<PAGE>

                                                                    Exhibit 10.1

                    CHANGE OF CONTROL AND SEVERANCE AGREEMENT

AGREEMENT by and between NASHUA CORPORATION, a Massachusetts corporation (the
"Company") and Donna J. DiGiovine (the "Executive"), dated as of the 5th day of
January, 2005.

RECITALS:

WHEREAS, the Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive as
President of the Company's Toner Products ("Toner") and Coated Paper ("Coated")
divisions, notwithstanding the possibility, threat or occurrence of a Change of
Control (as defined below) of the Company or other reasons of uncertainty;

WHEREAS, the Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and business concerns and
to encourage the Executive's full attention and dedication to the Company;

WHEREAS, the Board is implementing a value creation incentive plan to provide
the Executive and other members of management of the Company with additional
equity incentives;

WHEREAS, the Company and the Executive are parties to a Change of Control and
Severance Agreement dated as of February 25, 2000 (the "Prior Severance
Agreement");

WHEREAS, the parties wish to terminate the Prior Severance Agreement and replace
it with this Agreement; and

WHEREAS, in order to accomplish these objectives, the Board believes it is in
the best interests of the Company to enter into this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. CERTAIN DEFINITIONS.

      (a)   The "Effective Date" shall be the first date during the "Change of
            Control Period" (as defined in Section 1(b)) on which a Change of
            Control occurs. Anything in this Agreement to the contrary
            notwithstanding, if the Executive's employment with the Company is
            terminated or the Executive ceases to be an officer of the Company
            prior to the date on which a Change of Control occurs, and it is
            reasonably demonstrated that such termination of employment (1) was
            at the request of a third party who has taken steps reasonably
            calculated to effect the Change of Control or (2) otherwise arose in
            connection with or anticipation of the Change of Control, then for
            all purposes of this Agreement the "Effective Date" shall mean the
            date immediately prior to the date of such termination of
            employment.

      (b)   The "Change of Control Period" is the period commencing on the date
            hereof and

                                     - 1 -
<PAGE>

            ending on the third anniversary of such date; provided, however,
            that commencing on such third anniversary, and on each annual
            anniversary of such date (such date and each annual anniversary
            thereof is hereinafter referred to as the "Renewal Date"), the
            Change of Control Period shall be automatically extended so as to
            terminate one year from such Renewal Date, unless at least 60 days
            prior to the Renewal Date the Company shall give notice to the
            Executive that the Change of Control Period shall not be so
            extended.

      (c)   "Net Sale Price" shall mean the aggregate consideration paid for the
            Coated or Toner divisions, as the case may be. In the case of an
            asset sale, Net Sale Price means the aggregate consideration paid
            for the Coated or Toner divisions, as the case may be, plus assumed
            bank debt, but shall exclude assumed payables or other liabilities
            incurred in the ordinary course. In the case of a stock sale, merger
            or other business combination, Net Sale Price means the aggregate
            consideration paid. If any portion of the Net Sale Price is subject
            to contingencies or will be paid in an earn-out payment (other than
            amounts held in escrow to secure indemnification obligations
            relating to the transaction), the bonus with respect to such portion
            of the Net Sale Price shall be earned and paid upon the distribution
            of the payment subject to such contingencies or the earn-out
            payment, as the case may be, to the Company. The bonus shall not be
            adjusted for, nor shall payment of any portion of the bonus be
            delayed for, any portion of the Net Sale Price that is held in
            escrow to secure indemnification obligations relating to the
            transaction. Regardless of the form of transaction, value of real
            estate shall not be included in Net Sale Price, except in the event
            of liquidation.

