<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, 1999.

[ ] 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,
2000 was approximately $36.4 million.

Number of shares of Common Stock outstanding as of March 1, 2000:  9,056,806.

Documents incorporated by reference: Definitive Proxy Statement for the
registrant's 2000 Annual Meeting of Shareholders (Part III).


<PAGE>


                           VESTCOM INTERNATIONAL, INC.

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

                                              Part II

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

                                            Part III

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

                                              Part IV

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

Signatures...........................................................................................
</TABLE>

                                      -2-



<PAGE>
                                     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 solutions and marketing support services,
supplying enhanced value to business-critical information in all phases of
communications between businesses and their customers. Employing a wide range of
business applications in customer communications, marketing and document
management, Vestcom provides its clients with technological expertise in the
preparation and delivery of vital business information. Vestcom employs
approximately 1,000 individuals and serves customers from 26 production
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 document services industry (the
"Founding Companies"). Since the IPO, Vestcom has expanded its operations
through internal growth and by acquiring eight additional operating companies.
The companies acquired by Vestcom since the IPO, along with the Founding
Companies, are referred to herein as the "Operating Companies." Prior to the
IPO, Vestcom did not conduct any operations. Unless otherwise indicated, all
references to Vestcom's business prior to the IPO refer to the businesses of the
Founding Companies as they were conducted on an independent basis.

           Vestcom maintains a website at vestcomintl.com.

1999 Initiatives

           During 1999, Vestcom implemented several long-term, strategic
initiatives to enhance shareholder value. These initiatives are focused on
streamlining, consolidating and integrating the Company's operations, improving
efficiencies, increasing capacity and expanding new service offerings, such as
the Company's Internet services, to position Vestcom for enhanced profitability,
growth and success. The results of these initiatives have begun to be realized
in the Company's financial performance.

           Some of the initiatives the Company has implemented, and the results
it has achieved or expect to achieve, are as follows (unaudited):

           o  Vestcom's revenues for the fourth quarter of 1999 increased to a
              record $35.1 million, a 15.9% increase over the fourth quarter of
              1998, primarily as a result of internal growth.

           o  Vestcom's gross profit increased by $2.2 million from the third
              quarter of 1999 to the fourth quarter of 1999, and by $0.3 million
              from the fourth quarter of 1998 to the fourth quarter of 1999.

           o  Vestcom's "EBITDA" (earnings before interest, taxes, depreciation
              and amortization) for the fourth quarter of 1999 was $4.8 million
              (including a $700,000 restructuring credit), as compared to $3.8
              million for the fourth quarter of 1998. Vestcom's EBITDA
              represents the Company's operating cash flow.

                                      -3-
<PAGE>
           o  Vestcom reduced the number of its production facilities from 34 at
              the beginning of 1999 to 26 at the beginning of 2000.

              o  The consolidation and integration of facilities is expected to
                 generate increased efficiencies, quality and competitiveness,
                 all of which, management believes, will translate into
                 increased revenues, decreased costs and greater profitability.

              o  Using fewer, but bigger, more modern and technologically
                 advanced facilities should enable Vestcom to compete more
                 effectively for larger, more profitable projects from new and
                 existing regional and national accounts, and also improve the
                 Company's efficiency, turn-around time and capacity.

              o  As part of Vestcom's restructuring program, redundant personnel
                 were eliminated, which should reduce the Company's costs and
                 increase profitability, without sacrificing revenues.

              o  An example of Vestcom's facility integration is the
                 consolidation of seven of the Company's operations in the
                 Mid-Atlantic region into two significantly larger, more
                 streamlined locations.

           o  Vestcom improved the quality of its sales force by recruiting and
              hiring experienced sales professionals, providing cross-training
              on all of the Company's service offerings and integrating the
              sales force by vertical markets.

           o  In 1999, Vestcom expanded its Internet capabilities:

              o  The Company is beginning to see the conversion of existing and
                 new customers into its Internet suite of products.

              o  Vestcom's Internet service offerings expand the Company's range
                 of document management and delivery services to include
                 Internet-based solutions, such as electronic bill presentment
                 and payment, that provide streamlined customer communications
                 and an efficient, secure distribution of business critical
                 documents.

              o  Vestcom's web-based fulfillment services provide customers with
                 the ability to order products and marketing materials via the
                 Internet.

           o  In 1999, Vestcom adopted a shareholder protection plan to protect
              shareholder value.

              o  Vestcom's Board carefully considered adopting its shareholder
                 protection plan. Over 2,500 public companies have shareholder
                 protection plans which, like Vestcom's plan, are designed to
                 encourage a potential acquirer to negotiate with the board of
                 directors. A board of directors, such as Vestcom's Board, has a
                 fiduciary duty to maximize shareholder value for all
                 shareholders. The Board reviewed current, widely accepted
                 empirical studies which clearly show that companies with such
                 plans receive a significantly greater takeover premium than
                 companies without them. This potential for increased
                 shareholder value was one of the compelling reasons that
                 Vestcom's Board considered in adopting the plan.

           o   Vestcom has retained CIBC World Markets ("CIBC") as its financial
               advisor to assist the Board in its continuing review of strategic
               alternatives to enhance shareholder value for all shareholders.

                                      -4-
<PAGE>

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

           Vestcom's knowledge of the industry, technological expertise,
resources and operating efficiencies enable it to provide a broad range of
services from multiple locations at a competitive cost. The Operating Companies
provide a number of value-added services to customers, including the creation,
management and distribution of business critical documents such as statements,
invoices and confirms, and the management, production, warehousing, kitting and
distribution of literature and products in support of marketing initiatives. For
example, in the financial services industry, Vestcom provides added value by
producing statements, invoices and confirms in a cost-effective, timely manner,
with enhanced graphics, and by also providing customers with database services
where requested. As an additional example, in the retail industry, Vestcom works
with its customers to create, manage 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 the production and distribution of frequent shopper and
personalized ID cards, price books, database services, equipment and supplies
for onsite production of product pricing materials and other merchandising
support needs. As a marketing support service, 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. Vestcom provides enhanced value by enabling its customers
to provide highly customized kits and personalized information to their
customers and prospects.

           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,
utilities, travel and leisure and software industries. Vestcom provides its
customers with solutions to meet their business critical document and
information 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 critical documents 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 critical document needs from one
              source, at a competitive cost

              Vestcom's advanced data processing and distribution capabilities
         permit customers to fulfill many of their business critical document
         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 direct marketing services assist customers in building
         and sustaining strong and profitable relationships with their
         customers. Vestcom's capabilities enable its customers to deliver the
         right message at the right time for maximum impact. Vestcom supports a
         broad range of direct marketing functions from creative development to
         sophisticated database management and 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
         database-driven customer communications.

                                      -5-
<PAGE>
           o  Reduce production turnaround time and equipment downtime

              Vestcom's advanced computer network shifts production to various
         locations, thereby increasing efficiency, productivity, cost
         effectiveness and timely delivery. Vestcom 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 documents.

              Examples of these new technologies and service offerings include:

                 o  Vestcom's database management services, which assist
                    customers in designing, implementing and determining the
                    effectiveness of direct marketing programs; and

                 o  Vestcom's Internet suite of products, which provide
                    customers with the option of:

                    o  Offering electronic bill presentment and payment;

                    o  Providing electronic document delivery; and

                    o  Ordering products and marketing materials via the
                       Internet.

Industry Overview

           The business of creating, managing and distributing business critical
documents and providing direct marketing support services 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 critical documents
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;.

                                      -6-
<PAGE>

           o  do not invest sufficiently in rapidly changing technologies, such
              as the Internet; 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 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 critical document requirements.
Using a focused sales approach, driven by a customer intimate strategy, Vestcom
provides a broad range of high quality services at a competitive cost from
multiple locations.

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. During 1999, the Company substantially completed its
integration and consolidation program. Vestcom reduced the number of its
production facilities from 34 at the beginning of 1999 to 26 at the beginning of
2000 and eliminated redundant personnel. 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.

           As part of the integration process and to enhance its market
recognition or branding, Vestcom operates through seven operating units that are
primarily organized geographically. These units include: Vestcom Mid-Atlantic,
Vestcom Retail Solutions Group, Vestcom New England, Vestcom Canada, Vestcom
Northwest, Vestcom Midwest and Vestcom Internet Solutions Group. Each business
unit has its own document processing equipment, sales professionals and
administrative support responsible for sales made within, or cross-sold into,
its region. Vestcom believes that this operating structure provides the Company
with a competitive advantage as it allows its business units to respond quickly
to customer needs and local market trends.

                                      -7-
<PAGE>

           The companies comprising the geographical operating units serve
multiple markets and may serve customers outside of their respective regions.
Additionally, such units may share production resources and technical
capabilities. The companies comprising the market focused operating units have a
coordinated sales force and product-specific expertise. The Retail Solutions
Group provides both vinyl and laminated paper retail shelf labels, laser printed
price books, customer communications material and database and other services
for the retail industry. The Internet Solutions Group provides customers with
Internet-based solutions such as electronic bill presentment and payment,
electronic document delivery and web-based fulfillment services.

           Vestcom intends to continue its program to integrate its operating
units. Vestcom believes that this integration will continue to improve
cost-effectiveness and brand recognition by:

           o  reducing or eliminating redundant functions and facilities;

           o  increasing equipment utilization; and

           o  creating common sales and marketing materials and approaches.

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 laser 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. For example,
applications marketed to customers in the retail industry are produced at
operating units not comprising Vestcom's Retail Solutions Group, and production
locations comprising Vestcom's Retail Solutions Group may produce work for
customers in markets other than retail.

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 focus its sales and marketing efforts on large, multi-year projects, rather
than smaller, lower margin contracts.

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 direct marketing and
database 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 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, will increase 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 will enhance its ability to obtain and service customers.

New Products and Services

           Vestcom intends to supplement the selling efforts of its operating
units by corporate-sponsored internal product development, acquisition of new
products and services and sales and marketing efforts.

                                      -8-
<PAGE>

Provide Outsourcing Solutions for Clients

           Vestcom provides a turnkey service for the creation, management and
distribution of business critical documents in which it assumes most of the
responsibilities previously performed by the customer's in-house operations on
either a facilities management basis or on an outsourced basis. Vestcom believes
that, in most cases, it can perform these services more cost-effectively than
the customer can perform them internally. Vestcom believes that its knowledge of
the industry, technological expertise, resources and operating efficiencies will
enhance its ability to successfully market this service.

           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 the
Founding Companies. 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 document
management and direct marketing industries by making 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 critical
document 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 initial focus will be 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.

