thereafter of the holders of Rights shall be to
receive the Redemption Price for each Right so held. Promptly
after the action of the Board ordering the redemption of the
Rights, the Company shall give notice of such redemption to the
Rights Agent and the holders of the then outstanding Rights by
mailing such notice to all such holders at each holder's last
address as it appears upon the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the
Transfer Agent for the Common Stock. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price
will be made.
(c) Notwithstanding the provisions of Section 23(a) hereof, in the
event that a majority of the Board is elected by shareholder
action by written consent, or is comprised of persons elected at a
meeting of stockholders who were not nominated by the Board in
office immediately prior to such meeting, then for a period of one
hundred and twenty (120) days following the effectiveness of such
election, the Rights shall not be redeemed if such redemption is
reasonably likely to have the purpose or effect of allowing any
Person to become an Acquiring Person or otherwise facilitating the
occurrence of a Triggering Event or a transaction with an
Acquiring Person.
(d) The Company may, at its option, discharge all of its
obligations with respect to the Rights by (i) issuing a press
release announcing the manner of redemption of the Rights in
accordance with this Agreement and (ii) mailing payment of the
Redemption Price to the registered holders of the Rights at their
last addresses as they appear on the registry books of the Rights
Agent or, prior to the Distribution Date, on the registry books of
the Transfer Agent of the Common Shares, and upon such action, all
outstanding Rights and Right Certificates shall be null and void
without any further action by the Company."
3. Delete the last sentence of Section 24(a).
4. Delete the proviso at the end of the second sentence of Section 27
and substitute the following:
", provided that, in the event that a majority of the Board is
elected by shareholder action by written consent, or is comprised
of persons elected at a meeting of stockholders who were not
nominated by the Board in office immediately prior to such
meeting, then for a period of one hundred twenty (120) days
following the effectiveness of such election, no such supplement
or amendment shall be effective if such supplement or amendment is
reasonably likely to have the purpose or effect of allowing any
person to become an Acquiring Person or otherwise facilitating the
occurrence of a Triggering Event or a transaction with an
Acquiring Person."
<PAGE> 3
- 3 -
5. 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, including, without limitation,
any provision of Section 23(c) or the provision of the second
sentence of Section 27 hereof, 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."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 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 /s/ Peter C. Anastos By /s/ Gerald G. Garbacz
------------------------------ ------------------------------
Peter C. Anastos, Secretary Gerald G. Garbacz
Chairman, President and
Chief Executive Officer
Attest: THE FIRST NATIONAL BANK OF BOSTON
By /s/ James P. Mitchell By /s/ Carol Mulvey-Eori
------------------------------ ------------------------------
James P. Mitchell Carol Mulvey-Eori
Senior Account Manager Administration Manager
<PAGE> 1
Exhibit 10.06
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.
<PAGE> 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 time. A majority of the
entire Committee shall constitute a quorum and the action of a
majority of the members
<PAGE> 3
- 3 -
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 exercisable
for the first time by an Optionee during any calendar year shall not
exceed $100,000. If an
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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 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
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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.
(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.
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(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 20% or more of either (i)
the then outstanding shares of common stock of the Corporation
(the "Outstanding Corporation Common Stock") or (ii) the
combined voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the election of
directors (the "Corporation Voting Securities"), provided,
however, that any acquisition by (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
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
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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 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
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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 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.
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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. The Employer's obligation to deliver Shares upon exercise
of an Option shall be subject to the Optionee's satisfaction of all
applicable federal, state, and local income and employment tax
withholding obligations. The Employer shall have the right to deduct
from all amounts paid to an Employee in cash (whether under this plan
or otherwise) any taxes required by law to be withheld in respect of
Awards under this Plan. The Committee may, at or after grant, permit a
participant to satisfy such tax withholding requirements by delivery
to the Company of shares of Common Stock owned by the participant,
including Shares retained from the Award creating the tax obligation
having a value equal to the amount required to be withheld. The value
of Shares to be withheld or delivered shall be based on the Company's
determination of the fair market value of a Share on the date the
amount of tax to be withheld is to be determined.
(b) NONTRANSFERABILITY. No Award shall be assignable or transferable, and
no right or interest of any participant shall be subject to any lien,
obligation or liability of the participant, except by will, the laws
of descent and distribution, or pursuant to a qualified domestic
relations order as defined by Section 414 of the Code, and each Option
shall be exercisable during the Optionee's lifetime only by the
Optionee.
(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.
(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.
<PAGE> 10
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(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, 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.
<PAGE> 11
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(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 12/15/98
<PAGE> 1
Exhibit 10.07
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.
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(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 time. A majority of the
entire Committee shall constitute a quorum and the action of a
majority of the members
<PAGE> 3
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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 exercisable
for the first time by an Optionee during any calendar year shall not
exceed $100,000. If an
<PAGE> 4
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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 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
<PAGE> 5
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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.
(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.
<PAGE> 6
- 6 -
(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 20% or more of either (i)
the then outstanding shares of common stock of the Corporation
(the "Outstanding Corporation Common Stock") or (ii) the
combined voting power of the then outstanding voting securities
of the Corporation entitled to vote generally in the election of
directors (the "Corporation Voting Securities"), provided,
however, that any acquisition by (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
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
<PAGE> 7
- 7 -
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 reorgani-
zation, 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 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
<PAGE> 8
- 8 -
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 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.
<PAGE> 9
- 9 -
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.
(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.
<PAGE> 10
- 10 -
(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, 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.
<PAGE> 11
- 11 -
(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 3/9/99
<PAGE> 1
EXHIBIT 10.16
NASHUA
MANAGEMENT INCENTIVE PLAN
PLAN DOCUMENT
MARCH 1999
<PAGE> 2
MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT
PURPOSE
The purpose of Nashua Corporation's Management Incentive Plan ("Plan") is:
1. To link senior management cash compensation to the financial performance of
the organization.
2. To motivate and reinforce the following behaviors among senior managers:
* Effective goal-setting tied to key strategic priorities,
* Accountability for goal achievement.
3. To provide a means for making awards that qualify for the performance-based
compensation exception described at Section 162(m) of the Internal Revenue
Code (the "Code").
PLAN OPERATION
The Management Incentive Plan provides cash incentive payments based upon
achievement of corporate and/or divisional financial performance goals and
achievement of personal goals by Plan Participants, as described below.
1. Salary Administration
For positions covered by the Management Incentive Plan, salary levels are
established such that, when combined with target incentive opportunities
(expressed as a percent of base salary), target total cash compensation is
both competitive with comparable companies and equitable within the
internal organization.
The following definitions apply:
BASE SALARY The annualized regular cash compensation of
a Participant, excluding incentive
payments, company contributions to employee
benefit plans, relocation, or other
compensation not designated as salary. The
base salary is the basis for regular
paychecks.
Page 1 Rev. 3/99
<PAGE> 3
MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT
1. Salary Administration (continued)
TARGET INCENTIVE That amount (described as a percentage of a
Participant's base salary) that will be
paid as an incentive if the target
financial performance goals and personal
goals are fully (100%) achieved.
TARGET TOTAL CASH COMPENSATION The assigned compensation level for each
Participant, based on market data and
internal equity considerations. Comprised
of base salary and target incentive amount.
Target Incentive opportunities range from 10% to 50% of base salary for
Participants depending, in part, upon the management level and unit size of
the participants.
2. Weighting of Goals
Each year specific weighting among corporate and division financial
objectives and strategic and personal objectives will be established based on
the business objectives for the year.
Page 2 Rev. 3/99
<PAGE> 4
MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT
3. Financial Performance Goals
Prior to the beginning of the Plan Year, financial performance goals are
developed by Senior Management and reviewed by the Compensation and
Leadership Committee of the Board of Directors. Financial performance may
be defined using any of the standard financial metrics (e.g., Sales,
Income, Cash Flow), and will be determined each year. Two levels of
financial performance are defined each year, as follows:
TARGET The budgeted financial goal which represents a realistically
attainable level of corporate or divisional financial performance
for the year.
THRESHOLD A level of achievement against the budgeted financial goal, set
below target and representing the minimum level of performance
which is required in order to pay the financial-based portion of
an employee's incentive.
4. Personal Goals
Each Plan participant is assigned a limited number (i.e., 2 - 3) of
objective pre-established Personal Goals which are typically based upon the
strategic plans for the business. These personal goals are compensable
under the Plan.
As with financial performance goals, a threshold level of personal goal
achievement is established each year, below which no payout for each
personal objective will be made. For example, if the threshold for a
manager's personal objective achievement is 80%, the manager will receive
no payout related to that goal if she achieves only 50% of that objective.
5. Plan Funding
The budgeted incentive pool equals the sum of the Target Incentives of all
eligible Participants company-wide. The pool is funded each year depending
upon the financial and personal goal performance of the Plan participants,
and upon the threshold levels set for that year.
Page 3 Rev. 3/99
<PAGE> 5
MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT
6. Distributions to Participants
The component of incentive payment tied to financial goals is paid out in
direct relationship to the financial performance if the business unit
achieves its threshold. Payout for above-target financial performance is
not capped.
The personal goals payout component is paid in relation to the proportion
of personal goal achievement if the Participant's actual results for the
plan year meet the personal goal threshold. The payout for the personal
goals component of the incentive is capped at 100%.
Page 4 Rev. 3/99
<PAGE> 6
MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT
7. Timing
Payments from the Plan will be made as soon as practicable after the end of
the Plan Year, but no later than April 1 of the following year. Incentive
payments are made in a single lump-sum payment and are subject to applicable
withholding and other taxes as prescribed by local law.
PARTICIPATION
Plan Participants are senior managers and other key employees whose
responsibilities and accomplishments can be directly tied to significant
short-term business goals.
In order to be eligible for an incentive payment, a participant must have been
employed in a Plan-eligible position(s) for at least six consecutive months of
the Plan Year. For a participant who serves in a Plan-eligible position(s) for
less than a full year, the incentive payment may be pro-rated based on the
number of months, including partial months, the individual was a participant
during the Plan Year.
In all cases, the Incentive Compensation Committee (the CEO, the Chief Financial
Officer, and the Vice President of Human Resources) reserves the authority to
exercise its discretion in determining incentive payments. However, the
following guidelines have been provided as a starting point for making decisions
regarding incentive eligibility in cases of new hires, employment terminations,
periods of disability or leave, and transfers into, out of, and between
Plan-eligible positions during the Plan Year.
1. New Hires and Transfers into Eligible Positions when Employee Serves at Least
Six Consecutive Months in the Position
A non-participant hired, transferred, promoted, or re-assigned into an
eligible position during the Plan Year will be considered for an Incentive
Payment on a pro-rated basis, provided that the employee is employed for at
least six consecutive months of the Plan Year.
2. New Hires into Eligible Positions when Employee Serves Less Than Six
Consecutive Months in the Position
When offers are made to candidates for Plan-eligible positions, and the
employee will serve in the position for less than six consecutive months in
the current Plan Year, the offer may include a guaranteed cash compensation
Page 5 Rev. 3/99
<PAGE> 7
MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT
amount in addition to the base salary, to compensate for the missed
opportunity in the first (partial) year. This amount should be no more than
the target incentive for which the employee would have been eligible in that
year, pro-rated by the number of months employed; and is to be paid at the
same time incentives are paid in the following year. The employee will be
integrated into the Plan in the full Plan Year following his/her hire date.
3. Transfers into Ineligible Positions
An employee transferred from an eligible position into a non-eligible
position may be considered for a pro-rated incentive payment, provided that
the employee has served at least six months in an eligible position(s) during
the Plan Year. Any incentive payment will be based on the base salary while
the employee was a Plan participant.
In these cases, an adjustment to base salary may be required in order to
achieve the appropriate salary level for the new (non-Plan) position. (For
example, the base salary may be increased to reach a reasonable
market-based pay rate if there is no longer the possibility of an incentive
payment.) When the adjustment required is a positive one, it may be made
retroactively in cases where the transfer occurs before the employee
reaches the six-month minimum service required for an incentive payment.
4. Transfers from One Plan-Eligible Position to Another
In the event that a participant transfers from one incentive eligible
position to another before the completion of the Plan Year, an assessment
will be made to determine the relative impact of goal achievement in each
position on the final incentive payment. Typically, the participant will be
paid a pro-rated share of the incentive payment amount for each position.