      2.    CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
            Control" shall mean:

      (a)   The acquisition, other than from the Company, by any individual,
            entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
            of the Securities Exchange Act of l934, as amended (the "Exchange
            Act")) of beneficial ownership (within the meaning of Rule 13d-3
            promulgated under the Exchange Act) (a "Person") of 50% or more of
            either (i) the then outstanding shares of common stock of the
            Company (the "Outstanding Company Common Stock") or (ii) the
            combined voting power of the then outstanding voting securities of
            the Company entitled to vote generally in the election of directors
            (the "Company Voting Securities"), provided, however, that any
            acquisition by (x) the Company or any of its subsidiaries, or any
            employee benefit plan (or related trust) sponsored or maintained by
            the Company or any of its subsidiaries, or (y) any corporation with
            respect to which, following such acquisition, more than 60% of,
            respectively, the then outstanding shares of common stock of such
            corporation and the combined voting power of the then outstanding
            voting securities of such corporation entitled to vote generally in
            the election of directors is then beneficially owned, directly or
            indirectly, by all or substantially all of the individuals and
            entities who were the beneficial owners, respectively, of the
            Outstanding Company Common Stock and Company Voting Securities
            immediately prior to such acquisition in substantially the same
            proportion as their ownership, immediately prior to such
            acquisition, of the Outstanding Company Common Stock and Company
            Voting Securities, as the case may be, or (z) Gabelli Funds, LLC,
            GAMCO Investors, Inc., Gabelli Advisers, Inc., MJG Associates, Inc.,
            Gabelli Group Capital Partners, Inc., Gabelli Asset Management Inc.,
            Marc J. Gabelli

                                     - 2 -
<PAGE>

            and/or Mario J. Gabelli and/or any affiliate of any of the
            foregoing, in the case of each of such clauses (x), (y) and (z),
            shall not constitute a Change of Control; or

      (b)   Individuals who, as of the date hereof, constitute the Board (the
            "Incumbent Board") cease for any reason to constitute at least a
            majority of the Board, provided that any individual becoming a
            director subsequent to the date hereof whose election or nomination
            for election by the Company's shareholders, was approved by a vote
            of at least a majority of the directors then comprising the
            Incumbent Board shall be considered as though such individual were a
            member of the Incumbent Board, but excluding, for this purpose, any
            such individual whose initial assumption of office is in connection
            with an actual or threatened election contest relating to the
            election of the Directors of the Company (as such terms are used in
            Rule 14a-11 of Regulation 14A promulgated under the Exchange Act);
            or

      (c)   Consummation by the Company of a reorganization, merger or
            consolidation (a "Business Combination"), in each case, with respect
            to which all or substantially all of the individuals and entities
            who were the respective beneficial owners of the Outstanding Company
            Common Stock and Company Voting Securities immediately prior to such
            Business Combination do not, following such Business Combination,
            beneficially own, directly or indirectly, more than 60% of,
            respectively, the then outstanding shares of common stock and the
            combined voting power of the then outstanding voting securities
            entitled to vote generally in the election of directors, as the case
            may be, of the corporation resulting from Business Combination in
            substantially the same proportion as their ownership immediately
            prior to such Business Combination of the Outstanding Company Common
            Stock and Company Voting Securities, as the case may be; or

      (d)   (i) a complete liquidation or dissolution of the Company or of (ii)
            sale or other disposition of all or substantially all of the assets
            of the Company other than to a corporation with respect to which,
            following such sale or disposition, more than 60% of, respectively,
            the then outstanding shares of common stock and the combined voting
            power of the then outstanding voting securities entitled to vote
            generally in the election of directors is then owned beneficially,
            directly or indirectly, by all or substantially all of the
            individuals and entities who were the beneficial owners,
            respectively, of the Outstanding Company Common Stock and Company
            Voting Securities immediately prior to such sale or disposition in
            substantially the same proportion as their ownership of the
            Outstanding Company Common Stock and Company Voting Securities, as
            the case may be, immediately prior to such sale or disposition.

3.    EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in
      its employ, and the Executive hereby agrees to remain in the employ of the
      Company, for the period commencing on the Effective Date and ending on the
      first anniversary of such date (the "Employment Period").

4.    TERMS OF EMPLOYMENT.

      (a)   Position and Duties.

            (i)   During the Employment Period, (A) the Executive's position

                                     - 3 -
<PAGE>

                  (including status, offices, titles and reporting
                  requirements), authority, duties and responsibilities shall be
                  at least commensurate in all material respects with those
                  held, exercised and assigned at any time during the 90-day
                  period immediately preceding the Effective Date and (B) the
                  Executive's services shall be performed at the location where
                  the Executive was employed immediately preceding the Effective
                  Date or any office or location less than 35 miles from such
                  location.

