<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

              [X] Annual Report Pursuant to Section 13 or 15(d) of
               the Securities Exchange Act of 1934 for the fiscal
                          year ended December 31, 2001.

            [ ] Transition Report Pursuant to Section 13 or 15(d) of
             the Securities Exchange Act of 1934 for the transition
                             period from ___ to ___

                             Commission File Number
                                    333-23519

                           VESTCOM INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

           New Jersey                                  22-3477425
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)

               5 Henderson Drive, West Caldwell, New Jersey 07006
                                 (973) 882-7000
          (Address, including zip code, and telephone number, including
             area code, of registrant's principal executive office)

        Securities registered pursuant to Section 12(b) of the Act: none.

           Securities registered pursuant to Section 12(g) of the Act:


                               Title of each class
                               -------------------
                           Common Stock, no par value

Indicate by checkmark 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

Indicate by checkmark 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]

Aggregate market value of voting stock held by non-affiliates as of March 1,
2002 was approximately $12.9 million.

Number of shares of Common Stock outstanding as of March 1, 2002:  9,056,806.

Documents incorporated by reference: Definitive Proxy Statement for the
registrant's 2002 Annual Meeting of Shareholders (Part III).




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                           VESTCOM INTERNATIONAL, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                PAGE

                                                 Part I
<S>         <C>                                                                 <C>
Item 1      Business.                                                            3
Item 2      Properties.                                                         17
Item 3      Legal Proceedings                                                   17
Item 4      Submission of Matters to a Vote of Security Holders                 17
Item 4A     Executive Officers of the Registrant.                               17

                                              Part II

Item 5      Market for the Registrant's Common Equity and Related
                 Stockholder Matters.                                           19
Item 6      Selected Financial Data                                             20
Item 7      Management's Discussion and Analysis of Results of
                 Operations and Financial Condition                             20
Item 7A     Quantitative and Qualitative Disclosures About Market Risk.         23
Item 8      Financial Statements and Supplementary Data                         24
Item 9      Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure.                         F-18

                                            Part III

Item 10     Directors of the Registrant                                         25
Item 11     Executive Compensation.                                             25
Item 12     Security Ownership of Certain Beneficial Owners and
                 Management                                                     25
Item 13     Certain Relationships and Related Transactions.                     25

                                              Part IV

Item 14     Exhibits, Financial Statement Schedules and Reports
                     on Form 8-K.                                               25

Signatures.
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                                     PART I

Item 1.  Business

This Annual Report on Form 10-K contains forward-looking statements based on
current expectations, estimates and projections about Vestcom's industry,
management's beliefs and certain assumptions made by management. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Disclosures Regarding Forward-Looking Statements."

General

Vestcom International, Inc. ("Vestcom" or the "Company") is a leading provider
of business communications, e-marketing and retail marketing services, using
technology and innovation to supply enhanced value in all phases of
communications between businesses and their customers. Vestcom helps its clients
market to and communicate with their customers through a wide range of
applications in business communications, marketing and data management. Vestcom
employs approximately 1,000 individuals and serves customers from 21 operating
facilities throughout the United States and Canada.

Vestcom was founded in September 1996. Concurrently with the consummation of
Vestcom's initial public offering (the "IPO") on August 4, 1997, Vestcom
acquired seven companies in the business communications industry. Since the IPO,
Vestcom has expanded its operations through internal growth and by acquiring
eight additional companies in the business communications industry. The
companies acquired by Vestcom are referred to herein as the "Operating
Companies." Prior to the IPO, Vestcom did not conduct any operations. Vestcom
maintains a website at vestcom.com.

Vestcom's Expertise Enables it to Provide Value-Added Services to Customers

Through its integrated solutions, Vestcom helps companies in a variety of
industries acquire, retain and grow their customer base. Vestcom's knowledge of
the industry, technological expertise, resources and operating efficiencies
enable it to provide a broad range of business communications and marketing
services from multiple locations at a competitive cost. The Company provides
value-added services for its customers, including managing critical data,
printing and distributing personalized documents and providing customer
relationship management ("CRM"). Vestcom's services include the creation,
management and distribution of critical business communications such as
statements, invoices and confirms, as well as database management, and
production and distribution of direct mail in support of marketing initiatives.
Vestcom also provides enhanced value by creating and managing custom built web
storefronts for its customers, and providing the related fulfillment services,
including management, warehousing, kitting and distribution of the requested
products and literature.

As part of its business communications services, in the financial services
industry, Vestcom provides added value by producing statements, invoices and
trade confirms in a cost-effective, timely manner, with enhanced graphics, and
by providing innovative technology which lets the customer individualize the
documents with targeted messages.

As part of its e-marketing services, Vestcom's web-based fulfillment
capabilities integrate the power of the Internet with brick and mortar
traditional fulfillment capabilities to strengthen its clients' relationships
with their customers. For example, a Vestcom customer can direct its clients to
a Vestcom hosted website where the client can request specific information or
products. Vestcom captures the request, generates and personalizes the
information or product, and distributes it to the requesting individual.

As part of its retail marketing services, Vestcom works with its customers in
the retail industry to process and distribute product pricing and merchandising
support materials. Vestcom not only produces pricing labels and point-of
purchase displays, but also provides its customers with value-added services
such as database services, the production and distribution of frequent shopper
and personalized ID cards, price books, equipment and supplies for onsite
production of product pricing materials and other merchandising support needs.



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Vestcom provides services to customers in a broad range of industries. In
addition to the financial services and retail industries, Vestcom provides
services to customers in the pharmaceutical, telecommunications and utilities,
travel, leisure and gaming, and insurance/healthcare industries. Vestcom
provides its customers with solutions to meet their business communications and
marketing services requirements. Vestcom's services enable customers to:

         o Obtain customized business critical documents to meet their specific
         needs

         Vestcom believes that one of its key competitive advantages is its
         significant data processing and programming capabilities. Vestcom's
         technical staff designs and implements the software and systems to
         produce customized business communications for customers. These
         documents not only communicate business critical data, but may also
         provide personalized and focused marketing messages and may be
         supplemented through selective insertion of marketing materials.
         Vestcom's capabilities provide customers with the flexibility to
         produce small or large volumes of business critical documents with the
         same high quality, while permitting each document to contain customized
         or individualized information. Vestcom produces documents for most of
         its customers on a daily, weekly, monthly, or quarterly basis.

         o  Fulfill multiple business communication and marketing needs from one
         source, at a competitive price

         Vestcom's advanced data processing and distribution capabilities permit
         customers to fulfill many of their business critical communication and
         marketing needs from a single source, at a competitive cost. By using
         Vestcom's services, customers can reduce their production, distribution
         and mailing costs. They can also reduce their overhead and fixed costs
         by decreasing or eliminating their investments in technology and the
         need for expensive equipment, floor space, personnel, utilities and
         other related expenses.

         o  Build and sustain strong relationships with their customers

         Vestcom's marketing services assist customers in building and
         sustaining strong and profitable relationships with their customers.
         Vestcom supports a broad range of marketing services from creative
         development to sophisticated database management, including customer
         relationship management, to timely distribution processes. Whether to
         increase customer brand awareness, or introduce new offers, products or
         services, Vestcom's capabilities offer clients multiple opportunities
         to capitalize on the business potential of customer communications.

         o  Manage and utilize critical information to enhance client
         communication

         Vestcom works with companies to transform each point of contact with
         customers into a marketing opportunity. Vestcom's database management
         technologies give companies the power to create comprehensive customer
         databases that include customer specific information, such as recent
         purchases or activities, interests and demographic information.
         Vestcom's database management capabilities assist customers in creating
         and implementing marketing campaigns and in determining how each
         segment of a marketing campaign performed, including response
         percentages, return on investment, profit per piece and how many pieces
         converted to sales. Additionally, Vestcom assists its clients in
         modifying future campaigns based on the captured information.



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         o  Reduce production turnaround time and equipment downtime

         Vestcom's advanced computer network can shift production to various
         locations, thereby increasing efficiency, productivity, cost
         effectiveness and timely delivery. Vestcom also reduces turnaround time
         and downtime through its:

                  o  direct customer data links, which speed processing time;

                  o distributed processing, by which Vestcom increases equipment
                  utilization and distributes data received from customers to
                  geographically dispersed production and distribution centers,
                  enabling customers to improve delivery time; and

                  o internal equipment redundancy and multi-site production
                  capabilities, which provide backup protection for equipment
                  failure.

         o  Gain access to the newest technologies and key business services

         Vestcom keeps abreast of frequent changes in technology and continually
         upgrades its production capabilities and services, enabling its
         customers to:

                  o receive the benefits of technological advances without
                  making significant investments in hardware and software;

                  o retain the flexibility to change the equipment and
                  technologies that Vestcom utilizes to produce their work; and

                  o select from among a variety of medium, such as paper,
                  electronic formatting via the Internet and compact disc, for
                  the production of their communications.

                  Examples of these new technologies and service offerings
                  include:

                           o Vestcom's database management services, including
                           customer relationship management, which assist
                           customers in designing, implementing and determining
                           the effectiveness of marketing campaigns; and

                           o Vestcom's electronic based services, which provide
                           customers with the option of:

                                    o  Ordering products and marketing materials
                                    via the Internet;

                                    o Providing electronic document delivery;
                                      and

                                    o Offering electronic bill presentment and
                                    payment.

Industry Overview

The business communications and marketing services industry is highly fragmented
and is characterized by many small companies, which typically serve local
markets and provide a narrow range of services, and by numerous in-house
operations and several national service providers, some of whom serve
specialized market niches. As a result of the increased complexity and volume of
business critical documents and the increased costs of producing these documents
in-house, a growing number of companies have looked to outsourcing as an
alternative to creating, managing and distributing business communications and
marketing services in-house. Vestcom believes that many companies offering
outsourcing services comparable to Vestcom's services:

         o are unable to meet the needs of large and/or geographically dispersed
         clients;.



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         o  do not invest sufficiently in rapidly changing technologies, such as
         electronic based services; and

         o  have insufficient capital for expansion.

Vestcom believes that the growth of its market is being driven by several
factors, including:

         o  the increasing trend of businesses to outsource their non-core
         functions;

         o  the increasing trend of viewing business communications as marketing
         opportunities;

         o the growth of the companies and industries in Vestcom's customer
         base, which has resulted in an increase in the volume and variety of
         business critical documents which these companies need to generate;

         o the increased demand of managers, employees and customers for
         business critical documents as a result of recent advances in
         information technology;

         o government regulations that require the reporting and retention of,
         and access to, a broad range of information; and

         o  new technologies, such as the Internet.

Strategy

Vestcom has implemented the following business strategy:

                          Strategy for Internal Growth:

Provide Technological Leadership and Value-Added Solutions

Vestcom's technological expertise combined with its size and scope of service
offerings enables it to provide customers with "one stop" shopping at a
competitive cost for many of their business communications and marketing
services requirements. Using a focused sales approach, driven by a customer
intimate strategy, Vestcom provides a broad range of high quality, value added
services from multiple locations. Vestcom provides these services on an
outsourced basis in which it generally assumes the responsibilities previously
performed by the customer's in-house operations. Vestcom believes that, in most
cases, it can perform these services more cost-effectively than the customer can
perform them internally.

Achieve Enhanced Operating Efficiency and Promote Name Recognition Through
Integration

Vestcom believes that by integrating its business units it can improve both its
national and local marketing opportunities and increase resource utilization.
Vestcom believes that using fewer, but bigger, more modern and technologically
advanced facilities should enable it to compete more effectively for larger,
more profitable projects from new and existing regional and national accounts,
and also improve its efficiency, turn-around time and capacity.

Vestcom intends to continue its program to integrate its operating units,
including consolidating business locations and eliminating overhead costs.
Vestcom believes that this integration will continue to improve
cost-effectiveness and brand recognition by:

              o  reducing or eliminating redundant functions and facilities;



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              o  increasing equipment utilization; and

              o  creating common sales and marketing materials and approaches.

New Products and Services

Vestcom supplements the selling efforts of its operating units by
corporate-sponsored internal product development, acquisition of new products
and services and sales and marketing efforts. During 2001, Vestcom continued
branding its product and service offerings and enhanced its customer
relationship management services. For example, Vestcom has integrated the power
of the Internet with its state-of-the-art database management, digital printing,
fulfillment and distribution processes to provide customized communications that
help Vestcom's clients establish and maintain customers. In addition, Vestcom
intends to utilize its knowledge with respect to specific industries to sell
products tailored to meet clients' needs for customer acquisition and retention.

Leverage Technical Know-How and Production Resources

Vestcom's operating units share a common technical expertise, which includes
data management skills, programming know-how, and expertise related to
image/document transmission, formatting, presentation, production and
distribution. The units also operate similar printing and related production
equipment. To leverage its technical know-how and production resources, Vestcom
is continuing its program to transfer industry specific application expertise
among its various operating units and to have each site provide the Company's
full complement of services.

Increase Sales Emphasis on Larger Opportunities

Vestcom intends to capitalize on its available capacity by aggressively
marketing through its integrated sales force. The Company intends to continue
focusing its sales and marketing efforts on large, multi-year projects. In
addition, the Company is targeting specific vertical markets, including
financial services, retail, insurance/healthcare, telecommunications and
utilities, and travel, leisure and gaming.

Capitalize on Cross-Selling Opportunities

Vestcom has initiated cross-selling efforts and intends to further capitalize on
the expertise of the various Operating Companies to expand the range of services
provided to existing customers as well as to broaden Vestcom's customer base. As
examples, Vestcom believes that its customer relationship management services
could be marketed to certain customers for whom Vestcom presently produces
business critical documents, and its fulfillment services could be marketed to
certain customers in the financial services industry for whom Vestcom presently
provides laser printing and document distribution services. Vestcom further
believes that technologies shared among the Operating Companies, such as the
ability to electronically distribute data received from customers to
geographically dispersed locations, increases Vestcom's cross-selling
opportunities. In addition, certain of the Operating Companies have expertise in
particular industries and with specific types of customers, such as financial
institutions, retail chains and telecommunications companies. Vestcom believes
that this expertise enhances its ability to obtain and service customers.

