<PAGE>   1

================================================================================
                       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, 1997

                                       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)

<TABLE>
<S>                                            <C>
                  DELAWARE                                      13-3245865
          (State of Incorporation)                   (IRS Employer Identification No.)
           2150 E. LAKE COOK ROAD                               60089-1877
           BUFFALO GROVE, ILLINOIS                              (Zip Code)
  (Address of principal executive offices)
</TABLE>

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

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

<TABLE>
<CAPTION>
TITLE OF EACH CLASS                              NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------                              -----------------------------------------
<S>                                            <C>
Common Stock, par value $.01 per share                 New York Stock Exchange, Inc.
</TABLE>

       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 18, 1998 was approximately
$120,852,000.

     As of March 18, 1998, the number of shares outstanding of each of the
registrant's classes of common stock is as follows:

<TABLE>
<CAPTION>
TITLE OF EACH CLASS                                    NUMBER OF SHARES OUTSTANDING
-------------------                                    ----------------------------
<S>                                            <C>
Common Stock, par value $.01 per share                          33,471,000

                      DOCUMENTS INCORPORATED BY REFERENCE
                   ----------------------------------------
                                     None
</TABLE>

================================================================================
<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                  PAGE
                                                                                  ----
<S>       <C>       <C>                                                           <C>
PART I..........................................................................    2
       Item 1.   Business.......................................................    2
       Item 2.   Properties.....................................................   10
       Item 3.   Legal Proceedings..............................................   11
       Item 4.   Submission of Matters to a Vote of Security Holders............   11
PART II.........................................................................   12
       Item 5.   Market for Registrant's Common Equity and Related
                   Stockholder Matters..........................................   12
       Item 6.   Selected Financial Data........................................   12
       Item 7.   Management's Discussion and Analysis of Financial Condition
                   and Results of Operations....................................   14
       Item 8.   Financial Statements and Supplementary Data....................   20
       Item 9.   Changes in and Disagreements with Accountants on Accounting
                   and Financial Disclosure.....................................   21
PART III........................................................................   21
       Item 10.  Directors and Executive Officers of the Registrant.............   21
       Item 11.  Executive Compensation.........................................   23
       Item 12.  Security Ownership of Certain Beneficial Owners and
                   Management...................................................   30
       Item 13.  Certain Relationships and Related Transactions.................   31
PART IV.........................................................................   34
       Item 14.  Exhibits, Financial Statements, Financial Statement
                   Schedule, and Reports on Form 8-K............................   34
</TABLE>

<PAGE>   3

                                     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 major business markets through 24 sales and
distribution centers and 56 branch sales offices in 35 states as of February 27,
1998. 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, Switzerland and the Baltic States 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. The Company
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").

     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 ("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
connection with the Reorganization, (i) the Holding Company transferred certain
packaging manufacturing businesses in the U.S. (the "Packaging Businesses") and
other non-office products assets and liabilities to KNP BT; (ii) KNP BT
transferred its European office products businesses (the "European Businesses")
and Kelly Paper Company, a wholesale cash and carry printing paper and supplies
business headquartered in California ("Kelly Paper"), to the Holding Company;
and (iii) 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

     BT Office Products entered into the office products distribution business
in the United States in 1987 through the acquisition of a controlling interest
in a contract stationer servicing the New York metropolitan area. Since then,
the Company has expanded its operations throughout the United States by
acquiring over 40 businesses in both new markets and existing

                                        2
<PAGE>   4

markets. Such acquisitions have contributed significantly to increasing the
Company's net sales in the United States from $469 million in 1993 to $1,148
million in 1997.

     In January 1998, the Company organized its United States operations into
the following nine geographical regions and Kelly Paper: New England, Northeast,
Mid-Atlantic, Central, Midwest, Great Lakes, South-Southeast, Northwest and
West-Southwest.

     Europe

     BT Office Products entered into the office products distribution business
in Europe in 1989 through the acquisition of a contract stationer based in
London, England. Since then, the Company has expanded its European operations in
the United Kingdom, Germany, The Netherlands and Sweden by acquiring over 30
businesses in both new markets and existing markets. Such acquisitions have
contributed significantly to increasing the Company's net sales in Europe from
$118 million in 1993 to $471 million in 1997.

     Subsequent Event

     On January 22, 1998, KNP BT, the Company's 70% stockholder, announced that
it is prepared to make an offer to acquire the approximately 30% of the
Company's stock that is publicly-traded for a cash purchase price of $10.50 per
share. The Company has formed an independent committee of its Board of Directors
to represent the interests of the minority shareholders. This committee,
together with independent financial and legal advisors retained by the
committee, is evaluating the proposal. The parties have not reached a definitive
agreement.

GROWTH STRATEGIES

     The Company's growth 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 making selected
add-on acquisitions (smaller companies that will be integrated into an existing
business); (ii) leveraging its international capabilities in order to grow its
business in Europe; (iii) focusing its sales efforts on broadening its customer
base; and (iv) increasing sales of products and services to existing customers
by effective utilization of value-added services offered by the Company.

     Growth through Acquisitions

     BT Office Products has historically grown through a combination of
acquisitions and internal growth. During 1997, acquisition activity slowed
considerably as the Company focused on integrating previously acquired
companies. Nevertheless, the Company did complete eleven strategic acquisitions
during the year, primarily in Europe. Through such acquisitions, the Company
expanded its position in certain key markets in Germany, The Netherlands and
Sweden.

     The Company's long-term strategy is to expand its operations through
selective acquisitions of established quality office products distributors in
the United States and Europe in order to create cost savings (through reduced
administrative expenses as a percentage of sales and additional purchasing
power) and increase sales and total profitability. Additionally, in those
markets where the Company cannot acquire a desirable substantial office products
distributor, the Company may consider beginning a start-up or "greenfield"
operation as an alternative means of entering such markets as it did in Atlanta
in 1995. The Company's long-term strategy also includes selectively making
add-on acquisitions of smaller contract stationers in existing markets to enable
the Company to increase sales within an existing market and generate operating
efficiencies, such as the consolidation of warehouses and administrative
functions.

     In building its business through acquisitions, the Company generally has
retained existing senior management of acquired companies with experience in
local market conditions and customer needs, whenever possible, and has
centralized administrative functions, merchandising, purchasing and systems
development to achieve cost savings through economies of scale. The integration
of acquired businesses may, however, lead to the loss of key employees of the
acquired companies and diversion of management attention from other ongoing
business concerns.

     The Company may not be able to complete targeted acquisitions because of
competition, price or the availability of suitable candidates. The Company
anticipates significant future acquisition funding, to the extent required, will
necessitate obtaining additional debt and/or equity capital resources, which may
not be available. In addition, the Company encounters various risks with each
acquisition, including the possible inability to integrate the acquired business
into its distribution network, diversion of

                                        3
<PAGE>   5

management's attention from current operations, and unanticipated problems,
costs, or liabilities, some or all of which could have a material adverse effect
on the operations and financial performance of the Company. Additional risks
arising out of the Company's operations in foreign countries include those
associated with currency exchange rates, differing legal and regulatory
requirements, as well as language and cultural differences.

     Leveraging International Capabilities

     BT Office Products derives approximately 29% of its total sales revenue
from outside the United States. The Company's net sales in Europe have grown
from $118 million in 1993 to $471 million in 1997. 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.

     Broadening Our Customer Base

     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. The Company will seek to attract new customers by
combining a dedication to technology solutions with high levels of customer
responsiveness and flexibility. Specific initiatives of the Company to broaden
its customer base include: (i) expansion of the Company's sales force at the
local level with particular emphasis on college recruiting; (ii) implementation
of sales training programs focused on the increasingly complex needs of
customers; (iii) forming strategic alliances with selected partners in new
markets; and (iv) expanding product and service offerings to meet the changing
needs of the customers.

     Historically, the Company has focused on large-and medium-sized accounts.
In 1997, BT Office Products entered into a long-term contract with Kinko's, Inc.
("Kinko's"). Pursuant to such contract, BT Office Products will provide in-store
stocking requirements for a wide variety of office, computer, and presentation
products for resale to Kinko's customers. In 1997, approximately 170 Kinko's
retail outlets were implemented on this plan and the Company anticipates the
number of stores on the plan to be 665 by the end of 1998. Additionally, the
Company anticipates initiating a test program in 1998 to approach small and home
office credit card customers through the Internet.

     Expanding Products and Services Offered 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 custom billing.

     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.

     BT Office Products offers a variety of leading-edge electronic commerce
solutions to meet the needs of its customers. The Company currently provides
customers with remote order entry, CD ROM catalogs, Internet ordering systems,
materials management software and EDI electronic billing and payment options
designed to decrease response times and error rates and improve customer
service. 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 or via the Internet, customers can order office products through
their personal computers which are linked to BT Office Products' on-line order
management system. Ordering is made easier by various browser options, including
recently ordered items, in the online catalogs, a flexible order template and a
"Quick Pick" list to streamline frequently ordered items.

                                        4
<PAGE>   6

     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. The Company is also
committed to making continuous improvements in technology such as the
development and implementation of the Company's "National Selling System"
("NSS"), which provides a uniform information system and order management
capabilities to serve the needs of large customers with multiple locations.
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.

OPERATING STRATEGIES

     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
as well as controlling its operating costs by consolidating administrative
functions on a regional or central basis and expanding the use of its logistics
and distributions 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.

     Implementation of Enterprise-wide Systems

     In 1997, the Company announced its plan to implement an enterprise-wide
systems solution known as "Project Millennium," a program designed to
standardize business processes, centralize certain business functions and
enhance customer service as well as quality throughout the Company's U.S.
operations. The capital requirements for Project Millennium are estimated to be
$60 million, of which $16 million has been capitalized as of December 31, 1997
and the remaining amount will be spent over the next three years. The Company
has established cross-functional teams, assisted by Computer Sciences
Corporation ("CSC"), to provide technical support for the conversion and
implementation of the new systems.

     The implementation plan will occur in two phases in order to maximize
benefits and minimize disruption to the business. The first phase, which
commenced in early 1998, will focus on the gradual transition of Company
accounts from its legacy systems to NSS, the development of billing and cash
application systems, the centralization of procurement and the establishment of
a data warehouse system. The second phase, which the Company expects to commence
in mid-1999, will focus on warehouse technology, remaining accounting and
finance operations and specialty products (furniture, promotional products and
print).

     As a result of this investment, the Company expects to provide enhanced
customer service as well as increased operational productivity primarily through
the installation of a leading-edge information technology system and
centralization of certain functions (primarily in the areas of accounting and
procurement) on a company-wide basis. Project Millennium will assist the Company
with its strategic plan to consolidate business processes that do not directly
affect the customer while constantly improving services which are close to the
customer. The Company anticipates that this program will also allow the Company
to reduce costs and improve working capital by lowering costs through systems,
consolidations and improved practices. Additionally, the Company believes that
the program will enable it to improve customer quality by designing enhanced
tools for customer service, staying on the leading edge of electronic commerce,
and building a data warehouse which creates new marketing opportunities. When
completed in the year 2001, the Company expects to achieve favorable financial
benefits from this program of approximately $17 million per year before
depreciation charges.

     In Europe, similar projects are underway to consolidate and centralize
certain functions within the Company over the next four years. The Company is
currently evaluating operational systems for the office supplies and copier
businesses that will also accommodate Year 2000 and Euro currency system
requirements. Currently, BT Office Products Deutschland is completely integrated
on Oracle financial and accounting software and is installing one common
materials management/operating system due to be completed during 1998.

     Certification of Business and Quality Systems

     BT Office Products is the first national contract stationer in the United
States to have operating units ISO 9002 certified for general office products
distribution. At December 31, 1997, all of the Company's U.S. operating units
acquired prior to 1997 are ISO-certified facilities. Many of the Company's
European

                                        5
<PAGE>   7

operating units have also achieved ISO certifications. The Company expects that
all remaining U.S. and European centers will be certified by the end of 1998.
The emphasis on quality reinforces the Company's dedication to customer
responsiveness and relies on company-wide processes, called Business and Quality
Systems, to help the Company achieve superior customer satisfaction.

PRODUCT OFFERINGS

     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, advertising specialty and promotional
products and business forms. 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 catalogs. The Company also has access, through the
Company's EDI and other ordering systems, to over 45,000 additional SKUs of
office supplies, computer supplies and catalog furniture from wholesalers and
other suppliers, enabling the Company to provide its customers with immediate
access to a broad range of products. The Company 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. 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 office
products offered by the Company, the Company sells over 300 different items
under the "BT MASTERBRAND(TM)" label in the United States and over 950 different
items under its "Classic" trademark through participating dealers in Europe.

     Office Furniture and Ergonomic Products

     The Company sells a comprehensive line of "catalog 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 catalogs and
generally sold from stock on a piece basis. Catalog 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.

     Computer Supplies and Accessories

     The Company sells a variety of consumable computer supplies and
accessories, such as diskettes, tape and optical storage 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), and other computer-related
consumables. Sales of personal computers and other computer hardware are not
material.

     Office Equipment -- Copiers, Postal/Mail and
       Conference Equipment

     The Company sells and services copiers, facsimile machines, postal/mail
equipment, printers and related supplies primarily in Europe. Veenman
Kantoormachines B.V., Veenman Office Management B.V., Direct Dealer Services
Nederland B.V. and Repro Copiers Nederland B.V. (collectively, 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. 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.

     Advertising Specialty and Promotional Products

     The Company sells numerous advertising specialty and promotional products,
all of which may be personalized with the customer's logo and/or name. The
Company was recognized in 1997 by Advertising Specialty Institute in Counselor
magazine as being among the top twenty-five largest distributors of promotional
products in the United States.

                                        6
<PAGE>   8

     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. During 1997, the Company
announced a strategic alliance with the Document Solutions Division of Moore
Corporation to sell and distribute forms in the Company's Northeast Region.

     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 35 wholesale stores
located in California, Arizona and Nevada. Over 85% 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.

SALES AND MARKETING

     Overview

     The Company's marketing strategy is designed to increase its customer base
of medium- and large-sized businesses and institutions by flexibly and
responsively 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 catalogs, electronic as well as paper
requisition forms, CD ROM catalogs with built-in order logic, EDI and Internet
ordering. The Company's release of SyntraNet(SM), a full-line Internet ordering
system, in 1997 was an important initiative in assisting customers in achieving
their process cost reduction goals. The Company has implemented its NSS program
to service its growing base of 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 as well as order-management system. This system enables the Company
to provide customers with consolidated reports, billing and other useful
customer information as well as serve as the foundation for the development of
additional common customer service and operating systems. In 1997, national
account sales exceeded 14% of the Company's net sales in the United States.

     The Company markets its products and services to customers through a local
dedicated sales force using the Company's centrally produced full-color catalogs
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 catalogs are kept in stock at the Company's distribution
centers. Additionally, in the United States, the Company is linked
electronically to certain of its suppliers so that items not in stock can be
delivered to a customer on a next-day basis and the Company can better manage
its inventory levels. In addition to its main catalogs in each country, the
Company produces a substantial number of customized and promotional catalogs.
Together, BT Office Products' local sales force and catalogs are key elements of
its marketing strategy.

     Through its contract with Kinko's, the Company has begun to focus its sales
and marketing efforts on opportunities in the small office and home office
markets. In addition, in select markets, BT Office Products intends to pursue
initiating Internet catalog ordering for the small and home office buyer.
Finally, the Company intends to continue its direct mail and telemarketing
activities in select markets.

     The Company's centralized merchandising departments in the U.S. and Europe
produce many of the major selling tools of the Company. Since all product
selections and supplier contact are the responsibilities of the merchandising
department, the Company has opportunities both to maximize efficiencies through
product selection and to leverage the substantial buying power of the Company.
The advertising function in the U.S., which is a part of the merchandising
department, provides the marketing materials to support the more than 1,100
outside sales representatives of the Company. The centralization of advertising
provides buying power in materials and consistency in the message and image of
the Company's services. The merchandising functions are coordinated between the
United States and Europe to support the Company's appeal to customers seeking
service in multiple countries.
                                        7
<PAGE>   9

     Sales Force

     The Company uses a variety of sales approaches tailored to the specific
needs of its customers. The majority of the Company's sales are conducted
through a sales force of approximately 1,100 persons in the United States, 375
in Germany, 200 in The Netherlands, 70 in Sweden and 20 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 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 as well as the provision of customized services, such as
specialized catalogs 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 assisting customers in designing programs to minimize
these costs. The Company has initiated a college recruiting program in order to
expand its local sales force to meet the needs of its customers.

     Catalogs

     The Company annually publishes a full-color catalog 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 catalogs 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
produces other specialty catalogs for its marketing efforts, targeted to
customers by size and/or type. In addition, the Company also provides customized
catalogs containing 100 to 500 SKUs of office products for its larger customers,
and CD ROM catalogs 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 Classic program thus 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 66 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, Switzerland and the Baltic
States.

     The Company offers participating dealers a full menu of services, including
catalogs, 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.

CUSTOMERS

     No single customer accounted for more than 1% of the Company's sales in
1997. The Company's customers include many Fortune 500 companies,
                                        8
<PAGE>   10

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 suppliers, resulting in minimal inventory write-offs. However, no
assurance can be given that the Company's suppliers will continue to offer this
return policy in the future.

     To maximize its purchasing power, the Company's purchasing strategy has
been to establish preferred relations with certain suppliers with whom the
Company can capitalize on purchasing economies. This "preferred supplier"
strategy creates advantageous pricing relationships for the Company and has led
to competition among suppliers 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 suppliers to increase its importance to
those suppliers, including the sourcing of the office products sold under the
"BT MASTERBRAND(TM)," "Masterbrand" and "Classic" brand names. Additionally, the
Company has utilized, and will continue to utilize, its ability to provide
suppliers access to international markets as part of its purchasing strategy.