            (ii)  During the Employment Period, the Executive agrees to devote
                  her reasonable full time and attention during normal business
                  hours to the business and affairs of the Company and, to the
                  extent necessary to discharge the responsibilities assigned to
                  the Executive hereunder, to use the Executive's best efforts
                  to perform faithfully and efficiently such responsibilities.
                  During the Employment Period it shall not be a violation of
                  this Agreement for the Executive to (A) serve on civic or
                  charitable boards or committees, (B) serve on corporate boards
                  or committees other than the Company's to the extent approved
                  by the Company's Board, (C) deliver lectures, fulfill speaking
                  engagements or teach at educational institutions and (D)
                  manage personal investments, so long as such activities do not
                  interfere with the performance of the Executive's
                  responsibilities as an employee of the Company in accordance
                  with this Agreement. It is expressly understood and agreed
                  that to the extent that any such activities have been
                  conducted by the Executive prior to the Effective Date, the
                  continued conduct of such activities (or the conduct of
                  activities similar in nature and scope thereto) subsequent to
                  the Effective Date shall not thereafter be deemed to interfere
                  with the performance of the Executive's responsibilities to
                  the Company.

      (b)   Compensation.

            (i)   Base Salary. During the Employment Period, the Executive shall
                  receive an annual base salary ("Annual Base Salary"), which
                  shall be paid at a monthly rate, at least equal to twelve
                  times the current monthly base salary being paid to the
                  Executive by the Company and its affiliated companies as of
                  the date of this Agreement. During the Employment Period, the
                  Annual Base Salary shall be reviewed at least annually and may
                  be increased at any time and from time to time in the sole
                  discretion of the Board. Any increase in Annual Base Salary
                  shall not serve to limit or reduce any other obligation to the
                  Executive under this Agreement. Annual Base Salary shall not
                  be reduced after any such increase and the term Annual Base
                  Salary as utilized in this Agreement shall refer to Annual
                  Base Salary as so increased. As used in this Agreement, the
                  term "affiliated companies" includes any company controlled
                  by, controlling or under common control with the Company.

            (ii)  Annual Bonus. In addition to Annual Base Salary, the Executive
                  may be awarded, for each fiscal year beginning or ending
                  during the

                                     - 4 -
<PAGE>

                  Employment Period, an annual bonus (the "Annual Bonus") in
                  cash as determined by the Board of Directors, in its sole
                  discretion.

            (iii) Incentive, Savings and Retirement Plans. In addition to Annual
                  Base Salary and Annual Bonus payable as hereinabove provided,
                  the Executive shall be entitled to participate during the
                  Employment Period in all incentive, savings and retirement
                  plans, practices, policies and programs applicable generally
                  to other peer executives of the Company and its affiliated
                  companies.

            (iv)  Welfare Benefit Plans. During the Employment Period, the
                  Executive and/or the Executive's family, as the case may be,
                  shall be eligible for participation in and shall receive all
                  benefits under welfare benefit plans, practices, policies and
                  programs provided by the Company and its affiliated companies
                  (including, without limitation, medical, prescription, dental,
                  disability, salary continuance, employee life, group life,
                  accidental death and travel accident insurance plans and
                  programs) to the extent generally applicable to other peer
                  executives of the Company and its affiliated companies.

            (v)   Expenses. During the Employment Period, the Executive shall be
                  entitled to receive reimbursement for all reasonable
                  documented expenses incurred by the Executive in accordance
                  with the policies, practices and procedures of the Company and
                  its affiliated companies.

            (vi)  Fringe Benefits. During the Employment Period, the Executive
                  shall be entitled to fringe benefits in accordance with the
                  plans, practices, programs and policies of the Company and its
                  affiliated companies in effect.

            (vii) Vacation. During the Employment Period, the Executive shall be
                  entitled to paid vacation in accordance with the plans,
                  policies, programs and practices of the Company and its
                  affiliated companies as in effect.

