SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


(Mark One)

|X|            ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
               EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996                    OR

|_|            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 1-13858

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.
                     --------------------------------------
             (Exact name of registrant as specified in its charter)

 Delaware                                            13-3245865
-----------------------                     ------------------------------------
(State of Incorporation)                    (I.R.S. Employer Identification No.)

2150 E. Lake Cook Road                                      60089-1877
Buffalo Grove, Illinois                                     ----------
----------------------------------------                    (Zip Code)
(Address of principal executive offices)


        Registrant's telephone number, including area code (847) 793-7500


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

Title of each class                    Name of each exchange on which registered
-------------------                    -----------------------------------------
Common Stock, par value $.01 per share       New York Stock Exchange, Inc.


        Securities registered pursuant to Section 12(g) of the Act: None.

      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

      The  aggregate  market  value of the  registrant's  voting  stock  held by
non-affiliates  of  the  registrant  as of  March  17,  1997  was  approximately
$84,010,463.

      As of March 17,  1997,  the  number of shares  outstanding  of each of the
registrant's classes of common stock is as follows:

Title of each class                                 Number of Shares Outstanding
-------------------                                 ----------------------------
Common Stock, par value $.01 per share                       33,471,000

Documents incorporated by reference                             Part
-----------------------------------                             ----
Proxy Statement for the Annual Meeting of                        III
Stockholders to be held on May 29, 1997
<PAGE>

                                TABLE OF CONTENTS


                                                                            Page

PART I    .................................................................... 2
Item 1.   Business............................................................ 2
Item 2.   Properties......................................................... 18
Item 3.   Legal Proceedings.................................................. 20
Item 4.   Submission of Matters to a Vote of Security Holders................ 20

PART II   ................................................................... 21
Item 5.   Market for Registrant's Common Equity and Related Stockholder
          Matters............................................................ 21
Item 6.   Selected Financial Data............................................ 21
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations.............................................. 23
Item 8.   Financial Statements and Supplementary Data........................ 30
Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure............................................... 30

PART III .................................................................... 31
 Item 10. Directors and Executive Officers of the Registrant................. 31
 Item 11. Executive Compensation............................................. 31
 Item 12. Security Ownership of Certain Beneficial Owners and Management..... 31
 Item 13. Certain Relationships and Related Transactions..................... 31

PART IV  .................................................................... 32
Item 14. Exhibits, Financial Statements, Financial Statement Schedule, and
         Reports on Form 8-K..................................................32




<PAGE>

                                     PART I


Item 1.  Business

General

         BT Office  Products  International,  Inc. ("BT Office  Products" or the
"Company") is a leading  full-service  distributor of office  products,  serving
primarily  medium- and large-sized  businesses and institutions in major markets
in both the United  States and Europe.  The Company  offers its customers a full
range  of  office  products,   including  traditional  office  supplies,  office
furniture,  computer  supplies and  accessories,  copiers and office  equipment,
business forms and advertising specialty and promotional products. In the United
States, the Company services over 40 major business markets through 25 sales and
distribution centers and 55 branch sales offices in 33 states as of February 28,
1997.  In Europe,  the Company is the largest  office  products  distributor  in
Germany and one of the leading office products  distributors in The Netherlands,
Sweden and the United  Kingdom.  The  Company  also  serves  markets in Austria,
Italy,  and  Switzerland  through  licensed  dealers for its "Classic"  brand of
office supplies.

         BT  Office   Products  has  developed  and  implemented  an  integrated
full-service approach to serving the office products needs of its customers.  In
contrast to traditional  contract  stationers,  who provide limited  services to
customers  and  keep a  smaller  number  of  items in  stock  while  relying  on
wholesalers to produce  catalogues and maintain  inventory,  BT Office  Products
operates large regional  distribution  facilities,  purchases  products directly
from  manufacturers  whenever possible and offers a wide variety of products and
high levels of customer service.

Company History

  Background

         In 1984,  Buhrmann-Tetterode  NV  ("BT"),  a large  Dutch  graphic  and
business systems,  packaging  manufacturing and paper distribution company and a
predecessor of NV Koninklijke KNP BT ("KNP BT"),  established BT Office Products
International,  Inc. (then known as BT USA,  Inc.) as a holding  company for its
United States  operations  (the "Holding  Company").  Between 1984 and 1995, the
Holding  Company  operated  certain  packaging  manufacturing   businesses  (the
"Packaging  Businesses")  and certain other businesses in the United States and,
between 1987 and 1995, operated BT's United States office products  distribution
business.

         During the  mid-1980's,  BT  conducted  a  strategic  survey of various
related  distribution  businesses.  Based  on the  results  of this  survey,  BT
determined that the office products  distribution  business in the United States
was undergoing  significant  changes and that an opportunity  existed to acquire
one or more independent  contract stationers in major metropolitan  markets and,
through the  coordination  and  integration  of such  acquisitions,  to build an
office  products  distribution  business.  As a result,  in 1987, BT commenced a
series of acquisitions of office products distribution  businesses in the United
States  and  Europe  that  are  described  below.  See  "--United   States"  and
"--Europe."

         In 1990, BT established a separate division  headquartered in Amsterdam
to administer its office products  distribution  businesses in the United States
and Europe (the "Office Products  Division").  In March 1993, BT merged with two
other large companies with headquarters in The Netherlands, NV Koninklijke KNP


                                       -2-

<PAGE>



("KNP")  and VRG  Groep NV  ("VRG"),  to form KNP BT. As a  result,  the  Office
Products Division became a division of KNP BT.

         On June 30, 1995, KNP BT and the Holding  Company  effected a series of
transactions  (collectively,  the  "Reorganization")  in order to reorganize the
legal ownership of various of their  businesses and to recapitalize  the ongoing
office products  distribution  business which now  constitutes  the Company.  In
anticipation  of the  Reorganization,  the  headquarters  of the Office Products
Division was  transferred  from Amsterdam to the Chicago area in August 1994. In
connection  with  the  Reorganization,   the  Packaging   Businesses  and  other
non-office  products  assets and  liabilities  were  transferred  by the Holding
Company to KNP BT, the  European  Businesses  and Kelly  Paper  (each as defined
below)  were  transferred  by KNP BT to the Holding  Company,  and KNP BT made a
capital  contribution  of $118.0  million (the  "Capital  Contribution")  to the
Holding  Company.  As a result of the  Reorganization,  the Holding  Company was
recapitalized  to constitute the Company,  which now owns and manages all of KNP
BT's office products distribution businesses worldwide.

         In July 1995,  the Company  completed the sale of 10,000,000  shares of
common stock of the Company, par value $.01 per share (the "Common Stock"), at a
price of $11.50 per share in an initial public offering (the "Offering").  After
the  Offering,  KNP BT  beneficially  owns  approximately  70% of the  Company's
outstanding  common stock.  The net proceeds  received from the Offering,  after
underwriting discounts and commissions and costs related to the Offering and the
Reorganization  ("Net  Proceeds") were $98.4 million.  Of the Net Proceeds,  the
Company used $65.8 million to repay, in full, non-interest-bearing advances from
affiliates  made in 1994 and 1995 to finance several  acquisitions.  The Company
used the remaining  Net Proceeds to reduce  outstanding  indebtedness  under the
interest-bearing  advances  from  affiliates  made to the  Company  for  working
capital and other general corporate purposes.

   United States

         The Company entered into the office products  distribution  business in
the United States in September 1987 through the acquisition of a 70% interest in
Summit Office Supply, Inc. ("BT Summit"), a contract stationer based in New York
City serving the New York metropolitan  area. In 1989, the Company acquired M.S.
Ginn Company and Publix Office Supply, Inc. which served the Washington D.C. and
Chicago  metropolitan  areas,  respectively,  and through  their sales  offices,
certain  other  contiguous  markets.  Also in 1989,  the  Company  acquired  the
remaining 30% interest in BT Summit.

         The Company  expanded its United States  operations by entering the St.
Louis and Pittsburgh  metropolitan  markets in 1990 through its  acquisitions of
Buschart Office Products,  Inc. and E.W. Curry Company, Inc.,  respectively.  In
1991, the Company acquired Redwood Office Products,  Inc., a contract  stationer
operating in the San Francisco/San  Jose/Oakland metropolitan area, and expanded
its St. Louis  operations  through its  acquisition of certain net assets of L&J
Enterprises, Inc., a contract stationer based in Little Rock, Arkansas. In 1992,
the Company acquired Miller Business Systems,  Inc., a contract  stationer based
in Arlington,  Texas with operations in the Austin,  Dallas/Fort Worth,  Houston
and San  Antonio,  Texas  metropolitan  areas.  The Company  also  expanded  its
Washington,  D.C.  operations  through  its  acquisition  in 1993 of certain net
assets of Chas. G. Stott & Co.,  Inc., a contract  stationer  based in Landover,
Maryland.

         In 1993, as a result of the merger of BT with KNP and VRG,  Kelly Paper
Company  ("Kelly  Paper"),  a  subsidiary  of  VRG  prior  to  the  merger,  was
transferred to the Office Products Division.  Kelly Paper,  headquartered in Los
Angeles,  California,  operates a wholesale  cash and carry  printing  paper and
supplies business primarily for small commercial printers in California, Arizona
and Nevada.



                                       -3-

<PAGE>



         In 1994,  the Company  entered the Los Angeles,  Portland  (Oregon) and
Phoenix,  and  Tampa/St.  Petersburg  metropolitan  area  markets  by  acquiring
Paramount  Stationers,  Inc.,  Far West Office  Systems,  Inc.,  and Ross Office
System Supply,  Inc.,  respectively.  The Company also expanded its Houston, St.
Louis, and San Francisco/San  Jose/Oakland  metropolitan area operations through
the  acquisitions  of  Northwest  Stationers  & Supply,  Inc.,  Business  Supply
Centers, Inc. and Kielty & Dayton, Incorporated, respectively.

         In 1995, the Company entered the Columbus (Ohio), Indianapolis, Boston,
Minneapolis  and Detroit  metropolitan  areas  through the  acquisitions  of the
Continental  Office Supply Division of Continental  Office  Furniture and Supply
Corporation,  Stationers,  Inc., Monroe Stationers and Printers,  Inc., Business
Essentials, Inc., and Miles Fox Company, respectively. Additionally, in 1995 the
Company  entered the Denver  metropolitan  area through the acquisition of Metro
Office Products and subsequently expanded its Denver area operations through the
acquisition of Stone Business  Products,  Inc. in Colorado Springs.  The Company
also entered the Atlanta metropolitan area through a "greenfield" operation.

         In  1996,  the  Company  entered  the  Albuquerque,  Greensboro  (North
Carolina),  Philadelphia, Orlando and Davenport (Iowa) metropolitan area markets
through the acquisitions of General Office Supply Company, Mitchell-Dixon Office
Supply,  Inc., C.B. Kershner,  Inc., Crown Office Products,  Inc. and the office
supply  division of The Fidlar Company,  respectively.  The Company also entered
the Columbia (South Carolina), Miami/West Palm Beach, Jacksonville and San Diego
metropolitan  area markets through the acquisitions of McWaters,  Inc., Tucker &
Johnson,  Inc., Kight's Printing & Office Products,  Inc. and Apollo Stationers,
Inc.,  respectively.  In addition,  the Company  expanded its Washington,  D.C.,
Cleveland,  St. Louis,  Davenport and Minneapolis  metropolitan  area operations
through the  acquisitions of Office  Outfitters,  Inc.,  Ossco Office  Products,
Inc., Business Essentials,  Inc., Morris Sanford Company and Marx & Brown Office
Supplies  Ltd,  respectively.  The Company also  expanded its Portland  (Oregon)
metropolitan  area operations  with the  acquisitions of Total Office Products &
Printers, Inc. and Henderson's Business Machines, Inc.

         In February  1997, the Company  organized its United States  operations
into the  following  eight  geographical  regions and Kelly Paper:  New England,
Northeast,  Mid-Atlantic,  Midwest, Great Lakes, South-Southeast,  Northwest and
West-Southwest.

   Europe

         BT entered into the office products  distribution business in Europe in
1989 through the  acquisition of  Copygraphic  plc  ("Copygraphic"),  a contract
stationer  based in London,  England.  In 1990,  BT  acquired a 40%  interest in
Bierbrauer  + Nagel GmbH & Co. KG and  certain  related  companies  ("B+N"),  an
office products dealer in Stuttgart, Germany.

         Effective January 1, 1992, the office supply operations of Robert Horne
plc, a paper  merchanting  company in the United Kingdom which had been acquired
by BT in 1990, were transferred to Copygraphic. Copygraphic further expanded its
operations  in the United  Kingdom in 1993 by  acquiring  Jockelson  White & Co.
Limited, a London-based office products dealer.

         Operations in Germany were expanded in 1993 through the acquisitions of
Hartmann & Cie GmbH & Co. KG, a contract stationer based in Frankfurt, including
Classic  Burobedarf  Vertriebs  GmbH,  the  company  that  operates  the Classic
licensing  business;  Wurth Burobedarf + Organisation GmbH, a contract stationer
based  in  Bingen;  Georg  Steinmetz GmbH, a contract stationer based in Worms


                                       -4-

<PAGE>



(collectively, "Hartmann/Wurth"); and BVZ Buroversorgungszentrum GmbH ("BVZ"), a
company that operates a modern 70,000 square foot  distribution  center  located
near Frankfurt.

         In 1994,  KNP BT increased its  beneficial  ownership in B+N to 100% by
purchasing an additional 36% of the equity and entering into a binding agreement
to purchase  the  remaining  24% equity  interest by no later than  December 31,
1997.

         In 1994, KNP BT also transferred its wholly-owned subsidiaries, Veenman
Kantoormachines  B.V., Repro Copiers Nederland B.V., Direct Dealer Services B.V.
and Veenman Office Management B.V. (collectively,  the "Veenman Group"; together
with Copygraphic, B+N and Hartmann/Wurth,  the "European Businesses"), which had
previously been included within its Information Systems Division,  to the Office
Products  Division.   The  principal  business  of  the  Veenman  Group  is  the
distribution of copiers,  office machines and related services and supplies, and
office products in The Netherlands.

         In 1996,  the Company has  expanded its German  operations  through the
acquisitions  of Cohn  Kopiertechnik  GmbH in Heilbronn,  Nett GmbH ("Nett") and
Service-Partner  Gesellschaft fur moderne Burokommunikation GmbH in Koblenz, the
Keller + Roth group of companies (the "Keller + Roth Group") in the  Dusseldorf,
Wuppertal and Essen areas, and bax Burosysteme  Vetriebsgesellschaft mbh ("Bax")
in the Munich area. In addition,  the Company entered the Swedish market through
the  acquisition  of the  Vinbogen I Boras AB group of  companies  ("Bjorsell").
Effective  as of  December  31,  1996,  the  Company  expanded  its  Netherlands
operations  through the  acquisition of Kuipers  Centrum voor  Kantoorefficiency
B.V. ("Kuipers").

Growth Strategy

         The  Company's  strategy is to increase its business by: (i)  expanding
the scope of its  operations,  primarily  through  acquisitions  of  substantial
office  products  distributors in major  metropolitan  markets in Europe and the
United States where it does not currently  have  operations and to make selected
add-on acquisitions;  (ii) leveraging its international capabilities in order to
grow its business in Europe;  (iii)  focusing  its sales  efforts on gaining new
customers  and (iv)  increasing  sales of  products  and  services  to  existing
customers  by  effective  utilization  of  value-added  services  offered by the
Company.

   Expansion by Acquisition

         Since 1987,  the Company  (including  its  predecessors)  has  acquired
numerous office products companies in the United States and Europe. See "Company
History." The Company will continue to seek attractive acquisition candidates in
additional major  metropolitan  markets in Europe and the United States.  In the
event that the Company cannot acquire an attractive  substantial office products
supplier at a reasonable price in a major  metropolitan  market that the Company
believes  would be  desirable  to enter,  the  Company  may begin a start-up  or
"greenfield" operation in such market.

         The Company has  demonstrated in its previous  acquisitions  that it is
able to integrate  acquired  companies  into its business in a relatively  short
period of time and  believes  that it will be able to  similarly  integrate  new
acquisitions in the future.  The Company believes that it has been successful in
building  its  business  through  acquisitions  as a result of its  practice  of
retaining  existing senior management,  whenever possible,  to continue to focus
the acquired  companies on local market  conditions  and customer  needs,  while
centralizing  administrative  functions,  merchandising,  purchasing and systems
development to achieve cost savings  through  economies of scale and scope.  The
Company  believes  that its practice of retaining  management is an advantage in
competing against other potential acquirers when seeking to acquire high-quality
contract stationers.  The integration of acquired businesses may, however,  lead



                                       -5-

<PAGE>



to the  loss  of key  employees  of the  acquired  companies  and  diversion  of
management attention from other ongoing business concerns.

         In  metropolitan  markets in which the Company does not currently  have
operations,  the  Company  generally  seeks to  acquire a  traditional  contract
stationer  serving medium- and large-sized  customers,  with  significant  sales
levels  relative to the size of such market and with an  experienced  management
team  that  the  Company  believes  it  will be able  to  retain  following  the
acquisition. The Company believes that the continued expansion of its operations
through  acquisitions,  together with the integration of such acquired companies
into the  Company,  will create cost  savings  (through  reduced  administrative
expenses as a percentage of sales and additional  purchasing power) and increase
sales and total profitability.

         The  Company  also  intends  to grow  within  its  existing  markets by
selectively making add-on  acquisitions of smaller contract stationers with less
substantial  sales  in  the  Company's  existing  markets.  Add-on  acquisitions
increase the Company's  sales within an existing  market and generate  operating
efficiencies,  such  as  the  consolidation  of  warehouses  and  administrative
functions.

         The Company  will  continue to evaluate  acquisition  opportunities  in
1997, although the Company expects to limit the level of those activities during
the first half of the year as it integrates the acquisitions completed in 1996.

   Leveraging International Capabilities

         BT Office  Products  derives a  substantial  portion of its total sales
revenue from outside the United  States.  The Company's net sales in Europe have
grown from $85.2 million in 1992 to $325.5 million in 1996.  Management believes
that  there are  opportunities  for  additional  growth  in Europe  and that the
Company is well-positioned  to capitalize on such  opportunities  because of the
extensive  experience  of its  European  operating  and  executive  managers  in
acquiring  and  operating  businesses in the  Company's  European  markets.  The
Company  is  also  pursuing  new  and  additional  business  from  multinational
corporations which have locations in the United States and Europe.

   Obtaining New Customers

         The Company  believes that many larger customers are seeking to control
overhead  and  reduce  the  total  cost of their  office  products  needs  while
demanding a significantly broader range of products and services.  Many of these
customers are also reducing the number of suppliers  with whom they do business.
The Company views these  changing  market  conditions as a major  opportunity to
obtain new customers and, as one of the leading providers of office products and
services  in the United  States and  Europe,  the  Company  believes  that it is
well-positioned to capitalize on these trends. Specific initiatives include: (i)
expansion of the Company's sales force at the local level;  (ii)  implementation
of  sales  training  programs  focused  on the  increasingly  complex  needs  of
customers;  (iii)  application  of technology  solutions  such as EDI,  personal
computer  based  order  management  software  and  Internet  ordering;  and (iv)
continuous improvements in technology such as the development and implementation
of the Company's  "National Selling System," which provides uniform  information
system and order  management  capabilities to serve the needs of large customers
with multiple locations.