For a discussion of certain risks associated with Vestcom's internal growth
strategy, see "Risk Factors - There Are Various Risks Related to Integrating
Vestcom's Operating Companies", "- Vestcom May Not Be Able to Successfully
Manage Its Growth" and "- Vestcom May Not Be Able to Sustain Internal Growth".

                              Acquisition Strategy:

Concurrently with the consummation of its IPO, Vestcom acquired seven companies
in the business communications industry. Since the IPO, Vestcom has expanded its
operations through internal growth and by acquiring eight additional Operating
Companies. Vestcom plans to continue to take advantage of the fragmentation in
the business communications and marketing services industries by making



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strategic acquisitions. Through selective acquisitions, the Company will seek to
serve new geographic markets, expand its presence in its existing markets and/or
add complementary services.

Targeted geographical areas include those areas which have a high concentration
of potential customers with high-volume, business communications requirements.
In identifying potential acquisition candidates, Vestcom will look for
companies:

              o  that are expected to be accretive to Vestcom's earnings per
              share;

              o  with services that are similar or complementary to those
              provided by Vestcom;

              o  serving geographic markets targeted by Vestcom; and

              o  with strong management and customer relationships.

Vestcom's current focus is on "tuck-in" acquisitions involving companies whose
businesses could be merged into the Company's existing operations without
creating additional fixed costs. Vestcom believes that it can increase market
share through tuck-ins by adding additional customers and leveraging operational
efficiencies through the sharing of capacities and capabilities and the
elimination of duplicate overhead.

For a discussion of certain risks associated with Vestcom's acquisition
strategy, see "Risk Factors--Vestcom Faces Risks Related to its Acquisition
Strategy" and "--Vestcom May Not Be Able to Obtain Adequate Financing to Fund
its Acquisition Program".

Vestcom is regularly engaged in discussions with additional acquisition
candidates and may from time to time enter into letters of intent with respect
to the acquisition of such businesses. No assurance can be given, however, that
Vestcom will acquire any additional businesses.

In March 2002, the Company announced that its Board of Directors had retained
CIBC World Markets as its financial advisor. CIBC has been engaged to assist
Vestcom in evaluating expressions of interest in acquiring the Company and to
explore other potential opportunities to maximize shareholder value, including,
but not limited to, the sale or disposition of the Company, a merger or other
significant transaction. There can be no assurance that a transaction involving
Vestcom will result.

Services

Vestcom provides a variety of services for its customers based on their specific
needs for business communications and marketing services. These services can be
broken down into business communications, e-marketing and retail marketing, each
of which is discussed below.

Business Communications

Vestcom's business communications production and distribution operations,
sometimes referred to as print and mail operations, provide data processing,
laser printing, variable and selective insertion, and distribution of
time-sensitive documents. Vestcom converts electronic data received from its
customers into informative, accurate and customized business communications such
as brokerage statements, transaction confirms, bank statements, invoices,
pension reports, credit union statements and management reports (including sales
reports, financial and accounting reports and inventory reports). Vestcom
processes its customer's data through specialized systems and software generally
developed by or licensed to Vestcom.

Vestcom's data processing capabilities enable the Company to create personalized
and focused business critical documents, which may include selective marketing
messages, specialized graphics and highlight color. Vestcom's capabilities also



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enable it to image small or large volumes of documents with the same high
quality, while permitting each document to contain customized or individualized
information. Vestcom also has the ability to receive data from customers in a
central location and electronically distribute this data to geographically
dispersed production and distribution centers, improving delivery time to
customers. Vestcom produces documents for most of its customers on a regular
basis, either daily, weekly, monthly or quarterly.

Vestcom offers its customers a variety of medium for the production and
distribution of business communications, including paper, electronic formatting
via the Internet, compact disc, microfiche, and microfilm. Vestcom offers
electronic archiving of information which can be accessed via the Internet.
Vestcom also offers electronic document delivery and electronic bill payment and
presentment via the Internet, which speeds delivery time and enables end users
to view information in electronic format. Compact disc is primarily used for
rapid access to information and in situations where the user needs to manipulate
the data easily. Microfiche and microfilm are used primarily for archiving and
for other purposes which are not highly time-sensitive.

Vestcom utilizes similar processes to produce and distribute direct marketing
material for its customers. The Company's technological capabilities enable it
to produce marketing materials using four color, variable digital print. Through
this process, Vestcom produces mailings containing individualized information
and personal photographs. For example, a pharmaceutical company may promote a
particular drug by producing informational posters and bulletins about their
product that contain a picture of the targeted doctor as well as the doctor's
mailing information. By combining variable, digital color operations with
Vestcom's database capabilities, the Company is able to produce custom made
marketing literature that selects print choices based upon known customer
information.

Vestcom also provides cost effective and rapid distribution of completed
documents. The Company's production operations provide intelligent insertion of
supplementary marketing material into envelopes, selective distribution, quality
control and cost-effective and expedited postal delivery. Vestcom provides both
selective (intelligent) and non-selective insertion services. Vestcom's
equipment folds and inserts reports, bills, invoices, notices, coupons and other
marketing materials into envelopes. In addition, by electronically distributing
data received from customers to geographically dispersed production and
distribution centers, Vestcom can reduce distribution costs while improving
delivery time.

In addition to Vestcom's individualized applications for customers, the Company
also targets customers desiring to outsource a significant portion or all of
their laser printing and document distribution processes. Vestcom will typically
assume most of the responsibilities previously performed by the customer's
in-house operations either on a facilities management basis or on an outsourced
basis. Vestcom believes that outsourcing will often enable the customer to close
its in-house document management center.

Vestcom's business communications services include the purchase, storage and
inventory management of printed forms, envelopes, letterhead and marketing
materials for customers. Vestcom also offers limited offset printing services to
print forms, stationery and other marketing materials.

Retail Marketing

Vestcom's retail marketing operations include the production and distribution of
laser printed retail shelf labels on both vinyl and laminated paper, laser
printed price books, customer communications material and database services for
the retail industry. In addition, Vestcom produces and distributes
point-of-purchase displays, frequent shopper and personalized ID cards and other
merchandising support materials. For example, major grocery and drug-store
chains rely on Vestcom to manage product pricing information. Promotions and
price changes are transmitted weekly to Vestcom for the creation of
point-of-purchase shelf labels, which are laser printed and ready for
distribution to retail stores throughout North America generally within 24 hours
of receipt of data. These labels typically display the product's price
(including unit price), a bar-code for scanning and information about the
product such as its size and weight. Vestcom utilizes high-speed laser printers
and specialized finishing equipment to produce these labels. Through its
nationwide distribution network, Vestcom provides rapid turnaround of labels to



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its customers' stores and distribution centers daily, weekly or as otherwise
required to reflect changes in the information contained on the labels.

Vestcom also produces identification cards for the health insurance industry,
merchandise support products such as store signage and label clips, produce and
meat labels, scale label blanks, and register tape for grocery and drugstore
chains. The Company also sells laminating machines and a full range of
consumable supplies, including blank vinyl label sheets, to customers choosing
to produce identification cards and retail price shelf labels in-house.

The Company seeks to increase its share of the retail labeling market through
increased penetration of existing retail customers and the introduction of new
products. In 1999, the Company introduced new products such as Pop-O-Gram
(in-store product advertising) and Plan A+ shelf strips (combining pricing and
product shelf layout / Plan-O-Gram data for retail store chains. These products
assist retail store operators with in-store merchandising and advertising.

E-Marketing Services

Vestcom's e-marketing services include database, fulfillment and Internet
related services.

         Database

Vestcom's database services include the creation and maintenance of customer
databases through targeted e-mail, web pages or captured survey and response
data. Vestcom's advanced data management techniques and customer relationship
management services assist in creating customer driven marketing campaigns.
Through its e-marketing services the Company helps its customers tailor their
marketing focus and target specific desired audiences. The combination of
database management with Vestcom's other capabilities, including the printing
and distribution of direct marketing materials and electronic presentment,
enables the Company to provide its customers with end-to-end value-added
services. Vestcom is able to assist its customers by:

              o  collecting customer specific information and organizing this
              critical information;

              o  identifying and targeting customers;

              o  developing and creating promotional marketing materials and
              direct mail marketing programs aimed at these customers;

              o  distributing the marketing materials electronically and via
              traditional mail;

              o  determining the effectiveness of direct marketing programs by
              performing database response analyses; and

              o  modifying future marketing campaigns based upon customer
              response.

Vestcom's strategy is to expand its database management services by
cross-selling these services to its direct mail and fulfillment customers.
Vestcom expects its e-marketing services to increase business communications
volume in the future as the database marketing work generates electronic and
printed information.

         Fulfillment

Vestcom integrates the power of the Internet with state-of-the-art database
management, digital printing, fulfillment and distribution processes to provide
customized communications for its clients. Vestcom's automated fulfillment
process and its laser print capabilities allow the Company to store literature
electronically, enabling the Company to personalize specific materials and print
marketing materials and letters on demand. For example, Vestcom can receive a
web-based request for an enrollment kit, generate the customized kit utilizing



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information provided by the end-user and distribute that material to the
requestor.

Vestcom also provides fulfillment services whereby it warehouses clients'
inventory of literature or products, receives and compiles orders and then
distributes the materials to various locations based upon the customer's order.
Vestcom processes requests via business reply cards, fax ordering, inbound
telemarketing and the Internet. Vestcom's inbound telemarketing service includes
customer service representatives who take orders and provide information
concerning inventory availability, anticipated delivery and the status of
previously placed orders. Vestcom's services allow customers to seamlessly
integrate their call center or website to Vestcom, enabling Vestcom to fill
orders directly. Vestcom also produces customized computer reports which track
the volume and frequency of shipments of materials to various locations.

Vestcom also provides fulfillment services that combine individualized
print-on-demand material with existing inventory of literature and/or products.
Vestcom can accommodate quick changes of new information and eliminate waste by
limiting the amount of obsolete inventory.

Vestcom's fulfillment operations use Oracle's Online Analytical Processing
("OLAP") technology, which enables Vestcom's clients to determine customer
demand and optimize selling strategies. Vestcom's fully integrated web-based
fulfillment interface works in tandem with the Company's other fulfillment
services. A client's website is incorporated into Vestcom's materials ordering
process which links the site activity to inventory and customer information
databases. This allows Vestcom's clients, their customers and other users to
view materials prior to ordering and to analyze data directly from their office
PC to check on usage and inventory levels and adjust to current market demands.
These links are achieved through standard web interfaces and browsers that do
not require any additional hardware or software investment.

As part of its fulfillment services, Vestcom also prints, packages and
distributes documents that are subject to frequent revision or unpredictable
demand, such as product instruction manuals, training manuals and technical
materials. For example, a software company that provides instruction manuals to
its customers may need to update the manuals frequently to reflect changes in
its product. Vestcom's print on demand system permits the customer to revise the
instruction manual, cost-effectively producing the number of copies required at
the time the information is needed. The flexibility of Vestcom's system enables
the customer to make product enhancements (such as corrections or improvements
to product manuals) without maintaining costly inventories of documents that
might quickly become outdated. Vestcom also provides complete assembly of
software packages, including coordination of software duplication and production
of the applicable documentation.

         Internet Services

Vestcom's range of data management and delivery services include Internet-based
solutions such as web-based fulfillment services, e-mail distribution and
electronic bill presentment and payment. Vestcom's automated information and
technology infrastructure enables the Company to distribute bills, statements
and marketing material over the Internet. Vestcom also provides Internet-based
data archiving.

Vestcom's Internet services are complementary to the Company's more traditional
services and add a unique distribution tool. Just as paper-based bills received
by consumers often contain marketing inserts and product offerings, Vestcom's
Internet bill presentment capabilities enable its customers to advertise
additional products and services on their electronic bills. Further, a Vestcom
customer can determine to distribute the same information to the end users via
different medium, such as traditional paper-based marketing literature and
e-mail messaging.

Vestcom believes that an increasing number of communications service providers,
utilities, financial services and other industries will require electronic
statement and information presentment capabilities. Because of its existing
volume, state-of-the-art processing systems and strong client relationships, the



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Company believes it can be a one-stop, full-service supplier of either
paper-based or electronically delivered information.

Development of New Services

Vestcom believes that its future success depends on its ability to enhance its
current services and develop new services that address the increasingly
sophisticated needs of its customers.

Sales and Marketing

Vestcom's sales efforts are handled primarily through its in-house direct sales
staff of 62 sales and marketing professionals. Vestcom also employs customer
service representatives to provide on-going support to existing customers and to
oversee the implementation of new customer projects. In addition, Vestcom
employs technical product managers who can help local sales professionals with
local opportunities when an expert is needed, such as Internet services or
database solutions.

During 2001, Vestcom refocused its sales and marketing effort by (i) redesigning
its sales training program to emphasize strategic selling to targeted vertical
markets and branding new products relevant to those industries, (ii)
restructuring the compensation plan for sales executives to encourage higher
margin jobs, and (iii) implementing a standardized sales activity and
forecasting tool for the entire sales organization. In 2001 the Company also
invested in branding the business as a marketing services company. This included
creation of marketing collateral, an updated Company website and industry
specific branded products. Sales efforts are augmented by participation in
industry trade shows and conferences, articles and advertisements in trade
journals as well as industry specific product training.

Vestcom's sales force is aligned by vertical markets such as financial services,
pharmaceutical services and retail services to provide the sales professionals
with a deeper understanding of the dynamics of a particular industry. This
alignment assists the sales force in tailoring solutions to a particular client.
Vestcom's sales force is trained and encouraged to cross-sell the Company's
products and services.

Vestcom's sales professionals and its customer service support staff interact
extensively with the customer and Vestcom's operations staff to address specific
customer needs. Local sales efforts are augmented by corporate supported
participation in industry trade shows and conferences, articles and
advertisements in trade journals and seminars sponsored by Vestcom for customers
and prospective customers. Vestcom provides marketing support to its sales staff
through the production and distribution of marketing materials, telemarketing
and seminars.

