INDEMNIFICATION
      AGREEMENT

    


    This
      Indemnification Agreement (this “Agreement”) is made as of the 7th
      day of
      March, 2007 by and between MOD-PAC CORP., a New York corporation (the
“Corporation”) and LARRY N. KESSLER (“Indemnitee”), a director, officer or key
      employee of the Corporation.

     

    WITNESSETH:

    


    WHEREAS,
      it is essential to the Corporation to retain and attract directors, officers
      and
      key employees who are the most capable persons available; 

     

    WHEREAS,
      the Indemnitee is serving or has agreed to serve as a director, officer or
      key
      employee of the Corporation and in such capacity will render valuable services
      to the Corporation;

     

    WHEREAS,
      the substantial increase in corporate litigation subjects directors, officers
      and key employees to expensive litigation risks at the same time that the
      availability of directors’ and officers’ liability insurance and fiduciary
      insurance has been severely limited; 

     

    WHEREAS,
      it is now, and has always been, the express policy of the Corporation to
      indemnify its directors, officers and key employees so as to provide them with
      the maximum possible protection permitted by law; and

     

    WHEREAS,
      Indemnitee may not be willing to serve or to continue to serve as a director,
      officer or key employee without adequate protection, and the Corporation desires
      Indemnitee to continue to serve in such capacity.

     

    NOW,
      THEREFORE, in consideration of the Indemnitee’s continued service as a director,
      officer or key employee of the Corporation, the Corporation and Indemnitee
      do
      hereby agree as follows:

     

    1.  Agreement
      to Serve.
      Indemnitee
      agrees to continue to serve as a director, officer or key employee of the
      Corporation for so long as he or she is duly elected or appointed or until
      such
      time as he or she tenders his or her resignation in writing. This provision
      is
      not a guarantee of employment.

     

    2.  Definitions.
      As
      used
      in this Agreement:

     

    (a)  The
      term
“Proceeding” shall include any threatened, pending, or completed action, suit,
      or proceeding, whether brought by or in the right of the Corporation or one
      of
      its subsidiaries or otherwise, and whether of a civil, criminal, administrative,
      or investigative nature, in which Indemnitee is or was a party or is threatened
      to be made a party by reason of the fact that Indemnitee is or was a director,
      officer or employee of the Corporation (or any subsidiary of the Corporation),
      or is or was serving at the request of the Corporation as a director, officer,
      employee, member, manager, trustee, agent, or fiduciary of another corporation,
      limited liability company, partnership, joint venture, trust, or other
      enterprise.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)  The
      term
“Expenses” shall include, without limitation, expenses of investigation,
      judicial or administrative proceedings or appeals, amounts paid in settlement
      by
      or on behalf of Indemnitee, attorneys’ fees and disbursements, experts’ fees and
      disbursements and any expenses of establishing a right to indemnification under
      Paragraph 7 of this Agreement.

     

    (c)  References
      to “other enterprises” shall include employee benefit plans; references to
“fines” shall include any excise taxes assessed on Indemnitee with respect to
      any employee benefit plan; references to “serving at the request of the
      Corporation” shall include any service as a director, officer, employee or agent
      of the Corporation which imposes duties on, or involves services by, such
      director, officer, employee, agent, or fiduciary with respect to an employee
      benefit plan, its participants, or beneficiaries; and a person who acted in
      good
      faith and in a manner he or she reasonably believed to be in the interest of
      the
      participants and beneficiaries of an employee benefit plan shall be deemed
      to
      have acted in a manner “not opposed to the best interest of the Corporation” as
      referred to in this Agreement.

     

    3.  Indemnity
      in Third-Party Proceedings.
      The
      Corporation shall indemnify Indemnitee in accordance with the provisions of
      this
      Paragraph 3, against all Expenses, judgments, fines, and penalties actually
      and
      reasonably incurred by Indemnitee in connection with the defense or settlement
      of any Proceeding (other than a Proceeding by or in the right of the Corporation
      to procure a judgment in its favor) if Indemnitee acted in good faith and in
      a
      manner which he or she reasonably believed to be in or not opposed to the best
      interests of the Corporation, and, in the case of a criminal proceeding, had
      no
      reasonable cause to believe that his or her conduct was unlawful. The
      termination of any such Proceeding by judgment, order, settlement, conviction,
      or upon a plea of nolo contendere or its equivalent, shall not, of itself,
      create a presumption that Indemnitee did not act in good faith in a manner
      which
      he or she reasonably believed to be in or not opposed to the best interests
      of
      the Corporation, and, with respect to any criminal proceeding, that Indemnitee
      did not have reasonable cause to believe that his or her conduct was
      unlawful.