However, the Incentive Compensation Committee has discretion to determine
otherwise if the duration of service in either of the Plan-eligible positions
is considered too short a period in which to achieve results against the
stated goals. In either event, the participant's incentive payment will
reflect the full twelve months of participation.
In the case of a current Participant moving from one Target Incentive level
to another, an adjustment to base salary may be required in order to achieve
the appropriate Target Total Cash Compensation level.
Page 6 Rev. 3/99
<PAGE> 8
MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT
5. Terminations
All Incentive Payments under the Plan will be forfeited for participants
whose employment is terminated for any reason other than normal or early
retirement under the provisions of the Company's retirement plan, death or
disability during the Plan Year, unless determined otherwise by the Incentive
Compensation Committee.
If a Plan participant is employed on the last day of the Plan Year, but
terminates employment prior to the date of the incentive payment, the
Incentive Compensation Committee shall retain discretion over whether a
payment is made to that participant.
6. Disability, Leaves of Absence, and Sabbaticals
Even if an employee meets the requirement of six or more consecutive months
in a Plan-eligible position, the employee must have rendered services for a
minimum of three consecutive months in any Plan Year when attendance is
interrupted by a period of disability, a leave of absence, or a sabbatical in
order for any incentive to be paid (including that amount based on corporate
and division/geography results).
If the employee meets the requirement of three consecutive months of
rendering services, the incentive payment would typically be pro-rated based
on the number of months in the Plan Year that the employee was present and
fully performing the job. Assessment of performance against personal goals
will be based on the amount of time the employee was actually rendering
services.
7. Pro-rating
For a participant who serves in a Plan-eligible position(s) for less than a
full year, the pro rata share of the incentive payment shall equal the
number of months, including partial months, the individual was rendering
services in a Plan-eligible position during the Plan Year divided by twelve,
times the Incentive Payment amount (based on results achieved).
EFFECT ON TAXES
Payments made under this Plan will be included in total wages in the year paid,
and are thus considered taxable income in that year.
Page 7 Rev. 3/99
<PAGE> 9
MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT
EFFECT ON BENEFITS
Regular Management Incentive Plan payments are included in covered wages for
purposes of the 401(k) and pension plans.
TERMS AND CONDITIONS
1. The Plan shall be approved by the Board of Directors and administered by
the Incentive Compensation Committee (the "Committee"). The Committee shall
have authority, consistent with the Plan, to establish Plan periods during
which awards may be established and earned under the Plan, to determine the
size and terms of the awards to be made to each Plan Participant, to
determine the time when awards will be made, to prescribe the form of
payment for awards under the Plan, to adopt, amend and rescind rules and
regulations for the administration of the Plan and for its own acts and
proceedings, and to decide all questions and settle all controversies and
disputes which may arise in connection with the Plan. All decisions,
determinations and interpretations of the Committee shall be binding upon
all parties concerned.
The terms of an award, once fixed, shall preclude future Committee
discretion with respect to the amount or timing of payments of the award,
except that (i) no payment of an award shall be made unless and until the
Committee certifies in writing that the performance goals specified in the
award have been satisfied; (ii) the Committee may retain the discretion to
reduce payments; (iii) the Committee may permit the deferral of payments that
have been earned under an award provided such deferral is consistent with
Section 162 of the Code and (iv) the Committee may retain such other
discretion as is consistent with the qualification of the award under Section
162(m).
2. Corporate Performance results are determined at the end of the fiscal year
when audited data is available. Adjustments may be made in order to minimize
the potential distortion of performance measurements resulting from major
unplanned/uncontrollable events, such as a major unbudgeted acquisition,
non-operating gains or losses or extraordinary operating items, or other
events or conditions during the year affecting financial performance, so long
as such adjustments are made without the involvement of the CEO, and are in
conformity with Section 162(m) of the Internal Revenue Code. Such adjustments
may be made when it is judged that the Corporation would have been unable to
anticipate said event(s) during the corporate goal setting process.
3. The Management Incentive Plan does not, directly or indirectly, create in
any employee or class of employees any right with respect to continuation
Page 8 Rev. 3/99
<PAGE> 10
MANAGEMENT INCENTIVE PLAN PLAN DOCUMENT
of employment by the Company, and it shall not be deemed to interfere in any
way with the Company's right to terminate, or otherwise modify, an employee's
employment at any time. No employee shall have a right to be selected as a
Participant for any year nor, having been selected a Participant in the Plan
for one year, to be a Participant in any other year. Neither the Plan nor any
award thereunder shall be an element of damages in any claim based upon
discharge in violation of a contract unless the contract in question shall be
in writing and shall make specific reference to this section and this
sentence, overriding the same; nor shall this Plan or any rights thereto be
regarded as an element of damages for wrongful discharge in any other context
except to the extent that rights shall have accrued hereunder as of the date
of discharge.
4. The provisions of the Plan and the grant of any incentive payment shall
inure to the benefit of all successors of each Participant, including without
limitation such Participant's estate and the executors, administrators or
trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such Participant.
5. The Plan may be amended or terminated at any time, and shall continue in
effect until so terminated; provided however that no amendment or termination
of the Plan shall adversely affect any right of any Plan Participant with
respect to any incentive payment theretofore made without such Plan
Participant's written consent.
6. The Plan shall be effective with respect to the Plan Year beginning January
1, 1998.
7. This Plan and all determinations made and actions taken hereunder shall be
construed in accordance with the laws of the State of New Hampshire.
Page 9 Rev. 3/99
<PAGE> 1
EXHIBIT 11.01
NASHUA CORPORATION
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income (loss) from continuing operations $ (7,229) $ (6,190) $ (7,290)
Income (loss) from discontinued operations, net of taxes (6,687) (2,632) 460
Gain on disposition of stock of discontinued operations,
net of taxes -- -- 19,386
Gain on public stock offering of discontinued operations,
net of taxes -- -- 4,461
Gain on sale of discontinued operation, net of taxes 1,052 -- 8,434
---------------------------------------------
Income (loss) before extraordinary loss (12,864) (8,822) 25,451
Extraordinary loss on extinguishment of debt,
net of tax benefit -- -- (1,257)
---------------------------------------------
Net income (loss) $(12,864) $ (8,822) $ 24,194
=============================================
Shares:
Weighted average common shares
outstanding during the period 6,320 6,385 6,376
Common equivalent shares -- -- --
---------------------------------------------
6,320 6,385 6,376
=============================================
Earnings (loss) per common share:
Income (loss) from continuing operations $ (1.15) $ (.97) $ (1.14)
Income (loss) from discontinued operations (1.06) (.41) .07
Gain on public stock offering, disposition of stock
and disposal of discontinued operations .17 -- 5.06
---------------------------------------------
Income (loss) before extraordinary loss (2.04) (1.38) 3.99
Extraordinary loss on extinguishment of debt -- -- (.20)
---------------------------------------------
Net income (loss) $ (2.04) $ (1.38) $ 3.79
=============================================
</TABLE>
<PAGE> 1
EXHIBIT 13
NASHUA CORPORATION AND SUBSIDIARIES
FIVE YEAR FINANCIAL REVIEW
<TABLE>
<CAPTION>
(In thousands, except per share data,
number of employees and percentages) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net sales $167,831 $173,202 $199,039 $245,534 $264,431
Gross margin percentage 24.3% 23.1% 20.6% 14.3% 17.8%
Selling, distribution and administrative
expenses as a percentage of sales 20.3% 22.3% 21.7% 16.3% 17.9%
Loss before interest expense and taxes
as a percentage of sales (1) (6.9)% (5.9)% (4.5)% (12.0)% (4.2)%
Loss before taxes as a percentage of
sales (1) (7.1)% (5.9)% (5.8)% (14.3)% (5.2)%
Loss as a percentage of sales (1) (4.3)% (3.6)% (3.7)% (10.0)% (3.2)%
Effective tax rate (39.5)% (39.9)% (36.4)% (30.1)% (38.7)%
Loss before income taxes(1) $(11,950) $(10,300) $(11,464) $(34,998) $(13,625)
Loss after taxes(1) (7,229) (6,190) (7,290) (24,479) (8,353)
Income (loss) from discontinued operations (6,687) (2,632) 460 9,748 10,500
Gain on public stock offering, disposition
of stock, and disposal of discontinued
operation 1,052 - 32,281 - -
Extraordinary loss - - (1,257) - -
Net income (loss) (12,864) (8,822) 24,194 (14,731) 2,147
Earning (loss) per common share
Continuing operations(1) $ (1.15) $ (.97) $ (1.14) $ (3.84) $ (1.31)
Discontinued operations (1.06) (.41) .07 1.53 1.65
Gain on public stock offering, disposition
of stock, and disposal of discontinued
operation .17 - 5.06 - -
Extraordinary loss - - (.20) - -
Net income (loss) (2.04) (1.38) 3.79 (2.31) .34
Financial Position
Working capital $ 45,874 $ 18,892 $ 21,173 $ 31,787 $ 46,789
Total assets 134,095 146,762 176,689 231,372 227,825
Long-term debt 1,064 3,489 2,044 68,350 49,166
Total debt 1,575 4,000 2,855 68,850 49,816
Total capital employed 76,802 99,022 104,772 143,725 142,512
Total debt as a percentage of capital
employed 2.1% 4.0% 2.7% 47.9% 35.0%
Shareholders' equity $ 75,227 $ 95,022 $101,917 $ 74,875 $ 92,696
Shareholders' equity per common share 12.59 14.76 15.90 11.75 14.55
Other Selected Data
Investment in plant and equipment $ 6,702 $ 4,418 $ 5,877 $ 9,044 $ 11,306
Depreciation and amortization 6,846 7,554 9,045 9,772 8,088
Dividends per common share - - - .54 .72
Return on average shareholders' equity (15.1)% (9.0)% 27.4% (17.6)% 2.3%
Common stock price range:
High $ 17 1/2 $ 14 3/4 $ 19 5/8 $ 21 $ 30 3/4
Low 11 9/16 9 1/2 9 1/8 12 1/4 19 3/4
Year-end closing price 13 5/16 11 5/8 12 13 5/8 20 1/2
Number of employees 725 2,041 2,398 3,447 3,054
Average common shares 6,320 6,385 6,376 6,374 6,360
See Business Changes Note to Consolidated Financial Statement for a description of certain matters relevant to this data.
(1) Income (loss) is from continuing operations and includes restructuring and other unusual charges/(income) of $13.8 million for
1998 (8.2% of sales), $4.3 million for 1997 (2.5% of sales), $(1.7) million for 1996 (0.9% of sales), $16.2 million for 1995 (6.6%
of sales), and $2.6 million for 1994 (1.0% of sales).
</TABLE>
12
<PAGE> 2
NASHUA CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CORPORATE MATTERS
On April 9, 1998, the Company completed the sale of its Photofinishing Group.
The Company received net proceeds of $49.9 million for the net assets of the
Photofinishing Group and, after recording taxes of $7.9 million, recorded a gain
of $1.1 million. On September 15, 1998, Cerion Technologies Inc. ("Cerion"), a
publicly owned company of which the Company owns 37.1 percent of the outstanding
common stock, announced its decision to cease operations in the fourth quarter
of 1998 and is currently in the process of liquidation. Accordingly, the Company
no longer accounts for its investment in Cerion under the equity method of
accounting and has accounted for its interest in Cerion based on the expected
net realizable value at an after tax basis, since the third quarter of 1998. At
December 31, 1998, the Company valued its investment in Cerion at $.8 million.
For the year ended December 31, 1998, the Company recognized a $4.5 million
charge, net of $2.2 million in taxes, of which a portion related to Nashua's
share of Cerion losses and the remainder related to the reduction in the
Company's investment in Cerion to its net realizable value, net of taxes.
Results of operations for Cerion and the Photofinishing Group are reported as
discontinued operations for all periods presented in the accompanying
consolidated financial statements.
RESULTS OF CONTINUING OPERATIONS - 1998 COMPARED TO 1997
Net sales from continuing operations for 1998 were $167.8 million, a 3 percent
decrease compared to 1997. The sales decline was primarily due to lower volume
for toner and developer and paper products in the Imaging Supplies Division
which more than offset year over year sales increases in both the Label Products
and Specialty Coated Products Divisions. The Specialty Coated Products Division
reported increased sales, primarily due to higher volume of thermal paper
products. Increased sales in the Label Products Division were mainly due to
higher volume in roll stock products partially offset by decreased prices in
other product lines.