Customers

Vestcom provides services to customers in a broad range of industries, including
the financial services, retail, pharmaceutical, telecommunications and
utilities, healthcare, travel, leisure and gaming and software industries. No
one customer presently accounts for over 5% of Vestcom's revenues.

Competition

Vestcom operates in a highly competitive industry. There can be no assurance
that Vestcom's targeted customer base will outsource more of their needs for
business communications and marketing services or that such businesses will not
bring in-house services that they currently outsource. In addition, with respect
to those services that are outsourced, Vestcom competes with a variety of
companies, many of which have greater financial resources than Vestcom. A number
of Vestcom's current suppliers of equipment and services are also a source of
competition. Vestcom's major competitors include Output Technology Solutions (a
division of DST Output Systems), IKON Office Solutions, Wallace Computer
Services, Inc., Bowne & Co., Inc., Moore Corporation Ltd., The Relizon Company
(formerly a division of Reynolds & Reynolds), Acxiom Corporation, Harte Hanks
Communications, Inc., SourceCorp Incorporated (formerly known as F.Y.I.
Incorporated), Xerox Business Services, Pitney Bowes Management Services, and
Lason, Inc., as well as smaller local, regional and national providers.


                                      -12-


<PAGE>


Certain of Vestcom's competitors operate in broader geographic areas than
Vestcom, and others may choose to compete in Vestcom's areas of operation in the
future. In addition, Vestcom intends to enter new geographic areas through
internal growth and by acquiring existing companies, and expects to encounter
significant competition from established competitors in each of these new areas.
As a result of this highly competitive environment, Vestcom may lose customers
or have difficulty in acquiring new customers and new companies and its results
of operations may be adversely affected.

Vestcom believes that the principal competitive factors in providing one-stop
solutions to meet customers' business communications and marketing services
requirements include technological expertise, quality and accuracy, turnaround
time, price, reliability and security of service, reputation, client industry
expertise, capacity back-up and redundancy capabilities and customer support and
service. Vestcom believes that it competes favorably with respect to these
factors, although there can be no assurance that it will continue to do so.

Employees

At December 31, 2001, Vestcom had approximately 1000 full-time and 100 part-time
employees. No employees of Vestcom are represented by a labor union. Vestcom
considers its relations with its employees to be good.

Other Items

In March, 2002, V Investment Partners LLC (the "dissident") announced its
intention to nominate its own slate of directors to stand for election to the
Company's Board. The dissident's notice indicates it is seeking to replace five
of Vestcom's seven duly elected directors. Vestcom's Board unanimously opposes
the dissident's nominees and will be actively seeking support for its nominees
at the Company's annual meeting of shareholders. The Board has set June 21, 2002
as the date for Vestcom's annual meeting of shareholders.

                                  RISK FACTORS

There are Various Risks Related to Integrating Vestcom's Operating Companies

The process of integrating the operations of the Operating Companies and other
businesses Vestcom may acquire into Vestcom's business may involve unforeseen
difficulties and may require a significant amount of Vestcom's financial and
other resources, including management time. In connection with the integration
process, Vestcom may experience:

              o  the loss of customers;

              o  the loss of personnel;

              o  increased costs related to recruitment and termination
              payments;

              o  operating interruptions;

              o  moving and relocation costs;

              o  abandonment costs related to the termination of leases; and

              o  increased expenditures for leasehold improvements and fit up
              costs for new facilities.

Vestcom cannot be certain that it will be able to integrate the operations of
these businesses successfully into its operations. In addition, to improve
operating efficiencies, Vestcom must conform all acquired companies into certain
necessary common systems and procedures, including certain production and


                                      -13-


<PAGE>

accounting systems. Vestcom cannot be certain that it will successfully
institute these common systems and procedures for all acquired companies or
accomplish this without substantial costs, delays or other operational or
financial difficulties. Vestcom's inability to integrate or successfully manage
the companies it has acquired or may acquire in the future could have a material
adverse effect on Vestcom's business, financial condition and results of
operations.

Vestcom May Not Be Able to Successfully Manage Its Growth

Vestcom expects to expend significant time and effort in expanding its business
and acquiring other businesses. This growth may place a significant strain on
Vestcom's resources. Vestcom cannot be certain that its systems, procedures and
controls will be adequate to support its operations as they expand. Any future
growth also will impose significant additional responsibilities on members of
Vestcom's senior management, including the need to identify, recruit and
integrate new senior level managers and executives. Vestcom cannot be certain
that it will be able to identify and retain such additional managers and
executives. As a result, Vestcom cannot be certain that it will be able to
expand its business or manage any future growth effectively and profitably.

Vestcom May Not Be Able to Sustain Internal Growth

A key element of Vestcom's strategy is to generate internal growth by
capitalizing on cross-selling opportunities, generating new clients through
aggressive marketing, focusing on larger opportunities and expanding its service
offerings. Internal growth will depend upon factors including:

              o  the effective initiation, development and maintenance of client
              relationships;

              o  the expansion and coordination of sales functions;

              o  the development and success of new products and services;

              o  Vestcom's ability to maintain the high quality of the services
              it offers; and

              o  the recruitment, motivation and retention of qualified
              management and other personnel.

Sustaining growth will also require continued access by Vestcom to capital, the
successful cross-selling of products and services among the Operating Companies
and the realization by Vestcom of economies of scale. Vestcom cannot be certain
that its strategies will continue to generate internal growth or that it will be
able to generate cash flow adequate for its operations and to support growth.

Vestcom Depends on Certain Technology

Vestcom's success is dependent on its ability to acquire and utilize competitive
production technologies on a more cost-effective basis than Vestcom's existing
and potential customers can utilize them in-house. Vestcom's services could be
rendered noncompetitive or obsolete by technological advances made by its
current or potential production technology suppliers, some of whom may be
competitors. In addition, Vestcom could make a significant investment in
equipment or technology which quickly becomes obsolete. Vestcom cannot be
certain that it will be able to obtain the rights to use any of these
technologies, that it will be able to implement effectively these technologies
on a cost-effective basis or that these technologies will not render
noncompetitive or obsolete Vestcom's role as a leading provider of business
communications, e-marketing and retail marketing services.

Vestcom May Be Affected by Consolidation in the Industries of Certain Customers

A significant portion of Vestcom's customers are in the financial services and
retail industries. These industries have experienced consolidation in recent
years and may experience additional consolidation in the future. Vestcom cannot
predict the effects that such consolidation, or the possible consolidation in



                                      -14-


<PAGE>

other industries which Vestcom serves, such as the healthcare industry, may have
on its business or future prospects. For example, in connection with such
consolidation, Vestcom may either lose or gain additional customers or
experience variations in the volume of work received from its customers.

Vestcom's Business May Be Affected as a Result of the Tragedies of September 11,
2001 and the Slowdown in the Economy

It is unclear what the future effect will be of the tragic events of September
11th and the slowdown of the economy on Vestcom's business. These events may
negatively impact Vestcom's clients and may detract them from continuing or
embarking on new projects. Specifically, several of Vestcom's long-time clients
were physically located in the World Trade Center and surrounding area and the
shut down of the stock markets for nearly a week limited the number of trade
confirmations Vestcom provided for several of its clients that week. Any
additional, unanticipated interruption in the stock markets would adversely
affect Vestcom's business. In addition, if the slower economy continues, some of
the Company's clients may cut their marketing budgets, and therefore have less
of a need for marketing services.

Vestcom Faces Risks Related to its Acquisition Strategy

Vestcom intends to expand its operations through the acquisition of additional
businesses in the business communications, e-marketing, retail marketing and
general marketing services businesses. There can be no assurance that Vestcom
will be able to identify, acquire or profitably manage additional businesses or
successfully integrate acquired businesses, if any, into Vestcom without
substantial costs, delays or other operational or financial difficulties.
Further, acquisitions may involve a number of special risks, including:

              o  adverse effects on Vestcom's operating results;

              o  diversion of management's attention;

              o  failure to retain key personnel or customers of an acquired
              company; and

              o  risks associated with unanticipated events.

Some or all of these risks could have a material adverse effect on Vestcom's
business, financial condition or results of operations. In addition, if
competition for acquisition candidates increases, the cost of acquiring
businesses could increase materially. Changes in accounting requirements
relating to acquisitions could make it more difficult for Vestcom to structure
accretive acquisitions. Unfavorable developments at a single acquired company
could have a material adverse impact on the reputation and business of Vestcom
as a whole. In addition, there can be no assurance that acquired businesses, if
any, will achieve anticipated revenues and earnings. The inability of Vestcom to
implement and manage its acquisition strategy successfully may have an adverse
effect on the business or future prospects of Vestcom.

Vestcom May Not Be Able to Obtain Adequate Financing to Fund its Acquisition
Program

Vestcom cannot readily predict the timing, size and success of its acquisition
efforts or the capital it will need for these efforts. Vestcom currently intends
to finance future acquisitions by using a combination of its Common Stock, notes
and cash. As a result of the decrease in the market value of Vestcom's Common
Stock since the IPO, it currently is more difficult and dilutive for Vestcom to
use stock in structuring acquisitions. If the Common Stock does not maintain a
sufficient market value, or if the owners of the businesses Vestcom wishes to
acquire are unwilling to accept Common Stock as part of the purchase price,
Vestcom will be required to use more of its cash resources, if available, to
maintain its acquisition program. Using cash for acquisitions limits Vestcom's
financial flexibility and makes Vestcom more likely to seek additional capital
through borrowing money or selling stock. Vestcom may not be able to obtain cash
if and when it is needed on acceptable terms, or at all. This could have a
material adverse effect on Vestcom's business, financial condition and results
of operations.


                                      -15-
<PAGE>


Vestcom's Quarterly Results May Vary

Vestcom's quarterly results of operations may vary materially as a result of
factors which include: the costs of integrating acquired companies, the gain or
loss of material customers and contracts, changes in Vestcom's operating cost
structure, variations in the prices charged for Vestcom's services and the
timing and structure of Vestcom's acquisitions. Fluctuations in Vestcom's stock
price may adversely affect Vestcom's business.

Vestcom May Face Potential Liability for Breach of Confidentiality

A substantial portion of Vestcom's business involves the handling of data
containing confidential and other sensitive information. There can be no
assurance that unauthorized disclosure will not result in liability to Vestcom
or damage Vestcom's reputation. In addition, in connection with providing its
e-marketing products and services, Vestcom transmits information about third
parties over the Internet. Vestcom may be exposed to liability with respect to
the transmission of such third party information.

Vestcom May Have Business Interruptions

Vestcom believes that its future results of operations are dependent in large
part upon its ability to provide prompt and efficient services to its customers.
Certain of Vestcom's operations are performed at a single location and are
dependent on continuous computer, electrical and telephone service. As a result,
any disruption of Vestcom's day-to-day operations could have a material adverse
effect upon Vestcom. There can be no assurance that a fire, flood, earthquake,
power loss, phone service loss or other event affecting one or more of Vestcom's
facilities would not disable these services. Any significant damage to any such
facility or other failure that causes significant interruptions in Vestcom's
operations may not be covered by insurance. Any uninsured or underinsured loss
could have a material adverse effect on Vestcom's business, financial condition
or results of operations.

Vestcom's Business May Be Affected By Fluctuations in the Price of Supplies and
other Costs or Alternative Technologies

Prices for paper, equipment maintenance, delivery services and labor costs may
increase from time to time in the future. Any significant increases in the
prices of these materials and services that cannot be passed on to customers
could have a material adverse effect on Vestcom's business, financial condition
or results of operations. In addition, increases in the prices of supplies and
other materials and services might cause some of Vestcom's customers to utilize
alternative technologies in their respective businesses that do not involve the
use of paper or the mail, such as the Internet. While Vestcom presently offers
electronic distribution services via the Internet, there can be no assurance
that these services will be accepted widely by Vestcom's customers, or that
other technologies (whether now existing or developed in the future) may not in
the future reduce or supplant the demand for Vestcom's services, which could in
turn adversely affect Vestcom's business.

Effect of Certain Charter and Bylaw Provisions, Shareholder Rights Protection
Plan and New Jersey Law

The Board of Directors of Vestcom is empowered to issue common stock and
preferred stock without shareholder action. The existence of this "blank-check"
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of Vestcom by means of a tender offer, merger, proxy
contest or otherwise without such party obtaining prior recommendation from the
Company's Board, and may adversely affect the prevailing market price of
Vestcom's Common Stock. In addition, the New Jersey Shareholders Protection Act
prohibits certain persons from engaging in business combinations with Vestcom.

In December 1999, Vestcom adopted a shareholder protection rights plan as part
of its strategy of enhancing shareholder value. The Board believed that the plan
would provide it with more negotiating leverage in seeking to obtain a full and


                                      -16-
<PAGE>

fair price from any potential bidder. Although the Board considered that the
shareholder protection plan might deter an acquisition proposal or tender offer
for the Company's Common Stock that might otherwise be forthcoming, the Board
believed that the advantages of the plan far outweighed the disadvantages.

The Board also adopted several bylaw amendments in December 1999 to protect
shareholder value. The Board amended the bylaws to (a) eliminate the right of
20% shareholders to call a special meeting of shareholders, (b) provide
procedures that must be followed by shareholders who seek to have the Company's
shareholders take corporate action by written consent and (c) provide advance
notification procedures for shareholders who want to nominate persons for
election to the Board or propose other business for consideration at a meeting
of shareholders. Since the Board of Directors owes a fiduciary duty to all
shareholders, while outside third parties who may seek to acquire the Company do
not, the purpose of the amendments is to encourage these parties to negotiate
with the Board and to establish clear procedures for parties to follow. While
the bylaw amendments may limit the ability of a shareholder to call a special
meeting, they do not eliminate that right, and shareholders still have a range
of alternatives.