     

    4.  Indemnity
      in Proceedings By or In the Right of the Corporation.
      The
      Corporation shall indemnify Indemnitee, in accordance with the provisions of
      this Paragraph 4, against all Expenses actually and reasonably incurred by
      Indemnitee in connection with the defense or settlement of any Proceeding by
      or
      in the right of the Corporation to procure a judgment in its favor, including
      the amount of the judgment or settlement, if Indemnitee acted in good faith
      and
      in a manner which he or she reasonably believed to be in or not opposed to
      the
      best interests of the Corporation; provided, however, that no indemnification
      for Expenses shall be made under this Paragraph 4 in respect of any claim,
      issue, or matter as to which Indemnitee shall have been adjudged to be liable
      to
      the Corporation unless and only to the extent that the court in which such
      Proceeding was brought, or, if no action was brought, any court of competent
      jurisdiction, determines upon application that, despite the adjudication of
      liability but in view of all the circumstances of the case, Indemnitee is fairly
      and reasonably entitled to indemnity for the Expenses and the amount of the
      judgment or settlement which the court shall deem proper.

     

    
      
        
        

      

      
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    5.  Indemnification
      of Expenses of Successful Party.
      Notwithstanding
      any other provision of this Agreement, to the extent that Indemnitee has been
      successful on the merits or otherwise, in defense of any Proceeding, or in
      defense of any claim, issue, or matter therein, Indemnitee shall be indemnified
      against all Expenses actually and reasonably incurred by Indemnitee in
      connection therewith to the fullest extent permitted by New York
      Law.

     

    6.  Advances
      of Expenses.
      At
      the
      written request of Indemnitee, the Expenses actually and reasonably incurred
      by
      Indemnitee in any Proceeding shall be paid by the Corporation in advance of
      the
      final disposition of such Proceeding and within 30 days after request therefor.
      Indemnitee will repay any such Expenses that are advanced under this Paragraph
      6
      if it is ultimately determined, in a final, non-appealable judgment rendered
      by
      the court of last resort (or by a lower court if not timely appealed), that
      Indemnitee is not entitled to be indemnified against such Expenses. This
      undertaking by Indemnitee is an unlimited general undertaking but no security
      for such undertaking will be required. If the Corporation makes an advance
      of
      expenses pursuant to this Paragraph 6, the Corporation shall be subrogated
      to
      every right of recovery Indemnitee may have against any insurance carrier from
      whom the Corporation has purchased insurance for such purpose.

     

    7.  Right
      of Indemnitee to Indemnification Upon Application; Procedure Upon
      Application.

     

    (a)  Subject
      to Paragraph 8 of this Agreement, Indemnitee will be presumed to be entitled
      to
      indemnification under this Agreement. The burden of proving that indemnification
      or advances of Expenses are not appropriate shall be on the
      Corporation.

     

    (b)  Any
      indemnification under Paragraphs 3 and 4 (other than the advancement of
      Expenses) shall be paid by the Corporation no later than 30 days after receipt
      of the written request of Indemnitee, unless a determination is made within
      the
      30-day period by (i) the Board of Directors by a majority vote of directors
      who
      are not and were not parties to the Proceeding in respect of which
      indemnification is being sought (“Disinterested Directors”), (ii) a committee of
      the Board of Directors comprised of Disinterested Directors or (iii) independent
      legal counsel in a written opinion (which counsel shall be appointed by a vote
      of the Disinterested Directors), that Indemnitee has not met the relevant
      standards for indemnification set forth in Paragraphs 3 and 4. If requested
      by
      the Indemnitee in writing, any such determination shall be made by independent
      legal counsel not previously employed by the Corporation or any Affiliate
      thereof (“Affiliate” having the meaning defined in Rule 144 promulgated by the
      Securities and Exchange Commission under the Securities Act of 1933, as
      amended).