Services

           Vestcom provides a variety of services for its customers based on
their specific needs for business critical documents and marketing support
services. These services include the following:

                                      -9-
<PAGE>

Production and Distribution Services

           Production and Distribution of Time-Sensitive Business Critical
           Documents

           Vestcom's print and mail operations provide data processing, laser
printing, variable and selective insertion, presorted mailing and distribution
of time-sensitive documents. Vestcom converts electronic data received from its
customers into informative, accurate and customized business critical documents
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. The Company's production operations also
provide intelligent insertion of supplementary marketing material into
envelopes, selective distribution, quality control and cost-effective and
expedited postal delivery.

           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 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 critical documents, including paper, electronic
formatting via the Internet, compact disc, microfiche, and microfilm. Vestcom
offers electronic document delivery and electronic bill payment and presentment
via the Internet which speeds delivery time and enables end users to view their
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.

           Production and Distribution of Laser Printed Retail Shelf Labels and
           Other Retail Support Items

           Vestcom's Retail Solutions Group produces 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. Vestcom
provides rapid turnaround of labels to 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.

                                      -10-
<PAGE>

           The Company seeks to increase its share of the retail labeling market
through increased penetration of existing 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) and plans to
increase its marketing of these products during 2000. These new products are
intended to assist retail store operators with in-store merchandising and
advertising.

           Fulfillment

           Vestcom 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 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'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. 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.

           Demand Publishing

           Vestcom prints, packages and distributes business critical 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 which might quickly
become outdated. Vestcom provides complete assembly of software packages,
including coordination of software duplication and production of the applicable
documentation.

Database Management

           Vestcom's database services include the creation and maintenance of
customer databases for marketing purposes and the printing and distribution of
direct marketing materials. The combination of database management with
Vestcom's other capabilities enables the Company to provide its customers with
value-added services, including creative marketing design and direct response
marketing services. Vestcom is able to assist its customers by:

           o  identifying and targeting potential new customers;

                                      -11-
<PAGE>

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

           o  distributing the marketing materials; and

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

           Vestcom's strategy is to expand its database management services by
cross-selling these services to its direct mail and fulfillment customers.

Internet Services

           Vestcom's Internet Solutions Group expands the Company's range of
document management and delivery services to include Internet-based solutions
such as electronic bill presentment and payment and web-based fulfillment
services. Vestcom's automated information and technology infrastructure enables
the Company to distribute bills or statements over the Internet.

           A biller's statement provides targeted marketing opportunities for
that biller and third party advertisers. Just as paper-based bills received by
consumers often contain marketing inserts and product offerings, the electronic
bill provides for electronic bill inserts. Vestcom believes that the biller can
achieve additional revenue by advertising other services on its electronic bill.

           Vestcom believes that an increasing number of communications service
providers, utilities, financial services and other industries will require
electronic statement presentment capabilities. Vestcom expects its Internet
services to increase print and mail volume in the future as customers are
typically demanding both electronic and printed statement presentment. Because
of its existing volume, state-of-the-art processing systems and strong client
relationships, the Company believes its is in a unique position as a one-stop,
full-service supplier of either paper-based or electronically delivered
statements.

Commingling, Intelligent Inserting and Mailing Services

           Vestcom provides cost-effective and rapid distribution of completed
documents and is able to obtain postal discounts off the current U.S. first
class single piece postage rate by commingling mail pieces. In addition, by
electronically distributing data received from customers to geographically
dispersed production and distribution centers, Vestcom enables customers to
reduce distribution costs while improving delivery time.

           Commingling

           By combining volumes of mail from a number of customers and adding
postal bar-codes, Vestcom is able to generate postal discounts for customers
that do not produce sufficient volume to obtain these benefits on their own.

           Insertion

           Vestcom provides both selective (intelligent) and non-selective
insertion services. Vestcom's insertion equipment folds and inserts reports,
bills, invoices and other marketing materials into envelopes.

           Presorting

           Vestcom sorts mail to United States and Canadian Postal Service
specifications and adds postal bar-codes in order to obtain the greatest
available discount and speed delivery.

                                      -12-
<PAGE>

Complete Document Management Outsourcing Services

           In addition to Vestcom's individualized applications for customers,
the Company also targets customers desiring to outsource a significant portion
of their laser printing and document distribution processes. Vestcom provides a
turnkey service that encompasses document creation, management and distribution
services to meet the customer's needs for business critical documents, which may
also include mailing services. 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.

Forms Management

           Vestcom's 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.

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 principally through its in-house
direct sales staff of 52 sales 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 1999, in connection with its consolidation and integration plan,
Vestcom upgraded and trained its sales professionals. The sales development
process included the hiring of a professional sales training organization to
train its sales force on the Company's complete range of products and services.
Each Vestcom business unit has aligned its sales force by vertical markets such
as financial services, pharmaceutical services and retail services to provide
the sale professionals with a greater understanding of the dynamics of a
particular industry. This alignment assists the sales force in tailoring
solutions to a particular client. 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 1999, Vestcom also refocused its sales and marketing effort by
(i) redesigning its sales training program to emphasize cross-selling the
Company's Internet capability and other services, (ii) restructuring the
compensation plan for sales professionals to encourage higher margin jobs and
(iii) encouraging on-site facility visits by clients and prospects.

           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.

                                      -13-
<PAGE>

Customers

           Vestcom provides services to customers in a broad range of
industries, including the financial services, retail, pharmaceutical,
telecommunications, utilities, health care, travel and leisure 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 critical documents 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 Xerox Business Services, Pitney
Bowes Management Services, Anacomp, Output Technologies (a division of DST
Systems), IKON Office Solutions, Moore Corporation Ltd., F.Y.I. Incorporated and
Lason, Inc., as well as smaller local, regional and national providers.

           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 critical document 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, 1999, Vestcom had approximately 980 full-time and 140
part-time employees. No employees of Vestcom are represented by a labor union.
Vestcom considers its relations with its employees to be good.

                                  RISK FACTORS

Vestcom Has Limited Combined Operating History

           Prior to the consummation of the IPO and the acquisitions of the
Founding Companies on August 4, 1997, Vestcom conducted no operations and
generated no revenues. Vestcom has acquired eight additional operating companies
since the IPO. These companies, together with the Founding Companies, are
referred to as the "Operating Companies." Prior to their acquisition by Vestcom,
the Operating Companies operated as separate, independent businesses. Vestcom
cannot be certain that the Operating Companies or the companies it may acquire
in the future will achieve sales and profitability justifying Vestcom's
investment in them.

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

           The process of integrating the operations of the businesses Vestcom
acquires 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:

                                      -14-
<PAGE>

           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
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.

                                      -15-
<PAGE>

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 consolidator and operator of
document and information management and marketing support service businesses.

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 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 Faces Risks Related to its Acquisition Strategy

Vestcom intends to expand its operations through the acquisition of additional
businesses in the document and information management and marketing support
services business. 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;

           o  risks associated with unanticipated events; and

           o  amortization of acquired intangible assets.

           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.

                                      -16-
<PAGE>

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.

The Price of Vestcom's Common Stock May Be Volatile

           In recent years the stock market has experienced significant price
and volume fluctuations that often have been unrelated or disproportionate to
the operating performance of particular companies. These fluctuations, as well
as a shortfall in sales or earnings compared to public market analysts'
expectations, changes in analysts' recommendations or projections, and general
economic, industry specific and market conditions, may adversely affect the
market price of Vestcom's Common Stock. 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,
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.

Shares of Common Stock Eligible for Future Sale May Affect Market Price

           A total of 4.4 million shares of Common Stock issued to the former
holders of the Founding Companies at the time of the IPO and in connection with
certain earnouts and to certain other investors are currently freely tradable,
unless held by affiliates of Vestcom. In addition, the holders of 278,334 shares
of Common Stock currently have the right to exercise registration rights with
respect to these shares. Shares issued upon the exercise of stock options are
also eligible for resale in the public market. Sales of a substantial number of
shares of Common Stock in the public market could adversely affect the market
price of the Common Stock.

Vestcom May Face Potential Liability for Breach of Confidentiality

           A substantial portion of Vestcom's business involves the handling of
documents 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 Internet suite of products, 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.

                                      -17-
<PAGE>

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 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. Vestcom's Board of
Directors believed that the plan would provide it with the time it needed to
complete its review of strategic alternatives to enhance shareholder value. The
Board also believed that the plan would provide it with more negotiating
leverage in seeking to obtain a full and 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.

                                      -18-
<PAGE>
Item 2. Properties

           Vestcom currently has 29 facilities, aggregating approximately
856,000 square feet. These facilities are located in 17 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 14 years and in some cases, include
options to extend the lease term.

Item 3. Legal Proceedings

           On December 17, 1999, Vestcom commenced an action in the United
States District Court for the District of New Jersey against Mr. Harish K.
Chopra and two entities controlled by him, TimeTrust, Inc. and R-Squared
Limited. Vestcom alleged two claims: (i) the Schedule 13D filed by Mr. Chopra in
November 1999 violated Section 13(d) of the Securities Exchange Act of 1934, as
amended, because it failed to provide appropriate disclosures to shareholders,
especially with respect to Mr. Chopra's intent to take control of the Company,
oust current management, and install himself as Chief Executive Officer and
Chairman of the Board; and (ii) Mr. Chopra had violated Section 14(a) of the
Williams Act because he had solicited Vestcom shareholders without complying
with the proxy solicitation rules. Vestcom contended that Mr. Chopra had
violated these shareholder-protection provisions of the federal securities laws
in order to advance his effort to take control of the Company.

           On December 27, 1999, Vestcom applied to the Court for a temporary
restraining order barring defendants from any further contacts with Vestcom
shareholders, barring defendants from any further violation of the federal
securities laws, and compelling corrective disclosures to remedy the Section
13(d) and Section 14(a) violations. Two days later, on December 29, 1999, Mr.
Chopra filed an amended Schedule 13D that provided most, though not all, of the
disclosures which were omitted from the initial Schedule 13D. Mr. Chopra
subsequently contended that this corrected disclosure resolved the Section 13(d)
claim.

           The Court scheduled a hearing on Vestcom's application for a
temporary restraining order for January 14, 2000. On January 6, 2000, Mr. Chopra
filed a counterclaim challenging the enforceability of the Shareholder Rights
Protection Agreement adopted by Vestcom's Board on December 16, 1999. Mr. Chopra
also applied for temporary restraints against the enforcement of the Shareholder
Rights Protection Agreement. Given Mr. Chopra's request for temporary
restraints, the Court adjourned the hearing date to January 28, 2000, at which
time the Court was to address both applications for temporary restraints.
Vestcom opposed Mr. Chopra's request for restraints, as New Jersey corporate law
specifically authorizes the adoption of shareholder protection agreements and
many commentators have recognized the important protections that such agreements
provide to shareholders against coercive and abusive takeover tactics. Several
days later, Mr. Chopra abandoned and withdrew his request for temporary
restraints against the Shareholder Rights Protection Agreement.