     Certain of the Company's suppliers 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 suppliers. These products are delivered
by such suppliers 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, 1997, the Company purchased
merchandise from over 500 suppliers in the United States. The largest supplier
accounted for approximately 14% of the Company's total U.S. purchases, and the
ten largest suppliers accounted for approximately 48% of total U.S. 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 suppliers. The Company has
arrangements with various suppliers to receive product on a same-day basis.
These items are combined with in-stock items to accommodate customer delivery
requests. In 1997, 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.

     The Company's distribution centers use automated routing software, scanning
and conveyor or 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 supplier
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 services to deliver
office products.

     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
                                        9
<PAGE>   11

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

COMPETITION

     The Company operates in a highly competitive environment which has resulted
in pressure on gross profit levels for the past few years. The principal
competitive factors in the office products distribution industry are service,
price, product quality and product offerings. Management believes that
increasing industry-wide competition and price sensitivity of customers will
continue to exert pressure on gross profit levels in the future.

     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 1997, 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, 1997, the Company employed approximately 6,650 persons. The
Company believes that its relations with its employees are good.

ITEM 2. PROPERTIES

     The Company's principal executive offices are located at 2150 East 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. The Company's European operations are managed and
coordinated from its European headquarters in Amsterdam.

                                       10
<PAGE>   12

     As of February 27, 1998, the Company's principal distribution centers were
as follows:

<TABLE>
<S>                                              <C>
United States                                    Europe
  Phoenix, Arizona                               Germany
  Newark, California                               Langenlonsheim
  Rancho Dominguez, California                     Maisach bei Munich
  Aurora, Colorado                                 Scharnhausen
  Tampa, Florida                                   Wupertal
  Atlanta, Georgia                                 Ulm-Lehr
  Chicago, Illinois(1)                           The Netherlands
  Indianapolis, Indiana                            Berkel (Rotterdam)
  Springdale, Maryland                             Capelle aan den IJssel
  Needham, Massachusetts                           Gorinchem
  Warren, Michigan                                 Utrecht
  Plymouth, Minnesota                              Zaandam (Amsterdam)
  Vinita Park, Missouri                            Zwolle
  North Bergen, New Jersey                       Sweden
  Albuquerque, New Mexico                          Boras
  New York, New York                             United Kingdom
  Greensboro, North Carolina                       Reading
  Lewis Center, Ohio
  Portland, Oregon
  Glenfield, Pennsylvania(1)
  Philadelphia, Pennsylvania
  Arlington, Texas
  Houston, Texas
  Salt Lake City, Utah
</TABLE>

-------------------------
(1) These sales and distribution centers are owned by the Company. All other
    distribution centers and distribution breakdown facilities are leased by the
    Company.

     The Company's Kelly Paper operation maintains a central distribution center
of approximately 82,000 square feet in Whittier, California as well as 31
wholesale stores in California, three in Arizona and one in Nevada.

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

     As of February 27, 1998, the Company had 56 principal sales branches in the
United States and 52 principal sales branches in Europe.

ITEM 3. LEGAL PROCEEDINGS

     BT Office Products has been served with several class action complaints
that have been filed in the Court of Chancery of the State of Delaware. The
actions allege breach of fiduciary duties and related claims against KNP BT, the
Company and certain of its directors in connection with the January 22, 1998
announcement that KNP BT was prepared to make an offer to purchase the
outstanding shares of the Company that it does not already own. The defendants
intend to defend the lawsuits vigorously and the Company does not expect such
lawsuits to have a material adverse effect on the financial condition or results
of operations of the Company.

     The Company is also 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.

                                       11
<PAGE>   13

                                    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 quarterly period during the fiscal years ending
December 31, 1997 and 1996.

<TABLE>
<CAPTION>
                                   FISCAL 1997                      FISCAL 1996
                         -------------------------------    ----------------------------
                             HIGH              LOW              HIGH            LOW
                         -------------    --------------    ------------    ------------
<S>                      <C>               <C>              <C>             <C>
First quarter........     11 1/8            6 7/8            23 1/2          13
Second quarter.......      9                7 1/4            23 7/8          15 1/2
Third quarter........     13                7 5/16           17 7/8           9 7/8
Fourth quarter.......     12 7/16           6 11/16          14               8 1/8
</TABLE>

     As of March 4, 1998, there were approximately 214 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, 1993 through 1997. The
selected statement of operations data and balance sheet data have been derived
from the Company's audited financial statements. 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, 1997,
and the notes thereto included herein.

                                       12
<PAGE>   14

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31
                                         ---------------------------------------------------------
                                            1997         1996        1995      1994(9)      1993
                                         ----------   ----------   ---------   --------   --------
                                            (In thousands, except per share and operating data)
<S>                                      <C>          <C>          <C>         <C>        <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
  United States........................  $1,147,689   $1,086,960   $ 833,010   $589,823   $469,263
  Europe...............................     471,055      325,554     299,360    199,718    117,591
                                         ----------   ----------   ---------   --------   --------
     Total.............................   1,618,744    1,412,514   1,132,370    789,541    586,854
Costs of products sold.................   1,162,737    1,004,713     819,078    557,737    408,514
                                         ----------   ----------   ---------   --------   --------
Gross profit...........................     456,007      407,801     313,292    231,804    178,340
                                         ----------   ----------   ---------   --------   --------
Selling and administrative expenses....     383,758      345,879     266,163    197,088    157,370
Depreciation and amortization..........      16,485       13,693      10,339      7,796      6,961
Amortization of intangibles............      10,636       10,046       8,117      6,111      4,737
                                         ----------   ----------   ---------   --------   --------
Operating income (loss):
  United States........................      34,836       31,335      22,797     18,541     12,879
  Europe...............................      10,292        6,848       5,876      2,268     (3,607)
                                         ----------   ----------   ---------   --------   --------
     Total.............................      45,128       38,183      28,673     20,809      9,272
                                         ----------   ----------   ---------   --------   --------
Other income (expense):
  Interest income and other............       2,749        2,091       1,287        629        339
  Equity in earnings (loss) of
     affiliated company(1).............          --           --          --       (112)       153
  Interest expense.....................     (15,283)      (7,401)     (3,561)    (4,389)    (2,122)
  Interest expense to affiliates(2)....        (639)      (5,172)    (12,372)   (12,641)   (10,078)
                                         ----------   ----------   ---------   --------   --------
     Total.............................     (13,173)     (10,482)    (14,646)   (16,513)   (11,708)
                                         ----------   ----------   ---------   --------   --------
Income (loss) before income taxes and
  cumulative effect of accounting
  change...............................      31,955       27,701      14,027      4,296     (2,436)
Income tax expense.....................      14,700       13,000       7,337      4,455      1,764
                                         ----------   ----------   ---------   --------   --------
Income (loss) before cumulative effect
  of accounting change.................      17,255       14,701       6,690       (159)    (4,200)
Cumulative effect of accounting change,
  net of income tax benefit(3).........          --           --          --         --       (692)
                                         ----------   ----------   ---------   --------   --------
Net income (loss)......................  $   17,255   $   14,701   $   6,690   $   (159)  $ (4,892)
                                         ==========   ==========   =========   ========   ========
PER SHARE DATA(4):
Income (loss) before cumulative effect
  of accounting change.................  $      .52   $      .44   $     .24   $   (.01)  $   (.18)
Net income (loss)--Basic...............         .52          .44         .24       (.01)      (.21)
Net income (loss)--Diluted.............         .51          .44         .24       (.01)      (.21)
OPERATING DATA:
Selling and administrative expenses as
  a percentage of net sales............        23.7%        24.5%       23.5%      25.0%      26.8%
Distribution centers (at period end)...          37           37          38         28         19
Inventory turns(5).....................         9.0x         9.5x        9.8x       8.9x       8.1x
BALANCE SHEET DATA (AT PERIOD END):
Total assets...........................     763,701      742,819     524,647    429,371    287,794
Short-term debt(6).....................     225,407       47,934      25,619    282,015    174,114
Long-term debt(7)......................      31,837      219,702      99,551     13,399     23,521
Stockholders' equity(8)................     273,713      268,652     260,235     21,933      7,707
</TABLE>

                                                   (footnotes on following page)

                                       13
<PAGE>   15

(footnotes for preceding page)
------------------------------
(1) Represents earnings (loss) on the Company's 40% interest in Bierbrauer +
    Nagel GmbH & Co. KG ("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.

(2) The substantial decrease in interest expense to affiliates in 1996 was
    largely attributable to the pay down of debt with proceeds from a $250
    million revolving credit facility.

(3) 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.

(4) For 1994 and 1993, gives effect to a stock split that occurred in connection
    with the Reorganization resulting in 23,400,000 shares outstanding.

(5) 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.

(6) 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.
    For 1997, the $194.7 million outstanding under the syndicated bank
    Competitive Advance and Revolving Credit Facility (the "Bank Credit
    Agreement") has been classified as current portion of the 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 totaling $21.9 million and $43.9 million,
    respectively.

(7) Consists of long-term debt with third parties, affiliates of KNP BT, and
    capitalized leases, less current portion.

(8) The Company has never declared or paid cash dividends on its Common Stock.

(9) 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.

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

BACKGROUND

     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.

                                       14
<PAGE>   16

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>
                                                                1997       1996       1995
                                                                -----      -----      -----
<S>                                                             <C>        <C>        <C>
Net sales:
  United States.............................................     70.9%      76.9%      73.6%
  Europe....................................................     29.1       23.1       26.4
                                                                -----      -----      -----
     Total..................................................    100.0      100.0      100.0
Costs of products sold......................................     71.8       71.1       72.4
                                                                -----      -----      -----
Gross profit................................................     28.2       28.9       27.6
Selling and administrative expenses.........................     23.7       24.5       23.5
Depreciation and amortization...............................      1.0        1.0        0.9
Amortization of intangibles.................................      0.7        0.7        0.7
                                                                -----      -----      -----
Operating income:
  United States.............................................      2.2        2.2        2.0
  Europe....................................................      0.6        0.5        0.5
                                                                -----      -----      -----
     Total..................................................      2.8        2.7        2.5
                                                                -----      -----      -----
Other income (expense):
  Interest income and other.................................      0.2        0.1        0.1
  Interest expense..........................................     (0.9)      (0.5)      (0.3)
  Interest expense to affiliates............................     (0.1)      (0.4)      (1.1)
                                                                -----      -----      -----
Income before income taxes..................................      2.0        1.9        1.2
Income tax expense..........................................      0.9        0.9        0.6
                                                                -----      -----      -----
Net income..................................................      1.1%       1.0%       0.6%
                                                                =====      =====      =====
</TABLE>

    Year Ended December 31, 1997 Compared
      with Year Ended December 31, 1996

     Net sales increased to $1,618.7 million in 1997 from $1,412.5 million in
1996, an increase of $206.2 million or 14.6%. The increase in sales was driven
by growth from acquisitions of 12.7% and sales at the Company's existing
locations of 4.6%, while currency translation had a negative impact of 2.7%.

     Net sales in the United States increased to $1,147.7 million in 1997 from
$1,087.0 million in 1996, an increase of $60.7 million or 5.6%. The incremental
impact of the Company's 1996 U.S. acquisitions accounted for 0.5% of the growth
in 1997. Increased sales at the Company's existing operations accounted for the
remaining 5.1% of growth. The Company believes the principal factors
contributing to its internal growth were increased sales to existing and new
accounts and 1996 add-on acquisitions in existing markets. Net sales in the
United States were negatively impacted by increasingly competitive market
conditions and lower paper prices.

     Net sales in Europe increased to $471.0 million in 1997 from $325.5 million
in 1996, an increase of $145.5 million or 44.7%. The incremental impact of 1996
and 1997 acquisitions accounted for 53.5% of the European sales growth in 1997.
Excluding the negative impact of currency translation of 11.9%, sales growth at
existing locations increased 3.1% for the year ended 1997, compared to 1996. The
Company believes that internal growth continues to be negatively effected by the
continued softness in the German economy, where approximately 50% of the
Company's European sales originate.

     Gross profit as a percentage of net sales was 28.2% in 1997 as compared to
28.9% in 1996, a decrease of 0.7%. The decrease was attributable primarily to
highly competitive market conditions resulting in lower product margins, a shift
in product mix particularly in Europe due to the impact of late 1996
acquisitions, and fluctuations caused by the use of the LIFO method in valuing
the U.S. inventory.

     Selling and administrative expenses, expressed as a percentage of net
sales, were 23.7% in 1997 compared to 24.5% in 1996, a decrease of 0.8%. The

                                       15
<PAGE>   17

impact of late 1996 and 1997 acquisitions, which principally occurred in Europe,
had the effect of increasing current year costs by 0.1%. Additionally, the
Company's provision for doubtful accounts increased from 0.1% in 1996 to 0.4% in
1997, principally due to unfavorable collection experience. In the United
States, where selling and administrative expenses were down 0.6%, the focus in
1997 was on rationalizing the business, integrating recent acquisitions and
controlling other costs. The printed forms management business in New York was
outsourced in September 1997 as part of a strategic alliance with the Document
Solutions Division of Moore Corporation. While reducing operating costs, this
alliance will also provide the Company printing industry expertise.
Additionally, warehouses in Iowa, Florida and California were integrated into
existing larger facilities. As a result of these and other efforts to focus on
staffing and logistic requirements, total U.S. personnel was approximately 1.5%
lower than the previous year-end. In Europe, active labor cost control programs
in Germany and the United Kingdom led to favorable cost levels expressed as a
percentage of sales. These expenses also included $2.1 million in 1997 related
to personnel reduction costs principally related to the former Chief Executive
Officer and $3.1 million in 1996 related to special investigation costs at the
Company's New York Division.

     In December 1997, the Company announced its U.S. plan to implement an
enterprise-wide system solution, known as Project Millennium, which is designed
to standardize business processes, centralize certain business functions, and
enhance customer service capabilities. Total selling and administrative expenses
incurred on the project in 1997 of $2.4 million included a fourth quarter
one-time charge of $1.0 million for normal severance costs and facility
consolidation costs. The 1996 selling and administrative expenses of $1.0
million related entirely to design phase costs incurred in the analysis of
existing systems and business processes. Ongoing project costs associated with
the dedicated internal functional teams, outside consultants, maintenance and
facility costs are being capitalized or expensed in accordance with accounting
guidance. Additionally, ongoing costs will include systematic accrual of
supplemental severance and retention payments, duplicate staffing expenses while
centralized functions are implemented prior to local functions being eliminated,
increased costs associated with maintenance contracts on the new hardware and
software and training costs.

     The Company anticipates the implementation of the new systems will take
approximately three and one half years. The Company expects approximately 110
current job positions to be eliminated as a result of consolidating and
centralizing certain functions. It is anticipated that additional labor savings
will be achieved through normal staff attrition in the customer service and
warehouse operations areas after the new systems and processes have been
implemented. The Company expects to realize some economic benefits from the
project starting in late 1998, although earnings for 1998 and 1999 will be
adversely impacted until sufficient benefits can be realized to offset ongoing
costs. However, the Company does anticipate year-over-year earnings growth for
1998.

     Operating income as a percentage of net sales was 2.8% in 1997 as compared
to 2.7% in 1996, an increase of 0.1%. Excluding the Project Millennium costs,
personnel reduction costs and New York special investigation costs described
above, operating income as a percentage of net sales would have been 3.1% in
1997 compared to 3.0% in 1996, or an increase of 0.1%. The dollar growth in
operating income reflects the effects of the Company's 1996 and 1997 European
acquisitions, which were accretive to earnings, and cost containment as the
Company rationalizes existing operations and integrates acquisitions.

     Interest expense, including affiliated interest expense, increased to $15.9
million in 1997 from $12.6 million during 1996. The increase was primarily
attributable to interest expense on debt associated with the new acquisitions
and capital investments in 1997 and 1996. In 1997, capitalized interest related
to Project Millennium financing totaled $0.4 million.

     Net income increased to $17.3 million in 1997 from $14.7 million in 1996.
Increased operating income at existing operations and acquisitions were offset
slightly by higher interest costs. The effective income tax rate was
approximately 46% for 1997 as compared to 47% for 1996. 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 1997,
as well as the change in the composition of income earned in countries which
have varying tax rates.

                                       16
<PAGE>   18

    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 negative impact of currency translation, 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 a
$13.5 million negative impact of currency translation. 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, expressed 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 Project Millennium 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.

     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

                                       17
<PAGE>   19

and other permanent differences against a relatively higher pre-tax income base
in 1996.

LIQUIDITY AND CAPITAL RESOURCES

     Prior to July 1995, 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. 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 a $200 million long term credit agreement with KNP BT
Antilliana N.V. ("Antilliana"), an affiliate of KNP BT (the "Antilliana Credit
Agreement"), to provide funds for working capital and other general corporate
purposes.

     On August 2, 1996, the Company entered into a five-year, non-amortizing
$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.
Effective in August 1996, the Company reduced the commitments available under
the Antilliana Credit Agreement to $50 million, of which $15.0 million was
available through an affiliated Delaware corporation to support the U.S. cash
management activity.

     The Bank Credit Agreement, as amended in December 1996 and May 1997,
contains various loan covenants calculated quarterly including a maximum
leverage ratio based on total debt to pro forma EBITDA (3.75 to 1 for each of
the four quarter rolling periods ending on or before March 31, 1998, and
reducing to 3.25 to 1 in subsequent quarters), a minimum EBITDA less capital
expenditures to interest ratio, and a minimum net worth requirement. In
addition, under a change in 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.

