<PAGE>   1

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

(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, 1999
                                       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 _____________________

                         COMMISSION FILE NUMBER 1-5492-1

                               NASHUA CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

          DELAWARE                                         02-0170100
(State or Other Jurisdiction of                (IRS Employer Identification No.)
 Incorporation or Organization)

        44 FRANKLIN STREET
       NASHUA, NEW HAMPSHIRE                                03064-2665
(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
-------------------                                      -----------------------
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 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 ___

                                    Continued


<PAGE>   2


     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)

     The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 3, 2000 was approximately $46,457,730. The number of
shares outstanding of the registrant's Common Stock as of March 3, 2000 was
5,860,949 (excluding 1,023,818 shares held in treasury).

                       DOCUMENTS INCORPORATED BY REFERENCE

     None.


                                       -2-
<PAGE>   3


                                     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, Nashua, New Hampshire 03064-2665 (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.

     The Company has two segments: (1) Imaging Supplies and (2) Specialty Coated
and Label Products. Consolidated net sales for 1999 from continuing operations
were $170.8 million.

     The Note entitled "Information About Operations" in the Company's
Consolidated Financial Statements, which is included in Item 8 of Part II of
this Form 10-K, 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 Form 10-K, 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, delays or difficulties
in finalizing the details of the pension annuity transaction and possible
related accounting and actuarial adjustments, the settlement of various tax
issues, the possibility of a final award of material damages in the Cerion
securities litigation and other risks detailed in this Form 10-K and 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.

IMAGING SUPPLIES SEGMENT

     Nashua's 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 Company expects to discontinue its
remanufactured laser cartridge product line by March 31, 2000.

     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 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 also aligns itself with strategic partners to market toner and
developer in complementary market 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 and Ricoh Corporation, each of which sells 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. Strong
OEM patent protection on formulations and dispense mechanisms requires Nashua to
closely monitor new product development efforts in order to avoid infringement.

     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 that provide low volumes to small customers.


                                      -3-
<PAGE>   4


     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

     Nashua's 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. The Specialty Coated and Label Products segment is
made up of two operating divisions, Specialty Coated Products and Label
Products.

     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 Dennison 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.


                                       -4-
<PAGE>   5


     The Specialty Coated and Label Products 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.

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 competitors' 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 any assurance
that third parties will not assert infringement claims against the Company or
its customers in the future. If 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 of 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
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 toner cartridge
design in respect to the Imaging Supplies segment. Nashua's research and
development expenditures were $5.1 million in 1999, $5.9 million in 1998 and
$7.7 million in 1997.


                                       -5-
<PAGE>   6


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. Nevertheless, in the past and potentially in the future,
the Company has and could receive notices of alleged environmental violations.
Violation of these laws and regulations could result in substantial fines and
penalties. The Company has endeavored to promptly remedy any such violations
upon notification.

     For the past five 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, 1999 the
reserves for potential environmental liabilities were $1.2 million for
continuing operations and $.6 million for discontinued operations. 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 to the Company 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 727 full-time employees at
January 31, 2000. Approximately 440 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 have expiration dates in the first
quarter of the respective year.

FOREIGN OPERATIONS

     The Company sold its Photofinishing segment 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 is included in Item 8 of Part II of this Form 10-K. Accordingly,
information regarding long-lived assets by geographic region relating to the
Photofinishing segment is reported as discontinued operations in the Note to the
Company's Financial Statements entitled "Information About Operations" which is
included in Item 8 of Part II of this Form 10-K.

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. In the first quarter of 2000,
Nashua executed purchase and sale agreements with third parties with respect to
the sale of certain real estate located at 44 Franklin Street in Nashua, N.H.
The purchase and sale agreements are subject to various conditions including due
diligence reviews and, with respect to two of the transactions, subdivision
approval requirements. Nashua expects to relocate its corporate offices to a
leased facility located in Nashua, N.H. during the second quarter of 2000.
Nashua expects to relocate the administrative offices and certain manufacturing
departments of the Imaging Supplies segment to a partially unoccupied facility
currently owned by the Company in Merrimack, N.H. A portion of the manufacturing
of the Imaging Supplies segment will continue to reside at Front Street in
Nashua, N.H.


                                       -6-
<PAGE>   7


     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.

PRINCIPAL PROPERTIES

<TABLE>
<CAPTION>
                                            TOTAL
                                            SQUARE            PRINCIPAL
LOCATION                                    FOOTAGE           PRODUCTS PRODUCED
--------                                    -------           ------------------

<S>                                         <C>               <C>
CORPORATE
---------
Nashua, New Hampshire                       212,000(1)        none (corporate offices)

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(3)        dry toners and developers, chemicals
Merrimack, New Hampshire                    112,000           dry toners
Nogales, Mexico                              55,000(4)        remanufactured laser cartridges
</TABLE>

(1) Corporate offices occupy approximately 21,000 square feet, approximately
47,000 square feet is leased to third parties, approximately 3,000 square feet
is utilized by the Projection Systems Division, and approximately 141,000 square
feet is unoccupied. In the first quarter of 2000, the Company entered into sales
agreements to sell approximately 76,930 square feet of this property. Nashua
expects to relocate its corporate offices to a leased facility located in
Nashua, N.H.
(2) The Specialty Coated Products Division utilizes approximately 301,000 square
feet and the remaining space is leased to third parties.
(3) Nashua expects to relocate the administrative and certain manufacturing
departments of the Imaging Supplies segment to unoccupied space in Merrimack,
N.H.
(4) Leased facility. Pursuant to the Company's decision to discontinue its
remanufactured laser cartridge product line, notice of termination of this lease
has been provided. The lease will expire during the second quarter of 2000.

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 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


                                       -7-
<PAGE>   8


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, including the original damages assessment of $7,549,000 plus
accrued interest, in the third quarter of 1998 and continues to accrue interest
on such award. The Company's accrual balance at December 31, 1999 was $16.4
million. In addition, in the fourth quarter of 1998, the Company posted a $16.0
million bond which was increased to $16.8 million in the fourth quarter of 1999
to include an additional year of interest pending the decision of the Court of
Appeals. In 1998, the Company placed $5.0 million in escrow to secure the
original 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
Technologies Inc. ("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 Circuit 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 Circuit
Court, on motion by the defendants, dismissed with prejudice the Second Amended
Consolidated Complaint. The plaintiffs filed with the Appellate Court an appeal
of the Circuit Court's ruling. On November 19, 1999, the Appellate Court
reversed the Circuit Court's ruling dismissing the Second Amended Consolidated
Complaint. The Appellate Court ruled that the Second Amended Consolidated
Complaint stated a claim and remanded the case to the Circuit Court for further
proceedings. On December 27, 1999, the Company filed a Petition for Leave to
Appeal from the Appellate Court with the Supreme Court of Illinois. In that
Petition, the Company asked the Supreme Court of Illinois to hear the Company's
further appeal and determine whether the Circuit Court or the Appellate Court is
correct. That Petition remains pending.

     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
estimate. At December 31, 1999, based on the facts currently known and the
Company's prior experience with these matters, the Company has concluded that it
is probable 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 $1.6 million for certain of
the Company's continuing operations, and a range of $.4 million to $.6 million
for certain of the Company's discontinued operations. 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, 1999, the Company's accrual balances
were $1.2 million for continuing operations and $.6 million for discontinued
operations which represent, in management's view, the most likely amounts within
the ranges 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.


                                       -8-
<PAGE>   9


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     None.


                                       -9-
<PAGE>   10


ITEM 6. SELECTED FINANCIAL DATA

                       Nashua Corporation and Subsidiaries
                           Five Year Financial Review

<TABLE>
<CAPTION>
(In thousands, except per share data,
 number of employees and percentages)                       1999            1998            1997            1996            1995
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>             <C>             <C>             <C>             <C>
OPERATIONS
Net sales                                               $ 170,844       $ 167,831       $ 173,202       $ 199,039       $ 245,534
Gross margin percentage                                      24.0%           24.3%           23.1%           20.6%           14.3%
Selling, distribution and administrative expenses
 as a percentage of sales                                    20.3%           20.3%           22.3%           21.7%           16.3%
Income (loss) before interest expense and income
 taxes as a percentage of sales(1)                            2.1%           (6.9)%          (5.9)%          (4.5)%         (12.0)%
Income (loss) before income taxes as a percentage
 of sales(1)                                                  1.7%           (7.1)%          (5.9)%          (5.8)%         (14.3)%
Loss as a percentage of sales(1)                             (0.3)%          (4.3)%          (3.6)%          (3.7)%         (10.0)%
Effective tax rate                                          114.6%          (39.5)%         (39.9)%         (36.4)%         (30.1)%
Income (loss) before income taxes(1)                    $   2,883       $ (11,950)      $ (10,300)      $ (11,464)      $ (34,998)
Loss after income taxes(1)                                   (420)         (7,229)         (6,190)         (7,290)        (24,479)
Income (loss) from discontinued operations, net
 of taxes                                                  (4,001)         (6,687)         (2,632)            460           9,748
Gain on public stock offering, disposition of
 stock, and disposal of discontinued operations,
 net of taxes                                                  --           1,052              --          32,281              --
Extraordinary loss, net of taxes                               --              --              --          (1,257)             --
Net income (loss)                                       $  (4,421)      $ (12,864)      $  (8,822)      $  24,194       $ (14,731)
Basic and diluted earnings (loss) per common share:
  Continuing operations(1)                              $   (0.07)      $   (1.15)      $    (.97)      $   (1.14)      $   (3.84)
  Discontinued operations, net of taxes                     (0.70)          (1.06)           (.41)            .07            1.53
  Gain on public stock offering, disposition of
   stock, and disposal of discontinued operations,
   net of taxes                                                --             .17              --            5.06              --
  Extraordinary loss, net of taxes                             --              --              --            (.20)             --
  Net income (loss)                                     $   (0.77)      $   (2.04)      $   (1.38)      $    3.79       $   (2.31)

FINANCIAL POSITION
Working capital                                         $  35,562       $  45,874       $  18,892       $  21,173       $  31,787
Total assets                                              130,445         134,095         146,762         176,689         231,372
Long-term debt                                                511           1,064           3,489           2,044          68,350
Total debt                                                  1,022           1,575           4,000           2,855          68,850
Total capital employed                                     67,848          76,802          99,022         104,772         143,725
Total debt as a percentage of capital employed                1.5%            2.1%            4.0%            2.7%           47.9%
Shareholders' equity                                    $  66,826       $  75,227       $  95,022       $ 101,917       $  74,875
Shareholders' equity per common share                       11.86           12.59           14.76           15.90           11.75

OTHER SELECTED DATA
Investment in plant and equipment                       $   7,855       $   6,702       $   4,418       $   5,877       $   9,044
Depreciation and amortization                               6,381           6,846           7,554           9,045           9,772
Dividends per common share                                     --              --              --              --             .54
Return on average shareholders' equity                       (6.2)%         (15.1)%          (9.0)%          27.4%          (17.6)%
Common stock price range:
  High                                                  $ 15 7/16       $  17 1/2       $  14 3/4       $  19 5/8       $  21
  Low                                                      6 9/16         11 9/16           9 1/2           9 1/8          12 1/4
Year-end closing price                                      7 1/2         13 5/16          11 5/8          12              13 5/8
Number of employees from continuing operations                729             725             768             874           1,012
Number of employees from discontinued operations               --              --           1,273           1,524           2,435
Average common shares outstanding                           5,718           6,320           6,385           6,376           6,374
</TABLE>

See Business Changes Note to Consolidated Financial Statements 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 $(1.3) million for 1999 (.8% of sales), $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), and $16.2 million for 1995 (6.6% of sales).


                                      -10-
<PAGE>   11


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

                                Corporate Matters

Due to the decline in sales and profitability of the Company's remanufactured
laser cartridge operation, on February 8, 2000, the Company announced its plan
to discontinue its remanufactured laser cartridge product line by March 31,
2000. The Company estimates it will record an unusual charge of $1.5 million to
$2.2 million in the first quarter of 2000 primarily comprised of a provision for
severance and other exit costs related to the discontinuance of this product
line. The operations of the remanufactured laser cartridge business are included
in the Imaging Supplies segment.

     In the fourth quarter of 1999, the Company's Board of Directors approved a
proposal to purchase non-participating annuity contracts from Principal Life
Insurance Company to settle the Company's pension benefit obligation with
respect to the retired salaried and hourly employees covered under its pension
plans. The Company paid the annuity premium and transferred $74.6 million of
pension assets to the insurance company on December 9, 1999. However, the
underlying contract was not executed as of December 31, 1999. The Company
estimates it will recognize a non-cash pretax gain of $15.0 million to $18.0
million in the first quarter of 2000 for the settlement of these obligations.

     On April 9, 1998, the Company completed the sale of its Photofinishing
segment. The Company received net proceeds of $49.9 million for the net assets
of the Photofinishing segment and, after recording taxes of $7.9 million,
recorded a gain of $1.1 million. The Company owns a 37.1 percent interest in the
Cerion Technologies Liquidating Trust, a trust established pursuant to the
liquidation of Cerion, formerly a publicly held company. On September 15, 1998,
Cerion announced its decision to cease operations and liquidate its assets.
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 its expected net realizable value on an after tax basis since the third
quarter of 1998. At December 31, 1999 and 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's 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
segment are reported as discontinued operations for all periods presented in the
accompanying consolidated financial statements.

            Results of Continuing Operations - 1999 Compared to 1998

Net sales from continuing operations for 1999 were $170.8 million, a 1.8 percent
increase compared to 1998. This improvement in sales was primarily due to
increased volume in the Specialty Coated and Label Products segment which more
than offset volume shortfalls in the remanufactured laser cartridge product line
of the Imaging Supplies segment. Gross margin decreased to 24.0 percent in 1999
from 24.3 percent in 1998 due primarily to lower average selling prices which
more than offset the favorable effect of manufacturing cost reduction programs,
improved manufacturing efficiency and improved product mix.