5.    TERMINATION OF EMPLOYMENT.

      (a)   Death or Disability. The Executive's employment shall terminate
            automatically upon the Executive's death during the Employment
            Period. If the Company determines in good faith that the Disability
            of the Executive has occurred during the Employment Period (pursuant
            to the definition of Disability set forth below), it may give to the
            Executive written notice in accordance with Section 16(b) of this
            Agreement of its intention to terminate the Executive's employment.
            In such event, the Executive's employment with the Company shall
            terminate effective on the 30th day after receipt of such notice by
            the Executive (the "Disability Effective Date"), provided that,
            within the 30 days after such receipt, the Executive shall not have

                                     - 5 -
<PAGE>

            returned to full-time performance of the Executive's duties. For
            purposes of this Agreement, "Disability" means the absence of the
            Executive from the Executive's duties with the Company on a
            full-time basis for 120 consecutive business days as a result of
            incapacity due to mental or physical illness determined by a
            physician selected by the Company or its insurers and acceptable to
            the Executive or Executive's legal representative (such agreement as
            to acceptability not to be withheld unreasonably).

      (b)   Cause. The Company may terminate the Executive's employment during
            the Employment Period for Cause. For purposes of this Agreement,
            "Cause" means (i) the Executive's continued documented failure to
            perform her reasonably assigned duties (other than any such failure
            resulting from incapacity due to physical or mental illness or any
            failure after the Executive gives notice of termination for Good
            Reason), which failure is not cured within 60 days after written
            notice for substantial performance is received by the Executive from
            the Board which identifies the manner in which the Board believes
            the Executive has not substantially performed the Executive's
            duties, (ii) the Executive being convicted of a felony, or (iii) the
            Executive's engagement in illegal conduct or gross misconduct
            injurious to the Company.

      (c)   Good Reason. The Executive's employment may be terminated during the
            Employment Period by the Executive for Good Reason. For purposes of
            this Agreement, "Good Reason" means:

            (i)   the assignment to the Executive of any duties inconsistent in
                  any material respect with the Executive's position (including
                  offices, titles and reporting requirements), authority or
                  responsibilities as contemplated by Section 4(a) of this
                  Agreement, or any other action by the Company which results in
                  a material diminution in such position, authority or
                  responsibilities;

            (ii)  a reduction in the Executive's Annual Base Salary as in effect
                  on the date of this Agreement or as the same was or may be
                  increased thereafter from time to time;

            (iii) the Company's requiring the Executive to be based at any
                  office or location other than that described in Section
                  4(a)(i)(B) hereof;

            (iv)  any purported termination by the Company of the Executive's
                  employment otherwise than as expressly permitted by this
                  Agreement; or

            (v)   any failure by the Company to comply with and satisfy Section
                  15(c) of this Agreement.

      (d)   Notice of Termination. Any termination by the Company for Cause or
            by the Executive for Good Reason shall be communicated by Notice of
            Termination to the other party hereto given in accordance with
            Section 16(b) of this Agreement. For purposes of this Agreement, a
            "Notice of Termination" means a written notice which (i) indicates
            the specific termination provision in this Agreement relied upon,
            (ii) to

                                     - 6 -
<PAGE>

            the extent applicable sets forth in reasonable detail the facts and
            circumstances claimed to provide a basis for termination of the
            Executive's employment under the provision so indicated and (iii) if
            the Date of Termination (as defined below) is other than the date of
            receipt of such notice, specifies the termination date (which date
            shall be not more than fifteen days after the giving of such
            notice).

      (e)   Date of Termination. "Date of Termination" means the date of receipt
            of the Notice of Termination or any later date specified therein, as
            the case may be; provided, however, that (i) if the Executive's
            employment is terminated by the Company other than for Cause or
            Disability, the Date of Termination shall be the date on which the
            Company notifies the Executive of such termination and (ii) if the
            Executive's employment is terminated by reason of death or
            Disability, the Date of Termination shall be the date of death of
            the Executive or the Disability Effective Date, as the case may be.

6.    OBLIGATIONS OF THE COMPANY UPON TERMINATION.

      (a)   Death. If the Executive's employment is terminated by reason of the
            Executive's death during the Employment Period, this Agreement shall
            terminate without further obligations to the Executive's legal
            representatives under this Agreement, other than the following
            obligations: (i) payment of the Executive's Annual Base Salary
            through the Date of Termination to the extent not theretofor paid,
            and (ii) payment of any accrued vacation pay not yet paid by the
            Company (the amounts described in paragraphs (i) and (ii) are
            hereafter referred to as "Accrued Obligations"). All Accrued
            Obligations shall be paid to the Executive's estate or beneficiary,
            as applicable, in a lump sum in cash within 30 days of the Date of
            Termination. In addition to the Accrued Obligations, in the event
            (A) the Board subsequently approves the payment of an annual bonus
            to members of management for the fiscal year in which the Date of
            Termination occurred and (B) the Executive was employed at least one
            quarter of such fiscal year, then the Executive's estate or
            beneficiary shall be entitled to receive an additional payment equal
            to the bonus that such Executive would have received for such fiscal
            year (as determined by the Board) multiplied by a fraction, the
            numerator of which is the number of days in such fiscal year for
            which the Executive was actually employed and the denominator is 365
            days.