     The Company utilizes revolving lines of credit providing an aggregate of
$22.5 million to fund the Company's U.S. cash management requirements. Amounts
outstanding under such lines are payable on demand. The Company also utilizes
the 70 million Netherlands Guilders ("NLG") Affiliate Credit Agreement
(approximately $35 million), available through KNP BT Europcenter N.V.
("Europcenter"), an affiliate of KNP BT, to fund its European needs, including
acquisitions. This agreement, which expires in July 1999, replaced the
Antilliana Credit Agreement. See "Certain Relationships and Related
Transactions--Credit Facilities."

     Cash provided by operating activities in the year ended December 31, 1997
was $34.5 million, which included $17.3 million of net income and $28.7 million
of non-cash depreciation and amortization charges. Significant cash requirements
for 1997 included $17.8 million related to acquisitions and $28.2 million for
capital expenditures. These requirements were partially financed by $10.1
million of net borrowings under notes payable, long-term obligations and
obligations with affiliates.

     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
$0.3 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

                                       18
<PAGE>   20

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.

     In 1997, the Company had total capital expenditures of $28.2 million, of
which approximately $15 million related to the purchase of software and related
programming costs associated with Project Millennium. The Company has budgeted
aggregate capital expenditures of $52 million for the year ended December 31,
1998. These budgeted expenditures include $25 million for Project Millennium, as
well as investments in other information technology systems and improvements to
existing distribution centers.

     Since August 1996, the Company has principally relied upon the $250 million
Bank Credit Agreement to fund its operations and acquisition growth. At December
31, 1997, borrowings under the Bank Credit Agreement totaled $194.7 million. The
Bank Credit Agreement contains financial covenants, the most restrictive of
which currently limits the Company's ability to fully utilize the remaining
available capacity. During the next twelve months, the Company does not believe
that internally generated earnings and related cash flow requirements for
capital expenditures and working capital will be sufficient to comply with all
of the existing financial covenants contained in the Bank Credit Agreement. As a
result, borrowings under the Bank Credit Agreement have been classified as
current portion of long-term obligations in the consolidated balance sheet.

     The Company's majority shareholder, KNP BT, has advised the Company that it
will support the Company during 1998 and use its best efforts to prevent any
default or event of default that may arise under the Bank Credit Agreement. As
described in the Notes to the Company's Consolidated Financial Statements, KNP
BT has announced that it is prepared to make an offer to purchase the
outstanding shares of the Company that it does not already own in a so-called
"going private" transaction. If the going private transaction is completed, KNP
BT has advised the Company that it intends to reduce or eliminate its existing
indebtedness under the Bank Credit Agreement and/or otherwise cause such
indebtedness to be refinanced. If the going private transaction is not
completed, the Company intends to renegotiate the existing Bank Credit Agreement
so as to avoid or cure any such default or defaults or event or events of
default and/or to refinance the indebtedness under the Bank Credit Agreement, in
either case, at a cost that is not expected to be material to the Company's 1998
results of operations. Pending the resolution of this transaction, the Company
needs to evaluate longer term solutions for its working capital and capital
expenditure requirements as well as funding for potential future acquisitions.

YEAR 2000 ISSUES

     The Company is currently in the process of evaluating its systems and
related communications equipment for the impact of the Year 2000 issue. In the
United States, the Company has made a decision, as part of the overall analysis
of its existing systems and business processes under Project Millennium, to
convert in 1998 the application systems at several of the smaller sites to one
of the two main applications systems used by larger divisions of the Company.
The Company believes the Year 2000 compliant code for these two main application
systems, which are currently operated by external computer software firms,
already exists or will be available in 1998. The Company has recently engaged an
outside consulting firm to assist the Company in the evaluation of these two
application systems. Any modifications deemed appropriate will be coordinated
with the implementation timetable of Project Millennium to ascertain earliest
compliance. The software applications selected as part the enterprise-wide
systems solution of Project Millennium are Year 2000 compliant. A similar
evaluation of systems and related communication equipment is being conducted for
the Company's European operations. In addition, the Company's European
operations are also evaluating their systems for dual currencies with the
planned introduction of the Euro currency effective January 1, 1999. The Company
is still quantifying the costs relating to this issue. Such costs may be
material to the quarterly financial results. If the Company or any of its
significant vendors or customers does not successfully and timely complete such
changes, the Company's business could be materially adversely affected.

EFFECTS OF FLUCTUATIONS IN FOREIGN CURRENCY
  EXCHANGE RATES

     Approximately 29% of the Company's net sales and operating expenses are
generated from its European operations and are denominated in a variety of
currencies other than U.S. dollars. Each of the Company's European operations
conducts substantially all of its business in its local currency with

                                       19
<PAGE>   21

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 U.S. 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

     In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." This statement, effective for fiscal years beginning
after December 15, 1997, will require the Company to report components of
comprehensive income in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is defined by
Concepts Statement No. 8, "Elements of Financial Statements," as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. The Company is evaluating the effects of this
pronouncement.

     Also in June 1997, the FASB issued Statement No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial statements for periods beginning after
December 15, 1997, requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company is evaluating the effects of this
pronouncement.

     In February 1998, the FASB issued Statement No. 132 ("SFAS 132"),
"Employers Disclosures about Pensions and Other Postretirement Benefits." This
statement, effective for fiscal years beginning after December 15, 1997,
standardizes the disclosure requirements for pensions and other postretirement
benefits, requires additional information on changes in benefit obligations and
fair values of plain assets and eliminates certain currently required
disclosures. The Company is evaluating the effects of this pronouncement.

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 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 ability to finance and successfully complete and integrate future
acquisitions; mix of sales by product category and country; continual
competitive pressure on pricing and margins; delays in implementing the
technological and operational changes planned under Project Millennium; the
volatility of paper prices; the fluctuation in interest rates; and the expansion
into international markets, including currency exchange rates and general market
conditions.

ITEM 8. FINANCIAL STATEMENTS AND
  SUPPLEMENTARY DATA

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

                                       20
<PAGE>   22

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

     Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
  REGISTRANT

DIRECTORS

     Certain information regarding each director is set forth below, including
such individual's age and principal occupations, a brief account of business
experience during at least the last five years, other directorships currently
held and the year in which the individual was first elected a director of the
Company. The directors hold office until their successors are elected and
qualified or until their earlier removal or resignation.

     Frans H.J. Koffrie, age 45, has served as Chairman of the Company's Board
of Directors since January 1998, as Acting President and Chief Executive Officer
of the Company since August 1997 and as a member of the Company's Board of
Directors since January 1996. Mr. Koffrie has also served as a member of the
Executive Board of KNP BT since June 1993 and as Chairman of the Executive Board
of the Distribution Group of KNP BT since January 1996, in which capacity Mr.
Koffrie has senior management responsibilities for various divisions of the
Distribution Group including the Paper Merchanting Division, the Graphic Systems
Division in Europe and Asia, the Information Systems Division and the Office
Products Division. He previously served as a member of the Executive Board of
the VRG Groep N.V. from April 1990 to March 1993.

     Lorrence T. Kellar, age 60, has served as a member of the Company's Board
of Directors since January 1996. Mr. Kellar has been a Vice President-Real
Estate of Kmart Corporation since May 1996. Mr. Kellar also currently serves as
a member of the Board of Directors of Multi-Color Corporation and Loehmann's
Inc. and as a trustee of the Bartlett Management Trust, a mutual fund investment
company. He previously served as a Group Vice President of Kroger Co. from 1986
to April 1996 and as a member of the Board of Directors of the U.S. Shoe
Corporation from May 1986 to May 1995.

     Philip E. Beekman, age 66, has served as a member of the Company's Board of
Directors since December 1996. Mr. Beekman is President and Chief Executive
Officer of Owl Hollow Enterprises, Inc., a consulting and investment company.
Mr. Beekman also currently serves as a member of the Board of Directors of The
General Chemical Group Inc., Linens 'n Things, Inc., Consolidated Cigar
Corporation and Kendle International Inc. He previously served as Chairman and
Chief Executive Officer of Hook-SupeRx, Inc., a retail drug store chain, from
July 1986 to July 1994, and President and Chief Operating Officer of Seagram
Company, Ltd. from January 1977 to June 1986 and, prior thereto, as President of
Colgate Palmolive International from March 1973 to December 1976.

     Harry G. Vreedenburgh, age 47, a member of the Company's Board of Directors
since January 1998, has also served as a member of the Executive Board of the
Distribution Group of KNP BT since January 1996. Mr. Vreedenburgh has been the
Chief Financial Officer of the Distribution Group of KNP BT since October 1994.
He previously served as Staff Director of Corporate Planning & Systems of KNP BT
from 1993 to 1994 and, prior thereto, as Group Controller of the VRG Groep N.V.
from 1987 to 1992.

     George Dean, age 50, a member of the Company's Board of Directors since
January 1998, has also served as a member of the Executive Board of the
Distribution Group of KNP BT since January 1996. Mr. Dean has been the Managing
Director for the Paper Merchanting Division of the KNP BT Distribution Group
since June 1995. He previously served as the Chief Executive Officer of Contract
Papers (Holdings) Ltd. from January 1990 to June 1995.

EXECUTIVE OFFICERS

     The Board of Directors appoints the Company's executive officers. Certain
information concerning the Company's executive officers is set forth below,
except that information concerning Mr. Koffrie is set forth above under
"Directors". There are no family relationships among any of the directors or
executive officers of the Company.

     Richard C. Dubin, age 56, has served as Executive Vice President and
President, BT Office Products North America since August 1997. Mr. Dubin has
been a Vice President of the Company since April 1995 and previously served as
Regional Presi-

                                       21
<PAGE>   23

dent, Midwest-West Region of the Company from January 1995 to August 1997. Prior
thereto, Mr. Dubin was the President of BT Buschart Office Products, Inc. ("BT
Buschart") from April 1990 through December 1994. Mr. Dubin was the President of
Buschart Office Products, Inc., a contract stationer serving the St. Louis
metropolitan area and the predecessor of BT Buschart, from September 1981 until
the acquisition of Buschart Office Products, Inc. by the Company in April 1990.

     Janhein H. Pieterse, age 46, has served as President, BT Office Products
Europe since July 1995, as a Vice President of the Company since April 1995, and
prior thereto had served as the President-European Operations of the Office
Products Division of KNP BT since January 1995. He previously served as the
President of the Copier Division of KNP BT from April 1994 to December 1994.
From October 1992 to March 1994, Mr. Pieterse served as the President of
Trimbach B.V., a solid board packaging manufacturing company. From August 1991
to September 1992, he served as the Managing Director of a group of packaging
manufacturing companies of BT. From January 1989 to July 1991, Mr. Pieterse was
the Managing Director of all operating companies in Australia and New Zealand of
Koninklijke Van Ommeren N.V., a Netherlands shipping/tanker company, and from
1986 to 1988, he served as the President of the worldwide airfreight network of
such company.

     Francis J. Leonard, age 42, has served as the Company's Vice
President-Finance and Chief Financial Officer since April 1997 and as Chief
Accounting Officer since April 1995. Mr. Leonard also served as Controller of
the Company from April 1995 to April 1997. Mr. Leonard was employed in various
financial and accounting positions at Richardson Electronics Ltd., a worldwide
distributor of electronic devices, from April 1985 to July 1991, and as
Treasurer thereof from July 1991 through April 1995. Mr. Leonard is a certified
public accountant.

     Thomas F. Cullen, age 43, was appointed Secretary of the Company in April
1997 and has served as Vice President, General Counsel of the Company since
November 1996. Prior thereto, Mr. Cullen had been engaged in the private
practice of law in Stamford, Connecticut since 1985.

     David Kirshner, age 58, has served as Regional President, Great Lakes
Region of the Company since January 1995 and as a Vice President of the Company
since April 1995. Prior thereto, Mr. Kirshner was the President of BT Publix
Office Products, Inc. ("BT Publix") from June 1990 through December 1994. Mr.
Kirshner had been the Vice President of Publix Office Supplies, Inc., a contract
stationer serving the Chicago metropolitan area and the predecessor of BT
Publix, from 1975 until June 1986 and the President of Publix Office Supplies,
Inc. from June 1986 until the acquisition of Publix Office Supplies, Inc. by the
Company in April 1990.

     Michael J. Miller, age 42, has served as Senior Vice President, Strategic
Systems of the Company since January 1997 and as a Vice President of the Company
since April 1995. Prior thereto, Mr. Miller was the Regional President,
South-Southeast Region of the Company from January 1995 to January 1997. Mr.
Miller previously was the President of BT Miller Business Systems, Inc. ("BT
Miller") from November 1992 through December 1994. Mr. Miller was the President
and a stockholder of Miller Business Systems, Inc., the predecessor of BT
Miller, from November 1985 until the acquisition of Miller Business Systems,
Inc. by the Company in November 1992.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
  COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons holding more than ten
percent of a registered class of the Company's equity securities to file with
the Securities and Exchange Commission and the New York Stock Exchange initial
reports of ownership, reports of changes in ownership and annual reports of
ownership of Common Stock and other equity securities of the Company. Such
directors, officers, and ten percent stockholders are also required to furnish
the Company with copies of all such filed reports.

     Based solely upon a review of the copies of such reports furnished to the
Company, or representations that no reports were required, the Company believes
that all of its directors, executive officers and ten percent shareholders
complied with all filing requirements under Section 16(a) in 1997.

                                       22
<PAGE>   24

ITEM 11. EXECUTIVE COMPENSATION

     Set forth below is information concerning the compensation of (i) Mr.
Koffrie, who has served as Acting President and Chief Executive Officer of the
company since August 1997, (ii) Mr. Huyzer, who served as President and Chief
Executive Officer of the Company from April 1995 until his retirement from the
Company effective August 11, 1997, and (iii) each of the other four most highly
compensated executive officers of the Company (collectively, including Messrs.
Koffrie and Huyzer, the "Named Executive Officers").

     The following table summarizes the compensation paid to, awarded to, or
earned by, the Named Executive Officers for services rendered in all capacities
to the Company during the fiscal years ended December 31, 1997, 1996 and 1995.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                    LONG-TERM
                                                  ANNUAL COMPENSATION              COMPENSATION
                                        ---------------------------------------    ------------
                                                                                      AWARDS
                                                                                    SECURITIES
                                                                 OTHER ANNUAL       UNDERLYING      ALL OTHER
NAME AND PRINCIPAL POSITION     YEAR     SALARY     BONUS(1)    COMPENSATION(2)     OPTIONS(3)     COMPENSATION
---------------------------     ----    --------    --------    ---------------    ------------    ------------
<S>                             <C>     <C>         <C>         <C>                <C>             <C>
Frans H.J. Koffrie..........    1997    $     --(4) $     --(4)   $       --(4)            --(5)     $28,000(6)
  Acting President and Chief    1996          --          --              --               --             --
  Executive Officer             1995          --          --              --               --             --

Rudolf A.J. Huyzer..........    1997     386,077     182,934(7)    1,262,975(8)       100,000          4,077(9)
  Former President and Chief    1996     500,000      34,615(7)       68,421(10)      146,670         15,503(11)
  Executive Officer             1995     500,000      50,000(7)           --          200,000          4,186(12)

Richard C. Dubin............    1997     277,404     127,979          62,436(13)      105,000         27,822(14)
  Executive Vice President      1996     250,000     148,438              --           71,930         25,000(15)
  and President, BT Office      1995     250,000          --              --           70,000         25,000(16)
  Products North America

Michael J. Miller...........    1997     250,000      80,000              --           25,000         28,200(17)
  Senior Vice President,        1996     250,000     100,000              --           60,000         27,975(18)
  Strategic Systems             1995     250,000          --              --           70,000         28,000(19)

David Kirshner..............    1997     250,000      34,175              --               --         27,850(20)
  Vice President and            1996     250,000       5,000              --           50,670         27,772(21)
  Regional                      1995     250,000          --              --           70,000         27,772(22)
  President, Great Lakes
  Region

Janhein H. Pieterse.........    1997     168,919(23)   43,919(24)         --           35,000         26,071(25)
  Vice President and President, 1996     182,075(26)   14,566(27)         --           50,000         25,264(28)
  BT Office Products Europe     1995     195,250(29)       --             --           70,000             --
</TABLE>

------------------------------
(1) All bonus compensation is reflected in the table below in the year such
    compensation was earned rather than in the subsequent year when such
    compensation was paid.

(2) With respect to each of the Named Executive Officers other than as indicated
    for Mr. Huyzer in 1996 and 1997 and Mr. Dubin in 1997, the aggregate amount
    of perquisites and other personal benefits, securities or property received
    was less than either $50,000 or 10% of the total annual salary and bonus
    reported for such officer.

(3) All of the options were granted pursuant to the Company's 1995 Stock Option
    Plan. The options granted to the Named Executive Officers (except for those
    granted to Mr. Pieterse) are exercisable in accordance with the following
    vesting schedule:

   (a) as to fifty percent (50%) of the number of shares covered by the option,
       after the completion of one (1) year of continuous service from the grant
       date;

   (b) as to an additional twenty-five percent (25%) of the number of shares
       covered by the option, after the completion of two (2) years of
       continuous service from the grant date; and

   (c) as to the remaining twenty-five percent (25%) of the number of shares
       covered by the option, after the completion of three (3) years of
       continuous service from the grant date.

                                       23
<PAGE>   25

(footnotes continued from preceding page)
------------------------------
    In addition, all options vest upon retirement and must be exercised within
    three years of the retirement date.

    Mr. Pieterse's options are immediately exercisable as of the date of grant.
    However, all such options are subject to resale restrictions whereby fifty
    percent (50%) of the shares acquired upon exercise of an option may be sold
    or transferred after the completion of one (1) year of continuous service
    from the grant date; an additional twenty-five percent (25%) of the shares
    acquired upon exercise of an option may be sold or transferred after the
    completion of two (2) years of continuous service from the grant date; and
    the remaining twenty-five percent (25%) of the shares acquired upon exercise
    of an option may be sold or transferred after the completion of three (3)
    years of continuous service from the grant date.