The Company recorded a net loss from continuing operations of $7.2 million
in 1998, compared to a net loss from continuing operations of $6.2 million in
1997. The 1998 results included restructuring and other unusual charges of $13.8
million. The 1997 results included restructuring and other unusual charges of
$4.3 million. The Company's pretax operating results, before restructuring and
other unusual charges, improved from a loss of $6.0 million in 1997 to a pretax
income of $1.9 million in 1998 due to improved profitability in the Imaging
Supplies and the Specialty Coated and Label Products segments of $1.7 million
each, a $3.7 million decrease in Corporate expenses, including interest, and a
decrease in Projection Systems development expenses of $.8 million. The increase
in operating income resulted from higher margins related to new products in the
Imaging Supplies and Specialty Coated Products Divisions and significant cost
reductions in the manufacturing and procurement processes of the Label Products
Division. Corporate expenses decreased in 1998 compared to 1997 primarily due to
personnel reductions and increased interest income from the investment of cash
generated by the sale of the Company's Photofinishing Group.
The restructuring and unusual charges for 1998 included an unusual charge
of $15.0 million related to damages awarded to Ricoh Corporation in a patent
infringement lawsuit, as more fully detailed in both the Liquidity, Capital
Resources and Financial Condition subsection of this Management Discussion and
Analysis section and the Commitments and Contingencies Note to the Consolidated
Financial Statements, partially offset by unusual income of $1.2 million related
to an insurance settlement for environmental matters. The restructuring
activities provided for in the balance at December 31, 1997 were substantially
completed at December 31, 1998 and amounts incurred did not change materially
from the reserve balance of $3.0 million at December 31, 1997. The balance at
December 31, 1998 for severance related to workforce reductions consisted
primarily of amounts payable to employees who had already left the Company.
Details of the charges related to continuing operations and the activity
recorded during 1998 were as follows:
<TABLE>
<CAPTION>
Balance Current Current Balance
Dec. 31, Year Year Dec. 31,
(In thousands) 1997 Provision Charges 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 Activity:
Provisions for severance related to workforce reductions $1,913 $ - $1,441 $472
Provisions for assets to be sold or discarded 750 - 750 -
Other 365 - 216 149
---------------------------------------
Total $3,028 $ - $2,407 $621
=======================================
</TABLE>
13
<PAGE> 3
Selling and distribution expenses were relatively unchanged from the prior
year. Research and development expenses decreased by 23 percent from the prior
year primarily due to a reduction in Projection Systems development expenses.
Administrative expenses decreased by 27 percent due to the impact of
restructuring activities over the past twelve months.
The effective tax rate for continuing operations was a benefit of 39.5
percent in 1998, compared to a benefit of 39.9 percent in 1997. The tax benefits
in 1998 and 1997 were greater than the U.S. statutory rate primarily due to
state and local income tax benefits.
RESULTS OF CONTINUING OPERATIONS - 1997 COMPARED TO 1996
Net sales from continuing operations for 1997 were $173.2 million, a 13 percent
decrease compared to 1996. Excluding the net sales related to the liquid toner
and the organic photoconductor drum product lines, which the Company exited
during 1997, sales decreased 8 percent. Sales declines in the Imaging Supplies
Division and Specialty Coated Products Division were partially offset by higher
sales in the Label Products Division. The sales decrease was primarily due to
lower volumes and pricing in the toner and developer, laser cartridge and paper
product lines of the Imaging Supplies Division and in the carbonless and
facsimile paper product lines of the Specialty Coated Products Division. Higher
sales in the Label Products Division resulted from increased volume of higher
margin products.
In 1997, the Company recorded a net loss from continuing operations of $6.2
million, compared to a net loss from continuing operations of $7.3 million in
1996. The 1997 results included restructuring and other unusual charges of $4.3
million. The 1996 results included restructuring and other unusual income of
$1.7 million. The Company's pretax operating results before restructuring and
other unusual charges improved from a loss of $13.2 million in 1996 to a loss of
$6.0 million in 1997 due to improved profitability in the Imaging Supplies and
Specialty Coated and Label Products segments of $1.8 million and $2.7 million,
respectively; improved profitability in the Projection Systems business of $.3
million; and a $2.4 million decrease in Corporate expenses, including interest.
The increase in operating income resulted from improved productivity and a
reduction in manufacturing and operating expenses, partially offset by a
reduction in sales volumes within the Imaging Supplies Division. Corporate
expenses decreased in 1997 compared to 1996, primarily due to $2.3 million lower
net interest expense and reduced incentive compensation expense.
The restructuring and other unusual charges of $4.3 million in 1997
included charges in the fourth quarter of $.6 million related to restructuring
the Corporate organization, a charge in the third quarter of $.9 million related
to the sale of excess real estate in Nashua, NH, and a second quarter charge of
$2.8 million for costs associated with restructuring certain distribution
channels and aligning the workforce with levels of demand in the Imaging
Supplies Division. Details of the charges related to continuing operations and
the activity recorded during 1997 were as follows:
<TABLE>
<CAPTION>
Balance Current Current Balance
Dec. 31, Year Year Dec. 31,
(In thousands) 1996 Provision Charges 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 Activity:
Provisions for severance related to workforce reductions $ 475 $2,604 $1,166 $1,913
Provisions for assets to be sold or discarded 1,178 1,650 2,078 750
Other 841 - 476 365
----------------------------------------------
Total $2,494 $4,254 $3,720 $3,028
==============================================
</TABLE>
The 1997 provision for workforce reductions included amounts for salary and
benefit continuation for 116 employees as part of the Imaging Supplies Division
and Corporate reorganizations. The restructuring activities provided for in the
balance at December 31, 1996 were substantially completed in 1997. Amounts
incurred did not change materially from the reserve balance of $2.5 million at
December 31, 1996.
Administrative expenses were relatively unchanged from the prior year.
Selling and distribution expenses decreased by 11 percent from 1996 as lower
sales volume in the Imaging Supplies Division resulted in lower distribution
costs and lower sales commissions and bonuses. Research and development expenses
decreased by 13 percent from the prior year primarily due to reductions in
spending in all divisions.
The effective tax rate for continuing operations was a benefit of 39.9
percent in 1997 compared to a benefit of 36.4 percent in 1996. The tax benefits
in 1997 and 1996 were greater than the U.S. statutory rate primarily due to
state and local income tax benefits.
EFFECT OF INFLATION AND CHANGING PRICES
The Company believes that results of operations as reported in its historical
cost financial statements reasonably match current costs, except for
depreciation, with revenues generated in the period. Depreciation expense based
on the current costs of plant and equipment would be significantly higher than
depreciation expense reported in the historical financial statements; however,
such expense would not affect cash provided by operating activities.
14
<PAGE> 4
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Working capital increased $27.0 million from December 31, 1997, primarily from
net proceeds generated by the sale of the Company's Photofinishing Group,
partially offset by an accrual of $15.0 million related to a damages award in
the patent infringement lawsuit brought against the Company by Ricoh
Corporation, as more fully detailed below. The Company used $10.1 million to
repurchase 651,674 shares of the Company's common stock in open market
transactions during 1998 pursuant to the Company's open market stock repurchase
program of up to one million shares of the Company's common stock, as detailed
in the Shareholders' Equity Note to the Consolidated Financial Statements. In
addition, the Company expects that a portion of the proceeds will be reinvested
in its continuing businesses.
At December 31, 1998, the total debt as a percentage of equity decreased to
2.1 percent from 4.2 percent at December 31, 1997. The Company suspended its
quarterly dividend in 1995 and intends to review this decision when the
Company's financial performance would make such reconsideration appropriate. The
Company relies primarily on cash provided by operating activities to fund its
normal additions to plant and equipment. Investments in plant and equipment in
1998 were approximately $6.7 million.
During 1997, the Company negotiated a new $18.0 million secured line of
credit, of which $5.0 million is available exclusively for letters of credit.
The agreement contains certain financial covenants with respect to consolidated
tangible net worth, liquidity and other ratios. On August 17, 1998, the
agreement was amended decreasing the amount of available funds under the secured
line of credit from $18.0 million to $8.0 million and amending the consolidated
tangible net worth covenant from $70.0 million to $60.0 million. 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 either 2 percent above the LIBOR rate, which was 5
percent at December 31, 1998, or at the Wall Street Journal prime rate, which
was 7.75% at December 31, 1998, as elected by the Company. The maturity of this
line of credit is April 30, 1999. Without prior consent of the lenders, the
agreement does not allow the payment of dividends and restricts, among other
things, the incurrence of additional debt, guarantees, lease arrangements or
sale of certain assets. As of December 31, 1998, the Company was in compliance
with the covenants of the agreement. There were no borrowings outstanding under
this secured line of credit at December 31, 1998. At December 31, 1997,
borrowings of $2.0 million were outstanding under this secured line of credit.
On December 26, 1996, the Company entered into a note agreement under which
the Company borrowed $2.6 million. The note is being paid back in sixty equal
monthly payments which began in January of 1997. The note bears interest per
annum equal to 2.5 percent above the LIBOR rate which was 5 percent at December
31, 1998. The note is collateralized by a security interest in certain
equipment. At December 31, 1998 and 1997, borrowings of $1.6 million and $2.0
million, respectively, were outstanding under this note agreement.
At December 31, 1998, the Company had $5.2 million and $.2 million of net
operating loss carryforward benefits and tax credit carryforwards, respectively,
which are primarily available to offset certain future domestic taxable
earnings. The net operating loss carryforward benefits expire as follows: $1.0
million in 1999; $2.4 million in 2000; and $1.8 million thereafter. The tax
credit carryforwards all expire after 2000. Management believes that the Company
will generate sufficient future taxable income to realize deferred tax assets
prior to the expiration of any net operating loss carryforwards or tax credit
carryforwards and that realization of the net deferred tax assets is more likely
than not.
On December 11, 1998, the Internal Revenue Service ("IRS") issued the
Company a Notice of Proposed Adjustment in the amount of $4.6 million
principally in connection with the tax years 1992 and 1993 relating to the
accounting treatment of certain items as they pertain to the restructuring
effort undertaken by the Company during 1994. The Company disagreed with the
position taken by the IRS and filed a formal protest of the proposed adjustment
on January 12, 1999. In management's opinion, the ultimate disposition of this
matter will not have a material adverse effect on the financial position or
results of operations of the Company.
On March 31, 1998, the New Hampshire Department of Revenue ("DOR") issued a
notice of deficiency in connection with an examination of the Company's
corporate income tax returns for the years 1989 through 1992 in the amount of
$4.4 million, including interest. The deficiency principally relates to the tax
treatment of the sale of the Company's International Office Systems business in
1990. A petition for reconsideration was filed with an appeals officer on May
26, 1998. The Company disagrees with the DOR and will continue to defend its
position. In management's opinion, the ultimate disposition of this matter will
not have a material adverse effect on the financial position or results of
operations of the Company.
In April 1994, Ricoh Company, Ltd., Ricoh Electronics, Inc., and Ricoh
Corporation (collectively "Ricoh") brought a lawsuit in the United States
District Court of New Hampshire ("District Court"), alleging the Company's
infringement of the U.S. patents 4,611,730 and 4,878,603 relating to certain
toner cartridges for Ricoh copiers. In March 1997, the District Court enjoined
Nashua from manufacturing, using or selling its NT-50 and NT-6750 toner
cartridges. Sales of these products in 1996 amounted to one percent of Nashua's
total sales. The Company disagreed with the District Court's decision and
appealed to the United States Court of Appeals for the Federal Circuit ("Court
of Appeals"). On February 18, 1999, the Court of Appeals affirmed the March 1997
ruling of the District Court that the Company infringed a patent held by Ricoh.
Separately, on September 30, 1998, the District Court issued an order awarding
damages in the amount of $7,549,000 related to the Company's sales of NT-50 and
NT-6750 toner cartridges through December 3, 1995, additional damages relating
to the Company's sales of such products through March 1997, certain of Ricoh's
costs relative to the suit, and interest on such
15
<PAGE> 5
damages. The Company disagrees with the District Court's decision on the issue
of damages and has appealed the decision to the Court of Appeals. The Company
has adequate financial resources to pay the District Court's award of damages
should its appeal on damages be unsuccessful. In connection with the damages
award, the Company recorded a $15.0 million pretax charge in the third quarter
of 1998 and is accruing interest on such award. In addition, in the fourth
quarter of 1998, the Company posted a $16.0 million bond and placed $5.0 million
in escrow to secure such bond. The $5.0 million is classified as restricted cash
in the balance sheet.