           Effective January 24, 2000, a new SEC rule altered the legal
standards for the solicitation of shareholders prior to the filing of a proxy
statement. Among other things, the new SEC rule permits parties soliciting a
public company's shareholders, including the public company itself, to make
certain prescribed solicitations to those shareholders prior to filing a proxy
statement. This pre-filing solicitation was prohibited under prior law, except
in certain limited circumstances. Mr. Chopra filed solicitation materials with
the SEC on January 27, 2000 and on February 3, 2000 under this new rule. In view
of this new rule and Mr. Chopra's filings, Vestcom withdrew its application for
temporary restraints against Mr. Chopra.

           The Company continues to believe, based on conversations with several
of its Board members and various other Vestcom shareholders, that prior to the
effective date of the SEC's new rule Mr. Chopra illegally solicited Vestcom
shareholders, although the Court has not made such a finding or determination to
date. Vestcom continues to seek a remedy for Mr. Chopra's alleged violations of
the federal securities laws, including (i) the invalidation of any proxies or
consents obtained by Mr. Chopra and (ii) the dissemination of a corrective
disclosure to all Vestcom shareholders.

                                      -19-
<PAGE>

           The litigation remains pending. On February 22, 2000, Mr. Chopra
filed (i) a motion to dismiss Vestcom's claims and (ii) a motion for summary
judgment in favor of his claims regarding the Shareholder Rights Protection
Agreement. On March 13, 2000, Vestcom filed briefs and certifications in
opposition to Mr. Chopra's motions to dismiss and for summary judgment. Vestcom
intends to continue pursuing this litigation in order to assure that any contest
for control of Vestcom is conducted in accordance with applicable law.
Management cannot predict the outcome of this litigation.

           In March 2000, Mr. Chopra, Time Trust, Inc. and R-Squared Limited
commenced a consent solicitation of Vestcom's shareholders. They are soliciting
consents in favor of five separate proposals which are designed to replace five
of Vestcom's seven duly elected directors with their slate of nominees.
Vestcom's Board unanimously opposes the consent solicitation and is soliciting
consent revocations from shareholders.

           In addition to the litigation described above, 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, 1998, 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                               60                Chairman of the Board and Chief Executive Officer

Brendan Keating                           45                President and Chief Operating Officer

Michael D. Helfand                        40                Executive Vice President,  Chief Financial  Officer and
                                                            Treasurer

Sheryl Bernstein Cilenti                  31                Vice President, General Counsel and Secretary
</TABLE>
-------------------
* Ages are as of March 1, 2000.

           Joel Cartun has been the Chief Executive Officer and a director of
Vestcom since its incorporation in September 1996 and Chairman of the Board
since August 1997. He served 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 Founding Companies, in 1969, and has
served as Chief Executive Officer and a director of that corporation since its
incorporation 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 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.

                                      -20-
<PAGE>

           Michael D. Helfand has served as Executive Vice President, Chief
Financial Officer and Treasurer of Vestcom since October 1999. 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.

                                     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:


                                      -21-
<PAGE>


                                              High                  Low
                                              ----                  ---
Year ended December 31, 1998:
           First quarter                      21.50                 6.50
           Second quarter                     11.75                 8.625
           Third quarter                      11.00                 6.063
           Fourth quarter                      9.00                 5.813

Year ended December 31, 1999:
           First quarter                       8.50                 4.750
           Second quarter                      6.438                3.50
           Third quarter                       4.688                2.625
           Fourth quarter                      3.875                2.688


           As of March 1, 2000, there were 80 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 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.


                                      -22-

<PAGE>

Item 6.       SELECTED FINANCIAL DATA

         Vestcom acquired the Founding Companies on August 4, 1997 concurrently
with the consummation of the Company's IPO. Prior to the consummation of the
IPO, Vestcom conducted no activities, other than those related to the IPO and
the acquisition of the Founding Companies. For financial statement presentation
purposes, Vestcom has been identified as the accounting acquirer. The following
selected historical financial data of Vestcom as of December 31, 1999 and 1998
and for the years ended December 31, 1999, 1998 and 1997 have been derived from
the audited financial statements of Vestcom included elsewhere in this Annual
Report on Form 10-K. The Statements of Operations Data included below reflect
the operations of the acquired companies from the respective dates of their
acquisition.

                             SELECTED FINANCIAL DATA
                (Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>


                                                     Year Ended           Year Ended            Year Ended     Period from Inception
                                                     ----------           -----------          -----------      (September 19, 1996)
                                                  December 31, 1999    December 31, 1998    December 31, 1997   to December 31, 1996
                                                  -----------------    -----------------    -----------------  --------------------
<S>                                                   <C>                  <C>                   <C>                   <C>
Statement of Operations Data:

Revenues.......................................       $130,240             $108,676              $29,777               $     -

(Loss) Income from Operations..................         (1,383)               8,927                2,671                (1,633)

Net (Loss) Income - Basic......................       $ (2,333)            $  4,627              $ 1,308               $(5,078)
Net (Loss) Income - Diluted....................       $ (2,333)            $  4,623              $ 1,249               $(5,078)
Net (Loss) Income per share - Basic............       $   (.26)            $    .52              $   .31               $     -
Net (Loss) Income per share - Diluted..........       $   (.26)            $    .52              $   .29               $     -

Additional Information
EBITDA                                                $  6,862             $ 15,228            $   4,681

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

Working capital                                       $  7,864             $  3,745             $ 17,147
Total assets                                          $159,380             $142,544             $114,346
Long term obligations                                 $ 34,144             $ 21,386             $ 10,802
Stockholders' equity                                  $ 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

                                      -23-

<PAGE>

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 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, improved financial
results, operational synergies and enhanced services at the newly consolidated
facilities, acceptance of Vestcom's products and services, including 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 document
outsourcing 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.

Introduction

         Vestcom International, Inc. was incorporated in September 1996.
Concurrently with the consummation of Vestcom's initial public offering (the
"IPO") on August 4, 1997, Vestcom acquired seven companies that create, manage
and distribute business critical documents (the "Founding Companies") each of
which had been operating as a separate independent entity. For accounting
purposes, the acquisitions of the Founding Companies were deemed to be made
August 1, 1997, using purchase accounting, with Vestcom as the acquirer. Since
the IPO, Vestcom has acquired eight additional companies that create, manage and
distribute business critical documents (collectively with the Founding Companies
referred to herein as "Acquired Companies").

         The Acquired Companies were managed prior to their acquisition as
independent private companies, and their results of operations reflect different
tax structures (S corporations and C corporations for the U.S. Acquired
Companies), which have influenced, among other things, the Acquired Companies
historical levels of owners' compensation. In connection with the acquisition of
certain of the Acquired Companies, these owners and certain key employees agreed
to certain reductions in their compensation which commenced as of the date of
acquisition.

         As of February 12, 1999, the Company acquired substantially all of the
assets of Conversion Printing Systems, Inc. ("CPS"). For the twelve months
ended December 31, 1998, CPS' revenues were approximately $8 million, of which
approximately sixty percent were derived from sales to Vestcom operating units.

         Vestcom's Consolidated Balance Sheet as of December 31, 1999 includes
all of the Acquired Companies. The results of operations and statement of cash
flows for the year ended December 31, 1999, include the results of Vestcom and
all of the Acquired Companies acquired in 1997 and 1998 for the entire period,
and the company acquired in 1999 from its date of acquisition.

Results of Operations

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 ($ in
000's)

         Revenues increased $21,565, or 19.8%, from $108,676 for the year ended
December 31, 1998 to $130,240 for the year ended December 31, 1999. This
increase was primarily attributable to the full year effect of 1998 acquisitions
which accounted for approximately $14,429, or 13.3%, of such increase. The
remainder of the increase, or approximately $7,136, was attributable to internal
growth over 1998 revenues. This internal growth, of 6.6%, was due to increased
sales to new and existing customers primarily in the financial services and
retail markets. The Company's internal growth rate accelerated in the fourth
quarter of 1999 due to the Company's consolidation and integration plan.

                                      -24-

<PAGE>

         Vestcom's gross profit increased $2,856, or 7.2%, from $39,882 for the
year ended December 31, 1998 to $42,738 for the year ended December 31, 1999.
The increase in gross profit was primarily attributable to acquisitions which
accounted for $5,423, or 13.6%, of such increase, offset by increased costs and
duplicate expenses incurred as the Company consolidated its operation and excess
capacity in its fulfillment operations. These costs caused gross margins to
decrease from 36.7% in 1998 to 32.8% in 1999.

         Selling, general and administrative expenses increased $7,988, or
25.8%, from $30,955 for the year ended December 31, 1998 to $38,943 for the year
ended December 31, 1999. As a percentage of revenues, selling general and
administrative expenses increased from 28.5% in 1998 to 29.9% in 1999. The
increase was attributable in part to acquisitions which accounted for
approximately $2,450, or 7.9%, of such increase. The remaining increase in
selling, general and administrative expense was primarily due to increased
compensation expense including increased commissions on higher sales, increased
staffing for new technical and administrative personnel to support the greater
volume of business, increased spending in sales and marketing programs and the
costs associated with increased corporate development programs. In addition, the
Company incurred costs in connection with its efforts to integrate its Acquired
Companies. These costs included redundant overhead and facility costs and other
integration costs.

         In 1999, the Company recorded $5,178 of restructuring and other
non-recurring charges. 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. The restructuring charges include $2,786 of facility closure
and consolidation costs and $1,250 related to the termination of employees. In
addition, the Company incurred moving expenses of $1,142 related to the various
relocations during the second and third quarters. The restructuring plan does
not contemplate the Company eliminating any of its current products or services;
the consolidations are designed to make the Company's existing businesses more
efficient.

         Interest expense increased $1,473, or 185.1%, from $796 for the year
ended December 31, 1998 to $2,269 for the year ended December 31, 1999. This
increase was attributable to increased borrowings on the Company's credit
facility to finance acquisitions, equipment purchases, leasehold improvements
and payments related to earnout agreements.

Year Ended December 31, 1998 Compared to Unaudited Pro Forma
Year Ended December 31, 1997 ($ in 000's)

         Vestcom, which conducted no operations prior to the consummation of the
IPO other than in connection with the acquisitions of the Founding Companies and
the financing activities, related thereto, including the IPO, had no revenues
and limited corporate expenses in the first seven months of 1997. Therefore,
Management's Discussion and Analysis based on actual results would compare
twelve months of operating activity in 1998 to five months of operating activity
in 1997. Accordingly, management believes that Management's Discussion and
Analysis would only be meaningful based on a comparison of the audited Results
of Operations of Vestcom for the year ended December 31, 1998 to the unaudited
Pro Forma Results of Operations of Vestcom for the year ended December 31, 1997.
The unaudited pro forma data gives effect to (i) the acquisitions of the
Founding Companies and those companies acquired in 1997; and (ii) compensation
and other adjustments for all transactions in 1997 as if the transactions had
occurred on January 1, 1997.