 (4) Mr. Koffrie was appointed Acting President and Chief Executive Officer of
     the Company effective August 11, 1997. Except for the director's fees
     disclosed in footnote 6 below, Mr. Koffrie served without compensation by
     the Company during 1997. He was not an employee of the Company during 1997
     and was not an officer of the Company prior to his appointment to the
     aforementioned offices. Mr. Koffrie is a member of the Executive Board of
     KNP BT and an employee of KNP BT and receives compensation from KNP BT.
     None of such compensation during 1997, however, was for services rendered
     to the Company, and neither KNP BT nor Mr. Koffrie was paid or reimbursed
     any amount either directly or indirectly by the Company or otherwise in
     respect of Mr. Koffrie's service as an officer of the Company.

 (5) Mr. Koffrie was not an employee of the Company during 1997 and therefore
     was not eligible to receive, and did not receive, any options under the
     Company's 1995 Stock Option Plan. Although Mr. Koffrie received options to
     purchase shares of KNP BT stock during 1997, no such options were granted
     for services rendered to the Company.

 (6) As described under "-- Compensation of Directors" below, directors who are
     not employees of the Company receive certain fees for their service as
     directors and members of committees of the Board of Directors of the
     Company. As a non-employee director of the Company, Mr. Koffrie received
     fees of $28,000 from the Company during 1997.

 (7) Guaranteed bonus payments pursuant to the terms of Mr. Huyzer's former
     employment agreement.

 (8) This amount includes: $150,769 salary continuance under employment
     agreement, $853,847 separation payment, $84,000 representing the amount of
     bonus compensation Mr. Huyzer received during the twenty-four (24) month
     period immediately preceding his retirement date, $122,692 in accrued but
     not used vacation time, $25,000 in lieu of reimbursement costs for
     outplacement services pursuant to Mr. Huyzer's separation agreement and
     $26,667 perquisite allowance. See "-- Employment Contracts, Termination of
     Employment and Change-In-Control Arrangements."

 (9) Consists of employee matching contributions to the Company's 401(k) plan of
     $4,077.

(10) This amount includes $68,421 perquisite allowance ($40,000 annual payment
     plus $28,421 of 1995 allowance paid in 1996).

(11) Consists of employer matching contributions to the Company's 401(k) plan of
     $4,968 and final reimbursement of moving expenses of $10,535. In addition,
     Mr. Huyzer was granted options to purchase 10,000 shares of KNP BT stock on
     April 26, 1996, representing approximately 1% of the total number of
     options granted to KNP BT employees for 1996. The exercise price of the
     options is NLG 34.00 (or $16.83 based on the December 31, 1997 exchange
     rate of NLG 1 = $.4950 (the "1997 Exchange Rate")). The options expire on
     April 25, 2000. (The potential realizable values of Mr. Huyzer's options
     granted in 1996 at assumed annual rates of stock price appreciation over
     the option terms of 5% and 10%, respectively, were approximately $36,300
     and $78,100. The foregoing 5% and 10% assumed annual rates of compound
     stock price appreciation over the term of the options are set forth in
     accordance with rules and regulations of the Securities and Exchange
     Commission and do not represent the Company's estimate of KNP BT's stock
     price appreciation or a projection by the Company of KNP BT's future stock
     prices.)

(12) Consists of employer matching contributions to the Company's 401(k) plan of
     $4,186. In addition, Mr. Huyzer was granted options to purchase 10,000
     shares of KNP BT stock on May 4, 1995, representing approximately 1% of the
     total number of options granted to KNP BT employees for 1995. The exercise
     price of the options is NLG 34.44 (or $17.05 based on the 1997 Exchange
     Rate). The options expire on May 3, 1999. (The potential realizable values
     of Mr. Huyzer's options granted in 1995 at assumed annual rates of stock
     price appreciation over the option terms of 5% and 10%, respectively, were
     approximately $36,700 and $79,100. The foregoing 5% and 10% assumed annual
     rates of compound stock price appreciation over the term of the options are
     set forth in accordance with rules and regulations of the Securities and
     Exchange Commission and do not represent the Company's estimate of KNP BT's
     stock price appreciation or a projection by the Company of KNP BT's future
     stock prices.)

(13) This amount includes: $18,269 for prorated portion of annual housing
     allowance of $50,000 and a one-time $25,000 settling-in allowance
     associated with Mr. Dubin's move to the Chicago area and a $19,167
     perquisite allowance pursuant to the terms of Mr. Dubin's employment
     agreement. See "-- Employment Contracts, Termination of Employment and
     Change-In-Control Arrangements."

(14) Consists of employer matching contributions to the Company's 401(k) plan of
     $1,298 and accruals under the Company's SERP of $26,524. See "--
     Supplemental Executive Retirement Plan."

(15) Consists of employer matching contributions to the Company's 401(k) plan of
     $679 and accruals under the Company's SERP of $24,321. See "-- Supplemental
     Executive Retirement Plan."

(16) Consists of employer matching contributions to the Company's 401(k) plan of
     $660 and accruals under the Company's SERP of $24,340. See "-- Supplemental
     Executive Retirement Plan."

(17) Consists of employer matching contributions to the Company's 401(k) plan of
     $3,200 and accruals under the Company's SERP of $25,000. See "--
     Supplemental Executive Retirement Plan."

(18) Consists of employer matching contributions to the Company's 401(k) plan of
     $2,975 and accruals under the Company's SERP of $25,000. See "--
     Supplemental Executive Retirement Plan."

(19) Consists of employer matching contributions to the Company's 401(k) plan of
     $3,000 and accruals under the Company's SERP of $25,000. See "--
     Supplemental Executive Retirement Plan."

(20) Consists of employer matching contributions to the Company's 401(k) plan of
     $2,850 and accruals under the Company's SERP of $25,000. See "--
     Supplemental Executive Retirement Plan."
                                       24
<PAGE>   26

(footnotes continued from preceding page)
------------------------------

(21) Consists of employer matching contributions to the Company's 401(k) plan of
     $2,772 and accruals under the Company's SERP of $25,000. See "--
     Supplemental Executive Retirement Plan."

(22) Consists of employer matching contributions to the Company's 401(k) plan of
     $2,772 and accruals under the Company's SERP of $25,000. See "--
     Supplemental Executive Retirement Plan."

(23) Salary was NLG 341,250 or $168,919 based on the 1997 Exchange Rate.

(24) Bonus was NLG 88,725 or $43,919 based on the 1997 Exchange Rate.

(25) Pension contribution of NLG 52,669 or $26,071 based on the 1997 Exchange
     Rate.

(26) Salary was NLG 318,648 or $182,075 based on the December 31, 1996 exchange
     rate of NLG 1 = $.5714.

(27) Bonus was NLG 25,492 or $14,566 based on the December 31, 1996 exchange
     rate of NLG 1 = $.5714.

(28) Pension contribution of NLG 44,215 or $25,264 based on December 31, 1996
     exchange rates of NLG 1 = $.5714.

(29) Salary was NLG 312,400 or $195,250 based on the December 31, 1995 exchange
     rate of NLG 1 = $.6250.

OPTION GRANTS, EXERCISES AND VALUES IN FISCAL 1997

     The following table sets forth certain information concerning individual
grants of options to purchase Common Stock made by the Company during the fiscal
year ended December 31, 1997 ("Fiscal 1997") to each of the Named Executive
Officers.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                INDIVIDUAL GRANTS
                              --------------------------------------------------------------------------------------
                                                      PERCENT OF TOTAL
                              NUMBER OF SECURITIES   OPTIONS GRANTED TO     EXERCISE                   PRESENT VALUE
                               UNDERLYING OPTIONS       EMPLOYEES IN          PRICE       EXPIRATION     ON GRANT
                                   GRANTED(1)          FISCAL 1997(2)     ($ PER SHARE)      DATE         DATE(3)
                              --------------------   ------------------   -------------   ----------   -------------
<S>                           <C>                    <C>                  <C>             <C>          <C>
Frans H.J. Koffrie...........            --                   --             --                  --            --
  Acting President and
  Chief Executive Officer
Rudolf A.J. Huyzer...........       100,000(4)             13.5%              7.50         08/11/00      $352,790
  Former President and
  Chief Executive Officer
Richard C. Dubin.............        30,000(5)             14.2%              7.50         05/06/07       105,837
  Executive Vice President           75,000(6)                                9.0625       08/11/07       315,997
  and President, BT Office
  Products North America
Michael J. Miller............        25,000(5)              3.4%              7.50         05/06/07        88,197
  Senior Vice President,
  Strategic Systems
David Kirshner...............            --                   --                --               --            --
  Vice President and
  Regional President,
  Great Lakes Region
Janhein H. Pieterse..........        35,000(5)              4.7%              7.50         05/06/02       123,477
  Vice President and
  President, BT Office
  Products Europe
</TABLE>

------------------------------
(1) All of the options were granted pursuant to the Company's 1995 Stock Option
    Plan.

(2) The total number of options granted in 1997 pursuant to the 1995 Stock
    Option Plan was 739,300. Options to purchase 664,300 shares were granted on
    May 6, 1997 and options to purchase 75,000 shares were granted on August 11,
    1997.

(3) Option values reflect Black-Scholes model output for options. The
    assumptions used in the model included: expected volatility of 42.5%,
    risk-free rate of return of 6.5%, no dividend yield and time to exercise of
    five years.

(4) Granted on May 6, 1997. Options expire three years from retirement date of
    August 11, 1997 pursuant to the 1995 Stock Option Plan.

(5) Granted on May 6, 1997.

(6) Granted on August 11, 1997.

                                       25
<PAGE>   27

     The following table summarizes the aggregated option exercises by the Named
Executive Officers in Fiscal 1997 and the year-end values of unexercised
options.

      AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL 1997 YEAR-END

                                 OPTION VALUES

<TABLE>
<CAPTION>
                                                                 NUMBER OF SECURITIES
                                                                UNDERLYING UNEXERCISED        VALUE OF UNEXERCISED
                                      SHARES                          OPTIONS AT              IN-THE-MONEY OPTIONS
                                     ACQUIRED       VALUE          DECEMBER 31, 1997          AT DECEMBER 31, 1997
              NAME                  ON EXERCISE    REALIZED    EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
              ----                  -----------    --------    -------------------------    -------------------------
<S>                                 <C>            <C>         <C>                          <C>
Frans H.J. Koffrie(1)...........        --            --                          --                       --
  Acting President and
  Chief Executive Officer
Rudolf A.J. Huyzer..............        --            --                 30,000/0(2)               $183,200/0(3)
  Former President and Chief                                            446,670/0(4)                 25,000/0(5)
  Executive Officer
Richard C. Dubin................        --            --           88,465/158,465(4)                  0/7,500(5)
  Executive Vice President and
  President, BT Office Products
  North America
Michael J. Miller...............        --            --            82,500/72,500(4)                  0/6,250(5)
  Senior Vice President,
  Strategic Systems
David Kirshner..................        --            --            77,835/42,835(4)                      0/0
  Vice President and Regional
  President, Great Lakes Region
Janhein H. Pieterse.............        --            --                155,000/0(4)                  8,750/0(5)
Vice President and President, BT
  Office Products Europe
</TABLE>

------------------------------
(1) Mr. Koffrie was not an employee of the Company during 1997 and has not
    received any options under the Company's 1995 Stock Option Plan. Although
    Mr. Koffrie does hold options to purchase shares of KNP BT stock, no such
    options were granted to Mr. Koffrie for services rendered to the Company.
    See footnote 4 to "-- Summary Compensation Table" above.

(2) Refers to ordinary shares of KNP BT.

(3) The value was determined based on a December 31, 1997 market price of NLG
    46.70 and has been translated from Netherlands guilders based upon the 1997
    Exchange Rate.

(4) Refers to shares of Common Stock of the Company.

(5) Only the May 6, 1997 grants ($7.50) had an option price below the December
    31, 1997 market price of $7.75. The value was determined as number of
    options under the May 6, 1997 grant times a value of $.25 per share.

COMPENSATION OF DIRECTORS

     Directors who are not employees of the Company receive an annual fee of
$20,000 plus a per diem fee of $1,000 for their service on the Board and the
Chairman of the Board of Directors receives an annual fee of $30,000 plus a per
diem fee of $1,500. For committee meetings of the Board of Directors held on a
day other than the day of a Board meeting, members receive a per diem fee of
$1,000 and the Chairman of the committee receives a per diem fee of $1,500. For
each committee meeting held on the same day of a Board meeting, the committee
Chairman receives a fee of $500. A per diem fee of $500 is also paid to each
Board member for participation in telephonic meetings of the Board and its
committees. Directors who are employees of the Company do not receive annual or
per diem fees. All directors are reimbursed for expenses incurred in attending
meetings.

                                       26
<PAGE>   28

EMPLOYMENT CONTRACTS, TERMINATION OF
  EMPLOYMENT AND CHANGE-IN-CONTROL
  ARRANGEMENTS

     Mr. Koffrie served the Company as its Acting President and Chief Executive
Officer during 1997 without compensation and was not an employee of the Company.
Accordingly, the Company is not a party to any employment agreement with Mr.
Koffrie. Mr. Koffrie is fulfilling the responsibilities of his temporary
position of Acting President and Chief Executive Officer of the Company while
performing his responsibilities as an executive member of the Distribution Group
of KNP BT (of which the Company is an operating division). The Company's Board
of Directors has temporarily suspended its search for a successor until the
completion of any transaction resulting from the announcement by KNP BT on
January 22, 1998, that it was prepared to make an offer to acquire the 30% of
the stock in the Company it does not already own.

     The Company has entered into an employment agreement with Mr. Dubin,
effective as of August 11, 1997, pursuant to which he serves as Executive Vice
President of the Company and President, BT Office Products North America. The
initial term of this agreement expires on December 31, 1999. During the term of
his employment, Mr. Dubin is entitled to receive an annual base salary, an
annual bonus of up to 60% of his base salary based on achievement of certain
financial criteria and personal targets and certain perquisites and other
benefits. So long as Mr. Dubin does not move his permanent residence to the
greater Chicago area, he is also entitled to a taxable housing allowance equal
to $50,000 per year. In addition, Mr. Dubin is entitled to a one-time, taxable
settling-in allowance in an amount equal to $25,000. In connection with his
appointment as Executive Vice President and President, BT Office Products North
America, Mr. Dubin was granted options representing the right to purchase 75,000
shares of the Company's common stock. See "Option Grants in Fiscal 1997."

     If the employment of Mr. Dubin is terminated as a consequence of
non-renewal of his agreement, Mr. Dubin shall be entitled to a bonus payment for
the last year of the initial term equal to 1.5 times the average of bonuses
earned during the last two years of service to the Company and continuation for
a period of eighteen months following December 31, 1998 of base salary, full
benefits, perquisite allowance and retirement plan contributions. If the
employment of Mr. Dubin is terminated by the Company without cause prior to the
expiration of the initial term, he shall be entitled to bonus payments for each
year remaining on the initial term of the agreement and continuation for a
period of eighteen months following termination of base salary, full benefits,
perquisite allowance and retirement plan contributions.

     The Company has entered into employment agreements with Messrs. Kirshner
and Miller, effective as of January 1, 1995, pursuant to which they currently
serve as, respectively, Vice President and Regional President, Great Lakes
Region and Senior Vice President, Strategic Systems of the Company. Each of
these agreements is for a term of four years unless renewed or sooner terminated
in accordance with its terms. Pursuant to their employment agreements, each of
Messrs. Kirshner and Miller receives an annual base salary, an annual bonus of
up to 50% of his base salary based on achievement of certain financial criteria
and personal targets and certain perquisites and other benefits.

     If the employment of Messrs. Dubin, Kirshner or Miller is terminated due to
death, disability, resignation (other than following non-renewal by the Company
in the final year of the initial term as provided in the agreements) or for
cause, such person is entitled to receive earned and unpaid base salary through
the effective date of termination, business expense reimbursements, and all
other amounts due but unpaid to such person for the year immediately preceding
the year in which such termination occurs. In addition, if the employment of
Messrs. Dubin, Kirshner or Miller is terminated due to death or disability, such
person is entitled to receive any unpaid perquisite allowance and a prorated
bonus payment for the year during which such termination occurs.

     If the employment of Messrs. Kirshner or Miller is terminated by the
Company without cause prior to the expiration of the initial term of the
agreements or as a consequence of non-renewal of the agreements, each such
person shall be entitled to bonus payments for each year remaining in the
initial term and continuation for the remainder of the initial term of base
salary, full benefits, perquisite allowance and retirement plan contributions.

     Each of the employment agreements for Messrs. Dubin, Kirshner and Miller
contain a covenant not to compete with the Company. The covenant applies during
the term of employment plus a period

                                       27
<PAGE>   29

of eighteen months after the termination of employment with the Company.

     The Company has entered into an employment agreement with Mr. Pieterse,
effective July 1, 1995, pursuant to which he currently serves as Vice President
and President, BT Office Products Europe. This agreement is for an indefinite
period unless terminated in accordance with its terms. Pursuant to Mr.
Pieterse's employment agreement, he is entitled to receive an annualized salary
and an annual bonus based on achievement of certain financial criteria and
personal targets. If Mr. Pieterse's employment is terminated due to disability,
he receives base pay through the balance of that year plus one additional year
supplementary payment of up to his full base salary. Mr. Pieterse's employment
agreement contains a covenant not to compete with the Company for a period of
twelve months following termination of employment.