                                       -6-

<PAGE>



   Increased Sales to Existing Customers

         Management  believes there are  significant  opportunities  to increase
sales of both  products  and  services to existing  customers,  particularly  by
increasing  customers'  utilization of the value-added  services  offered by the
Company,  such as stockless  delivery,  electronic commerce and customized forms
management  and  printing  services.  BT Office  Products  works with its larger
customers to develop an "outsourcing" approach by providing value-added services
to reduce  customers'  costs  associated  with  office  supplies.  For  example,
customers may rely entirely on the Company to deliver  office  products when and
as needed by the customers' employees, resulting in a "stockless supply" system.
The customers completely  eliminate their inventory of office products,  storage
facilities  for office  products and all related  personnel  and  administrative
requirements.  The  Company  traditionally  targeted  its sales  efforts  to the
purchasing  manager or office  administrator of a larger customer.  As part of a
more comprehensive  selling approach,  the Company targets other office products
purchasing  decision makers, such as the chief financial officer and director of
management  information  systems. The Company is also expanding sales of certain
new product lines such as advertising specialty and computer supplies.

Operating Strategy

         BT  Office  Products  serves  its  customers  through  local  operating
divisions that provide sales, marketing and order fulfillment services, while it
conducts merchandising, purchasing, systems development, sales training and many
administrative functions on a regional or central basis. The Company is reducing
its operating costs by  consolidating  and  centralizing  functions which do not
involve  direct  customer  contact as it expands  the use of its  logistics  and
distribution  systems  over a  growing  sales  base.  Management  believes  this
operating strategy allows it to be flexible and responsive to local market needs
while securing the benefits of economies of scale. At the same time, the Company
continues  to  control  costs by  consolidating  administrative  functions  on a
regional or central basis.

         It is the  Company's  practice  to retain  key  employees  of  acquired
companies.  As a result, in many of the Company's operations,  the entrepreneurs
and managers who were responsible for the business before its acquisition remain
in key positions today. Accordingly, the Company benefits from their substantial
local knowledge, customer relationships and operating and logistics experience.

         In 1996, the Company began an analysis of its U.S. systems and business
processes.  Project  Millennium,  the  title  assigned  to the  process  review,
provides  the  organizational  framework  and proposed  timetable to  accomplish
specific  strategic goals. One such goal is the consolidation and centralization
of certain business functions. Additional steps and analysis are still necessary
before Project Millennium is adopted and implemented.

Information Systems

         The Company  currently  provides  customers with remote order entry, CD
ROM catalogues and order  management,  materials  management  software,  EDI and
Internet  ordering systems  designed to decrease  response times and error rates
and improve customer service.  The Company's National Selling System establishes
uniform account, product and price information across all of the Company's U.S.
regions.

         The Company  offers its  customers  access to its entire  selection  of
office products through the Company's  electronic commerce systems.  Through the
use of customized  software programs  installed by the Company on the customer's
computer  system,  customers can order office  products  through their  personal
computers  which are  linked to BT Office  Products'  on-line  order  management
system.


                                       -7-

<PAGE>




         BT Office  Products also provides its customers  with billing and usage
information in hard copy or magnetic tape,  cartridge or diskette media, in each
case designed to a particular customer's specifications.  Customized cost center
billing  allows a  customer,  with the  Company's  assistance,  to  analyze  and
rationalize  its  ordering  and  usage  of  office  supplies  and  to  use  such
information for budgeting purposes.

         The  Company's   information  systems  initiatives  and  administrative
programs,  together with the increased  sales and  purchasing  power that result
from the Company's  aggressive  growth strategy,  are designed to generate lower
operating costs and higher operating profitability.

Products and Services

         The  Company  offers its  customers  a full  range of office  products,
including traditional office supplies,  office furniture,  computer supplies and
accessories,  copiers  and  office  equipment,  business  forms and  advertising
specialty and promotional  products.  The Company's larger  operating  divisions
typically have in stock 6,000 to 7,000 SKUs of office supplies, all of which are
contained  in the  Company's  common  catalogues.  The Company  also has access,
through the  Company's  EDI systems,  to over 25,000  additional  SKUs of office
supplies from its vendors,  enabling the Company to provide its  customers  with
immediate access to a broad range of products.  The Company also provides a wide
variety of customized value-added services to its customers,  which are designed
to reduce the  customer's  total  overall cost of managing  its office  products
needs.

   Office Supplies

         The  Company  provides  its  customers  access  to one of the  broadest
available  selections  of office  supplies.  In the United  States,  through its
distribution  centers and access to wholesalers,  the Company provides customers
with access to over  30,000 SKUs of office  supplies.  Products  include  paper,
writing instruments,  mailroom supplies,  filing supplies,  organizers,  desktop
accessories, business forms, binders, tape, printed products, staplers and other
fastening products and consumable items.

         In addition to the wide variety of brand name products that the Company
offers to its  customers,  the  Company  sells over 300  different  items in the
United States under the "BT  MASTERBRAND"  label,  such as  reprographic  paper,
rubberbands,  paperclips and computer printer ribbons. In Europe, in addition to
other brand name  products,  the  Company  sells for its own account and through
participating dealers with whom the Company has certain exclusive  arrangements,
over 950 different items under its "Classic" trademark,  including  reprographic
paper, writing pads and other office and computer supply consumables.
See "--Sales and Marketing."

   Office Furniture and Ergonomic Products

         The  Company  sells  a  comprehensive  line  of  so-called   "catalogue
furniture,"  which is a term used  generally  to  describe  low- and  mid-priced
desks,  chairs, file cabinets and other office furniture that is included in the
Company's  catalogues and generally sold from stock on a piece basis.  Catalogue
furniture  is sold by both the  Company's  office  supplies  sales force and its
office furniture sales force.  The Company also offers  executive  furniture and
modular  office  systems,  and at  certain  locations,  office  design and space
planning.  These products are generally ordered by a customer in connection with
a corporate relocation or expansion,  facility reconfiguration or refurbishment.
To  complement  office  furniture,  the Company sells a broad range of ergonomic
products designed to enhance worker comfort, safety and productivity.



                                       -8-

<PAGE>



   Computer Supplies and Accessories

         The  Company  sells a  variety  of  consumable  computer  supplies  and
accessories,  such as  filing  and  storage  supplies  for  diskettes  and other
computer media,  keyboard storage drawers and personal  computer  stands,  mouse
pads and  other  keyboard  accessories,  monitor  accessories,  screen  filters,
cleaning and  maintenance  products,  laser  printer toner  (including  recycled
toner),  diskettes  and other  computer-related  consumables.  Sales of personal
computers and other computer hardware are not material.

   Advertising Specialty and Promotional Products

         The  Company  sells  numerous  advertising  specialty  and  promotional
products,  such as beverage mugs and glassware,  apparel,  writing  instruments,
desk  accessories  and gift  items,  all of which may be  personalized  with the
customer's logo and/or name. Management believes that the sales of such products
represent a growth opportunity for the Company.

   Office Equipment - Copiers and Postal/Mail Equipment

         The Company sells and services copiers, facsimile machines, postal/mail
equipment, printers and related supplies primarily in Europe. The Veenman Group,
which  operates  in The  Netherlands,  is an  exclusive  distributor  of  Konica
copiers, printers and facsimile machines and Pitney Bowes postal/mail equipment.

   Conference Equipment

         In the United  States and Germany,  the Company  offers a wide range of
conference  supplies  and  equipment,   including  seating,   tables,   overhead
projectors, LED panels, easels and related supplies.

   Printing Paper Products

         Kelly  Paper   operates  a  wholesale   cash  and  carry  printing  and
communication   paper  and  printing  supplies  business   primarily  for  small
commercial printers through a central warehouse in Whittier,  California, and 34
wholesale  stores located in California,  Arizona and Nevada.  Over 90% of Kelly
Paper's sales are made from its wholesale stores, with the balance made from its
central warehouse.  A typical store is approximately 14,000 square feet in size.
Kelly Paper plans to open five to eight additional  stores in the western United
States in the next three years.

   Rapid Delivery

         In 1996, the Company filled over 98% of orders for office products from
customers in the United States on either a same-day or next-day  shipment basis,
depending on the  customer's  specific  needs.  Through its  advanced  logistics
systems,  the Company  processes  thousands of orders daily so that it can offer
its customers such delivery services.

   Stockless Delivery

         The Company can provide its customers with delivery of office  products
directly  to the  desks of the  individual  office  employees  of the  customer.
Desktop  delivery  creates  savings for the  customer  by reducing  the need for
storage  facilities,  personnel and capital  investment in non-income  producing
inventory.  In many  cases,  customers  rely  entirely on the Company to deliver
office products when and as needed by the customer's  employees,  resulting in a
"stockless supply" system whereby they completely eliminate their inventory of


                                       -9-

<PAGE>



office  products,  storage  facilities  for  office  products  and  all  related
personnel and administrative requirements.

   Forms Management and Printing Services

         The Company offers  customized forms management  services to reduce the
customer's indirect costs for maintaining forms. The Company works directly with
third-party  printers to arrange for the supply of such forms to its  customers,
allowing a customer  to reduce  its  storage  and  personnel  requirements.  The
Company  also  provides  customized  printing  services  for its  customers  for
products such as business cards and company stationery.

Sales and Marketing

   Overview

         The Company's  marketing  strategy is designed to increase its customer
base of medium- and  large-sized  businesses  and  institutions  (including,  in
particular, businesses and institutions with multiple locations in the Company's
United States and European  markets) and to increase sales by  demonstrating  to
customers and potential  customers that the total overall cost of managing their
office products needs can be reduced by focusing on process cost reduction.  The
Company  works with  customers  to  simplify  and reduce the costs of the office
product  procurement  process  by  providing  services  such as  customized  and
tailored  catalogues,  electronic  as well as paper  requisition  forms,  CD ROM
catalogues  with  built-in  order  logic  and  remote   electronic  order  entry
capability. The Company has implemented its "National Selling System" program to
service  customers with multiple  locations across broad geographic  areas. This
program  includes the  establishment  of common  product and pricing  data,  the
implementation  of a  telecommunications  network and a common  order-entry  and
order-management  system.  This system enables the Company to provide  customers
with  consolidated  reports,  billing and other useful customer  information and
will serve as the foundation for the  development of additional  common customer
service and operating systems.

         Each of BT Office Products'  operating  divisions  markets its products
and  services  to  customers  through a local  dedicated  sales  force using the
Company's  centrally produced  full-color  catalogues of its product and service
offerings in each of the United States, The Netherlands, Germany, Sweden and the
United Kingdom. Most of the office products offered in these main catalogues are
kept in stock at the Company's regional  distribution centers, and in the United
States the Company is linked  electronically to certain of its suppliers so that
(i) items not in stock can be  delivered  to a customer on a next-day  basis and
(ii) the Company can better manage its inventory levels. In addition to its main
catalogues  in each  country,  the  Company  produces  a  substantial  number of
customized and promotional catalogues. Together, BT Office Products' local sales
force and catalogues are key elements of its marketing strategy.

         The Company is increasing its  telemarketing,  Internet and direct mail
marketing efforts. The Company believes that it is able to effectively offer its
products through telemarketing and direct mail to specific customers for certain
products by using its information systems and database to target such customers.
The Company uses direct mail  efforts and its  catalogues  to increase  sales to
existing  customers and target  small- to  medium-sized  customers  that are not
generally covered by its sales force.



                                      -10-

<PAGE>



   United States

         In February  1997, the Company  organized its United States  operations
into eight  geographical  regions and Kelly  Paper.  The  Company's  Kelly Paper
operations  maintains a central  distribution  center in  Whittier,  California.
Kelly  Paper also  operates  34  wholesale  stores,  30 of which are  located in
California,  three  in  Arizona  and  one in  Nevada.  The  Company's  operating
divisions maintain sales and distribution centers, as well as branches,  some of
which include distribution  breakdown facilities,  which as of February 28, 1997
serve the following major markets:

<TABLE>
<CAPTION>

                                                               Sales and
                                                        Distribution Centers                  Branches
                                                        --------------------              ----------------
New England Region:
      <S>                                              <C>                                <C>    
      New England Division                              Needham, MA                       Cranston, RI
                                                        (Boston area)                     Manchester, NH

Northeast Region:
      New York Division                                 New York, NY                      Islandia, NY
                                                        North Bergen, NJ                  White Plains, NY
                                                                                          Meriden, CT
                                                                                          Stamford, CT

Mid-Atlantic Region:
      Washington, DC Division                           Springdale, MD                    Richmond, VA
                                                                                          Sterling, VA
      Philadelphia Division                             Philadelphia, PA

Midwest Region:
      St. Louis Division                                Vinita Park, MO                   Little Rock, AK
                                                        (St. Louis area)                  Lenexa, KS
                                                                                          Carbondale, IL
                                                                                          Columbia, MO
                                                                                          Jefferson City, MO
                                                                                          Memphis, TN
      Indianapolis Division                             Indianapolis, IN                  Indianapolis, IN
                                                                                          Anderson, IN
                                                                                          Fort Wayne, IN
                                                                                          Louisville, KY
      Columbus Division                                 Lewis Center, OH                  Norwood, OH
                                                                                          (Cincinnati area)
      Pittsburgh Division                               Glenfield, PA                     Westlake, OH
                                                                                          (Cleveland area)

Great Lakes Region:
      Chicago Division                                  Chicago, IL                       Wauwatosa, WI
                                                                                          (Milwaukee area)
      Detroit Division                                  Warren, MI



                                      -11-

<PAGE>




      Minneapolis Division                              Plymouth, MN                      Red Wing, MN
                                                                                          Eau Claire, WI
      Davenport Division                                Davenport, IA                     Davenport, IA
                                                                                          Burlington, IA
                                                                                          Dubuque, IA
                                                                                          Hiawatha, IA
                                                                                          (Cedar Rapids area)
                                                                                          Marshalltown, IA
                                                                                          Urbandale, IA
                                                                                          (Des Moines area)
                                                                                          East Peoria, IL

South-Southeast Region:
      Texas Division                                    Arlington, TX                     Addison, TX
                                                        Houston, TX                       (Dallas area)
                                                                                          Austin, TX
                                                                                          Fort Worth, TX
                                                                                          San Antonio, TX
                                                                                          Oklahoma City, OK
                                                                                          Tulsa, OK
      North Carolina Division                           Greensboro, NC
      Atlanta Division                                  Atlanta, GA                       Albany, GA
                                                                                          Columbus, GA
                                                                                          West Columbia, SC
      Northern Florida Division                         Tampa, FL                         Jacksonville, FL
                                                                                          St. Augustine, FL
                                                                                          Tallahassee, FL
      Southern Florida Division                         West Palm Beach, FL               Plantation, FL

Northwest Region:
      Pacific Northwest Division                        Portland, OR                      Corvallis, OR
                                                                                          Seattle, WA
      Colorado Division                                 Aurora, CO                        Colorado Springs, CO
                                                                                          Fort Collins, CO

West-Southwest Region:
      Northern California Division                      Newark, CA                        San Francisco, CA
                                                                                          North Highlands, CA
                                                                                          (Sacramento area)
      Southern California Division                      Rancho Dominguez, CA              Chatsworth, CA
                                                                                          Irvine, CA
                                                                                          Paramount, CA
                                                                                          San Diego, CA
      New Mexico Division                               Albuquerque, NM                   Phoenix, AZ
                                                                                          El Paso, TX
</TABLE>




                                      -12-

<PAGE>


   Europe

      The Company's  European  operations are managed and  coordinated  from its
European  headquarters  in  Amsterdam.   From  this  location,   overall  sales,
marketing,  logistics,  financial and operating  strategies are established that
provide  a  coordinated  direction  for  all of  the  European  operations.  The
Company's European  distribution centers and branch sales offices as of February
28, 1997 are located as follows:

                                           Sales and
                                    Distribution Centers         Branches
                                    --------------------       ------------
Germany:
      B+N                           Scharnhausen               Stuttgart
                                    Ulm-Lehr                   Dresden
                                                               Heilbronn
                                                               Kempten im Allgau
                                                               Neuhausen

      BVZ/Hartmann/Nett/Wurth       Langenlonsheim             Bad Kreuznach
                                                               Bingen
                                                               Frankfurt am Main
                                                               Idar-Oberstein
                                                               Koblenz
                                                               Mainz
                                                               Worms

      Keller + Roth Group           Wuppertal                  Ratingen
                                                               (Dusseldorf area)
                                                               Essen

      Bax                           Maisach bei Munich


United Kingdom:

      Copygraphic                   London
                                    Reading

The Netherlands:

      Veenman Group                 Capelle aan den IJssel     Amsterdam
                                    Gorinchem                  Best
                                    Utrecht                    Zwolle




                                      -13-

<PAGE>




      Kuipers                       Zwolle                     Amersfoort
                                                               Apeldoorn
                                                               Enschede
                                                               Groningen
                                                               Leeuwarden
Sweden:

      Bjorsell                      Boras                      Alingsas
                                                               Boras
                                                               Goteborg
                                                               Jonkoping
                                                               Kalmar
                                                               Lidkoping
                                                               Linkoping
                                                               Lund
                                                               Malmo
                                                               Mariestag
                                                               Nassjo
                                                               Skovde
                                                               Trollhattan
                                                               Uddevalla
                                                               Ulricehamn
                                                               Umea
                                                               Vamamo
                                                               Orebro

   Sales Force

      The Company  uses a variety of sales  approaches  tailored to the specific
needs of its  customers.  A  substantial  majority  of the  Company's  sales are
conducted  through a sales  force of  approximately  800  persons  in the United
States,  120 in  Germany,  220 in The  Netherlands,  70 in Sweden  and 24 in the
United Kingdom. Most of the sales force in the United States is compensated on a
commission  basis and most of the sales  force in  Europe  is  compensated  on a
salaried  basis.  The Company  services its  customers  through  salaried  sales
personnel and customer service representatives.

      The Company's sales force assists its customers with the implementation of
a comprehensive office products procurement system, which includes the supply of
office  products and the provision of customized  services,  such as specialized
catalogues  and  electronic  order  entry.  Management  is  committed to provide
training for its sales force,  with the objective of enabling sales personnel to
educate  customers  as to the  total  overall  costs of  managing  their  office
products needs and to assist  customers in designing  programs to minimize these
costs.

   Catalogues

      The  Company  annually  publishes  a  full-color  catalogue  of its office
products offerings in the United States (containing  approximately  10,000 SKUs)
and in Germany, The Netherlands,  Sweden and the United Kingdom (each containing
approximately  6,000 SKUs). The catalogues  consist of a narrative and pictorial
selling presentation, prices and a description of each item's uses and features,
as well as descriptions of the services available to customers. The Company also



                                      -14-

<PAGE>



produces  other  specialty  catalogues  for its marketing  efforts,  targeted to
customers by size and/or type. In addition, the Company also provides customized
catalogues  containing  100 to 500  SKUs  of  office  products  for  its  larger
customers and CD ROM catalogues  with built-in  order logic and EDI  capability.
The Company generally does not utilize  newspaper,  radio or other forms of mass
media advertising.

   Classic Licensing Program

      The Company sells its Classic  private  label brand of office  products in
Europe through a network of dealers under its Classic  licensing  program.  This
licensing program  supplements the Company's direct sales of Classic products in
Germany, The Netherlands, Sweden and the United Kingdom in markets not otherwise
serviced  through  its  wholly-owned  distributors.  Under the  Classic  license
program,  the Company enters into  agreements with  independent  office products
dealers,  granting exclusive distribution  arrangements for the Classic brand of
office products in a specific geographic area.

      The  Company  offers  participating  dealers  a  full  menu  of  services,
including  catalogues,   direct  marketing  assistance,   promotions  and  order
fulfillment.  Through  the  use  of the  Company's  warehouse  and  distribution
facility in Langenlonsheim, Germany (near Frankfurt), a participating dealer has
the ability to offer next-day  delivery in a  cost-effective  manner and to take
advantage of the centralized  logistics (e.g., stock control,  picking,  packing
and shipping),  merchandising  and information  systems of the Company.  In this
capacity,  the Company  serves as a wholesaler  to the Classic  license  program
participants,  permitting them to reduce inventory and  distribution  facilities
costs.  As a  result,  small  local  dealers  have the  ability  to offer  their
customers  products  and  services  comparable  to those of  larger  and  better
capitalized  office  products  dealers  without the  expense of carrying  larger
product inventories.