         The following discussion of Pro Forma Results of Operations is not
necessarily indicative of the results Vestcom would have obtained had all of
these acquisitions actually then occurred or of Vestcom's actual or future
results.

                                      -25-

<PAGE>
<TABLE>
<CAPTION>
                                                         Actual       Unaudited Pro Forma
                                                       (Audited)     Results of Operations
                                                     (in thousands)     (in thousands)
                                                          1998                1997
                                                          ----                ----
<S>                                                       <C>                 <C>
Revenues                                                $108,676            $79,273
Gross profit                                            $ 39,882            $29,531
Selling, general & administrative expenses              $ 30,955            $18,984
Income from operations                                  $  8,927            $ 8,418
</TABLE>
         Revenues increased $29,403, or 37.1%, from pro forma $79,273 for the
year ended December 31, 1997 to $108,676 for the year ended December 31, 1998.
This increase was primarily attributable to acquisitions which accounted for
$22,173 or 28% of 1998 revenues and $7,230 or 9% internal growth over 1997
revenues. This internal growth was due to increased sales to new and existing
customers primarily in the financial services and retail markets.

         Vestcom's gross profit increased $10,351, or 35.1%, from pro forma
$29,531 for the year ended December 31, 1997 to $39,882 for the year ended
December 31, 1998. This increase was primarily attributable to acquisitions
which accounted for approximately $8,242 with the remaining increase relating to
the increased volume of business. The gross profit margin decreased from 37.3%
in 1997 to 36.7% in 1998 primarily due to the renegotiation of certain capital
lease obligations with one of Vestcom's vendors which reclassified certain of
the obligations from capital leases to operating leases. This transaction
resulted in expense being moved from interest expense to cost of revenue thereby
reducing the gross profit in 1998.

         Selling, general and administrative expenses increased $11,971, or
63.1%, from pro forma $18,984 for the year ended December 31, 1997 to $30,955
for the year ended December 31, 1998. As a percentage of revenues, selling
general and administrative expenses increased from 23.9% in 1997 to 28.5% in
1998. The increase was attributable in part to acquisitions which accounted for
approximately $4,900, or 41% of the total increase. The remaining increase in
selling, general and administrative expenses was primarily due to increased
compensation expense including increased commissions on higher sales, increased
staffing for new technical and administrative personnel to support the greater
volume of business, increased spending in sales and marketing programs and the
costs associated with the increased Vestcom corporate management staff. The
majority of the expenses of the Vestcom corporate staff operations did not come
into existence until after the consummation of the initial public offering in
August of 1997. In addition, the Company incurred costs in connection with its
efforts to integrate its Acquired Companies. These costs included redundant
overhead and facility costs.

Liquidity and Capital Resources

       The following discussion of liquidity and capital resources reflects
Vestcom's actual results of operations and financial position for the periods
discussed.

       At December 31, 1999, Vestcom had working capital of approximately $7,864
compared to $3,745 at December 31, 1998. The increase is primarily attributable
to an increase in accounts receivable which reflects the increased sales
activity. Net cash used in operating activities for the year ended December 31,
1999, was approximately $1,578 and was generated primarily from depreciation and
amortization charges offset by increases in accounts receivable. Net cash used
in investing activities for the year ended December 31, 1999, was approximately
$17,436 which consisted primarily of $1,774 of cash used for acquisitions and
approximately $15,691 used for the purchase of property and equipment. Net cash
provided by financing activities for the year ended December 31, 1999, was
approximately $16,110 which included approximately $14,004 from net borrowings
and $2,107 from the issuance of Common Stock to former stockholders of certain
of the Acquired Companies in connection with earnout provisions.

       On August 13, 1997, the Company and Summit Bank entered into an Equipment
Facility and Revolving Credit Agreement in the amount of $30,000 (the "Credit
Facility"). On November 5, 1999, the Company and Summit Bank entered

                                      -26-

<PAGE>

into the Fourth Amendment to the Credit Facility which among other things,
extends the term of the Credit Facility through January 1, 2002. On December 31,
1999, approximately $22,324 was outstanding and $6,320 remained available under
the Credit Facility.

       Vestcom incurs postage costs on behalf of customers of approximately
$4,000 to $6,000 each month. Vestcom seeks to collect such postage costs from
its customers in advance. At December 31, 1999, Vestcom had postage advances
from customers in the amount of approximately $5,285 and had prepaid postage and
postage receivables of approximately $4,813. 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 $15,691 for property and equipment,
leasehold improvements and technology were made in 1999. These investments,
which were financed primarily by borrowings and vendor financing, relate to the
facility consolidations of certain of the Acquired Companies and the purchase of
supplemental production equipment to meet customer demands for business critical
documents. There are anticipated requirements for future capital expenditures in
2000, relating primarily to technology and the anticipated production equipment
needs of the business. At this time, these expenditures are estimated to be
approximately $10,000. 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.

Impact of the Year 2000 Issue

       Vestcom has not experienced any significant problems associated with year
2000 issues to date. Similarly, to management's knowledge, Vestcom's suppliers,
vendors and other third parties with whom Vestcom conducts business have not
experienced material year 2000 problems to date. However, the Company will
continue to monitor its systems throughout the first quarter of the year 2000.
Expenditures incurred by Vestcom to evaluate, test, repair and replace equipment
were approximately $1,100.

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, 1999, Vestcom's debt consisted of
approximately $13,005 of fixed-rate debt with a weighted average interest rate
of 8.4% and $19,923 of variable-rate debt, which consisted of a LIBOR sixty-day
loan entered into on December 30, 1999 for $16,000 at 7.4% and $3,923 of other
variable rate debt with a weighted average interest rate of 7.1%. The amount of
variable-rate debt fluctuates during the year based on Vestcom's cash
requirements; maximum borrowings at any quarter end during 1999 were $22,560. 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.

                                     -27-

<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, 1999 and 1998            F-2
Vestcom International, Inc. and Subsidiaries
       Consolidated Statements of Operations for the years ended
       December 31, 1999, 1998 and 1997                                     F-3
Vestcom International, Inc. and Subsidiaries
       Consolidated Statements of Stockholders' Equity
       for the years ended December 31, 1999, 1998 and 1997                 F-4
Vestcom International, Inc. and Subsidiaries
       Consolidated Statements of Cash Flows for the
       years ended December 31, 1999, 1998 and 1997                         F-5
Vestcom International, Inc. and Subsidiaries
       Notes to Consolidated Financial Statements                           F-6

<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, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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. 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, 1999 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.


ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 22, 2000

                                       F-1

<PAGE>



                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS                                                                        1999                1998
                                                                              ----                ----
<S>                                                                            <C>                 <C>
CURRENT ASSETS
Cash                                                                      $  1,458,613        $  4,248,451
Accounts receivable, net of allowance for
    doubtful accounts of $1,521,924 and $1,123,581 in 1999 and
    1998, respectively                                                      27,228,690          21,190,379
Supplies inventory                                                           5,369,750           4,476,122
Income Taxes Receivable                                                      2,287,582                   -
Prepaid expenses and other current assets                                    6,956,375           5,076,807
                                                                          ------------        ------------
                           Total current assets                             43,301,010          34,991,759

PROPERTY AND EQUIPMENT, at cost, net of
    accumulated depreciation and amortization                               37,518,273          27,576,892

GOODWILL, net                                                               77,894,965          79,192,856

OTHER ASSETS                                                                   665,345             782,729
                                                                          ------------        ------------

                           Total assets                                   $159,379,593        $142,544,236
                                                                          ============        ============
</TABLE>

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



<PAGE>

                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY                                                     1999           1998
                                                                                       ----           ----
<S>                                                                                    <C>            <C>
CURRENT LIABILITIES
Current portion of long term debt                                                  $  2,573,729   $    642,307
Current portion of capital lease obligations                                          2,847,647      1,689,238
Accounts payable                                                                     15,067,563     10,761,607
Accrued expenses                                                                     13,372,619     17,272,370
Income taxes payable                                                                          -        433,874
Other current liabilities                                                             1,575,385        447,155
                                                                                   ------------   ------------

                  Total current liabilities                                          35,436,943     31,246,551

LONG-TERM DEBT                                                                       21,950,879     12,847,319

CAPITAL LEASE OBLIGATIONS                                                             5,555,643      3,745,435

DEFERRED CHARGES & OTHER LIABILITIES                                                    549,344        457,693

DEFERRED INCOME TAXES                                                                 6,088,235      4,335,898
                                                                                   ------------   ------------

                  Total liabilities                                                  69,581,044     52,632,896
STOCKHOLDERS' EQUITY:
Preferred Stock:
  Class B, 1 share authorized, issued and outstanding at
     December 31, 1999 and December 31, 1998                                         2,651,867       2,651,867
  Class C convertible -0- shares, issued and outstanding at
     December 31, 1999 and 100 Shares authorized, issued and
     outstanding at December 31, 1998                                                        -              -
Common Stock, no par value; 20,000,000 shares authorized:
     9,056,806 shares issued and outstanding at December 31, 1999;
     8,788,590 shares issued and outstanding at December 31, 1998                   88,888,863     86,782,015
(Accumulated deficit) Retained earnings                                             (1,475,638)       857,367
Accumulated Other Comprehensive Loss                                                  (266,543)      (379,909)
                                                                                   ------------   ------------

                  Total stockholders' equity                                         89,798,549     89,911,340
                                                                                   ------------   ------------

                  Total liabilities & stockholders' equity                         $159,379,593   $142,544,236
                                                                                   ============   ============
</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 STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
                                                                    1999            1998              1997
                                                                    ----            ----              ----
<S>                                                               <C>             <C>              <C>
REVENUES                                                        $130,240,331    $108,675,572      $29,777,283
COST OF REVENUES                                                  87,502,261      68,793,382       18,317,401
                                                                ------------    ------------      -----------
          Gross Profit                                            42,738,070      39,882,190       11,459,882
SELLING, GENERAL & ADMINISTRATIVE EXPENSES                        38,942,640      30,955,177        8,789,000
RESTRUCTURING CHARGE AND OTHER NON-RECURRING CHARGES              (5,178,473)              -                -
                                                                ------------    ------------      -----------
         (Loss) income from operations                            (1,383,043)      8,927,013        2,670,882
                                                                ------------    ------------      -----------

OTHER INCOME (EXPENSE)
         Interest Expense                                         (2,269,200)       (796,251)        (660,607)
         Other Income                                                214,059         243,432          603,685
                                                                ------------    ------------      -----------
                                                                  (2,055,141)       (552,819)         (56,922)
         (Loss) income before (benefit) provision for
            income taxes                                          (3,438,184)      8,374,194        2,613,960
(BENEFIT) PROVISION FOR INCOME TAXES                              (1,105,179)      3,746,773        1,306,055
                                                                ------------    ------------      -----------