In August and September 1996, two individual plaintiffs initiated lawsuits
in the Circuit Court of Cook County, Illinois against the Company, Cerion,
certain directors and officers of Cerion, and the Company's underwriter, on
behalf of classes consisting of all persons who purchased the common stock of
Cerion between May 24, 1996 and July 9, 1996. These two complaints were
consolidated. In March 1997, the same individual plaintiffs joined by a third
plaintiff filed a Consolidated Amended Class Action Complaint (the
"Consolidated Complaint"). The Consolidated Complaint alleged that, in
connection with Cerion's initial public offering, the defendants issued
materially false and misleading statements and omitted the disclosure of
material facts regarding, in particular, certain significant customer
relationships. In October 1997, the Court on motion by the defendants, dismissed
the Consolidated Complaint. The plaintiffs filed a Second Amended Consolidated
Complaint alleging substantially similar claims as the Consolidated Complaint
seeking damages and injunctive relief. On May 6, 1998, the Court, on motion by
the defendants, dismissed with prejudice the Second Amended Consolidated
Complaint. The plaintiffs have filed an appeal of the Court's ruling. The
Company continues to believe that this lawsuit is without merit and plans to
vigorously defend itself in this matter on appeal.
The Company is involved in certain environmental matters and has been
designated by the Environmental Protection Agency ("EPA") as a potentially
responsible party ("PRP") for certain hazardous waste sites. In addition, the
Company has been notified by certain state environmental agencies that some of
the Company sites not addressed by the EPA require remedial action. These sites
are in various stages of investigation and remediation. Due to the unique
physical characteristics of each site, the technology employed, the extended
timeframes of each remediation, the interpretation of applicable laws and
regulations and the financial viability of other potential participants, the
ultimate cost to the Company of remediation for each site is difficult to
determine. At December 31, 1998, based on the facts currently known and the
Company's prior experience with these matters, the Company has concluded that
there is at least a reasonable possibility that site assessment, remediation and
monitoring costs will be incurred by the Company with respect to those sites
which can be reasonably estimated in the aggregate range of $1.0 million to $1.5
million. This range is based, in part, on an allocation of certain sites' costs
which, due to the joint and several nature of the liability, could increase if
the other PRPs are unable to bear their allocated share. At December 31, 1998,
the Company has accrued $1.5 million which represents, in management's view, the
most likely amount within the range stated above. Based on information currently
available to the Company, management believes that it is probable that the major
responsible parties will fully pay the costs apportioned to them. Management
believes that, based on its financial position and the estimated environmental
accrual recorded, its remediation expense with respect to those sites is not
likely to have a material adverse effect on its consolidated financial position
or results of operations.
During the fourth quarter of 1998, the Company recorded charges of $2.3
million, net of taxes related to discontinued operations. The net charges
included net income of $1.0 million from an insurance settlement related to
environmental matters, offset by net charges of $3.3 million, which included:
additional valuation reserves of $.3 million for the Company's investment in
Cerion; $.1 million related to potential environmental exposures; and $2.9
million for tax exposures, including $2.3 million for the establishment of a tax
valuation reserve for foreign tax credits.
YEAR 2000 ISSUE
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 one-third 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.
16
<PAGE> 6
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 early 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 $.4 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.
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 Annual Report, 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.
MATTERS AFFECTING FUTURE RESULTS
This Annual Report contains forward-looking statements as that term is defined
in the Private Securities Litigation Reform Act of 1995. When used in this
Annual Report, the words "expects," "anticipates," "believes," "can," "will" or
similar expressions are intended to identify such forward-looking statements.
Such forward-looking statements are subject to risks and uncertainties which
could cause actual results to differ materially from those anticipated. Such
risks and uncertainties include, but are not limited to, the Company's future
capital needs, stock market conditions, price of the Company's stock,
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, the possibility of a final award
of material damages in the Cerion securities litigation, risks associated with
the failure by the Company and certain third parties to achieve Y2K 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 Annual Report.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The statement is effective for years beginning after
June 15, 1999. FAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management of the Company
anticipates that, due to its limited use of derivative instruments, the adoption
of FAS 133 will not have a significant effect on the Company's results of
operations or its financial position.
17
<PAGE> 7
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(In thousands, except per share data) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $167,831 $173,202 $199,039
Cost of products sold 127,089 133,175 157,986
Selling, distribution and administrative expenses 34,119 38,557 43,275
Research and development expense 5,938 7,749 8,889
Restructuring and other unusual charges (income) 13,825 4,254 (1,733)
Interest expense 377 129 2,604
Interest income (1,567) (362) (518)
--------------------------------------
Total costs and expenses 179,781 183,502 210,503
--------------------------------------
Loss from continuing operations before income taxes (11,950) (10,300) (11,464)
Income tax benefit (4,721) (4,110) (4,174)
--------------------------------------
Loss from continuing operations (7,229) (6,190) (7,290)
Income (loss) from discontinued operations, net of taxes (6,687) (2,632) 460
Gain on disposition of stock of discontinued operation, net of taxes - - 19,386
Gain on public stock offering of discontinued operation, net of taxes - - 4,461
Gain on disposal of discontinued operation, net of taxes 1,052 - 8,434
--------------------------------------
Income (loss) before extraordinary loss (12,864) (8,822) 25,451
Extraordinary loss on extinguishment of debt, net of taxes - - (1,257)
--------------------------------------
Net income (loss) (12,864) (8,822) 24,194
Retained earnings, beginning of period 76,935 85,757 61,563
Dividends - - -
--------------------------------------
Retained earnings, end of period $ 64,071 $ 76,935 $ 85,757
======================================
Earnings per share
Loss from continuing operations per common share $ (1.15) $ (.97) $ (1.14)
Income (loss) from discontinued operations per common share (1.06) (.41) .07
Gain on public stock offering, disposition of stock and
disposal of discontinued operation .17 - 5.06
Extraordinary loss on extinguishment of debt - - (.20)
--------------------------------------
Net income (loss) per common share $ (2.04) $ (1.38) $ 3.79
======================================
Loss from continuing operations per common
share assuming dilution $ (1.15) $ (.97) $ (1.14)
Income (loss) from discontinued operations per common
share assuming dilution (1.06) (.41) .07
Gain on public stock offering, disposition of stock and
disposal of discontinued operation .17 - 5.06
Extraordinary loss on extinguishment of debt - - (.20)
--------------------------------------
Net income (loss) per common share assuming dilution $ (2.04) $ (1.38) $ 3.79
======================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE> 8
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------
(In thousands, except share data) 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 31,965 $ 3,736
Restricted cash 5,000 -
Accounts receivable 18,232 14,915
Inventories
Materials and supplies 6,326 6,196
Work in process 2,503 3,650
Finished goods 5,847 4,791
----------------------
14,676 14,637
Other current assets 13,474 12,362
Net current assets of discontinued operations - 120
----------------------
83,347 45,770
----------------------
Plant and equipment
Land 836 789
Buildings and improvements 26,388 27,371
Machinery and equipment 43,354 50,654
Construction in progress 2,479 2,206
----------------------
73,057 81,020
Accumulated depreciation (33,727) (40,605)
----------------------
39,330 40,415
Other assets 10,662 11,859
Net non-current assets of discontinued operations 756 48,718
----------------------
Total assets $134,095 $146,762
======================
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $ 511 $ 511
Accounts payable 9,028 12,595
Accrued expenses 27,934 13,772
----------------------
37,473 26,878
----------------------
Long-term debt 1,064 3,489
Other long-term liabilities 20,331 21,373
Shareholders' equity
Preferred stock, par value $1.00: 2,000,000 shares authorized and unissued - -
Common stock, par value $1.00: authorized 40,000,000 shares;
issued 6,938,397 shares in 1998 and 6,715,495 shares in 1997 6,938 6,716
Additional capital 15,057 12,129
Retained earnings 64,071 76,935
Treasury stock, at cost (10,839) (758)
----------------------
75,227 95,022
----------------------
Total liabilities and shareholders' equity $134,095 $146,762
======================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE> 9
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities of Continuing Operations
Net income (loss) $(12,864) $ (8,822) $ 24,194
Adjustments to reconcile net income (loss) to cash provided by (used in)
continuing operating activities:
Depreciation and amortization 6,846 7,554 9,045
Deferred income taxes (4,721) (4,110) (4,174)
Stock issued for director compensation 89 91 73
Write-down of long-lived assets to net realizable value - 990
Loss on sale of excess real estate 900 -
(Income) loss from discontinued operations 6,687 2,632 (460)
Gain on disposal of discontinued operation (1,052) - (8,434)
Gain on disposition of stock of discontinued operation - - (19,386)
Gain on public stock offering of discontinued operation - - (4,461)
Extraordinary loss on extinguishment of debt - - 1,257
Change in operating assets and liabilities, net of effects
from acquisition and disposal of businesses:
Restricted cash (5,000) - -
Accounts receivable (3,317) 1,045 1,344
Inventories (39) (370) 2,785
Other assets 4,354 (1,481) 4,528
Accounts payable (3,567) (4,624) 2,214
Accrued expenses 14,162 (4,375) (6,322)
Other long-term liabilities (449) (61) 643
--------------------------------------
Cash provided by (used in) operating activities 1,129 (11,621) 3,836
Cash Flows from Investing Activities of Continuing Operations
Investment in plant and equipment (6,702) (4,418) (5,877)
Proceeds from sale of plant and equipment 166 825 -
--------------------------------------
Cash used in investing activities (6,536) (3,593) (5,877)
Cash Flows from Financing Activities of Continuing Operations
Proceeds from borrowings - 2,000 3,434
Repayment of borrowings (2,425) (855) (69,429)
Proceeds and tax benefits from shares issued under stock option plans 3,061 - -
Extinguishment of debt - - (952)
Purchase of treasury stock (10,081) (1) (6)
--------------------------------------
Cash provided by (used in) financing activities (9,445) 1,144 (66,953)
Proceeds from sale of discontinued operations 49,858 - 35,174
Proceeds from repayment of notes of discontinued operation - - 11,142
Proceeds from sale of stock of discontinued operation, net - - 33,080
Cash applied to activities of discontinued operations (6,781) (2,174) 817
Effect of exchange rate changes on cash 4 (38) 409
--------------------------------------
Increase (decrease) in cash and cash equivalents 28,229 (16,282) 11,628
Cash and cash equivalents at beginning of year 3,736 20,018 8,390
--------------------------------------
Cash and cash equivalents at end of year $ 31,965 $ 3,736 $ 20,018
======================================
Interest paid $ 220 $ 92 $ 3,387
======================================
Income tax payments net of refunds $ 4,664 $ 2,428 $ 4,476
======================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 10
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation: The accompanying consolidated financial statements
include the accounts of Nashua Corporation and its wholly-owned subsidiaries
("the Company").
Revenue Recognition: Sales are recognized at the time the goods are shipped or
when title passes.
Sale of Stock by a Subsidiary: The Company recognizes gains and losses on its
subsidiary's direct sale of shares of stock in which the selling price of the
subsidiary's shares is greater than or less than the Company's carrying value.
Use of Estimates: The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. The more significant areas
requiring the use of management estimates relate to allowances for obsolete
inventory and uncollectible receivables, environmental obligations,
postretirement and other employee benefits, valuation allowances for deferred
tax assets, future cash flows associated with assets, and useful lives for
depreciation and amortization. Actual results could differ from those estimates.
Cash Equivalents: The Company considers all highly liquid investment instruments
purchased with a remaining maturity of three months or less to be cash
equivalents. At December 31, 1998, the Company held cash equivalents of $30.5
million consisting of various money market instruments carried at cost, which
approximated market. The Company held no cash equivalents at December 31, 1997.
Restricted Cash: Restricted cash represents $5.0 million placed in escrow to
secure a bond related to the patent infringement judgement against the Company.
Accounts Receivable: The consolidated balance is net of allowance for doubtful
accounts of $.9 million at December 31, 1998 and $1.2 million at December 31,
1997.