     The Company recorded a net loss from continuing operations of $.4 million
in 1999, compared to a net loss from continuing operations of $7.2 million in
1998. The 1999 results included net restructuring and unusual income of $1.3
million. The 1998 results included net restructuring and unusual charges of
$13.8 million. The Company's pretax operating results, before restructuring and
other unusual charges, declined from income of $1.9 million in 1998 to income of
$1.6 million in 1999 due to lower profitability in the Specialty Coated and
Label Products segment of $.3 million and an increase in Corporate expenses of
$1.2 million which more than offset improved profitability in the Imaging
Supplies segment of $.9 million and a reduction in Projection Systems
development expenses of $.4 million.

     The Specialty Coated and Label Products segment reported a 3.4 percent
increase in sales in 1999 compared to 1998 as a result of higher volume in
thermal paper and converted label products. Improved customer retention and new
customer initiatives, primarily in the supermarket thermal product line, were
the primary reasons for the sales improvement. The segment had declining sales
in the fax paper, heat seal and dry gum product lines in 1999. During the year,
two of Nashua's significant fax customers were acquired by third parties. Nashua
was unable to retain the related


                                      -11-
<PAGE>   12


fax business after the acquisitions. In turn, during the third quarter of 1999,
Nashua made the decision to cease manufacturing fax papers. The dry gum and heat
seal sales declines were primarily due to lower volume. The segment's pretax
income decreased 3.2 percent compared to 1998, primarily due to the impact of an
increase in the reserves for certain environmental exposures and the future
collectibility of a large customer receivable.

     The Imaging Supplies segment reported a 1.4 percent decrease in sales from
1998 to 1999 primarily due to a reduction in volume in the remanufactured laser
cartridge product line and selling price reductions in the toner and developer
product lines which more than offset volume improvements in the paper product
line. The remanufactured laser cartridge sales decline was primarily volume
driven due to the loss of two significant customers. Sales of remanufactured
laser cartridges declined 13.7 percent in 1999 when compared to 1998 which
contributed to a pretax loss for this product line of approximately $2.4 million
in 1999 as compared to a pretax profit of $.4 million in 1998. As a result of
the declining operating performance of the remanufactured laser cartridge
business, on February 8, 2000, Nashua announced that it would discontinue the
manufacture of this product line. The Company will continue to service its
existing customer base through March 31, 2000. The segment's pretax loss in 1999
improved 45.0 percent over 1998 primarily due to lower selling and
administrative expenses related to the restructuring of the dealer-agent selling
channel in the toner and developer product lines.

     The restructuring and other unusual income for 1999 of $1.3 million
consisted primarily of $1.3 million in income from an insurance settlement
related to environmental matters, a gain of $.4 million from the sale of a
portion of the Company's Microsharp imaging technology and $.2 million of other
miscellaneous gains offset by a provision of $.6 million resulting from the
Company's decision to cease its manufacturing of fax papers.

Details of the restructuring reserves related to continuing operations and
activity recorded during 1999 were as follows:

<TABLE>
<CAPTION>
                                                                      Reserve                                            Reserve
                                                                      Balance          Current            Current        Balance
                                                                      Dec. 31,           Year               Year         Dec. 31,
(In thousands)                                                          1998           Provision          Charges          1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>            <C>                <C>
1999 Activity:
Provisions for severance related to workforce reductions                $472              $142           $   (491)          $123
Provisions for assets to be sold or discarded                             --               441               (441)            --
Other                                                                    149                32                (95)            86
                                                                        --------------------------------------------------------
Total                                                                   $621              $615            $(1,027)          $209
                                                                        ========================================================
</TABLE>

     The 1999 provision for workforce reductions included amounts payable to
nine employees related to the discontinuance of the fax manufacturing line in
the Specialty Coated and Label Products segment. The restructuring activities
provided for in the balance at December 31, 1998 were substantially completed in
1999 and the amounts charged against the reserve did not change materially from
the reserve balance of $.6 million.

     Selling and distribution expenses decreased 3.6 percent from the prior year
primarily due to the restructuring of the dealer-agent selling channel in the
Imaging Supplies segment. Administrative expenses increased 11.6 percent from
the prior year primarily due to increased costs related to corporate
administration. Research and development expenses decreased by 14.9 percent from
the prior year primarily due to a reduction in spending in the Imaging Supplies
segment and a reduction in Projection Systems development expenses. Interest
expense increased 97.1 percent from 1998 due to the accrual of interest expense
related to the Ricoh litigation as described in the Litigation and Other Matters
section of this report. Interest income decreased by 9.3 percent primarily due
to the decreased cash balance resulting from the share repurchase program, which
is also described in the Liquidity, Capital Resources and Financial Condition
section of this report.

     The effective tax rate for continuing operations was a provision of 114.6
percent compared to a benefit of 39.5 percent in 1998. The tax rate was greater
than the U.S. federal statutory rate primarily due to charges of $2.1 million
related to an increase of $.8 million to the tax valuation allowance for state
net operating loss carryforwards and the provision of $1.3 million to provide a
reserve for potential liabilities, based on recent developments arising in the
fourth quarter of 1999 with respect to open federal and state tax audits.


                                      -12-
<PAGE>   13


            Results of Continuing Operations - 1998 Compared to 1997

Net sales from continuing operations for 1998 were $167.8 million, a 3.1 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 segment which
more than offset year over year sales increases in the Specialty Coated and
Label Products segment. The Specialty Coated and Label Products segment reported
increased sales primarily due to higher volume of thermal paper and 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 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 both
the Imaging Supplies and Specialty Coated and Label Products segments and
significant cost reductions in the manufacturing and procurement processes of
the Specialty Coated and Label Products segment. 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 segment.

     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 the Litigation and Other Matters
section of this report, partially offset by unusual income of $1.2 million from
an insurance settlement related to environmental matters. The restructuring
activities provided for in the balance at December 31, 1997 were substantially
completed at December 31, 1998 and amounts charged against the reserve 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 restructuring reserves related to continuing operations
and the activity recorded during 1998 were as follows:

<TABLE>
<CAPTION>
                                                                      Reserve                                             Reserve
                                                                      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>


     Selling and distribution expenses were relatively unchanged from the prior
year. Research and development expenses decreased by 23.0 percent from the prior
year primarily due to a reduction in Projection Systems development expenses.
Administrative expenses decreased by 27.0 percent due to the impact of
restructuring activities over the preceding 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. federal statutory rate primarily due
to state and local income tax benefits.


                                      -13-
<PAGE>   14


              Liquidity, Capital Resources and Financial Condition

The Company's primary source of liquidity is cash provided by operations which
totaled $11.9 million for the year ended December 31, 1999, an increase of $10.8
million over cash flows from operations generated in 1998 of $1.1 million. This
improvement is the result of favorable changes in certain working capital
components, including restricted cash, accounts receivable and accounts payable,
offset by an increase in inventory. The improvement in the change in restricted
cash is the result of the fact that the Company was not required to fund any
additional cash into escrow in 1999 to secure the existing bond relating to the
Ricoh patent infringement matter. The increase in cash resulting from the
decrease in the accounts receivable component is the result of an increase in
sales from 1998 to 1999 of $3.0 million combined with improved cash collections.
The increase in accounts payable is directly attributable to the increase in the
inventory balance, which is the result of increased purchases in the Specialty
Coated and Label Products segment to mitigate exposure to expected vendor
pricing increases subsequent to year end, as well as the Company's need for
additional inventory to support certain new customer relationships in the
Imaging Supplies segment and efforts to stockpile raw materials to reduce
potential vendor risks with respect to the Year 2000 concerns.

     Net cash used in investing activities consisted primarily of the Company's
1999 capital expenditures of $7.9 million and investments in unconsolidated
joint ventures of $.5 million. The capital expenditures reflect purchases of
machinery and equipment to increase production capacity with respect to the
thermal product line within the Specialty Coated and Label Products segment and
to increase production capacity with respect to the toner and developer business
within the Imaging Supplies segment.

     Net cash used in financing activities consisted of $.6 million relating to
the repayment of the Company's debt in connection with an equipment purchase
arrangement and payments of $4.1 million to repurchase 348,080 shares of the
Company's common stock.

     Management believes that current cash and cash equivalents, cash flows from
operations and its revolving line of credit should be sufficient during fiscal
2000 and beyond to fund its planned capital expenditures, working capital needs,
stock repurchases and other cash requirements.

                          Litigation and Other Matters

     During 1999, the Company negotiated a new secured financing agreement with
Fleet Bank-NH which increased the Company's revolving line of credit to $15
million from $8 million. The line of credit matures on April 22, 2001; however,
the Company may renegotiate the arrangement. Borrowings under this facility are
collateralized by a security interest in the Company's accounts receivable and
inventory. Interest on amounts outstanding under the secured line of credit is
payable at either the Fleet Bank-NH prime rate or, at the Company's election,
the LIBOR rate plus 1-3/4 percent. The Company pays an unused facility fee equal
to one quarter of one percent per annum on the average daily principal amount of
the unused portion of the line of credit. This agreement requires the Company to
maintain the following ratios and measures: earnings before interest, income
taxes, depreciation and amortization (EBITDA) on a consolidated basis must be at
least $1.0 million per fiscal quarter and $7.5 million for the fiscal year, the
Company's tangible net worth must be no less than $65.0 million and capital
expenditures cannot exceed $13.5 million during any one fiscal year. Without
prior consent of the lender, the agreement does not allow the payment of
dividends and restricts, among other things, the incurrence of additional debt,
guarantees, sale of certain assets and any merger or acquisition of the
business. As of December 31, 1999, 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, 1999.

     In December 1999, the Internal Revenue Service ("IRS") completed an
examination of the Company's corporate income tax returns for the years 1995
through 1997. On December 16, 1999, the IRS issued a Notice of Proposed
Adjustment which assessed additional taxes of $5.2 million, excluding interest.
The assessment represents a total of $14.0 million of adjustments to taxable
income for the years under review. The proposed adjustments relate to the
deductibility of restructuring and other reserves applicable to continuing and
discontinued operations as well as the utilization of foreign net operating
losses primarily associated with discontinued operations. It is the Company's
intention to file an appeal of the proposed assessment with the IRS Appeals
Office during the first quarter of 2000.


                                      -14-
<PAGE>   15


     In December 1998, the IRS completed an examination of the Company's
corporate income tax returns for the years 1992 through 1994. On December 11,
1998, the IRS issued a Notice of Proposed Adjustment which assessed additional
taxes of $4.6 million, excluding interest. The assessment represents a total of
$18.2 million of adjustments to taxable income for the years under review. The
proposed adjustments relate to the deductibility of restructuring and other
reserves applicable to discontinued operations as well as certain losses
deducted in connection with the divestiture of the Company's Computer Products
Division. The Company disagrees with the positions taken by the IRS and filed a
formal protest of the proposed adjustment on January 12, 1999. A formal hearing
was held before the IRS Appeals Officer on November 16, 1999. The Company has
furnished records and documentation to the Appeals Officer in support of its
protest of the proposed adjustment.

     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 and a formal hearing was held before the DOR officers on August 31,
1999. The assessment has been reduced to $3.2 million, including interest. The
Company disagrees with the remaining assessment and continues to defend its
position.

     The Company believes that it will prevail in all material respects against
the IRS' assertions related to the corporate income tax returns filed for years
1992 through 1994. In the fourth quarter of 1999, the Company recorded a charge
of $1.3 million in continuing operations, which included $.8 million of
interest, and a charge of $4.0 million in discontinued operations primarily to
provide for potential liabilities for tax deficiencies that could arise from
resolution of the IRS's examination of the corporate tax returns filed for years
1995 through 1997 and for resolution of New Hampshire DOR's examination of the
corporate income tax returns for years 1989 through 1992.

     The tax charges that were recorded in continuing and discontinued
operations of $1.3 million and $4.0 million, respectively, provide reserves
which are based upon management's estimate of the liabilities associated with
the federal and state examinations described above. While management believes
that it has provided adequately for its tax liabilities through December 31,
1999, including liabilities related to matters in dispute with taxing
authorities, it can provide no assurances that the Company will prevail in its
defense against adjustments proposed in these pending or future federal and
state examinations. In addition, management can provide no assurances that the
ultimate resolution of these open tax matters will not be in excess of current
provisions.

     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 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, including the original damages assessment of $7,549,000
plus accrued interest, in the third quarter of 1998 and continues to accrue
interest on such award. The Company's accrual balance at December 31, 1999 was
$16.4 million. In addition, in the fourth quarter of 1998, the Company posted a
$16.0 million bond which was increased to $16.8 million in the fourth quarter of
1999 to include an additional year of interest pending the decision of the Court
of Appeals. In 1998, the Company placed $5.0 million in escrow to secure the
original bond. The $5.0 million is classified as restricted cash in the balance
sheet.


                                      -15-
<PAGE>   16


     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
Circuit 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 Circuit Court, on motion by the
defendants, dismissed with prejudice the Second Amended Consolidated Complaint.
The plaintiffs filed with the Appellate Court an appeal of the Circuit Court's
ruling. On November 19, 1999, the Appellate Court reversed the Circuit Court's
ruling dismissing the Second Amended Consolidated Complaint. The Appellate Court
ruled that the Second Amended Consolidated Complaint stated a claim and remanded
the case to the Circuit Court for further proceedings. On December 27, 1999, the
Company filed a Petition for Leave to Appeal from the Appellate Court with the
Supreme Court of Illinois. In that Petition, the Company asked the Supreme Court
of Illinois to hear the Company's further appeal and determine whether the
Circuit Court or the Appellate Court is correct. That Petition remains pending.
The Company believes that the lawsuit is without merit and will continue to
defend itself in this matter.

     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
estimate. At December 31, 1999, based on the facts currently known and the
Company's prior experience with these matters, the Company has concluded that it
is probable 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 $1.6 million for certain of
the Company's continuing operations, and a range of $.4 million to $.6 million
for certain of the Company's discontinued operations. These ranges are 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, 1999, the Company's accrual balances
were $1.2 million for continuing operations and $.6 million for discontinued
operations, which represent, in management's view, the most likely amounts
within the ranges 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.

                                 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. 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 categorizes its Y2K efforts as follows: hardware, software,
embedded processors, vendors and customers. The phases of this project included
awareness, inventory, risk assessment, remediation, testing and contingency
planning and were completed during 1999, and have allowed the Company to
continue normal operations through the transition into the year 2000.