          Net (loss) income                                     $ (2,333,005)   $  4,627,421      $ 1,307,905
                                                                ============    ============      ===========

Net (loss) income per share-basic                               $      (0.26)   $       0.52      $      0.31
                                                                ============    ============      ===========

Net (loss) income per share - diluted                           $      (0.26)   $       0.52      $      0.29
                                                                ============    ============      ===========
</TABLE>

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

                                       F-3

<PAGE>

                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>


                                                   Common Stock                Preferred Stock         Subscriptions
                                             Shares           Amount         Shares       Amount         Receivable
                                             ------           ------         ------       ------         ----------
<S>                                          <C>                <C>           <C>         <C>              <C>
Balance At December 31, 1996               1,295,192        $ 5,481,501         -      $        -       $(279,082)
                                           =========        ===========      ====      ==========       =========
Shares Returned                             (170,856)        (1,363,745)        -               -               -
Shares Returned                              (54,656)          (436,255)        -               -               -
Initial Public Offering Net of
  Underwriting Discounts                   4,427,500         53,528,475         -               -               -
Issuance of Stock to Founding
  Companies, Net of Discount               2,852,111         24,555,061       301       2,651,867               -
Payment of Subscriptions
  Receivable                                       -                  -         -               -         279,082
Issuance of Common Stock in
  Connection with Acquisitions, Net
  of Discount                                134,520          2,464,560         -              -                -
Translation Adjustment                             -                  -         -               -               -
Net Income                                         -                  -         -               -               -
    Total Comprehensive Income                     -                  -         -               -               -
                                           ---------        -----------      ----      ----------       ---------
Balance at December 31, 1997               8,483,811         84,229,597       301       2,651,867               -
                                           =========        ===========      ====      ==========       =========
Issuance of Common Stock in
  Connection with Earnouts                   304,779          2,552,418      (200)              -               -
Translation Adjustment                             -                  -         -               -               -
Net Income                                         -                  -         -               -               -
    Total Comprehensive Income                     -                  -         -               -               -
                                           ---------        -----------      ----      ----------       ---------
Balance At December 31, 1998               8,788,590        $86,782,015       101      $2,651,867      $        -
                                           =========        ===========      ====      ==========       =========
Issuance of Common Stock in
  Connection with Earnouts                   268,216          2,106,848      (100)              -               -
Translation Adjustment                             -                  -         -               -               -
Net Income                                         -                  -         -               -               -
    Total Comprehensive Income                     -                  -         -               -               -
                                           ---------        -----------      ----      ----------       ---------
Balance At December 31, 1999               9,056,806        $88,888,863         1      $2,651,867      $        -
                                           =========        ===========      ====      ==========       =========
</TABLE>

<PAGE>

                           [RESTUBED TABLE FOR ABOVE]
<TABLE>
<CAPTION>
                                                  Retained         Accumulated
                                                  Earnings/           Other              Total           Compre-
                                                (Accumulated       Comprehensive      Stockholders'      hensive
                                                  Deficit)         Income (Loss)         Equity          (Loss)
                                                  --------        -------------          ------          ------
<S>                                                 <C>                <C>                <C>                <C>
Balance At December 31, 1996                   $ (5,077,959)      $         -         $   124,460      $         -
                                               ============       ===========         ===========      ===========
Shares Returned                                           -                 -          (1,363,745)               -
Shares Returned                                           -                 -            (436,255)               -
Initial Public Offering Net of
  Underwriting Discounts                                  -                 -          53,528,475
Issuance of Stock to Founding
  Companies, Net of Discount                              -                 -          27,206,928
Payment of Subscriptions
  Receivable                                              -                 -             279,082
Issuance of Common Stock in
  Connection with Acquisitions, Net
  of Discount                                             -                 -           2,464,560
Translation Adjustment                                    -           (83,584)            (83,584)         (83,584)
Net Income                                        1,307,905                 -           1,307,905        1,307,905
                                                                                                       -----------
    Total Comprehensive Income                            -                 -                   -        1,224,321
                                               ------------         ---------         -----------      ===========
Balance at December 31, 1997                     (3,770,054)          (83,584)         83,027,826
                                               ============         =========         ===========
Issuance of Common Stock in
  Connection with Earnouts                                -                             2,552,418                -
Translation Adjustment                                    -          (296,325)           (296,325)        (296,325)
Net Income                                        4,627,421                 -           4,627,421        4,627,421
                                                                                                       -----------
    Total Comprehensive Income                            -                 -                   -      $ 4,331,096
                                               ------------         ---------         -----------      ===========
Balance At December 31, 1998                   $    857,367         $(379,909)        $89,911,340
                                               ============         =========         ===========
Issuance of Common Stock in
  Connection with Earnouts                                -                 -           2,106,848
Translation Adjustment                                    -           113,366             113,366          113,366
Net Income                                      (2,333,005)                 -          (2,333,005)      (2,333,005)
                                                                                                       -----------
    Total Comprehensive Income                            -                 -                   -      $(2,219,639)
                                               ------------         ---------         -----------      ===========
Balance At December 31, 1999                   $(1,475,638)         $(266,543)        $89,798,549
                                               ============         =========         ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
                              of these statements.

                                       F-4

<PAGE>

                  VESTCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:                                       1999                1998                 1997
                                                                            ----                ----                 ----
<S>                                                                    <C>                 <C>               <C>
Net (loss) income                                                      $ (2,333,005)       $  4,627,421      $  1,307,905
Adjustments to reconcile net (loss) income to net cash provided
by operating activities-
         Depreciation and amortization                                    8,030,922           6,058,897         1,926,638
         Loss on disposal of equipment                                       45,798             176,796                 -
         Restructuring charges                                              628,669                   -                 -
Changes in operating assets (increase) decrease in-
         Accounts receivable                                             (5,253,475)         (2,408,887)       (1,271,591)
         Supplies inventory                                                (347,219)           (630,508)         (257,568)
         Prepaid expenses and other current assets                       (1,506,659)           (798,498)          942,222
         Other assets                                                       394,672             (93,408)         (277,160)
Changes in operating liabilities increase (decrease) in-
         Accounts payable                                                 3,060,134           4,065,253          (382,210)
         Accrued expenses                                                (4,425,315)          3,530,742         3,848,609
         Income taxes payable and other current liabilities              (1,873,390)         (1,188,715)          753,590
         Deferred charges & other liabilities                             2,000,919           1,925,181         1,681,842
                                                                       ------------        ------------      ------------

Net cash (used in) provided by operating activities                      (1,577,949)         15,264,274         8,272,277

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment                                   (15,691,264)        (11,604,831)       (2,130,356)
Proceeds from sale of assets                                                 29,825             161,225                 -
Acquisition of businesses, net of cash acquired                          (1,774,263)        (30,421,549)      (60,602,754)
Sale (purchase) of marketable securities                                          -           9,040,439        (9,040,439)
                                                                       ------------        ------------      ------------

Net cash used in investing activities                                 (17,435,702)        (32,824,716)      (71,773,549)

CASH FLOWS FROM FINANCING ACTIVITIES
Collection of subscriptions receivable                                            -                   -           279,082
Proceeds on borrowings                                                   44,119,444          30,963,889                 -
Payment of debt                                                         (30,115,845)        (19,957,536)      (10,892,500)
Issuances of common stock                                                 2,106,848           2,552,418        78,748,096
Issuances of preferred stock                                                      -                   -         2,651,867
                                                                       ------------        ------------      ------------

Net cash provided by financing activities                                16,110,447          13,558,771        70,786,545
Effects of exchange rates on cash balances                                  113,366            (296,325)          (83,584)
                                                                       ------------        ------------      ------------

NET (DECREASE) INCREASE IN CASH                                          (2,789,838)         (4,297,996)        7,201,689

CASH, beginning of period                                                 4,248,451           8,546,447         1,344,758
                                                                       ------------        ------------      ------------

CASH, end of period                                                    $  1,458,613        $  4,248,451      $  8,546,447
                                                                       ============        ============      ============

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Capital lease (restructured) obligation  incurred                         4,662,112          (4,054,104)       $1,155,456

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest                                                    1,968,791             775,028           638,179
Cash paid for income taxes                                                  357,477           3,324,054           729,224

</TABLE>

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

                                       F-5

<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"), was formed in September 1996 to create an international document
management service provider focusing on the creation, management and
distribution of business critical documents. The Company's primary strategy is
to remain a leading provider of business communications solutions and marketing
support services, supplying enhanced value to business critical information in
all phases of communications between businesses and their customers.

         On August 4, 1997, Vestcom consummated its initial public offering of
3,850,000 shares of its Common Stock at a price of $13.00 per share. The
Company's underwriters exercised in full an option to purchase an additional
577,500 shares of the Company's Common Stock at $13.00 per share to cover over
allotments of the initial public offering. The capital raised by this offering
was $53,528,475 net of underwriting discounts.

         The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated. The results of operations for the twelve
months ended December 31, 1997 are not indicative of the results for a full year
because the results of operations of the acquired Founding Companies (as defined
below) included herein are for the period from August 1, 1997 (the effective
date of acquisition for financial statement purposes) to December 31, 1997.

2. ACQUISITIONS:

         Concurrently with the consummation of the Company's initial public
offering, it acquired seven companies in the document management services
industry (collectively the "Founding Companies"). The aggregate consideration
paid by the Company to acquire the Founding Companies was, subject to working
capital adjustments, approximately $21.2 million in cash and 3,385,106 shares of
Vestcom Common Stock, (including amounts and shares issued in connection with
earnouts). These acquisitions were accounted for using the purchase method of
accounting and accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based upon the fair values at the date of
acquisition. For purposes of computing the estimated purchase price for
accounting purposes, the value of the shares issued simultaneously with the
initial public offering was determined using an estimated fair value of $11.05
per share, which represents a discount of 15% from the initial public offering
price of $13.00 due to restrictions on the sale and transferability of the
shares issued. For purposes of computing the estimated purchase price for
accounting purposes, the value of the shares issued in connection with earnout
payments made during 1998 and 1999 was determined using a discount factor of 15%
from the then current market price at the date of the earnout determination due
to restrictions on the sale and transferability of the shares issued. The
acquisitions resulted in goodwill of approximately $56 million which is being
amortized over 30 years, and is based on allocations of the purchase price to
the net assets acquired.

         On November 14, 1997, the Company acquired substantially all of the
assets of Rhode Island based New England Laser Printing, Inc. (now known as
Vestcom Rhode Island, Inc.). On December 15, 1997, the Company acquired the
stock of Moreau Promotional Services, Inc., (now known as Vestcom Ontario), an
Ontario corporation located in Toronto, Canada. The aggregate price paid for
these acquisitions was approximately $7,000,000 in cash and 134,520 unregistered
shares of Vestcom Common Stock, the fair market value of which was based on a
15% discount from the fair market value due to length and type of restrictions
in the purchase agreements. The estimated goodwill associated with these
acquisitions aggregated approximately $9,300,000. The above acquisitions were
accounted for using the purchase method of accounting and accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based upon the fair values at the date of acquisition.