     The Company and KNP BT have entered into a Separation Agreement and General
Release with Mr. Huyzer (the "Separation Agreement"), pursuant to which Mr.
Huyzer retired from employment with the Company effective as of August 11, 1997.
Pursuant to the terms of the Separation Agreement, the Company has paid Mr.
Huyzer (i) $853,847 as a separation payment, (ii) $84,000, representing the
amount of bonus compensation Mr. Huyzer received during the twenty-four months
immediately preceding his retirement date, (iii) $122,692, representing Mr.
Huyzer's accrued but unused vacation time, and (iv) $25,000, in lieu of
reimbursement costs for outplacement services. In addition, the Company paid
$150,769 in respect of salary continuation for Mr. Huyzer in 1997.

     In 1998, the Company also paid Mr. Huyzer $182,934, representing 62.5% of
the bonus he would have otherwise been entitled to receive under the Company's
executive management bonus plan for 1997. The Company has agreed to reimburse
Mr. Huyzer relocation costs including up to $25,000 for the costs associated
with Mr. Huyzer's travel and lodging to search for a home in The Netherlands
(plus certain taxes payable on such relocation costs).

     The Company and KNP BT have agreed to contribute monthly on Mr. Huyzer's
behalf to certain KNP BT pension plans for 36 consecutive months following Mr.
Huyzer's retirement. The Company has also agreed to pay (for a period of
eighteen months after his retirement) (i) the costs of covering Mr. Huyzer and
his spouse under KNP BT's health insurance plan, and (ii) the costs of Mr.
Huyzer's disability insurance premiums under KNP BT's disability insurance plan.

     All of Mr. Huyzer's unvested options granted pursuant to the Company's 1995
Stock Option Plan became vested as of the date of Mr. Huyzer's retirement. Such
options to purchase stock in the Company shall expire on the third anniversary
of Mr. Huyzer's retirement from the Company. KNP BT has modified the terms of
its option plan to enable Mr. Huyzer to exercise his KNP BT options in
accordance with their original term and exercise date.

     In consideration of the aforementioned payments and benefits, Mr. Huyzer
has released both the Company and KNP BT from any and all claims, including any
claims related to his former employment agreement or his employment with the
Company.

KNP BT PENSION PLANS

     Mr. Koffrie participates in certain retirement programs offered by KNP BT.
None of the benefits thereunder, however, are payable for services rendered to
the Company. See footnote 4 to "--Summary Compensation Table" above.

     Mr. Pieterse participates in certain retirement programs offered by KNP BT,
including the Average Indexed Salary Module ("AIS"), applicable to all KNP BT
employees in The Netherlands, and the Elective Contribution Module ("ECM").
Contributions to the programs made on Mr. Pieterse's behalf and the liabilities
associated with his retirement benefits are accrued for by KNP BT. ECM is
applicable to KNP BT employees whose annual base salary exceeds $71,832.
Benefits from all of these programs are paid from contributions of KNP BT. Mr.
Pieterse will receive an estimated annual age 65 retirement benefit of $30,411
(with annual adjustments) from AIS based upon his annual adjusted base salary as
of his retirement date up to $71,832, annual contributions by KNP BT of $10,780
(indexed), and an accrued benefit as of December 31, 1997 of $12,737. ECM
provides benefits in addition to AIS in the form of an account balance which
will be converted to an annuity when Mr. Pieterse reaches age 65. The estimated
ECM benefit which will have accrued for the account of Mr. Pieterse at age 65 is
$541,887 plus interest, based upon continuing annual contributions by KNP BT of
$14,251 (indexed) and an accrued benefit as of December 31, 1997 of $211,438. In
addition to these retirement programs, Mr. Pieterse
                                       28
<PAGE>   30

elected to contribute to the KNP BT Pension-Plus Module (the "PPM"). This
program, which converts to an annuity upon retirement, enables participants to
increase their retirement pensions. All of the foregoing amounts have been
converted into U.S. dollars based upon the 1997 Exchange Rate.

     Mr. Huyzer also participates in certain retirement programs offered by KNP
BT, including the AIS, ECM and Flexible Retirement Module ("FRM"). Benefits from
all of these programs are paid from contributions of KNP BT. Mr. Huyzer will
receive an estimated annual age 65 retirement benefit of $15,427 (with annual
adjustments) from AIS based upon his annual adjusted base salary as of his
retirement date up to $71,832, annual contributions by KNP BT through August
2000 pursuant to the terms of the Separation Agreement of $14,657 (indexed), and
an accrued benefit as of December 31, 1997 of $12,955. ECM provides benefits in
addition to AIS in the form of an account balance which will be converted to an
annuity when Mr. Huyzer reaches age 65. The estimated ECM benefit which will
have accrued for the account of Mr. Huyzer at age 65 is $508,418 plus interest,
based upon continuing annual contributions by KNP BT through August 2000 of
$47,292 (indexed) and an accrued benefit as of December 31, 1997 of $337,643.
The FRM provides a supplemental benefit for employees over age 50. Mr. Huyzer
will receive an estimated account balance of $294,940 plus interest, based upon
annual contributions of KNP BT of $42,225 (indexed) and an accrued benefit as of
December 31, 1997 of $142,463. The FRM is also composed of an accrued benefit as
of December 31, 1997 of $32,265, based upon annual contributions by KNP BT
through August 2000 of $17,958 (indexed). In addition to these retirement
programs, Mr. Huyzer elected to contribute to the PPM. All of the foregoing
amounts have been converted into U.S. dollars based upon the 1997 Exchange Rate.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

     Certain executive officers of the Company participate in the Company's
Supplemental Executive Retirement Plan (the "SERP"), which provides supplemental
non-qualified retirement benefits to participants. The SERP requires the Company
to credit annually to the participant's account an amount equal to a percentage
of such participant's annual compensation as determined by the Company. For each
year prior to January 1, 1995 during which an amount is deemed to be held in a
participant's account, his account is credited with interest at a rate equal to
that of thirty-year U.S. Treasury securities as of the end of that year. From
and after 1995, a participant's account is treated as if deemed to be invested
in investment vehicles available to such participant under the 401(k) plan and
credited annually with income, expenses, gains and losses from such deemed
investments.

     A "grantor trust" under Section 677 of the Code may be established under
the SERP. In the event of a "change-in-control" (as defined in the SERP), the
Company is obliged to transfer amounts equal to the accounts under the SERP to
the trust. Assets in the trust, at all times, are subject to claims of the
general creditors of the grantor of such trust.

     Upon a participant's termination of employment with the Company for any
reason other than "cause" (as defined in the SERP), such participant is entitled
to receive the entire value of his account. Payment under the SERP is made
either in a lump sum or in monthly installments over a period of no more than
five years, as elected by the participant. The SERP also allows participants to
designate beneficiaries to receive their SERP benefits in the event of death.

     Amounts accrued in 1995, 1996 and 1997 under the SERP for the participating
Named Executive Officers are reported in the Summary Compensation Table above.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
  PARTICIPATION

     The Compensation Committee currently consists of Messrs. Koffrie, Kellar
and Beekman. Mr. Koffrie has served as Acting President and Chief Executive
Officer of the Company since August 11, 1997. Mr. Koffrie is a member of the
Executive Board of KNP BT and is the Chairman of the Executive Board of the
Distribution Group of KNP BT. Other than Mr. Koffrie, no executive officer of
the Company served as: (i) a member of the compensation committee (or other
board committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served on the Compensation Committee of the Board of
Directors of the Company; (ii) a director of another entity, one of whose
executive officers served on the Board of Directors of the Company; or (iii) a
member of the compensation committee (or other board committee performing
equivalent functions or, in the absence of any such committee, the entire board
of directors) of another entity, one of whose executive officers served as a
director of the Company.

                                       29
<PAGE>   31

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
  BENEFICIAL OWNERS AND MANAGEMENT

     Prior to the Offering, all of the Common Stock of the Company was
beneficially owned by KNP BT. KNP BT is headquartered in Amsterdam and is
principally engaged in the distribution and packaging businesses and, through
the Company, the distribution of office products.

     By virtue of its beneficial ownership of a majority of the outstanding
shares of the Company's Common Stock, KNP BT is in a position to control
substantially all corporate transactions requiring the vote of a majority of
stockholders, including election of the entire Board of Directors, as well as
merger and consolidation proposals, without the concurrence of other
stockholders, and thereby is in a position to control the Company. Three of the
Company's five directors are employed by KNP BT. In connection with the
Offering, KNP BT and certain of its affiliates entered into various transactions
and agreements with the Company which govern certain ongoing relationships,
including an intercompany services agreement and a tax matters agreement,
between the Company and KNP BT and its affiliates. See "Company
History--Subsequent Event" and "Certain Relationships and Related
Transactions--Relationship with KNP BT."

     KNP BT is the beneficial owner of 23,400,000 shares of Common Stock, or
approximately 70% of the issued and outstanding shares of Common Stock.
Approximately 27% of such shares are held of record by KNP BT International
B.V., a wholly-owned subsidiary of KNP BT ("KNP BT International"), and the
balance is held of record by KNP BT. The address for KNP BT and KNP BT
International is Museumplein 9, 1071 DJ Amsterdam, The Netherlands.

     The following table sets forth as of February 27, 1998, certain information
regarding the beneficial ownership of the Common Stock (i) by each person who is
known by the Company to own beneficially more than 5% of the Common Stock, (ii)
by each current director and Named Executive Officer of the Company, and (iii)
by all executive officers and directors of the Company as a group. Except as
otherwise indicated below, each of the persons named in the table has sole
voting and investment power with respect to the securities beneficially owned.

<TABLE>
<CAPTION>
                                                            NUMBER OF SHARES OF    PERCENTAGE OF COMMON
                                                               COMMON STOCK         STOCK BENEFICIALLY
                NAME OF BENEFICIAL OWNER                    BENEFICIALLY OWNED           OWNED(1)
                ------------------------                    -------------------    --------------------
<S>                                                         <C>                    <C>
NV Koninklijke KNP BT...................................        23,400,000(2)              70.0
KNP BT International B.V. ..............................         6,411,600                 19.2
Rudolf A.J. Huyzer......................................           466,670(3)               1.3
Frans H.J. Koffrie......................................                --                   --
Harry G. Vreedenburgh...................................                --                   --
George Dean.............................................                --                   --
Lorrence T. Kellar......................................             1,000                    *
Philip E. Beekman.......................................             6,000                    *
Richard C. Dubin........................................            88,465(4)                 *
Michael J. Miller.......................................            82,500(5)                 *
David Kirshner..........................................            80,835(6)                 *
Janhein H. Pieterse.....................................           156,300(7)                 *
All Directors and Executive Officers as a Group (12
  persons)..............................................           893,310(8)               2.7
</TABLE>

------------------------------
(1) An asterisk denotes beneficial ownership of 1% or less of the Common Stock.

(2) Includes 6,411,600 shares of Common Stock which are held of record by KNP BT
    International.

(3) Includes 446,670 options granted under the 1995 Stock Option Plan which are
    currently exercisable or exercisable within 60 days.

(4) Includes 88,465 options granted under the 1995 Stock Option Plan which are
    currently exercisable or exercisable within 60 days.

(5) Includes 82,500 options granted under the 1995 Stock Option Plan which are
    currently exercisable or exercisable within 60 days.

(6) Includes 77,835 options granted under the 1995 Stock Option Plan which are
    currently exercisable or exercisable within 60 days.

(7) Includes 155,000 options granted under the 1995 Stock Option Plan which are
    currently exercisable or exercisable within 60 days.

(8) Includes 861,760 options granted under the 1995 Stock Option Plan which are
    currently exercisable or exercisable within 60 days.

                                       30
<PAGE>   32

ITEM 13. CERTAIN RELATIONSHIPS AND
  RELATED TRANSACTIONS

RELATIONSHIP WITH KNP BT

     Prior to the Offering, KNP BT, through its ownership of all of the Common
Stock of the Company, had the ability to elect the Company's Board of Directors
and to control the direction and policies of the Company and the outcome of any
matter requiring stockholder approval, including mergers, consolidations and the
sale of all or substantially all of the assets of the Company, and to prevent or
cause a change of control of the Company. Following the Offering, KNP BT,
together with KNP BT International, owns approximately 70% of the outstanding
Common Stock of the Company and continues to have sufficient voting power to
elect the Company's Board of Directors and control such matters.

     In the normal course of business, the Office Products Division and KNP BT
and its other affiliates have from time to time entered into various business
transactions and agreements, and the Company and its subsidiaries and KNP BT and
its affiliates may enter into additional material transactions in the future.
The following is a summary of each of the material agreements between the
Company and KNP BT as well as all material transactions between the Company and
KNP BT and its other subsidiaries since January 1, 1997. Unless otherwise
expressly indicated, such transactions were not necessarily conducted on an
arm's length basis. Certain of the transactions are evidenced by agreements
which are summarized below.

     In connection with Mr. Huyzer's relocation from The Netherlands to the
United States in 1994, the Company advanced Mr. Huyzer $1,017,928 for the
purchase of a residence in the Chicago area. The collateralized note evidencing
the advance provides that interest is payable quarterly and accrues at a rate of
7.25% per annum beginning on November 6, 1994 with respect to $915,428 of the
principal amount thereof and beginning on January 1, 1995 with respect to the
balance of the principal amount. Principal has been repayable in quarterly
installments since September 1996 and thereafter until September 2024. As of
December 31, 1997, the aggregate principal amount outstanding under such note
was $650 thousand.

CREDIT FACILITIES

     The Company and certain of its European subsidiaries (the "European
Subsidiaries") entered into a credit agreement dated as of June 16, 1997 (the
"Affiliate Credit Agreement") with Europcenter, which facility expires in July
1999. Pursuant to the terms of the Affiliate Credit Agreement, the Antilliana
Credit Agreement, as modified by the Assignment and Modification Agreement dated
June 26, 1996 among the Company, Antilliana and KNP BT Finance (USA), Inc., an
affiliate of KNP BT ("KNP BT Finance"), was terminated.

     The Company has a commitment of NLG 70 million (approximately $35 million)
under the Affiliate Credit Agreement, which commitment is available for
borrowings to be used for the Company's European operations. Pursuant to the
terms of the Affiliate Credit Agreement, the European Subsidiaries may also lend
funds representing positive balances in certain cash management accounts of up
to NLG 20 million (approximately $10 million) to Europcenter.

     Under the Affiliate Credit Agreement, loans are available in German Marks,
British Pounds, Netherlands Guilders, Swedish Kronor and any other currency
acceptable to the lender. Loans from Europcenter to the European Subsidiaries
bear interest at 1% over the applicable interbank rate as determined therein.
Loans from the European Subsidiaries to Europcenter bear interest at 1% less
than the applicable interbank rate as determined therein.

     The Affiliate Credit Agreement contains certain events of default,
including KNP BT's failure to beneficially own more than 50% of the issued and
outstanding share capital of the Company. There is a commitment fee payable by
the Company on the unused portion of the commitment from Europcenter, which fee
fluctuates based on the Company's consolidated leverage ratio (consisting of the
ratio of consolidated debt to EBITDA) for the period of the four consecutive
fiscal quarters most recently ended as of a given date, adjusted on a pro forma
basis to give effect to material acquisitions and divestitures. The commitment
fee at December 31, 1997 was 0.3% of the unused commitment.

     At December 31, 1997, the Company had outstanding loans payable to
Europcenter under the Affiliate Credit Agreement of $16.5 million and
Europcenter had outstanding loans payable to the European Subsidiaries of $9.6
million. The latter amount is included in cash and cash equivalents.

     The Company, acting for itself and each of its wholly-owned U.S.
subsidiaries, entered into an

                                       31
<PAGE>   33

amended and restated cash management agreement dated as of June 16, 1997 (the
"Cash Management Agreement") with Sengewald USA, Inc. and KNP BT USA Holdings,
Inc., each affiliates of KNP BT. The Cash Management Agreement replaced the cash
management agreement dated June 24, 1996 to which the Company and certain
affiliates of KNP BT were parties.

     Pursuant to the Cash Management Agreement, each of the parties other than
the Company invests cash representing positive balances in certain cash
management accounts with the Company and the Company provides overdraft
protection to these U.S. affiliates of KNP BT up to specified limits.

     Under the Cash Management Agreement, investments earn interest at the LIBO
rate as determined therein less .625% and loans from the Company bear interest
at the LIBO rate plus .625%. At December 31, 1997, the investment balance for
affiliate parties totaled $629 thousand. Each party to the Cash Management
Agreement may terminate such agreement upon thirty days notice to the other
parties thereto and the Cash Management Agreement would terminate as to all
parties upon the occurrence of certain other events, including KNP BT's failure
to own more than 50% of the issued and outstanding share capital of the Company.

REGISTRATION RIGHTS

     Pursuant to the terms of a registration rights agreement (the "Registration
Rights Agreement") among the Company, KNP BT and KNP BT International, which
agreement became effective upon completion of the Offering in July 1995, each of
KNP BT International and KNP BT has the right to require the Company to register
for public offering and sale all or a portion of the Common Stock held by it
from time to time (subject to certain limitations) on a maximum of four
occasions (and, if pursuant to a short-form registration statement, if
available, on an unlimited number of occasions). In addition, during the term of
the Registration Rights Agreement, each of KNP BT International and KNP BT has
the right to participate in any registration of Common Stock initiated by the
Company, subject to certain limitations. The Company will pay all out-of-pocket
expenses of any such registrations, including reasonable fees and expenses of
one counsel for KNP BT International and KNP BT, and will indemnify KNP BT
International and KNP BT and their respective officers and directors against
certain liabilities, including liabilities under the federal securities laws, in
connection therewith. Each of KNP BT International and KNP BT will pay all
underwriting discounts and commissions applicable to shares of Common Stock sold
by it pursuant to any such registrations. The rights of KNP BT International and
KNP BT under the Registration Rights Agreement are transferable to any affiliate
of KNP BT.