      In  addition to the  revenue  the  Company  generates  on the sales of its
Classic  products  and the  annual  licensing  fees  paid  by the  participating
dealers,  the Company realizes other economic benefits from these  arrangements.
Because  participating  dealers are required to (i) participate in the Company's
Classic  brand  marketing  activities,  thereby  broadening  the  market for the
Classic name and (ii) buy Classic  products from  suppliers of the Company,  the
purchasing power of the Company, and therefore the dealers as well, is increased
without requiring any incremental investment by the Company.

      The  Classic   program   enables  the  Company  to  establish  a  business
relationship  with a large number of local dealers across Europe,  some of which
may  become  attractive  acquisition   candidates.   Currently,   there  are  60
participating independent dealers in the Classic license program in Germany. The
Company has entered into license  agreements with one dealer in each of Austria,
Italy and Switzerland.

Customers

      No single  customer  accounted for more than 1% of the Company's  sales in
1995 and 1996. The Company's customers include many Fortune 500 companies, other
large corporations,  banks, financial services companies,  governmental entities
and educational  institutions.  Many customers have multiple  locations that are
serviced by the Company's operating divisions.

Purchasing

      The Company  purchases a large majority of its products in volume directly
from  manufacturers  or major  office  products  wholesalers,  who  deliver  the
merchandise  to each  of the  Company's  distribution  centers.  Generally,  the
Company has been able to return any unsold or obsolete office products inventory
to its vendors, resulting in minimal inventory write-offs. However, no assurance
can be given that the  Company's  vendors  will  continue  to offer this  return
policy in the future.


                                      -15-

<PAGE>




      To maximize its purchasing  power, the Company's  purchasing  strategy has
been to establish preferred relations with certain vendors with whom the Company
can capitalize on purchasing economies. This "preferred vendor" strategy creates
advantageous  pricing  relationships  for the Company and has led to competition
among vendors for inclusion in such group.  To further  maximize its  purchasing
power, the Company has been consolidating, and will continue to consolidate, its
purchases  from key  vendors  to  increase  its  importance  to  those  vendors,
including the sourcing of the office  products sold under the "BT  MASTERBRAND,"
"Masterbrand" and "Classic" brand names. Additionally, the Company has utilized,
and will  continue  to  utilize,  its  ability  to  provide  vendors  access  to
international markets as part of its purchasing strategy.

      Some of the  Company's  vendors are linked  through EDI with the Company's
on-line order entry system. Products ordered through the Company's on-line order
entry  system that are not in stock are  automatically  purchased by the Company
through EDI from the  Company's  vendors.  These  products are delivered by such
vendors  to the  Company's  warehouses  in time  for  next-day  delivery  to the
customer with other ordered products.

      During the fiscal year ended  December  31,  1996,  the Company  purchased
merchandise  from over 500 suppliers in the United States.  The largest supplier
accounted for  approximately  15% of the Company's total purchases,  and the ten
largest suppliers accounted for approximately 47% of total inventory  purchases.
Although a substantial  portion of the Company's purchases are concentrated with
a relatively  small number of suppliers,  the Company  believes that alternative
sources of supply are available for virtually  every product it sells.  However,
the Company  believes that customer brand  preference is an important  factor in
the purchase of certain  office  products and that its  competitive  position is
enhanced by the inclusion of popular brand name items. The Company considers its
relationship  with  its  suppliers  to be  good  and  has  not  experienced  any
difficulty in sourcing its merchandise.

Logistics

      The Company receives orders through its electronic  commerce  systems,  as
well as by traditional telephone,  fax and mail-in purchase order methods. After
an order has been placed with the  Company,  picking  documents  are created for
those items in stock and routed to the appropriate distribution center for order
fulfillment. At the same time, the Company's EDI systems transmit those portions
of the  orders not in stock to the  Company's  vendors.  The  Company is able to
acquire many items not then in its own  inventory on the same day and to combine
such items with the  in-stock  items to yield a first  order  fill-ratio  in the
United States exceeding 98%.

      The  Company's   distribution  centers  use  automated  routing  software,
scanning and carousel  picking  technology to enhance  accuracy and  efficiency.
After an order is picked and packed, conveyors and overhead scanning systems are
utilized  to  route  and  manifest  outgoing  customer  deliveries.  Significant
detailed  reporting is available to optimize warehouse  productivity,  inventory
turns, SKU selection and sourcing decisions and to evaluate vendor performance.

      The Company's distribution centers have a logistical and economic reach of
up to  approximately  six hours by truck in any  direction.  The Company  uses a
combination of owned and leased  vehicles and third-party  delivery  services to
deliver office products.



                                      -16-

<PAGE>



Competition

      The Company operates in a highly  competitive  environment.  The principal
competitive  factors in the office products  distribution  industry are service,
price,   product  quality  and  product  offerings.   The  Company's   principal
competitors,  depending  upon the  regions in which it  operates,  are  national
office products distributors, traditional contract stationers, direct mail order
companies,  retail office  products  superstores  and  stationery  stores.  With
respect to medium- and large-sized businesses and other institutions,  which are
the Company's  target market,  management  believes that existing  customers and
potential  customers  prefer  to deal with  large  value-added  office  products
distributors such as the Company which can provide the lowest total overall cost
of managing their office products needs, high levels of service, convenience and
rapid delivery.

      The Company's  largest  competitors in the United States are Boise Cascade
Office  Products  Corporation,  Corporate  Express,  Inc.,  U.S. Office Products
Company and the office products distribution businesses of Office Depot Inc. and
Staples, Inc. These businesses compete for, and sell office products to, many of
the  same  customers  as the  Company.  Management  believes  that  it  competes
favorably with these  companies on the basis of its  customized and  value-added
services and the price of its products.

      Historically,  the German  market was highly  fragmented  and customers in
Germany were serviced to a large extent by local dealers who generally  operated
within a local or regional territory. Consolidation within the German market was
occurring  at a slow  pace.  However,  in 1996  several  international  contract
stationers  entered into or continued their expansion  within the German market.
This trend is  anticipated  to continue as the local  dealers are  pressured  to
compete with these international companies. The Company's largest competitors in
Germany include Corporate Express, Inc., Guilbert S.A., Lyreco and Viking Office
Products.

      The United  Kingdom  market has also  experienced a significant  amount of
consolidation  over the past few years.  The Company's major  competitors in the
United Kingdom are Guilbert S.A.,  Corporate  Express,  Inc.,  Dudley Stationery
Ltd. and Samas.

      In The  Netherlands,  the  Company's  competitors  are  principally  local
dealers. The largest competitors are Ahrend and Samas.

      In Sweden, the Company's main competitors are Svanstroms,  Tybring-Gjedde,
and Durab.

      Some of the Company's  competitors  have greater  financial  resources and
purchasing  power than the Company and,  particularly  in the case of the retail
office products  superstores,  significant name  recognition.  In addition,  the
Company believes that the office products distribution industry will continue to
consolidate over the next few years and,  consequently  become more competitive.
Also, the Company  believes that  increasing  competition  and heightened  price
sensitivity among customers have led to industry-wide pressure on gross margins,
a trend which the Company expects will continue in the future.

Employees

      At December 31, 1996, the Company  employed  approximately  6,600 persons.
Approximately  6% of the  Company's  United  States  employees  are  covered  by
collective  bargaining  agreements.  The  Company's  labor  contracts  expire at
various times in 1998 and 1999. The Company  expects no  significant  changes in
its relations with these unions.  Most of the Company's  employees in the United
Kingdom and the Netherlands are not covered by collective bargaining agreements.
Wages for the Company's  German  employees are determined  annually  pursuant to



                                      -17-

<PAGE>



centrally  negotiated  industry labor contracts which provide for a minimum wage
for an industry within a region.  Wages have increased  moderately over the last
few years  pursuant to such  contracts.  A substantial  portion of the Company's
employees in Sweden are covered by collective bargaining agreements which expire
at various times during 1997 and 1998.  The Company  believes that its relations
with its employees are satisfactory.


Item 2.  Properties

      The Company's principal executive offices are located at 2150 E. Lake Cook
Road, Buffalo Grove,  Illinois 60089. The Company owns and leases properties for
use in the  ordinary  course of  business.  The leases  expire at various  times
through 2022, and many of the Company's  leases contain  options to renew and/or
purchase the property.



                                      -18-

<PAGE>



      As of February 28, 1997, the Company's  principal  sales and  distribution
centers and branch distribution breakdown facilities were as follows:
<TABLE>
<CAPTION>

                                              Approximate                                             Approximate
                                              Building Area                                           Building Area
    Location                                  (square feet)     Location                              (square feet)
    --------                                  -------------     --------                              -------------
   United States:                                               Germany:
<S>                                                  <C>                                                      <C>   
    Albuquerque, New Mexico.................         35,079      Langenlonsheim.....................          69,837
    Arlington, Texas........................        134,016      Maisach bei Munich.................          41,153
    Arlington, Texas........................         36,399      Scharnhausen.......................          57,725
    Atlanta, Georgia........................         30,128      Ulm-Lehr...........................          47,606
    Aurora, Colorado........................         30,080      Wuppertal..........................          52,074
    Chicago, Illinois <F1>..................        124,000
    Chicago, Illinois.......................         67,182     Sweden:
    Davenport, Iowa.........................         12,000      Boras..............................          79,584
    Glenfield, Pennsylvania <F1>............         52,464      Boras..............................          30,125
    Glenfield, Pennsylvania.................         25,000
    Greensboro, North Carolina..............         13,000     The Netherlands:
    Houston, Texas..........................        114,170      Capelle aan den IJssel.............          61,565
    Indianapolis, Indiana...................         32,000      Gorinchem..........................           9,105
    Lewis Center, Ohio......................         79,555      Utrecht............................          15,215
    Needham, Massachusetts..................         66,142      Zwolle.............................          88,633
    New York, New York......................        195,000      Zwolle.............................          10,759
    Newark, California......................        160,000
    North Bergen, New Jersey................        208,810     United Kingdom:
    Philadelphia, Pennsylvania..............         60,675      London.............................          26,000
    Philadelphia, Pennsylvania..............         40,000      Reading............................          87,000
    Plymouth, Minnesota.....................         78,500
    Portland, Oregon........................         49,520
    Portland, Oregon........................         12,600
    Rancho Dominguez, California............         70,800
    Springdale, Maryland....................        111,000
    Tampa, Florida..........................         76,567
    Vinita Park, Missouri...................        129,506
    Warren, Michigan........................         75,973
    West Palm Beach, Florida................         23,400


---------------
<FN>
  <F1>   These  sales and  distribution  centers are owned by the  Company.  All
         other  sales  and  distribution  centers  and  distribution   breakdown
         facilities are leased by the Company.
 </FN>
</TABLE>

        Also, the Company maintains additional smaller branch sales offices and 
distribution breakdown facilities in the U.S. and in Europe.



                                      -19-

<PAGE>



         The Company's  Kelly Paper operation  maintains a central  distribution
center of approximately 82,000 square feet in Whittier, California as well as 30
wholesale stores in California, three in Arizona and one in Nevada.

         Although  the  Company  believes  that  its  facilities  are  generally
adequate  for its  current  level of  business,  the Company  believes  that its
operations  in certain  markets will require new or expanded  facilities  in the
next several years.


Item 3.  Legal Proceedings

         The Company is involved in various ordinary  routine legal  proceedings
incidental to the conduct of its business.  Management does not believe that any
of these legal  proceedings will have a material adverse effect on the financial
condition or results of operations of the Company.


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

         None.




                                      -20-

<PAGE>




                                     PART II


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

         The Common Stock of the Company (NYSE symbol: BTF) commenced trading on
the New York Stock  Exchange (the  "Exchange")  on July 19, 1995.  Prior to that
time,  there was no market for the Common  Stock of the Company.  The  following
table sets forth the range of high and low sale prices of the  Company's  Common
Stock on the Exchange for each full quarterly period since trading commenced.

                            Fiscal 1996                       Fiscal 1995
                            -----------                       -----------
                           High        Low                High           Low
                           ----        ---                ----           ---
First quarter...........    $23 1/2     $13                n/a           n/a
Second quarter..........     23 7/8      15 1/2            n/a           n/a
Third quarter...........     17 7/8       9 7/8            n/a           n/a
Fourth quarter..........     14           8 1/8            $16         $11 1/4


         As of March 17, 1997, there were approximately 208 holders of record of
the Common Stock.

         The  Company  has not  declared  or paid cash  dividends  on its Common
Stock. The Company currently anticipates that it will retain all available funds
for use in the operation  and expansion of its business and does not  anticipate
paying any cash dividends in the foreseeable future. Any future determination to
pay cash dividends will be at the discretion of the Company's Board of Directors
and will be  dependent  upon the  Company's  results  of  operations,  financial
condition,  contractual  restrictions  and other factors deemed  relevant by the
Board of Directors.


Item 6.  Selected Financial Data

         The following table sets forth selected consolidated financial data for
the Company for each of the five years ended December 31, 1992 through 1996. The
selected  statement of operations  data and balance  sheet data,  except for the
balance sheet data as of December 31, 1992, have been derived from the Company's
audited financial statements. The balance sheet data as of December 31, 1992 has
been  derived  from  the  unaudited  consolidated  financial  statements  of the
Company.  The information  contained  herein should be read in conjunction  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and the audited consolidated financial statements of the Company for
the three years ended December 31, 1996 and the notes thereto included herein.




                                      -21-

<PAGE>
<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                           -----------------------------------------------------------------------
                                           1996             1995            1994             1993             1992
                                           ----             ----            ----             ----             ----
                                                     (in thousands, except per share and operating data)
Statement of Operations Data:
Net sales:
<S>                                       <C>              <C>               <C>              <C>              <C>     
    United States....................     $1,086,960       $  833,010        $589,823         $469,263         $390,113
    Europe...........................        325,554          299,360         199,718          117,591           85,198
                                           ---------        ---------        --------         --------         --------
         Total.......................      1,412,514        1,132,370         789,541          586,854          475,311

Costs of products sold...............      1,004,713          819,078         557,737          408,514          325,753
                                           ---------        ---------         -------          -------         --------

    Gross Profit.....................        407,801          313,292         231,804          178,340          149,558
                                           ---------        ---------        ---------         -------         --------

Selling and administrative expenses..        345,879          266,163         197,088          157,370          136,204
Depreciation and amortization........         13,693           10,339           7,796            6,961            5,648
Amortization of intangibles..........         10,046            8,117           6,111            4,737            5,228
                                           ---------        ---------        ---------         -------         --------


Operating income (loss):
    United States....................         31,335           22,797          18,541           12,879            7,965
    Europe...........................          6,848            5,876           2,268           (3,607)          (5,487)
                                           ---------        ---------        ---------         -------         --------

         Total.......................         38,183           28,673          20,809            9,272            2,478
Other income (expense):
    Other income.....................          2,091            1,287             629              339              632
    Equity in earnings (loss) of affiliated
         company <F1>................             --               --            (112)             153               73
    Interest expense.................         (7,401)          (3,561)         (4,389)          (2,122)          (1,348)
    Interest expense to affiliates <F2>       (5,172)         (12,372)        (12,641)         (10,078)          (2,985)
                                           ---------        ---------        ---------         -------         --------

         Total.......................        (10,482)         (14,646)        (16,513)         (11,708)          (3,628)
                                           ---------        ---------        ---------         -------         --------

Income (loss) before income taxes and
    cumulative effect of accounting
    change...........................         27,701           14,027           4,296           (2,436)          (1,150)
Income tax expense...................         13,000            7,337           4,455            1,764            2,341
                                           ---------        ---------        ---------         -------          --------

Income (loss) before cumulative effect
    of accounting change.............         14,701            6,690            (159)          (4,200)          (3,491)
Cumulative effect of accounting change,
    net of income tax benefit <F3>...             --               --              --             (692)              --
                                           ---------        ---------        --------          -------          -------
         Net income (loss)...........       $ 14,701         $  6,690       $    (159)        $ (4,892)        $ (3,491)
                                           =========        =========        ========         ========         ========

Per Share Data <F4>:
Income (loss) before cumulative effect
    of accounting change.............    $       .44      $       .24    $       (.01)      $     (.18)      $     (.15)
Net income (loss)....................            .44              .24            (.01)            (.21)            (.15)

Operating Data:
Selling and administrative expenses as
    a percentage of net sales........          24.5%            23.5%            25.0%            26.8%            28.7%
Distribution centers (at period end).          37               38               28               19               15
Inventory turns <F5>.................           9.5x             9.8x             8.9x             8.1x             7.9x

Balance Sheet Data (at period end):
Working capital (deficiency).........       $153,945         $143,963      $ (143,028)        $(97,786)        $(95,314)
Total assets.........................        742,819          524,647         429,371          287,794          240,166
Short-term debt <F6>.................         47,934           25,619         282,015          174,114          159,314
Long-term debt <F7>..................        219,702           99,551          13,399           23,521           18,947
Stockholders' equity (deficit) <F2><F8>      268,652          260,235          21,933            7,707           (2,327)

                                                                                      (footnotes on following page)

                                      -22-
<PAGE>


(footnotes for preceding page)

---------------
<FN>

<F1> Represents  earnings  (loss) on the  Company's 40% interest in B+N accounted
    for on the equity method through June 30, 1994.  Effective July 1, 1994, the
    operating  results of B+N have been  consolidated  with those of the Company
    reflecting the acquisition of the remaining 60% beneficial interest in B+N.

<F2> The  substantial  increase in  interest  expense to  affiliates  in 1993 was
    largely  attributable to $90 million of indebtedness  incurred in connection
    with a return of capital  payment  made by the Company to KNP BT in December
    1992. The return of capital payment  resulted in a deficit in  stockholders'
    equity in 1992.

<F3> In 1993, the Company adopted Statement of Financial Accounting Standards No.
    106,   "Employers'   Accounting  for  Postretirement   Benefits  Other  Than
    Pensions."  The  effect  of  this  adoption   increased  1993  net  periodic
    postretirement  cost by $1.1  million  and  increased  the  1993 net loss by
    $692,000.

<F4> For 1994,  1993 and 1992,  gives  effect to a stock  split that  occurred in
    connection   with  the   Reorganization   resulting  in  23,400,000   shares
    outstanding.

<F5> Inventory  turns are  calculated  by  dividing  (i) the  inventory  costs of
    products sold by (ii) the average of the ending  inventory  balance from the
    prior fiscal period and the current fiscal period,  except for  acquisitions
    made during the current period,  for which  inventory  balances are weighted
    for the portion of the period included in operations.

<F6> Short-term  debt includes  amounts due within twelve months to third parties
    and affiliates of KNP BT,  including the current  portion of long-term debt.
    The balances in 1994 and prior years consisted principally of amounts due to
    affiliates   of  KNP  BT.  The  Company  also  received  in  1995  and  1994
    non-interest  bearing  advances from  affiliates  of KNP BT associated  with
    acquisitions during these periods totalling $21.9 million and $43.9 million,
    respectively.

<F7> Consists of long-term  debt with third  parties,  affiliates  of KNP BT, and
capitalized leases, less current portion.

<F8> The Company has never declared or paid cash dividends on its Common Stock.

</FN>
</TABLE>


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

Background

   New York Division

         In March 1996, the Company  discovered certain accounting and financial
reporting  irregularities at its New York division. The irregularities  involved
misstatements  in the reporting of gross profit  margins and operating  expenses
principally in 1995 and 1994, as well as  concealment in the accounting  records
of theft of Company  assets.  The impact of the  charges  associated  with these
issues  resulted in a reduction  of operating  income for 1995 by  approximately
$7.5  million  and for  1994  by  approximately  $2.9  million.  An  independent
investigation,  completed  in August  1996,  uncovered  no basis for any further
adjustment to the financial statements.