         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. and in August 1998, the Company acquired substantially
all the assets of Graphic Technology Systems, Inc. In October 1998, the Company
acquired substantially all the assets of Manus Services Corporation.

                                       F-6

<PAGE>
         The aggregate price paid for these acquisitions including certain
earnout payments in 1999 and note payments made in 2000, was approximately $18
million in cash plus the Company issued 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. The estimated goodwill associated with these acquisitions aggregated
approximately $16.8 million. All the above acquisitions have been accounted for
as purchases.

         As of February 12, 1999, the Company acquired substantially all of the
assets of Conversion Printing Systems, Inc. ("CPS"). For the twelve months ended
December 31, 1998, CPS' revenues were approximately $8 million, of which
approximately sixty percent were derived from sales to Vestcom operating units.
The acquisition of CPS was accounted for as a purchase. The estimated goodwill
associated with this acquisition was approximately $1,600,000. The Founding
Companies combined with all of the subsequent acquisitions are referred to
herein as the "Acquired Companies".

         Set forth below is unaudited pro forma financial information for the
twelve months ended December 31, 1998 and 1997. The unaudited pro forma data
give effect to: (i) the acquisitions of the Founding Companies and all
subsequent acquisitions in 1997 and 1998; and (ii) compensation and other
adjustments for all transactions as if the transactions had occurred on January
1, 1998 and 1997, respectively. The acquisition of CPS in 1999 does not have a
significant impact on pro forma financial information due to the fact that a
majority of their revenues were derived from Vestcom prior to the acquisition.
Therefore, 1999 pro forma financial information is not presented. This
information is not necessarily indicative of the results the Company would have
obtained had these events actually then occurred or of the Company's future
results:
<TABLE>
<CAPTION>
                                                      Pro Forma               Pro Forma
                                                     Year Ended              Year Ended
                                                  December 31, 1998       December 31, 1997
                                                  -----------------       -----------------
                                              (Unaudited, in thousands, except per share data)
<S>                                                    <C>                    <C>
Revenues....................................           $118,453               $111,405
Income from operations......................           $  9,569               $  8,967
Net income..................................           $  5,030               $  4,734
Earnings per share:  basic..................           $    .56               $    .53
                       diluted..............           $    .56               $    .53
</TABLE>
3. 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, film, compact discs and micrographic
materials, and packaging materials. Supplies are valued at cost, which
approximates market with cost determined using the first-in-first-out method.

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.

                                       F-7

<PAGE>

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.

Revenue Recognition

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

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 are converted and also includes certain shares that are
contingently issuable. The following is the computation of earnings per share:
<TABLE>
<CAPTION>
                                                  For the Year Ended                 For the Year Ended
                                                  ------------------                 ------------------
                                                   December 31, 1999                  December 31, 1998
                                                   -----------------                  -----------------
                                                                   Per-Share                          Per-Share
Basic Earnings Per Share:                    (Loss)       Shares     Amount      Income      Shares     Amount
                                             ------       ------     ------      ------      ------     ------
<S>                                       <C>            <C>         <C>       <C>          <C>         <C>
Net (loss) income/weighted average
  shares outstanding                      $(2,333,005)   9,056,806   $(0.26)   $4,627,421   8,904,371   $0.52
                                          -----------    ---------   ------    ----------   ---------   -----
Diluted Earnings Per Share:
Net (loss) income/weighted average
  shares outstanding                      $(2,333,005)   9,056,806             $4,627,421   8,904,371
Goodwill adjustment on earnouts                                                $   (4,385)
Assumed earned shares by Acquired
  Companies                                                                                     66,245
Options                                                                                          3,887
                                          -----------    ---------   ------    ----------   ---------   -----
Net (loss) income/average weighted        $(2,333,005)   9,056,806   $(0.26)   $4,623,036   8,974,503   $0.52
                                          ===========    =========   ======    ==========   =========   =====
</TABLE>
                           [RESTUBED FOR TABLE ABOVE]
<TABLE>
<CAPTION>

                                                   For the Year Ended
                                                   ------------------
                                                    December 31, 1997
                                                    -----------------
                                                                      Per-Share
Basic Earnings Per Share:                      Income       Shares      Amount
                                               ------       ------      ------
<S>                                          <C>           <C>           <C>
Net (loss) income/weighted average
  shares outstanding                         $1,307,905    4,157,891     $0.31
                                             ----------    ---------     -----
Diluted Earnings Per Share:
Net (loss) income/weighted average
  shares outstanding                         $1,307,905    4,157,891
Goodwill adjustment on earnouts              $  (59,284)
Assumed earned shares by Acquired
  Companies                                                  149,383
Options                                                       34,092
                                             ----------    ---------     -----
Net (loss) income/average weighted           $1,248,621    4,341,366     $0.29
                                             ==========    =========     =====
</TABLE>

<PAGE>

         Options covering approximately 541,329, 126,164 and 18,294 shares of
Common Stock were not included in computing diluted earnings per share in 1999,
1998 and 1997, respectively, because their effects were antidilutive. Included
in this amount for 1999 were options covering 65,677 shares which were excluded
due to the net loss for 1999.

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 $113,366, ($296,325) and ($83,584) for
the years ended December 31, 1999, 1998 and 1997, respectively.

Comprehensive Income

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

                                      F-8

<PAGE>

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
intangibles or other long-lived assets may not be recoverable. To make this
evaluation, management uses an estimate of undiscounted net income over the
remaining life of the intangibles or other long-lived assets. Accumulated
amortization at December 31, 1999 and 1998 was $5,879,066 and $3,122,588
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, pharmaceutical,
health care, travel and leisure, publishing and software 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 8.

New Accounting Pronouncements

         In June 1999, the Financial Accounting Standards Board adopted SFAS No.
137, which agreed to defer, for one year, the effective date for Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS No.
133) which is now required to be adopted in years beginning after June 15, 2000.
SFAS No. 133 permits early adoption as of the beginning of any fiscal quarter
after its issuance. SFAS No. 133 will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The adoption of SFAS No. 133 will have no impact on the
Company's consolidated results of operations, financial position or cash flows.

Reclassifications

         Certain prior year amounts have been reclassified in order to conform
with the 1999 presentation.

4. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE:

The activity in the allowance for doubtful accounts and notes receivable 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, 1999
  Allowance for doubtful accounts             $1,123,581       $152,000        $725,401          $479,058          $1,521,924
Year Ended December 31, 1998
  Allowance for doubtful accounts             $  354.952       $625,413        $276,984          $133,768          $1,123,581
Year Ended December 31, 1997
  Allowance for doubtful accounts             $        -       $342,900        $ 16,000          $  3,948          $  354,952
</TABLE>

                                      F-9

<PAGE>
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Prepaid expenses and other current assets consist of the following at December
31:
<TABLE>
<CAPTION>
                                                                      1999            1998
                                                                      ----            ----
<S>                                                                     <C>           <C>
Prepaid postage....................................................$2,445,019    $  2,613,644
Postage receivable................................................. 2,368,040         582,353
Net deferred tax asset.............................................   363,290               -
Other    .......................................................... 1,780,026       1,880,810
                                                                   ----------    ------------
                                                                   $6,956,375    $  5,076,807
                                                                   ==========    ============

</TABLE>
6. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
                                                                                                    Estimated
                                                                                                   Useful Lives
                                                                     1999             1998           (Years)
                                                                     ----             ----           -------
<S>                                                                     <C>           <C>              <C>
Machinery, equipment and software................................  40,289,905      27,389,658          3-10
Furniture and fixtures...........................................   1,642,818         919,506            10
Leasehold improvements...........................................   4,224,571       3,770,685           2-7
                                                                 ------------    ------------
                                                                   46,157,294      32,079,849
Less - Accumulated depreciation
& amortization...................................................  (8,639,021)     (4,502,957)
                                                                 ------------    ------------
Property and equipment, net......................................$ 37,518,273    $ 27,576,892
                                                                 ============    ============
</TABLE>

Leased equipment under capital leases (included above) consists of the following
at December 31:
<TABLE>
<CAPTION>
                                                                     1999            1998
                                                                     ----            ----
<S>                                                                   <C>           <C>
Equipment........................................................$ 11,607,509    $  6,941,155
Less - Accumulated amortization..................................  (2,511,754)     (1,383,697)
                                                                 ------------    ------------
                                                                 $  9,095,755    $  5,557,458
                                                                 ============    ============
</TABLE>
         On January 1, 1999, the Company adopted Statement of Position ("SOP")
98-1, "Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use" issued by the American Institute of Certified Public Accountants.
SOP 98-1 requires that certain costs incurred in developing or obtaining
internal use software be capitalized and amortized over the useful life of the
software. Previously, the Company expensed most of these costs incurred. As of
December 31, 1999, the Company capitalized $1,209,878 in software costs. These
costs are amortized using the straight-line method over three years. Total
amortization expense (included above) for the year ended December 31, 1999, was
$201,646.

Depreciation and amortization expense on property and equipment charged to
operations for the years ended December 31, 1999, 1998 and 1997 was $5,274,444,
$3,624,950 and $1,237,997, respectively.