Inventories: Inventories are carried at the lower of cost or market. Cost is
determined by the first-in, first-out ("FIFO") method for approximately 74
percent and 61 percent of the inventories at December 31, 1998 and 1997,
respectively, and by the last-in, first-out ("LIFO") method for the balance. Had
the FIFO method been used to cost all inventories, the inventory balances would
have been approximately $2.1 million and $2.8 million higher at December 31,
1998 and 1997, respectively.
Plant and Equipment: Plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to operations as incurred, while additions,
renewals and betterments of plant and equipment are capitalized. Items which are
fully depreciated, sold, retired or otherwise disposed of, together with the
related accumulated depreciation, are removed from the accounts and, where
applicable, the related gain or loss is recognized.
For financial reporting purposes, depreciation is computed using the
straight-line method over the following estimated useful lives of the assets:
- --------------------------------------------------------------------------------
Buildings and improvements 5 - 40 years
Machinery and equipment 2 - 20 years
The Company reviews the value of its plant and equipment whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable.
Research and Development: Research and development costs are expensed as
incurred.
Stock Compensation: The Company's employee stock option plans are accounted for
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company follows disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
21
<PAGE> 11
Income Taxes: Prepaid or deferred income taxes result principally from the use
of different methods of depreciation and amortization for income tax and
financial reporting purposes, the recognition of expenses for financial
reporting purposes in years different from those in which the expenses are
deductible for income tax purposes and the recognition of the tax benefit of net
operating losses and other tax credits.
Foreign Currency Translation: The functional currency of the Company's foreign
subsidiaries is the local currency. Accordingly, assets and liabilities of these
subsidiaries have been translated using exchange rates prevailing at the
appropriate balance sheet date and income statement items have been translated
using average monthly exchange rates.
Financial Instruments: The Company enters into foreign exchange contracts as
hedges against exposure to fluctuations in exchange rates associated with
certain transactions denominated in foreign currencies. Market value gains or
losses on these contracts are included in the results of operations and
generally offset gains or losses on the related transactions.
The Company may selectively enter into interest rate swap agreements to
reduce the impact of interest rate changes on its floating rate debt. The
notional amounts of such agreements are used to measure carrying value (interest
to be paid or received) and do not represent the amount of exposure to loss.
The Company does not hold or issue derivative financial instruments for
trading purposes.
Concentrations of Credit Risk: Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents, short-term investments, trade receivables and financial instruments
used in hedging activities.
The Company places its temporary cash investments with high credit quality
financial institutions and in high quality liquid investments and, by policy,
limits the amount of credit exposure with any one financial institution.
Concentrations of credit risk with respect to accounts receivable are limited
because a large number of geographically diverse customers make up the Company's
customer base, thus spreading the trade credit risk. The Company performs
ongoing credit evaluations of its customers' financial condition and maintains
allowances for potential credit losses. The Company generally does not require
collateral or other security to support customer receivables.
The counterparties to the agreements relating to the Company's foreign
exchange commitments consist of a number of high credit quality financial
institutions. The Company does not believe that there is significant risk of
nonperformance by these counterparties.
Environmental Expenditures: Environmental expenditures relating to ongoing
operations are expensed when incurred unless the expenditures extend the life,
increase the capacity or improve the safety or efficiency of the property;
mitigate or prevent environmental contamination that has yet to occur and
improve the property compared with its original condition; or are incurred for
property held for sale.
Expenditures relating to site assessment, remediation and monitoring are
accrued and expensed when the costs are both probable and the amount can be
reasonably estimated. Estimates are based on in-house or third-party studies
considering current technologies, remediation alternatives and current
environmental standards. In addition, if there are other participants and the
liability is joint and several, the financial stability of the other
participants is considered in determining the Company's accrual. Insurance and
other recoveries relating to these expenditures are recorded separately once
recovery is probable.
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," which changes the way the
Company reports information about its operating segments. The information for
1997 and 1996 has been restated from the prior year's presentation in order to
conform to the 1998 presentation.
Postretirement Benefits: In 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This statement standardizes the disclosure
requirements for pensions and other postretirement benefits. The information for
1997 and 1996 has been restated from the prior year's presentation in order to
conform to the 1998 presentation.
Fair Value of Financial Instruments: The recorded amounts for cash and cash
equivalents, other current assets, accounts receivable and accounts payable and
other current liabilities approximate fair value due to the short-term nature of
these financial instruments. The fair values of amounts outstanding under the
Company's debt instruments approximates their book values in all material
respects due to the variable nature of the interest rate provisions associated
with such instruments.
Earnings per Common and Common Equivalent Share: Earnings per common and common
equivalent share are computed based on the total of the weighted average number
of common shares and, when applicable, the weighted average number of common
equivalent shares outstanding during the period presented.
22
<PAGE> 12
Reclassification: Certain amounts from the prior year have been reclassified to
conform to the present year presentation.
BUSINESS CHANGES
Discontinued Operations: During the second quarter of 1996, the Company and
Cerion Technologies Inc. ("Cerion"), completed the initial public offering of
common stock of Cerion at a price of $13.00 per share. A total of 4,416,000
shares were sold, of which 1,615,000 were sold by Cerion and 2,801,000 were sold
by the Company. The Company received net proceeds of $33.1 million and recorded
a $32.0 million pretax gain on its sale of Cerion shares and a $7.3 million
pretax gain from the Company's interest in the shares sold by Cerion. As a
result of the sale, the Company's ownership of Cerion was reduced to 37.1
percent, and accordingly, the Company adopted the equity method of accounting
for its investment in Cerion common stock. On September 15, 1998, Cerion
announced its decision to cease operations in the fourth quarter of 1998 and is
currently in the process of liquidation. Accordingly, the Company no longer
accounts for its investment in Cerion under the equity method of accounting and
has accounted for its interest in Cerion based on the expected net realizable
value at an after tax basis, since the third quarter of 1998. At December 31,
1998, the Company valued its investment in Cerion at $.8 million. For the year
ended December 31, 1998, the Company recognized a $4.5 million charge, net of
$2.2 million in taxes, of which a portion related to Nashua's share of Cerion
losses and the remainder related to the reduction in the Company's investment in
Cerion to its net realizable value, net of taxes.
During the second quarter of 1996, the Company recorded a $7.0 million
charge in the mainland European photofinishing business to write-down the value
of its goodwill. During the fourth quarter of 1996, the Company completed the
sale of its mainland European photofinishing business. The Company received
proceeds of approximately $7.0 million and recorded a net pretax loss of $1.7
million. On April 9, 1998, the Company completed the sale of the remainder of
its Photofinishing Group. The Company received net proceeds of $49.9 million for
the net assets of the businesses and after recording taxes of $7.9 million,
recorded a gain of $1.1 million.
During the fourth quarter of 1998, the Company recorded charges of $2.3
million, net of taxes related to discontinued operations. The net charges
included net income of $1.0 million from an insurance settlement related to
environmental matters, offset by net charges of $3.3 million, which included:
additional valuation reserves of $.3 million for the Company's investment in
Cerion; $.1 million related to potential environmental exposures; and $2.9
million for tax exposures, including $2.3 million for the establishment of a tax
valuation reserve for foreign tax credits.
During the second quarter of 1996, the Company sold its Tape Products
Division for approximately $28.0 million and, as a result, recorded an after-tax
gain of $8.4 million.
Results of operations for Cerion, the Photofinishing Group and the Tape
Products Division are reported as discontinued operations for all periods
presented. The Photofinishing Group and Cerion's results for 1998, 1997 and
1996, as well as the Tape Products Division results for 1996 are summarized as
follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $21.6 $143.5 $214.3
Income (loss) before income taxes (6.5) (2.8) 1.7
Income taxes (benefit) .2 (.2) 1.2
--------------------------------------
Income (loss) from discontinued operations $(6.7) $ (2.6) $ .5
======================================
</TABLE>
The net assets of the discontinued operations in the December 31, 1998 and
December 31, 1997 consolidated balance sheets include:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable $ - $ 2,874
Inventories - 2,846
Accounts payable - (6,028)
Accrued payroll and other expenses - (5,449)
Other, net - 5,877
------------------------
Net current assets of discontinued operations $ - $ 120
========================
Plant and equipment $ - $13,420
Long-term liabilities - (863)
Investment in unconsolidated affiliate 756 7,524
Other, net - 28,637
------------------------
Net non-current assets of discontinued operations $756 $48,718
========================
</TABLE>
23
<PAGE> 13
Restructuring and Other Unusual Charges: The restructuring and other unusual
charges for 1998 included an unusual charge of $15.0 million related to damages
awarded to Ricoh Corporation in a patent infringement lawsuit, partially offset
by unusual income of $1.2 million related to an insurance settlement for
environmental matters. The restructuring activities provided for in the balance
at December 31, 1997 were substantially completed at December 31, 1998 and
amounts incurred did not change materially from the reserve balance of $3.0
million at December 31, 1997. The balance at December 31, 1998 for severance
related to workforce reductions consisted primarily of amounts payable to
employees who had already left the Company. Details of the charges related to
continuing operations and the activity recorded during 1998 were as follows:
<TABLE>
<CAPTION>
Balance Current Current Balance
Dec. 31, Year Year Dec. 31,
(In thousands) 1997 Provision Charges 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 Activity:
Provisions for severance related to workforce reductions $1,913 $ - $1,441 $472
Provisions for assets to be sold or discarded 750 - 750 -
Other 365 - 216 149
------------------------------------------------
Total $3,028 $ - $2,407 $621
================================================
</TABLE>
The restructuring and other unusual charges from continuing operations of
$4.3 million in 1997 included charges in the fourth quarter of $.6 million
related to restructuring corporate activities, a charge in the third quarter of
$.9 million related to the sale of excess real estate in Nashua, NH and a second
quarter charge of $2.8 million for costs associated with restructuring certain
distribution channels and aligning the workforce with levels of demand in the
Imaging Supplies Division. Details of the charges related to continuing
operations and the activity recorded during 1997 were as follows:
<TABLE>
<CAPTION>
Balance Balance
Dec. 31, 1997 1997 Dec. 31,
(In thousands) 1996 Provision Charges 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 Activity:
Provisions for severance related to workforce reductions $ 475 $2,604 $1,166 $1,913
Provisions for assets to be sold or discarded 1,178 1,650 2,078 750
Other 841 - 476 365
----------------------------------------------------
Total $2,494 $4,254 $3,720 $3,028
====================================================
</TABLE>
The 1997 provision for workforce reductions included amounts for salary and
benefit continuation for 116 employees as part of the Imaging Supplies Division
and Corporate reorganizations. The restructuring activities provided for in the
balance at December 31, 1996 were substantially completed in 1997. Amounts
incurred did not change materially from the reserve balance of $2.5 million at
December 31, 1996.
Net restructuring and other unusual income of $1.7 million in 1996 included
charges of $1.1 million for the cost of divesting the organic photoconductor
drum product line, $1.4 million for functional realignments in Corporate, offset
by income of $4.2 million associated with reassessment in 1996 of certain
charges recorded in 1995 for product and channel rationalizations in the Imaging
Supplies Division.
INDEBTEDNESS
During 1997, the Company negotiated a new $18.0 million secured line of credit,
of which $5.0 million is available exclusively for letters of credit. The
agreement contains certain financial covenants with respect to consolidated
tangible net worth, liquidity and other ratios. On August 17, 1998, the
agreement was amended decreasing the amount of available funds under the secured
line of credit from $18.0 million to $8.0 million and amending the consolidated
tangible net worth covenant from $70.0 million to $60.0 million. 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 either 2 percent above the LIBOR rate, which was 5
percent at December 31, 1998, or at the Wall Street Journal prime rate, which
was 7.75% at December 31, 1998, as elected by the Company. The maturity of this
line of credit is April 30, 1999. Without prior consent of the lenders, the
agreement does not allow the payment of dividends and restricts, among other
things, the incurrence of additional debt, guarantees, lease arrangements or
sale of certain assets. As of December 31, 1998, the Company was in compliance
with the covenants of the agreement. There were no borrowings outstanding under
this secured line of credit at December 31, 1998. At December 31, 1997,
borrowings of $2.0 million were outstanding under this secured line of credit.