                                      -23-
<PAGE>

   Accounting for Reorganization

         On June 30, 1995,  Kelly Paper and the European  Businesses,  which had
been  owned  by  KNP  BT,  were  transferred  to  the  Company  as  part  of the
Reorganization.  This transfer was  accounted  for on an  historical  basis in a
manner similar to a pooling of interests,  as it represents a transaction  among
entities under common control.  In light of the common ownership,  the Company's
consolidated  financial  statements  reflect  the  combined  United  States  and
European office  products  distribution  businesses as if the  combination  were
effective prior to June 30, 1995. The Company's financial statements exclude the
results of operations and the assets and  liabilities  of the Holding  Company's
non-office  products  businesses  which were transferred to KNP BT in connection
with the Reorganization.

   Integration of Acquired Businesses

         The Company's results of operations and financial condition reflect its
rapid growth  through  acquisitions.  The Company has made and continues to make
significant  investments in connection  with the purchase and integration of its
acquired businesses in order to attain long-term  improvements in profitability;
however,  the costs of  integration  have had an  adverse  effect on  short-term
operating  results.  Management  believes  that, as the Company  integrates  its
acquired businesses, the adverse effect of integration expenses on profitability
will decline as will operating expenses as a percentage of net sales.

Results of Operations

     The following table sets forth, for the periods  indicated,  the percentage
relationship  to  consolidated  net  sales of  certain  items  in the  Company's
consolidated statement of operations:

<TABLE>
<CAPTION>
                                                1996                        1995                        1994
                                                ----                        ----                        ----
Net sales:
<S>                                              <C>                        <C>                         <C>  
    United States..................              76.9%                      73.6%                       74.7%
    Europe.........................              23.1                       26.4                        25.3
                                                ------                     ------                      ------
         Total.....................             100.0                      100.0                       100.0
Costs of products sold.............              71.1                       72.4                        70.6
                                                ------                     ------                      ------

    Gross Profit...................              28.9                       27.6                        29.4
Selling and administrative expenses              24.5                       23.5                        25.0
Depreciation and amortization......               1.0                         .9                         1.0
Amortization of intangibles........                .7                         .7                          .8
                                                ------                     ------                      ------

Operating income:
    United States..................               2.2                        2.0                         2.3
    Europe.........................                .5                         .5                          .3
                                                ------                     ------                      ------
         Total.....................               2.7                        2.5                         2.6
Other income (expense):
    Other income...................                .1                         .1                          .1
    Interest expense...............               (.5)                       (.3)                        (.6)
    Interest expense to affiliates.               (.4)                      (1.1)                       (1.6)
                                                ------                     ------                      ------

Income before income taxes.........               1.9                        1.2                          .5
Income tax expense.................                .9                         .6                          .5
                                                ------                     ------                      ------

Net income (loss)..................               1.0%                        .6%                         --%
                                                ======                     ======                      ======
</TABLE>

                                      -24-
<PAGE>



   Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

         Net sales increased to $1,412.5  million in 1996 from $1,132.4  million
in 1995, an increase of $280.1 million or 24.7%.

         Net sales in the United  States  increased to $1,087.0  million in 1996
from  $833.0  million in 1995,  an  increase  of $254.0  million  or 30.5%.  The
Company's 1996 acquisitions and the incremental  impact of its 1995 acquisitions
accounted for $89.7 million of the  increase.  Increased  sales at the Company's
existing operations  accounted for the remaining $164.3 million of the increase,
or a growth rate at existing  locations of 19.7%.  The Company believes that the
principal  factors  contributing to this growth were increased sales to existing
and new accounts and "add-on" acquisitions at ten divisions.

         Net sales in Europe  increased  to $325.5  million in 1996 from  $299.4
million  in  1995,  an  increase  of  $26.1  million  or  8.7%.   The  Company's
acquisitions  of the  Keller + Roth Group and Bax in July 1996 and  Bjorsell  in
December 1996  accounted for $27.6 million of the increase.  Increased  sales at
the Company's  existing  operations,  excluding the effects of foreign  currency
depreciation  against  the U.S.  dollar,  accounted  for  $20.6  million  of the
increase,  or a growth rate at existing  locations of 6.9%. The Company believes
that the  principal  factor  contributing  to this  internal  growth  was  sales
associated  with an "add-on"  acquisition  in Germany.  European sales have been
impacted by the softness in the German  economy.  Offsetting the increase in net
sales during 1996 from  acquisitions  and internal  growth was $13.5  million of
foreign currency  depreciation  against the U.S. dollar. In addition,  net sales
for 1995 were favorably impacted by $8.6 million for the personal computer sales
and  service  operations  of  Bierbrauer  &  Nagel  GmbH  & Co.  KG,  which  was
transferred  to the  Information  Systems  Division of KNP BT effective  July 1,
1995.

         Gross profit as a percentage of net sales was 28.9% in 1996 compared to
27.6% in 1995, an increase of 1.3%. The increase was  attributable  primarily to
improved margin management, higher margins on paper and related product sales of
approximately  0.4%,  and a lower LIFO charge  associated  with  inventory  cost
decreases in the U.S. amounting to 0.3%.

         Selling and  administrative  expenses as a percentage of net sales were
24.5% in 1996  compared to 23.5% in 1995, an increase of 1.0%.  The  fluctuation
was  attributable  primarily  to the  impact on costs due  solely to lower  U.S.
selling prices on paper and related products of 0.4%,  higher  professional fees
associated  with the New York division  investigation  of 0.2%,  higher facility
costs associated with four new  distribution  centers of 0.2%, costs relating to
the business  process  reengineering  initiative of 0.1%,  and  declining  sales
associated with the existing  operations in Germany  against a relatively  fixed
expense base of 0.1%.

         Operating  income increased to $38.2 million in 1996 from $28.7 million
in 1995,  an increase of $9.5 million or 33.1%.  Operating  income in the United
States  increased  to $31.3  million  in 1996 from  $22.8  million  in 1995,  an
increase of $8.5 million or 37.3%.  Operating income in Europe increased to $6.9
million in 1996 from $5.9 million in 1995, an increase of $1.0 million or 16.9%.

         Operating  income  as a  percentage  of net  sales  was 2.7% in 1996 as
compared to 2.5% in 1995.  Operating  income as a percentage of net sales in the
United  States  was 2.9% in 1996 as  compared  to 2.7% in 1995.  Higher  product
margins  were  substantially  offset by the impact of lower U.S.  paper  prices,
higher facility costs and professional fees. Operating income as a percentage of
net sales in Europe  was 2.1% in 1996 as  compared  to 2.0% in 1995.  The slight
increase was primarily due to new acquisitions  offset by lower sales associated
with  the  existing  operations  in  Germany  as a  result  of the  soft  market
conditions against a relatively fixed expense base.


                                      -25-

<PAGE>




         Interest expense,  including affiliated interest expense,  decreased to
$12.6  million  in 1996  from  $16.0  million  in 1995.  While the  Company  has
continued to invest in new  acquisitions  and capital  expenditures  in 1995 and
1996, the average  interest bearing debt levels are lower in 1996 as a result of
proceeds  received in mid-1995  from the  Reorganization  and the  Offering.  In
addition,  interest rates have decreased due to generally lower market rates and
more favorable  lending terms under the Antilliana Credit Agreement and the Bank
Credit Agreement (each as defined below).

         Net income  increased  to $14.7  million  in 1996 from $6.7  million in
1995.  The  increase  in net income  was due to  increased  operating  income at
existing  operations,  acquisitions,  lower interest costs and a lower effective
income tax rate. The effective income tax rate was 47.0% for 1996 as compared to
52.0%  for  1995.  This  rate  decrease  is  primarily  due  to the  effects  of
non-deductible  goodwill  amortization and other permanent differences against a
relatively higher pre-tax income base in 1996.

   Year Ended December 31, 1995 Compared with Year ended December 31, 1994

         Net sales increased to $1,132.4  million in 1995 from $789.5 million in
1994, an increase of $342.9 million or 43.4%.

         Net sales in the United States  increased to $833.0 million from $589.8
million, an increase of $243.2 million or 41.2%. The Company's 1995 acquisitions
and the incremental impact of its 1994 acquisitions accounted for $103.4 million
of this  increase.  The  balance  of the  increase  of $139.8  million  or 23.7%
resulted from  internal  growth at existing  operations.  While no single factor
contributed to a significant portion of the internal sales increase in 1995, the
Company  believes the principal  factors included sales associated with "add-on"
acquisitions at the Texas, St. Louis and New York divisions,  increased sales to
existing  accounts,  new  accounts  and  price  increases,   particularly  those
associated with paper products.

         Net sales in Europe increased to $299.4 million from $199.7 million, an
increase of $99.7  million or 49.9%.  The increase was largely  attributable  to
sales of $62.2  million from the  consolidation  of the results of operations of
B+N following the Company's  July 1994  acquisition  of a controlling  interest.
Currency  appreciation  against the U.S.  Dollar also accounted for a translated
sales gain of $20.9  million.  The  balance of the  increase  in Europe of $16.6
million or 8.3% resulted from internal growth at existing operations.  Effective
July 1, 1995 the  personal  computer  sales  and  service  operation  of B+N was
transferred  to the  Information  System  Division  of KNP BT at net book value.
Removing the effects of this  transferred  operation,  European sales would have
increased  by 53.0% over 1994,  of which 13.8% would have been  attributable  to
internal growth.

         Gross  profit  as a  percentage  of net  sales  was  27.6% in 1995,  as
compared to 29.4% in 1994, a decrease of 1.8%. The decrease was  attributable to
several factors  including:  the lower relative gross profit margins  associated
with the 1995 and 1994  acquisitions  (accounting  for a  decrease  of 0.3%);  a
higher  LIFO  charge  associated  with  inventory  cost  increases  in the  U.S.
(accounting  for a decrease of 0.2%);  and changes in customer  and product mix;
lower paper product gross margins due to the Company's  inability to immediately
adjust  selling prices to fully reflect cost  increases of these  products;  and
competitive pricing pressure, none of which can be specifically quantified.

         Selling and administrative expenses increased to $266.2 million in 1995
from $197.1  million in 1994, an increase of $69.1  million.  U.S.  acquisitions
accounted for $21.8 million of this increase and the B+N consolidation accounted
for $16.6 million of this increase. The balance of the increase was attributable
to existing operations.  Selling and administrative  expenses as a percentage of



                                      -26-

<PAGE>



net sales were 23.5% in 1995,  as compared to 25.0% in 1994, a decrease of 1.5%.
This decrease was primarily  attributable  to lower  relative  expense levels in
both the United States and Europe.

         Operating  income increased to $28.7 million in 1995 from $20.8 million
in 1994, an increase of 38.0%.  Operating income in the U.S.  increased to $22.8
million in 1995 from $18.5  million in 1994,  an increase of $4.3  million.  The
increase  was  primarily  attributable  to  improved  operating  performance  at
existing divisions.

         Operating  income in Europe increased to $5.9 million in 1995 from $2.3
million in 1994, an increase of $3.6 million.  The increase was  attributable to
the consolidation of the B+N operating results (accounting for $.8 million) with
the balance due to improvements in operating performance at existing divisions.

         Third party  interest  expense  decreased  to $3.6 million in 1995 from
$4.4 million in 1994, a decrease of $.8 million. This decrease was due primarily
to a capital  contribution  by KNP BT to  Copygraphic  in the fourth  quarter of
1994.  Interest  expense to  affiliates  decreased to $12.4 million in 1995 from
$12.6  million in 1994,  a decrease of $.2 million.  The decrease in  affiliated
interest  expense was  attributable  to the effects of the  Reorganization,  the
Offering and the $200 million long term credit  agreement with KNP BT Antilliana
N.V. (the "Antilliana  Credit  Agreement")  which has resulted in lower interest
rates.

         Net income increased to $6.7 million in 1995 from a loss of $.2 million
in 1994, an increase of $6.9 million. The increase was attributable to increased
income at existing divisions, new acquisitions, lower interest costs as a result
of the Reorganization,  the Offering and the Antilliana Credit Agreement,  and a
lower effective  income tax rate. The effective  income tax rate was 52% in 1995
as compared to 104% in 1994. The reduction is primarily  attributable to reduced
state  income  taxes  as a  result  of the  merger  of  several  U.S.  operating
subsidiaries on December 31, 1994 and to the reduced  effects of  non-deductible
goodwill amortization as a result of higher pre-tax income.

Liquidity and Capital Resources

         Historically,  the  Company  relied  upon cash  flow  from  operations,
capital  contributions  from KNP BT, and cash from revolving  credit  facilities
with KNP BT to fund working capital,  capital expenditures and acquisitions.  In
July 1995,  the Company  completed the sale of 10 million shares of Common Stock
in the Offering (see Note 1 to the consolidated  financial  statements).  Of the
Net Proceeds of $98.4 million, the Company used $65.8 million to repay, in full,
non-interest bearing advances from affiliates of KNP BT made in 1994 and 1995 to
finance  acquisitions.  The Company  used the  remaining  Net Proceeds to reduce
outstanding  indebtedness under the interest bearing advances from affiliates of
KNP BT made to the  Company  for working  capital  and other  general  corporate
purposes. Upon the completion of the Offering, the Company also entered into the
Antilliana  Credit  Agreement  to provide  funds for  working  capital and other
general corporate purposes.

         On August 2, 1996, the Company  entered into a $250 million  syndicated
bank  Competitive  Advance and Revolving  Credit  Facility  Agreement (the "Bank
Credit Agreement"). The Bank Credit Agreement was used to pay down existing debt
owing to affiliates  of the Company and is being used for working  capital needs
and general corporate purposes, including acquisitions.  After entering into the
Bank Credit Agreement,  the Company reduced the commitments  available under the
Antilliana Credit Agreement, which will expire in July 1998, to $50 million.



                                      -27-

<PAGE>



         Cash provided by operating  activities  in the year ended  December 31,
1996 was $48.5  million,  which  included  $14.7 million of net income and $25.4
million of non-cash  depreciation  and  amortization  charges.  Significant cash
requirements  for 1996 included $130.1 million related to acquisitions and $25.1
million for capital expenditures.  These requirements were partially financed by
$119.0 million of net borrowings under notes payable and long-term  obligations.
The Company repaid a significant  portion of the borrowings under the Antilliana
Credit  Agreement with  borrowings  under the Bank Credit  Agreement  during the
second half of 1996.

         Cash used for operating activities for the year ended December 31, 1995
was $.3  million.  The Company  generated  cash flows of $6.7  million  from net
income and $19.8 million from non-cash  depreciation and  amortization  charges.
The cash flow was used to finance its net cash needs of $26.8  million for other
operating  activities.  An increase in accounts  receivable  accounted for $32.7
million of these needs. The increase in accounts  receivable was attributable to
higher sales levels in the U.S. and Europe.  Other significant cash requirements
in 1995  included  $161.4  million  for the  repayment  of amounts due under the
credit  facility  with  KNP BT and its  affiliates,  $37.2  million  related  to
acquisitions, $21.9 million for capital expenditures and $.7 million for the net
repayment of notes payable and long-term  obligations.  Remaining cash for these
activities and other uses of funds were provided by the $118.0  million  Capital
Contribution and the Net Proceeds of the Offering.

         Cash used in operating  activities for the year ended December 31, 1994
was $4.4  million.  The  Company  generated  cash flows for $14.7  million  from
non-cash  depreciation  and  amortization  charges  offset  by a net loss of $.2
million.  These  cash  flows  were used to  finance  its net cash needs of $18.9
million for other operating assets and liabilities. Increases in inventories and
accounts receivable accounted for $5.0 million and $14.5 million of these needs,
respectively.  The overall growth in  inventories  relative to the growth in net
sales has slowed as evidenced  by an increase of inventory  turns from 8.1 turns
in 1993 to 8.9 turns in 1994 (providing for the partial year impact on inventory
for  acquisitions  during the  periods).  The increase in trade  receivable  was
attributable to higher sales levels as days sales outstanding  remained constant
at 46 days. The changes from year to year in accounts receivable and inventories
are also impacted by the timing of acquisitions  and exchange rate  fluctuations
in translating  foreign currency balances into U.S.  Dollars.  Other significant
cash   requirements   in  1994  included   $41.2  million   related  to  several
acquisitions, $12.9 million for capital expenditures principally for information
systems  hardware  and  software  requirements  and  improvements  to  warehouse
facilities,  and $16.2 million for net repayments of notes payable and long-term
obligations.  KNP BT  contributed  $10.4  million  of capital in the form of net
capital  contributions  to existing  companies  of $9.7  million  and  allocated
divisional  expenses not  reimbursed  of $.7 million.  Remaining  cash for these
activities,  and other net uses, was provided by additional  borrowings of $79.2
million under the revolving credit facility with KNP BT and its affiliates.

         In 1996, the Company had total capital  expenditures  of $25.1 million.
The Company has budgeted aggregate capital expenditures of $31.4 million for the
year ending  December 31, 1997  excluding  any  expenditures  relating to recent
acquisitions.  These budgeted  expenditures  primarily  relate to investments in
information  technology  systems,  costs  associated  with its business  process
reengineering and improvements to existing distribution centers.

         The Company  believes  that  internally  generated  funds and available
borrowings under its credit  agreements will be sufficient to meet its presently
anticipated  cash  requirements  for capital  expenditures  and working capital.
However,  since the  Offering in July 1995,  the Company has relied  principally
upon its debt  facilities,  the most  significant of which is currently the $250
million Bank Credit Agreement,  to finance acquisitions.  Total borrowings under
the Bank Credit  Agreement  at December 31, 1996 were $197.2  million.  The most
restrictive covenant in the Bank Credit Agreement currently limits, and may


                                      -28-

<PAGE>



in the future  limit,  the  Company's  ability to fully  utilize  the  available
capacity  remaining under the Bank Credit Agreement and other credit  facilities
of the Company.  While the Company continues to seek acquisition candidates on a
selective  basis,  it is expected that the level of acquisition  activity in the
first half of 1997 will be limited, as the focus will be on integrating the 1996
acquired  companies.  The Company  anticipates  significant  future  acquisition
funding,  to the extent  required,  will necessitate  obtaining  additional debt
and/or  equity  capital  resources.  The  Company  is  presently  examining  and
evaluating several alternatives.

Effects of Fluctuations in Foreign Currency Exchange Rates

         Approximately  25% of the  Company's  operating  revenues and operating
expenses are generated  from its European  operations  and are  denominated in a
variety of currencies  other than United States  dollars.  Each of the Company's
European  operations  conducts  substantially  all of its  business in its local
currency  with  minimal  cross-border  product  movement.  As  a  result,  these
operations  are not  subject  to  material  operational  risks  associated  with
fluctuations in exchange rates.  The Company's  results of operations,  however,
are impacted by the translation rate of the European operations' currencies into
United States dollars.  Additionally,  because the Company intends to expand the
size and scope of its international operations, this exposure to fluctuations in
exchange  rates will be increased.  Accordingly,  no assurance can be given that
the  Company's  results  of  operations  will  not  be  adversely   affected  by
fluctuations in foreign currency exchange rates.  Although the Company currently
does not engage in any  activities  with respect to hedging its exposure to such
fluctuations, it may consider engaging in such efforts in the future.

Inflation

         The Company does not believe that  inflation has had a material  impact
on its business or results of operations in recent years. However,  there can be
no assurance  that the  Company's  business will not be affected by inflation in
the future.