                                      -16-
<PAGE>   17


     The Company has conducted several analyses with significant vendors and
customers to ensure their Y2K compliance and has noted no significant business
risks. Through March 1, 2000, the Company has not experienced any significant
problems related to the Y2K issue. There can be no guarantee that the systems of
other companies will not experience a Year 2000 related problem in the future,
or that other companies' failure to remediate Y2K issues would not have a
material adverse effect on the Company.

     The aggregate cost of the Company's Y2K efforts through December 31, 1999
was approximately $1.1 million. Included in this amount were computer system
hardware and software upgrades and replacements, equipment upgrades and
replacements, and consulting fees. These costs were funded through operating
cash flows and included the costs of normal system upgrades and replacements for
which the timing was accelerated to address the Y2K issue. This amount does not
include any costs associated with the implementation of the Company's internally
developed contingency plans or internal Y2K program costs as substantially all
of these internal costs were payroll costs for the management information
systems group.

     Contingency plans were developed during 1999 to deal with operational
problems in the event Y2K compliance was not met by the Company or certain third
parties. As of this writing, the Company has not encountered any significant Y2K
related problems and, therefore, the contingency plans developed by the Company
have not required implementation.

     The Company believes that it has mitigated the significant business risks
related to the Y2K issue. 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 not encounter Y2K related
problems in the future, that the costs of its Y2K program will not become
material or that the Company's contingency plans will be adequate. In addition,
although the Company believes the analyses conducted to ensure Y2K compliance of
vendors and customers has mitigated the Y2K risk, there is no guarantee this
will completely eliminate the potential for disruption. If any such risks
(either with respect to the Company or its vendors or customers) materialize,
the Company could experience serious consequences to its business which could
have material adverse effects on the Company's financial condition, results of
operations and liquidity.

     The foregoing assessment of the impact of the Y2K problem on the Company is
based on management's best estimates as of the date of this 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.

                     Impact of New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that all
derivative instruments be recognized as either assets or liabilities on the
balance sheet at their fair value. Changes in the fair value of derivatives
(gains or losses) 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. In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FAS 133" ("FAS 137"). FAS 137 changed the effective date of FAS 133 to
all fiscal quarters of all fiscal years beginning after June 15, 2000. As a
result, FAS 133 will be effective for the Company beginning on January 1, 2001.
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.

ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in foreign currency exchange
rates due to specific accounts receivable trade and accounts payable trade
transactions with certain customers and vendors who require settlement in their
local currency. The Company enters into foreign currency forward contracts to
manage foreign exchange exposure


                                      -17-
<PAGE>   18


related to these foreign denominated assets and liabilities that are subject to
risk from foreign currency rate changes. These forward contracts are effective
as hedges of the assets and liabilities, and the realized and unrealized gains
and losses are recognized in income. The realized and unrealized gains and
losses recognized in 1999 relating to the open foreign currency forward
contracts as of December 31, 1999 were not material.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       Nashua Corporation and Subsidiaries

           Consolidated Statement of Operations and Retained Earnings

<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
--------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)                                             1999                1998                1997
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                 <C>                 <C>
Net sales                                                                      $170,844            $167,831            $173,202
Cost of products sold                                                           129,872             127,089             133,175
Selling, distribution and administrative expenses                                34,696              34,119              38,557
Research and development expense                                                  5,051               5,938               7,749
Restructuring and other unusual charges (income)                                 (1,300)             13,825               4,254
Equity in loss of unconsolidated joint ventures                                     320                  --                  --
Interest expense                                                                    743                 377                 129
Interest income                                                                  (1,421)             (1,567)               (362)
                                                                               -------------------------------------------------
Total costs and expenses                                                        167,961             179,781             183,502
                                                                               -------------------------------------------------
Income (loss) from continuing operations before income taxes                      2,883             (11,950)            (10,300)
Provision (benefit) for income taxes                                              3,303              (4,721)             (4,110)
                                                                               -------------------------------------------------
Loss from continuing operations                                                    (420)             (7,229)             (6,190)
Loss from discontinued operations, net of taxes                                  (4,001)             (6,687)             (2,632)
Gain on disposal of discontinued operation, net of taxes                             --               1,052                  --
                                                                               -------------------------------------------------
Net loss                                                                         (4,421)            (12,864)             (8,822)
Retained earnings, beginning of period                                           64,071              76,935              85,757
                                                                               ------------------------------------------------
Retained earnings, end of period                                               $ 59,650            $ 64,071            $ 76,935
                                                                               =================================================

Basic and diluted earnings per share:

   Loss from continuing operations per common share                            $   (.07)           $  (1.15)           $   (.97)
   Loss from discontinued operations per common share                              (.70)              (1.06)               (.41)
   Gain on disposal of discontinued operation                                        --                 .17                  --
                                                                               -------------------------------------------------
   Net loss per common share                                                   $   (.77)           $  (2.04)           $  (1.38)
                                                                               =================================================
</TABLE>


    The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                      -18-
<PAGE>   19


                       Nashua Corporation and Subsidiaries

                           Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                                                          December  31,
-------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)                                                                     1999             1998
-------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                               <C>               <C>
ASSETS
Current assets
   Cash and cash equivalents                                                                       $ 25,056         $  31,965
   Restricted cash                                                                                    5,000             5,000
   Accounts receivable                                                                               17,448            18,232
   Inventories
      Materials and supplies                                                                          7,911             6,326
      Work in process                                                                                 3,788             2,503
      Finished goods                                                                                  6,194             5,847
                                                                                                  ---------------------------
                                                                                                     17,893            14,676
   Other current assets                                                                              14,170            13,474
                                                                                                  ----------------------------
                                                                                                     79,567            83,347
                                                                                                  ----------------------------
Plant and equipment
   Land                                                                                                 804               836
   Buildings and improvements                                                                        26,907            26,388
   Machinery and equipment                                                                           44,804            43,354
   Construction in progress                                                                           4,081             2,479
                                                                                                  ---------------------------
                                                                                                     76,596            73,057
    Accumulated depreciation                                                                        (36,594)          (33,727)
                                                                                                  ----------------------------
                                                                                                     40,002            39,330
Investment in unconsolidated joint venture                                                              179                --
Other assets                                                                                         10,697            11,418
                                                                                                  ----------------------------
Total assets                                                                                       $130,445          $134,095
                                                                                                  ============================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
   Current maturities of long-term debt                                                            $    511          $    511
   Accounts payable                                                                                  10,946             9,028
   Accrued expenses                                                                                  30,253            27,934
   Income taxes payable                                                                               2,295                --
                                                                                                  ---------------------------
                                                                                                     44,005            37,473
                                                                                                  ----------------------------

Long-term debt                                                                                          511             1,064
Other long-term liabilities                                                                          19,103            20,331

Commitments and contingencies (see Commitments and Contingencies Note)

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 6,915,767 shares in 1999 and 6,938,397 shares in 1998                                    6,916             6,938
   Additional paid-in capital                                                                        15,182            15,057
   Retained earnings                                                                                 59,650            64,071
   Treasury stock, at cost                                                                          (14,922)          (10,839)
                                                                                                  ----------------------------
                                                                                                     66,826            75,227
                                                                                                  ----------------------------
Total liabilities and shareholders' equity                                                         $130,445          $134,095
                                                                                                  ============================
</TABLE>


    The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                      -19-
<PAGE>   20


                       Nashua Corporation and Subsidiaries

                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                                                   Year Ended December 31,
---------------------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                                1999          1998            1997
---------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                       <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net loss                                                                                  $ (4,421)       $(12,864)      $ (8,822)
Adjustments to reconcile net loss to cash provided by (used in)
   continuing operating activities:
      Depreciation and amortization                                                          6,381           6,846          7,554
      Deferred income taxes                                                                  2,357          (4,721)        (4,110)
      Stock issued for director compensation                                                    90              89             91
      Loss on sale of real estate                                                               --              --            900
      Loss on sale/disposal of fixed assets                                                    786              --             --
      Loss from discontinued operations                                                      4,001           6,687          2,632
      Gain on disposal of discontinued operation                                                --          (1,052)            --
      Equity in loss from unconsolidated joint ventures                                        320              --             --
      Change in operating assets and liabilities, net of effects from
         acquisition and disposal of businesses:
            Restricted cash                                                                     --          (5,000)            --
            Accounts receivable                                                                784          (3,317)         1,045
            Inventories                                                                     (3,217)            (39)          (370)
            Other assets                                                                       227           4,354         (1,481)
            Accounts payable                                                                 1,918          (3,567)        (4,624)
            Accrued expenses                                                                 1,603          14,162         (4,375)
            Income taxes payable                                                             2,295              --             --
            Other long-term liabilities                                                     (1,228)           (449)           (61)
                                                                                          ----------------------------------------
   Cash provided by (used in) operating activities                                          11,896           1,129        (11,621)

CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Investment in plant and equipment                                                           (7,855)         (6,702)        (4,418)
Investment in unconsolidated joint venture                                                    (499)             --             --
Proceeds from sale of plant and equipment                                                       16             166            825
                                                                                          ----------------------------------------
   Cash used in investing activities                                                        (8,338)         (6,536)        (3,593)

CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Proceeds from borrowings                                                                        --              --          2,000
Repayment of borrowings                                                                       (553)         (2,425)          (855)
Proceeds and tax benefits from shares issued under stock compensation plans                     --           3,061              -
Purchase of treasury stock                                                                  (4,083)        (10,081)            (1)
                                                                                          ----------------------------------------
   Cash provided by (used in) financing activities                                          (4,636)         (9,445)         1,144

Proceeds from sale of discontinued operations                                                   --          49,858             --
Cash applied to activities of discontinued operations                                       (5,831)         (6,781)        (2,174)
Effect of exchange rate changes on cash                                                         --               4            (38)
                                                                                          ----------------------------------------
Increase (decrease) in cash and cash equivalents                                            (6,909)         28,229        (16,282)
Cash and cash equivalents at beginning of year                                              31,965           3,736         20,018
                                                                                          ----------------------------------------
Cash and cash equivalents at end of year                                                  $ 25,056        $ 31,965       $  3,736
                                                                                          ========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid                                                                             $  1,055        $    220       $     92
                                                                                          ========================================
Income tax payments net of refunds                                                        $  1,486        $  4,664       $  2,428
                                                                                          ========================================
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                      -20-
<PAGE>   21


                       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"). All significant intercompany transactions and balances have
been eliminated.

Revenue Recognition: Sales are recognized at the time the goods are shipped or
when title passes.

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 tax contingency reserves,
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, 1999 and December 31, 1998, the Company held cash
equivalents of $22.9 million and $30.5 million, respectively, consisting of
various money market instruments carried at cost, which approximated market.

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 allowances for doubtful
accounts of $1.3 million at December 31, 1999 and $.9 million at December 31,
1998.

Inventories: Inventories are carried at the lower of cost or market. Cost is
determined by the first-in, first-out ("FIFO") method for approximately 51
percent and 62 percent of the inventories at December 31, 1999 and 1998,
respectively, and by the last-in, first-out ("LIFO") method for the balance. If
the FIFO method had been used to cost all inventories, the balances would have
been approximately $2.0 million and $2.1 million higher at December 31, 1999 and
1998, 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.


                                      -21-
<PAGE>   22


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 the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."

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. Due to the size of the Company's foreign
operations relative to the consolidated operations, the impact of the foreign
currency translation on the Company's financial position, results of operations
and cash flows is not significant.

Financial Instruments: The Company enters into foreign currency forward
contracts to manage foreign exchange exposure related to specific accounts
receivable trade and accounts payable trade transactions with certain customers
and vendors who require settlement in their local currency. The forward
contracts are effective as hedges of these foreign currency denominated assets
and liabilities, and the realized and unrealized gains and losses are recognized
in the loss from continuing operations.

     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 quality
financial institutions and in high quality liquid investments. Concentrations of
credit risk with respect to accounts receivable are limited because a large
number of geographically diverse customers comprise the Company's customer base,
thus mitigating 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 contracts consist of a number of high 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 has been made.

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," for disclosure purposes. The
Company has two segments: the Specialty Coated and Label Products segment and
the Imaging Supplies segment.


                                      -22-
<PAGE>   23


Postretirement Benefits: In 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," for disclosure purposes.

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.

Reclassification: Certain amounts from the prior year have been reclassified to
conform to the current year presentation.

                                Business Changes

Restructuring and Other Unusual Charges: The restructuring and other unusual
income for 1999 of $1.3 million consisted primarily of $1.3 million in income
from an insurance settlement related to environmental matters, a gain of $.4
million from the sale of a portion of the Company's Microsharp imaging
technology and $.2 million of other miscellaneous gains, offset by a provision
of $.6 million resulting from the Company's decision to cease its manufacturing
of fax papers. The restructuring activities provided for in the balance at
December 31, 1998 were substantially completed at December 31, 1999 and amounts
charged against the reserve did not change materially from the reserve balance
of $.6 million at December 31, 1998. The balance at December 31, 1999 for
severance related to workforce reductions included amounts payable to nine
employees related to the discontinuance of the fax manufacturing line. Details
of restructuring reserves related to continuing operations and the activity
recorded during 1999 were as follows:

<TABLE>
<CAPTION>
                                                                      Reserve                                           Reserve
                                                                      Balance          Current           Current        Balance
                                                                      Dec. 31,           Year              Year         Dec. 31,
(In thousands)                                                          1998           Provision         Charges          1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>            <C>               <C>
1999 Activity:
Provisions for severance related to workforce reductions                $472              $142           $   (491)         $123
Provisions for assets to be sold or discarded                             --               441               (441)           --
Other                                                                    149                32                (95)           86
                                                                        --------------------------------------------------------
Total                                                                   $621              $615            $(1,027)         $209
                                                                        ========================================================
</TABLE>

     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 balance at
December 31, 1998 for severance related to workforce reductions consisted
primarily of amounts payable to employees who had already left the Company
during the 1997 restructuring. Amounts charged against the reserve did not
change materially from the reserve balance of $3.0 million at December 31, 1997.
Details of the restructuring reserves related to continuing operations and the
activity recorded during 1998 were as follows:

<TABLE>
<CAPTION>
                                                                      Reserve                                            Reserve
                                                                      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>


                                      -23-
<PAGE>   24


     Net restructuring and other unusual charges from continuing operations of
$4.3 million in 1997 included provisions related to restructuring corporate
activities, the sale of excess real estate in Nashua, NH and costs associated
with restructuring certain distribution channels and aligning the workforce with
levels of demand in the Imaging Supplies segment.