TAX MATTERS

     The Company, KNP BT and certain of KNP BT's affiliates entered into a tax
matters agreement in connection with the Reorganization and the Offering (the
"Tax Matters Agreement") whereby KNP BT will indemnify the Company for any taxes
and any related interest, penalties or other additions to tax ("Taxes") arising
in any taxable year in respect of the Packaging Businesses and their disposition
in the Reorganization and any Taxes arising in any year with respect to certain
other operations that were disposed of by the Company prior to the Offering.
Under the Tax Matters Agreement, KNP BT will also indemnify the Company to the
extent of any Taxes relating to its office products distribution operations
prior to the Reorganization in excess of certain thresholds specified in the
agreement. The computation of any increase in Taxes and any resulting liability
for indemnity payments will be determined after giving effect to the tax
adjustment otherwise giving rise to indemnification and to any other net refunds
of Taxes to which indemnity is provided to that indemnified party.

     The Tax Matters Agreement also provides for the treatment of such matters
as allocating overlap period Taxes, return preparation, refunds, audits and
controversies with tax authorities, sharing information and resolving
controversies between parties.

     During the year ended December 31, 1997, the Company received reimbursement
of $287,677 under the Tax Matters Agreement, primarily representing the
Packaging Business' share of the 1991 to 1993 Internal Revenue Service audit
that was settled in early 1997. In addition, the Company made a payment of
$153,589 under the Tax Matters Agreement representing certain tax benefits
obtained by the Company which were attributable to the Packaging Business.

     Prior to the Reorganization, the Company and certain of its subsidiaries,
as well as the Packaging Businesses, had comprised a consolidated United States
federal income tax group. For periods following

                                       32
<PAGE>   34

the Reorganization, the Packaging Businesses will no longer be a part of the
Company's consolidated United States federal income tax group.

INTELLECTUAL PROPERTY

     Pursuant to a license agreement between KNP BT and the Company, which
became effective upon the completion of the Offering in July 1995, KNP BT has
granted a royalty-free, perpetual license to the Company and its subsidiaries to
use the name "BT" along with KNP BT's logo in connection with the Company's
office products distribution businesses. However, the license to use such logo
terminates upon the change of control of the Company or upon the occurrence of
certain other events.

SERVICES

     KNP BT and its subsidiaries have provided services to the Company and its
subsidiaries, including certain financial and treasury services, as well as
insurance, tax, legal and human resource services. In connection with such
services, the Company has paid fees to KNP BT. The Company has also provided
certain support services to KNP BT and its affiliates (including the Packaging
Businesses).

     The Company and KNP BT entered into an Intercompany Services Agreement for
the continuing provision of such services, which agreement became effective upon
completion of the Offering in July 1995. The agreement has a one-year term and
thereafter automatically renews for successive one year periods unless earlier
terminated by either party. Such agreement provides for fees to be paid at rates
determined on the basis of costs calculated in a manner not inconsistent with
past practices, if any, but no greater than the good faith estimate of the fee
that would be charged by an independent third party. At any time during the term
of the agreement, the Company or KNP BT may request that KNP BT or the Company,
as the case may be, provide additional or different services or cease providing
one or more services then being provided.

     The Company uses office space provided by KNP BT for certain of its
executive officers and employees in KNP BT's headquarters in Amsterdam. During
1997, the Company reimbursed KNP BT at market rates for the cost of such space.

GUARANTIES

     KNP BT has guaranteed certain obligations of the Company under various
leases for real property and equipment. The carrying amount of such guarantees
was $10.3 million at December 31, 1997.

SALES TO AND PURCHASES FROM AFFILIATES

     The Company has sold office products and related services to affiliates of
KNP BT. Such transactions generally were effected on terms comparable to those
available in transactions with unaffiliated parties. Revenue from such
transactions amounted to approximately $1.7 million for 1997. In addition, the
Company has occasionally purchased certain products from KNP BT and its other
affiliates (including the Packaging Businesses) for resale. Such purchases
totaled approximately $8.1 million for 1997. The Company expects to continue to
engage in similar affiliated party transactions on generally the same basis as
it would engage in such transactions with unaffiliated third parties.

LEASES

     The Veenman Group leases one of their facilities from an affiliate of KNP
BT under an operating lease that expires on September 30, 1999. Rental expense
under such lease was $0.5 million in 1997. Future total minimum lease payments
are $1.0 million. BT Office Products Deutschland GmbH, formerly known as bax
Burosysteme Vertriebsgesellschaft mbH, an indirect wholly-owned subsidiary of
the Company acquired from KNP BT in 1996, leases one of its facilities from an
affiliate of KNP BT under an operating lease that expires on June 30, 1999.
Rental expense under such lease was $0.3 million in 1997 and future total
minimum lease payments are $0.4 million.

ARTICLE 403 STATEMENT

     KNP BT has issued an Article 403 Statement under Netherlands law for the
Company's Netherlands subsidiaries. Pursuant to such Article 403 Statement, KNP
BT is liable for claims of third parties against such companies that exceed such
companies' net worth. The Company has agreed to indemnify KNP BT for any such
liability.

                                       33
<PAGE>   35

                                    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, 1997 and 1996
     Consolidated Statements of Operations for the years ended December 31,
       1997, 1996 and 1995
     Consolidated Statements of Stockholders' Equity for the years ended
       December 31, 1997, 1996 and 1995
     Consolidated Statements of Cash Flows for the years ended December 31,
       1997, 1996 and 1995
     Notes to Consolidated Financial Statements

FINANCIAL STATEMENT 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       Credit Agreement by and among the Company, the European
                Subsidiaries from time to time party thereto, and KNP BT
                Europcenter N.V.(incorporated by reference to Exhibit 10.1 to
                the Company's Annual Report on Form 10-Q for the Fiscal Quarter
                ended September 30, 1997, 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 (incorporated by reference to Exhibit 10.4 to the Company's
                Annual Report on Form 10-K for the Fiscal Year ended December
                31, 1996, Commission file no. 1-3858).
     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       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).
    +10.8       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).
    +10.9       Second Amendment to Supplemental Executive Retirement Plan
                (incorporated by reference to Exhibit 10.10 to the Company's
                Annual Report on Form 10-K for the Fiscal Year ended December
                31, 1996, Commission file no. 1-3858).
    +10.10      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).
     10.11      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).
     10.12      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).
   +*10.13      Separation Agreement and General Release by and among BT
                Office Products International, Inc., Rudolf Huyzer, and N.V.
                Koninklijke KNP BT dated as of December 17, 1997.
    +10.14      Employment Agreement of Richard C. Dubin (incorporated by
                reference to Exhibit 10.3 to the Company's Annual Report on Form
                10-Q for the Fiscal Quarter ended September 30, 1997, Commission
                file no. 1-13858).
    +10.15      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).
    +10.16      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).
   +*10.17      Employment Agreement of Janhein H. Pieterse (English
                translation of Dutch document).
     10.18      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. 1-3858).
     10.19      Amendment No. 1 dated as of December 20, 1996 to the Competitive
                Advance and Revolving Credit Facility Agreement (incorporated by
                reference to Exhibit 10.21 to the Company's Annual Report on
                Form 10-K for the Fiscal Year ended December 31, 1996,
                Commission file no. 1-3858).
     10.20      Amendment No. 2 dated as of May 28, 1997 to the Competitive
                Advance and Revolving Credit Facility Agreement (incorporated by
                reference to Exhibit 10.1 to the Company's Quarterly Report on
                Form 10-Q for the Fiscal Quarter ended June 30, 1997, Commission
                file no. 1-3858).
     10.21      Amended and Restated Cash Management Agreement dated June 16,
                1997 among the Company, Sengewald USA, Inc. and KNP BT USA
                Holdings, Inc. (incorporated by reference to Exhibit 10.2 to the
                Company's Quarterly Report on Form 10-Q for the Fiscal Quarter
                ended September 30, 1997, Commission file no. 1-3858).
   * 10.22      Agreement between BT Office Products International, Inc.
                Northern California Division and Graphic Communications
                Union District Council No. 2 Local No. 388M AFL-CIO dated
                January 1, 1998.
   * 10.23      Indemnification Letter from BT Office Products International,
                Inc. to NV Koninklijke KNP BT dated December 22, 1997.
   * 10.24      Support letter from N.V. Koninklijke KNP BT to Coopers & Lybrand
                LLP dated February 9, 1998.
   * 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:

     No Current Reports on Form 8-K were filed in the fourth quarter of 1997.

                                       34
<PAGE>   36

                                   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 30, 1998                      By:      /s/ FRANS H.J. KOFFRIE

                                            ------------------------------------
                                                     Frans H.J. Koffrie
                                            Acting 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.

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

              /s/ FRANS H.J. KOFFRIE                   Chairman of the Board of              March 30, 1998
---------------------------------------------------    Directors, Acting President and
               (Frans H.J. Koffrie)                    Chief Executive Officer

               /s/ RICHARD C. DUBIN                    Executive Vice President and          March 30, 1998
---------------------------------------------------    President, BT Office Products
                (Richard C. Dubin)                     North America

              /s/ JANHEIN H. PIETERSE                  Vice President and President, BT      March 30, 1998
---------------------------------------------------    Office Products Europe
               (Janhein H. Pieterse)

              /s/ FRANCIS J. LEONARD                   Vice President--Finance and           March 30, 1998
---------------------------------------------------    Chief Financial Officer
               (Francis J. Leonard)                    (Principal Accounting Officer)

             /s/ HARRY G. VREEDENBURGH                 Director                              March 30, 1998
---------------------------------------------------
              (Harry G. Vreedenburgh)

                  /s/ GEORGE DEAN                      Director                              March 30, 1998
---------------------------------------------------
                   (George Dean)

              /s/ LORRENCE T. KELLAR                   Director                              March 30, 1998
---------------------------------------------------
               (Lorrence T. Kellar)

               /s/ PHILIP E. BEEKMAN                   Director                              March 30, 1998
---------------------------------------------------
                (Philip E. Beekman)
</TABLE>

                                       35
<PAGE>   37

                           [INTENTIONALLY LEFT BLANK]

                                       36
<PAGE>   38

                       CONSOLIDATED FINANCIAL STATEMENTS

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

                                    CONTENTS

<TABLE>
<S>                                                           <C>
Reports of Independent Accountants..........................   38
Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and
  1996......................................................   40
Consolidated Statements of Operations for the years ended
  December 31, 1997, 1996 and 1995..........................   42
Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 1997, 1996 and 1995..............   43
Consolidated Statements of Cash Flows for the years ended
  December 31, 1997, 1996 and 1995..........................   44
Notes to Consolidated Financial Statements..................   45
</TABLE>

                                       37
<PAGE>   39

                       REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of BT Office
Products International, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1997. 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 financial statement
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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1997 and 1996, 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.

                                          Coopers & Lybrand L.L.P.

Chicago, Illinois
February 9, 1998

                                       38
<PAGE>   40

                       REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of BT Office Products International, Inc.
and subsidiaries for the year ended December 31, 1995. 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 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 results of operations of BT Office
Products International, Inc. and subsidiaries and their cash flows for the year
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.

                                          Ernst & Young LLP

Chicago, Illinois
April 5, 1996

                                       39
<PAGE>   41

                          CONSOLIDATED BALANCE SHEETS

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

<TABLE>
<CAPTION>
                                                                                              DECEMBER 31
                                                                                          --------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)                                          1997        1996
--------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>         <C>
ASSETS:
Current assets:
  Cash and cash equivalents                                                               $ 19,466    $ 20,163
  Accounts receivable, less allowances of $9,753 in 1997 and
     $4,915 in 1996                                                                        219,118     203,629
  Other receivables                                                                         33,429      22,197
  Due from affiliates                                                                        1,055         475
  Inventories                                                                              123,324     119,370
  Deferred income taxes                                                                      3,011       1,761
  Investment in sales-type leases                                                           10,128      10,573
  Prepaid expenses and other current assets                                                 15,330      13,838
                                                                                          --------    --------
Total current assets                                                                       424,861     392,006

Deferred income taxes                                                                        4,231       5,688
Investment in sales-type leases                                                             15,652      17,119
Other assets                                                                                 6,903       6,238

Property, plant and equipment:
  Land                                                                                       1,236       1,236
  Buildings                                                                                 33,995      31,755
  Machinery and equipment                                                                  116,906      96,907
                                                                                          --------    --------
                                                                                           152,137     129,898
Accumulated depreciation and amortization                                                   64,212      51,483
                                                                                          --------    --------
Net property, plant and equipment                                                           87,925      78,415
Costs in excess of net assets of businesses acquired, net of
  accumulated amortization of $22,144 in 1997 and $16,621 in 1996                          216,686     231,222
Other intangible assets, net of accumulated amortization of
  $31,582 in 1997 and $27,213 in 1996                                                        7,443      12,131
                                                                                          --------    --------
TOTAL ASSETS                                                                              $763,701    $742,819
                                                                                          ========    ========
</TABLE>

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

                                       40
<PAGE>   42

                          CONSOLIDATED BALANCE SHEETS

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              -------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)              1997       1996
---------------------------------------------------------------------------------
<S>                                                           <C>        <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
  Notes payable                                               $ 24,591   $ 41,207
  Current portion of long-term obligations                     200,816      6,727
  Accounts payable                                             140,780    123,306
  Due to affiliates                                              1,570      1,504
  Accrued compensation and benefits                             28,084     21,977
  Accrued sales tax                                             10,249      8,778
  Accrued expenses                                              28,799     29,434
  Income tax payable                                                --      2,363
  Deferred income taxes                                          1,986      2,765
                                                              --------   --------
Total current liabilities                                      436,875    238,061

Long-term obligation with affiliates                            16,500      4,247
Long-term obligations, less current portion                     15,337    215,455
Accrued pension and post retirement costs                        7,346      9,252
Deferred income taxes                                            5,880      1,930
Accrued expenses                                                 8,050      5,222
                                                              --------   --------
                                                                53,113    236,106
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,
     1997 and 1996                                                 335        335
  Additional paid-in capital                                   270,132    270,132
  Retained earnings (deficit)                                   17,137       (118)
  Cumulative translation adjustments                           (13,891)    (1,697)
                                                              --------   --------
Total stockholders' equity                                     273,713    268,652
                                                              --------   --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $763,701   $742,819
                                                              ========   ========
</TABLE>

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

                                       41
<PAGE>   43

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31
                                                             --------------------------------------
   (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)           1997          1996          1995
---------------------------------------------------------------------------------------------------
<S>                                                          <C>           <C>           <C>
Sales:
  Net sales--products                                        $1,618,554    $1,412,333    $1,132,127
  License fee revenues                                              190           181           243
                                                             ----------    ----------    ----------
                                                              1,618,744     1,412,514     1,132,370
Costs and expenses:
  Costs of products sold, including inventory purchased
     from affiliates of $8,126, $8,606 and $8,567             1,162,737     1,004,713       819,078
  Selling and administrative expenses, including
     management fees and shared expenses paid to
     affiliates of $1,666, $2,035 and $3,959                    383,758       345,879       266,163
  Depreciation and amortization                                  16,485        13,693        10,339
  Amortization of intangibles                                    10,636        10,046         8,117
                                                             ----------    ----------    ----------
                                                              1,573,616     1,374,331     1,103,697
                                                             ----------    ----------    ----------
Operating income                                                 45,128        38,183        28,673

Other income (expense):
  Interest income and other                                       2,749         2,091         1,287
  Interest expense                                              (15,283)       (7,401)       (3,561)
  Interest expense to affiliates                                   (639)       (5,172)      (12,372)
                                                             ----------    ----------    ----------
                                                                (13,173)      (10,482)      (14,646)
                                                             ----------    ----------    ----------
Income before income taxes                                       31,955        27,701        14,027
Income tax expense                                               14,700        13,000         7,337
                                                             ----------    ----------    ----------
Net income                                                   $   17,255    $   14,701    $    6,690
                                                             ==========    ==========    ==========

Basic earnings per share                                     $      .52    $      .44    $      .24
                                                             ==========    ==========    ==========
Diluted earnings per share                                   $      .51    $      .44    $      .24
                                                             ==========    ==========    ==========

Average shares outstanding, basic                                33,471        33,420        27,983
                                                             ==========    ==========    ==========
Average shares outstanding, diluted                              33,541        33,742        28,026
                                                             ==========    ==========    ==========
</TABLE>

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

                                       42
<PAGE>   44

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

<TABLE>
<CAPTION>
                                                        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, 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
  Net income                                      --           --       17,255            --          17,255
  Currency translation adjustments                --           --           --       (12,194)        (12,194)
                                            --------     --------     --------      --------        --------
BALANCE AT DECEMBER 31, 1997                $    335     $270,132     $ 17,137      $(13,891)       $273,713
                                            ========     ========     ========      ========        ========
</TABLE>

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

                                       43

<PAGE>   45

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31
                                                              --------------------------------
(IN THOUSANDS)                                                   1997       1996        1995
----------------------------------------------------------------------------------------------
<S>                                                           <C>        <C>         <C>
OPERATING ACTIVITIES
Net income                                                    $ 17,255   $  14,701   $   6,690
Adjustments to reconcile net income to net cash provided by
  (used for) operating activities:
     Depreciation and amortization                              18,045      15,351      11,663
     Amortization of intangibles                                10,636      10,046       8,117
     Provision for doubtful accounts                             6,662       2,107       1,369
     (Gain) loss on sale of property, plant and equipment,
       net                                                         116          70         (77)
     Deferred income taxes                                       3,409       1,477       2,323
Changes in operating assets and liabilities, net of effects
  of business acquisitions:
     Accounts receivable                                       (26,373)     (6,312)    (32,681)
     Inventories                                                (6,359)     (8,334)     (8,605)
     Other current assets                                       (9,570)     (3,800)      1,021
     Accounts payable and accrued expenses                      26,656      20,623      10,793
     Due to/from affiliates, net                                  (403)      1,564      (1,685)
     Income taxes payable (refundable)                          (5,565)      1,020         728
                                                              --------   ---------   ---------
Net cash provided by (used for) operating activities:           34,509      48,513        (344)

INVESTING ACTIVITIES
Purchases of property, plant and equipment                     (28,217)    (25,090)    (21,886)
Acquisitions of businesses, less cash acquired                 (17,782)   (130,135)    (37,248)
Proceeds from disposal of property, plant and equipment            539       1,795         881
Other assets and liabilities                                     1,019      (1,581)     (6,064)
                                                              --------   ---------   ---------
Net cash used for investing activities                         (44,441)   (155,011)    (64,317)

FINANCING ACTIVITIES
Proceeds from issuance of notes payable                         33,430      15,571       9,562
Repayments of notes payable                                    (37,918)    (13,261)    (11,071)
Proceeds from issuance of long-term obligations                 50,602     220,135       6,100
Repayments of long-term obligations                            (49,034)    (25,250)     (5,337)
Net borrowings (repayments) on obligations with affiliates      13,023     (78,228)   (161,420)
Proceeds from stock options exercised including related tax
  benefits                                                          --         868          --
Net transactions of unrelated businesses transferred                --          --       4,927
Net transactions of related businesses contributed                  --        (476)      3,850
Capital contributions by KNP BT                                     --          --     118,000
Issuance of common stock, net                                       --        (106)    102,707
                                                              --------   ---------   ---------
Net cash provided by financing activities                       10,103     119,253      67,318

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS      (868)       (160)        (84)
                                                              --------   ---------   ---------
Net increase (decrease) in cash and cash equivalents              (697)     12,595       2,573
Cash and cash equivalents at beginning of year                  20,163       7,568       4,995
                                                              --------   ---------   ---------
Cash and cash equivalents at end of year                      $ 19,466   $  20,163   $   7,568
                                                              ========   =========   =========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
                                       44
<PAGE>   46

                   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: (i) KNP BT's
contribution of the net assets of its European office products businesses and
one U.S. business to the Company; (ii) the transfer of the Holding Company's
unrelated businesses to KNP BT; (iii) 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; (iv) a stock split which
resulted in 23,400,000 shares issued and outstanding; and (v) 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 estimated 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. Effective in August
1996, the Company reduced the commitments available under the Antilliana Credit
Agreement to $50 million. See Note 8.