24
<PAGE> 14
On December 26, 1996, the Company entered into a note agreement under which
the Company borrowed $2.6 million. The note is being paid back in sixty equal
monthly payments which began in January of 1997. The note bears interest per
annum equal to 2.5 percent above the LIBOR rate which was 5 percent at December
31, 1998. The note is collateralized by a security interest in certain
equipment. At December 31, 1998 and 1997, borrowings of $1.6 million and $2.0
million, respectively, were outstanding under this note agreement.
INCOME TAXES
The domestic and foreign components of loss from continuing operations before
income taxes are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $(11,873) $ (8,665) $(10,675)
Foreign (77) (1,635) (789)
------------------------------------
Consolidated $(11,950) $(10,300) $(11,464)
====================================
</TABLE>
Income tax benefit charged to continuing operations consists of the
following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
United States $ - $ - $ -
State and local - - -
------------------------------------
Total current - - -
Deferred:
United States (3,824) (2,919) (3,080)
Foreign (18) (502) (260)
State and local (879) (689) (834)
------------------------------------
Total deferred (4,721) (4,110) (4,174)
------------------------------------
Income tax benefit $(4,721) $(4,110) $(4,174)
====================================
</TABLE>
Deferred tax liabilities (assets) from continuing operations are comprised
of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ 2,680 $ 3,033
Other 2,461 2,238
----------------------
Gross deferred tax liabilities 5,141 5,271
----------------------
Restructuring - (4,418)
Legal reserve (6,473) -
Pension and postretirement benefits (8,320) (8,718)
Loss and credit carryforwards (5,203) (8,100)
Workers compensation accrual (507) (474)
Inventory reserve (1,828) (2,247)
Bad debt reserve (505) (338)
Other (4,827) (3,085)
----------------------
Gross deferred tax asset (27,663) (27,380)
Deferred tax assets valuation allowance 300 300
----------------------
$(22,222) $(21,809)
======================
</TABLE>
25
<PAGE> 15
Reconciliations between income taxes from continuing operations computed
using the United States statutory income tax rate and the Company's effective
tax rate are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States statutory rate (benefit) (35.0)% (35.0)% (35.0)%
State and local income taxes, net of federal tax benefit (4.8) (4.3) (4.7)
Tax asset valuation - 1.5 2.1
Rate difference - foreign subsidiaries - .7 .1
Other, net .3 (2.8) 1.1
-----------------------------------
Effective tax rate (benefit) (39.5)% (39.9)% (36.4)%
===================================
</TABLE>
At December 31, 1998, $12.7 million and $10.0 million of net tax assets
were included in "Other Current Assets" and "Other Assets," respectively. At
December 31, 1997, $11.6 million and $11.9 million of net tax assets were
included in "Other Current Assets" and "Other Assets," respectively.
At December 31, 1998, the Company had $5.2 million and $.2 million of net
operating loss carryforward benefits and tax credit carryforwards, respectively,
which are primarily available to offset certain future domestic taxable
earnings. The net operating loss carryforward benefits expire as follows: $1.0
million in 1999; $2.4 million in 2000; and $1.8 million thereafter. The tax
credit carryforwards all expire after 2000. Management believes that the Company
will generate sufficient future taxable income to realize deferred tax assets
prior to the expiration of any net operating loss carryforwards or tax credit
carryforwards and that realization of the net deferred tax assets is more likely
than not.
During 1997, the Company settled the dispute in connection with interest
assessed as part of the 1990 and 1991 tax settlement. In December 1998, the
Internal Revenue Service ("IRS") completed an examination of the Company's
corporate income tax returns for the years 1992 through 1994. As a result of the
IRS' findings, the Company agreed to and paid additional taxes of $.3 million in
January 1999 in connection with adjustments mainly related to the tax treatment
of research and experimentation costs. On December 11, 1998, the Internal
Revenue Service ("IRS") issued the Company a Notice of Proposed Adjustment in
the amount of $4.6 million principally in connection with the tax years 1992 and
1993 relating to the accounting treatment of certain items as they pertain to
the restructuring effort undertaken by the Company during 1994. The Company
disagreed with the position taken by the IRS and filed a formal protest of the
proposed adjustment on January 12, 1999. In management's opinion, the ultimate
disposition of this matter will not have a material adverse effect on the
financial position or results of operations of the Company.
On March 31, 1998, the New Hampshire Department of Revenue ("DOR") issued a
notice of deficiency in connection with an examination of the Company's
corporate income tax returns for the years 1989 through 1992 in the amount of
$4.4 million, including interest. The deficiency principally relates to the tax
treatment of the sale of the Company's International Office Systems business in
1990. A petition for reconsideration was filed with an appeals officer on May
26, 1998. The Company disagrees with the DOR and will continue to defend its
position. In management's opinion, the ultimate disposition of this matter will
not have a material adverse effect on the financial position or results of
operations of the Company.
Shareholders' Equity
On July 19, 1996, the Company's Board of Directors adopted a Shareholder Rights
Plan ("the Plan"), in which preferred stock purchase rights ("Rights") were
distributed on September 2, 1996 to holders of record on August 15, 1996
("Record Date") as a dividend at the rate of one Right for each share of the
Company's common stock outstanding as of the close of business on the Record
Date. These Rights replaced the rights outstanding under the Company's August
22, 1986 Rights Agreement, which expired on September 2, 1996. Rights will also
attach to shares of common stock issued after the Record Date. On June 24, 1998,
the Company's Board of Directors amended the plan increasing from 10 to 20
percent the beneficial ownership and tender offer threshold at which the Rights
would detach from the Company's common stock and become exercisable as described
below.
Each Right will entitle the holders of common stock of the Company to
purchase one one-hundredth of a share of Series B Junior Participating Preferred
Stock of the Company ("Series B Stock") at an exercise price of $75.00 (subject
to adjustment). Each share of Series B Stock would entitle its holder to a
quarterly dividend of $1.00 per share, an aggregate dividend of 100 times any
dividend declared on common stock and, in the event of liquidation of the
Company, each such share would entitle its holder to a payment of $1.00 plus 100
times the payment made per share of common stock. Initially, the Rights will be
attached to all certificates representing outstanding shares of common stock.
The Rights will detach and become exercisable only after a person or group
acquires beneficial ownership of 20 percent or more of the common stock of the
Company or announces a tender or exchange offer that would result in such person
or group owning 20 percent or more of the common stock of the Company.
26
<PAGE> 16
After a person becomes the beneficial owner of 20 percent or more of the
shares of common stock of the Company, except pursuant to a tender or exchange
offer for all shares at a fair price as determined by the outside Board members,
each Right not owned by the 20 percent or more shareholder will enable its
holder to purchase that number of shares of the Company's common stock which
equals the exercise price of the Right divided by one-half of the current market
price of such common stock at the date of the occurrence of the event
("Triggering Event"). After the occurrence of a Triggering Event, the Company's
Board of Directors may, at their option, exchange one share of common stock or
one one-hundredth of a share of Series B Stock for each Right (other than Rights
held by the 20 percent or more shareholder). In addition, if the Company is
involved in a merger or other business combination transaction with another
person or group in which it is not the surviving corporation or in connection
with which its common stock is changed or converted, or it sells or transfers 50
percent or more of its assets or earning power to another person, each Right
that has not previously been exercised will entitle its holder (other than the
20 percent or more shareholder) to purchase that number of shares of common
stock of such other person which equals the exercise price of the Right divided
by one-half of the current market price of such common stock at the date of the
occurrence of the event.
The Company will generally be entitled to redeem the Rights at $.01 per
Right at any time until the 10th day following public announcement that a 20
percent stock position has been acquired and in certain other circumstances. The
Rights will expire on September 2, 2006, unless earlier redeemed or exchanged.
In 1989, the Board of Directors authorized the Company to repurchase up to
1,000,000 shares of its common stock (the "1989 Repurchase Program"). As of
December 31, 1998, the Company had purchased 435,679 shares under this
authorization.
In 1998, the Board of Directors authorized the Company to repurchase up to
1,000,000 shares of its common stock and terminated the 1989 Repurchase Program.
As of December 31, 1998, the Company had purchased 651,654 shares under this
authorization.
The following summarizes the changes in selected shareholders' equity
accounts for each of the three years in the period ended December 31, 1998:
<TABLE>
<CAPTION>
Common Stock Cumulative Treasury Stock
--------------------- Additional Translation --------------------
(In thousands, except share data) Shares Par Value Capital Adjustment Shares Cost
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 6,502,570 $6,503 $12,178 $(4,618) (23,620) $ (751)
Stock issued for Director compensation 4,685 4 69 -- -- --
Translation adjustments and gains and losses
from certain inter-company balances -- -- -- 2,781 -- --
Restricted stock issuances 145,000 145 1,873 -- -- --
Deferred compensation -- -- (1,951) -- -- --
Restricted stock forfeiture (5,000) (5) (62) -- -- --
Purchase of treasury shares -- -- -- -- (410) (6)
------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 6,647,255 $6,647 $12,107 $(1,837) (24,030) $ (757)
Stock issued for Director compensation 7,740 8 82 -- -- --
Translation adjustments and gains and losses
from certain inter-company balances -- -- -- (1,445) -- --
Restricted stock issuances 85,500 86 1,077 -- -- --
Deferred compensation -- -- (1,162) -- -- --
Restricted stock forfeiture (25,000) (25) (275) -- -- --
Deferred compensation forfeiture -- -- 300 -- -- --
Purchase of treasury shares -- -- -- -- (34) (1)
Discontinuance of photofinishing segment -- -- -- 3,282 -- --
------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 6,715,495 $6,716 $12,129 $ -- (24,064) $ (758)
Stock issued for Director compensation 5,802 5 84 -- -- --
Stock options exercised and related tax benefit 236,600 237 2,828 -- -- --
Restricted stock issuances 105,000 105 1,568 -- -- --
Deferred compensation -- -- (1,673) -- -- --
Restricted stock forfeiture and conversion (124,500) (125) (1,518) -- -- --
Deferred compensation forfeiture -- -- 1,639 -- -- --
Purchase of treasury shares -- -- -- -- (651,674) (10,081)
------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 6,938,397 $6,938 $15,057 $ -- (675,738) $(10,839)
</TABLE>
27
<PAGE> 17
STOCK OPTION AND STOCK AWARD PLANS
The Company has three stock compensation plans at December 31, 1998: the 1987
Stock Option Plan ("1987 Plan"), the 1993 Stock Incentive Plan ("1993 Plan"),
and the 1996 Stock Incentive Plan ("1996 Plan"). Awards may no longer be granted
under the 1987 Plan and the 1993 Plan. Awards under the 1996 Plan are made at
the discretion of the Leadership and Compensation Committee of the Board of
Directors (the "Committee").
Under the 1987 Plan, nonqualified stock options and incentive stock options
have been awarded and become exercisable either (a) 50 percent on the first
anniversary of grant and the remainder on the second anniversary of grant, (b)
100 percent at six months from the date of grant, (c) 100 percent at one year
from the date of grant, or (d) otherwise as determined by the Committee. Certain
options may become exercisable immediately in the event of a change of control
as defined under this plan. Nonqualified stock options expire 10 years and one
day from the date of grant, and incentive stock options expire 10 years from the
date of grant.
Nonstatutory stock options, incentive stock options and shares of
performance based restricted stock have been awarded under the 1993 Plan and may
be awarded under the 1996 Plan. At December 31, 1998, an additional 44,623
shares may be awarded under the 1996 Plan. Stock options under both plans
generally become exercisable either (a) 50 percent on the first anniversary of
grant and the remainder on the second anniversary of grant, (b) 100 percent at
one year from the date of grant, or (c) otherwise as determined by the
Committee. Certain options may become exercisable immediately in the event of a
change in control as defined under these plans. Nonstatutory stock options under
both plans expire 10 years and one day from the date of grant, and incentive
stock options expire 10 years from the date of grant. Performance based
restricted stock awards under both plans have been granted to certain key
executives and are earned only if the closing price of the Company's common
stock meets specific target prices for certain defined periods of time or if
significant performance based events are achieved. During 1998, the Company
granted 105,000 shares of performance based restricted stock under the 1996
Plan. Restrictions on such shares lapse either (i) in equal amounts when the
average closing price of the Company's common stock reaches $18 and $20 for a
consecutive 10 trading day period; (ii) in equal amounts when the average
closing price of the Company's common stock reaches $19 and $21 for a
consecutive 10 trading day period; (iii) in equal amounts when the average
closing price of the Company's common stock reaches $21 and $23 for a
consecutive 10 trading day period; or (iv) 100% upon the occurrence of certain
significant performance based events. Shares issued under the plans are
initially recorded at their fair market value on the date of grant with a
corresponding charge to additional capital representing the unearned portion of
the award. Shares of performance based restricted stock are forfeited if the
specified average closing prices of the Company's common stock are not met
within five years of grant, the executive leaves the Company or if the said
significant performance based events do not take place within the specified time
period.