     The 1997 provision for workforce reductions included amounts for salary and
benefit continuation for 116 employees as part of the Imaging Supplies segment
and Corporate reorganizations.

Discontinued Operations: During the fourth quarter of 1999, the Company recorded
charges of $4.0 million, net of taxes, related to discontinued operations as
described more fully in the Note entitled Income Taxes of this report.

     The Company owns a 37.1 percent interest in the Cerion Technologies
Liquidating Trust, a trust established pursuant to the liquidation of Cerion
Technologies Inc. ("Cerion"), formerly a publicly held company. Cerion ceased
operations during the fourth quarter of 1998 and is currently in the process of
liquidation. Accordingly, the Company accounts for its investment in Cerion
based on its expected net realizable value, net of taxes.

     On April 9, 1998, the Company completed the sale of its Photofinishing
segment. 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.

     Operating results for the discontinued operations described above for 1999,
1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
(In millions)                                                                      1999                1998                1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                   <C>                <C>
Net sales                                                                       $    --               $21.6              $143.5
Loss before income taxes                                                             --                (6.5)               (2.8)
Provision (benefit) for income taxes                                                4.0                  .2                 (.2)
                                                                                 -----------------------------------------------
Loss from discontinued operations                                                $ (4.0)             $ (6.7)            $  (2.6)
                                                                                 ===============================================
</TABLE>

     The net assets (liabilities) of the discontinued operations described
above, included in the December 31, 1999 and December 31, 1998 consolidated
balance sheets, are summarized as follows:

<TABLE>
<CAPTION>
(In thousands)                                                                                         1999                1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>                   <C>
Assets                                                                                           $    3,865            $    756
Liabilities                                                                                          (3,857)             (1,888)
                                                                                                  ------------------------------
Net assets (liabilities) of discontinued operations                                             $         8             $(1,132)
                                                                                                ================================
</TABLE>

                                  Indebtedness

During 1999, the Company negotiated a new secured financing agreement with Fleet
Bank-NH which increased the Company's revolving line of credit to $15 million
from $8 million. The line of credit matures on April 22, 2001; however, the
Company may renegotiate the arrangement. Borrowings under this facility are
collateralized by a security interest in the Company's accounts receivable and
inventory. Interest on amounts outstanding under the secured line of credit is
payable at either the Fleet Bank-NH prime rate or, at the Company's election,
the LIBOR rate plus 1-3/4 percent. The Company pays an unused facility fee equal
to one quarter of one percent per annum on the average daily principal amount of
the unused portion of the line of credit. This agreement requires the Company to
maintain the following ratios and measures: earnings before interest, income
taxes, depreciation and amortization (EBITDA) on a consolidated basis must be at
least $1 million per fiscal quarter and $7.5 million for the fiscal year, the
Company's tangible net worth must be no less than $65 million and capital
expenditures cannot exceed $13.5 million during any one fiscal year. Without
prior consent of the lender, the agreement does not allow the payment of
dividends and restricts, among other things, the incurrence of additional debt,
guarantees, sale of certain assets and any merger or acquisition of the
business. As of December 31, 1999, 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, 1999.


                                      -24-
<PAGE>   25


     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 at a
rate per annum equal to 2.5 percent above the LIBOR rate. The note is
collateralized by a security interest in certain equipment. At December 31, 1999
and 1998, borrowings of $1.0 million and $1.6 million, respectively, were
outstanding under this note agreement.

                                  Income Taxes

The domestic and foreign components of income (loss) from continuing operations
before income taxes are as follows:

<TABLE>
<CAPTION>
(In thousands)                                                                              1999           1998            1997
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>          <C>            <C>
Domestic                                                                                  $2,599       $(11,873)      $  (8,665)
Foreign                                                                                      284            (77)         (1,635)
                                                                                         --------------------------------------
Consolidated pretax income (loss)                                                         $2,883       $(11,950)       $(10,300)
                                                                                          =====================================
</TABLE>


The provision (benefit) for income taxes relating to continuing operations
consists of the following:

<TABLE>
<CAPTION>
(In thousands)                                                                              1999           1998            1997
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>           <C>             <C>
Current:
     United States                                                                        $  821        $    --         $    --
     Foreign                                                                                  99             --              --
     State and local                                                                          26             --              --
                                                                                          -------------------------------------
Total current                                                                                946             --              --
Deferred:
     United States                                                                         1,426         (3,824)         (2,919)
     Foreign                                                                                   -            (18)           (502)
     State and local                                                                         931           (879)           (689)
                                                                                          -------------------------------------
Total deferred                                                                             2,357         (4,721)         (4,110)
                                                                                          -------------------------------------
Provision (benefit) for income taxes                                                      $3,303        $(4,721)        $(4,110)
                                                                                          =====================================
</TABLE>


Total net deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
(In thousands)                                                                              1999           1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>            <C>
Depreciation                                                                             $(2,137)       $(2,680)
Other                                                                                       (466)        (2,461)
                                                                                         ----------------------
Gross deferred tax liabilities                                                            (2,603)        (5,141)
                                                                                         ----------------------
Litigation reserve                                                                         6,378          6,473
Pension and postretirement benefits                                                        7,765          8,320
Loss and credit carryforwards                                                              4,285          5,203
Accrued expenses                                                                           1,656          2,267
Inventory reserve                                                                            399          1,828
Bad debt reserve                                                                             586            505
Other                                                                                      2,499          3,067
                                                                                         ----------------------
Gross deferred tax asset                                                                  23,568         27,663
Deferred tax assets valuation allowance                                                   (1,100)          (300)
                                                                                         ----------------------
Net deferred tax assets                                                                  $19,865        $22,222
                                                                                         ======================
</TABLE>


                                      -25-
<PAGE>   26


     Reconciliations between income tax provision (benefit) from continuing
operations computed using the United States statutory income tax rate and the
Company's effective tax rate are as follows:

<TABLE>
<CAPTION>
                                                                                            1999           1998            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>           <C>             <C>
United States federal statutory rate (benefit)                                              35.0%         (35.0)%         (35.0)%
State and local income taxes, net of federal tax benefit                                     4.8           (4.8)           (4.3)
Change in valuation allowance                                                               27.7             --             1.5
Rate difference-foreign subsidiaries                                                          --             --              .7
Tax contingency reserve                                                                     45.7             --              --
Other, net                                                                                   1.4             .3            (2.8)
                                                                                           ------------------------------------
Effective tax rate (benefit)                                                               114.6%         (39.5)%         (39.9)%
                                                                                           ====================================
</TABLE>


     At December 31, 1999, $10.2 million and $9.7 million of net tax assets were
included in "Other Current Assets" and "Other Assets," respectively. At December
31, 1998, $12.0 million and $10.2 million of net tax assets were included in
"Other Current Assets" and "Other Assets," respectively.

     At December 31, 1999, the Company had $1.8 million of federal net operating
loss carryforwards, $2.3 million of state net operating loss carryforwards, and
$.2 million of alternative minimum tax credit carryforwards, which are available
to offset future domestic taxable earnings. The net operating loss carryforward
benefits expire as follows: $2.6 million in 2000; $.2 million in 2001; and $1.3
million thereafter. The tax credit carryforwards expire after 2001. In the
fourth quarter of 1999, management updated its assessment of the realizability
of state net operating loss carryforwards taking into consideration current
projections of future taxable income, recent product line divestitures and
changes in the forecasted timing for deductibility of certain significant
temporary differences. Based upon this assessment, management believes that it
is more likely than not that $1.2 million of state net operating loss
carryforwards will be realized prior to their expiration. As a result, a $.8
million charge was recorded in the fourth quarter of 1999 to increase the
valuation allowance for state net operating loss carryforwards to $1.1 million.

     In December 1999, the Internal Revenue Service ("IRS") completed an
examination of the Company's corporate income tax returns for the years 1995
through 1997. On December 16, 1999, the IRS issued a Notice of Proposed
Adjustment which assessed additional taxes of $5.2 million, excluding interest.
The assessment represents a total of $14.0 million of adjustments to taxable
income for the years under review. The proposed adjustments relate to the
deductibility of restructuring and other reserves applicable to continuing and
discontinued operations as well as the utilization of foreign net operating
losses primarily associated with discontinued operations. It is the Company's
intention to file an appeal of the proposed assessment with the IRS Appeals
Office during the first quarter of 2000.

     In December 1998, the IRS completed an examination of the Company's
corporate income tax returns for the years 1992 through 1994. On December 11,
1998, the IRS issued a Notice of Proposed Adjustment which assessed additional
taxes of $4.6 million, excluding interest. The assessment represents a total of
$18.2 million of adjustments to taxable income for the years under review. The
proposed adjustments relate to the deductibility of restructuring and other
reserves applicable to discontinued operations as well as certain losses
deducted in connection with the divestiture of the Company's Computer Products
Division. The Company disagrees with the position taken by the IRS and filed a
formal protest of the proposed adjustment on January 12, 1999. A formal hearing
was held before the IRS Appeals Officer on November 16, 1999. The Company has
furnished records and documentation to the Appeals Officer in support of its
protest of the proposed adjustments.

     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 and a formal hearing was held before the DOR officers on August 31,
1999. The assessment has been reduced to $3.2 million, including interest. The
Company disagrees with the remaining assessment and continues to defend its
position.


                                      -26-
<PAGE>   27


     The Company believes that it will prevail in all material respects against
the IRS' assertions related to the corporate income tax returns filed for years
1992 through 1994. In the fourth quarter of 1999, the Company recorded a charge
of $1.3 million in continuing operations, which included $.8 million of
interest, and a charge of $4.0 million in discontinued operations primarily to
provide for potential liabilities for tax deficiencies that could arise from
resolution of the IRS's examination of the corporate tax returns filed for years
1995 through 1997 and for resolution of New Hampshire DOR's examination of the
corporate income tax returns for years 1989 through 1992.

     The tax charges that were recorded in continuing and discontinued
operations of $1.3 million and $4.0 million, respectively, provide reserves
which are based upon management's estimate of the liabilities associated with
the federal and state examinations described above. While management believes
that it has provided adequately for its tax liabilities through December 31,
1999, including liabilities related to matters in dispute with taxing
authorities, it can provide no assurances that the Company will prevail in its
defense against these pending or future federal and state examinations. In
addition, management can provide no assurances that the ultimate resolution of
these open tax matters will not be in excess of current provisions.

                               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.

     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.


                                      -27-
<PAGE>   28


     In 1998, the Board of Directors authorized the Company to repurchase up to
1,000,000 shares of its common stock. As of December 31, 1999, the Company had
purchased 999,754 shares under this authorization.

     In 1999, the Board of Directors authorized the Company to repurchase up to
an additional 1,000,000 shares of its common stock. As of December 31, 1999, no
shares had been purchased 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, 1999:

<TABLE>
<CAPTION>
                                                                              Additional      Cumulative
                                                             Common Stock       Paid-In      Translation       Treasury Stock
(In thousands, except share data)                       Shares      Par Value   Capital       Adjustment    Shares         Cost
--------------------------------------------------------------------------------------------------------------------------------

<S>                                                   <C>             <C>       <C>            <C>         <C>         <C>
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)
Stock issued for Director compensation                    8,370            9         81             --          --           --
Deferred compensation forfeiture                             --           --        460             --          --           --
Restricted stock forfeiture                             (31,000)         (31)      (416)            --          --           --
Purchase of treasury shares                                  --           --         --             --    (348,080)      (4,083)
--------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1999                            6,915,767       $6,916    $15,182        $    --  (1,023,818)    $(14,922)
</TABLE>

                       Stock Option and Stock Award Plans

The Company has four stock compensation plans at December 31, 1999: the 1987
Stock Option Plan ("1987 Plan"), the 1993 Stock Incentive Plan ("1993 Plan"),
the 1996 Stock Incentive Plan ("1996 Plan") and the 1999 Shareholder Value Plan
("1999 Plan"). Awards may no longer be granted under the 1987 Plan and the 1993
Plan. Awards under the 1996 Plan and the 1999 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 are currently exercisable. 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. In the event of a change in control,
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.


                                      -28-
<PAGE>   29


     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 both the 1996 Plan and the 1999 Plan. Of the 660,000 and
600,000 shares authorized by the Company's Board of Directors for the 1996 and
1999 Plans, respectively, 87,253 and 395,000 shares are available to be awarded
as of December 31, 1999. Stock options awarded under the 1993 Plan are currently
exercisable. Stock options under the 1996 Plan and the 1999 Plan 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 and option agreements. Nonstatutory stock options
under the 1993 Plan and the 1996 Plan expire 10 years and one day from the date
of grant, and incentive stock options expire 10 years from the date of grant.
Nonstatutory and incentive stock options under the 1999 Plan expire 10 years
from the date of grant.

     Performance based restricted stock awards under the 1993 Plan and the 1996
Plan 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. 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 paid-in capital representing the unearned
portion of the award. Shares of performance based restricted stock are forfeited
if the specified closing prices of the Company's common stock are not met within
five years of grant, the executive leaves the Company or if the significant
performance based events do not take place within the specified time period.