      (b)   Disability. If the Executive's employment is terminated by reason of
            the Executive's Disability during the Employment Period, this
            Agreement shall terminate without further obligations to the
            Executive, other than for Accrued Obligations. All Accrued
            Obligations shall be paid to the Executive in a lump sum in cash
            within 30 days of the Date of Termination. In addition to the
            Accrued Obligations, in the event (A) the Board subsequently
            approves the payment of an annual bonus to members of management for
            the fiscal year in which the Date of Termination occurred and (B)
            the Executive was employed at least one quarter of such fiscal year,
            then the Executive shall be entitled to receive an additional
            payment equal to the bonus that such Executive would have received
            for such fiscal year (as determined by the Board) multiplied by a
            fraction, the numerator of which is the number of days in such
            fiscal year for which the Executive was actually employed and the
            denominator is 365 days.

                                     - 7 -
<PAGE>

      (c)   Cause; Other than for Good Reason. If the Executive's employment
            shall be terminated for Cause during the Employment Period, this
            Agreement shall terminate without further obligations to the
            Executive other than the obligation to pay to the Executive Annual
            Base Salary through the Date of Termination plus the amount of any
            compensation previously deferred by the Executive, in each case to
            the extent theretofore unpaid. If the Executive terminates
            employment during the Employment Period other than for Good Reason,
            this Agreement shall terminate without further obligations to the
            Executive, other than for Accrued Obligations. In such case, all
            Accrued Obligations shall be paid to the Executive in a lump sum in
            cash within 30 days of the Date of Termination.

      (d)   Good Reason; Other Than for Cause or Disability. If, during the
            Employment Period, the Company shall terminate the Executive's
            employment other than for Cause or Disability, or the Executive
            shall terminate employment during the Employment Period for Good
            Reason, the Company shall pay to the Executive in a lump sum in cash
            within 60 days after the Date of Termination, and subject to
            receiving an executed irrevocable Release as described in Section
            12, the aggregate of the following amounts:

            A.    all Accrued Obligations; and

            B.    the product of (x) three and (y) the sum of (i) Annual Base
                  Salary and (ii) the Annual Bonus paid or payable (including
                  any bonus or portion thereof which has been earned but
                  deferred) for the most recently completed fiscal year (the
                  "Severance Payments");

            provided, however, that the calculation of such Severance Payments
            shall be reduced from three to 1.5 in equal monthly amounts (i.e.,
            .125 per month) over the twelve-month period following the date
            hereof until the product is reduced from three to 1.5 such that on
            and after twelve months from the date of this Agreement the number
            "three" in clause (x) of Section 6(d)(B) above shall read "1.5."

            In addition, for the remainder of the Employment Period (if the
            termination took place during the Employment Period under this
            Section 6), the Company shall continue benefits to the Executive
            and/or the Executive's family at least equal to those which would
            have been provided to them in accordance with the plans, programs,
            practices and policies described in Section 4(b)(iv) of this
            Agreement if the Executive's employment had not been terminated in
            accordance with the most favorable plans, practices, programs or
            policies of the Company and its affiliated companies applicable
            generally to other peer executives and their families during the
            90-day period immediately preceding the Effective Date or, if more
            favorable to the Executive, as in effect generally at any time
            thereafter with respect to other peer executives of the Company and
            its affiliated companies and their families. For purposes of
            determining eligibility of the Executive for retiree benefits
            pursuant to such plans, practices, programs and policies, the
            Executive shall be considered to have remained employed until the
            end of the Employment Period and to have retired on the last day of
            such period.