Item 2. Properties

Vestcom currently operates in 21 production facilities, aggregating
approximately 855,000 square feet. These facilities are located in 14 states and
in the Provinces of Quebec and Ontario, Canada. All of these facilities are
leased and are used for operations, administrative and/or storage functions.
Leases vary in term remaining from month-to-month to 12 years and in some cases,
include options to extend the lease term.

Item 3. Legal Proceedings

Vestcom is, from time to time, a party to legal proceedings arising in the
normal course of its business. Management believes that none of the currently
outstanding legal proceedings arising in the normal course of Vestcom's business
will have a material adverse effect on Vestcom's business, financial position or
results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

During the fourth quarter of the year ended December 31, 2001, no matters were
submitted to a vote of Vestcom's security holders.

Item 4A. Executive Officers of the Registrant

Vestcom's executive officers are as follows:

<TABLE>
<CAPTION>
Name                                       Age*                Positions with Vestcom
----                                       ----                ----------------------

<S>                                        <C>                 <C>
Joel Cartun                                 62                 Chairman of the Board

Brendan Keating                             47                 Chief Executive Officer, President and Chief
                                                               Operating Officer

Michael D. Helfand                          42                 Executive Vice President, Chief Financial
                                                               Officer, Treasurer and Assistant Secretary

Sheryl Bernstein Cilenti                    33                 Vice President, General Counsel and Secretary

David Adler                                 50                 Vice President and Chief Technology Officer

Andrew Lewkowicz                            40                 Senior Vice President Sales and Marketing
</TABLE>

* Ages are as of March 1, 2002.



                                      -17-
<PAGE>

Joel Cartun has been a director of Vestcom since its incorporation in September
1996 and Chairman of the Board since August 1997. He served as Chief Executive
Officer from its incorporation until April 2000, and as President of Vestcom
from its incorporation until March 1999. Mr. Cartun founded Comvestrix Corp.
(now known as Vestcom Mid-Atlantic, Inc. ("VMA")), one of the original seven
Operating Companies, in 1969, and served as Chief Executive Officer until April
2000, and as President until October 1998. Mr. Cartun was a founder of Xplor
International, a trade association for the electronic printing industry.

Brendan Keating has served as Chief Executive Officer of Vestcom since April
2000, as President of Vestcom since March 1999, as a director since May 1998,
and as Chief Operating Officer of Vestcom since October 1997. He served as
Executive Vice President of Vestcom from October 1997 until March 1999. He has
served as President of VMA since October 1998, and as Chief Operating Officer of
VMA from October 1997 until April 1998. He served as Vice President of Bowne &
Co., Inc. (a financial printing company) from 1991 until October 1997. He also
served as Vice President of Operations of Bowne of New York City, Inc. from 1985
to 1991, and as President of Bowne Business Communications from 1993 to 1995.

Michael D. Helfand has served as Executive Vice President, Chief Financial
Officer and Treasurer of Vestcom since October 1999 and as Assistant Secretary
since February 2000. Prior to joining Vestcom, Mr. Helfand served as the
Executive Vice President and Chief Financial Officer of World Color Press from
February 1998 to December 1998. Prior to that, he served as Vice President and
Assistant Controller of ABC, Inc. from October 1994 to February 1998.

Sheryl Bernstein Cilenti has served as Vice President and General Counsel of
Vestcom since October 1997 and as Secretary of Vestcom since November 1997. From
September 1993 until joining Vestcom, Ms. Cilenti was an associate at Lowenstein
Sandler PC in Roseland, New Jersey, where she practiced law primarily in the
areas of mergers and acquisitions, securities and general corporate law.

David Adler has served as Vice President of Vestcom since February 28, 2001 and
as Chief Technology Officer of Vestcom, and Vice President and Chief Technology
Officer of VMA since May, 1998. Prior to joining Vestcom, from 1993 through
April 1998, Mr. Adler served as the Director of Database Marketing and
Management for the Business Marketing Division of AT&T (a telecommunications
company). Prior to that, he served as Vice President - Information Services and
Chief Information Officer for AT&T American Transtech, from 1988 through 1993.

Andrew Lewkowicz has served as Senior Vice President of Sales and Marketing
since March 2001 and as and officer of Vestcom since December 2001. Prior to
joining Vestcom, from July 1999 to February 2001, Mr. Lewkowicz was the
President and founder of Merrill IR Edge, a unit of Merrill Corporation and a
provider of Internet based investor relations communications. Prior to that,
from April 1997 to July 1999 he was Vice President of Business Development for
Merrill Corporation, where he focused on acquisition strategy and general
management in New England. Prior to that, from 1994 to 1997, Mr. Lewkowicz was
President of RR Donnelley and Sons, Healthcare Communications Solutions unit,
where he developed products and services for Insurance and Managed Care
organizations nationwide. Prior to that, from 1990 to 1994 he was Vice President
of Donneley's Financial Printing business unit, where he managed sales and
operations in the Eastern region.



                                      -18-

<PAGE>



                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

Vestcom's Common Stock has traded on the Nasdaq National Market since July 30,
1997, under the symbol "VESC". The following table sets forth the range of high
and low closing sales prices for the Common Stock on the Nasdaq National Market
for the periods indicated:


                                        High                      Low
                                        ----                      ---

Year ended December 31, 2001:
              First quarter             $2.750                   $1.813
              Second quarter             2.490                    1.750
              Third quarter              2.990                    1.950
              Fourth quarter             2.820                    1.520

Year ended December 31, 2000:
              First quarter             $6.375                   $3.50
              Second quarter             5.375                    3.063
              Third quarter              4.00                     2.375
              Fourth quarter             2.656                    1.531


As of March 20, 2002, there were 60 holders of record of the Common Stock.

Vestcom has not declared or paid any dividends on its Common Stock. Vestcom
currently intends to retain earnings to support its growth strategy and does not
anticipate paying dividends in the foreseeable future. Payment of future
dividends, if any, will be at the discretion of Vestcom's Board of Directors
after taking into account various factors, including Vestcom's financial
condition, results of operations, current and anticipated cash needs and plans
for expansion and any restrictions that may be imposed by Vestcom's future
credit facilities. Vestcom's credit facility with Fleet National Bank (formerly
Summit Bank) restricts Vestcom's ability to pay cash dividends on its Common
Stock. The credit facility provides that Vestcom may declare and pay quarterly
cash dividends on its Common Stock only if after giving effect to any such
payment Vestcom would not be in default under any of the provisions of such
credit facility.






                                      -19-
<PAGE>

Item 6. SELECTED FINANCIAL DATA

         Vestcom acquired the original seven Operating Companies on August 4,
1997 concurrently with the consummation of the Company's initial public offering
("IPO"). Prior to the consummation of the IPO, Vestcom conducted no activities,
other than those related to the IPO and the acquisition of the seven original
Operating Companies. The following selected historical financial data of Vestcom
has been derived from the audited financial statements of Vestcom. The
Statements of Operations Data included below reflect the operations of the
Operating Companies from the respective dates of their acquisition.

<TABLE>
<CAPTION>

                                                     SELECTED FINANCIAL DATA
                                        (Dollars in thousands, except per share amounts)

                                            Year Ended        Year Ended        Year Ended        Year Ended        Year Ended
                                           December 31,      December 31,      December 31,      December 31,       December 31,
                                               2001              2000              1999              1998               1997
                                               ----              ----              ----              ----               ----
Statement of Operations Data:

<S>                                        <C>               <C>               <C>               <C>               <C>
Revenues................................   $      150,527    $       146,076   $      130,240    $     108,676    $      29,277

Income (Loss) from Operations...........   $        3,479    $         7,250   $       (1,383)   $       8,927    $       2,671

Net Income (Loss) - Basic..............    $         (216)   $         2,337   $       (2,333)   $       4,627    $       1,308
Net Income (Loss) - Diluted............    $         (216)   $         2,337   $       (2,333)   $       4,623    $       1,249
Net Income (Loss) per share - Basic.....   $         (.02)   $           .26   $         (.26)   $         .52    $         .31
Net Income (Loss) per share - Diluted..    $         (.02)   $           .26   $         (.26)   $         .52    $         .29

Additional Information
EBITDA                                     $       14,568    $        18,344   $        6,862    $       15,228   $       4,681
</TABLE>

<TABLE>
<CAPTION>

                                            December 31,      December 31,      December 31,      December 31,      December 31,
Balance Sheet Data:                             2001              2000              1999               1998              1997
                                                ----              ----              ----               ----              ----

<S>                                        <C>               <C>               <C>               <C>                <C>
Working capital                            $         9,378   $         6,319   $         7,864   $        3,745     $       17,147
Total assets                               $       147,335   $       155,944   $       159,380   $      142,544     $      114,346
Long term obligations                      $        25,354   $        27,857   $        34,144   $       21,386     $       10,802
Stockholders' equity                       $        91,551   $        92,078   $        89,799   $       89,911     $       83,028
</TABLE>

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

Overview

         The following discussion of the financial condition and results of
operations of Vestcom should be read in conjunction with Vestcom's Consolidated
Financial Statements and the related notes thereto appearing elsewhere herein.

Disclosures Regarding Forward Looking Statements

         This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended that are based on
the beliefs of Vestcom's management as well as assumptions made by and
information currently available to Vestcom's management. Such statements reflect
the current views of Vestcom with respect to future events based on currently
available information and are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward-looking statements. Factors that could cause actual results to differ
materially from Vestcom's expectations include, but are not limited to, the
following: the ability of the Company to execute and manage the Company's growth
strategy, the results of the Company's investment spending, the continued review



                                      -20-


<PAGE>

of additional consolidations and the timing and cost of any additional
consolidations, the ability to effectively consolidate production facilities and
functions as part of the Company's integration program, the ability to realize
reduced overhead costs, increased production capacity and operating
efficiencies, and improved financial results at the newly consolidated
facilities, uncertainty relating to general economic conditions, the impact of
the September 11th tragedies on our clients ability to continue with or embark
on new projects, acceptance of Vestcom's products and services, including
electronic and Internet related services, in the marketplace, the entry of new
competitors in the marketplace, the ability to attract and retain key customers,
the ability to positively modify its revenue mix, variations in quarterly
results, the sufficiency of the Company's working capital, changes in the
business communications industry, the availability of suitable acquisition
candidates and the assimilation of new acquisitions with existing business.
Other factors are described from time to time in Vestcom's public filings with
the Securities and Exchange Commission, news releases and other communications.
Also, when Vestcom uses the words "believes", "expects", "anticipates,"
"estimates," "plans," "intends," "objectives," "goals," "aims," "projects" or
similar words or expressions, Vestcom is making forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Vestcom does not undertake
any obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

Results of Operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
($ in 000's)

         Revenues increased $4,451 or 3.0%, from $146,076 for the year ended
December 31, 2000 to $150,527 for the year ended December 31, 2001. This growth
was primarily due to increased sales to new and existing customers primarily in
the retail markets, partially offset by the decrease in presort revenues due to
the sale of the Company's mail presort assets in December 2000. In addition, the
Company's revenues were negatively impacted by the slowdown in the economy, the
reduction in new marketing related projects particularly after the tragic events
of September 11th, and the cancellation of a large marketing fulfillment project
by an existing client.

         Vestcom's gross profit decreased $1,688, or 4.0%, from $42,337 for the
year ended December 31, 2000 to $40,649 for the year ended December 31, 2001.
The decrease in gross profit was primarily attributable to the Company's higher
start-up and fixed costs related to its newer product lines and increased
purchases of outsourced production services, as well as costs associated with
the Company's facilities consolidations and integrations throughout the year.
Gross margins year over year have decreased from 29% in 2000, to 27% in 2001.
The decrease in gross margins relates primarily to the slower growth in sales
volumes due to the items described in the revenue discussion above.

         Selling, general and administrative expenses increased $1,595, or 4.5%,
from $35,191 for the year ended December 31, 2000, to $36,786 for the year ended
December 31, 2001. As a percentage of revenues, selling general and
administrative expenses remained relatively flat at 24.1% in 2000, versus 24.4%
in 2001. The increase in expenses was primarily attributable to the increase in
sales compensation expenses resulting from the hiring of sales and marketing
professionals to enhance Company wide sales and marketing initiatives designed
to further align the sales force with a vertical market selling strategy.

         During the second quarter of 2001, the Company recorded a restructuring
charge of $634. The Company's second quarter 2001 restructuring plan is
comprised of the consolidation and integration of facilities in the Company's
Connecticut, Wisconsin and Michigan locations ("Second Quarter 2001
Restructuring Plan"). The Second Quarter 2001 Restructuring Plan is aimed at
reducing the Company's operating cost structure by reducing the number of
facilities. The restructuring charge included facility exit costs of $189, the
write-down of fixed assets associated with these facilities of $217 and
severance costs of $228 related to the termination of employees in connection
with the closing and/or relocation of the Company's operating facilities.

         In addition, during the second quarter of 2001, the Company reversed
approximately $250 of restructuring reserves recorded during 1999 in connection
with the consolidation and integration of operating facilities due to the
revision of certain estimates.



                                      -21-


<PAGE>

         Interest expense decreased $883, or 31.7%, from $2,784 for the year
ended December 31, 2000, to $1,901 for the year ended December 31, 2001. This
decrease was attributable to decreased borrowings on the Company's credit
facility and decreased interest rates in 2001 as compared to the prior year.

         Other income decreased $1,333, or 96.2%, from $1,385 for the year ended
December 31, 2000, to $52 for the year ended December 31, 2001. This decrease
was primarily related to the prior year's gain on the sale of the Company's mail
presort assets which was recorded in the fourth quarter of 2000.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
($ in 000's)

         Revenues increased $15,836 or 12.2%, from $130,240 for the year ended
December 31, 1999 to $146,076 for the year ended December 31, 2000. This growth
was primarily due to increased sales to new and existing customers primarily in
the financial services and retail markets. In addition, the Company's
fulfillment revenues grew significantly over the prior year from new customers.

         Certain 1999 expenses were reclassified from selling, general and
administrative expenses to cost of revenues in order to conform to the 2000
presentation. The Company believes these expenses relate more directly to
revenue generation activities and have been reclassified to more accurately
reflect gross margins.