     A summary of the status of the Company's fixed stock option plans as of
December 31, 1999, 1998 and 1997 and changes during the years ended on those
dates is presented below:

<TABLE>
<CAPTION>
                                                       1999                        1998                         1997
-------------------------------------------------------------------------------------------------------------------------------
                                                             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                  547,370         $15.47       853,920        $14.75       469,714         $18.12
Granted                                        275,500           7.50        64,500         15.60       465,500          12.33
Exercised                                           --             --      (233,100)        12.37            --             --
Forfeited - non-vested                          (2,000)          9.88       (34,500)        11.63       (33,950)         13.65
Forfeited - exercisable                       (202,435)         15.47      (103,450)        17.83       (42,060)         24.86
Expired                                             --             --            --            --        (5,284)         28.75
------------------------------------------------------------------------------------------------------------------------------
Outstanding end of year                        618,435         $11.94       547,370        $15.47       853,920         $14.75
Options exercisable at end of year             316,935         $15.46       446,120        $15.83       402,420         $17.66
Weighted average fair value of options granted
   during the year (exercise price equals market price)        $ 3.41                      $ 6.60                       $ 5.11
</TABLE>


The following table summarizes information about stock options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
                                                 Options Outstanding                                   Options Exercisable
                                ------------------------------------------------------          --------------------------------
                                                     Weighted
                                   Number             Average             Weighted                 Number            Weighted
    Range of                    Outstanding          Remaining             Average              Exercisable           Average
Exercise Prices                 at 12/31/99       Contractual Life      Exercise Price          at 12/31/99       Exercise Price
--------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>               <C>                    <C>                    <C>                  <C>
$  6.63                           205,500           10.0 years              $ 6.63                     --                 N/A
$  8.88 - $12.75                  255,850            8.0 years              $11.79                185,850              $12.41
$ 13.38 - $19.75                  125,850            7.0 years              $17.04                 99,850              $17.44
$ 22.63 - $27.00                   22,235            4.0 years              $25.81                 22,235              $25.81
$ 28.13 - $34.63                    9,000            1.3 years              $31.89                  9,000              $31.89
-----------------------------------------------------------------------------------------------------------------------------
$  6.63 - $34.63                  618,435            8.2 years              $11.94                316,935              $15.46
</TABLE>


                                      -29-
<PAGE>   30


A summary of the status of the Company's restricted stock plans as of December
31, 1999, 1998 and 1997 and changes during the years ended on those dates is
presented below:

<TABLE>
<CAPTION>
                                                                                         1999            1998            1997
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>             <C>
Restricted stock outstanding at beginning of year                                       286,000         305,500         245,000
Granted                                                                                       -         105,000          85,500
Forfeited                                                                               (31,000)       (124,500)        (25,000)
                                                                                        ---------------------------------------
Restricted stock outstanding at end of year                                             255,000         286,000         305,500

Weighted average fair value per restricted share at grant date                                -        $   9.66         $  5.56
Weighted average share price at grant date                                                    -        $  15.93         $ 13.59
</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 No. 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 loss and loss per share would have been increased to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
(In thousands, except per share amounts)                                                   1999            1998            1997
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>            <C>            <C>
Net loss - as reported                                                                  $(4,421)       $(12,864)      $  (8,822)
Net loss - pro forma                                                                    $(4,732)       $(14,266)      $ (10,674)

Basic and diluted net loss per common share - as reported                               $  (.77)       $  (2.04)      $   (1.38)
Basic and diluted net loss per common share - pro forma                                 $  (.83)       $  (2.26)      $   (1.67)
</TABLE>


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
---------------------------------------------------------------------------------------------------------------------------------
                                                                                           1999            1998            1997
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>             <C>             <C>
Volatility of Share Price:
   Options                                                                                 39.0%           37.0%           33.0%
   Restricted stock                                                                        11.0%           12.0%           11.0%
Dividend yield:
   Options                                                                                   --              --              --
   Restricted stock                                                                          --              --              --
Interest rate:
   Options                                                                                  6.2%            4.8%            6.3%
   Restricted stock                                                                          N/A            4.8%            5.9%
Expected life of options                                                               5.3 years       5.5 years       5.3 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.


                                      -30-
<PAGE>   31


                               Earnings Per Share

Since the effect of stock options which have an exercise price below the average
market price of the Company's stock of 9,900 shares in 1999, 57,103 shares in
1998, and 49,542 shares in 1997 would be antidilutive to loss per share
computations due to the net loss position of the Company for each of the three
years ended in the accompanying financial statements, Basic EPS and Diluted EPS
are identical in each of the years ended December 31, 1999, 1998 and 1997. The
computations of EPS for 1999, 1998 and 1997 include weighted average shares
(denominator) of 5,718,224, 6,319,775 and 6,384,566, respectively.

     Performance based restricted stock of 255,000, 286,000 and 305,500 shares
for the years ended December 31, 1999, 1998 and 1997, 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,
$1.0 million and $.8 million for 1999, 1998 and 1997, respectively. The Company
also received rental income on subleased facilities of $.2 million for each of
the years ended December 31, 1999, 1998 and 1997. At December 31, 1999, the
Company was committed, under non-cancelable operating leases, to minimum annual
rentals as follows: 2000 - $.5 million; 2001 - $.4 million; 2002 - $.3 million;
2003 - $.3 million; 2004 - $.3 million; thereafter - $.1 million. Minimum annual
rentals have not been reduced for future minimum rentals under non-cancelable
subleases aggregating $.1 million.

     At December 31, 1999, the Company had a $389,000 obligation under a standby
letter of credit with Fleet Bank-NH.

     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 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, including the original damages assessment of $7,549,000
plus accrued interest, in the third quarter of 1998 and continues to accrue
interest on such award. The Company's accrual balance at December 31, 1999 was
$16.4 million. In addition, in the fourth quarter of 1998, the Company posted a
$16.0 million bond which was increased to $16.8 million in the fourth quarter of
1999 to include an additional year of interest pending the decision of the Court
of Appeals. In 1998, the Company placed $5.0 million in escrow to secure the
original 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


                                      -31-
<PAGE>   32


and omitted the disclosure of material facts regarding, in particular, certain
significant customer relationships. In October 1997, the Circuit 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 Circuit Court, on motion by the defendants, dismissed with prejudice
the Second Amended Consolidated Complaint. The plaintiffs filed with the
Appellate Court an appeal of the Circuit Court's ruling. On November 19, 1999,
the Appellate Court reversed the Circuit Court's ruling dismissing the Second
Amended Consolidated Complaint. The Appellate Court ruled that the Second
Amended Consolidated Complaint stated a claim and remanded the case to the
Circuit Court for further proceedings. On December 27, 1999, the Company filed a
Petition for Leave to Appeal from the Appellate Court with the Supreme Court of
Illinois. In that Petition, the Company asked the Supreme Court of Illinois to
hear the Company's further appeal and determine whether the Circuit Court or the
Appellate Court is correct. That Petition remains pending.

     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
estimate. At December 31, 1999, based on the facts currently known and the
Company's prior experience with these matters, the Company has concluded that it
is probable 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 $1.6 million for certain of
the Company's continuing operations, and a range of $.4 million to $.6 million
for certain of the Company's discontinued operations. 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, 1999, the Company's accrual balances
were $1.2 million for continuing operations and $.6 million for discontinued
operations which represent, in management's view, the most likely amounts within
the ranges 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.

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.


                                      -32-
<PAGE>   33


<TABLE>
<CAPTION>
                                                                       Pension Benefits                Postretirement Benefits
(In thousands)                                                        1999          1998                 1999            1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>             <C>               <C>             <C>
Change in benefit obligation
Benefit obligation at beginning of year                            $125,356        $116,671          $   7,698       $   8,527
Service cost                                                          1,614           1,470                 57              54
Interest cost                                                         8,512           8,289                417             532
Amendments                                                               --             188                 --              --
Actuarial (gain)/loss                                                (5,510)          8,204             (1,437)           (764)
Benefits paid                                                        (8,551)         (9,466)              (602)           (651)
                                                                   -----------------------------------------------------------
Benefit obligation at end of year                                  $121,421        $125,356          $   6,133       $   7,698
                                                                   ===========================================================

Change in plan assets
Fair value of plan assets at beginning of year                     $129,727        $125,011          $      --       $      --
Actual return on plan assets                                         16,602          13,924                 --              --
Employer contribution                                                    25              --                 --              --
Benefits paid                                                        (8,293)         (9,209)                --              --
                                                                   -----------------------------------------------------------
Fair value of plan assets at end of year                           $138,061        $129,726          $      --       $      --
                                                                   ===========================================================

Reconciliation of funded status
Funded status                                                     $  16,640        $  4,370          $  (6,133)      $  (7,698)
Unrecognized net actuarial (gain)/loss                              (28,739)        (17,717)            (4,055)         (2,869)
Unrecognized prior service cost                                       3,157           3,749               (600)           (656)
Unrecognized net transition asset                                        70             221                 --              --
                                                                  ------------------------------------------------------------
Net amount of liabilities recognized                              $  (8,872)       $ (9,377)         $ (10,788)      $ (11,223)
                                                                  ============================================================

The amount recognized in the consolidated
 balance sheet consists of the following:
Accrued benefit liability                                         $  (8,872)       $ (9,377)         $ (10,788)      $ (11,223)
Additional minimum liability                                            (45)           (382)                --              --
Intangible asset                                                         45             382                 --              --
                                                                  ------------------------------------------------------------
Net amount of liabilities recognized                              $  (8,872)       $ (9,377)         $ (10,788)      $ (11,223)
                                                                  ============================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                         Pension Benefits              Postretirement Benefits
                                                                    1999       1998       1997       1999       1998        1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>        <C>        <C>        <C>        <C>        <C>
Weighted-average assumptions as of December 31
Discount rate                                                       7.75%      6.75%      7.25%      7.75%      6.75%      7.25%
Expected return on plan assets                                      9.70%      9.70%      9.70%        N/A        N/A        N/A
Average rate of compensation increase                               4.50%      5.00%      5.00%        N/A        N/A        N/A
</TABLE>

     Net periodic pension and postretirement benefit (income) 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)                                                      1999       1998       1997       1999       1998       1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>         <C>        <C>          <C>        <C>        <C>
Components of net periodic benefit (income) cost
Service cost                                                    $  1,614    $ 1,470    $ 1,669      $  57      $  54      $  59
Interest cost                                                      8,512      8,288      8,219        417        532        606
Expected return on plan assets                                   (11,089)   (10,712)    (9,834)        --         --         --
Amortization of prior service cost                                   592        605        633        (56)       (56)       (59)
Recognized net actuarial (gain)                                       --        (53)      (145)      (251)      (136)      (118)
Amortization of transition obligation                                151        161        189         --         --         --
                                                               -----------------------------------------------------------------

Net periodic benefit (income) cost                              $   (220)  $   (241)  $    731      $ 167      $ 394      $ 488
                                                                ================================================================
</TABLE>


                                      -33-
<PAGE>   34


     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 $2.8 million, $2.7 million, and $0, respectively, as
of December 31, 1999 and $3.1 million, $3.0 million, and $0, respectively, as of
December 31, 1998.

     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                       $  13                         $  (12)

Effect on accumulated postretirement benefit obligation                       $ 108                         $  (97)
</TABLE>


     The Company recognized curtailment expenses of $.3 million relating to the
sale of the photofinishing businesses in 1998.

     Approximately $8.9 million and $9.8 million of the accrued pension cost and
$10.2 million and $10.5 million of the accrued postretirement benefits for 1999
and 1998, respectively, are included in "Other long-term liabilities" in the
accompanying consolidated balance sheet. Intangible pension assets of $.4
million for 1998 are included in "Other assets" in the accompanying consolidated
balance sheet. Additionally, approximately $.6 million and $.7 million of the
accrued postretirement benefits for 1999 and 1998, 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, 1999,
the projected benefit obligation and accumulated benefit obligation under the
plan were $4.9 million and the fair value of plan assets was $5.7 million.

     In the fourth quarter of 1999, the Company's Board of Directors approved a
proposal to purchase non-participating annuity contracts from an insurance
company to settle the Company's pension benefit obligation with respect to the
retired salaried and hourly employees (the "Transaction") covered under its
pension plans. The Company paid the annuity premium and transferred $74.6
million of pension assets to the insurance company on December 9, 1999. However,
the underlying contract was not executed as of December 31, 1999. The Company
will record the transaction once the contract is fully executed.

                          Information About Operations

During the fourth quarter of 1998, the Company adopted FAS 131. FAS 131
establishes standards for the reporting of information about operating segments
in annual and interim financial statements and requires restatement of prior
year information. Operating segments are defined as components of an enterprise
for which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. FAS 131 also requires disclosures about
products and services, geographic areas and major customers. 1997 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.


                                      -34-
<PAGE>   35


     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 Product Division and Specialty Coated Product Division, they have been
aggregated and reported as one reportable segment (Specialty Coated and Label
Products).

The table below presents information about reported segments for the years ended
December 31:

<TABLE>
<CAPTION>
                                        Net Sales From               Pretax Income (Loss) From
                                     Continuing Operations             Continuing Operations              Identifiable Assets
--------------------------------------------------------------------------------------------------------------------------------
(In millions)                        1999     1998      1997         1999       1998       1997       1999       1998      1997
--------------------------------------------------------------------------------------------------------------------------------

<S>                                <C>      <C>       <C>           <C>       <C>        <C>        <C>        <C>       <C>
By Reportable Segment
Imaging Supplies                   $ 56.7   $ 57.5    $ 66.5        $(1.1)    $ (2.0)    $ (3.6)    $ 21.6     $ 21.2    $ 22.9
Specialty Coated and Label
 Products                           113.9    110.2     106.6          9.0        9.3        7.6       50.8       47.0      43.7

Reconciling Items:
   Other (1)                           .2       .1        .1          (.2)       (.6)      (1.5)        .1        1.0        .6
   Corporate expenses and assets       --       --        --         (6.1)      (4.9)      (8.5)      57.1       64.1      30.8
   Restructuring and other unusual
    items                              --       --        --          1.3      (13.8)      (4.3)        --         --        --
   Discontinued operations             --       --        --           --         --         --         .8         .8      48.8

--------------------------------------------------------------------------------------------------------------------------------
Consolidated                       $170.8   $167.8    $173.2         $2.9     $(12.0)    $(10.3)    $130.4     $134.1    $146.8
--------------------------------------------------------------------------------------------------------------------------------
</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)                              1999         1998         1997                      1999         1998          1997
--------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>           <C>                       <C>          <C>           <C>
By Reportable Segment
Imaging Supplies                          $3.0        $ 1.1         $ .8                      $1.9         $2.1          $2.3
Specialty Coated and Label Products        4.7          5.4          3.2                       3.9          3.7           3.7

Reconciling Items:
     Other (1)                              --           --           --                        .1           .2            .2
     Corporate                              .2           .2           .4                        .5           .8           1.4

--------------------------------------------------------------------------------------------------------------------------------
Consolidated                              $7.9         $6.7         $4.4                      $6.4         $6.8          $7.6
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes activity from operations which falls below the quantitative
thresholds for a reportable segment.