Other

         The  Financial  Accounting  Standards  Board issued  Statement No. 125,
"Accounting for Transfers and Services of Financial  Assets and  Extinguishments
of  Liabilities"  ("SFAS  125"),  which  requires  an  entity to  recognize  the
financial and servicing  assets it controls and the  liabilities it has incurred
and to  derecognize  financial  assets  when  control  has been  surrendered  in
accordance  with the  criteria  provided  in SFAS 125.  The  Company has not yet
determined the impact of SFAS 125 on the financial statements.

Forward Looking Statements

         Various  statements  made  within  this  Management's   Discussion  and
Analysis of Financial  Condition and Results of Operations and elsewhere in this
Annual Report on Form 10-K constitute  "forward looking statements" for purposes
of the Securities and Exchange  Commission's  "safe harbor" provisions under the
Private  Securities  Litigation  Reform  Act of 1995 and  Rule  3b-6  under  the
Securities  Exchange Act of 1934, as amended.  Investors are cautioned  that all
forward  looking  statements  involve risks and  uncertainties,  including those
detailed in the Company's  filings with the Securities and Exchange  Commission.
There can be no assurance that actual results will not differ from the Company's
expectations.  Factors which could cause materially  different  results include,
among  others,  uncertainties  related  to the  introduction  of  the  Company's
products  and  services;   the   successful   completion   and   integration  of
acquisitions; and competitive and general economic conditions.



                                      -29-

<PAGE>



Item 8.  Financial Statements and Supplementary Data

         See  Item 14  below  for a  listing  of  financial  statements  and the
financial statement schedule included therein.


Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

         Not applicable.


                                      -30-

<PAGE>



                                    PART III


Item 10.  Directors and Executive Officers of the Registrant.

         The information in the Company's Proxy Statement for the Annual Meeting
of  Stockholders  to be held on May 29,  1997 under the  captions  "Election  of
Directors,"   "Executive  Officers"  and  "Section  16(a)  Beneficial  Ownership
Reporting Compliance" is incorporated herein by reference.


Item 11.  Executive Compensation

         The information in the Company's Proxy Statement for the Annual Meeting
of  Stockholders  to be  held on May  29,  1997  under  the  caption  "Executive
Compensation" is incorporated herein by reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

         The information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 29, 1997 under the caption "Security Ownership
of  Certain  Beneficial  Owners  and  Management"  is  incorporated   herein  by
reference.


Item 13.  Certain Relationships and Related Transactions

         The information in the Company's Proxy Statement for the Annual Meeting
of  Stockholders  to be  held  on  May  29,  1997  under  the  caption  "Certain
Relationships and Related  Transactions" and "Compensation  Committee Interlocks
and Insider Participation" is incorporated herein by reference.




                                      -31-

<PAGE>



                                     PART IV


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


(a)      The following financial  statements and financial statement schedule of
the Company are included in this Report:

Financial Statements:

         Reports of Independent Accountants
         Consolidated Balance Sheets as of December 31, 1996 and 1995
         Consolidated  Statements of Operations for the years ended December 31,
              1996, 1995 and 1994 
         Consolidated Statements of Stockholders' Equity for the years ended 
              December 31, 1996, 1995 and 1994
         Consolidated  Statements of Cash Flows for the years ended December 31,
              1996, 1995 and 1994 Notes to Consolidated Financial Statements


Schedule:

         Schedule II - Valuation and Qualifying Accounts


Exhibits:


                
   Exhibit
   Number       Description
   -------      ----------------------------------------------------------------
       2.1      Exchange Agreement  (incorporated by reference to Exhibit 2.1 to
                the  Company's  Annual  Report on Form 10-K for the Fiscal  Year
                ended December 31, 1995, Commission file no. 1-13858).

       3.1      Amended and Restated Certificate of Incorporation of the Company
                (incorporated  by reference to Exhibit 3.1 filed with  Amendment
                No. 2 to the Company's Registration Statement on Form S-1, dated
                July 7, 1995, Registration No. 33-12124).

       3.2      Amended and  Restated  By-laws of the Company  (incorporated  by
                reference  to  Exhibit  3.2 filed  with  Amendment  No. 2 to the
                Company's  Registration  Statement  on Form S- 1,  dated July 7,
                1995,   Registration  No.  33-12124).   

      10.1      Antilliana  Credit  Agreement   (incorporated  by  reference  to
                Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
                Fiscal  Year  ended  December  31,  1995,  Commission  file  no.
                1-13858).

      10.2      Registration  Rights  Agreement  among  NV  Koninklijke  KNP BT,
                Buhrmann-Tetterode    International   B.V.   and   the   Company
                (incorporated  by  reference  to Exhibit  10.2 to the  Company's
                Annual  Report on Form 10-K for the Fiscal  Year ended  December
                31, 1995, Commission file no. 1-13858).



                                      -32-

<PAGE>




      10.3      Tax Matters Agreement (incorporated by reference to Exhibit 10.3
                to the Company's  Annual Report on Form 10-K for the Fiscal Year
                ended December 31, 1995, Commission file no. 1-13858).

     *10.4      Amendment  No. 1 to Tax  Matters  Agreement  dated as of June 7,
                1996.

      10.5      License Agreement  (incorporated by reference to Exhibit 10.4 to
                the  Company's  Annual  Report on Form 10-K for the Fiscal  Year
                ended December 31, 1995, Commission file no. 1-13858).

      10.6      Intercompany  Services  Agreement  between NV Koninklijke KNP BT
                and the Company  (incorporated  by  reference to Exhibit 10.5 to
                the  Company's  Annual  Report on Form 10-K for the Fiscal  Year
                ended December 31, 1995, Commission file no. 1-13858).

      10.7      Agreement  for Credit  Support  (incorporated  by  reference  to
                Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
                Fiscal  Year  ended  December  31,  1995,  Commission  file  no.
                1-13858).

      10.8      Form of  Indemnification  Agreement  for officers and  directors
                (incorporated  by reference to Exhibit 10.7 filed with Amendment
                No. 2 to the Company's Registration Statement on Form S-1, dated
                July 7, 1995, Registration No. 33-12124).
   
    + 10.9      Supplemental  Executive Retirement Plan, as amended by the First
                Amendment thereto  (incorporated by reference to Exhibit 10.8 to
                the  Company's  Annual  Report on Form 10-K for the Fiscal  Year
                ended December 31, 1995, Commission file no. 1-13858).

   +*10.10      Second Amendment to Supplemental Executive Retirement Plan.

   + 10.11      1995 Stock  Option Plan  (incorporated  by  reference to Exhibit
                10.9 filed with  Amendment No. 1 to the  Company's  Registration
                Statement  on Form S-1,  dated June 22, 1995,  Registration  No.
                33-12124).

     10.12      Promissory Note evidencing  mortgage  (incorporated by reference
                to Exhibit  10.10 filed with  Amendment  No. 2 to the  Company's
                Registration   Statement  on  Form  S-1,  dated  July  7,  1995,
                Registration No. 33-12124).

     10.13      Mortgage and Note Amendment Agreement (incorporated by reference
                to Exhibit  10.11 filed with  Amendment  No. 2 to the  Company's
                Registration   Statement  on  Form  S-1,  dated  July  7,  1995,
                Registration No. 33-12124).

   + 10.14      Employment  Agreement  of Rudolf A.J.  Huyzer  (incorporated  by
                reference to Exhibit  10.12 to the  Company's  Annual  Report on
                Form  10-K  for  the  Fiscal  Year  ended   December  31,  1995,
                Commission file no. 1-13858).

   + 10.15      Employment  Agreement  of John  J.  McKiernan  (incorporated  by
                reference to Exhibit  10.13 to the  Company's  Annual  Report on
                Form  10-K  for  the  Fiscal  Year  ended   December  31,  1995,
                Commission file no. 1-13858).

   + 10.16      Employment  Agreement  of  Richard  C.  Dubin  (incorporated  by
                reference to Exhibit  10.15 to the  Company's  Annual  Report on
                Form  10-K  for  the  Fiscal  Year  ended   December  31,  1995,
                Commission file no. 1-13858). 

   + 10.17      Employment   Agreement   of  David  Kirshner  (incorporated  by 
                reference  to  Exhibit  10.16 to the Company's Annual Report on 
                Form  10-K  for  the  Fiscal  Year  ended  December  31,  1995,
                Commission file no. 1-13858).

   + 10.18      Employment  Agreement  of Michael  J.  Miller  (incorporated  by
                reference to Exhibit  10.17 to the  Company's  Annual  Report on
                Form  10-K  for  the  Fiscal  Year  ended   December  31,  1995,
                Commission file no. 1-13858).



                                      -33-

<PAGE>




   + 10.19      Assignment  and  Modification  Agreement,  dated June 26,  1996,
                among BT Office Products International,  Inc., KNP BT Antilliana
                N.V. and KNP BT Finance (USA),  Inc.  (incorporated by reference
                to Exhibit 10.1 to the Company's  Quarterly  Report on Form 10-Q
                for the Fiscal Quarter ended June 30, 1996,  Commission file no.
                1-13858).

     10.20      Competitive  Advance and Revolving  Credit  Facility  Agreement,
                dated  as  of   August  2,   1996   among  BT  Office   Products
                International,  Inc., the  subsidiaries,  guarantors and lenders
                named  therein,  The Chase  Manhattan  Bank,  as  Administrative
                Agent,   and  ABN  AMRO  Bank  N.V.,  as   Documentation   Agent
                (incorporated  by  reference  to Exhibit  10.2 to the  Company's
                Quarterly  Report on Form 10-Q for the Fiscal Quarter ended June
                30, 1996, Commission file no. 1-13858).

    *10.21      Amendment No. 1 dated as of December 20, 1996 to the Competitive
                Advance and Revolving Credit Facility Agreement.

    *10.22      Cash Management Agreement dated June 24, 1996 among the Company,
                Astro-  Valcour,  Inc.,  Sengewald  USA, Inc., KNP BT Antilliana
                N.V. and KNP BT Finance (USA), Inc.

     *21.1      Subsidiaries of the Company.

     *23.1      Consent of Coopers & Lybrand L.L.P.

     *23.2      Consent of Ernst & Young LLP.

     *27.1      Financial Data Schedule.


-------------------------
* Filed herewith

+ Management contract or compensatory plan or arrangement.


(b)  Reports on Form 8-K:

         On October 17,  1996,  the Company  filed a Current  Report on Form 8-K
reporting the acquisition of Bax in Germany.

         On December 9, 1996, the Company filed a Current Report on Form 8-K/A-1
to amend its Current  Report on Form 8-K dated  October 17, 1996  reporting  the
acquisition  of  Bax in  Germany  in  order  to  indicate  that  due to  certain
amendments  to  Regulation  S-X,  the  Company  was no longer  required  to file
financial   statements  of  such  acquired   company  and  pro  forma  financial
information  showing the effects of such acquisition  pursuant to Item 7 of Form
8-K.

         On December 31, 1996,  the Company  filed a Current  Report on Form 8-K
reporting the acquisition of Bjorsell in Sweden.




                                      -34-

<PAGE>



                                   SIGNATURES



                  Pursuant to the  requirements  of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
                
                                     BT OFFICE PRODUCTS INTERNATIONAL, INC.



Date:  March 26, 1997                By     /s/ Rudolf A.J. Huyzer
                                         -------------------------
                                         Rudolf A.J. Huyzer
                                         President and Chief Executive Officer


                  Pursuant to the requirements of the Securities Exchange Act of
1934,  this report has been signed below by the  following  persons on behalf of
the Registrant and in the capacities and on the dates indicated.



Signature                                Title                       Date


  /s/ Frank J. de Wit        Chairman of the Board
--------------------------   of Directors                     March 26, 1997
(Frank J. de Wit)          


  /s/ Rudolf A.J. Huyzer     President, Chief Executive 
--------------------------   Officer and Director             March 26, 1997
(Rudolf A.J. Huyzer)         


                             Vice President-Finance and
  /s/ John J. McKiernan      Administration, Chief 
--------------------------   Financial Officer and Secretary  March 26, 1997
(John J. McKiernan)          



  /s/ Francis J. Leonard     Controller and Chief Accounting
--------------------------   Officer                          March 26, 1997
(Francis J. Leonard)         



  /s/ Rob W.J.M. Bonnier                Director              March 26, 1997
--------------------------
(Rob W.J.M. Bonnier)        



  /s/ Frans H.J. Koffrie                Director              March 26, 1997
--------------------------
(Frans H.J. Koffrie)      


                                      -35-
<PAGE>







  /s/ Lorrence T. Kellar                Director              March 26, 1997
--------------------------
(Lorrence T. Kellar)      



  /s/ Philip E. Beekman                 Director              March 26, 1997
--------------------------
(Philip E. Beekman)       





                                      -36-
<PAGE>
                        Consolidated Financial Statements

                     BT Office Products International, Inc.




                                    Contents



Reports of Independent Accountants                                       38

Financial Statements                                                     40

Consolidated Balance Sheets as of December 31, 1996 and 1995             40

Consolidated Statements of Operations for the years ended                42
  December 31, 1996, 1995, and 1994               

Consolidated Statements of Stockholders' Equity for the 
  years ended December 31, 1996, 1995, and 1994                          43

Consolidated Statements of Cash Flows for the years ended                
  December 31, 1996, 1995, and 1994                                      44

Notes to Consolidated Financial Statements                               45







                                      -37-

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Shareholders
BT Office Products International, Inc.

    We have audited the  accompanying  consolidated  balance  sheet of BT Office
Products  International,  Inc. and subsidiaries as of December 31, 1996, and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for the year  ended  December  31,  1996.  Our  audit  also  included  the
financial  statement  schedule  listed in the  Index at Item  14(a) of this Form
10-K.  These  financial  statements  and  financial  statement  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements and financial statement schedule based on
our audit.

    We  conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  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 audit provides a reasonable basis for our opinion.

    In our opinion,  the financial  statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position of BT Office
Products  International,  Inc. and subsidiaries as of December 31, 1996, and the
consolidated  results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles. In addition,
in our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents  fairly,  in all  material  respects  the  information  required  to be
included therein.


/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
February 5, 1997



                                      -38-

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS



The Board of Directors and Shareholders
BT Office Products International, Inc.

    We have audited the  accompanying  consolidated  balance  sheet of BT Office
Products  International,  Inc. and subsidiaries as of December 31, 1995, and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the two years in the  period  ended  December  31,  1995.  Our
audits also included the  financial  statement  schedule  listed in the Index at
Item 14(a) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

    We conducted  our audits in  accordance  with  generally  accepted  auditing
standards.  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 financial  statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position of BT Office
Products  International,  Inc. and subsidiaries as of December 31, 1995, and the
consolidated  results of their  operations  and their cash flows for each of the
two years in the period ended  December 31, 1995, in conformity  with  generally
accepted  accounting  principles.  In addition,  in our opinion,  the  financial
statement  schedule  referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material respects
the information required to be included therein.


/s/ Ernst & Young LLP
Chicago, Illinois
April 5, 1996


                                      -39-

<PAGE>

<TABLE>
<CAPTION>
                           Consolidated Balance Sheets

                     BT Office Products International, Inc.


                                                                                                   December 31
                                                                                ------------------------------------------
(In thousands, except share and per share amounts)                                        1996                    1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                     <C>
Assets

Current assets:
  Cash and cash equivalents                                                          $  20,163               $   7,568
  Accounts receivable, less allowances of $4,915 in 1996 and
     $4,222 in 1995                                                                    203,629                 160,747
  Other receivables                                                                     22,197                  20,243
  Due from affiliates                                                                      475                   2,791
  Inventories                                                                          119,370                  86,639
  Deferred income taxes                                                                  1,761                   1,900
  Investment in sales-type leases                                                       10,573                   4,708
  Prepaid expenses and other current assets                                             13,838                  11,089
                                                                                     ---------               ---------

Total current assets                                                                   392,006                 295,685

Deferred income taxes                                                                    5,688                   3,628
Investment in sales-type leases                                                         17,119                   5,306
Other assets                                                                             6,238                   5,574

Property, plant and equipment:
  Land                                                                                   1,236                   1,594
  Buildings                                                                             31,755                  25,571
  Machinery and equipment                                                               96,907                  79,509
                                                                                     ---------               ---------
                                                                                       129,898                 106,674
Accumulated depreciation and amortization                                               51,483                  42,033
                                                                                     ---------               ---------

Net property, plant and equipment                                                       78,415                  64,641

Costs in excess of net assets of businesses acquired, net of
  accumulated amortization of $16,621 in 1996 and $12,003 in
  1995                                                                                 231,222                 134,507
Other intangible assets, net of accumulated amortization of $27,213
  in 1996 and $22,002 in 1995                                                           12,131                  15,306
                                                                                     ---------               ---------

Total Assets                                                                          $742,819                $524,647
                                                                                      ========                ========

The accompanying notes are an integral part of the consolidated financial statements
</TABLE>

                                      -40-

<PAGE>

<TABLE>
<CAPTION>
                           Consolidated Balance Sheets

                     BT Office Products International, Inc.

                                                                                                   December 31
                                                                                ------------------------------------------
(In thousands, except share and per share amounts)                                         1996                   1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                     <C>
Liabilities and stockholders' equity

Current liabilities:
  Notes payable                                                                      $  41,207               $  20,176
  Current portion of long-term obligations                                               6,727                   5,443
  Accounts payable                                                                     123,306                  79,130
  Due to affiliates                                                                      1,504                   2,102
  Accrued compensation and benefits                                                     21,977                  15,834
  Accrued sales tax                                                                      8,778                   7,551
  Accrued expenses                                                                      29,434                  20,457
  Income taxes payable                                                                   2,363                      --
  Deferred income tax                                                                    2,765                   1,029
                                                                                     ---------               ---------

Total current liabilities                                                              238,061                 151,722

Long-term obligation with affiliates                                                     4,247                  83,148
Long-term obligations, less current portion                                            215,455                  16,403
Accrued pension and postretirement costs                                                 9,252                   7,147
Deferred income taxes                                                                    1,930                      91
Accrued expenses                                                                         5,222                   5,901
                                                                                     ---------               ---------

                                                                                       236,106                 112,690
Commitments and contingencies

Stockholders' equity:
  Preferred stock, par value of $.01 per share; authorized
     shares,10,000,000; none outstanding                                                    --                      --
  Common stock, par value $.01 per share; authorized shares,
     90,000,000; issued shares, 33,471,000 at December 31, 1996
     and 33,400,000 at December 31, 1995                                                   335                     334
  Additional paid-in capital                                                           270,132                 273,477
  Retained earnings (deficit)                                                             (118)                (14,819)
  Cumulative translation adjustments                                                    (1,697)                  1,243
                                                                                     ---------               ---------
Total stockholders' equity                                                             268,652                 260,235
                                                                                     ---------               ---------

Total Liabilities and Stockholders' Equity                                            $742,819                $524,647
                                                                                      ========                ========

The accompanying notes are an integral part of the consolidated financial statements
</TABLE>


                                      -41-

<PAGE>

<TABLE>
<CAPTION>
                      Consolidated Statements of Operations

                     BT Office Products International, Inc.