     

    (c)  Indemnitee
      will be entitled to a hearing before the Board of Directors of Corporation
      or
      the Disinterested Directors and/or any other person or persons making a
      determination and evaluation under Paragraph 7(b). Indemnitee will be entitled
      to be represented by counsel at such
      hearing. The cost of any determination and evaluation under Paragraph 7(b)
      (including attorneys’ fees and other expenses incurred by Indemnitee in
      preparing for and attending the hearing contemplated by Paragraph 7 and
      otherwise in connection with the determination and evaluation under Paragraph
      7)
      will be borne by the Corporation.

     

    
      
        
        

      

      
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    (d)  The
      right
      to indemnification or advancement of Expenses as provided by this Agreement
      shall be enforceable by Indemnitee in any court of competent jurisdiction.
      Neither the failure of the Corporation (including its Board of Directors or
      independent legal counsel) to have made a determination prior to the
      commencement of such action that Indemnitee has met the applicable standard
      of
      conduct nor an actual determination by the Corporation (including its Board
      of
      Directors or independent legal counsel) that Indemnitee has not met such
      standard shall be a defense to the action or create a presumption that
      Indemnitee has not met the applicable standard of conduct. Indemnitee’s Expenses
      actually and reasonably incurred in connection with successfully establishing
      his or her right to indemnification or advances, in whole or in part, shall
      also
      be indemnified by the Corporation.

     

    (e)  With
      respect to any Proceeding for which indemnification is requested, the
      Corporation will be entitled to participate therein at its own expense and,
      except as otherwise provided below, the Corporation may assume the defense
      thereof, with counsel satisfactory to Indemnitee. After notice from the
      Corporation to Indemnitee of its election to assume the defense of a Proceeding,
      the Corporation will not be liable to Indemnitee under this Agreement for any
      Expenses subsequently incurred by Indemnitee in connection with the defense
      thereof, other than as provided below. The Corporation shall not settle any
      Proceeding in any manner which would impose any penalty or limitation on
      Indemnitee without Indemnitee’s written consent. Indemnitee shall have the right
      to employ counsel in any Proceeding but the fees and expenses of such counsel
      incurred after notice from the Corporation of its assumption of the defense
      of
      the Proceeding shall be at the expense of Indemnitee, unless (i) the employment
      of counsel by Indemnitee has been authorized by the Corporation, (ii) Indemnitee
      shall have reasonably concluded that there may be a conflict of interest between
      the Corporation and Indemnitee in the conduct of the defense of a Proceeding,
      or
      (iii) the Corporation shall not in fact have employed counsel to assume the
      defense of a Proceeding, in each of which cases the fees and expenses of
      Indemnitee ’s counsel shall be advanced by the Corporation. Notwithstanding the
      foregoing, the Corporation shall not be entitled to assume the defense of any
      Proceeding brought by or in the right of the Corporation.

     

    (f)  The
      Corporation shall pay to Indemnitee, at the time payments are made to Indemnitee
      for Expenses, judgments, fines or penalties pursuant to this Agreement, an
      additional payment (the “Gross Up Amount”) such that after payment of all taxes,
      if any, on payments so made, including the amount of the Gross Up Amount,
      Indemnitee retains an amount equal to the amount to be received.

     

    8.  Limitation
      on Indemnification.
      No
      payment pursuant to this Agreement shall be made by the
      Corporation:

     

    (a)  to
      indemnify or advance funds to Indemnitee for Expenses with respect to
      Proceedings initiated or brought or joined in voluntarily by Indemnitee and
      not
      by way of defense, except with respect to Proceedings brought to establish
      or
      enforce a right to indemnification or advancement of Expenses under this
      Agreement or as otherwise required by New York law, but such indemnification
      or
      advancement of Expenses may be provided by the Corporation in specific cases
      if
      the Board of Directors finds it to be appropriate;

     

    
      
        
        

      

      
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    (b)  to
      indemnify Indemnitee for any Expenses, judgments, fines or penalties sustained
      in any Proceeding for which payment is actually made to Indemnitee under a
      valid
      and collectible insurance policy, except in respect of any excess beyond the
      amount of payment under such insurance;

     

    (c)  to
      indemnify Indemnitee for any Expenses, judgments, fines or penalties sustained
      in any Proceeding for an accounting of profits made from the purchase or sale
      by
      Indemnitee of securities of the Corporation pursuant to the provisions of §
16(b) of the Securities Exchange Act of 1934, the rules and regulations
      promulgated thereunder and amendments thereto or similar provisions of any
      federal, state, or local statutory law; or

     

    (d)  if
      a
      court of competent jurisdiction finally determines that such payment hereunder
      is unlawful.