                                      -35-
<PAGE>   36


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)                                           1999         1998         1997         1999         1998          1997
--------------------------------------------------------------------------------------------------------------------------------

<S>                                                  <C>          <C>          <C>           <C>          <C>         <C>
By Geographic Area
United States                                        $170.5       $167.5       $172.4        $40.4        $39.3       $  38.7
Europe                                                   .3           .3           .8            -           .4            .5

Reconciling Items:
     Discontinued Operations                              -            -            -           .8           .8          48.7
     Deferred tax assets                                  -            -            -          9.7         10.2          13.1

-------------------------------------------------------------------------------------------------------------------------------
Consolidated                                         $170.8       $167.8       $173.2        $50.9        $50.7        $101.0
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                Subsequent Events

In the fourth quarter of 1999, the Company's Board of Directors approved a
proposal to purchase non-participating annuity contracts from an insurance
company to settle the Company's pension benefit obligation with respect to the
retired salary and hourly employees (the "Transaction") covered under its
pension plans. The Company paid the annuity premium and transferred $74.6
million of pension assets to the insurance company on December 9, 1999. However,
the underlying contract was not executed as of December 31, 1999. The Company
will record the transaction once the contract is fully executed.

     In the first quarter of 2000, the Company executed purchase and sale
agreements with third parties with respect to the sale of certain real estate
located at 44 Franklin Street in Nashua, N.H.

     On February 8, 2000, the Company announced its plan to discontinue its
remanufactured laser cartridge product line by March 31, 2000. The
remanufactured laser cartridge operation is included in the Company's Imaging
Supplies segment.

                      Common Stock Information (Unaudited)

The Company's stock is traded on the New York Stock Exchange. At December 31,
1999, there were 1,268 record holders of the Company's common stock.


                                      -36-
<PAGE>   37


Report of Independent Accountants
To the Board of Directors and Shareholders of Nashua Corporation:


In our opinion, the accompanying consolidated balance sheets 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States 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.


PricewaterhouseCoopers LLP
Boston, Massachusetts

February 18, 2000


                                      -37-

<PAGE>   38


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

On March 10, 2000, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers")
informed the Company that it did not intend to stand for reappointment as the
Company's independent public accountants for the year 2000. On March 13, 2000,
with the approval of the Audit/Finance and Investment Committee and the
concurrence of the Board of Directors, the Company engaged Ernst & Young LLP
("Ernst & Young") as the Company's independent public accountants for the year
2000.

     Prior to their engagement, neither the Company nor anyone on behalf of the
Company had consulted Ernst & Young regarding either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the financial statements
of the Company or any matter that was either the subject of a disagreement,
within the meaning of Item 304(a)(1)(iv) of Regulation S-K, or any reportable
event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

     PricewaterhouseCoopers' reports on the financial statements of the Company
for each of the past two fiscal years did not contain any adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principle.

     In connection with the audits by PricewaterhouseCoopers of the Company's
financial statements for the Company's two most recent fiscal years, and the
subsequent interim periods, there were no disagreements with
PricewaterhouseCoopers on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers,
would have caused them to make reference thereto in their report on the
financial statements for such years.

     The Company has requested that PricewaterhouseCoopers furnish it with a
letter addressed to the Securities and Exchange Commission stating whether or
not it agrees with the above statements. A copy of such letter dated March 15,
2000 is filed as Exhibit 16 to the Company's 8-K report filed on March 15, 2000.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS OF THE REGISTRANT

     In accordance with the Company's bylaws, the Board of Directors has fixed
at seven the number of directors of the Company. Nashua's directors are elected
annually by the stockholders and hold office until their successors are elected
and qualified or until their death, resignation or removal. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be temporarily filled until the next annual meeting of
stockholders of the Company by vote of a majority of the directors then in
office.


                                      -38-
<PAGE>   39


     The table below includes information for each director as of March 3, 2000
with respect to (a) his name and age; (b) position and offices at Nashua; (c)
principal occupation and business experience during the past five years; (d)
directorships, if any, of other publicly held companies and (e) the year he
became a director of Nashua.

<TABLE>
<CAPTION>
                                      DIRECTOR
NAME                         AGE       SINCE                BUSINESS EXPERIENCE
----                         ---      --------              -------------------

<S>                          <C>       <C>        <C>
Sheldon A. Buckler           68        1994       Dr. Buckler has been Chairman of the Board of Lord Corporation (technology based
                                                  manufacturing company) since January 1, 2000. He also has been Chairman of the
                                                  Board of the Massachusetts Eye and Ear Infirmary (a Harvard Medical School
                                                  teaching hospital) since December 1996. Dr. Buckler was Chairman of the Board of
                                                  Commonwealth Energy System (a supplier of energy products) from May 1995 through
                                                  1999. Dr. Buckler is a Director of Parlex Corporation and NSTAR Corporation.

Gerald G. Garbacz            63        1996       Mr. Garbacz has been Chairman of the Board of Nashua Corporation since June 14,
                                                  1996 and President and Chief Executive Officer since January 2, 1996. From 1994
                                                  through 1995, Mr. Garbacz was a private investor. He was Chairman and Chief
                                                  Executive Officer of Baker & Taylor Inc. (information distribution) from 1992 to
                                                  1994. Mr. Garbacz is a Director of Hollingsworth & Vose Company.

Charles S. Hoppin            68        1979       Mr. Hoppin has been Senior Counsel to the law firm of Davis Polk & Wardwell
                                                  since January 1999. He was a partner of Davis Polk & Wardwell from prior to 1995
                                                  through December 1998.

John M. Kucharski            64        1988       On February 1, 1999, Mr. Kucharski retired as Chairman of the Board of EG&G,
                                                  Inc. (technical and scientific products and services), a position which he had
                                                  held from 1988. He was Chief Executive Officer of EG&G, Inc. from 1987 through
                                                  1998 and President from 1986 until February 1998. Mr. Kucharski is a Director of
                                                  New England Electric System and State Street Boston Corporation.

David C. Miller, Jr.         57        1996       Mr. Miller has been President and Chief Executive Officer of ParEx, Inc.
                                                  (privately held investment company) since December 1994. From 1994 through 1995,
                                                  Mr. Miller also served as President of Kennedy International Consulting, Inc. He
                                                  is also Chairman and President, Special Operations Fund, and a Director of
                                                  Georgetown University's Institute for the Study of Diplomacy.

Peter J. Murphy              51        1997       Mr. Murphy has been Chief Executive Officer of Parlex Corporation (electrical
                                                  components) since July 1997, President since July 1995 and a Director since
                                                  March 1994. He was Chief Operating Officer and Executive Vice President of
                                                  Parlex Corporation from May 1994 to July 1995. Prior to his employment with
                                                  Parlex Corporation, Mr. Murphy was President of Teledyne Electro-Mechanisms, a
                                                  manufacturer of flexible circuits.

James F. Orr III             57        1989       Mr. Orr retired as Chairman, Chief Executive Officer and President of UNUM
                                                  Corporation (insurance) in November 1999. He had been Chairman since February
                                                  1988, and Chief Executive Officer and President since September 1987.
</TABLE>


                                      -39-
<PAGE>   40


EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain information regarding the executive
officers of Nashua as of March 3, 2000:

<TABLE>
<CAPTION>
NAME                            AGE         POSITION
----                            ---         --------

<S>                             <C>         <C>
Gerald G. Garbacz               63          Chairman, President and Chief Executive Officer
John L. Patenaude               50          Vice President-Finance and Chief Financial Officer
John J. Ireland                 48          Vice President/President, Specialty Coated Products Division
Joseph R. Matson                52          Vice President, Corporate Controller
Peter C. Anastos                38          Vice President, General Counsel and Secretary
Donna J. DiGiovine              38          Vice President/President, Toner and Developer Products
</TABLE>

     Mr. Garbacz has been Chairman of the Board of Nashua since June 1996 and
its President and Chief Executive Officer since January 1996. He was a private
investor from 1994 through 1995.

     Mr. Patenaude has been the Vice President - Finance, Chief Financial
Officer of Nashua since May 1998. He was Treasurer of Nashua from May 1998 to
October 1999. From July 1996 to May 1998, he was Assistant Treasurer of the
Company and from 1991 to July 1996 he was the Director of Taxes of the Company.

     Mr. Ireland has been a Vice President of Nashua since November 1995,
President of the Specialty Coated Products Division since April 1998 and its
General Manager since April 1994.

     Mr. Matson has been a Vice President of Nashua since May 1998 and its
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 of Nashua from December
1996 to May 1998. From June 1995 to December 1996 he served as Group Counsel of
the Company and prior to June 1995, Mr. Anastos was Associate Counsel of the
Company.

     Ms. DiGiovine has been a Vice President of Nashua and President of Toner
and Developer Products since December 1999 and its General Manager since April
1999. She was Director of Marketing for the Imaging Supplies segment from
September 1998 to April 1999 and its Manager of Consumer Product Marketing from
July 1996 to September 1998. Prior to 1996, Ms DiGiovine held various marketing
positions with Avery Dennison Corporation, a producer of pressure sensitive
adhesives and materials and consumer and converted products.

     Executive officers are generally elected to their offices each year by the
Board of Directors shortly after the Annual Meeting of Shareholders.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's common stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of the common stock and other equity securities of the
Company. Such persons are required by regulations promulgated by the Securities
and Exchange Commission to furnish the Company with copies of all Section 16(a)
forms filed by such person with respect to the Company. Based solely on its
review of copies of reports filed pursuant to Section 16(a) of the Exchange Act,
or written representations from persons required to file such reports
("Reporting Persons"), the Company believes that all such filings required to be
made by such Reporting Persons during fiscal 1999 were timely made in accordance
with the requirements of the Exchange Act.


                                      -40-
<PAGE>   41


ITEM 11. EXECUTIVE COMPENSATION

     The following table sets forth the compensation for the fiscal years ended
December 31, 1999, 1998 and 1997 for the Company's Chief Executive Officer and
four most highly compensated executive officers whose total annual salary and
bonus exceeded $100,000 in 1999 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                 Long-Term
                                              Annual Compensation          Compensation Awards
                                             ---------------------   -------------------------------
                                                                        Performance       Securities
                                                                      Based Restricted    Underlying      All Other
Name and Principal Position          Year    Salary($)    Bonus($)   Stock Awards($)(1)   Options(#)  Compensation($)(2)
---------------------------          ----    ---------    --------   ------------------   ----------  ------------------

<S>                                  <C>      <C>         <C>            <C>                <C>             <C>
Gerald G. Garbacz ..............     1999     350,000          --         69,750(3)         60,000          10,956
 Chairman, President                 1998     384,596          --        400,000(4)             --          20,342
 and Chief Executive Officer         1997     410,000          --             --            90,000          16,262


John J. Ireland ................     1999     230,307      75,738             --            25,000           4,941
 Vice President                      1998     199,154     144,520        223,750(5)(6)          --           5,290
 Specialty Coated Products           1997     190,000      38,000             --            15,000           4,260
 Division


John L. Patenaude (7) ..........     1999     165,000      20,328             --            25,000           4,685
 Vice President-Finance and          1998     156,058      38,426(8)     326,250(6)(9)          --           4,393
 Chief Financial Officer


Joseph R. Matson ...............     1999     150,000       9,600             --            10,000           5,648
 Vice President,                     1998     151,038       7,250             --             5,000           6,211
 Corporate Controller                1997     145,000          --        139,375(10)         7,000           4,962


Bruce T. Wright (11) ...........     1999     140,000      13,440             --            20,000(12)       4,642
 Vice President -                    1998     155,204       7,915             --            10,000           5,567
 Human Resources                     1997     165,000          --        209,063(12)        25,000           4,517
</TABLE>

(1)  Market value of performance based restricted shares on the date of grant.
     As of December 31, 1999, the market value (based on the closing price on
     the New York Stock Exchange of Nashua's common stock on such date ($7.50)
     and number of performance based restricted shares were: Mr. Garbacz -
     $1,087,500 (145,000 shares, excluding 9,000 shares granted on February 25,
     2000); Mr. Ireland - $112,500 (15,000 shares); Mr. Patenaude - $150,000
     (20,000 shares); Mr. Matson - $75,000 (10,000 shares); and Mr. Wright -
     $300,000 (40,000 shares).

(2)  The amounts listed consist of Company contributions to the Employees'
     Savings Plan, life insurance income and cash payments in lieu of medical
     benefits. In 1999, these amounts were:

     (a)  as to the Employees' Savings Plan - Mr. Garbacz, $5,000; Mr. Ireland,
          $3,904; Mr. Patenaude, $3,492; Mr. Matson, $4,583; and Mr. Wright,
          $4,032.

     (b)  as to life insurance income - Mr. Garbacz, $5,176; Mr. Ireland,
          $1,037; Mr. Patenaude, $1,193; Mr. Matson, $1,065; and Mr. Wright,
          $610.

     (c)  as to cash payments in lieu of medical benefits - Mr. Garbacz, $780.

(3)  Consists of 9,000 shares of restricted stock (granted on February 25, 2000
     when the price of Nashua shares was $7.75), 4,500 shares of which will vest
     on December 31, 2000 if Mr. Garbacz is an employee of the Company at such
     time and the remaining 4,500 shares of which will vest on December 31, 2001
     if Mr. Garbacz is an employee of the Company at such time, provided that
     100% will vest in the event of a change of control as defined in Mr.
     Garbacz's Change of Control and Severance Agreement dated June 24, 1998.
     Dividends, if any, will accumulate on such restricted stock and be paid
     when and if the underlying shares vest.