         Vestcom's gross profit increased $4,610, or 12.2%, from $37,727 for the
year ended December 31, 1999 to $42,337 for the year ended December 31, 2000.
The increase in gross profit was primarily attributable to the Company's
increased revenue for the year. Gross margins year over year have remained
stable at 29%, while the Company experienced increased costs associated with its
newly upgraded facilities.

         Selling, general and administrative expenses increased $1,260, or 3.7%,
from $33,932 for the year ended December 31, 1999, to $35,191 for the year ended
December 31, 2000. As a percentage of revenues, selling general and
administrative expenses decreased from 26.1% in 1999, to 24.1% in 2000. This
decrease was attributable to the Company's effort to streamline its cost
structure and enhance efficiencies, which had been attained through the
Company's restructuring and consolidation efforts made during 1999.

         During the second quarter of 2000, the Company reversed approximately
$383 of restructuring reserves incurred during 1999 in connection with the
consolidation and integration of operating facilities. The Company also recorded
a nonrecurring charge of $279 in 2000 for impaired assets, which resulted from
the restructuring plan implemented at the Company's facilities.

         Interest expense increased $515, or 22.7%, from $2,269 for the year
ended December 31, 1999, to $2,784 for the year ended December 31, 2000. This
increase was attributable to increased borrowings on the Company's credit
facility early in 2000 and increased interest rates in 2000 over the prior year.

         Other income increased $1,171, or 547.1%, from $214 for the year ended
December 31, 1999, to $1,385 for the year ended December 31, 2000. This increase
was primarily related to the gain on the sale of the Company's mail presort
assets which were sold in the fourth quarter of 2000.

Liquidity and Capital Resources

       At December 31, 2001, Vestcom had working capital of approximately $9,378
compared to $6,319 at December 31, 2000. The increase is primarily attributable
to a decrease in accounts payable and accrued expenses and an increase in income
taxes receivable, partially offset by a decrease in accounts receivable. Net
cash provided by operating activities for the year ended December 31, 2001, was
approximately $10,260 and was generated primarily from depreciation and
amortization charges and reductions of accounts receivable partially offset by
decreases in accounts payable and accrued expenses. Net cash used in investing
activities for the year ended December 31, 2001, was approximately $5,634, which
consisted primarily of the purchase of property and equipment (which includes
software). Net cash used in financing activities for the year ended December 31,
2001, was approximately $4,078, which reflected the pay down of the Company's
long term debt.


                                      -22-
<PAGE>


       On August 13, 1997, the Company and Fleet National Bank (formerly known
as Summit Bank) entered into an Equipment Facility and Revolving Credit
Agreement in the amount of $30,000 (the "Credit Facility"). On May 8, 2000, the
Company and Fleet National Bank entered into the Fifth Amendment to the Credit
Facility, which among other things, increased the Credit Facility to $31,500. On
March 25, 2002, the Company and Fleet National Bank entered into the Ninth
Amendment to the Credit Facility, which extended the maturity date to April 1,
2003. On December 31, 2001, approximately $15,803 was outstanding and $12,664
remained available under the Credit Facility. Under the terms of the Credit
Facility, amounts paid back on equipment loans are not available for future
borrowings.

       Vestcom incurs postage costs on behalf of customers of approximately
$2,000 to $6,000 each month. Vestcom seeks to collect such postage costs from
its customers in advance. At December 31, 2001, Vestcom had postage advances
from customers in the amount of approximately $5,956 and had prepaid postage and
postage receivables of approximately $2,281. To the extent Vestcom is
unsuccessful in obtaining postage costs in advance, cash flow is negatively
affected and Vestcom may be required to utilize its working capital or Credit
Facility to cover the cash outlay.

       Capital expenditures of approximately $5,763 for property and equipment,
leasehold improvements and software were made in 2001. These investments, which
were financed primarily by borrowings under the Credit Facility and vendor
financing, relate primarily to the purchase of supplemental production equipment
and improved technology to meet customer demands for business communications.
The Company anticipates additional capital expenditure requirements in 2002,
relating primarily to technology and the production equipment needs of the
business. Currently, these expenditures are estimated to be approximately
$8,000. However, as additional revenue generating opportunities arise the
Company may be required to expend additional capital to support those
opportunities. While no assurance can be given, management believes that its
cash flow from operations combined with existing cash and the availability of
funds under the Credit Facility, and potential additional credit capacity, will
be sufficient to meet its working capital, capital expenditure and debt service
requirements and its current plans to acquire additional related businesses for
the foreseeable future. The preceding sentence constitutes a forward looking
statement.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

       Vestcom's major "market risk" exposure is the effect of changing interest
rates. Vestcom manages its interest expenses by using a combination of fixed and
variable rate debt. At December 31, 2001, Vestcom's debt consisted of
approximately $5,486 of fixed-rate debt with a weighted average interest rate of
8.74% and $14,712 of variable-rate debt, which consisted of a LIBOR thirty-day
loan entered into on December 31, 2001 for $13,700 at 3.9% and $1,012 of other
variable rate debt with a weighted average interest rate of 6.5%. The amount of
variable-rate debt fluctuates during the year based on Vestcom's cash
requirements; maximum borrowings at any quarter end during 2001 were $22,911. If
interest rates on such variable debt were to increase by 200 basis points, the
net impact on Vestcom's results of operations and cash flows would be
immaterial.



                                      -23-
<PAGE>



Item 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements:                                         Page

Report of Independent Public Accountants                               F-1
Vestcom International, Inc. and Subsidiaries
       Consolidated Balance Sheets at December 31, 2001 and 2000       F-2
Vestcom International, Inc. and Subsidiaries
       Consolidated Statements of Operations for the years ended
       December 31, 2001, 2000 and 1999                                F-4
Vestcom International, Inc. and Subsidiaries
       Consolidated Statements of Stockholders' Equity
       for the years ended December 31, 2001, 2000 and 1999            F-5
Vestcom International, Inc. and Subsidiaries
       Consolidated Statements of Cash Flows for the
       years ended December 31, 2001, 2000 and 1999                    F-6
Vestcom International, Inc. and Subsidiaries
       Notes to Consolidated Financial Statements                      F-7







                                       -24-
<PAGE>





REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Vestcom International, Inc.:

We have audited the accompanying consolidated balance sheets of Vestcom
International, Inc. (a New Jersey Corporation) and subsidiaries, as of December
31, 2001 and 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. 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 in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vestcom
International, Inc. and subsidiaries as of December 31, 2001 and 2000 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.


ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 26, 2002


                                       F-1


<PAGE>



                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>

ASSETS                                                                 2001          2000
                                                                       ----          ----

CURRENT ASSETS
<S>                                                              <C>            <C>
Cash                                                             $    951,060   $    633,567
Accounts receivable, net of allowance for
    doubtful accounts of $1,169,031 and $1,247,370
    in 2001 and 2000, respectively                                 27,294,527     31,263,745
Supplies inventory                                                  6,247,594      5,295,564
Income taxes receivable                                             1,047,786             --
Prepaid expenses and other current assets                           4,266,084      5,134,900
                                                                 ------------   ------------
                           Total current assets                    39,807,051     42,327,776

PROPERTY AND EQUIPMENT, at cost, net of
    accumulated depreciation and amortization                      35,976,873     39,313,069

GOODWILL, net                                                      71,163,373     73,912,726

OTHER ASSETS                                                          387,643        390,609
                                                                 ------------   ------------

                           Total assets                          $147,334,940   $155,944,180
                                                                 ============   ============

</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.


                                       F-2


<PAGE>



                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY                                              2001             2000
                                                                                ----             ----

CURRENT LIABILITIES
<S>                                                                       <C>              <C>
Current portion of long-term debt                                         $   1,266,448    $   1,236,437
Current portion of capital lease obligations                                  2,027,182        2,874,695
Accounts payable                                                             11,875,927       14,913,615
Accrued expenses                                                             14,857,686       15,385,854
Income taxes payable                                                                 --          753,774
Other current liabilities                                                       402,225          843,960
                                                                          -------------    -------------

                  Total current liabilities                                  30,429,468       36,008,335

LONG-TERM DEBT                                                               15,050,923       16,449,273
CAPITAL LEASE OBLIGATIONS                                                     1,853,809        3,635,585
DEFERRED INCOME TAXES                                                         8,449,529        7,772,610
                                                                          -------------    -------------

                  Total liabilities                                          55,783,729       63,865,803

STOCKHOLDERS' EQUITY:
Preferred Stock, Class B, 1 share authorized, issued and outstanding at
         December 31, 2001 and December 31, 2000                              1,240,274        1,240,274
Common Stock, no par value; 20,000,000 shares authorized:
     9,056,806 shares issued and outstanding at December 31, 2001 and
     December 31, 2000                                                       90,300,456       90,300,456
Deferred Compensation                                                           (80,556)              --
Retained earnings                                                               645,426          861,565
Accumulated other comprehensive (loss)                                         (554,389)        (323,918)
                                                                          -------------    -------------

                  Total stockholders' equity                                 91,551,211       92,078,377
                                                                          -------------    -------------

                  Total liabilities & stockholders' equity                $ 147,334,940    $ 155,944,180
                                                                          =============    =============
</TABLE>


The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.



                                      F-3
<PAGE>



                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999



<TABLE>
<CAPTION>

                                                                   2001             2000             1999
                                                                   ----             ----             ----
<S>                                                           <C>              <C>              <C>
REVENUES                                                      $ 150,526,848    $ 146,076,045    $ 130,240,331
COST OF REVENUES                                                109,877,407      103,739,430       92,513,350
                                                              -------------    -------------    -------------
          Gross Profit                                           40,649,441       42,336,615       37,726,981
SELLING, GENERAL & ADMINISTRATIVE EXPENSES                       36,786,465       35,191,158       33,931,551

RESTRUCTURING (CHARGE) CREDIT AND
  OTHER NON-RECURRING ITEMS                                        (384,337)         104,416       (5,178,473)
                                                              -------------    -------------    -------------
         Income (loss) from operations                            3,478,639        7,249,873       (1,383,043)
                                                              -------------    -------------    -------------
OTHER INCOME (EXPENSE)
         Interest expense                                        (1,900,830)      (2,783,738)      (2,269,200)
         Other income                                                52,254        1,385,117          214,059
                                                              -------------    -------------    -------------
                                                                 (1,848,576)      (1,398,621)      (2,055,141)
         Income (loss) before provision (benefit)
            for income taxes                                      1,630,063        5,851,252       (3,438,184)

PROVISION (BENEFIT) FOR INCOME TAXES                              1,846,202        3,514,049       (1,105,179)
                                                              -------------    -------------    -------------

         Net (loss) income                                    $    (216,139)   $   2,337,203    $  (2,333,005)
                                                              =============    =============    =============
Earnings Per Share:

Net (loss) income per share - basic                           $       (0.02)   $        0.26    $       (0.26)
                                                              =============    =============    =============

Net (loss) income per share - diluted                         $       (0.02)   $        0.26    $      (0.026)
                                                              =============    =============    =============

</TABLE>

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


                                       F-4






<PAGE>
<TABLE>
<CAPTION>
                                        VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                    FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

                                                                                        (Accumulated                 Accumulated
                                                                                            Deficit)/                     Other
                                       Common Stock               Preferred Stock           Retained      Deferred    Comprehensive
                                  Shares          Amount       Shares          Amount       Earnings    Compensation  Income (Loss)
                                -----------    -----------   -----------    -----------   -----------   ------------  -------------
<S>                             <C>            <C>           <C>            <C>           <C>            <C>           <C>
Balance At December 31, 1998      8,788,590    $86,782,015           101    $ 2,651,867   $   857,367    $       --    $  (379,909)
                                ===========    ===========   ===========    ===========   ===========    ==========    ===========

Issuance of Common Stock in
  Connection with Earnouts          268,216      2,106,848          (100)            --            --            --             --
Translation Adjustment                   --             --            --             --            --            --        113,366
Net Loss                                 --             --            --             --    (2,333,005)           --             --

    Total Comprehensive Loss             --             --            --             --            --            --             --
                                -----------    -----------   -----------    -----------   -----------    ----------    -----------
Balance At December 31, 1999      9,056,806    $88,888,863             1    $ 2,651,867   $(1,475,638)           --    $  (266,543)
                                ===========    ===========   ===========    ===========   ===========    ==========    ===========
Issuance of Common Stock in
  Connection with Conversion             --      1,411,593            --     (1,411,593)           --            --             --
Translation Adjustment                   --             --            --             --            --            --        (57,375)
Net Income                               --             --            --             --     2,337,203            --             --

    Total Comprehensive Income           --             --            --             --            --            --             --
                                -----------    -----------   -----------    -----------   -----------    ----------    -----------
Balance At December 31, 2000      9,056,806    $90,300,456             1    $ 1,240,274   $   861,565            --    $  (323,918)
                                ===========    ===========   ===========    ===========   ===========    ==========    ===========
Translation Adjustment                   --             --            --             --            --            --       (230,471)
Net Loss                                 --             --            --             --      (216,139)           --             --

    Total Comprehensive Loss             --             --            --             --            --            --             --

Deferred Compensation                    --             --            --             --            --       (80,556)            --
                                -----------    -----------   -----------    -----------   -----------    ----------    -----------
Balance At December 31, 2001      9,056,806    $90,300,456             1    $ 1,240,274   $   645,426       (80,556)   $  (554,389)
                                ===========    ===========   ===========    ===========   ===========    ==========    ===========
<CAPTION>
                                           Total              Compre-
                                        Stockholders'         hensive
                                           Equity           Income (Loss)
                                        ------------        ------------
<S>                                     <C>                 <C>
Balance At December 31, 1998            $ 89,911,340
                                        ============