     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:

<TABLE>
<CAPTION>
                                          YEAR ENDED
                                          DECEMBER 31
                                          -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)      1995
-----------------------------------------------------
<S>                                       <C>
Sales                                     $1,132,370
Net income                                    10,781
Diluted earnings per share                      0.32
Average shares outstanding, diluted           33,443
-----------------------------------------------------
</TABLE>

2. 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.

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 approximate 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

                                       45
<PAGE>   47
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   (CONTINUED)

guarantees reflect fair value as a condition of their underlying purpose and are
subject to fees competitively determined in the market place. The carrying
amount of letters of credit and guarantees were $13.4 million and $15.0 million
at December 31, 1997 and 1996, 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. In addition, one entity distributes paper and printing supplies.

     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.

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. Repair and maintenance costs are
expensed as incurred.

SOFTWARE AND DEVELOPMENT COSTS

     Costs related to internally developed or purchased software for major
projects are capitalized and amortized over the software's estimated useful life
once the project is put into service. Costs associated with the design phase and
reengineering components of systems projects are expensed as incurred. Computer
software maintenance and repair costs related to software development are
expensed as incurred. The carrying value is regularly reviewed by the Company
and a loss is recognized when the net realizable value falls below unamortized
cost.

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

                                       46
<PAGE>   48
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   (CONTINUED)

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 asset would be compared to the asset's carrying amount
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
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.

EARNINGS PER COMMON SHARE

     In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share," ("SFAS 128"),
which simplifies the standards for computing earnings per share ("EPS") and
requires the presentation of two new amounts, basic and diluted EPS. Basic EPS
is computed by dividing net income by the weighted-average number of common
shares outstanding during the period. Diluted EPS is computed by dividing net
income by the weighted-average number of common shares outstanding, adjusted for
dilutive common share equivalents (70,000 shares, 322,000 shares and 43,000
shares in 1997, 1996 and 1995, respectively) attributed to outstanding options
to purchase common stock. The Company has adopted SFAS 128 for the quarter and
year ended December 31, 1997 and has restated EPS for all prior periods
reported. The restated basic and diluted earnings per share for all periods
presented approximated the previously reported earnings per share.

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.

                                       47
<PAGE>   49
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   (CONTINUED)

No such contracts were outstanding at December 31, 1997.

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 1996 and 1995 financial statements have been
reclassified to conform to the 1997 financial statement presentation.

3. 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. The transaction resulted in
goodwill of $30.5 million.

     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 $21.8 million in cash,
as adjusted under provisions of the purchase agreement. The transaction resulted
in goodwill of $16.8 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 $3.2 million of
notes payable. The transaction resulted in goodwill of $11.1 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 $26.0 million, which included $25.2
million of cash and the issuance of $0.8 million of notes payable. These
transactions resulted in goodwill of $22.1 million.

     In the year ended December 31, 1995, the Company acquired five significant
U.S. office products businesses 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.

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

<TABLE>
<CAPTION>
                                            YEAR ENDED
                                            DECEMBER 31
                                            -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)        1996
-------------------------------------------------------
<S>                                         <C>
Sales                                       $1,580,657
Net income                                      15,818
Diluted earnings per share                         .47
Average shares outstanding, diluted             33,742
-------------------------------------------------------
</TABLE>

     The Company also acquired several other smaller office product businesses
in 1997 and 1996 for a total purchase price of $8.5 million and $23.8 million,
respectively. These acquisitions did not have a significant impact on the
consolidated financial statements for the years ended December 31, 1997 and
1996.

4. SOFTWARE AND DEVELOPMENT COSTS

     Software development costs capitalized for major projects, including the
Company's investments in an enterprise-wide systems solution in the U.S., known
as Project Millennium, were $25.9 million and $8.4 million as of December 31,
1997 and 1996,
                                       48
<PAGE>   50
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

4. SOFTWARE AND DEVELOPMENT COSTS (CONTINUED)

respectively. Project Millennium costs accounted for $16.0 million of the $18.6
million capitalized as assets under construction at December 31, 1997.
Amortization of theses assets will begin once particular assets or modules are
placed into service. The remaining capitalized costs are being amortized over
the software or other development project's estimated useful life. Amortization
of software development costs totaled $1.3 million and $1.0 million for the
years ended December 31, 1997 and 1996, respectively.

5. INVENTORIES

     Current cost exceeded the LIFO value of inventories by approximately $6.7
million and $5.3 million at December 31, 1997 and 1996, respectively. LIFO
inventories represented approximately 61% and 60% of total inventories at
December 31, 1997 and 1996, respectively.

6. INVESTMENT IN SALES-TYPE LEASES

     The components of the net investment in sales-type leases, which
principally relates to the copier business in Europe, were as follows:

<TABLE>
<CAPTION>
                                          DECEMBER 31
                                      --------------------
(IN THOUSANDS)                          1997        1996
----------------------------------------------------------
<S>                                   <C>         <C>
Lease contracts receivable            $ 29,908    $ 33,147
Less: Unearned income                   (4,128)     (5,455)
                                      --------    --------
Net investment in sales-type
  leases                                25,780      27,692
  Less: Current portion                (10,128)    (10,573)
                                      --------    --------
                                      $ 15,652    $ 17,119
                                      ========    ========
----------------------------------------------------------
</TABLE>

     Minimum future lease payments to be received for the succeeding five years
on sales-type leases are as follows: $11.4 million in 1998; $8.6 million in
1999; $5.8 million in 2000; $3.1 million in 2001; and $1.0 million in 2002.

7. NOTES PAYABLE

     Notes payable consisted of the following:

<TABLE>
<CAPTION>
                                          DECEMBER 31
                                       ------------------
          (IN THOUSANDS)                1997       1996
---------------------------------------------------------
<S>                                    <C>        <C>
Acquisition notes payable to
  sellers                              $ 1,335    $10,976
Borrowings under revolving
  line-of-credit agreements             23,256     30,231
                                       -------    -------
                                       $24,591    $41,207
                                       =======    =======
---------------------------------------------------------
</TABLE>

     In June 1997, the Company entered into revolving lines of credit providing
an aggregate of $22.5 million to fund the Company's U.S. cash management
requirements. Such lines replaced the $15 million cash management facility
formerly available under the Antilliana Credit Agreement. In addition to the
revolving lines of credit available in the U.S., $28.7 million is available
under local agreements in Europe. Total unused lines of credit with
non-affiliates amounted to $28.0 million at December 31, 1997.

     The weighted average interest rate for short-term obligations for the years
ended December 31, 1997 and 1996 were 4.8% and 6.4%, respectively.

                                       49
<PAGE>   51
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

8. LONG-TERM OBLIGATIONS

     Long-term obligations consisted of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              -------------------
(IN THOUSANDS)                                                  1997       1996
---------------------------------------------------------------------------------
<S>                                                           <C>        <C>
Debt:
  Borrowing under Bank Credit Agreement, due in August 2001,
    with a weighted average interest rate of 6.5% and 5.9%,
    at December 31, 1997 and 1996, respectively               $194,687   $197,159
  Borrowing under Affiliate Credit Agreement, due in July
    1999, with a weighted average interest rate of 6.0% at
    December 31, 1997                                           16,500         --
  Borrowing under Antilliana Credit Agreement, due in June
    1998, with a weighted average interest rate of 6.5% at
    December 31, 1996                                               --      4,247
  Acquisition notes payable, due September 2000 with
    interest payable at 6.1%                                     1,100      1,100
  Real estate mortgage note, payable in monthly installments
    of $8 including interest, collateralized by the land and
    building due December 1, 2006 with interest payable at
    9.375%                                                         604        646
  Unsecured note, payable in monthly installments of $20,
    due February 28, 2002, with interest payable at 8.5%           854      1,223
  Collateralized notes, due in quarterly installments of
    $205 plus interest, collateralized by certain assets,
    due December 31, 2000 through March 31, 2003 with
    interest rates ranging from 6.0% to 6.9%                     2,538      3,743
  Other                                                            272        415
                                                              --------   --------
                                                               216,555    208,533
Capitalized leases:
  Building, due July 1, 2022, with an interest rate of 10.8%     4,910      5,690
  Building, due December 1, 2009, with an interest rate of
    13.7%                                                        1,975      2,036
  Vehicles, due April 22, 1998 through November 20, 1999,
    with interest rates ranging form 9.5% to 17.0%                  94        150
  Office equipment, due January 1997 through December 2001,
    with interest rates ranging from 8.0% to 12.23%              8,955      9,751
  Other                                                            164        269
                                                              --------   --------
                                                                16,098     17,896
                                                              --------   --------
                                                               232,653    226,429
  Less: Current portion                                        200,816      6,727
                                                              --------   --------
                                                              $ 31,837   $219,702
                                                              ========   ========
---------------------------------------------------------------------------------
</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 .75%
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 on the unused portion, based on the leverage ratio, which
ranges from .125% to .300%.

     The Bank Credit Agreement, as modified, contains various loan covenants
calculated quarterly including a maximum leverage ratio based on total debt to
pro forma EBITDA (3.75 to 1 for each of the rolling four quarter periods ending
on or before March 31, 1998, and reducing to 3.25 to 1 in subsequent quarters),
a minimum EBITDA less capital expenditures to interest ratio (scheduled to
increase from 2.50 to 1 to 3.00 to 1 for the rolling four quarter period ending
September 30, 1998) and a minimum net worth requirement. In addition, under a
change of

                                       50
<PAGE>   52
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

8. LONG-TERM OBLIGATIONS (CONTINUED)
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.

     As of December 31, 1997, the Company is in compliance with the financial
covenants under the Bank Credit Agreement. Unless the Company is able to enter
into an amendment with the lenders under its syndicated Bank Credit Agreement to
relax certain financial covenants or otherwise renegotiate or refinance such
agreement, the Company expects that one or more defaults or events of default
may arise in 1998 as a result of breaches of such financial covenants.
Accordingly, indebtedness under the Bank Credit Agreement has been classified as
current portion of the long-term obligations in the consolidated balance sheet.

     The Company's majority shareholder, KNP BT, has advised the Company that it
will support the Company during 1998 and use its best efforts to prevent any
default or event of default that may arise under the Bank Credit Agreement. As
described in Note 18, KNP BT has made an offer to purchase the outstanding
shares of the Company that it does not already own in a so-called "going
private" transaction. If the going private transaction is completed, KNP BT has
advised the Company that it intends to reduce or eliminate its existing
indebtedness under the Bank Credit Agreement and/or otherwise cause such
indebtedness to be refinanced. If the going private transaction is not
completed, the Company intends to renegotiate the existing Bank Credit Agreement
so as to avoid or cure any such default or defaults or event or events of
default and/or to refinance the indebtedness under the Bank Credit Agreement, in
either case, at a cost that is not expected to be material to the Company's 1998
results of operations.

     Effective in June 1997, the Company replaced the Antilliana Credit
Agreement with a new commitment of 70 million Netherlands Guilders
(approximately $35 million), which is available through KNP BT Europcenter N.V.
("Europcenter"), an affiliate of KNP BT (the "Affiliate Credit Agreement"). The
Affiliate Credit Agreement, which expires in July 1999, will be used by the
Company's European operations for working capital needs and general corporate
purposes, including acquisitions. As part of the same agreement, the Company's
European subsidiaries may invest funds representing positive balances of up to
20 million Netherlands Guilders in certain cash management accounts in
Europcenter. The Affiliate 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 .30% on the unused portion of the
Affiliate Credit Agreement.

     Maturities of long-term obligations, other than obligations under capital
lease agreements, for the five years succeeding December 31, 1997, are $195.8
million in 1998, $17.6 million in 1999, $2.1 million in 2000, $0.4 million in
2001, $0.3 million in 2002 and $0.3 million thereafter.

     The fair value of the Company's long-term obligations 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 $16.8
million, $12.4 million and $15.6 million for the years ended December 31, 1997,
1996 and 1995, respectively.

     Non-cash investing and financing activities included capital lease
obligations incurred of $113 thousand, $0 and $196 thousand in 1997, 1996 and
1995, respectively.

                                       51
<PAGE>   53
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

9. INCOME TAXES

     Domestic and foreign income before income taxes consisted of the following:

<TABLE>
<CAPTION>
                              YEAR ENDED DECEMBER 31
                            ---------------------------
(IN THOUSANDS)               1997      1996      1995
-------------------------------------------------------
<S>                         <C>       <C>       <C>
Domestic                    $23,772   $22,029   $10,558
Foreign                       8,183     5,672     3,469
                            -------   -------   -------
                            $31,955   $27,701   $14,027
                            =======   =======   =======
-------------------------------------------------------
</TABLE>

     Federal, state and foreign income tax expense consisted of the following:

<TABLE>
<CAPTION>
                               YEAR ENDED DECEMBER 31
                             --------------------------
(IN THOUSANDS)                1997      1996      1995
-------------------------------------------------------
<S>                          <C>       <C>       <C>
Current:
  Federal                    $ 7,632   $ 7,663   $2,374
  State                        1,702     1,895      858
  Foreign                      1,957     1,965    1,782
                             -------   -------   ------
                              11,291    11,523    5,014
Deferred:
  Federal                      2,359       578    1,291
  State                          393       215      477
  Foreign                        657       684      555
                             -------   -------   ------
                               3,409     1,477    2,323
                             -------   -------   ------
                             $14,700   $13,000   $7,337
                             =======   =======   ======
-------------------------------------------------------
</TABLE>

     Reconciliations between the U.S. federal statutory income tax rate of 35%
and the consolidated effective income tax rates of 46%, 47% and 52% for the
years ended December 31 1997, 1996 and 1995, respectively, are as follows:

<TABLE>
<CAPTION>
                               YEAR ENDED DECEMBER 31
                             --------------------------
(IN THOUSANDS)                1997      1996      1995
-------------------------------------------------------
<S>                          <C>       <C>       <C>
Tax at U.S. federal income
  tax rate                   $11,184   $ 9,695   $4,909
State income taxes, net of
  U.S. federal tax benefit     1,584     1,372      793
Goodwill amortization          1,473     1,309      918
Reduced foreign tax
  benefits due to loss
  carryforwards and rate
  differentials                  748       633    1,199
All other items                 (289)       (9)    (482)
                             -------   -------   ------
Tax provision                $14,700   $13,000   $7,337
                             =======   =======   ======
-------------------------------------------------------
</TABLE>

     Significant components of the Company's deferred tax liabilities and assets
were as follows:

<TABLE>
<CAPTION>
                                        DECEMBER 31
                                    -------------------
(IN THOUSANDS)                        1997       1996
-------------------------------------------------------
<S>                                 <C>        <C>
Deferred tax liabilities:
  Depreciation                      $  7,059   $  3,456
  Capital leases                       5,424      5,578
  Inventories                         (1,196)       429
  Other trade receivables              1,826        979
  Other                                1,210      1,782
                                    --------   --------
Total deferred tax liabilities        14,323     12,224
Deferred tax assets:
  Deferred compensation and post
    retirement costs                   1,972      2,026
  Allowance for doubtful accounts      1,288        728
  Amortization                          (263)     1,067
  Deferred expenses                    2,620      1,490
  Integration reserves                   827      1,089
  Foreign net operating loss
    carryforwards                     44,292     48,770
  Alternate minimum tax credit
    carryforward                          --        969
  Other                                  221        133
                                    --------   --------
Total deferred tax assets             50,957     56,272
Valuation allowance for deferred
  tax assets                         (37,258)   (41,294)
                                    --------   --------
Total deferred tax assets net of
  valuation allowance                 13,699     14,978
                                    --------   --------
Net deferred tax assets
  (liabilities)                     $   (624)  $  2,754
                                    ========   ========
-------------------------------------------------------
</TABLE>

     The Company had foreign NOL carryovers of approximately $86.2 million at
December 31, 1997, which have an unlimited carryover. A valuation allowance has
been recorded against the deferred tax assets relating to United Kingdom and
certain German foreign tax net operating losses of $4.0 million and $33.2
million, respectively, as a result of the uncertainty of the ultimate
utilization. The $4.0 million decrease in the valuation allowance during 1997 is
due primarily to foreign currency translation.