                                      -41-
<PAGE>   42


(4)  Consists of 25,000 shares of performance based restricted stock (granted
     when the price of Nashua shares was $16.00), 12,500 shares of which will
     vest when the average closing price over a ten trading day period of Nashua
     shares (the "Ten Day Average Closing Price") reaches $21.00; and 12,500
     shares of which will vest when the Ten Day Average Closing Price reaches
     $23.00. However, any shares which have not vested upon the earlier of (i)
     December 15, 2003 or (ii) termination of employment, will be forfeited.
     Dividends, if any, will accumulate on such performance based restricted
     stock and be paid when and if the underlying shares vest.

(5)  Consists of 5,000 shares of performance based restricted stock (granted
     when the price of Nashua shares was $12.75), 2,500 shares of which will
     vest when the Ten Day Average Closing Price reaches $18.00; and 2,500
     shares of which will vest when the Ten Day Average Closing Price reaches
     $20.00. However, any shares which have not vested upon the earlier of (i)
     February 25, 2003 or (ii) termination of employment, will be forfeited.
     Dividends, if any, will accumulate on such performance based restricted
     stock and be paid when and if the underlying shares vest.

(6)  Consists of 10,000 shares of performance based restricted stock (granted
     when the price of Nashua shares was $16.00), 5,000 shares of which will
     vest when the Ten Day Average Closing Price reaches $21.00; and 5,000
     shares of which will vest when the Ten Day Average Closing Price reaches
     $23.00. However, any shares which have not vested upon the earlier of (i)
     December 15, 2003 or (ii) termination of employment, will be forfeited.
     Dividends, if any, will accumulate on such performance based restricted
     stock and be paid when and if the underlying shares vest.

(7)  Mr. Patenaude became an executive officer of the Company in May 1998.

(8)  Includes market value of performance based restricted stock as of the date
     the performance target was met and such stock was acquired.

(9)  Consists of 10,000 shares of performance based restricted stock (granted
     when the price of Nashua shares was $16.625), 5,000 shares of which will
     vest when the Ten Day Average Closing Price reaches $19.00; and 5,000
     shares of which will vest when the Ten Day Average Closing Price reaches
     $21.00. However, any shares which have not vested upon the earlier of (i)
     May 12, 2003 or (ii) termination of employment, will be forfeited.
     Dividends, if any, will accumulate on such performance based restricted
     stock and be paid when and if the underlying shares vest.

(10) Consists of 10,000 shares of performance based restricted stock (granted
     when the price of Nashua shares was $13.9375), 5,000 shares of which will
     vest when the Ten Day Average Closing Price reaches $20.00; and 5,000
     shares of which will vest when the Ten Day Average Closing Price reaches
     $25.00. However, any shares which have not vested upon the earlier of (i)
     October 24, 2002 or (ii) termination of employment, will be forfeited.
     Dividends, if any, will accumulate on such performance based restricted
     stock and be paid when and if the underlying shares vest.

(11) Mr. Wright left the Company on January 28, 2000.

(12) As a result of Mr. Wright's resignation, these options were forfeited and
     the shares of restricted stock representing the amount shown were
     forfeited.

STOCK OPTIONS

     The following table sets forth certain information as to options granted
during 1999 to the Named Executive Officers. In accordance with SEC rules, also
shown are the hypothetical gains or "option spreads", on a pretax basis, that
would exist for the respective options. These gains are based on assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
options were granted over the full option term. To put this data into
perspective, the resulting Nashua stock prices for a grant expiring on
12/17/2009 would be $10.79 at a 5% rate of appreciation and $17.18 at a 10% rate
of appreciation.


                                      -42-
<PAGE>   43


OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                         Number of                                                     Potential Realizable Value
                         Securities                                                      At Assumed Annual Rates
                         Underlying                                                    of Stock Price Appreciation
                          Options        Percent of Total   Exercise or                       for Option Term
                          Granted       Options Granted to  Base Price     Expiration  ---------------------------
Name                      (#)(1)        Employees in 1999    ($/Share)        Date          5%($)        10%($)
----                     ----------     ------------------  -----------    ----------       -----        ------

<S>                       <C>                 <C>              <C>         <C>             <C>          <C>
Gerald G. Garbacz         60,000              22.3             6.625       12/17/2009      249,986      633,513
John J. Ireland           25,000               9.3             6.625       12/17/2009      104,161      263,964
John L. Patenaude         25,000               9.3             6.625       12/17/2009      104,161      263,964
Joseph R. Matson          10,000               3.7             6.625       12/17/2009       41,664      105,585
Bruce T. Wright           20,000(2)            7.4             6.625       12/17/2009       83,329      211,171
</TABLE>

-----------------


(1)  50% of these options become exercisable on 12/17/2000; 50% become
     exercisable on 12/17/2001.
(2)  As a result of Mr. Wright's resignation on January 28, 2000, these options
     were forfeited.

     The following table sets forth information regarding stock options held at
the end of fiscal 1999 by the Named Executive Officers:

AGGREGATED OPTION EXERCISES IN 1999 AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                               Number of Securities               Value ($) of Unexercised,
                                                              Underlying Unexercised              In-The-Money, Options at
                                                            Options at Fiscal Year-End               Fiscal Year End(2)
                                                           ---------------------------          ---------------------------
Name(1)                                                    Exercisable   Unexercisable          Exercisable  Unexercisable
-------                                                    -----------   -------------          -----------  -------------

<S>                                                          <C>             <C>                     <C>        <C>
Gerald G. Garbacz .................................          90,000          60,000                  0          52,500

John J. Ireland ...................................          33,500          25,000                  0          21,875

John L. Patenaude .................................          14,500          25,000                  0          21,875

Joseph R. Matson ..................................          24,400          10,000                  0           8,750

Bruce T. Wright ...................................          50,000          20,000(3)               0          17,500
</TABLE>

------------------

(1)  No options were exercised during 1999 by any of the Named Executive
     Officers.

(2)  Represents the difference between the closing price on the New York Stock
     Exchange of Nashua's common stock on December 31, 1999 ($7.50) and the
     exercise price of the options, multiplied by the number of shares subject
     to such options.

(3)  As a result of Mr. Wright's resignation on January 28, 2000, these options
     were forfeited.

PENSION PLAN

     The following table shows the estimated annual benefits payable upon
retirement under the Nashua Corporation Retirement Plan for Salaried Employees
(the "Retirement Plan"), which includes the Named Executive Officers:


                                      -43-
<PAGE>   44


ESTIMATED PENSION BENEFITS

<TABLE>
<CAPTION>
   Average Annual                                              Years of Service
 Compensation from                 -------------------------------------------------------------------------
  January 1, 1994                                                                                   25 or
   To Retirement                  5 Years         10 Years       15 Years         20 Years       more years
--------------------              --------        --------       --------         --------       ----------
<S>                             <C>                <C>            <C>             <C>             <C>
     $125,000                     $ 11,930         $ 23,859       $ 35,789        $ 47,718        $ 56,648
      250,000                       25,670           51,359         77,039         102,718         128,398
      375,000                       39,430           78,859        118,289         157,718         197,148
      500,000                       53,180          106,359        159,539         212,718         265,898
      625,000                       66,930          137,859        200,789         267,718         334,648
      750,000                       80,680          161,359        242,039         322,718         403,398
      875,000                       94,430          188,859        263,289         377,718         472,148
    1,000,000                      108,180          216,359        324,539         432,718         540,898
</TABLE>

     Compensation covered by the Retirement Plan generally refers to total
annual cash compensation, including salary and bonus, but excluding certain
items such as the value of stock option awards and employer allocations to the
Company's Employees' Savings Plan. As of December 31, 1999, the Named Executive
Officers had the following years of service credited under the Retirement Plan:
Mr. Garbacz, 3 years; Mr. Ireland, 4.5 years; Mr. Patenaude, 7 years; Mr.
Matson, 14 years; and Mr. Wright, 4 years.

     The estimated annual benefits shown above are subject to an offset for 50%
of a participant's primary Social Security benefit. Benefits as shown above,
minus the 50% offset for Social Security benefit, are available for participants
whose pensions start after reaching age 65. Participants who have five or more
years of service are eligible to receive pensions after reaching age 60 and
participants who have ten or more years of service are eligible to receive
pensions after reaching age 55, but payments are reduced 4.2% per year for each
year that a recipient starts receiving benefits earlier than at age 65. Payments
are further reduced for participants who began their credited service before age
40 and terminate employment with Nashua before reaching age 55.

     The Employee Retirement Income Security Act of 1974 places limitations on
pensions which may be paid under plans qualified under the Internal Revenue
Code. Amounts exceeding such limitations may be paid outside of qualified plans.
Nashua has a Supplemental Unfunded Excess Retirement Benefit Plan providing for
the payment of such amounts to certain of its employees, including Messrs.
Garbacz, Ireland, Patenaude, Matson and Wright.

COMPENSATION OF DIRECTORS

     Non-employee members of the Board of Directors receive an annual retainer
payable in shares of Nashua's common stock with a market value of $15,000 on the
date of grant effective as of the first day following their election to the
Board. They also receive $1,000 in cash plus expenses for each Board meeting or
Board committee meeting attended and each year are awarded options to purchase
1,000 shares of common stock having an exercise price equal to the fair market
value of such shares on the date of award under the provisions of Nashua's 1996
Stock Incentive Plan. The Lead Director is compensated with an additional $7,500
annually in cash.

SEVERANCE AGREEMENTS

     The Company has entered into severance agreements with Messrs. Garbacz,
Ireland, Patenaude and Matson in order to ensure their continued service to
Nashua in the event of a change in control of Nashua. Such severance agreements
provide that upon termination of employment under certain circumstances within
three years after a change in control of Nashua, the employee would receive
severance pay equal to three times the sum of his annual salary and bonus. In
addition, each employee can terminate his employment after a change in control
of Nashua and receive such severance pay if he determines in good faith that any
assignment of duties is inconsistent with his duties prior to a change of
control or certain action by the Company results in a diminution in position,
duties, authority or responsibilities. If the


                                      -44-
<PAGE>   45


employment of any of such employees is terminated by the Company apart from the
circumstances above for reasons other than misconduct, the executive would
receive one year's salary. In addition, the agreements provide for the
continuation for specified periods of certain other benefits upon severance. The
Company had entered into a similar severance agreement with Mr. Wright, who
resigned as an employee of the Company on January 28, 2000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

     The following table shows the number of shares and percentage of Nashua's
common stock beneficially owned by all persons known to Nashua to be the
beneficial owners of more than 5% of its common stock, as of March 3, 2000:

<TABLE>
<CAPTION>
                                                                                                AMOUNT AND           PERCENT OF
                                                                                           NATURE OF BENEFICIAL     COMMON STOCK
NAME OF BENEFICIAL OWNER                                                                       OWNERSHIP(1)         OUTSTANDING
------------------------                                                                   --------------------     ------------

<S>                                                                                            <C>                     <C>
Gabelli Funds, LLC/GAMCO Investors, Inc./Gabelli
  International II Limited/Gabelli Advisers, Inc./
  Gabelli Group Capital Partners, Inc./Gabelli Asset
  Management Inc./Marc J. Gabelli/Mario J. Gabelli ..................................          1,055,899(a)            18.0%
  One Corporate Center, Rye, NY  10580

Dimensional Fund Advisors Inc. ......................................................            479,800(b)             8.2%
1299 Ocean Avenue, Santa Monica, CA  90401

The TCW Group, Inc./Robert Day ......................................................            434,900(c)             7.4%
  865 South Figueroa Street, Los Angeles, CA 90017

Franklin Resources, Inc./Charles B. Johnson/Rupert H.
  Johnson, Jr./Franklin Advisory Services, LLC ......................................            429,200(d)             7.3%
  777 Mariners Island Boulevard, San Mateo, CA  94404

David L. Babson and Company Incorporated ............................................            382,200(e)             6.5%
  One Memorial Drive, Cambridge, MA 02142-1300

Fleet Boston Corporation ............................................................            346,574(f)             5.9%
  One Federal Street, Boston, MA 02110
</TABLE>

-----------------

(1)  The number of shares beneficially owned is determined under rules
     promulgated by the Securities and Exchange Commission, and the information
     is not necessarily indicative of beneficial ownership for any other
     purpose. Under such rules, beneficial ownership includes any shares as to
     which an individual or group has sole or shared voting power or investment
     power and also any shares which an individual or group has the right to
     acquire within 60 days of March 3, 2000 through the conversion of any
     convertible note or the exercise of any stock option, warrant or other
     right. The inclusion herein of such shares, however, does not constitute an
     admission that the named stockholder is a direct or indirect beneficial
     owner of such shares. Unless otherwise indicated, each person or group
     named in the table has sole voting or investment power (or shares power
     with his or her spouse) with respect to all shares of capital stock listed
     as owned by such person or entity.


                                      -45-
<PAGE>   46


(a)  Information is based on a joint Schedule 13D (Amendment No. 21) dated March
     3, 2000, furnished by such beneficial owners which are affiliated with one
     another. Gabelli Funds, LLC owns 278,000 shares for which it has sole
     voting power and sole dispositive power. GAMCO Investors, Inc. owns 756,899
     shares, for which it has sole voting power as to 753,399 shares and sole
     dispositive power. Gabelli International II Limited owns 15,000 shares for
     which it has sole voting power and sole dispositive power. Gabelli
     Advisers, Inc. owns 6,000 shares for which it has sole voting power and
     sole dispositive power.

(b)  Information is based on Schedule 13G dated February 11, 2000, furnished by
     such beneficial owner. Dimensional Fund Advisors Inc. ("Dimensional") has
     sole voting and sole dispositive power with respect to these shares.
     Dimensional, an investment advisor registered under Section 203 of the
     Investment Advisors Act of 1940, furnishes investment advice to four
     investment companies registered under the Investment Company Act of 1940,
     and serves as investment manager to certain other commingled group trusts
     and separate accounts. These investment companies, trusts and accounts are
     the "Funds". In its role as investment advisor or manager, Dimensional
     possesses voting and/or investment power over the securities of Nashua that
     are owned by the Funds. All securities reported are beneficially owned by
     the Funds. Dimensional disclaims beneficial ownership of such securities.

(c)  Information is based on Schedule 13G (Amendment No. 4), dated February 11,
     2000, furnished by such beneficial owners. The TCW Group, Inc. and Robert
     Day have shared voting and shared dispositive power with respect to such
     shares.