Issuance of Common Stock in
  Connection with Earnouts                 2,106,848                  --
Translation Adjustment                       113,366             113,366
Net Loss                                  (2,333,005)         (2,333,005)
                                                            ------------
    Total Comprehensive Loss                      --        $ (2,219,639)
                                        ------------        ============
Balance At December 31, 1999            $ 89,798,549
                                        ============
Issuance of Common Stock in
  Connection with Conversion                      --
Translation Adjustment                       (57,375)            (57,375)
Net Income                                 2,337,203           2,337,203
                                                            ------------
    Total Comprehensive Income                    --        $  2,279,828
                                        ------------        ============
Balance At December 31, 2000            $ 92,078,377
                                        ============
Translation Adjustment                      (230,471)           (230,471)
Net Loss                                    (216,139)           (216,139)
                                                            ------------
    Total Comprehensive Loss                      --        $   (446,610)
                                                            ============
Deferred Compensation                        (80,556)
                                        ------------
Balance At December 31, 2001            $ 91,551,211
                                        ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                      F-5
<PAGE>
<TABLE>
<CAPTION>

                                                 VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999




CASH FLOWS FROM OPERATING ACTIVITIES:                                  2001            2000           1999
                                                                  ------------    ------------    ------------
<S>                                                               <C>             <C>             <C>
Net (loss) income                                                 $   (216,139)   $  2,337,203    $ (2,333,005)
Adjustments to reconcile net (loss) income to net cash provided
by operating activities-
         Depreciation and amortization                              11,037,143       9,709,203       8,030,922
         Loss on disposal of equipment                                 107,938          17,069          45,798
         Restructuring charges                                         216,743         279,442         628,669
         Gain on sale of assets                                             --      (1,331,701)             --
Changes in operating assets (increase) decrease in-
         Accounts receivable                                         3,969,218      (3,860,055)     (5,253,475)
         Prepaid expenses, inventory and other current assets       (1,131,000)      4,129,237      (1,853,878)
         Other assets                                                  360,440         137,578         394,672
Changes in operating liabilities increase (decrease) in-
         Accounts payable and accrued expenses                      (4,067,774)      1,632,572      (1,365,181)
         Income taxes payable and other current liabilities           (693,591)        194,844      (1,873,390)
         Deferred charges & other liabilities                          676,919       1,135,031       2,000,919
                                                                  ------------    ------------    ------------

Net cash provided by (used in) operating activities                 10,259,897      14,380,423      (1,577,949)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                               (5,762,917)     (9,997,943)    (15,691,264)
Proceeds from sale of assets                                           129,168          17,800          29,825
Dispositions (Acquisition) of businesses, net of cash acquired              --       3,563,957      (1,774,263)
                                                                  ------------    ------------    ------------

Net cash used in investing activities                               (5,633,749)     (6,416,186)    (17,435,702)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on borrowings                                              41,297,157      39,486,556      44,119,444
Payment of debt                                                    (45,294,785)    (48,218,464)    (30,115,845)
Deferred compensation                                                  (80,556)             --              --
Issuances of common stock                                                   --              --        2,106,848
                                                                  ------------    ------------    ------------

Net cash (used in) provided by financing activities                 (4,078,184)     (8,731,908)     16,110,447
Effects of exchange rates on cash balances                            (230,471)        (57,375)        113,366
                                                                  ------------    ------------    ------------

NET INCREASE (DECREASE) IN CASH                                        317,493        (825,046)     (2,789,838)

CASH, beginning of period                                              633,567       1,458,613       4,248,451
                                                                  ------------    ------------    ------------


CASH, end of period                                               $    951,060    $    633,567    $  1,458,613
                                                                  ============    ============    ============

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Capital lease obligation incurred                                      257,146       1,006,831       4,662,112

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest                                               1,884,610       3,180,095       1,968,791
Cash paid (refunded) for income taxes                                2,865,226      (1,353,287)        357,477
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.
                                       F-6

<PAGE>


                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION:

         Vestcom International, Inc. (a New Jersey Corporation) ("Vestcom" or
the "Company") is a leading provider of business communications, e-marketing and
retail marketing services, using technology and innovation to supply enhanced
value in all phases of communications between businesses and their customers.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Supplies Inventory

         Supplies inventory consists of paper, vinyl, laminating materials,
toner, developer and other items including, compact discs and micrographic
materials, and packaging materials. Supplies are valued at cost, determined
using the first-in-first-out method, which approximates market value.

Property and Equipment

         Property and equipment are recorded at cost. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are capitalized and amortized over the
shorter of the estimated useful lives of the assets or the terms of the related
leases.

         Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.

Acquisitions

         In January 1998, the Company acquired substantially all the assets of
Creative Data Services and D.B. Acquisition, Inc. (doing business as Business
Mail Express). In April 1998, the Company acquired substantially all the assets
of Dee Cee Graphics, Inc., in August 1998, the Company acquired substantially
all the assets of Graphic Technology Systems, Inc., and in October 1998, the
Company acquired substantially all the assets of Manus Services Corporation.

         The aggregate price paid for these acquisitions including certain
earnout payments in 1999 and note payments made in 2000 and 2001, was
approximately $18 million in cash, a note payable for $1,150,000 payable in
March, 2001 bearing interest at 5% and an aggregate of 40,000 shares of Common
Stock. Under the terms of the note, $850,000 was paid in 2000 and $398,725
(which included interest) was paid in 2001. The estimated goodwill associated
with these acquisitions aggregated approximately $16.8 million. All the above
acquisitions have been accounted for as purchases.

Revenue Recognition

         Revenues are recognized when the services are rendered or products are
delivered to the customer.



                                      F-7


<PAGE>

Income Taxes

         The Company follows the liability method of accounting for income
taxes. Under this method, deferred income taxes are recorded based upon
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the underlying assets or liabilities are received or settled.

Earnings per Share

         Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution if
certain securities (primarily options) are converted. The following is the
computation of earnings per share:

<TABLE>
<CAPTION>

                                     For the Year Ended                 For the Year Ended                 For the Year Ended
                                      December 31, 2001                  December 31, 2000                  December 31, 1999
                              --------------------------------  --------------------------------   ---------------------------------
                                                       Per-Share                         Per-Share                         Per-Share
Basic Earnings Per Share:       Income       Shares     Amount     (Loss)      Shares     Amount     Income      Shares     Amount
                                ------       ------     ------     ------      ------     ------     ------      ------     ------
<S>                           <C>           <C>        <C>      <C>           <C>        <C>       <C>           <C>        <C>

Net income (loss)/weighted
average shares outstanding    $ (216,139)   9,056,806  $(0.02)  $ 2,337,203   9,056,806  $  0.26   $(2,333,005)  9,056,806  $(0.26)
                              -----------  ----------  ------   -----------   ---------  -------   -----------   ---------  ------
Diluted Earnings Per Share:
Net income (loss)/weighted
average shares outstanding    $ (216,139)   9,056,806           $ 2,337,203   9,056,806            $(2,333,005)  9,056,806
Options                                                                          20,167
                              -----------  ----------  ------   -----------   ---------  -------   -----------   ---------  ------
Net income (loss)/average
weighted shares outstanding
adjusted for assumed
conversions to common stock   $ (216,139)   9,056,806  $(0.02)  $ 2,337,203   9,076,973  $  0.26   $(2,333,005)  9,056,806  $(0.26)
                              ===========  ==========  ======   ===========   =========  =======   ===========   =========  ======
</TABLE>


         Options covering approximately 1,418,759, 899,931 and 541,329 shares of
Common Stock were not included in computing diluted earnings per share in 2001,
2000 and 1999, respectively, because their effects were antidilutive. In
addition, options covering 19,384 and 65,677 shares, for 2001 and 1999,
respectively, were excluded due to the net losses for those years.

Foreign Currency

         In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation", income statement accounts are translated at the
average exchange rates in effect during the period, while assets and liabilities
are translated at the rates of exchange at the balance sheet date. The resulting
balance sheet translation adjustment was $(230,471), $(57,375) and $113,366 for
the years ended December 31, 2001, 2000 and 1999, respectively.

Comprehensive Income

         Comprehensive income includes foreign currency translation gains and
(losses).

Goodwill

         Goodwill consists primarily of excess purchase price over net assets
acquired, which is being amortized over its estimated useful life of 30 years.
In conformance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company's management continually evaluates
whether events and circumstances indicate that the remaining estimated useful
life of intangible assets may warrant revisions or that the remaining balance of



                                      F-8

<PAGE>

intangibles or other long-lived assets may not be recoverable. To make this
evaluation, management uses an estimate of undiscounted cash flows over the
remaining life of the intangibles or other long-lived assets. Management does
not believe any such events have occurred. Accumulated amortization at December
31, 2001 and 2000 was $11,418,254 and $8,671,869 respectively.

Concentration of Credit Risk

         Financial instruments that potentially expose the Company to
concentration of credit risk, as defined by SFAS No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance Sheet Risk and
Financial Instruments with Concentration of Credit Risk," consist primarily of
trade accounts receivable. The Company's customers are concentrated in North
America, primarily in the financial, retail, telecommunications and utilities,
pharmaceutical, insurance/health care, and travel, leisure and gaming
industries. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends, and other information.

Fair Value of Financial Instruments

         Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the financial statements at fair value because of the short term
maturity of those instruments. The fair value of the Company's debt is discussed
in Note 7.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued FASB
Statements Nos. 141 and 142 ("FAS 141" and "FAS 142"), "Business Combinations"
and "Goodwill and Other Intangible Assets". FAS 141 replaces APB16 and
eliminates pooling-of-interests accounting prospectively. It also provides
guidance on purchase accounting related to the recognition of intangible assets
and accounting for negative goodwill. FAS 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach. Under FAS
142, goodwill will be tested annually and whenever events or circumstances occur
that indicate the Company's goodwill might be impaired. FAS 141 and FAS 142 are
effective for all business combinations completed after June 30, 2001. Upon
adoption of FAS 142, amortization of goodwill recorded for business combinations
consummated prior to July 1, 2001 will cease, and intangible assets acquired
prior to July 1, 2001 that do not meet the criteria for recognition under FAS
141 will be reclassified to goodwill. Companies are required to adopt FAS 142
for fiscal years beginning after December 15, 2001, and early adoption is
permitted in some cases. The Company must adopt FAS 142 effective January 1,
2002. In connection with the adoption of FAS 142, the Company will be required
to perform a transitional goodwill impairment assessment. The Company has not
yet determined the impact these standards will have on its results of operations
and financial position. The Company has recorded approximately $2,746,000 of
goodwill amortization expense for the year ended December 31, 2001.




                                      F-9

<PAGE>



3. ALLOWANCE FOR DOUBTFUL ACCOUNTS:

The activity in the allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>

                                              Balance at                      Charged to        Write-offs
                                             Beginning of       Balance        Costs and         Net of         Balance at End of
                                                Period         Acquired        Expenses         Recoveries           Period
                                                ------         --------        --------         ----------           ------

<S>                                          <C>              <C>            <C>               <C>               <C>
Year Ended December 31, 2001
     Allowance for doubtful accounts         $ 1,247,370      $       --     $   494,643       ($572,982)        $   1,169,031
Year Ended December 31, 2000
     Allowance for doubtful accounts         $ 1,521,924      $       --     $   590,578       ($865,132)        $   1,247,370
Year Ended December 31, 1999
     Allowance for doubtful accounts         $ 1,123,581      $  152,000     $   725,401       ($479,058)        $   1,521,924
</TABLE>

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Prepaid expenses and other current assets consist of the following at
December 31:

<TABLE>
<CAPTION>
                                                                         2001         2000
                                                                         ----         ----
<S>                                                                   <C>          <C>
Prepaid postage...................................................    $1,910,145   $2,273,631
Postage receivable ................................................      370,366      262,439
Prepaid maintenance ...............................................      652,056      677,080
Net deferred tax asset ............................................      117,680      221,913
Other .............................................................    1,215,837    1,699,837
                                                                      ----------   ----------
                                                                      $4,266,084   $5,134,900
                                                                      ==========   ==========
</TABLE>

5. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
                                                                                                      Estimated
Property and equipment consist of the following at December 31:                                      Useful Lives
                                                                         2001           2000           (Years)
                                                                         ----           ----           -------
<S>                                                                   <C>            <C>             <C>
Machinery, equipment and software................................     51,744,843     47,615,453          3-10
Furniture and fixtures...........................................      1,780,407      1,705,504            10
Leasehold improvements...........................................      5,239,896      5,290,752          2-13
                                                                     -----------    -----------
                                                                      58,765,146     54,611,709
Less - Accumulated depreciation
& amortization...................................................    (22,788,273)   (15,298,640)
                                                                     -----------    -----------
Property and equipment, net......................................    $35,976,873    $39,313,069
                                                                     ===========    ===========
</TABLE>

Leased equipment under capital leases (included above) consists of the following
at December 31:

<TABLE>
<CAPTION>
                                                                         2001              2000
                                                                         ----              ----
<S>                                                                  <C>               <C>
Equipment.......................................................     $12,476,705       $12,418,791
Less - Accumulated amortization..................................     (4,912,350)       (3,573,783)
                                                                     -----------       -----------
                                                                     $ 7,564,355       $ 8,845,008
                                                                     ===========       ===========
</TABLE>

Capitalized Software Developed or Obtained for Internal Use (included above)
consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                         2001              2000
                                                                         ----              ----
<S>                                                                  <C>               <C>
Software ........................................................    $ 4,008,582       $ 3,373,616
Less - Accumulated amortization..................................     (1,751,505)         (858,936)
                                                                     -----------       -----------
                                                                     $ 2,257,077       $ 2,514,680
                                                                     ===========       ===========
</TABLE>

Depreciation and amortization expense on property and equipment charged to
operations for the years ended December 31, 2001, 2000 and 1999 was $8,290,758,
$6,916,400 and $5,274,444, respectively.

During the fourth quarter of 2000, the Company sold its mail presort assets and
recorded a gain on the sale of approximately $1.3 million which is included in
other income, net in the accompanying consolidated statement of operations. The
consolidated statement of operations includes the results of operations of the
mail presort assets until the date of sale.