            Notwithstanding the foregoing, if a Change of Control or other event
            shall have

                                     - 8 -
<PAGE>

            occurred before the Date of Termination that would result in the
            Executive becoming entitled to receive payments under this Agreement
            or any other arrangement that would be "parachute payments", as
            defined in Section 280G of the Internal Revenue Code of 1986, as
            amended from time to time (the "Code"), the Company shall not be
            obligated to make such payments to the Executive to the extent
            necessary to eliminate any "excess parachute payments" as defined in
            said Section 280G; provided, however, that if the Executive would be
            better off by at least $25,000 on an after-tax basis by receiving
            the full amount of the parachute payments as opposed to the cut back
            amount (notwithstanding a 20% excise tax) the Executive shall
            receive the full amount of the parachute payments.

      (e)   Other Benefits. To the extent not previously paid or provided, the
            Company shall timely pay or provide to the Executive any other
            amounts or benefits required to be paid or provided or which the
            Executive is eligible to receive following the Executive's
            termination of employment under any plan, program, policy, practice,
            contract or agreement of the Company and its affiliated companies
            (the "Other Benefits"). The Other Benefits shall be payable in
            accordance with the terms of the plan, program, policy, practice,
            contract or agreement under which such benefits have accrued.

7.    DIVISIONAL SALE AND CHANGE IN CONTROL BONUSES.

      (a)   Division Sale Bonus. Upon the consummation of the sale or
            liquidation of the Toner or Coated divisions, the Executive shall
            receive a bonus payment equal to 1% of the Net Sale Price of Coated
            or 3% of the Net Sale Price of Toner, as applicable, provided that
            the maximum bonus that shall be payable upon the sale of Toner shall
            be $400,000 and the maximum bonus payable upon the sale of Coated
            shall be $400,000. The bonus will be earned and payable only upon
            the consummation of the sale or liquidation of the applicable
            division.

      (b)   Appraisal. Any controversy or claim arising out of the determination
            of the Net Sale Price shall be settled by a qualified appraisal
            firm. The Company and the Executive shall each select one appraisal
            firm to handle the controversy or claim. In the event that the
            Company and the Executive are unable to agree on an appraisal firm,
            the Company and the Executive shall each select an appraisal firm,
            and the two appraisal firms shall together select a third appraisal
            firm to conduct the appraisal. The appraisal shall be conducted
            within ten days after the appointment of the appraisal firm. The
            Company shall bear the costs and expenses of the appraisal firm
            incurred in connection with such appraisal. The appraisal shall be
            final and binding on the parties.

      (c)   Change of Control Bonus. If there is a Change of Control of the
            Company prior to the consummation of the sale of either Toner or
            Coated, the Executive will be paid a change of control bonus as set
            forth below. The amount of the bonus to be paid upon a Change of
            Control shall be based on the fair market value, per share, of the
            consideration received by the Company's stockholders in connection
            with the Change in Control. If the fair market value, per share, of
            the consideration received by the Company's stockholders in
            connection with the Change in Control is:

            A.    at least $13.00, but less than $14.00, the bonus shall be
                  $410,000;

                                     - 9 -
<PAGE>

            B.    at least $14.00, but less than $15.00, the bonus shall be
                  $451,000; or

            C.    $15.00 or greater, the bonus shall be $496,000.

            No bonus shall be paid under this clause (c) if the fair market
      value, per share, of the consideration received by the Company's
      stockholders in connection with the Change in Control is less than $13.00.
      If only Toner or only Coated is sold prior to a Change of Control of the
      Company, the amount of the bonus payable under this clause (c) upon a
      Change of Control would be reduced by the amount of any bonus previously
      paid pursuant to clause (a) above with respect to such prior sale. The per
      share amounts set forth herein are subject to adjustment for stock splits,
      stock dividends, recapitalizations and similar events.

8.    SEVERANCE BENEFITS. Notwithstanding anything contained in this Agreement
      to the contrary, if, before or after the Employment Period, the
      Executive's employment is terminated by the Company for reason other than
      for Cause, the Company shall pay to the Executive one year's salary
      continuation and continue medical and dental benefits during such
      continuation period. In the event the Executive's employment is terminated
      prior to the consummation of the sale of both Coated and Toner, the
      Executive will continue to be eligible for the division sale bonus amount
      pursuant to Section 7(a) if the consummation of the sale of either Toner
      or Coated is closed within six months of the date of the last day of her
      actual employment with the Company.