     

    9.  Indemnification
      Hereunder Not Exclusive.
      The
      indemnification and advancement of Expenses provided by this Agreement shall
      not
      be deemed exclusive of any other rights to which indemnitee may be entitled
      under the Certificate of Incorporation or the By-Laws of the Corporation, any
      agreement, any vote of stockholders or disinterested Directors, the Business
      Corporation Law of the State of New York, or otherwise, both as to action in
      his
      official capacity and as to action in another capacity while holding such
      office. To the extent the provisions of this Agreement conflict with the
      provisions regarding indemnification and advancement of Expenses in the By-Laws
      of the Corporation, this Agreement will
      control. The indemnification provided by this Agreement shall continue as to
      Indemnitee even though he or she may have ceased to be a director, officer
      or
      key employee and shall inure to the benefit of the heirs and personal
      representatives of Indemnitee.

     

    10.  Partial
      Indemnification.
      If
      Indemnitee is entitled under any provision of this Agreement to indemnification
      by the Corporation for a portion of the Expenses, judgments, fines or penalties
      actually and reasonably incurred by him or her in any Proceeding but not,
      however, for the total amount thereof, the Corporation shall nevertheless
      indemnify Indemnitee for the portion of such Expenses, judgments, fines or
      penalties to which Indemnitee is entitled.

     

    11.  Indemnification
      of Indemnitee’s Estate.
      Notwithstanding any other provision of this Agreement, and regardless whether
      indemnification of the Indemnitee would be permitted and/or required under
      this
      Agreement, if the Indemnitee is deceased, the Corporation shall indemnify and
      hold harmless the Indemnitee’s estate, spouse, heirs, administrators, personal
      representatives and executors (collectively the “Indemnitee’s Estate”) against,
      and the Corporation shall assume, any and all claims, damages, Expenses,
      penalties, judgments and fines actually incurred by the Indemnitee or the
      Indemnitee’s Estate in connection with the investigation, defense, settlement or
      appeal of any Proceeding. Indemnification of the Indemnitee’s Estate pursuant to
      this Section 11 shall be mandatory and not require any determination or finding
      that the Indemnitee’s conduct satisfied a particular standard of
      conduct.

     

    
      
        
        

      

      
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    12.  Spousal
      Indemnification.
      The
      indemnifications, benefits and obligations of this Agreement shall extend to
      the
      spouse of an Indemnitee in the event that the spouse is made a party to a
      Proceeding or collection, execution or enforcement efforts arising from a
      Proceeding. 

     

    13.  Limitation
      of Actions and Release of Claims.
      No
      proceeding shall be brought and no cause of action shall be asserted by or
      on
      behalf of the Corporation or any subsidiary against the Indemnitee, his or
      her
      spouse, heirs, estate, executors or administrators after the expiration of
      one
      year from the act or omission of the Indemnitee upon which such proceeding
      is
      based; however, in a case where the Indemnitee fraudulently conceals the facts
      underlying such cause of action, no proceeding shall be brought and no cause
      of
      action shall be asserted after the expiration of one year from the earlier
      of
      (i) the date the Corporation or any subsidiary of the Corporation discovers
      such
      facts, or (ii) the date the Corporation or any subsidiary of the Corporation
      could have discovered such facts by the exercise of reasonable diligence. Any
      claim or cause of action of the Corporation or any subsidiary of the
      Corporation, including claims predicated upon the act or omission of the
      Indemnitee, shall be extinguished and deemed released unless asserted by filing
      of a legal action within such period. This section shall not apply to any cause
      of action which has accrued on the date hereof and of which the indemnitee
      is
      aware on the date hereof, but as to which the Corporation has no actual
      knowledge apart from the Indemnitee’s knowledge.

     

    14.  Maintenance
      of Liability Insurance.

     

    (a)  The
      Corporation hereby covenants and agrees that, as long as Indemnitee continues
      to
      serve as a director, officer or key employee of the Corporation and thereafter
      as long as Indemnitee may be subject to any Proceeding, the Corporation, subject
      to subsection (c) below, shall maintain in full force and effect directors’ and
      officers’ liability insurance (“D&O Insurance”) in reasonable amounts from
      established and reputable insurers.