(d)  Information is based on Schedule 13G (Amendment No. 2) dated January 26,
     2000, furnished by such beneficial owners. Franklin Advisory Services, LLC
     has sole voting and sole dispositive power with respect to such shares.

(e)  Information is based on Schedule 13G (Amendment No. 1) dated February 4,
     2000, furnished by such beneficial owner. David L. Babson and Company
     Incorporated has sole voting and sole dispositive power with respect to
     such shares.

(f)  Information is based on Schedule 13G dated February 14, 2000, furnished by
     such beneficial owner. Fleet Boston Corporation has sole voting power as to
     198,400 shares, shared voting power as to 6,374 shares and sole dispositive
     power as to 340,200 shares.

SECURITY OWNERSHIP OF MANAGEMENT

     The following table shows the number of shares and percentage of Nashua's
common stock beneficially owned by each director and nominee for director, the
Named Executive Officers and by all directors and executive officers of Nashua
as a group, as of March 3, 2000:


                                      -46-
<PAGE>   47


<TABLE>
<CAPTION>
                                                                       AMOUNT AND NATURE OF     PERCENT OF COMMON
       NAME                                                           BENEFICIAL OWNERSHIP(1)   STOCK OUTSTANDING
       ----                                                           -----------------------   -----------------

<S>                                                                         <C>                        <C>
       Sheldon A. Buckler .......................................           12,589(2)                    *
       Gerald G. Garbacz ........................................          281,612(3)(10)              4.8%
       Charles S. Hoppin ........................................           13,589(2)                    *
       John J. Ireland ..........................................           49,142(4)(10)                *
       John M. Kucharski ........................................           14,089(2)                    *
       Joseph R. Matson .........................................           33,580(5)(10)
       David C. Miller, Jr ......................................            8,589(2)(6)                 *
       Peter J. Murphy ..........................................            6,652(2)                    *
       James F. Orr III .........................................           15,589(2)                    *
       John L. Patenaude ........................................           37,110(7)(10)                *
       Bruce T. Wright ..........................................           52,938(8)(10)                *
       Directors and Executive Officers
          as a group (12 persons)  ..............................          505,541(9)(10)(11)          8.6%
</TABLE>

------------------


*Less than 1% of outstanding shares of common stock

(1)  Information as to the interests of the respective nominees has been
     furnished in part by them. The number of shares beneficially owned is
     determined under rules promulgated by the Securities and Exchange
     Commission, and the information is not necessarily indicative of beneficial
     ownership for any other purpose. Under such rules, beneficial ownership
     includes any shares as to which an individual or group has sole or shared
     voting power or investment power and also any shares which an individual or
     group has the right to acquire within 60 days of March 3, 2000 through the
     conversion of any convertible note or the exercise of any stock option,
     warrant or other right. The inclusion herein of such shares, however, does
     not constitute an admission that the named stockholder is a direct or
     indirect beneficial owner of such shares. Unless otherwise indicated, each
     person or group named in the table has sole voting or investment power (or
     shares power with his or her spouse) with respect to all shares of capital
     stock listed as owned by such person or entity.

(2)  Includes shares each non-employee director has a right to acquire through
     stock options which are exercisable within 60 days of March 3, 2000 - Mr.
     Buckler, 5,000 shares; Mr. Hoppin, 7,000 shares; Mr. Kucharski, 7,000
     shares; Mr. Miller, 4,000 shares; Mr. Murphy, 3,000 shares; and Mr. Orr,
     7,000 shares.

(3)  Includes 90,000 shares Mr. Garbacz has a right to acquire through stock
     options which are exercisable within 60 days of March 3, 2000. Also
     includes 120,000 shares of performance based restricted stock, 60,000
     shares of which will vest when the average closing price over a ten trading
     day period of Nashua shares (the "Ten Day Average Closing Price") reaches
     $19.00; and 60,000 shares of which will vest when the Ten Day Average
     Closing Price reaches $21.00. However, any shares which have not vested
     upon the earlier of (i) October 24, 2002 or (ii) termination of employment,
     will be forfeited. Also includes 25,000 shares of performance based
     restricted stock, 12,500 shares of which will vest when the Ten Day Average
     Closing Price reaches $21.00; and 12,500 shares of which will vest when the
     Ten Day Average Closing Price reaches $23.00. However, any shares which
     have not vested upon the earlier of (i) December 15, 2003 or (ii)
     termination of employment, will be forfeited. Also includes 9,000 shares of
     restricted stock, 4,500 shares of which will vest on December 31, 2000 if
     Mr. Garbacz is an employee of the Company at such time and the remaining
     4,500 shares of which will vest on December 31, 2001 if Mr. Garbacz is an
     employee of the Company at such time, provided that 100% will vest in the
     event of a change of control as defined in Mr. Garbacz's Change of Control
     and Severance Agreement dated June 24, 1998.


                                      -47-
<PAGE>   48


(4)  Includes 33,500 shares Mr. Ireland has a right to acquire through stock
     options which are exercisable within 60 days of March 3, 2000. Also
     includes 5,000 shares of performance based restricted stock, 2,500 shares
     of which will vest when the Ten Day Average Closing Price reaches $18.00;
     and 2,500 shares of which will vest when the Ten Day Average Closing Price
     reaches $20.00. However, any shares which have not vested upon the earlier
     of (i) February 25, 2003 or (ii) termination of employment, will be
     forfeited. Also includes 10,000 shares of performance based restricted
     stock, 5,000 shares of which will vest when the Ten Day Average Closing
     Price reaches $21.00; and 5,000 shares of which will vest when the Ten Day
     Average Closing Price reaches $23.00. However, any shares which have not
     vested upon the earlier of (i) December 15, 2003 or (ii) termination of
     employment, will be forfeited.

(5)  Includes 22,700 shares Mr. Matson has a right to acquire through stock
     options which are exercisable within 60 days of March 3, 2000. Also
     includes 10,000 shares of performance based restricted stock, 5,000 shares
     of which will vest when the Ten Day Average Closing Price reaches $20.00;
     and 5,000 shares of which will vest when the Ten Day Average Closing Price
     reaches $25.00. However, any shares which have not vested upon the earlier
     of (i) October 24, 2002 or (ii) termination of employment, will be
     forfeited.

(6)  Includes 1,395 shares held by Mr. Miller's spouse.

(7)  Includes 14,500 shares Mr. Patenaude has a right to acquire through stock
     options which are exercisable within 60 days of March 3, 2000. Also
     includes 10,000 shares of performance based restricted stock, 5,000 shares
     of which will vest when the Ten Day Average Closing Price reaches $19.00;
     and 5,000 shares of which will vest when the Ten Day Average Closing Price
     reaches $21.00. However, any shares which have not vested upon the earlier
     of (i) May 12, 2003 or (ii) termination of employment, will be forfeited.
     Also includes 10,000 shares of performance based restricted stock, 5,000
     shares of which will vest when the Ten Day Average Closing Price reaches
     $21.00; and 5,000 shares of which will vest when the Ten Day Average
     Closing Price reaches $23.00. However, any shares which have not vested
     upon the earlier of (i) December 15, 2003 or (ii) termination of
     employment, will be forfeited.

(8)  Includes 50,000 shares Mr. Wright has a right to acquire through stock
     options which are exercisable within 60 days of March 3, 2000.

(9)  Includes 205,200 shares which the directors and executive officers of
     Nashua have the right to acquire through stock options which are
     exercisable within 60 days of March 3, 2000.

(10) Includes shares held in trust under the Company's Employees' Savings Plan
     under which each participating employee has voting power as to the shares
     in his account. As of March 3, 2000, 2,612 shares are held in trust for Mr.
     Garbacz's account; 642 shares are held in trust for Mr. Ireland's account;
     1,610 shares are held in trust for Mr. Patenaude's account; 880 shares are
     held in trust for Mr. Matson's account; 2,238 shares are held in trust for
     Mr. Wright's account; and 5,744 shares are held in trust for the accounts
     of all directors and executive officers as a group. No director other than
     Mr. Garbacz participates in the Plan.

(11) Includes 219,000 shares of performance based restricted stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.


                                      -48-
<PAGE>   49


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are included in Item 8 of Part II of this Form
     10-K:

<TABLE>
<CAPTION>
     (1)  Financial statements:                                                                      Page
          --------------------
<S>                                                                                                   <C>
          Consolidated statements of operations and retained earnings for each of the
            three years in the period ended December 31, 1999                                         18
          Consolidated balance sheets at December 31, 1999 and December 31, 1998                      19
          Consolidated statements of cash flows for each of the three years in the
            period ended December 31, 1999                                                            20
          Notes to consolidated financial statements                                                  21-36
          Report of independent accountants                                                           37

     (2)  Financial statement schedule:
          ----------------------------
          Report of independent accountants on financial statement schedule
          Schedule II - Valuation and qualifying accounts for each of the three years
            in the period ended December 31, 1999
</TABLE>

     The financial statement schedule should be read in conjunction with the
financial statements included in Item 8 of Part II of this Form 10-K. 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.

     (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 Form
               10-Q for the quarterly period ended April 2, 1999 and
               incorporated herein by reference.

     4.01      Loan Agreement between the Company and Fleet Bank-NH, dated April
               22, 1999. Exhibit to the Company's Form 10-Q for the quarterly
               period ended April 2, 1999 and incorporated herein by reference.

     4.02      Revolving Credit Promissory Note between the Company and Fleet
               Bank-NH, dated as of April 22, 1999. Exhibit to the Company's
               Form 10-Q for the quarterly period ended April 2, 1999 and
               incorporated herein by reference.

     4.03      Security Agreement between the Company and Fleet Bank-NH, dated
               as of April 22, 1999. Exhibit to the Company's Form 10-Q for the
               quarterly period ended April 2, 1999 and incorporated herein by
               reference.

     4.04      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.

     4.05      Amendment No. 1 to the Company's Rights Agreement effective as of
               June 24, 1998. Exhibit to the Company's Annual Report on Form
               10-K for the year ended December 31, 1998 and incorporated herein
               by reference.


                                      -49-
<PAGE>   50


     4.06      Amendment No. 2 to the Company's Rights Agreement effective as of
               December 15, 1998. Exhibit to the Company's Annual Report on Form
               10-K for the year ended December 31, 1998 and incorporated herein
               by reference.

     4.07      Amendment No. 3 to the Company's Rights Agreement, dated as of
               April 30, 1999. Exhibit to the Company's Form 10-Q for the
               quarterly period ended April 2, 1999 and incorporated herein by
               reference.

     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. Exhibit to the Company's Annual Report on Form
               10-K for the year ended December 31, 1998 and incorporated herein
               by reference.

     10.07     Amended 1996 Stock Incentive Plan of the Company effective March
               9, 1999. Exhibit to the Company's Annual Report on Form 10-K for
               the year ended December 31, 1998 and incorporated herein by
               reference.

     10.08     Amended 1996 Stock Incentive Plan of the Company effective April
               13, 1999. Exhibit to the Company's Form 10-Q for the quarterly
               period ended April 2, 1999 and incorporated herein by reference.

     10.09     1999 Shareholder Value Plan, effective April 30, 1999. Exhibit to
               the Company's Form 10-Q for the quarterly period ended April 2,
               1999 and incorporated herein by reference.

     10.10     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.

     10.11     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.

     10.12     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.


                                      -50-
<PAGE>   51


     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 July 19,
               1999 between the Company and John J. Ireland. Exhibit to the
               Company's Form 10-Q for the quarterly period ended October 1,
               1999 and incorporated herein by reference.

     10.15     Change of Control and Severance Agreement dated as of February
               25, 2000 between the Company and Donna J. DiGiovine.

     10.16     Management Incentive Plan of the Company.

     11.01     Statement regarding Computation of Earnings Per Share and Common
               Equivalent Share.

     21.01     Subsidiaries of the Registrant.

     23.01     Consent of Independent Accountants.

     24.01     Powers of Attorney.

     27.01     Financial Data Schedule.

(b)  Reports on Form 8-K:

On January 5, 2000, the Company filed a report on Form 8-K announcing a group
pension annuity agreement.

On March 15, 2000, the Company filed a report on Form 8-K with respect to the
change in the Company's independent accountants.


                                      -51-
<PAGE>   52


                                   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 17, 2000                           By /s/John L. Patenaude
      --------------                             -------------------------------
                                                     John L. Patenaude
                                                     Vice President-Finance and
                                                     Chief Financial Officer

<TABLE>
<CAPTION>
SIGNATURE                           TITLE                                  DATE
---------                           -----                                  ----

<S>                                 <C>                                    <C>
/s/Gerald G. Garbacz                Chairman, President and                March 17, 2000
--------------------                Chief Executive Officer
 Gerald G. Garbacz

/s/John L. Patenaude                Vice President-Finance and             March 17, 2000
--------------------                Chief Financial Officer
 John L. Patenaude

/s/Joseph R. Matson                 Vice President, Corporate Controller   March 17, 2000
-------------------                 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 17, 2000
     ----------------------
        John L. Patenaude
        Attorney-In-Fact
</TABLE>


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<PAGE>   53


                        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 18, 2000, appearing in the 1999 Annual Report to Shareholders of
Nashua Corporation (which report and consolidated financial statements are
included in this Annual Report Form 10-K) also included an audit of the
financial statement schedule listed in Item 14(a)(2) 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 18, 2000


                                      -53-
<PAGE>   54


                                                                     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, 1999:

Allowance for doubtful accounts           $  866          $  647(a)          $ (186)(b)             $1,327
Valuation allowance on state net
  operating loss carryforwards               300             800                 --                  1,100



DECEMBER 31, 1998:

Allowance for doubtful accounts           $1,193          $  176(a)          $ (503)(b)             $  866
Valuation allowance on state net
  operating loss carryforwards               328              --                (28)                   300



DECEMBER 31, 1997:

Allowance for doubtful accounts           $1,884          $   79(a)          $ (770)(b)(c)          $1,193
Valuation allowance on state net
  operating loss carryforwards               328              --                 --                    328
</TABLE>


(a)  Charged to costs and expenses.
(b)  Accounts deemed uncollectible.
(c)  Includes decreases of $116 due to restatement of discontinued operations.


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