9.    NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
      limit the Executive's continuing or future participation in any benefit,
      bonus, incentive or other plans, programs, policies or practices, provided
      by the Company or any of its affiliated companies and for which the
      Executive may qualify, nor shall anything herein limit or otherwise affect
      such rights as the Executive may have under any other agreements with the
      Company or any of its affiliated companies. Amounts which are vested
      benefits or which the Executive is otherwise entitled to receive under any
      plan, policy, practice or program of the Company or any of its affiliated
      companies at or subsequent to the Date of Termination shall be payable in
      accordance with such plan, policy, practice or program except as
      explicitly modified by this Agreement.

10.   FULL SETTLEMENT. The Company's obligation to make the payments provided
      for in this Agreement and otherwise to perform its obligations hereunder
      shall not be affected by any set-off, counterclaim, recoupment, defense or
      other claim, right or action which the Company may have against the
      Executive or others. In no event shall the Executive be obligated to seek
      other employment or take any other action by way of mitigation of the
      amounts payable to the Executive under any of the provisions of this
      Agreement. The Company agrees to pay, to the full extent permitted by law,
      all legal fees and expenses which the Executive may reasonably incur as a
      result of any contest (but only in the event the Executive is successful
      on the merits of such contest) by the Company, the Executive or others of
      the validity or enforceability of, or liability under, any provision of
      this Agreement or any guarantee of performance thereof, plus in each case
      interest at the applicable Federal rate provided for in Section 7872(f)(2)
      of the Internal Revenue Code of l986, as amended (the "Code").

11.   OTHER AGREEMENTS. The parties agree that this Agreement supersedes and
      replaces the Prior Severance Agreement and any and all other agreements,
      policies, understandings or letters (including but not limited to
      employment agreements, severance agreements and job abolishment policies)
      between the parties related to the subject matter hereof.

                                     - 10 -
<PAGE>

12.   RELEASE. Prior to receipt of the payment described in Sections 6(d), 7 or
      8, the Executive shall execute and deliver a Release to the Company as
      follows:

                  The Executive hereby fully, forever, irrevocably and
                  unconditionally releases, remises and discharges the Company,
                  its officers, directors, stockholders, corporate affiliates,
                  agents and employees from any and all claims, charges,
                  complaints, demands, actions, causes of action, suits, rights,
                  debts, sums of money, costs, accounts, reckonings, covenants,
                  contracts, agreements, promises, doings, omissions, damages,
                  executions, obligations, liabilities and expenses (including
                  attorneys' fees and costs), of every kind and nature which he
                  ever had or now has against the Company, its officers,
                  directors, stockholders, corporate affiliates, agents and
                  employees, including, but not limited to, all claims arising
                  out of his employment, all employment discrimination claims
                  under Title VII of the Civil Rights Act of 1964, 42 U.S.C.
                  Section 2000e et seq., the Age Discrimination in Employment
                  Act, 29 U.S.C., Section 621 et seq., the Americans With
                  Disabilities Act, 42 U.S.C., Section 12101 et seq., the New
                  Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann.
                  Section 354-A:1 et seq. and similar state antidiscrimination
                  laws, damages arising out of all employment discrimination
                  claims, wrongful discharge claims or other common law claims
                  and damages, provided, however, that nothing herein shall
                  release the Company from Executive's Stock Option Agreements
                  or Restricted Stock Agreements.

      The Release shall also contain, at a minimum, the following language:

                  The Executive acknowledges that he has been given twenty-one
                  (21) days to consider the terms of this Release and that the
                  Company advised him to consult with an attorney of his own
                  choosing prior to signing this Release. The Executive may
                  revoke this Release for a period of seven (7) days after the
                  execution of the Release and the Release shall not be
                  effective or enforceable until the expiration of this seven
                  (7) day revocation period.

      At the same time, the Company shall execute and deliver a Release to the
      Executive as follows:

            The Company hereby fully, forever, irrevocably and unconditionally
            releases, remises and discharges the Executive from any and all
            claims which it ever had or now has against the Executive, other
            than for intentional harmful acts.