                                                                            Year ended December 31
                                                   -------------------------------------------------------------------------
(In thousands, except per share amounts)                     1996                   1995                       1994
----------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                    <C>                        <C>      
Sales:
  Net sales-products                                         $1,412,333             $1,132,127                 $ 789,383
  License fee revenues                                              181                    243                       158
                                                             ----------             ----------                 ---------
                                                              1,412,514              1,132,370                   789,541
Costs and expenses:
  Costs of products sold, including inventory
     purchased from affiliates of $8,606,
     $8,567 and $3,895                                        1,004,713                819,078                   557,737
  Selling and administrative expenses,
     including management fees and shared
     expenses paid to  affiliates of $2,035,
     $3,959 and $5,797                                          345,879                266,163                   197,088
  Depreciation and amortization                                  13,693                 10,339                     7,796
  Amortization of intangibles                                    10,046                  8,117                     6,111
                                                             ----------             ----------                 ---------
                                                              1,374,331              1,103,697                   768,732
                                                             ----------             ----------                 ---------
Operating income                                                 38,183                 28,673                    20,809

Other income (expense):
  Interest income and other                                       2,091                  1,287                       629
  Equity in loss of affiliated company                               --                     --                      (112)
  Interest expense                                               (7,401)                (3,561)                   (4,389)
  Interest expense to affiliates                                 (5,172)               (12,372)                  (12,641)
                                                             ----------             ----------                 ---------
                                                                (10,482)               (14,646)                  (16,513)
                                                             ----------             ----------                 ---------
Income before income taxes                                       27,701                 14,027                     4,296
Income tax expense                                               13,000                  7,337                     4,455
                                                             ----------             ----------                 ---------
Net income (loss)                                           $    14,701            $     6,690                $     (159)
                                                            ===========            ===========                ==========

Net income (loss) per share                                 $       .44            $       .24                $    (.01)
                                                            ===========            ===========                =========
Weighted-average number of common and
  common equivalent shares                                       33,687                 27,975                    23,400
                                                            ===========            ===========                ==========


The accompanying notes are an integral part of the consolidated financial statements
</TABLE>

                                      -42-

<PAGE>

<TABLE>
<CAPTION>
                 Consolidated Statements of Stockholders' Equity

                     BT Office Products International, Inc.


                                                          Additional          Retained         Cumulative             Total
                                         Common             Paid-in           Earnings         Translation         Stockholders'
(In thousands)                            Stock             Capital           (Deficit)        Adjustments            Equity
---------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>               <C>               <C>                    <C>   
Balance at December 31, 1993              $     234         $  33,195         $ (21,350)        $  (4,372)             $7,707

  Net loss                                       --                --              (159)               --                (159)
  Offering costs incurred                        --            (4,219)               --                --              (4,219)
  Net capital and intercompany
     transactions-unrelated
     businesses                                  --              (527)               --                --                (527)
  Net capital and intercompany
     transactions-related
     businesses                                  --            15,644                --                --              15,644
  Currency translation
     adjustments                                 --                --                --             3,487               3,487
                                          ---------         ---------         ----------         ---------           --------
Balance at December 31, 1994                    234            44,093           (21,509)             (885)             21,933

  Net income                                     --                --             6,690                --               6,690
  Issuance of common stock,
     net                                        100           102,607                --                --             102,707
  Capital contribution                           --           118,000                --                --             118,000
  Net capital and intercompany
     transactions-unrelated
     businesses                                  --             4,927                --                --               4,927
  Net capital and intercompany
     transactions-related
     businesses                                  --             3,850                --                --               3,850
  Corporate reorganization:
     Historical paid-in capital                  --           (33,281)               --                --             (33,281)
     Transfer of unrelated
        businesses                               --            59,990                --                --              59,990
     Contribution of related
        businesses                               --           (79,579)               --                --             (79,579)
     Recapitalization                            --            52,870                --                --              52,870
  Currency translation
     adjustments                                 --                --                --             2,128               2,128
                                          ---------         ---------         ----------         ---------           --------
Balance at December 31, 1995                    334           273,477           (14,819)            1,243             260,235

  Net income                                     --                --            14,701                --              14,701
  Stock options exercised                         1               867                --                --                 868
  Acquisition of Bax-a related
     entity                                      --            (3,630)               --                --              (3,630)
  Other                                          --              (582)               --                --                (582)
  Currency translation
     adjustments                                 --                --                --            (2,940)             (2,940)
                                          ---------         ---------         ----------         ---------           --------
Balance at December 31, 1996              $     335         $ 270,132         $    (118)         $ (1,697)           $268,652
                                          =========         =========         =========          ========            ========


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

</TABLE>
                                      -43-

<PAGE>
<TABLE>
<CAPTION>
                                       Consolidated Statements of Cash Flows

                                      BT Office Products International, Inc.
                                                                                       Year Ended December 31
                                                                       -----------------------------------------------------
(In thousands)                                                              1996                1995                1994
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                 <C>                    <C>   
Operating activities
Net income (loss)                                                      $  14,701           $   6,690              $ (159)
Adjustments to reconcile net income (loss) to net
  cash provided by (used for) operating activities:
  Depreciation and amortization                                           15,351              11,663               8,635
  Amortization of intangibles                                             10,046               8,117               6,111
  Provision for doubtful accounts                                          2,107               1,369               1,826
  (Gain) loss on sale of property, plant and equipment, net                   70                 (77)                394
  Deferred income taxes                                                    1,477               2,323                 (19)
  Equity in earnings of affiliated company                                    --                  --                 112
Changes  in  operating  assets  and  liabilities,  net of  
  effects  of  business acquisitions:
  Accounts receivable                                                     (6,312)            (32,681)            (14,478)
  Inventories                                                             (8,334)             (8,605)             (5,006)
  Other current assets                                                    (3,800)              1,021                 (61)
  Accounts payable and accrued expenses                                   20,623              10,793               3,468
  Due to/from affiliates, net                                              1,564              (1,685)             (1,791)
  Income taxes payable (refundable)                                        1,020                 728              (3,385)
                                                                       ---------           ---------           ---------
Net cash provided by (used for) operating activities                      48,513                (344)             (4,353)

Investing activities
Purchases of property, plant and equipment                               (25,090)            (21,886)            (12,851)
Acquisitions of businesses, less cash acquired                          (130,135)            (37,248)            (41,239)
Proceeds from disposal of property, plant and equipment                    1,795                 881                  26
Other assets and liabilities                                              (1,581)             (6,064)             (6,912)
                                                                       ---------           ---------           ---------
Net cash used for investing activities                                  (155,011)            (64,317)            (60,976)

Financing Activities
Proceeds from issuance of notes payable                                   15,571               9,562               2,723
Repayments of notes payable                                              (13,261)            (11,071)            (13,138)
Proceeds from issuance of long-term obligations                          220,135               6,100               1,885
Repayments of long-term obligations                                      (25,250)             (5,337)             (7,715)
Net borrowings (repayments) on obligations with                          (78,228)           (161,420)             79,237
  affiliates
Proceeds from stock options exercised including                              868                  --                  --
  related tax benefits
Net transactions of unrelated businesses transferred                          --               4,927                (527)
Net transactions of related businesses contributed                          (476)              3,850              10,447
Capital contribution by KNP BT                                                --             118,000                  --
Issuance of common stock, net                                               (106)            102,707              (4,219)
                                                                        --------          ----------           ---------
Net cash provided by financing activities                                119,253              67,318              68,693
Effect of exchange rate changes on cash and cash equivalents                (160)                (84)                 (4)
                                                                       ---------           ---------           ---------
Net increase in cash and cash equivalents                                 12,595               2,573               3,360
Cash and cash equivalents at beginning of year                             7,568               4,995               1,635
                                                                       ---------           ---------           ---------
Cash and cash equivalents at end of year                               $  20,163           $   7,568           $   4,995
                                                                       =========           =========           =========

  The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
                                      -44-

<PAGE>



                   Notes to Consolidated Financial Statements

                     BT Office Products International, Inc.


1.  Formation and Basis of Presentation

         BT Office Products International, Inc. was organized in 1984 as BT USA,
Inc.,  a  subsidiary  of  Buhrmann-Tetterode  NV, the  predecessor  of KNP BT, a
Netherlands-based diversified distribution and manufacturing company.

         On June 30, 1995,  KNP BT and BT Office  Products  International,  Inc.
effected a series of transactions described below (collectively,  the "Corporate
Reorganization")  in order to reorganize the legal ownership of various of their
businesses and to recapitalize the ongoing office products distribution business
which now constitutes the "Company." Prior to the Corporate  Reorganization,  BT
Office  Products  International,  Inc.  was  a  holding  company  (the  "Holding
Company"),  which operated KNP BT's U.S. office products  distribution  business
(through its ownership of its U.S. office products companies) as well as certain
other  businesses  which are unrelated to the U.S. office products  distribution
business.

         The Corporate Reorganization included, among other things: (1) KNP BT's
contribution of the net assets of its European  office  products  businesses and
one U.S.  business to the  Company,  (2) the  transfer of the Holding  Company's
unrelated  businesses to KNP BT, (3) a capital contribution of $118.0 million in
the form of an exchange of  indebtedness  of the Holding  Company under interest
bearing  advances by KNP BT for shares of common stock,  (4) a stock split which
resulted in 23,400,000  shares issued and outstanding,  and (5) the execution of
various agreements related to income tax matters,  financing  arrangements,  and
shared services.

         In July 1995,  the Company  completed the sale of 10,000,000  shares of
common stock at a price of $11.50 per share in an initial  public  offering (the
"Offering").  After the Offering,  KNP BT beneficially owns approximately 70% of
the  Company's  outstanding  common  stock.  The net proceeds  received from the
Offering,  after underwriting  commissions and costs related to the Offering and
the Corporate  Reorganization  ("Net Proceeds"),  were $98.4 million. Of the Net
Proceeds,  the Company used $65.8 million to repay in full non-interest  bearing
advances from affiliates made in 1995 and 1994 to finance several  acquisitions.
The Company used the remaining Net Proceeds to reduce  outstanding  indebtedness
under the interest  bearing  advances  from  affiliates  made to the Company for
working capital and other general corporate purposes.

         Upon  completion  of the  Offering,  the  Company  entered  into a $200
million long-term credit agreement (the "Antilliana  Credit Agreement") with KNP
BT Antilliana N.V. ("Antilliana"), an affiliate of KNP BT. The commitments under
the Antilliana  Credit  Agreement were reduced after the Company's  execution of
the $250 million  long-term  syndicated bank facility led by The Chase Manhattan
Bank, as administrative agent.


                                      -45-

<PAGE>



         The pro  forma  unaudited  results  of  operations  for the year  ended
December 31, 1995,  assuming  the Capital  Contribution  and Net Proceeds of the
Offering occurred as of January 1, 1995, were as follows:
                                                            Year ended
                                                           December 31
(In thousands, except per share amounts)                       1995
----------------------------------------------------------------------

Sales                                                      $1,132,370
Net income                                                     10,781
Net income per share                                              .32
Weighted-average number of common and
   common equivalent shares                                    33,427
----------------------------------------------------------------------

         The  consolidated   financial  position  and  consolidated  results  of
operations  of the  Company  for all periods  presented  prior to the  Corporate
Reorganization include the results of the KNP BT office products businesses,  in
a manner similar to the  pooling-of-interests  method of  accounting,  using KNP
BT's  historical  basis  of  accounting  and  giving  effect  to  the  Corporate
Reorganization.  Corporate  general and  administrative  expenses of KNP BT that
could be specifically  identified as relating to the Company have been reflected
in the consolidated  financial statements.  Those remaining expenses which could
not be specifically identified as relating to the Company have been allocated on
a basis which,  in the opinion of  management,  is a reasonable  estimate of the
level of expenses  which would have been incurred had the Company been operating
as a separate company.

2.  New York Division Irregularities--1995 and 1994

         In March 1996, the Company  discovered certain accounting and financial
reporting  irregularities at its New York operating division. The irregularities
involved  misstatements  in the reporting of gross profit  margins and operating
expenses  principally  in 1995  and  1994,  as well as the  concealment,  in the
accounting records, of theft of Company assets.

         Based  on the  results  of its  internal  investigations,  the  Company
determined  the  impact of the  charges  associated  with  these  issues to be a
reduction of operating income for 1995 by approximately $7.5 million and 1994 by
approximately $2.9 million.  The effect on results of operations for years prior
to 1994 of $500 thousand was adjusted to retained earnings (deficit) at December
31,  1992.  These  adjustments  were  recorded  in the  previously  issued  1995
consolidated financial statements.

         The  Company   also   engaged   legal   counsel  to   investigate   the
irregularities and pursue recoveries, if any, from insurance carriers or others.
This  investigation  uncovered no basis for any further  adjustment to the prior
years' financial statements.

         A class  action  suit was filed in April 1996  against  the Company and
other  defendants  requesting  unspecified  damages.  While  not  admitting  any
wrongdoing and in order to avoid a prolonged  discovery and legal  process,  the
Company has elected to enter into a  negotiated  settlement  with the  attorneys
representing  the  class.  The  proposed   negotiated   settlement  and  related
anticipated recovery under insurance coverage have been reflected in the balance
sheet.


                                      -46-

<PAGE>



3.  Summary of Significant Accounting Policies

Principles of Consolidation

         The consolidated financial statements and related notes to consolidated
financial statements include the accounts of the Company and its subsidiaries.

         All  significant  intercompany  balances  and  transactions  have  been
eliminated in consolidation.  In addition, a 40%-owned foreign affiliate located
in Germany,  was accounted for by the equity method until July 1, 1994, when the
remaining 60% was acquired by the Company.

Cash Equivalents

         Temporary cash investments with an original maturity of three months or
less are considered to be cash equivalents.

Financial Instruments

         The carrying  amount  reported in the  consolidated  balance sheets for
cash and cash equivalents and notes payable  approximates  fair value because of
the short-term maturity of these financial instruments.

         The Company utilizes letters of credit and guarantees by KNP BT to back
certain financing or leasing  instruments.  The letters of credit and guarantees
reflect fair value as a condition of their underlying purpose and are subject to
fees  competitively  determined  in the market  place.  The carrying  amounts of
letters  of credit  and  guarantees  were  $15.0  million  and $15.8  million at
December 31, 1996 and 1995, respectively.

Concentration of Credit Risk

         The Company is in the business of distributing various office products,
including furniture and office equipment,  to businesses throughout the U.S. and
Europe.

         Financial   instruments  that   potentially   subject  the  Company  to
concentration of credit risk consist primarily of trade receivables. Credit risk
with respect to trade  receivables is minimized because of a large customer base
and its geographic  dispersion.  The Company maintains  allowances for potential
credit  losses and  historically  credit  losses have been  within  management's
expectations.

Revenue Recognition

         Revenues   are  recorded  at  the  time  of  shipment  of  products  or
performance  of services.  Revenues  from service  contracts  are  recognized as
income  over the term of the  contract.  The  present  value of  payments  under
sales-type  lease  contracts  is  recorded  as revenue and the book value of the
equipment is charged to costs of products  sold at the time of shipment.  Future
interest income is deferred and recognized over the related lease term.


                                      -47-

<PAGE>



Costs of Products Sold

         Vendor  rebates are recognized on an accrual basis in the period earned
and are  recorded  as a  reduction  to  costs of  products  sold.  Delivery  and
occupancy costs are included as an increase to costs of products sold.

Inventories

         Inventories  consist primarily of products held for sale and are valued
at the lower of cost or market using the last-in,  first-out  (LIFO)  method for
U.S.  inventories  and  the  first-in,   first-out  (FIFO)  method  for  foreign
inventories.

Property, Plant and Equipment

         Property,  plant and  equipment  are stated at cost.  Depreciation  and
amortization  of plant  and  equipment,  including  the  amortization  of assets
recorded under capital leases, are computed using the straight-line  method over
the  estimated  useful lives of the assets or the initial or remaining  terms of
the  leases.  Useful  lives  range  from  three to ten years for  machinery  and
equipment and up to 30 years for buildings. Maintenance and repairs are expensed
as  incurred  while  expenditures  which  extend  the  useful  life of plant and
equipment  are  capitalized.   As  of  December  31,  1996  and  1995,  software
development  costs  for  major  projects  of  $8.4  million  and  $4.9  million,
respectively,  were  capitalized  and are being  amortized  over the  software's
estimated useful life.  Amortization of software  development costs totaled $1.0
million  and $583  thousand  for the years  ended  December  31,  1996 and 1995,
respectively.

Costs in Excess of Net Assets of Businesses Acquired

         Costs in excess of net assets of  businesses  acquired  (goodwill)  are
being amortized on a straight-line basis over 40 years.

Other Intangible Assets

         Costs of customer lists, trademarks, and favorable lease rights arising
from business  combinations are being amortized using the  straight-line  method
over  periods  which  principally  range from 4 to 10 years.  Costs of covenants
not-to-compete   are  amortized  using  the  straight-line   method  over  their
contractual lives, which range from 1 to 5 years.

Impairment of Long-lived Assets

         In the event that facts and circumstances indicate that the cost of any
long-lived  assets may be impaired,  an  evaluation of  recoverability  would be
performed.  If an evaluation is required, the estimated future undiscounted cash
flows associated with the assets would be compared to the carrying amount of the
assets to  determine if a write-down  to market  value or  discounted  cash flow
value is required.

Income Taxes

         The Company  accounts for income taxes in accordance with the Statement
of Financial  Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax  consequences
of temporary  differences by applying enacted statutory tax rates to differences
between  the  financial  statement  carrying  amounts  and tax bases of existing
assets and liabilities. In addition, the amount of any future tax  benefits  are

                                      -48-

<PAGE>



reduced by a valuation allowance to the extent such benefits are not expected to
be realized on a more likely than not basis.

Stock Based Compensation

         Effective December 31, 1996, the Company adopted Statement of Financial
Accounting  Standards No. 123,  "Accounting for Stock Based Compensation" ("SFAS
123").  As provided by SFAS 123,  the Company has elected to continue to account
for its  stock  based  compensation  programs  according  to the  provisions  of
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees." The Company has adopted the disclosure  provisions  required by SFAS
123 (see Note 11).

Per Share Data

         Net income  (loss) per share is computed by dividing net income  (loss)
by the  weighted-average  number  of common  shares  outstanding,  adjusted  for
dilutive common share equivalents  attributed to outstanding options to purchase
common stock.

Translation of Foreign Currencies

         Balance sheet accounts of foreign  operations are translated  using the
year-end  exchange rate and income  statement  accounts are translated using the
average  exchange rate for the year.  Translation  adjustments are recorded as a
separate component of stockholders' equity. The Company does not currently hedge
foreign currency translation risk exposure.

Derivative Financial Instruments

         Forward  exchange  contracts are used to hedge certain net  transaction
exposures. The Company defers unrealized gains or losses until the completion of
the contract.  The Company's  program to hedge net foreign currency  transaction
exposure has been limited to acquisition funding. The hedging activities seek to
limit this risk by offsetting the gains and losses on the  underlying  exposures
with  losses and gains on the  instruments  utilized  to create  the  hedge.  At
December  31,  1996,  the  Company had one  outstanding  contract  totaling  $22
million. The contract value approximated fair value at December 31, 1996.

Use of Estimates

         The  preparation  of  the  financial   statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Reclassifications

         Certain  amounts in the 1995 and 1994  financial  statements  have been
reclassified to conform to the 1996 financial statement presentation.

4.  Business Acquisitions

         In December 1996,  the Company  acquired the Vinborgen I Boras AB group
of  companies  ("Bjorsell"),  an office  products  distributor  in Sweden,  in a
purchase  transaction  for  approximately  $41.5  million  in cash,  subject  to
adjustment as provided in the purchase  agreement.  The transaction  resulted in
goodwill of $30.5 million.

                                      -49-

<PAGE>




         On  December  31,  1996,  the Company  acquired  Kuipers  Centrum  voor
Kantoorefficiency  B.V.  ("Kuipers"),  an  office  products  distributor  in The
Netherlands,  in a purchase transaction for approximately $22.0 million in cash,
subject to adjustment  as provided in the purchase  agreement.  The  transaction
resulted in goodwill of $18.1 million.

         In July 1996, the Company  acquired the two  businesses  comprising the
Keller & Roth Group,  office  products  distributors  in Germany,  in a purchase
transaction  for  approximately  $11.5  million in cash and the issuance of $4.5
million of notes payable. The transaction resulted in goodwill of $12.4 million.

         In  July  1996,  the  Company   assumed   control  of  bax  Burosysteme
Vertriebsgesellschaft  mbH ("Bax"), an indirectly wholly-owned subsidiary of KNP
BT. In October 1996,  the Company  completed the  acquisition  of Bax, an office
equipment distributor in Germany, by acquiring the shares of Bax from KNP BT for
approximately  $9.8 million in cash. The excess purchase price over the net book
value of $3.6 million was charged to additional paid-in capital.