In the event of a change in control, as defined in the 1987 Plan, certain
option holders may, with respect to stock option agreements which so provide,
have a limited right with respect to options under the plans to elect to
surrender the options and receive cash or shares equal in value to the
difference between the option price and the larger of either the highest
reported price per share on the New York Stock Exchange during the sixty-day
period before the change in control or, if the change in control is the result
of certain defined transactions, the highest price per share paid in such
defined transactions.
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year 853,920 $14.75 469,714 $18.12 505,909 $22.88
Granted 64,500 15.60 465,500 12.33 150,000 11.86
Exercised (233,100) 12.37 - - - -
Forfeited - non-vested (34,500) 11.63 (33,950) 13.65 (35,775) 17.39
Forfeited - exercisable (103,450) 17.83 (42,060) 24.86 (147,520) 28.22
Expired - - (5,284) 28.75 (2,900) 19.38
-----------------------------------------------------------------------
Outstanding end of year 547,370 $15.47 853,920 $14.75 469,714 $18.12
Options exercisable at end of year 446,120 $15.83 402,420 $17.66 251,214 $22.04
Weighted average fair value of options granted
during the year (exercise price
equals market price) $ 6.60 $ 5.11 $ 4.88
</TABLE>
28
<PAGE> 18
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------
Weighted
Range of Number Average Weighted Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$9.63 - $12.75 313,650 9.1 years $11.98 272,400 $12.11
13.38 - 19.75 172,650 5.1 years 17.15 112,650 17.85
22.63 - 27.00 33,870 6.0 years 25.74 33,870 25.74
28.13 - 34.63 27,200 2.6 years 32.35 27,200 32.35
- -------------------------------------------------------------------------------------------------------
$9.63 - $34.63 547,370 7.6 years $15.47 446,120 $15.83
</TABLE>
The number and weighted average fair value per share of restricted stock
granted during 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Restricted Stock:
Number of shares 105,000 85,500 145,000
Weighted average fair value per restricted share $ 9.66 $ 5.56 $ 2.06
Weighted average share price at grant date $ 15.93 $13.59 $ 13.91
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation." The Company continues to measure compensation cost using the
intrinsic value based method of accounting prescribed by APB Opinion 25. If the
Company had elected to recognize compensation cost based on the fair value of
the options and restricted stock granted at grant date as prescribed by SFAS No.
123, net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported $(12,864) $ (8,822) $24,194
Net income (loss) - pro forma $(14,266) $(10,674) $23,433
Earnings (loss) per common share - as reported $ (2.04) $ (1.38) $ 3.79
Earnings (loss) per common share assuming
dilution - as reported $ (2.04) $ (1.38) $ 3.79
Earnings (loss) per share - pro forma $ (2.26) $ (1.67) $ 3.68
Earnings (loss) per share - pro forma assuming dilution $ (2.26) $ (1.67) $ 3.68
</TABLE>
29
<PAGE> 19
The assumptions and methods used in estimating the fair value at the grant
date of options and restricted shares granted are listed below:
<TABLE>
<CAPTION>
Grant Year
--------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Volatility of share price:
Options 37.0% 33.0% 31.0%
Restricted stock 12.0% 11.0% 6.0%
Dividend yield:
Options - - -
Restricted stock - - -
Interest rate:
Options 4.8% 6.3% 6.2%
Restricted stock 4.8% 5.9% 5.6%
Expected life of options 5.5 years 5.3 years 5.6 years
Valuation methodology:
Options Black-Scholes Option Pricing Model
Restricted stock Binomial Pricing Model
</TABLE>
Because the determination of the fair value of all options granted includes
vesting periods over several years and additional option grants are expected to
be made each year, the above pro forma disclosures are not representative of pro
forma effects of reported net income for future periods.
EARNINGS PER SHARE
Since the effect of stock options of 57,103 shares in 1998, 49,542 shares in
1997, and 25,811 shares in 1996 would be antidilutive to loss per share
computations, Basic EPS and Diluted EPS are identical for the years ended
December 31, 1998, 1997 and 1996. The computations of EPS for 1998, 1997 and
1996 include shares (denominator) of 6,319,775, 6,384,566 and 6,376,277,
respectively.
Performance based restricted stock of 286,000, 305,500 and 245,000 shares
for the years ended December 31, 1998, 1997 and 1996, respectively, were not
included in the above computations. Such shares may be issued in the future
subject to the occurrence of certain events as described in the "Stock Option
and Stock Award Plans" note.
COMMITMENTS AND CONTINGENCIES
Rent expense for office equipment, facilities and vehicles was $1.0 million, $.8
million and $1.0 million for 1998, 1997 and 1996, respectively. The Company also
received rental income on subleased facilities of $.2 million for the years
ended December 31, 1998 and 1997, and $0 for the year ended December 31, 1996.
At December 31, 1998, the Company was committed, under non-cancelable operating
leases, to minimum annual rentals as follows: 1999 - $.6 million; 2000 - $.4
million; 2001 - $.3 million; 2002 - $.3 million; 2003 - $.2 million; thereafter
- - $.3 million. Minimum annual rentals have not been reduced for future minimum
rentals under non-cancelable subleases aggregating $.8 million.
At December 31, 1998, the Company had no obligations under standby letters
of credit.
In April 1994, Ricoh Company, Ltd., Ricoh Electronics, Inc., and Ricoh
Corporation (collectively "Ricoh") brought a lawsuit in the United States
District Court of New Hampshire ("District Court"), alleging the Company's
infringement of the U.S. patents 4,611,730 and 4,878,603 relating to certain
toner cartridges for Ricoh copiers. In March 1997, the District Court enjoined
Nashua from manufacturing, using or selling its NT-50 and NT-6750 toner
cartridges. Sales of these products in 1996 amounted to one percent of Nashua's
total sales. The Company disagreed with the District Court's decision and
appealed to the United States Court of Appeals for the Federal Circuit ("Court
of Appeals"). On February 18, 1999, the Court of Appeals affirmed the March 1997
ruling of the District Court that the Company infringed a patent held by Ricoh.
Separately, on September 30, 1998, the District Court issued an order awarding
damages in the amount of $7,549,000 related to the Company's sales of NT-50 and
NT-6750 toner cartridges through December 3, 1995, additional damages relating
to the Company's sales of such products through March 1997, certain of Ricoh's
costs relative to the suit, and interest on such damages. The Company disagrees
with the District Court's decision on the issue of damages and has appealed the
decision to the Court of Appeals. The Company has adequate financial resources
to pay the District Court's award of damages should its appeal on damages be
unsuccessful. In connection with the damages award, the Company recorded a $15.0
million pretax charge in the third quarter of 1998 and is accruing interest on
such award. In addition, in the fourth quarter of 1998, the Company posted a
$16.0 million bond and placed $5.0 million in escrow to secure such bond. The
$5.0 million is classified as restricted cash in the balance sheet.
30
<PAGE> 20
In August and September 1996, two individual plaintiffs initiated lawsuits
in the Circuit Court of Cook County, Illinois against the Company, Cerion,
certain directors and officers of Cerion, and the Company's underwriter, on
behalf of classes consisting of all persons who purchased the common stock of
Cerion between May 24, 1996 and July 9, 1996. These two complaints were
consolidated. In March 1997, the same individual plaintiffs joined by a third
plaintiff filed a Consolidated Amended Class Action Complaint (the "Consolidated
Complaint"). The Consolidated Complaint alleged that, in connection with
Cerion's initial public offering, the defendants issued materially false and
misleading statements and omitted the disclosure of material facts regarding, in
particular, certain significant customer relationships. In October 1997, the
Court, on motion by the defendants, dismissed the Consolidated Complaint. The
plaintiffs filed a Second Amended Consolidated Complaint alleging substantially
similar claims as the Consolidated Complaint seeking damages and injunctive
relief. On May 6, 1998, the Court, on motion by the defendants, dismissed with
prejudice the Second Amended Consolidated Complaint. The plaintiffs have filed
an appeal of the Court's ruling. The Company continues to believe that this
lawsuit is without merit and plans to vigorously defend itself in this matter on
appeal.
The Company is involved in certain environmental matters and has been
designated by the Environmental Protection Agency ("EPA") as a potentially
responsible party ("PRP") for certain hazardous waste sites. In addition, the
Company has been notified by certain state environmental agencies that some of
the Company sites not addressed by the EPA require remedial action. These sites
are in various stages of investigation and remediation. Due to the unique
physical characteristics of each site, the technology employed, the extended
timeframes of each remediation, the interpretation of applicable laws and
regulations and the financial viability of other potential participants, the
ultimate cost to the Company of remediation for each site is difficult to
determine. At December 31, 1998, based on the facts currently known and the
Company's prior experience with these matters, the Company has concluded that
there is at least a reasonable possibility that site assessment, remediation and
monitoring costs will be incurred by the Company with respect to those sites
which can be reasonably estimated in the aggregate range of $1.0 million to $1.5
million. This range is based, in part, on an allocation of certain sites' costs
which, due to the joint and several nature of the liability, could increase if
the other PRPs are unable to bear their allocated share. At December 31, 1998,
the Company has accrued $1.5 million which represents, in management's view, the
most likely amount within the range stated above. Based on information currently
available to the Company, management believes that it is probable that the major
responsible parties will fully pay the costs apportioned to them. Management
believes that, based on its financial position and the estimated environmental
accrual recorded, its remediation expense with respect to those sites is not
likely to have a material adverse effect on its consolidated financial position
or results of operations.
POSTRETIREMENT BENEFITS
In 1998, the Company adopted Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
This statement standardizes the disclosure requirements for pensions and other
postretirement benefits. Prior years' information has been restated to conform
with the requirements of this statement.
Pension Plans: The Company and its subsidiaries have several pension plans which
cover substantially all of its regular full-time employees. Benefits under these
plans are generally based on years of service and the levels of compensation
during those years. The Company's policy is to fund amounts deductible for
income tax purposes. Assets of the plans are invested in common stocks,
fixed-income securities and interest-bearing cash equivalent instruments.
Retiree Health Care and Other Benefits: The Company also provides certain health
care and other benefits to eligible retired employees and their spouses.
Salaried participants generally become eligible for retiree health care benefits
after reaching age 60 with ten years of service. Benefits, eligibility and
cost-sharing provisions for hourly employees vary by location or bargaining
unit. Generally, the medical plans are fully insured managed care plans. In
1993, the postretirement benefit plan was changed to share the cost of benefits
with all retirees, resulting in an unrecognized benefit which is being amortized
over the future service period of the active employees.
31
<PAGE> 21
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
----------------------- ------------------------
(In thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $116,671 $108,805 $ 8,527 $ 8,219
Service cost 1,470 1,669 54 59
Interest cost 8,289 8,219 532 606
Amendments 188 - - -
Actuarial (gain)/loss 8,204 6,171 (764) 358
Benefits paid (9,466) (8,193) (651) (715)
-------------------------------------------------
Benefit obligation at end of year $125,356 $116,671 $ 7,698 $ 8,527
=================================================
Change in plan assets
Fair value of plan assets at beginning of year $125,011 $115,619 $ - $ -
Actual return on plan assets 13,924 15,621 - -
Employer contribution - 1,705 - -
Benefits paid (9,209) (7,934) - -
-------------------------------------------------
Fair value of plan assets at end of year $129,726 $125,011 $ - $ -
=================================================
Funded status $ 4,370 $ 8,340 $ (7,698) $ (8,527)
Unrecognized net actuarial (gain)/loss (17,717) (22,945) (2,869) (2,285)
Unrecognized prior service cost 3,749 4,478 (656) (758)
Unrecognized net transition asset 221 528 - -
-------------------------------------------------
Net amount recognized $ (9,377) $ (9,599) $(11,223) $(11,570)
=================================================
The amount recognized in the consolidated balance
sheet consists of the following:
Accrued benefit liability $ (9,377) $ (9,599) $(11,223) $(11,570)
Additional minimum liability (382) (335) - -
Intangible asset 382 335 - -
-------------------------------------------------
Net amount recognized $ (9,377) $ (9,599) $(11,223) $(11,570)
=================================================
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------------- -----------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average assumptions as of December 31
Discount rate 6.75% 7.25% 7.75% 6.75% 7.25% 7.75%
Expected return on plan assets 9.70% 9.70% 9.70% 9.70% 9.70% 9.70%
Average rate of compensation increase 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
</TABLE>
For measurement purposes, a 5.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999 and thereafter.