At December 31, 1999 minimum annual payments under capital leases are as
follows:
2000.............................................................$3,558,464
2001............................................................. 2,807,639
2002............................................................. 1,868,715
2003.............................................................   911,730
2004 and thereafter..............................................   558,930
                                                                 ----------
Total minimum payments........................................... 9,705,478
Less interest.................................................... 1,302,188
                                                                 ----------
Net minimum lease payments....................................... 8,403,290
Less - current portion of capital lease obligations.............. 2,847,647
                                                                 ----------
Long-term portion of capital lease obligations...................$5,555,643
                                                                 ==========

         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>

7. ACCRUED EXPENSES:

Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
                                                                      1999                 1998
                                                                      ----                 ----
<S>                                                               <C>                  <C>
Accrued payroll and payroll related expenses......................$ 2,377,399          $ 2,217,630
Accrued professional fees.........................................    749,242              387,501
Acquisition related liabilities...................................    205,345            5,593,047
Advanced postage..................................................  5,284,959            5,201,833
Other.............................................................. 4,755,674            3,872,359
                                                                  -----------          -----------
                                                                  $13,372,619          $17,272,370
                                                                   ==========          ===========
</TABLE>
8. DEBT:

Long-term obligations

Long-term obligations consist of the following:
<TABLE>
<CAPTION>
                                                            December 31, 1999     December 31, 1998
                                                            -----------------     -----------------
<S>                                                            <C>                   <C>
Revolving credit line (a)..............................        $19,923,020           $10,000,000

Notes payable to sellers of acquired companies
     with interest rates of 5% and final payment
     due March 31, 2001................................          1,912,500             1,150,000

Equipment loans payable to a bank at interest
     rates ranging from 6.53% to 7.70% with
     monthly payments and a final payment
     due June 2003 (a).................................          2,401,088             2,300,791

Notes payable to an equipment manufacturer at
     interest rates ranging from 1%-8.8% with final
     payment due December 2005 ........................            288,000                38,835
                                                               -----------           -----------
                                                                24,524,608            13,489,626
     Less current maturities...........................          2,573,729               642,307
                                                               -----------           -----------
                                                               $21,950,879           $12,847,319
                                                               ===========           ===========
</TABLE>
         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, 1999, maturities of long-term obligations are as follows:

Years Ending December 31:
2000..........................................................$ 2,573,729
2001..........................................................$ 1,151,417
2002..........................................................$20,609,999
2003..........................................................$   115,937
2004 and thereafter...........................................$    73,526
                                                               ----------
Total.........................................................$24,524,608
                                                              ===========

         (a) On August 13, 1997, the Company and Summit Bank entered into the
Equipment Facility and Revolving Credit Agreement in the amount of $30,000,000
(the "Credit Facility"). On November 5, 1999, the Company and Summit Bank
entered into the Fourth Amendment to the Credit Facility which among other
things, extends the term of the Credit Facility through January 1, 2002. The
interest rate is based on certain financial performance ratios plus a rate equal
to LIBOR or a Summit Bank alternate base rate which was 8.5% at December 31,
1999. 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

                                      F-11

<PAGE>

stated net worth. At December 31, 1999 there was approximately $2,401,088
outstanding related to equipment loans, $19,923,020 outstanding on the revolving
credit line and approximately $6,320,402 remained available under this Credit
Facility.

9. RESTRUCTURING AND OTHER NON RECURRING CHARGES:

         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. The plan was aimed at reducing the number of locations, consolidating
facilities and reducing personnel costs. The restructuring charge included (a)
facility closure and consolidation costs of $2,786,000, which relate to
estimated costs to close redundant facilities, lease costs and other costs
associated with closed facilities, and (b) personnel costs of $1,250,000 related
to severance due to closing/relocating certain operating facilities. In
addition, the Company incurred moving expenses of $1,142,000 related to various
relocations during the second and third quarters of 1999. During the fourth
quarter of 1999 the Company reversed $740,000 of previously provided
restructuring reserves no longer required due to the revision of certain
estimates. At December 31, 1999, the Company had approximately $1,643,000 of
accrued restructuring costs, included in other current liabilities and other
liabilities, on the balance sheet (including personnel costs of $422,000, and
facility closure costs of $1,221,000). The Company will review the adequacy
balances by the end of the second quarter of 2000.

10. STOCKHOLDERS' EQUITY:

         In March 1997, the Company filed a Restated Certificate of
Incorporation which modified the capital stock structure of the Company to
provide for 30 million shares, divided into 20 million shares of Common Stock
and 10 million shares of undesignated stock.

         In May and July, 1997, CIBC Oppenheimer Corp. (formerly named
Oppenheimer & Co., Inc. and referred to herein as "Oppenheimer") returned to
Vestcom an aggregate of 225,512 shares of Common Stock which was previously
issued.

         In July 1997, the Company filed an amendment to its Restated
Certificate of Incorporation which created 200 shares of Class A Convertible
Preferred Stock, 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 A shares were issued to certain former shareholders of
Electronic Imaging Services, Inc. and 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 A and Class C Convertible Preferred Stock
were issued pursuant to the earnout provisions of the applicable acquisition
agreements. The one share of Class B Preferred Stock was issued to selling
shareholders of a Canadian Founding Company and is equal to 239,988 shares of
Common Stock valued at $11.05 per share and has equal voting rights. In April
1998, in connection with a determination of the earnout for Electronic Imaging
Services, all of the outstanding shares of Class A Convertible Preferred Stock
were converted into shares of Common Stock. In March 1999, in connection with a
determination of the earnout for Vestcom Wisconsin all of the Class C Shares
were converted into shares of Common Stock.

         On August 4, 1997, Vestcom consummated its initial public offering of
3,850,000 shares of its Common Stock at a price of $13.00 per share. The
Company's underwriters exercised in full an option to purchase an additional
577,500 shares of the Company's Common Stock at $13.00 per share to cover over
allotments of the initial public offering.

         In April 1998, the Company issued 304,779 shares of Common Stock in
connection with a determination of earnouts for two of the Founding Companies.
In March 1999, the Company issued 228,216 shares of Common Stock in connection
with a determination of earnouts for a Founding Company and 40,000 shares of
Common Stock for an 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).

                                      F-12

<PAGE>

         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 expire on December 29, 2009, and can be
redeemed at $.01 per right at any time prior to becoming exercisable.

11. 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 Acquired
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 10,000 shares of Common Stock, and continuing non-employee directors
will receive an annual grant of options to purchase 5,000 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. Non-employee directors' options have a term of ten years from the date of
grant.

         Upon consummation of the acquisitions and the IPO, options covering an
aggregate of 286,150 shares of Common Stock were outstanding under the Stock
Option Plan including (i) options to purchase 10,000 shares of common stock
which were granted to each non-employee director, (ii) options to purchase
15,000 shares of common stock which were granted to a former director and
employee of the Company, and (iii) options to purchase an additional 231,150
shares of Common Stock which were granted to employees of the Company and its
subsidiaries. All of these options expire ten years after the date of grant
(except for one grant of an option to purchase 15,000 shares of Common Stock,
which will expire on January 2, 2001) and have an exercise price, subject to
adjustment, equal to the initial public offering price of the Common Stock in
the Offering. Such options will be exercisable annually in 25% increments
beginning with the first anniversary of the date of grant, except for the
options granted to non-employee directors which become fully exercisable one
year after the date of grant. In October 1997 an additional 115,000 options were
granted to officers of the Company. In November 1997, an additional 2,900
options were granted to employees.

         During 1998, options to purchase 252,800 shares of Common Stock, each
with an exercise price equal to the fair market value of the Common Stock on the
date of grant were granted. All of these options expire ten years after the date
of grant and are exercisable annually in 25% increments beginning with the first
anniversary of the date of grant, except for (i) options to purchase 30,000
shares of Common Stock granted to non-employee directors which become fully
exercisable one year after the date of grant, and (ii) an aggregate of options
to purchase 10,000 shares of Common Stock which were granted in October and
November, 1998, which are exercisable annually in 20% increments beginning with
the first anniversary of the date of grant.

         During 1999, options to purchase 401,200 shares of Common Stock, each
with an exercise price equal to the fair market value of the Common Stock on
the date of grant, were granted. All of these options expire ten years after the
date of grant and are exercisable annually in 20% increments beginning with the
first anniversary of the date of grant, except for options to purchase 25,000
shares of Common Stock granted to non-employee directors which become fully
exercisable one year after date of grant.

                                      F-13

<PAGE>
                                                 Options Outstanding
                                                 -------------------
                                                          Options Outstanding
                                           Shares      Weighted Average Exercise
                                                             Price Per Share
Balance at Inception                            -                $    -
Granted                                   404,050                 14.61
Exercised                                       -                    -
                                        ---------                ------
Balance at December 31, 1997              404,050                $14.61
                                        =========                ======
Granted                                   252,800                  9.49
Cancelled                                (100,000)                21.63
Forfeited                                 (45,400)                11.60
Exercised                                       -                     -
                                        ---------                ------
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
                                        =========                ======
Exercisable at December 31, 1999          196,726                $10.32
                                        =========                ======

         As of September 19, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation," was effective for the Company. 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 1999 at market
value was $2.02. The weighted average exercise price of options granted in 1999
at market value was $4.16.

         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:
                                   1999                 1998              1997
                                   ----                 ----              ----
Risk-Free Interest Rate            5.6%                 5.7%              6.5%
Expected Lives                     7-10 years           7-10 years      10 years
Expected Volatility                22.3%                32.8%             23.0%

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

                                Number of            Weighted
                                 Options             Average
                                Outstanding          Remaining      Weighted
                              at December 31,      Contractual       Average
Range of Exercise Price            1999            Life (years)   Exercise Price
-----------------------       ---------------      ------------   --------------
$2.88-$5.38                        362,500             9.45          $ 4.03
$7.38-$10.13                       197,200             8.59            9.12
$13.00-$18.88                      185,850             7.40           13.54
                                   -------             ----          ------
                                   745,550             8.71          $ 7.75
                                   =======             ====          ======

         Had compensation expense for all stock options granted in 1999, 1998
and 1997 been determined consistent with SFAS No. 123, the Company's net income
and income per share would have been as follows:
<TABLE>
<CAPTION>
                                                             1999                1998           1997
                                                             ----                ----           ----
<S>                        <C>                           <C>                  <C>            <C>
Net (Loss) Income:                As Reported                   $(2,333,005)         $4,627,421     $1,307,905
                                  Pro Forma                     $(3,152,081)         $3,928,865     $1,116,821
Net (Loss) Income Per Share:      As Reported - basic           $      (.26)         $      .52     $      .31
                                  Pro Forma - basic             $      (.35)         $      .44     $      .27
                                  As Reported - diluted         $      (.26)         $      .52     $      .29
                                  Pro Forma - diluted           $      (.35)         $      .44     $      .24
</TABLE>

                                      F-14

<PAGE>

         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.

12. EMPLOYEE BENEFIT PLANS:

         Certain of the acquired U.S. companies had qualified defined
contribution employee benefit plans (the "Plans"), the majority of which allowed
for voluntary pretax contributions by employees. The operating companies paid
all general and administrative expenses of the Plans and in some cases, the
operating companies made matching and discretionary contributions to the Plans.

         Effective on January 1, 1998, the Company established a new defined
contribution 401K plan and merged all of the U.S. companies' plans into the
newly adopted plan. Substantially all employees are eligible to participate in
the plan 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, 1999 and 1998
was $516,868 and $419,047, respectively.

13. INCOME TAXES:

The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
                        Year Ended                 Year Ended                 Year Ended
                        -----------                -----------                ----------
                     December 31, 1999          December 31, 1998          December 31, 1997
                     -----------------          -----------------          -----------------
<S>                     <C>                        <C>                         <C>
     Federal            $(1,087,851)               $3,060,007                  $1,012,191
       State                (17,328)                  686,766                     293,864
                        -----------                ----------                  ----------
                        $(1,105,179)               $3,746,773                  $1,306,055
                        ============               ==========                  ==========
</TABLE>
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, 1999           December 31, 1998          December 31, 1997
                                    -----------------           -----------------          -----------------
<S>                                  <C>                           <C>                        <C>
Tax (benefit) at statutory rate      $(1,168,983)                 $2,847,226                  $  888,746
State income taxes                       (11,436)                    453,266                     193,950
Non deductible expenses
  (primarily goodwill)                   725,397                     723,079                           -
Other                                   (650,157)                   (276,798)                    223,359
                                     -----------                  ----------                  ----------
                                     $(1,105,179)                 $3,746,773                  $1,306,055
                                     ===========                  ==========                  ==========
</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.