At December 31, 2001, minimum annual payments under capital leases are as
follows:

2002...................................................      $2,244,440
2003...................................................       1,260,876
2004...................................................         568,898
2005...................................................         184,606
2006 and thereafter....................................          44,067
                                                             ----------
Total minimum payments.................................       4,302,887
Less interest..........................................         421,896
                                                             ----------
Net minimum lease payments.............................       3,880,991
Less - current portion of capital lease obligations....       2,027,182
                                                             ----------
Long-term portion of capital lease obligations.........      $1,853,809
                                                             ==========

         The interest rates on the capitalized leases range from 3.3% to 15% and
are imputed based on the fair market value of the equipment at the inception of
the lease.


                                      F-10



<PAGE>

6. ACCRUED EXPENSES:

Accrued expenses consist of the following at December 31:

                                                   2001          2000
                                                   ----          ----
Advanced postage ...........................   $ 5,955,592   $ 5,453,674
Accrued payroll and payroll related expenses     3,120,905     3,204,538
Accrued maintenance expenses ...............     1,804,449     1,495,888
Accrued professional and consulting fees ...     1,000,235       849,446
Accrued taxes other than income ............       512,549       633,340
Other ......................................     2,463,956     3,748,968
                                               -----------   -----------
                                               $14,857,686   $15,385,854
                                               ===========   ===========
7. DEBT:

Long-term obligations

Long-term obligations consist of the following at December 31:

                                                   2001          2000
                                                   ----          ----
Revolving credit line (a)....................  $13,700,000   $14,843,186

Equipment loans payable to a bank at
     interest rates ranging from 4.35%
     to 9.35% with monthly payments and
     a final payment due April 2005 (a)......    2,103,316     1,888,945

Notes payable to sellers of acquired
     companies with interest rates of 5%
     and a final payment due March 31, 2001..           --       300,000

Notes payable to equipment manufacturers
     at interest rates ranging from 7.9%-9.5%
     with final payment due July 2005 .......      514,055       653,579
                                               -----------   -----------
                                                16,317,371    17,685,710
     Less current maturities................     1,266,448     1,236,437
                                               -----------   -----------
                                               $15,050,923   $16,449,273
                                               ===========   ===========



                                      F-11


<PAGE>


         The fair value of the Company's debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The Company believes that
the stated values of the Company's debt instruments represent the estimated fair
values.

Maturities of Long-Term Obligations

As of December 31, 2001, maturities of long-term obligations are as follows:

Years Ending December 31:
2002 ..................................................              $ 1,266,448
2003 ..................................................              $14,418,988
2004 ..................................................              $   509,442
2005 ..................................................              $   122,493
2006 and thereafter ...................................              $        --
                                                                     -----------
Total .................................................              $16,317,371
                                                                     ===========

       (a) On August 13, 1997, the Company and Fleet National Bank entered into
the Equipment Facility and Revolving Credit Agreement in the amount of
$30,000,000 (the "Credit Facility") which is secured by accounts receivables and
certain fixed assets. On May 8, 2000 the Company and Fleet National Bank entered
into the Fifth Amendment to the Credit Facility, which among other things,
increased the Credit Facility to $31,500,000. On March 25, 2002, the Company and
Fleet National Bank entered into the Ninth Amendment to the Credit Facility,
which extended the maturity date to April 1, 2003. The interest rate is based on
certain financial performance ratios plus a rate equal to LIBOR or a Fleet
National Bank alternate base rate, which was 3.93% at December 31, 2001. The
Credit Facility is subject to various covenant restrictions, the most
restrictive of which requires tangible net worth to be a minimum of 10% of
stated net worth. At December 31, 2001 there was approximately $2,103,316
outstanding related to equipment loans, $13,700,000 outstanding on the revolving
credit line and approximately $12,663,653 remained available under this Credit
Facility. Under the terms of the Credit Facility, amounts paid back on equipment
loans are not available for future borrowings.

8. RESTRUCTURING AND OTHER NON RECURRING ITEMS:

         In 1999, the Company recorded an aggregate restructuring charge of
$5,178,000. The Company's restructuring plan was comprised of the consolidation
of certain facilities and the integration of operations in three of the
Company's operating locations: the Mid-Atlantic area, the New England area and
Canada. During the second quarter of 2001, the Company reversed approximately
$250,000 of those previously recorded restructuring reserves that were no longer
required due to the revision of certain estimates. At December 31, 2001, the
Company no longer had any of the 1999 restructuring reserves remaining.

         During the second quarter of 2001, the Company recorded a restructuring
charge of approximately $634,000. The Company's second quarter 2001
restructuring plan is comprised of the consolidation and integration of
facilities in the Company's Connecticut, Wisconsin and Michigan locations (the
"Second Quarter 2001 Restructuring Plan"). The Second Quarter 2001 Restructuring
Plan is aimed at reducing the Company's operating cost structure by reducing the
number of facilities. The restructuring charge includes the facility exit costs
of $189,000, the write-down of fixed assets associated with these facilities of
$217,000 and personnel costs of $228,000 related to severance costs for the
termination of employees related to the closing and/or relocation of the
operating facilities. At December 31, 2001, the Company had approximately
$69,000 of remaining restructuring reserves relating to the Second Quarter 2001
Restructuring Plan. This reserve was comprised primarily of facility exit costs.
In addition to the costs included in the restructuring charge, the Company
incurred an aggregate of $263,000 through December 31, 2001 of moving related
costs that were included in the Company's operating results.


                                      F-12
<PAGE>

9. STOCKHOLDERS' EQUITY:

         In July 1997, the Company filed an amendment to its Restated
Certificate of Incorporation which, among other items, created, one share of
Class B Preferred Stock and 100 shares of Class C Convertible Preferred Stock,
with each share having a liquidation value of $.10 per share. The Class C shares
were issued to certain former shareholders of Image Printing Systems, Inc (now
known as Vestcom Wisconsin, Inc.). The shares of Class C Convertible Preferred
Stock were issued pursuant to the earnout provisions of the applicable
acquisition agreement. In March 1999, in connection with a determination of the
earnout for Vestcom Wisconsin all of the outstanding shares of Class C Preferred
Stock were converted into shares of Common Stock. The one share of Class B
Preferred Stock was issued to selling shareholders of a Canadian Operating
Company and was originally equal to 239,988 shares of Common Stock valued at
$11.05 per share with equal voting rights. In November 2000, 127,746 shares of
Common Stock were issued upon the conversion of an equal number of shares of a
Canadian subsidiary, which resulted in the Class B Preferred Stock being
modified to the equivalent of 112,242 shares of Common Stock.

         In March 1999, the Company issued 228,216 shares of Common Stock in
connection with a determination of earnouts for an original Operating Company
and 40,000 shares of Common Stock for a later acquired company.

         In December 1999, the Company adopted a Shareholder Protection Rights
Agreement (the "Rights Agreement") as part of its strategy of enhancing
shareholder value. The Rights Agreement provides for one right to be attached to
each share of Common Stock. The Rights are currently not exercisable or
transferable apart from the Common Stock, and have no voting rights. Under
certain circumstances, the rights will separate from the Common Stock, and will
entitle the holder thereof to purchase, one one-hundredth of a share of
participating preferred stock (the substantial equivalent of one share of Common
Stock) for $27.00 (the exercise price).

         The rights become exercisable if a person or group (i) acquires ten
percent or more of the Company's outstanding shares of Common Stock, or (ii)
announces a tender offer which would increase the person's or group's beneficial
ownership to ten percent or more of the Company's outstanding shares of Common
Stock, subject to certain exceptions. After the events in clause (i) or (ii)
occur, each right (other than those rights owned by the acquiring person or
group, which become void) will entitle the holder to purchase Common Stock from
the Company, having a market price equal to twice the exercise price for an
amount equal to the then current exercise price. If the Company enters into a
merger or other business combination, each exercisable right would entitle the
holder to purchase Common Stock of the acquiring company having a market price
of twice the exercise price, for an amount equal to the then current exercise
price.

         In certain circumstances, the Board of Directors may exchange each
right (other than those held by an acquiring party) for one share of the
Company's Common Stock. The rights can be redeemed at $.01 per right at any time
prior to becoming exercisable and expire on December 29, 2009, provided,
however, the rights may expire earlier in connection with the automatic sunset
provision, which provides for termination of the Rights Agreement at the third,
sixth and ninth anniversaries unless the Board of Directors affirmatively
determines to extend the Rights Agreement during the twelve months prior to the
sunset dates.

10. STOCK OPTION PLAN:

         In March 1997, the Company approved the 1997 Equity Compensation
Program (the "Stock Option Plan") which provides for the granting or awarding of
stock options and stock appreciation rights to non-employee directors, officers
and other key employees and consultants (including officers of the Operating
Companies). The number of shares authorized and reserved for issuance under the
Plan is limited to the greater of 1,318,000 shares or 15 percent of the number
of shares of Common Stock outstanding. In general, the terms of the option
awards (including vesting schedules) will be established by the Compensation
Committee of the Board of Directors.

          The Stock Option Plan also provides for automatic option grants to
directors who are not employed by Vestcom or its subsidiaries. Upon commencement
of service, a non-employee director will receive a nonqualified option to
purchase 12,000 shares of Common Stock, and continuing non-employee directors
will receive an annual grant of options to purchase 12,000 shares of Common
Stock, all at fair market value on the date of the grant. Options granted to
non-employee directors become fully exercisable one year after the date of grant
and have a term of ten years from the date of grant.




                                      F-13
<PAGE>


                                                    Options Activity
                                             ------------------------------
                                                           Weighted Average
                                                              Exercise
                                              Shares       Price Per Share
                                              ------       ---------------
Balance, December 31, 1998                    511,450          $12.09
                                             ========          ======
Granted                                       401,200            4.16
Forfeited                                    (167,100)          10.49
Exercised                                          --              --
                                             --------          ------
Balance at December 31, 1999                  745,550          $ 7.75
                                             ========          ======
Granted                                       131,600            3.62
Forfeited                                     (51,700)           9.28
Exercised                                          --              --
                                             --------          ------
Balance at December 31, 2000                  825,450          $ 7.00
                                             ========          ======
Granted                                       246,000            2.15
Forfeited                                     (73,700)           9.30
Exercised                                          --              --
                                             --------          ------
Balance at December 31, 2001                  997,750          $ 5.63
                                             ========          ======
Exercisable at December 31, 2001              486,227          $ 7.90
                                             ========          ======

         The Company has elected to account for options in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 permits, but
does not require, a fair value-based method of accounting for employee stock
option plans which results in compensation expense recognition when stock
options are granted. As permitted by SFAS No. 123, the Company has provided pro
forma disclosure of net income and earnings per share, as applicable, in these
notes to consolidated financial statements.

         The weighted average fair value of options granted in 2001 at market
value was $1.89. The weighted average exercise price of options granted in 2001
at market value was $2.15.

         The fair value of each stock option grant is estimated as of the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:
                            2001               2000                 1999
                            ----               ----                 ----
Risk-Free Interest Rate     5.52%              6.23%                5.6%
Expected Lives              10 years           7-10 years           7-10 years
Expected Volatility         88.59%             95.99%               22.3%

The following table summarizes information about stock options outstanding at
December 31, 2001:

                             Number of              Weighted
                              Options               Average
                            Outstanding            Remaining        Weighted
                           at December 31,        Contractual        Average
Range of Exercise Price         2001              Life (years)    Exercise Price
-----------------------    --------------         ------------    --------------
$2.06-$5.38                   693,000                 8.36            $3.24
$8.00-$10.13                  176,150                 6.43             9.08
$13.00-$18.88                 128,600                 5.61            13.78
                              -------                 ----            -----
                              997,750                 7.66            $5.63
                              =======                 ====            =====


                                      F-14
<PAGE>


         Had compensation expense for all stock options granted in 2001, 2000
and 1999 been determined consistent with SFAS No. 123, the Company's net
(loss)/income and (loss)/income per share would have been as follows:

<TABLE>
<CAPTION>

                                                  2001           2000            1999
                                                  ----           ----            ----
<S>                                            <C>            <C>            <C>
Net (Loss) Income:   As Reported               $(216,139)     $2,337,203     $(2,333,005)
                     Pro Forma                 $(581,777)     $1,535,009     $(3,152,081)
Net (Loss) Income
Per Share:           As Reported - basic       $    (.02)     $      .26     $      (.26)
                     Pro Forma - basic         $    (.06)     $      .17     $      (.35)
                     As Reported - diluted     $    (.02)     $      .26     $      (.26)
                     Pro Forma - diluted       $    (.06)     $      .17     $      (.35)
</TABLE>

         The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts and additional awards in future years are
anticipated.

         In May 2001, the Company loaned its Chief Executive Officer ("CEO")
$100,000 to purchase shares of Vestcom stock. The CEO issued a Promissory Note
to the Company, which is secured by the shares of stock purchased with the
monies. The Note is forgivable as long as the payor remains in continuous full
time employment of the Company through the maturity date of the Note. The Note
matures in May 2004. The Company is amortizing the Note to compensation expense
over the life of the Note. The related deferred compensation has been reflected
as a reduction of shareholders' equity.

11. EMPLOYEE BENEFIT PLANS:

         The Company has a defined contribution 401K plan, which substantially
all employees are eligible to participate and are permitted to contribute
between 1% and 15% of their annual salary. The Company makes matching
contributions on behalf of the employees. The Company offers no post-employment
or post-retirement benefits. The expense incurred related to the 401K plan for
the years ended December 31, 2001, 2000 and 1999 was $575,720, $540,178, and
$516,868, respectively.