32
<PAGE> 22
Net periodic pension and postretirement benefit costs from continuing
operations for the plans, exclusive of enhanced early retirement and curtailment
costs, includes the following components:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------------- -------------------------
(In thousands) 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 1,470 $1,669 $2,360 $ 54 $ 59 $ 81
Interest cost 8,288 8,219 7,997 532 606 620
Expected return on plan assets (10,712) (9,834) (9,150) - - -
Amortization of prior service cost 605 633 610 (56) (59) (269)
Recognized net actuarial (gain) (53) (145) - (136) (118) (101)
Amortization of transition obligation 161 189 199 - - -
--------------------------------------------------------------
Net periodic benefit cost $ (241) $ 731 $2,016 $394 $488 $331
==============================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $3.1 million, $3.0 million, and $0, respectively, as
of December 31, 1998 and $2.9 million, $2.8 million, and $0, respectively, as of
December 31, 1997.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage 1-Percentage
(In thousands) Point Increase Point Decrease
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components $ 14 $ (12)
Effect on accumulated postretirement benefit obligation $107 $(100)
</TABLE>
The Company recognized curtailment expenses of $.3 million relating to the
sale of the photofinishing businesses in 1998, and $.3 million relating to the
Tape Products Division sale in 1996.
Approximately $9.8 million and $9.9 million of the accrued pension cost and
$10.6 million and $10.8 million of the accrued postretirement benefits for 1998
and 1997, respectively, are included in "Other long-term liabilities" in the
accompanying consolidated balance sheet. Intangible pension assets of $.4
million and of $.3 million for 1998 and 1997, respectively, are included in
"Other assets" in the accompanying consolidated balance sheet. Additionally,
approximately $.6 million and $.8 million of the accrued postretirement benefits
for 1998 and 1997, respectively, are included in "Accrued expenses" in the
accompanying consolidated balance sheet.
The Company is in the process of liquidating a pension plan related
primarily to the UK photofinishing business sold in 1998. At December 31, 1998,
the projected benefit obligation and accumulated benefit obligation under the
plan were $9.3 million and the fair value of plan assets was $11.4 million.
INFORMATION ABOUT OPERATIONS
During the fourth quarter of 1998, the Company adopted FAS 131. Prior year
segment information has been restated to present the Company's two reportable
segments - (1) Imaging Supplies and (2) Specialty Coated and Label Products.
The Imaging Supplies segment produces and sells copier and laser printer
supplies (primarily toner, developer, remanufactured cartridges, and the
distribution of paper) to distributors, original equipment manufacturers, and
end users. The Specialty Coated and Label Products segment manufactures
specialty coated paper and label products. These include various converted paper
products sold primarily to domestic converters and re-sellers, end users and
private label distributors.
The accounting policies of the segments are the same as those described in
the Summary of Significant Accounting Policies Note to the Consolidated
Financial Statements. Segment data does not include restructuring and other
unusual items, and does not allocate all corporate costs and assets to the
divisions. The Company evaluates the performance of its segments and allocates
resources to them based on pretax income before restructuring and other unusual
items.
Sales between business segments are insignificant. Intrasegment sales
between geographic areas are generally priced at the lowest price offered to
unaffiliated customers.
The Company's reportable segments are strategic business units grouped by
product class. They are managed separately because each business requires
different technology and marketing strategies. Due to similarities between the
Label Products and Specialty Coated Product Divisions, they have been aggregated
and reported as one reportable segment (Specialty Coated and Label Products).
33
<PAGE> 23
The table below presents information about reported segments for the years
ending December 31:
<TABLE>
<CAPTION>
Net Sales From Pretax Income (Loss) From
Continuing Operations Continuing Operations Identifiable Assets
-------------------------- ------------------------- ------------------------
(In millions) 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
By Reportable Segment
Imaging Supplies $ 57.5 $ 66.5 $ 88.3 $ (2.0) $ (3.6) $ (5.4) $ 21.2 $ 22.9 $ 23.8
Specialty Coated and Label Products 110.2 106.6 110.6 9.3 7.6 4.9 47.0 43.7 43.0
Reconciling items:
Other (1) .1 .1 .1 (.6) (1.5) (1.8) 1.0 .6 .6
Corporate expenses and assets - - - (4.9) (8.5) (10.9) 64.1 30.8 26.4
Restructuring and other unusual items - - - (13.8) (4.3) 1.7 - - -
Discontinued operations - - - - - - .8 48.8 82.9
-----------------------------------------------------------------------------------------
Consolidated $167.8 $173.2 $199.0 $(12.0) $(10.3) $(11.5) $134.1 $146.8 $176.7
=========================================================================================
</TABLE>
(1) Includes activity from operations which falls below the quantitative
thresholds for a reportable segment.
Capital expenditures and depreciation and amortization by reportable
segment are set forth below for the years ended December 31:
<TABLE>
<CAPTION>
Capital Expenditures Depreciation & Amortization
------------------------ ---------------------------
(In millions) 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Imaging Supplies $1.1 $ .8 $4.1 $2.1 $2.3 $3.1
Specialty Coated and Label Products 5.4 3.2 1.1 3.7 3.7 3.8
Reconciling Items:
Other (1) - - .1 .2 .2 .2
Corporate .2 .4 .6 .8 1.4 1.9
--------------------------------------------------------
Consolidated $6.7 $4.4 $5.9 $6.8 $7.6 $9.0
========================================================
</TABLE>
(1) Includes activity from operations which falls below the quantitative
thresholds for a reportable segment.
The following is information by geographic area as of and for the years
ended December 31:
<TABLE>
<CAPTION>
Net Sales From
Continuing Operations Long-Lived Assets
-------------------------- ------------------------
(In millions) 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
By Geographic Area
United States $167.5 $172.4 $198.5 $39.6 $39.9 $46.1
Europe .3 .8 .5 .4 .5 .5
Reconciling Items:
Discontinued operations - - - .8 48.7 49.2
---------------------------------------------------------
Consolidated $167.8 $173.2 $199.0 $40.8 $89.1 $95.8
=========================================================
</TABLE>
COMMON STOCK INFORMATION (UNAUDITED)
The Company's stock is traded on the New York Stock Exchange. At December 31,
1998, there were 1,275 record holders of the Company's common stock.
34
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF NASHUA CORPORATION:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Nashua
Corporation and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 5, 1999
35
<PAGE> 25
<TABLE>
<CAPTION>
OFFICERS
<S> <C> <C>
Gerald G. Garbacz Bruce T. Wright Joseph I. Gonzalez-Rivas
Chairman, President and Vice President Vice President/President,
Chief Executive Officer Human Resources Imaging Supplies Division
Peter C. Anastos Joseph R. Matson John J. Ireland
Vice President, General Vice President, Vice President/President,
Counsel and Secretary Corporate Controller Specialty Coated Products Division
John L. Patenaude Suzanne L. Ansara Gene P. Pache
Vice President-Finance, Assistant Secretary Vice President/President,
Chief Financial Officer Label Products Division
and Treasurer
DIRECTORS
Sheldon A. Buckler John M. Kucharski James F. Orr III
Chairman Chairman Chairman, President and
Commonwealth Energy System EG&G, Inc. Chief Executive Officer
(Technical and Scientific UNUM Corporation
Gerald G. Garbacz Products and Services) (Insurance)
Chairman, President and
Chief Executive Officer David C. Miller, Jr. Peter J. Murphy
Nashua Corporation President and Chief President and Chief
Executive Officer Executive Officer
Charles S. Hoppin ParEx Inc. Parlex Corporation
Senior Counsel (Investment Company) (Electrical Components)
Davis Polk & Wardwell
(Law Firm)
COMMITTEES
AUDIT/FINANCE AND LEADERSHIP AND
INVESTMENT COMMITTEE COMPENSATION COMMITTEE GOVERNANCE COMMITTEE
John M. Kucharski, Chairman James F. Orr III, Chairman Sheldon A. Buckler, Chairman
Sheldon A. Buckler John M. Kucharski Charles S. Hoppin
Charles S. Hoppin David C. Miller, Jr. David C. Miller, Jr.
Peter J. Murphy Peter J. Murphy James F. Orr III
</TABLE>
36
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES OF THE REGISTRANT
Nashua Corporation, or one of its wholly-owned subsidiaries, owns beneficially,
directly or indirectly, all of the capital stock in the following subsidiaries:
Jurisdiction of
Domestic Incorporation
- -------- ---------------
Nashua Belmont Limited (2) Delaware
Nashua International, Inc. (1) Delaware
Nashua Photo European Investments, Inc. (2) Delaware
Nashua Photo Inc. (1) Delaware
Nashua Photo International Investments, Inc. (2) Delaware
Nashua P.R., Inc. (1) Delaware
Jurisdiction of
Foreign Incorporation
- ------- ---------------
Nashua FSC Limited (1) Jamaica
Nashua Photo B.V. (2) Netherlands
Nashua Photo Limited (2) Canada
Nashua Imaging Supplies (UK) Limited England
Nashua Photo S.N.C.(3) France
Postal Film Services (Country-Wide) Limited (4) England
All of the above listed subsidiaries are included in Nashua's consolidated
financial statements.
(1) Stock held by Nashua Corporation
(2) Stock held by Nashua Photo Inc.
(3) Stock held 50% by Nashua Photo European Investments, Inc. and 50% by Nashua
Photo International Investments, Inc.
(4) Stock held by Nashua Imaging Supplies (UK) Limited
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 2-88669, No. 33-1 3995, No. 33-67940, No. 33-72438
and No. 333-06025) of Nashua Corporation of our report dated February 5, 1999,
appearing on page 35 of the Annual Report to Stockholders which is incorporated
in this Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule, which appears in
this Form 10-K.
Boston, Massachusetts
March 29, 1999
<PAGE> 1
EXHIBIT 24.01
Commission File No. 1-5492-1
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears below
constitutes and appoints John L. Patenaude and Peter C. Anastos and each of
them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign Nashua Corporation's Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Sheldon A. Buckler Director March 21, 1999
- ------------------------------
Sheldon A. Buckler
/s/ Charles S. Hoppin Director March 19, 1999
- ------------------------------
Charles S. Hoppin
/s/ John M. Kucharski Director March 24, 1999
- ------------------------------
John M. Kucharski
/s/ David C. Miller, Jr. Director March 19, 1999
- ------------------------------
David C. Miller, Jr.
/s/ Peter J. Murphy Director March 24, 1999
- ------------------------------
Peter J. Murphy
/s/ James F. Orr III Director March 23, 1999
- ------------------------------
James F. Orr III
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.0
<CASH> 36,965
<SECURITIES> 0
<RECEIVABLES> 19,098
<ALLOWANCES> (866)
<INVENTORY> 14,676
<CURRENT-ASSETS> 83,347
<PP&E> 73,057
<DEPRECIATION> (33,727)
<TOTAL-ASSETS> 134,095
<CURRENT-LIABILITIES> 37,473
<BONDS> 0
0
0
<COMMON> 6,938
<OTHER-SE> 68,289
<TOTAL-LIABILITY-AND-EQUITY> 134,095
<SALES> 167,831
<TOTAL-REVENUES> 167,831
<CGS> 127,089
<TOTAL-COSTS> 165,780
<OTHER-EXPENSES> 13,825
<LOSS-PROVISION> 176
<INTEREST-EXPENSE> (1,190)
<INCOME-PRETAX> (11,950)
<INCOME-TAX> (4,721)
<INCOME-CONTINUING> (7,229)
<DISCONTINUED> (5,635)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,864)
<EPS-PRIMARY> (2.04)
<EPS-DILUTED> (2.04)
</TABLE>