         In  addition,  during the year ended  December  31,  1996,  the Company
acquired  four other  significant  office  products  businesses  in the U.S.  in
purchase  transactions  for  aggregate  consideration  of $26.7  million,  which
included  $25.9  million  of cash  and the  issuance  of $0.8  million  of notes
payable.  These transactions resulted in goodwill of $22.9 million.

         In the  year  ended  December  31,  1995,  the  Company  acquired  five
significant U.S. office products businesses in the U.S. in purchase transactions
for aggregate  consideration  of $34.2 million,  which included $34.0 million of
cash and the  issuance  of $0.2  million of notes  payable.  These  transactions
resulted  in  goodwill  of $19.4  million  and other  intangible  assets of $2.3
million.

         In the  year  ended  December  31,  1994,  KNP BT  acquired  all of the
remaining  outstanding  shares of an  affiliated  office  products  business  in
Germany and the Holding Company acquired six other office products businesses in
the U.S., in purchase transactions for aggregate consideration of $50.2 million,
which  included  $39.5  million of cash,  the  issuance of $5.5 million in notes
payable,  and $5.2  million  (related  to KNP  BT's  acquisition  of the  German
affiliated   company)  was   contributed  to  capital  of  the  Company.   These
transactions  resulted in  goodwill of $50.8  million  (including  $8.7  million
related  to  the  initial  investment  in  the  affiliated  company)  and  other
intangible assets of $5.7 million.

         The pro forma  unaudited  results  of  operations  for the years  ended
December 31, 1996 and 1995,  assuming the 1996 and 1995  acquisitions  described
above had been consummated as of January 1, 1995, were as follows:

                                                    Year ended December 31
                                               --------------------------------
                                                     1996                  1995
(In thousands, except per share amounts)        Unaudited             Unaudited
-------------------------------------------------------------------------------

Sales                                          $1,580,657            $1,439,028
Net income                                         15,818                 8,193
Net income per share                                  .47                   .29
Weighted-average number of common and
   common equivalent shares                        33,687                27,975
-------------------------------------------------------------------------------

         The  Company  also  acquired   several  other  smaller  office  product
businesses in 1996 and 1995 for a total purchase price of $23.8 million and $1.2
million,  respectively.  These acquisitions did not have a significant impact on
the consolidated  financial statements for the years ended December 31, 1996 and
1995.


                                      -50-

<PAGE>




5.  Inventories

         Current cost exceeded the LIFO value of  inventories  by  approximately
$5.3 million and $6.5 million at December 31, 1996 and 1995, respectively.  LIFO
inventories  represented  approximately  60% and  66% of  total  inventories  at
December 31, 1996 and 1995, respectively.

6.  Investment in Sales-type Leases

         The  components  of the net  investment  in  sales-type  leases were as
follows:

                                                      December 31
                                           ----------------------------------
(In thousands)                                 1996                    1995
-----------------------------------------------------------------------------

Lease contracts receivable                   $ 33,147                $ 11,259
Less: Unearned income                          (5,455)                 (1,245)
                                             --------                --------
Net investment in sales-type leases            27,692                  10,014
Less:  Current portion                        (10,573)                 (4,708)
                                             --------                --------
                                             $ 17,119                 $ 5,306
                                             ========                 =======
-----------------------------------------------------------------------------

         Minimum future lease  payments to be received for the  succeeding  five
years on sales-type  leases are as follows:  $12.7 million in 1997, $9.4 million
in 1998, $6.5 million in 1999, $3.5 million in 2000, and $1.1 million in 2001.

7.  Notes Payable

         Notes payable consisted of the following:

                                                               December 31
                                                          ----------------------
(In thousands)                                             1996           1995
--------------------------------------------------------------------------------

Acquisition notes payable to sellers                      $10,976       $  4,136
Borrowings under line-of-credit agreements, a portion
  of which are guaranteed by KNP BT                        30,231         16,040
                                                          -------         ------
                                                          $41,207        $20,176
                                                          =======        =======
--------------------------------------------------------------------------------

         Unused lines of credit with non-affiliates amounted to $25.3 million at
December 31, 1996.

         The weighted average interest rates for short-term  obligations for the
years ended December 31, 1996 and 1995 were 6.4% and 8.4%, respectively.


                                      -51-

<PAGE>

8.  Long-term Obligations

         Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
                                                                                                 December 31
                                                                                    --------------------------------------
(In thousands)                                                                             1996               1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>               <C>
Debt:
  Borrowing under Bank Credit Agreement, due in August 2001 with a
     weighted average interest rate of 5.9% at December 31, 1996                           $197,159          $      --
  Borrowing under Antilliana Credit Agreement, due in June 1998 with a
     weighted average interest rate of 4.3% and 6.5% at December 31, 1996
     and 1995, respectively                                                                   4,247             83,148
  Acquisition notes payable, due October 1, 1996 and September 1, 2000
     with interest payable at the U.S. prime rate and 6.1%, respectively                      1,100              2,000
  Real estate mortgage note, payable in monthly installments of $8 including
     interest, collateralized by the land and building, due November 1, 2006
     with interest payable at 9.375%                                                            646              1,468
  Unsecured note, payable in monthly installments of $20, due February 28,
     2002 with interest payable at 8.5%                                                       1,223              1,597
  Collateralized notes, due in quarterly installments of $205 plus interest,
     collateralized by certain assets, due March 31, 2003 with interest rates
     ranging from 6.0% to 6.9%                                                                3,743                 --
  Other                                                                                         415                153
                                                                                           --------           --------
                                                                                            208,533             88,366
Capitalized leases:
  Building, due July 1, 2022 with an interest rate of 10.8%                                   5,690              6,247
  Building, due December 1, 2009 with an interest rate of 13.7%                               2,036              2,068
  Vehicles, due April 22, 1998 through November 20, 1999 with interest
     rates ranging from 9.5% to 17.0%                                                           150                615
  Office equipment, due January 1996 through December 2001 with interest
     rates ranging from 6.0% to 10.25%                                                        9,751              6,851
  Other                                                                                         269                847
                                                                                           --------           --------
                                                                                             17,896             16,628
                                                                                           --------           --------
                                                                                            226,429            104,994
Less: Current portion                                                                         6,727              5,443
                                                                                           --------           --------
                                                                                           $219,702           $ 99,551
                                                                                           ========           ========
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
         On August 2, 1996, the Company  entered into a $250 million  syndicated
bank  Competitive  Advance and Revolving  Credit  Facility  Agreement (the "Bank
Credit Agreement"). The Bank Credit Agreement was used to pay down existing debt
owed to  affiliates  of the Company and is being used for working  capital needs
and general corporate purposes, including acquisitions.

         The  Bank  Credit  Agreement  provides  for  a  five-year,   unsecured,
non-amortizing,   multi-currency,   revolving   credit   facility.   Under   the
multi-currency  arrangement,  term loans in U.S. Dollars,  German Marks, British
Pounds,  Swedish  Kronor and  Netherlands  Guilders  (other  currencies are also
available)  bear  interest  based on a leverage  ratio ranging from .35% to .55%
over the  applicable  interbank  rate as determined  therein.  The facility also
provides for revolving loans in U.S. Dollars at the prevailing prime rate. There
is a facility fee ranging from .125% to .225% on the unused  portion of the Bank
Credit Agreement based on the leverage ratio.

         The  Bank  Credit  Agreement,  as  modified  in December 1996, contains
various loan covenants  calculated  quarterly including a maximum leverage ratio
based on total debt to pro forma  EBITDA  (3.75 to 1 at  December  31,  1996 and
March 31, 1997,  and reducing to 3.25 to 1 in  subsequent  quarters),  a minimum
EBITDA less  capital  expenditures  to interest  ratio,  and a minimum net worth

                                      -52-

<PAGE>



requirement.  In addition, under a change of control clause, an event of default
would occur if any person or group,  other than KNP BT or its affiliates,  shall
own more than 50% of the voting shares of the Company.

         Upon  entering  the Bank  Credit  Agreement,  the  Company  reduced the
commitments  available  under the  Antilliana  Credit  Agreement to $50 million,
which  expires in July 1998.  Subsequently,  $15  million of the $50  million of
available  borrowings under the Antilliana  Credit Agreement was assigned to KNP
BT  Finance  (USA),  Inc.,  a  subsidiary  of KNP BT,  to be  used  under a Cash
Management  Agreement  for the  Company' s U.S.  operations.  The $35 million of
commitments  remaining  available under the Antilliana Credit Agreement are used
to finance the Company's European operations. Revolving loans and term loans are
available in German Marks,  British Pounds and Netherlands  Guilders.  Revolving
loans bear  interest  at 1% over the  applicable  interbank  rate as  determined
therein.  Term loans bear interest at .75% over the applicable interbank rate as
determined  therein.  Short-term loans under the Cash Management  Agreement bear
interest at the U.S. prime rate and investments  earn interest 2% below the U.S.
prime rate.  At December 31, 1996,  the  investment  balance of $7.2 million has
been reflected in cash and cash equivalents. The Cash Management Agreement shall
terminate at the end of the third month following written notice by either party
or KNP BT or its  affiliates  owning  less than 50% of the voting  shares of the
Company.

         The Antilliana Credit Agreement  contains certain events of default the
most significant of which includes KNP BT's failure to own,  beneficially and of
record,  more  than 50% of the  issued  and  outstanding  share  capital  of the
Company.  There  is a  commitment  fee of  .35%  on the  unused  portion  of the
Antilliana Credit Agreement.

         Maturities  of  long-term  obligations,  other than  obligations  under
capital lease agreements,  for the five years succeeding  December 31, 1996, are
$1.3 million in 1997,  $5.5 million in 1998,  $1.2 million in 1999, $2.2 million
in 2000, $197.7 million in 2001, and $653 thousand thereafter.

         The  fair  value  of the  Company's  long-term  debt  approximates  the
carrying  amount  based on the  present  value of cash flows  discounted  at the
current rates offered to the Company on similar debt instruments.

         Interest  payments on short-term and long-term  obligations  were $12.4
million, $15.6 million, and $16.4 million for the years ended December 31, 1996,
1995, and 1994, respectively.

         Noncash  investing  and  financing  activities  included  capital lease
obligations  incurred  of $196  thousand  and $581  thousand  in 1995 and  1994,
respectively.


                                      -53-

<PAGE>



9.  Income Taxes

         Federal,  foreign,  and state income tax expense (benefit) consisted of
the following:
<TABLE>
<CAPTION>
                                                                        Year ended December 31
                                                            ------------------------------------------------
(In thousands)                                               1996               1995              1994
------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                <C>               <C>   
Current:
  Federal                                                     $7,663             $2,374            $2,790
  State                                                        1,895                858             2,075
  Foreign                                                      1,965              1,782              (391)
                                                             -------             ------            ------
                                                              11,523              5,014             4,474
Deferred:
  Federal                                                        578              1,291              (136)
  State                                                          215                477               (50)
  Foreign                                                        684                555               167
                                                             -------             ------            ------
                                                               1,477              2,323               (19)
                                                             -------             ------            ------
                                                             $13,000             $7,337            $4,455
                                                             =======             ======            ======
------------------------------------------------------------------------------------------------------------
</TABLE>
         Reconciliations  between the U.S. federal  statutory income tax rate of
35% and the  consolidated  effective  income tax rates of 47%, 52%, and 104% for
the years ended December 31 1996, 1995, and 1994, respectively, are as follows:
<TABLE>
<CAPTION>
                                                                          Year ended December 31
                                                              ----------------------------------------------
(In thousands)                                                  1996              1995              1994
------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>                <C>    
Tax at U.S. federal income tax rate                            $ 9,695           $ 4,909            $ 1,504
State income taxes, net of U.S. federal tax benefit              1,372               868              1,317
Goodwill amortization                                            1,234               932                557
Reduced foreign tax benefits due to loss
  carryforwards and rate differentials                             286               926                318
All other items                                                    413              (298)               759
                                                               -------           -------            -------
Tax provision                                                  $13,000           $ 7,337            $ 4,455
                                                               =======           =======            =======
------------------------------------------------------------------------------------------------------------
</TABLE>
         Domestic and foreign income (loss) before income taxes consisted of the
following:
<TABLE>
<CAPTION>
                                                                         Year ended December 31
                                                               ---------------------------------------------
(In thousands)                                                 1996              1995              1994
------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>               <C>    
Domestic                                                       $22,029           $10,558           $ 5,845
Foreign                                                          5,672             3,469            (1,549)
                                                               -------           -------           -------
                                                               $27,701           $14,027           $ 4,296
                                                               =======           =======           =======
------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -54-

<PAGE>

         Significant  components of the Company's  deferred tax  liabilities and
assets were as follows:
<TABLE>
<CAPTION>
                                                                                 December 31
                                                               -----------------------------------------------
(In thousands)                                                           1996                   1995
--------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                   <C>     
Deferred tax liabilities:
  Depreciation                                                             $ 3,456               $  2,574
  Capital leases                                                             5,578                  1,819
  Inventories                                                                  429                    238
  Other trade receivables                                                      979                    924
  Other                                                                      1,782                    901
                                                                           -------               --------
Total deferred tax liabilities                                              12,224                  6,456
Deferred tax assets:
  Deferred compensation and postretirement costs                             2,026                  1,674
  Allowance for doubtful accounts                                              728                  1,149
  Amortization                                                               1,067                  2,275
  Deferred expenses                                                          1,490                  1,468
  Acquisition integration reserves                                           1,089                    533
  Foreign net operating loss carryforwards                                  48,770                  5,250
  Alternative minimum tax credit carryforward                                  969                    664
  Other                                                                        133                    817
                                                                           -------               --------
Total deferred tax assets                                                   56,272                 13,830
Valuation allowance for deferred tax assets                                (41,294)                (2,966)
                                                                           -------                -------
Total deferred tax assets net of valuation allowance                        14,978                 10,864
                                                                           -------                -------
Net deferred tax assets                                                    $ 2,754               $  4,408
                                                                           =======               ========
--------------------------------------------------------------------------------------------------------------
</TABLE>

         The  Company  had  foreign  net  operating  loss  (NOL)  carryovers  of
approximately  $94.0  million at  December  31,  1996,  which have an  unlimited
carryover.  The  significant  increase during 1996 in the deferred tax asset for
foreign NOL carryovers relates primarily to the current year acquisition of Bax,
which had $75.2 million of NOL  carryovers  available in Germany at December 31,
1996. A valuation  allowance has been  recorded  against the deferred tax assets
relating to Bax and United  Kingdom  foreign tax net  operating  losses of $37.3
million and $4.0 million,  respectively,  as a result of the  uncertainty of the
ultimate utilization.

         The Company's policy is to permanently reinvest earnings of its foreign
subsidiaries.  As of December  31,  1996,  the Company  had  approximately  $6.8
million of undistributed  earnings  relating to its operations in Europe.  It is
impracticable to determine the amount of income taxes that would be payable upon
remittance of assets that represent those earnings.

         The Internal  Revenue Service (the "IRS") has concluded its examination
of the 1991 to 1993 consolidated federal income tax returns of the Company as it
existed (including the non-related  businesses described in Note 1) prior to the
Reorganization  and has  entered  into a  settlement  with  the  Company  on all
proposed  adjustments,  except for the  following.  On January 10, 1997, the IRS
issued  the  Company  a  formal  notice  of  proposed  adjustment  that  asserts
approximately $1.9 million in tax deficiencies,  plus interest,  relating to the
disallowance of certain interest paid in 1992 and 1993 to Antilliana. Management
intends to  vigorously  contest  this  assessment  and does not believe that the
ultimate  resolution  of the issue  will have a material  adverse  effect on the
financial condition or results of operations of the Company.

         The IRS has also  commenced its  examination  of the Company's 1994 and
1995 consolidated  federal income tax returns.  Management  believes that it has
made adequate  provision  for taxes that may become  payable with respect to all
open tax years.

                                      -55-

<PAGE>



         In addition, KNP BT has agreed to make additional capital contributions
to the Company in the event that tax  adjustments,  applicable  to operations of
the Company prior to the date of the Corporate  Reorganization,  exceed recorded
income tax accruals at the time of the Reorganization.

         Total  income  tax  payments  (receipts)  were  $8.3  million,   $(906)
thousand, and $10.5 million in 1996, 1995, and 1994, respectively.

10.  Benefit Plans

         The Company's United Kingdom, Netherlands, and German subsidiaries have
defined-benefit  pension plans covering certain  salaried and hourly  employees.
Benefits are based on years of service and each employee's  compensation  during
employment.  The  Company's  funding  policy  is  to  make  the  minimum  annual
contributions  required  by  applicable  regulations.  Assets  held by the  plan
consist primarily of government bonds, bank deposits, and other investments.

         The   funded   status   and  amount   recognized   for  the   Company's
defined-benefit  pension  plans  in the  consolidated  balance  sheets  were  as
follows:

<TABLE>
<CAPTION>
                                                                                     December 31
                                                                            -------------------------------
(In thousands)                                                              1996                   1995
-----------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                     <C>    
Actuarial present value of accumulated benefit obligation
  and vested benefits                                                       $19,304                 $16,454
                                                                            =======                 =======
Actuarial present value of projected benefit obligation
  for services rendered to date                                             $21,141                 $17,870
Plan assets as fair value                                                    16,033                  13,568
                                                                            -------                 -------

Projected benefit obligation in excess of plan assets                         5,108                   4,302
Unrecognized net loss from past experience different from
  that assumed and effects of changes in assumptions                           (383)                   (205)
Unrecognized net transition obligation                                          411                      56
                                                                            -------                 -------
Accrued pension cost                                                        $ 5,136                 $ 4,153
                                                                            =======                 =======
----------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
         Net pension cost included the following components:

                                                                           Year ended December 31
                                                                ------------------------------------------
(In thousands)                                                  1996              1995              1994
----------------------------------------------------------------------------------------------------------
<S>                                                             <C>               <C>               <C>   
Service cost-benefits earned during the period                  $1,073            $  935            $1,152
Interest cost on projected benefit obligation                    1,266             1,172               224
Actual return on plan assets                                      (955)             (865)             (179)
Net amortization and deferral                                        9                11               (27)
                                                                ------            ------            ------
Net pension cost                                                $1,393            $1,253            $1,170
                                                                ======            ======            ======
-------------------------------------------------------------------------------------------------------------
</TABLE>
                                      -56-

<PAGE>

         Following is a summary of significant  actuarial  assumptions  used for
European subsidiaries:
<TABLE>
<CAPTION>
                                                             Year ended December 31
                                                -------------------------------------------------
                                                    1996              1995               1994
-------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>                <C>       
Discount rate                                   6.5 to 7.5%        6.5 to 7.5%        6.5 to 8.5%
Rates of increase in compensation levels        2.0 to 6.0         2.0 to 6.0         2.0 to 6.5
Expected long-term rate of return on assets     7.0 to 8.5         7.0 to 8.5         7.0 to 8.5
-------------------------------------------------------------------------------------------------
</TABLE>
         The  Company  provides  401(k)   defined-contribution   plans  covering
substantially all U.S. employees.  Company matching  contributions for employees
under the plans amounted to $2.1 million in 1996,  $1.6 million in 1995 and $963
thousand in 1994.