                                      F-15

<PAGE>

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

                                                           December 31,
                                                           ------------
Deferred tax assets                                    1999              1998
                                                       ----              ----
     Allowance for doubtful accounts                $  172,068        $  270,605
     Restructuring                                     657,774                 -
                                                    ----------        ----------
Total deferred tax assets                              829,842           270,605
Deferred tax liabilities
     Accumulated depreciation                        4,995,596         3,245,979
     Cash to accrual differences                       387,417           717,542
     Goodwill                                          506,430           208,058
     Other                                             665,344           494,444
                                                    ----------        ----------
Total deferred liabilities                           6,554,787         4,666,023
                                                    ----------        ----------
Net deferred liability                              $5,724,945        $4,395,418
                                                    ==========        ==========

         Included in other current assets at December 31, 1999 was $363,290,
which represented the current portion of net deferred income tax assets. At
December 31, 1998, $59,520 was included in other current liabilities which
represented the current portion of net deferred income tax liabilities.

14. LEASE COMMITMENTS

         The Company and its subsidiaries lease various office buildings,
machinery, equipment, and vehicles under operating leases expiring at various
dates through 2004. 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
------------------------                                           -----------
2000...............................................................$ 6,073,000
2001...............................................................  5,126,000
2002...............................................................  4,177,000
2003...............................................................  3,609,000
2004 and thereafter................................................  4,210,000
                                                                   -----------
Total minimum lease payments.......................................$23,195,000
                                                                   ===========

         Rent expense for all operating leases for the twelve months ended
December 31, 1999, 1998 and 1997 was approximately $6,265,000, $5,600,000 and
$1,436,000 respectively.

15. RELATED-PARTY TRANSACTIONS:

Leasing Transactions

         Joel Cartun, Vestcom's Chairman of the Board, has a fifty percent
interest in the partnership which owns the property previously used by Vestcom
and Vestcom Mid-Atlantic, Inc. ("VMA") in Lyndhurst, New Jersey. The partnership
leases the property to VMA, pursuant to a lease which expires in 2001. VMA's
related party rent expense for this property for the years ended December 31,
1999 and 1998 was $720,210 and $397,000, respectively, and for the period from
August 1, 1997 to December 31, 1997 was $232,000 which the Company believes to
be the fair market rental value of the property.

         Gary Marcello, a greater than five percent shareholder of Vestcom, owns
interests ranging from seventy-five percent to one hundred percent in the
partnerships which own the properties previously leased by VMA in Dover, New
Jersey and previously leased in Scranton, Pennsylvania. VMA's related party rent
expenses for these properties for the years ended December 31, 1999 and 1998 was
$280,435 and $605,000, respectively, and for the period from August 1, 1997
through December 31, 1997 was $286,000. Pursuant to a written agreement with the
owners, these lease obligations ceased in August 1999.

         Two officers of Image Printing Systems, Inc. (now known as Vestcom
Wisconsin, Inc.) ("Vestcom Wisconsin"), own the property leased to and used by

                                      F-16

<PAGE>

Vestcom Wisconsin, in Milwaukee, Wisconsin. The lease will expire in 2002
subject to an option to renew the lease for an additional five years. Vestcom
Wisconsin's related party rent expense for these properties for the years ended
December 31, 1999 and 1998 was $236,800 and $222,000, respectively; and for the
period from August 1, 1997 to December 31, 1997 was $94,000 inclusive of
building operating costs. The rent payable by Vestcom Wisconsin under the lease
is $225,000 per year, triple net, which the Company believes to be the fair
market rental value of the property.

16. COMMITMENTS AND CONTINGENCIES:

Litigation

         On December 17, 1999, Vestcom commenced an action in the United States
District Court for the District of New Jersey against Mr. Harish K. Chopra and
two entities controlled by him, Time Trust, Inc. and R-Squared Limited
(collectively, the "Chopra Group"). Vestcom alleged the Schedule 13D filed by
the Chopra Group violated Section 13(d) of the Securities Exchange Act of 1934,
as amended, and that the Chopra Group's solicitation activities violated the
Williams Act. On January 6, 2000, the Chopra Group filed a counterclaim
challenging the enforceability of the Shareholder Rights Protection Agreement
adopted by the Company's Board of Directors on December 16, 1999. On February
22, 2000, the Chopra Group filed a motion to dismiss Vestcom's claims and for
summary judgment on their counterclaims. The Company intends to continue
pursuing this litigation, and cannot predict the outcome. However, management
believes that this litigation will not have a material adverse effect on the
financial position or results of operations of the Company.

         In addition, 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. Pursuant to that agreement, Vestcom is obligated
to pay CIBC World Markets $25,000 each calendar quarter for such services. In
1999, Vestcom paid $25,000 to CIBC World Markets under this agreement. In
December 1999, Vestcom entered into another agreement with CIBC World Markets
pursuant to which the Company agreed to pay $25,000 for services rendered in
connection with the Company's adoption of its shareholder protection rights
plan. This amount will be paid in 2000. 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
employment agreements provide that, in the event of a termination of employment
by the Company without cause, such employee will be entitled to receive from the
Company an amount in cash equal to the employee's then current annual base
salary for the remainder of the term. 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.

                                      F-17


<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 2000 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 2000 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 2000 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 2000 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.

                                      -28-
<PAGE>


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

2.1  --        Agreement and Plan of Reorganization, dated as of February 28,
               1997, by and among Vestcom International, Inc., Computer Output
               Acquisition Corp., Computer Output Systems, Inc. and the
               Stockholders named therein, is incorporated by reference to
               Exhibit 2.1 to Vestcom's Registration Statement on Form S-1 (no.
               333-23519).

2.2  --        Agreement and Plan of Reorganization, dated as of February 28,
               1997, by and among Vestcom International, Inc., Comvestrix
               Acquisition Corp., Comvestrix Corp. and the Stockholders named
               therein, is incorporated by reference to Exhibit 2.2 to Vestcom's
               Registration Statement on Form S-1 (no. 333-23519).

2.3  --        Agreement and Plan of Reorganization, dated as of February 28,
               1997, by and among Vestcom International, Inc., Electronic
               Imaging Acquisition Corp., Electronic Imaging Services, Inc. and
               the Stockholders named therein, is incorporated by reference to
               Exhibit 2.3 to Vestcom's Registration Statement on Form S-1 (no.
               333-23519).

2.4  --        Agreement and Plan of Reorganization, dated as of February 28,
               1997, by and among Vestcom International, Inc., Imaging Printing
               Acquisition Corp., Image Printing Systems, Inc. and the
               Stockholders named therein, is incorporated by reference to
               Exhibit 2.4 to Vestcom's Registration Statement on Form S-1 (no.
               333-23519).

2.5  --        Agreement and Plan of Reorganization, dated as of February 28,
               1997, by and among Vestcom International, Inc., Direct Mail
               Services Acquisition Corp., Quality Control Printing Acquisition
               Corp., First Class Presort Acquisition Corp., Morris County
               Direct Mail Services, Inc., Quality Control Printing, Inc., First
               Class Presort, Inc. and the Stockholders named therein, is
               incorporated by reference to Exhibit 2.5 to Vestcom's
               Registration Statement on Form S-1 (no. 333-23519).

2.6  --        Agreement and Plan of Reorganization, dated as of February 28,
               1997, by and among Vestcom International, Inc., Mystic Graphic
               Acquisition Corp., Mystic Graphic Systems, Inc. and the
               Stockholders named therein, is incorporated by reference to
               Exhibit 2.6 to Vestcom's Registration Statement on Form S-1 (no.
               333-23519).

2.7  --        Share Purchase Agreement dated March 10, 1997 by and among
               Vestcom International, Inc., LIRPACO Acquisition Corp., LIRPACO
               Inc. and the Stockholders named therein, is incorporated by
               reference to Exhibit 2.7 to Vestcom's Registration Statement on
               Form S-1 (no. 333-23519).

2.8  --        Asset Purchase Agreement, dated as of January 20, 1998, by and
               among Vestcom International, Inc., Creative Data Services, Inc.,
               DB Acquisition, Inc., d/b/a Business Mail Express and certain
               other parties, is incorporated by reference to Vestcom's Current
               Report on Form 8-K dated February 4, 1998.



                                      -29-
<PAGE>

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.

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 --        Letter Agreement, between Oppenheimer & Co., Inc. and Vestcom
               International, Inc., is incorporated by reference to Exhibit 10.8
               to Vestcom's Registration Statement on Form S-1 (no. 333-23519).

10.5 --        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.

10.6 --        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).



                                      -30-
<PAGE>

10.7  --       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.

10.8  --       Change in Control Agreement, dated January 1, 1999, between
               Vestcom International, Inc. and Sheryl Bernstein Cilenti.

10.9  --       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.

10.10 --       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.

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

23.1  --       Consent of Arthur Andersen LLP.

24.1  --       Power of Attorney.

27.1  --       Financial Data Schedule.

               (b)  Reports on Form 8-K

               On December 17, 1999, Vestcom filed a Current Report on Form 8-K
               pertaining to the adoption of its Shareholder Protection Rights
               Agreement on December 16, 1999.



                                      -31-
<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, 2000                 VESTCOM INTERNATIONAL, INC.


                                         By: /s/ Joel Cartun
                                             ---------------------------------
                                             Joel Cartun
                                             Chairman of the Board and Chief
                                             Executive 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, Chief Executive Officer and Director            March 28, 2000
--------------------------------
Joel Cartun



/s/ Brendan Keating*                   President, Chief Operating Officer and Director           March 28, 2000
--------------------------------
Brendan Keating


/s/ Stephen R. Bova*                   Director                                                  March 28, 2000
--------------------------------
Stephen R. Bova


/s/ Leonard J. Fassler*                Director                                                  March 28, 2000
--------------------------------
Leonard J. Fassler


/s/ Fred S. Lafer*                     Director                                                  March 28, 2000
--------------------------------
Fred S. Lafer


/s/ Robert J. Levenson*                Director                                                  March 28, 2000
--------------------------------
Robert J. Levenson


/s/ Richard D. White*                  Director                                                  March 28, 2000
--------------------------------
Richard D. White


/s/ Michael D. Helfand*                Executive Vice President, Chief Financial                 March 28, 2000
--------------------------------       Officer and Treasurer (Principal Financial and
Michael D. Helfand                     Accounting Officer)



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

</TABLE>

                                      -32-