12. INCOME TAXES:

The provision for federal and state income taxes consists of the following:

                   Year Ended             Year Ended          Year Ended
                December 31, 2001     December 31, 2000    December 31, 1999
                -----------------     -----------------    -----------------
  Federal          $1,430,522            $2,593,750          $(1,087,851)
    State             415,680               920,299              (17,328)
                   ----------            ----------          -----------
                   $1,846,202            $3,514,049          $(1,105,179)
                   ==========            ==========          ===========



                                      F-15
<PAGE>

The differences in income taxes provided and the amounts determined by applying
the federal statutory tax rate (34%) to income (loss) before income taxes result
from the following:

<TABLE>
<CAPTION>
                                       Year Ended            Year Ended          Year Ended
                                    December 31, 2001    December 31, 2000   December 31, 1999
                                    -----------------    -----------------   -----------------
<S>                                   <C>                   <C>                 <C>
Tax (benefit) at statutory rate       $   554,221           $ 1,989,426         $(1,168,983)

State income taxes                        274,349               607,397             (11,436)

Foreign losses for which no
tax benefit is available                  276,921               199,615                  --

Non deductible expenses
(primarily goodwill)                      730,480               727,260              725,397

Book versus tax basis on
asset sale                                     --               547,512                   --
                                           10,231              (557,161)            (650,157)
Other                                 -----------           -----------          -----------
                                      $ 1,846,202           $ 3,514,049          $(1,105,179)
                                      ===========           ===========          ===========
</TABLE>

         Deferred taxes result primarily from cash to accrual differences and
differences in the reporting of depreciation, the allowance for doubtful
accounts, goodwill and other non-deductible accruals.

The components of deferred income tax assets and liabilities, are as follows:

                                                            December 31,
Deferred tax assets                                       2001         2000
                                                          ----         ----
     Allowance for doubtful accounts                $    41,455    $    73,008
     Restructuring                                       27,944        186,196
     Foreign Net Operating Losses Carryforward        1,254,107        993,892
     Less:  Valuation Allowance                      (1,254,107)      (993,892)
     Other                                               48,281         20,000
                                                    -----------    -----------
Total deferred tax assets                               117,680        279,204
Deferred tax liabilities
     Tax over book depreciation                       7,135,116      6,694,769
     Cash to accrual differences                             --         57,292
     Goodwill                                         1,090,531        818,328
     Other                                              223,882        259,514
                                                    -----------    -----------
Total deferred liabilities                            8,449,529      7,829,903
                                                    -----------    -----------
Net deferred liability                              $ 8,331,850    $ 7,550,699
                                                    ===========    ===========

         Included in other current assets at December 31, 2001 and 2000 was
$117,680 and $221,913, which represented the current portion of net deferred
income tax assets.

13. LEASE COMMITMENTS:

         The Company and its subsidiaries lease various office buildings,
machinery, equipment, and vehicles under operating leases expiring at various
dates through 2014. Most of the real property leases have escalation clauses
related to increases in real property taxes. The approximate future minimum
lease payments under operating leases are as follows:

                                                           Operating
Years Ending December 31                                     Leases
------------------------                                  -----------
2002...................................................   $ 7,043,000
2003...................................................     5,679,000
2004...................................................     4,835,000
2005...................................................     4,503,000
2006 and thereafter....................................    19,113,000
                                                          -----------
Total minimum lease payments...........................   $41,173,000
                                                          ===========

                                      F-16
<PAGE>

         Rent expense for all operating leases for the twelve months ended
December 31, 2001, 2000 and 1999 was approximately $8,385,000, $7,633,000 and
$6,265,000, respectively.

14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

Quarterly results of operations for the years ended December 31, 2001 and 2000
are as follows:

<TABLE>
<CAPTION>

                                    (Dollars in thousands, except per share amounts)

                                                  December 31,   September 30,  June 30,   March 31,
                                                     2001            2001         2001       2001
                                                     ----            ----         ----       ----

<S>                                                 <C>            <C>          <C>         <C>
Revenues........................................    $37,271        $37,224      $37,661     $38,372

Gross Profit....................................    $ 9,775        $ 9,952      $10,430     $10,492

Net (Loss) Income...............................    $ (409)        $    56      $    62     $    75
Earnings (Loss) per share of common stock:
   Basic and Diluted............................    $ (.05)        $   .01      $   .01     $   .01
</TABLE>


<TABLE>
<CAPTION>

                                                  December 31,   September 30,  June 30,   March 31,
                                                     2000            2000         2000       2000
                                                     ----            ----         ----       ----

<S>                                                 <C>            <C>          <C>         <C>

Revenues........................................    $39,562        $37,102      $33,669     $35,743

Gross Profit....................................    $11,818        $10,536      $ 9,223     $10,760

Net Income......................................    $   834        $   442      $   189     $   872
Earnings per share of common stock:
   Basic and Diluted............................    $   .09        $   .05      $   .02     $   .10
</TABLE>

Amounts, including earnings per share, are computed independently for each of
the quarters presented. The sum of the quarters may not be equal to the full
year amounts.

15. RELATED-PARTY TRANSACTIONS:

Leasing Transactions

         Joel Cartun, Vestcom's Chairman of the Board, had a fifty percent
interest in the partnership which owned the property previously used by Vestcom
and Vestcom Mid-Atlantic, Inc. ("VMA") in Lyndhurst, New Jersey. The partnership
leased the property to VMA, pursuant to a lease, which expired in May 2001. Cash
outlays for this property for the years ended December 31, 2001, 2000 and 1999
were approximately $311,000, $553,000 and $535,000, respectively, which the
Company believes to be the fair market rental value of the property.

Business Relationship

         Vestcom has an arrangement with Interliant, Inc. whereby, Vestcom
utilizes Interliant's technology hosting and related services. Cash outlays for
such services for the years ended 2001 and 2000 were approximately $169,000 and



                                      F-17

<PAGE>

$113,000, respectively. Leonard Fassler (co-chairman of Interliant) and David
Walke, both members of Vestcom's Board of Directors are also members of
Interliant's Board of Directors. Vestcom believes the arrangement to be on fair
market terms.

16. COMMITMENTS AND CONTINGENCIES:

Litigation

         The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial position or results of
operations of the Company.

Contracts

         In August 1999, Vestcom entered into an agreement with CIBC World
Markets for advisory services. During 2000, Vestcom paid CIBC World Markets a
total of approximately $104,000 for advisory services and related fees and
expenses under this agreement. In August 2000, the Company terminated this
agreement with CIBC World Markets. Richard D. White, a Director of Vestcom, is
Managing Director of CIBC Capital Partners, an affiliate of CIBC World Markets.

         Certain executives of the Company have each entered into employment
agreements and/or change-in-control agreements with the Company. In general, the
change-in-control agreements provide that, in the event of a termination of
employment, upon the occurrence of certain events, such employee will be
entitled to receive an amount in cash equal to twice the employee's then current
annual base salary and bonus.

17. SUBSEQUENT EVENTS:

         In March 2002, Vestcom entered into a new agreement with CIBC World
Markets for advisory services, and agreed to pay CIBC World Markets $150,000 in
connection with such agreement. Richard D. White, a Director of Vestcom, is
Managing Director of CIBC Capital Partners, an affiliate of CIBC World Markets.

         On March 25, 2002, the Company and Fleet National Bank entered into the
Ninth Amendment to the Credit Facility, which extended the maturity date to
April 1, 2003.





                                      F-18

<PAGE>


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

None.

Part III

Item 10. Directors of the Registrant

The registrant incorporates by reference herein information set forth in its
definitive proxy statement for its 2002 annual meeting of shareholders that is
responsive to the information required with respect to this Item.

Item 11. Executive Compensation

The registrant incorporates by reference herein information set forth in its
definitive proxy statement for its 2002 annual meeting of shareholders that is
responsive to the information required with respect to this Item.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The registrant incorporates by reference herein information set forth in its
definitive proxy statement for its 2002 annual meeting of shareholders that is
responsive to the information required with respect to this Item.

Item 13. Certain Relationships and Related Transactions

The registrant incorporates by reference herein information set forth in its
definitive proxy statement for its 2002 annual meeting of shareholders that is
responsive to the information required with respect to this Item.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

              (a) (1)    Financial Statements.

              For the financial statements filed as part of this Annual Report
              on Form 10-K refer to "Index to Financial Statements" included in
              "Item 8 - Financial Statements and Supplementary Data" of this
              Annual Report on Form 10-K.

                  (2)    Financial Statement Schedules.

              All financial statement schedules are omitted either because they
              are not required or the required information is shown in Vestcom's
              consolidated financial statements or the notes thereto.

                  (3)     The following exhibits are incorporated by reference
                          herein or filed with this Annual Report on Form 10-K.



Exhibit
Number                                   Description
------                                   -----------

3.1  --    Restated Certificate of Incorporation of Vestcom International,
           Inc., as amended, is incorporated by reference to Exhibit 3.1 to
           Vestcom's Quarterly Report on Form 10-Q for the Period Ending
           June 30, 1997.


                                       25
<PAGE>


3.2  --    By-laws of Vestcom International, Inc. are incorporated by
           reference to Exhibit 4.2 to Vestcom's Current Report on Form 8-K
           filed with the SEC on December 17, 1999.

4.1  --    Form of certificate evidencing ownership of Common Stock of
           Vestcom International, Inc., is incorporated by reference to
           Exhibit 4.1 to Vestcom's Registration Statement on Form S-1 (no.
           333-23519).

4.2  --    Shareholder Protection Rights Agreement, dated as of December 16,
           1999, between Vestcom International, Inc. and American Stock
           Transfer & Trust Company, as Rights Agent, is incorporated by
           reference to Exhibit 4.1 to Vestcom's Current Report on Form 8-K
           filed with the SEC on December 17, 1999.

10.1 --    Vestcom International, Inc. 1997 Equity Compensation Program, is
           incorporated by reference to Exhibit 10.1 to Vestcom's
           Registration Statement on Form S-1 (no. 333-23519).

10.2 --    Employment Agreement, dated as of March 10, 1997, by and between
           Vestcom International, Inc. and Joel Cartun, is incorporated by
           reference to Exhibit 10.2 to Vestcom's Registration Statement on
           Form S-1 (no. 333-23519).

10.3 --    Note and Stock Purchase Agreement, dated December 31, 1996,
           between Vestcom International, Inc. and certain investors, is
           incorporated by reference to Exhibit 10.7 to Vestcom's
           Registration Statement on Form S-1 (no. 333-23519).

10.4 --    Employment Letter Agreement, dated as of September 29, 1999,
           between Vestcom International, Inc. and Michael D. Helfand, is
           incorporated by reference to Exhibit 10.13 to Vestcom's Quarterly
           Report on Form 10-Q for the quarter ended September 30, 1999.

10.5 --    Employment Letter Agreement, dated September 23, 1997, between
           Vestcom International, Inc. and Brendan Keating, is incorporated
           by reference to Exhibit 10.10 to Vestcom's Registration Statement
           on Form S-4 (no. 333-39077).

10.6   --  Change in Control Agreements, dated January 1, 1999, between
           Vestcom International, Inc. and each of Joel Cartun and Brendan
           Keating are incorporated by reference to Exhibit 10.8 to
           Vestcom's Annual Report on Form 10-K for the year ended December 31,
           1998.

10.7   --  Change in Control Agreement, dated January 1, 1999, between
           Vestcom International, Inc. and Sheryl Bernstein Cilenti is
           incorporated by reference to Exhibit 10.8 to Vestcom's Annual Report
           on Form 10-K for the year ended December 31, 1999.

10.8   --  Equipment Facility and Revolving Credit Agreement, dated as of
           August 13, 1997, as amended, between Vestcom International, Inc.
           and Summit Bank, is incorporated by reference to Exhibit 10.9 to
           Vestcom's Annual Report on Form 10-K for the year ended December 31,
           1998.


                                       26

<PAGE>


10.9 --    Fourth Amendment to Equipment Facility and Revolving Credit
           Agreement, dated as of November 5, 1999, between Vestcom
           International, Inc. and Summit Bank, is incorporated by reference
           to Exhibit 10.12 to Vestcom's Quarterly Report on Form 10-Q for
           the quarter ended September 30, 1999.

10.10--    Secured Promissory Note issued to Vestcom International, Inc.
           by Brendan Keating, dated as of May 25, 2001 with a maturity
           date of May 25, 2004 is incorporated by reference to Exhibit
           10.13 to Vestcom's Quarterly Report on Form 10-Q for the
           quarter ended June 30, 2001.

21.1   --  List of subsidiaries of Vestcom International, Inc.

23.1   --  Consent of Arthur Andersen LLP.

24.1   --  Power of Attorney.

99.1  --   Letter to Commission Pursuant to Temporary Note 3T.

              (b) Reports on Form 8-K:

                           None





                                       27
<PAGE>




                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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.

Date:  March 28, 2002                   VESTCOM INTERNATIONAL, INC.

                                        By: /s/ Brendan Keating
                                        -----------------------
                                             Brendan Keating
                                             Chief Executive Officer, President
                                             And Chief Operating Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed by the following persons in the capacities
indicated on the date indicated.

<TABLE>
<CAPTION>
Signatures                                   Title                                       Date
----------                                   -----                                       ----

<S>                            <C>                                                   <C>
/s/ Joel Cartun                Chairman and Director                                  March 28, 2002
---------------
Joel Cartun

/s/ Brendan Keating*           President, Chief Executive Officer, and                March 28, 2002
-------------------
Brendan Keating                Chief Operating Officer and Director

/s/ Stephen R. Bova*           Director                                               March 28, 2002
--------------------
Stephen R. Bova

/s/ Leonard J. Fassler*        Director                                               March 28, 2002
-----------------------
Leonard J. Fassler

/s/ Robert J. Levenson*        Director                                               March 28, 2002
-----------------------
Robert J. Levenson

/s/ David Walke*               Director                                               March 28, 2002
----------------
David Walke

/s/ Richard D. White*          Director                                               March 28, 2002
---------------------
Richard D. White

/s/ Michael D. Helfand         Executive Vice President, Chief Financial              March 28, 2002
 ---------------------         Officer and Treasurer (Principal Financial and
Michael D. Helfand             Accounting Officer)


                                 *By: /s/ Joel Cartun
                                 --------------------
                                 Joel Cartun, Attorney-in-Fact                        March 28, 2002
                                                                                      --------------

</TABLE>


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