11.  Stock Option Plan

         In 1995, the Company adopted a non-qualified and incentive stock option
plan ("the  Plan") for officers  and other key  employees.  A total of 4,188,000
shares of  authorized  but unissued  common stock has been reserved for issuance
under the Plan upon the exercise of options,  subject to adjustment in the event
of a stock  split,  stock  dividend  or other  change in the common  stock.  The
administrator of the Plan is the  Compensation  Committee of the Company's Board
of Directors. Under the Plan, options may be granted to purchase common stock at
prices not less than 90% (100% in the case of an incentive stock option and 110%
in the case of an incentive  stock option granted to a 10%  stockholder)  of the
fair  market  value of the common  stock on the date of the grant of the option.
The term of each option may be for such a period as the  Compensation  Committee
shall  determine,  but not more than 10 years (or 5 years in the case of certain
incentive  stock  options)  from the date of grant.  The  vesting  schedule  for
options shall be determined by the Compensation Committee.

         Information  with  respect  to  options  granted  under  the Plan is as
follows:
                                                                  Weighted
                                    Number of Shares      Average Exercise Price
--------------------------------------------------------------------------------
Outstanding at December 31, 1994                  --                  $   --
  Granted during the year                  1,203,000                   11.50
  Exercised during the year                       --                      --
  Canceled during the year                   (17,500)                  11.50
                                           ---------                   -----

Outstanding at December 31, 1995           1,185,500                   11.50
  Granted during the year                  1,015,930                   18.90
  Exercised during the year                  (71,000)                  11.50
  Canceled during the year                  (146,000)                  13.28
                                           ---------                   -----
Outstanding at December 31, 1996           1,984,030                  $15.16
                                           =========                   =====
--------------------------------------------------------------------------------

  The Company had three  separate  issuances of options under the plan. In 1995,
the Company  issued  1,203,000  of options at $11.50 per share and in 1996,  the
Company   issued   757,250   and  258,680  of  options  at  $21.00  and  $12.75,
respectively. The grant price for all three grants equaled the fair market value
of common stock at the date of grant.  The options  granted are  exercisable  as
follows:  50% after one year from grant date; an additional  25% after two years
from grant date;  and the remaining  25% after three years from grant date.  The
options  granted  expire  after ten years from the grant date,  except for those
granted to Netherlands-based employees which expire after five years.


                                      -57-

<PAGE>



  The Company has options  outstanding  at December 31, 1996 under each grant of
996,000,  729,850  and  258,180,  which are  exercisable  at $11.50,  $21.00 and
$12.75, respectively. Options on 498,500 shares were exercisable at December 31,
1996.

  Had the  Company  elected  to  apply  the  provisions  of SFAS  123  regarding
recognition of  compensation  expense to the extent of the calculated fair value
of stock  options  granted  1996 and 1995,  reported net income and earnings per
share would have been reduced as follows:

                                                      Year ended
                                                      December 31
                                               -------------------------
(In thousands, except per share amounts)       1996              1995
------------------------------------------------------------------------

Net income, as reported                        $14,701           $6,690
Pro forma net income                            12,310            5,797
Net income per share, as reported                  .44              .24
Pro forma net income per share                     .37              .21
-----------------------------------------------------------------------

         For  purposes of the SFAS 123 pro forma net income and income per share
calculation,  the fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option-pricing model. Compensation expense was not
recognized for options that were forfeited  because  employees failed to fulfill
service requirements.  The weighted-average assumptions used in determining fair
value as disclosed for SFAS 123 are shown in the following  table for each grant
year.

                                             Year ended
                                             December 31
                                  --------------------------------
                                    1996                   1995
------------------------------------------------------------------
Risk-free interest rate              6.7%                    5.9%
Dividend yield                       0.0%                    0.0%
Option life (years)                     5                       5
Stock price volatility              40.2%                   39.9%
------------------------------------------------------------------

12.  Leases

         The Company operates primarily in leased facilities.  Lease terms range
up to 30 years with  options to renew at varying  terms.  The majority of leases
contain  escalation  clauses  relating to real estate tax  increases and cost of
living  adjustments.   In  addition,   the  Company  leases  certain  machinery,
equipment, and vehicles.

         Property, plant and equipment includes the following amounts for leases
that have been capitalized:

                                                 December 31
                                         --------------------------------
(In thousands)                            1996                    1995
--------------------------------------------------------------------------
Buildings                                 $ 7,975                 $ 8,505
Machinery and equipment                       736                   2,482
                                          -------                 -------
                                            8,711                  10,987
Less: Accumulated amortization              1,296                   1,838
                                          -------                 -------
                                          $ 7,415                 $ 9,149
                                          =======                 =======
--------------------------------------------------------------------------


                                      -58-

<PAGE>



         Future  minimum   payments  under  capital  leases  and   noncancelable
operating leases with initial or remaining terms in excess of one year consisted
of the following at December 31, 1996:

                                                 Capital             Operating
(In thousands)                                   Leases                Leases
-------------------------------------------------------------------------------

1997                                               $  6,896          $ 32,462
1998                                                  4,503            30,257
1999                                                  2,379            27,207
2000                                                  1,236            23,057
2001                                                  1,007            17,899
Thereafter                                           16,077            49,366
                                                    -------           -------

Total minimum lease payments                         32,098          $180,248
                                                                     ========

Amount representing interest                         14,202
                                                    -------
Obligations under capital leases                     17,896
Less: Obligations due within one year                 5,421
                                                    -------
Long-term obligations under capital leases          $12,475
                                                    =======
-------------------------------------------------------------------------------

         Rental expense was $29.1  million,  $23.5 million and $18.8 million for
the years ended December 31, 1996, 1995 and 1994, respectively.

         Two  of  the  European   operating   companies  lease  facilities  from
affiliates  of KNP BT  under  operating  leases  which  expire  on  June  30 and
September 30, 1999.  Rental  expense was $893  thousand,  $648 thousand and $570
thousand for the years ended December 31, 1996, 1995 and 1994, respectively.
Future minimum lease payments are $2.5 million.

         The Company sells office  equipment and leases the equipment  back with
the obligation to purchase the equipment at the end of the lease.  The equipment
underlying the leases is subsequently  sub-leased to customers under  sales-type
leases.  At  December  31,  1996  and  1995,  $9.8  million  and  $6.9  million,
respectively,  of these leases are  classified  as capital  leases and generally
have a term of three years.

13.  Contingencies

         The Company is involved in various legal actions  arising in the normal
course of business.  Management, after taking into consideration legal counsel's
evaluation  of such actions,  is of the opinion that the ultimate  resolution of
these  matters over and above  previously  established  accruals will not have a
material  adverse  effect on the financial  position or results of operations of
the Company.

14.  Stockholders' Equity

         Net capital and intercompany  transactions,  included as a component of
additional paid-in capital,  represents the activity of the unrelated businesses
transferred to KNP BT and the related  businesses  contributed to the Company by
KNP BT in connection with the Corporate Reorganization.

         The net equity transactions of the unrelated  businesses represent cash
advances/repayments  between the Company and the  unrelated  businesses  and the
effect of  expenses  incurred  or income  earned by the Company on behalf of the
unrelated businesses.

                                      -59-

<PAGE>



         The net equity transactions of the related businesses to be contributed
to the Company are between the related  businesses and KNP BT. The components of
these net equity transactions were as follows:

<TABLE>
<CAPTION>
                                                                            December 31
                                                                            -----------
(In thousands)                                                1996              1995              1994
-------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>              <C>    
Capital contributions by KNP BT                                $  317            $5,086           $18,009
Capital repayments to KNP BT                                       --                --            (8,307)
Tax related adjustments                                          (793)           (1,645)               --
Companies acquired by KNP BT and contributed                       --                --             5,197
Divisional expenses allocated from KNP BT                          --               409               745
                                                               ------            ------           -------
                                                               $ (476)           $3,850           $15,644
                                                               ======            ======           =======
-------------------------------------------------------------------------------------------------------------
</TABLE>

         The  capital  contributions  in 1996  were  related  to the  difference
between certain  distributions which were estimated at the date of the Corporate
Reorganization and the actual settlement amount.

         The capital  reductions in 1996 were related to income taxes  generated
by the  Corporate  Reorganization  which were not  reflected  at the date of the
Corporate Reorganization.

15.  Business Segment Information

         Geographic segments:
<TABLE>
<CAPTION>
                                                                     Year ended December 31
                                                            ---------------------------------------------
(In millions)                                               1996               1995               1994
---------------------------------------------------------------------------------------------------------
<S>                                                         <C>                 <C>               <C>    
Sales:
  United States                                             $1,087.0            $ 833.0           $ 589.8
  Europe                                                       325.5              299.4             199.7
  Consolidated                                               1,412.5            1,132.4             789.5
Operating income:
  United States                                                 31.3               22.8              18.5
  Europe                                                         6.9                5.9               2.3
  Consolidated                                                  38.2               28.7              20.8
Identifiable assets:
  United States                                                459.7              375.9             286.1
  Europe                                                       283.1              148.7             143.3
  Consolidated                                                 742.8              524.6             429.4

---------------------------------------------------------------------------------------------------------
         There are no intergeographic sales or eliminations.
</TABLE>

                                      -60-

<PAGE>



16.  Related Party Transactions

         The  financial  statements  of the  Company  include,  in  addition  to
borrowings and related interest expense, the following  transactions with KNP BT
and its affiliated companies:
                                            Year ended December 31
                                          ----------------------------
(In thousands)                            1996       1995       1994
----------------------------------------------------------------------

Sales                                     $1,310     $1,413     $  943
Purchases                                  8,606      8,567      3,895
Selling and administrative expenses:
  Management fees                             --         --        650
  Shares expenses                          1,241      4,215      4,950
  Other                                      794       (256)       197
----------------------------------------------------------------------

         Included in other  assets is a note  receivable  from an officer of the
Company,  totaling  $850  thousand and $1 million at December 31, 1996 and 1995,
respectively.  The  note  bears  interest  at a rate of  7.25%,  with  quarterly
interest  installments  due through  September  1996 and monthly  principal  and
interest payments due thereafter through September 2024.

17.  Quarterly Results of Operations (Unaudited)

         All of the quarterly  reports filed in 1996 reflect the  restatement of
the 1995  quarterly  results  of the New York  division  (see Note 2).  Selected
unaudited quarterly financial data is shown below.

<TABLE>
<CAPTION>
                                                                                   Quarter Ended
                                                            --------------------------------------------------------------
(In thousands except per share amounts)                     March 31        June 30          September 30      December 31
--------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>              <C>               <C>     
1996
  Sales                                                     $342,656        $339,057         $354,871          $375,930
  Costs of products sold                                     245,313         240,298          253,415           265,687
  Operating income                                            10,246           9,911            7,679            10,347
  Income before income taxes                                   7,681           7,443            5,005             7,572
  Net income                                                   4,071           3,945            2,655             4,030
  Net income per share                                           .12             .12              .08               .12
1995
  Sales                                                     $269,200        $275,627         $277,661          $309,882
  Costs of products sold                                     193,508         198,532          202,077           224,961
  Operating income                                             6,261           6,357            6,267             9,788
  Income before income taxes                                   1,292           1,157            4,177             7,401
  Net income                                                     464             415            2,097             3,714
  Net income per share                                           .02             .02              .07               .11

--------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                       -61-

<PAGE>
<TABLE>
<CAPTION>
                                  Schedule II-- Valuation and Qualifying Accounts

                                      BT Office Products International, Inc.

                                                  (In thousands)

                 COL. A                    COL. B               COL. C                      COL. D             COL. E
                 ------                    ------               ------                      ------             ------
                                                               Additions                  Deductions
                                                      --------------------------     ---------------------
                                                                       Charged       Write-Offs
                                          Beginning   Charged to      to Other         Net of      Other       Ending
              Description                  Balance     Expense      Described(a)     Recoveries   Describe     Balance
              -----------                 ---------    --------     ------------     ----------   --------     -------
<S>                                          <C>           <C>             <C>           <C>         <C>        <C>   
Year Ended December 31, 1996
  Deducted from asset accounts:
     Allowance for doubtful accounts         $4,222        $2,107          $1,046        $2,460      $ --       $4,915
     Inventory reserves                       3,011         1,462           1,357         1,657        --        4,173
                                             ------        ------          ------        ------      -----       -----
        Total                                $7,233        $3,569          $2,403        $4,117      $ --       $9,088
                                             ======        ======          ======        ======     ======      ======
Year Ended December 31, 1995
  Deducted from asset accounts:
     Allowance for doubtful accounts         $4,651        $1,369          $  263        $2,061      $ --       $4,222
     Inventory reserves                       2,375         1,234             156           754        --        3,011
                                             ------        ------          ------        ------      -----       -----
        Total                                $7,026        $2,603          $  419        $2,815      $ --       $7,233
                                             ======        ======          ======        ======      =====      ======
Year Ended December 31, 1994
  Deducted from asset accounts:
     Allowance for doubtful accounts         $3,358        $1,728          $  878        $1,313      $ --       $4,651
     Inventory reserves                       1,976         1,048             592         1,241        --        2,375
                                             ------        ------          ------        ------      -----       -----
        Total                                $5,334        $2,776          $1,470        $2,554      $ --       $7,026
                                             ======        ======          ======        ======      =====      ======



(a) Acquisition balances and net foreign currency translation gains.
</TABLE>


                                      -62-

<PAGE>
                                                   EXHIBIT INDEX


   Exhibit
   Number       Description
   -------      ----------------------------------------------------------------
       2.1      Exchange Agreement  (incorporated by reference to Exhibit 2.1 to
                the  Company's  Annual  Report on Form 10-K for the Fiscal  Year
                ended December 31, 1995, Commission file no. 1-13858).

       3.1      Amended and Restated Certificate of Incorporation of the Company
                (incorporated  by reference to Exhibit 3.1 filed with  Amendment
                No. 2 to the Company's Registration Statement on Form S-1, dated
                July 7, 1995, Registration No. 33-12124).

       3.2      Amended and  Restated  By-laws of the Company  (incorporated  by
                reference  to  Exhibit  3.2 filed  with  Amendment  No. 2 to the
                Company's  Registration  Statement  on Form S- 1,  dated July 7,
                1995,   Registration  No.  33-12124).   

      10.1      Antilliana  Credit  Agreement   (incorporated  by  reference  to
                Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
                Fiscal  Year  ended  December  31,  1995,  Commission  file  no.
                1-13858).

      10.2      Registration  Rights  Agreement  among  NV  Koninklijke  KNP BT,
                Buhrmann-Tetterode    International   B.V.   and   the   Company
                (incorporated  by  reference  to Exhibit  10.2 to the  Company's
                Annual  Report on Form 10-K for the Fiscal  Year ended  December
                31, 1995, Commission file no. 1-13858).

      10.3      Tax Matters Agreement (incorporated by reference to Exhibit 10.3
                to the Company's  Annual Report on Form 10-K for the Fiscal Year
                ended December 31, 1995, Commission file no. 1-13858).

     *10.4      Amendment  No. 1 to Tax  Matters  Agreement  dated as of June 7,
                1996.

      10.5      License Agreement  (incorporated by reference to Exhibit 10.4 to
                the  Company's  Annual  Report on Form 10-K for the Fiscal  Year
                ended December 31, 1995, Commission file no. 1-13858).

      10.6      Intercompany  Services  Agreement  between NV Koninklijke KNP BT
                and the Company  (incorporated  by  reference to Exhibit 10.5 to
                the  Company's  Annual  Report on Form 10-K for the Fiscal  Year
                ended December 31, 1995, Commission file no. 1-13858).

      10.7      Agreement  for Credit  Support  (incorporated  by  reference  to
                Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
                Fiscal  Year  ended  December  31,  1995,  Commission  file  no.
                1-13858).

      10.8      Form of  Indemnification  Agreement  for officers and  directors
                (incorporated  by reference to Exhibit 10.7 filed with Amendment
                No. 2 to the Company's Registration Statement on Form S-1, dated
                July 7, 1995, Registration No. 33-12124).
   
    + 10.9      Supplemental  Executive Retirement Plan, as amended by the First
                Amendment thereto  (incorporated by reference to Exhibit 10.8 to
                the  Company's  Annual  Report on Form 10-K for the Fiscal  Year
                ended December 31, 1995, Commission file no. 1-13858).

   +*10.10      Second Amendment to Supplemental Executive Retirement Plan.

   + 10.11      1995 Stock  Option Plan  (incorporated  by  reference to Exhibit
                10.9 filed with  Amendment No. 1 to the  Company's  Registration
                Statement  on Form S-1,  dated June 22, 1995,  Registration  No.
                33-12124).

     10.12      Promissory Note evidencing  mortgage  (incorporated by reference
                to Exhibit  10.10 filed with  Amendment  No. 2 to the  Company's
                Registration   Statement  on  Form  S-1,  dated  July  7,  1995,
                Registration No. 33-12124).


                                      -63-

<PAGE>

     10.13      Mortgage and Note Amendment Agreement (incorporated by reference
                to Exhibit  10.11 filed with  Amendment  No. 2 to the  Company's
                Registration   Statement  on  Form  S-1,  dated  July  7,  1995,
                Registration No. 33-12124).

   + 10.14      Employment  Agreement  of Rudolf A.J.  Huyzer  (incorporated  by
                reference to Exhibit  10.12 to the  Company's  Annual  Report on
                Form  10-K  for  the  Fiscal  Year  ended   December  31,  1995,
                Commission file no. 1-13858).

   + 10.15      Employment  Agreement  of John  J.  McKiernan  (incorporated  by
                reference to Exhibit  10.13 to the  Company's  Annual  Report on
                Form  10-K  for  the  Fiscal  Year  ended   December  31,  1995,
                Commission file no. 1-13858).

   + 10.16      Employment  Agreement  of  Richard  C.  Dubin  (incorporated  by
                reference to Exhibit  10.15 to the  Company's  Annual  Report on
                Form  10-K  for  the  Fiscal  Year  ended   December  31,  1995,
                Commission file no. 1-13858). 

   + 10.17      Employment   Agreement   of  David  Kirshner  (incorporated  by 
                reference  to  Exhibit  10.16 to the Company's Annual Report on 
                Form  10-K  for  the  Fiscal  Year  ended  December  31,  1995,
                Commission file no. 1-13858).

   + 10.18      Employment  Agreement  of Michael  J.  Miller  (incorporated  by
                reference to Exhibit  10.17 to the  Company's  Annual  Report on
                Form  10-K  for  the  Fiscal  Year  ended   December  31,  1995,
                Commission file no. 1-13858).

   + 10.19      Assignment  and  Modification  Agreement,  dated June 26,  1996,
                among BT Office Products International,  Inc., KNP BT Antilliana
                N.V. and KNP BT Finance (USA),  Inc.  (incorporated by reference
                to Exhibit 10.1 to the Company's  Quarterly  Report on Form 10-Q
                for the Fiscal Quarter ended June 30, 1996,  Commission file no.
                1-13858).

     10.20      Competitive  Advance and Revolving  Credit  Facility  Agreement,
                dated  as  of   August  2,   1996   among  BT  Office   Products
                International,  Inc., the  subsidiaries,  guarantors and lenders
                named  therein,  The Chase  Manhattan  Bank,  as  Administrative
                Agent,   and  ABN  AMRO  Bank  N.V.,  as   Documentation   Agent
                (incorporated  by  reference  to Exhibit  10.2 to the  Company's
                Quarterly  Report on Form 10-Q for the Fiscal Quarter ended June
                30, 1996, Commission file no. 1-13858).

    *10.21      Amendment No. 1 dated as of December 20, 1996 to the Competitive
                Advance and Revolving Credit Facility Agreement.

    *10.22      Cash Management Agreement dated June 24, 1996 among the Company,
                Astro-  Valcour,  Inc.,  Sengewald  USA, Inc., KNP BT Antilliana
                N.V. and KNP BT Finance (USA), Inc.

     *21.1      Subsidiaries of the Company.

     *23.1      Consent of Coopers & Lybrand L.L.P.

     *23.2      Consent of Ernst & Young LLP.

     *27.1      Financial Data Schedule.


-------------------------
* Filed herewith

+ Management contract or compensatory plan or arrangement.

                                      -64-

<PAGE>