     

    (b)  In
      all
      D&O Insurance policies, Indemnitee shall be named as an insured in such a
      manner as to provide the Indemnitee the same rights and benefits as are accorded
      to the most favorably insured of the Corporation’s directors and
      officers.

     

    (c)  Notwithstanding
      the foregoing, the Corporation shall have no obligation to obtain or maintain
      D&O Insurance if the Corporation determines in good faith that such
      insurance is not reasonably available, the premium costs for such insurance
      are
      disproportionate to the amount of coverage provided, the coverage provided
      by
      such insurance is so limited by exclusions that it provides an insufficient
      benefit, or Indemnitee is covered by similar insurance maintained by a
      subsidiary of the Corporation.

     

    
      
        
        

      

      
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    15.  Savings
      Clause. If
      this
      Agreement or any portion hereof is invalidated on any ground by any court of
      competent jurisdiction, the Corporation shall nevertheless indemnify Indemnitee
      to the extent permitted by any applicable portion of this Agreement that has
      not
      been invalidated or by any other applicable law.

     

    16.  Notice.
      Indemnitee
      shall, as a condition precedent to his or her right to be indemnified under
      this
      Agreement, give to the Corporation notice in writing as soon as practicable
      of
      any Proceeding for which indemnity will or could be sought under this Agreement.
      Notice to the Corporation shall be directed to MOD-PAC CORP., 1801 Elmwood
      Avenue, Buffalo, New York 14207-2496, Attention: Corporate Secretary (or such
      other address as the Corporation shall designate in writing to Indemnitee).
      Notice shall be deemed received three days after the date postmarked if sent
      by
      prepaid mail, properly addressed. In addition, Indemnitee shall give the
      Corporation such information and cooperation as it may reasonably require and
      as
      shall be within Indemnitee’s power.

     

    17.  Counterparts.
      This
      Agreement may be executed in any number of counterparts, all of which shall
      be
      deemed to constitute one and the same instrument.

     

    18.  Applicable
      Law.
      This
      Agreement shall be governed by, and construed and interpreted in accordance
      with, the law of the State of New York

     

    19.  Successors
      and Assigns.
      This
      Agreement shall be binding upon the Corporation and its successors and
      assigns.

     

    20.  Amendments.
      No
      amendment, waiver, modification, termination, or cancellation of this Agreement
      shall be effective unless in writing signed by both parties hereto. The
      indemnification rights afforded to Indemnitee hereby are contract rights and
      may
      not be diminished, eliminated, or otherwise affected by amendments to the
      Certificate of Incorporation or Bylaws of the Corporation or by other
      agreements.

     

    21.  Cessation
      of Employment.
      The
      benefits of this Agreement shall extend to and include officers, directors
      and
      key employees of the Corporation who retire or cease their employment with
      the
      Corporation.

     

    22.  Prior
      Agreements.
      This
      Agreement replaces and supersedes all prior agreements dealing with the same
      subject matter as this Agreement.

     

    23.  Cooperation
      and Interest.
      The
      Corporation shall cooperate in good faith with the Indemnitee and use its best
      efforts to ensure that the Indemnitee is indemnified and/or reimbursed for
      liabilities described in this Agreement to the fullest extent permitted by
      law.

     

    24.  Effective
      Date.
      The
      provisions of this Agreement shall cover claims, actions, suits and proceedings,
      whether now pending or hereafter commenced, and shall be retroactive to cover
      acts or omissions or alleged acts or omissions which heretofore have taken
      place.

     

    
      
        
        

      

      
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    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
      executed and signed as of the day and year first above written.

     

    
      	 	 	 
	Attest:	 	MOD-PAC CORP.
	 
 	 
 	 
 
	/s/
              John B. Drenning	By:  	/s/
              Daniel G. Keane
	
              
Secretary	
              
Name:
              Daniel G. Keane
	 	Title:
              President and CEO


    

    
       

      
        	 	        	/s/
                Larry N.
                Kessler
	
              	
                
                  

                

                Indemnitee

              


      

       

      
        
          
          

        

        
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