13.   CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity
      for the benefit of the Company all secret or confidential information,
      knowledge or data relating to the Company or any of its affiliated
      companies, and their respective businesses, which shall have been obtained
      by the Executive during the Executive's employment by the Company or any
      of its affiliated companies and which shall not be or become public
      knowledge (other than by acts by the Executive or representatives of the
      Executive in violation of this Agreement). After termination of the
      Executive's employment with the Company, the Executive shall not, without
      the prior written consent of the Company, communicate or divulge any such
      information, knowledge or data to anyone other than the Company and those
      designated by it. In no event shall an asserted violation of the
      provisions of this Section 13 constitute a basis for deferring or
      withholding any amounts otherwise payable to the Executive under this
      Agreement.

                                     - 11 -
<PAGE>

14.   ARBITRATION. Any controversy or claim arising out of this Agreement shall
      be settled by binding arbitration in accordance with the commercial rules,
      policies and procedures of the American Arbitration Association. Judgment
      upon any award rendered by the arbitrator may be entered in any court of
      law having jurisdiction thereof. Arbitration shall take place in Nashua,
      New Hampshire at a mutually convenient location.

15.   SUCCESSORS.

      (a)   This Agreement is personal to the Executive and without the prior
            written consent of the Company shall not be assignable by the
            Executive otherwise than by will or the laws of descent and
            distribution. This Agreement shall inure to the benefit of and be
            enforceable by the Executive's legal representatives.

      (b)   This Agreement shall inure to the benefit of and be binding upon the
            Company and its successors and assigns.

      (c)   The Company will require any successor (whether direct or indirect,
            by purchase, merger, consolidation or otherwise) to all or
            substantially all of the business and/or assets of the Company to
            assume expressly and agree to perform this Agreement in the same
            manner and to the same extent that the Company would be required to
            perform it if no such succession had taken place. As used in this
            Agreement, "Company" shall mean the Company as hereinbefore defined
            and any successor to its business and/or assets as aforesaid which
            assumes and agrees to perform this Agreement by operation of law or
            otherwise.

16.   MISCELLANEOUS.

      (a)   This Agreement shall be governed by and construed in accordance with
            the laws of the Commonwealth of Massachusetts, without reference to
            principles of conflict of laws. The captions of this Agreement are
            not part of the provisions hereof and shall have no force or effect.
            This Agreement may not be amended or modified otherwise than by a
            written agreement executed by the parties hereto or their respective
            successors and legal representatives.

      (b)   All notices and other communications hereunder shall be in writing
            and shall be given by hand delivery to the other party or by
            registered or certified mail, return receipt requested, postage
            prepaid, addressed as follows:

                  If to the Executive:

                      Donna J. DiGiovine
                      6 Lakeside Terrace
                      Westford, MA  01886

                  If to the Company:

                      Nashua Corporation
                      11 Trafalgar Square
                      Nashua, New Hampshire 03063
                      Attention: President

                                     - 12 -
<PAGE>

            or to such other address as either party shall have furnished to the
            other in writing in accordance herewith. Notice and communications
            shall be effective when actually received by the addressee.

      (c)   The invalidity or unenforceability of any provision of this
            Agreement shall not affect the validity or enforceability of any
            other provision of this Agreement.

      (d)   The Company may withhold from any amounts payable under this
            Agreement such Federal, state or local taxes as shall be required to
            be withheld pursuant to any applicable law or regulation.

      (e)   The Executive's failure to insist upon strict compliance with any
            provision hereof or the failure to assert any right the Executive
            may have hereunder, including, without limitation, the right to
            terminate employment for Good Reason pursuant to Section
            5(c)(i)-(v), shall not be deemed to be a waiver of such provision or
            right or any other provision or right thereof.

      (f)   This Agreement contains the entire understanding of the Company and
            the Executive with respect to the subject matter hereof. The
            Executive and the Company acknowledge that the employment of the
            Executive by the Company is "at will" and, prior to the Effective
            Date, both the Executive's employment and this Agreement may be
            terminated by either the Company or the Executive at any time. In
            the event that this Agreement is terminated by the Company prior to
            the Effective Date and the Executive remains employed by the
            Company, the Executive would be entitled to the same severance
            benefits as set forth in Section 8 of this Agreement.

IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

NASHUA CORPORATION                             EXECUTIVE

By /s/ Andrew B. Albert                        By  /s/ Donna J. DiGiovine
  -------------------------------------            -----------------------------
  President and Chief Executive Officer             Name: Donna J. DiGiovine

                                     - 13 -