     The Company's policy is to permanently reinvest earnings of its foreign
subsidiaries. As of December 31, 1997, the Company had approximately $15 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

                                       52
<PAGE>   54
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

9. INCOME TAXES (CONTINUED)

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. On April
10, 1997, the Company filed a protest to the proposed deficiency and has
recently begun discussions with the Appellate Officer assigned to the case.
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 is currently examining 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.

     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 $14.4 million, $8.3 million and
$(906) thousand in 1997, 1996 and 1995, respectively.

10. BENEFIT PLANS

     The Company's United Kingdom, Netherlands and German operations 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>
                                        YEAR ENDED
                                        DECEMBER 31
                                     -----------------
(IN THOUSANDS)                        1997      1996
------------------------------------------------------
<S>                                  <C>       <C>
Actuarial present value of
  accumulated benefit obligation
  and vested benefits                $26,871   $28,944
                                     =======   =======
Actuarial present value of
  projected benefit obligation for
  services rendered to date          $29,155   $29,636
Plan assets at fair value             24,370    24,528
                                     -------   -------
Projected benefit obligation in
  excess of plan assets                4,785     5,108
Unrecognized net loss from past
  experience different from that
  assumed and effects of changes in
  assumptions                           (701)     (383)
Unrecognized net transition gain         204       411
                                     -------   -------
Accrued pension cost                 $ 4,288   $ 5,136
                                     =======   =======
------------------------------------------------------
</TABLE>

     Net pension cost included the following components:

<TABLE>
<CAPTION>
                                YEAR ENDED DECEMBER 31
                               ------------------------
(IN THOUSANDS)                  1997     1996     1995
-------------------------------------------------------
<S>                            <C>      <C>      <C>
Service cost--benefits earned
  during the period            $1,115   $1,073   $  935
Interest cost on projected
  benefit obligation            1,698    1,266    1,172
Actual return on plan assets   (1,425)    (955)    (865)
Net amortization and deferral     (13)       9       11
                               ------   ------   ------
Net pension costs              $1,375   $1,393   $1,253
                               ======   ======   ======
-------------------------------------------------------
</TABLE>

     Following is a summary of significant actuarial assumptions used for
European subsidiaries:

<TABLE>
<CAPTION>
                                    DECEMBER 31
                        ------------------------------------
   (IN PERCENTAGES)        1997         1996         1995
------------------------------------------------------------
<S>                     <C>          <C>          <C>
Discount rate           5.5 to 7.5   6.5 to 7.5   6.5 to 7.5
Rates of increase in
  compensation levels   2.0 to 6.0   2.0 to 6.0   2.0 to 6.0
Expected long-term
  rate of return on
  assets                4.0 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 1997, $2.1 million in 1996 and $1.6
million in 1995.

                                       53
<PAGE>   55
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

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:

<TABLE>
<CAPTION>
                                             WEIGHTED
                                             AVERAGE
                                 NUMBER OF   EXERCISE
                                  SHARES      PRICE
-----------------------------------------------------
<S>                              <C>         <C>
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       (146,400)     13.28
                                 ---------    ------
Outstanding at December 31,
  1996                           1,984,030     15.16
  Granted during the year         739,300       7.66
  Exercised during the year            --         --
  Canceled during the year       (234,680)     14.91
                                 ---------    ------
Outstanding at December 31,
  1997                           2,488,650    $12.95
                                 =========    ======
Exercisable at December 31,
  1997                           1,462,690    $13.77
                                 =========    ======
-----------------------------------------------------
</TABLE>

     The Company issued 1,203,000 options at $11.50 per share in 1995 and
757,250 and 258,680 options in two separate issuances in 1996 at $21.00 and
$12.75 per share, respectively. In 1997, the Company issued 664,300 options and
75,000 options under two separate issuances at $7.50 and $9.06 per share,
respectively. The grant price for all 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 vest immediately and expire after
five years. In addition, all options vest upon retirement and must be exercised
within three years of the retirement date.

     At December 31, 1997, the outstanding options for shares issued under the
Company's stock option plan includes: 899,500 options at $11.50; 641,550 options
at $21.00; 227,750 options at $12.75; 644,850 options at $7.50; and 75,000
options at $9.06 per share.

     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. 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, reported net income and earnings
per share would have been reduced as follows:

<TABLE>
<CAPTION>
                                         DECEMBER 31
(In thousands, except per share  ---------------------------
AMOUNTS)                          1997      1996      1995
------------------------------------------------------------
<S>                              <C>       <C>       <C>
Net income, as reported          $17,255   $14,701   $ 6,690
Pro forma net income              14,341    12,310     5,797
Diluted earnings per share,
  as reported                       $.51      $.44      $.24
                                    ----      ----      ----
Pro forma diluted earnings
  per share                          .43       .37       .21
                                    ----      ----      ----
------------------------------------------------------------
</TABLE>

                                       54
<PAGE>   56
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

11. STOCK OPTION PLANS (CONTINUED)

     The weighted-average assumptions used in determining fair value as
disclosed for SFAS 123 are shown in the following table for each grant year:

<TABLE>
<CAPTION>
                                        DECEMBER 31
                                  -----------------------
                                  1997     1996     1995
---------------------------------------------------------
<S>                               <C>      <C>      <C>
Risk-free interest rate            6.5%     6.7%     5.9%
Dividend yield                     0.0%     0.0%     0.0%
Option life (years)                  5        5        5
Stock price volatility            42.5%    40.2%    39.9%
---------------------------------------------------------
</TABLE>

     If the proposed transaction as disclosed in Note 18 is completed, it may
substantially change the above pro forma calculation of compensation expense
under the provisions of SFAS 123. The Company is unable at this time to
determine the impact.

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.

     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, 1997:

<TABLE>
<CAPTION>
                                     CAPITAL    OPERATING
(IN THOUSANDS)                       LEASES      LEASES
---------------------------------------------------------
<S>                                  <C>        <C>
1998                                 $ 5,441    $ 34,709
1999                                   3,539      31,267
2000                                   2,564      25,443
2001                                   1,927      20,612
2002                                   1,008      14,596
Thereafter                            13,826      33,765
                                     -------    --------
Total minimum lease payments          28,305    $160,392
                                                ========
Amount representing interest          12,207
                                     -------
Obligations under capital leases      16,098
Less: Obligations due within one
  year                                 5,004
                                     -------
Long-term obligations under
  capital leases                     $11,094
                                     =======
---------------------------------------------------------
</TABLE>

     Rental expense was $35.7 million, $29.1 million and $23.5 million for the
years ended December 31, 1997, 1996 and 1995, respectively.

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

<TABLE>
<CAPTION>
                                           DECEMBER 31
                                         ----------------
(IN THOUSANDS)                            1997      1996
---------------------------------------------------------
<S>                                      <C>       <C>
Buildings                                $7,215    $7,975
Machinery and equipment                     727       736
                                         ------    ------
                                          7,942     8,711
Less: Accumulated amortization            1,599     1,296
                                         ------    ------
                                         $6,343    $7,415
                                         ======    ======
---------------------------------------------------------
</TABLE>

     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 $849 thousand, $893 thousand and $648 thousand in 1997, 1996
and 1995, respectively. Future minimum lease payments are $1.4 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, 1997 and 1996, $8.7 million and $9.8 million,
respectively, of these leases are classified as capital leases and generally
have a term of three years.

13. CONTINGENCIES

     The Company has been served with several class action complaints that have
been filed in the Court of Chancery of the State of Delaware. The actions allege
breach of fiduciary duties and related claims against KNP BT, the Company and
certain of its directors in connection with the January 22, 1998 announcement
that KNP BT was prepared to make an offer to purchase the outstanding shares of
the Company that it does not already own. The defendants intend to defend the
lawsuits vigorously and the Company does not expect such lawsuits to have a
material adverse effect on the financial condition or results of operations of
the Company.

     The Company is also involved in various legal actions arising in the normal
course of business.

                                       55
<PAGE>   57
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

13. CONTINGENCIES (CONTINUED)

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.

     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
----------------------------------------------------------
<S>                                       <C>      <C>
Capital contributions by KNP BT           $ 317    $ 5,086
Tax related adjustments                    (793)    (1,645)
Divisional expenses allocated from KNP
  BT                                         --        409
                                          -----    -------
                                          $(476)   $ 3,850
                                          =====    =======
----------------------------------------------------------
</TABLE>

     The capital contributions in 1996 were related to the differences 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. There were no
such transactions in 1997.

15. BUSINESS SEGMENT INFORMATION

     Geographic segments:

<TABLE>
<CAPTION>
                                 YEAR ENDED DECEMBER 31
                            --------------------------------
(IN MILLIONS)                 1997        1996        1995
------------------------------------------------------------
<S>                         <C>         <C>         <C>
Sales:
  United States             $1,147.7    $1,087.0    $  833.0
  Europe                       471.0       325.5       299.4
  Consolidated               1,618.7     1,412.5     1,132.4

Operating income:
  United States                 34.8        31.3        22.8
  Europe                        10.3         6.9         5.9
  Consolidated                  45.1        38.2        28.7

Identifiable assets:
  United States                485.6       459.7       375.9
  Europe                       278.1       283.1       148.7
  Consolidated                 763.7       742.8       524.6
------------------------------------------------------------
</TABLE>

     There are no intergeographic sales or eliminations.

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:

<TABLE>
<CAPTION>
                                   YEAR ENDED DECEMBER 31
                                 --------------------------
(IN THOUSANDS)                    1997      1996      1995
-----------------------------------------------------------
<S>                              <C>       <C>       <C>
Sales                            $1,716    $1,310    $1,413
Purchases                         8,126     8,606     8,567
Selling and administrative
  expenses:
    Shared expenses                 972     1,241     4,215
    Other                           694       794      (256)
-----------------------------------------------------------
</TABLE>

     Included in other assets is a collateralized note receivable from a former
officer of the Company, totaling $650 and $850 thousand at December 31, 1997 and
1996, respectively. The note bears interest at a rate of 7.25%, with quarterly
interest installments due through September 1997 and monthly principal and
interest payments due thereafter through September 2024.

                                       56
<PAGE>   58
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.

17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     Selected unaudited quarterly financial data is shown below:

<TABLE>
<CAPTION>
                                                                                QUARTER ENDED
                                                    ---------------------------------------------------------------------
  (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)         MARCH 31          JUNE 30        SEPTEMBER 30(1)    DECEMBER 31(2)
-------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>               <C>                <C>
1997
  Sales                                                $401,562          $390,668          $393,182           $433,332
  Costs of products sold                                286,011           278,219           284,410            314,097
  Operating income                                       11,619            12,630             7,739             13,140
  Income before income taxes                              8,218             9,400             4,529              9,808
  Net income                                              4,368             4,975             2,617              5,295
  Basic earnings per share                                 0.13              0.15              0.08               0.16
  Diluted earnings per share                               0.13              0.15              0.08               0.16
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
  Basic earnings per share                                 0.12              0.12              0.08               0.12
  Diluted earnings per share                               0.12              0.12              0.08               0.12
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The third quarter 1997 results included a special personnel reduction
    pre-tax charge of $2.0 million related primarily to the replacement of
    former president and Chief Executive Officer and staff reductions associated
    with the decision to outsource the print services in New York.

(2) The fourth quarter 1997 results includes a year over year increase in the
    provision for doubtful accounts of $2.9 million associated with the
    Company's ongoing review of the collectability of its trade receivables.

18. SUBSEQUENT EVENTS

     On January 22, 1998, KNP BT, the Company's 70% stockholder, announced that
it is prepared to make an offer to acquire the approximately 30% of the
Company's stock that is publicly-traded for a cash purchase price of $10.50 per
share. The Company has formed an independent committee of its Board of Directors
to represent the interests of the minority shareholders. This committee,
together with independent financial and legal advisors retained by the
committee, is evaluating the proposal. The parties have not reached a definitive
agreement.

     The Company has been served with several class action complaints that have
been filed in the Court of Chancery of the State of Delaware. The actions allege
breach of fiduciary duties and related claims against KNP BT, the Company and
certain of its directors in connection with the announcement. The defendants
intend to defend the lawsuits vigorously and the Company does expect such
lawsuits to have an material adverse effect on the financial condition or
results of operations of the Company.

                                       57
<PAGE>   59

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                     BT OFFICE PRODUCTS INTERNATIONAL, INC.
                                 (In thousands)

<TABLE>
<CAPTION>
              COL. A                    COL. B              COL. C                       COL. D            COL. E
-----------------------------------    ---------    -----------------------      ----------------------    -------
                                                           ADDITIONS                   DEDUCTIONS
                                                    -----------------------      ----------------------
                                                                   CHARGED       WRITE-OFFS
                                       BEGINNING     CHARGED      TO OTHER         NET OF       OTHER      ENDING
            DESCRIPTION                 BALANCE     TO EXPENSE    DESCRIBED      RECOVERIES    DESCRIBE    BALANCE
-----------------------------------    ---------    ----------    ---------      ----------    --------    -------
<S>                                    <C>          <C>           <C>            <C>           <C>         <C>
Year Ended December 31, 1997
 Deducted from asset accounts:
  Allowance for doubtful accounts       $4,915        $6,662       $   78(1)       $1,902        $--       $ 9,753
  Inventory reserves                     4,173         2,040           --           1,611         --         4,602
                                        ------        ------       ------          ------        ---       -------
     Total                              $9,088        $8,702       $   78          $3,513        $--       $14,355
                                        ======        ======       ======          ======        ===       =======
Year Ended December 31, 1996
 Deducted from asset accounts:
  Allowance for doubtful accounts       $4,222        $2,107       $1,046(1)       $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(1)       $2,061        $--       $ 4,222
     Inventory reserves                  2,375         1,234          156             754         --         3,011
                                        ------        ------       ------          ------        ---       -------
       Total                            $7,026        $2,603       $  419          $2,815        $--       $ 7,233
                                        ======        ======       ======          ======        ===       =======
</TABLE>

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

(1) Acquisition balances and net foreign currency translation adjustments.

                                       58
<PAGE>   60

                                 EXHIBIT INDEX:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
   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    Credit Agreement by and among the Company, the European
          Subsidiaries from time to time party thereto, and KNP BT
          Europcenter N.V. (incorporated by reference to Exhibit 10.1
          to the Company's Annual Report on Form 10-Q for the Fiscal
          Quarter ended September 30, 1997, 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 (incorporated by reference to Exhibit 10.4 to the
          Company's Annual Report on Form 10-K for the Fiscal Year
          ended December 31, 1996, Commission file no. 1-3858).
  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    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).
 +10.8    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).
 +10.9    Second Amendment to Supplemental Executive Retirement Plan
          (incorporated by reference to Exhibit 10.10 to the Company's
          Annual Report on Form 10-K for the Fiscal Year ended
          December 31, 1996, Commission file no. 1-3858).
 +10.10   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).
  10.11   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).
  10.12   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).
</TABLE>

                                       59
<PAGE>   61

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
+*10.13   Separation Agreement and General Release by and among BT
          Office Products International, Inc., Rudolf Huyzer, and N.V.
          Koninklijke KNP BT dated as of December 17, 1997.
 +10.14   Employment Agreement of Richard C. Dubin (incorporated by
          reference to Exhibit 10.3 to the Company's Annual Report on
          Form 10-Q for the Fiscal Quarter ended September 30, 1997,
          Commission file no. 1-13858).
 +10.15   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).
 +10.16   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).
+*10.17   Employment Agreement of Janhein H. Pieterse (English
          translation of Dutch document).
  10.18   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.
          1-3858).
  10.19   Amendment No. 1 dated as of December 20, 1996 to the
          Competitive Advance and Revolving Credit Facility Agreement
          (incorporated by reference to Exhibit 10.21 to the Company's
          Annual Report on Form 10-K for the Fiscal Year ended
          December 31, 1996, Commission file no. 1-3858).
  10.20   Amendment No. 2 dated as of May 28, 1997 to the Competitive
          Advance and Revolving Credit Facility Agreement
          (incorporated by reference to Exhibit 10.1 to the Company's
          Quarterly Report on Form 10-Q for the Fiscal Quarter ended
          June 30, 1997, Commission file no. 1-3858).
  10.21   Amended and Restated Cash Management Agreement dated June
          16, 1997 among the Company, Sengewald USA, Inc. and KNP BT
          USA Holdings, Inc. (incorporated by reference to Exhibit
          10.2 to the Company's Quarterly Report on Form 10-Q for the
          Fiscal Quarter ended September 30, 1997, Commission file no.
          1-3858).
 *10.22   Agreement between BT Office Products International, Inc.
          Northern California Division and Graphic Communications
          Union District Council No. 2 Local No. 388M AFL-CIO dated
          January 1, 1998.
 *10.23   Indemnification Letter from BT Office Products
          International, Inc. to NV Koninklijke KNP BT dated December
          22, 1997.
 *10.24   Support letter from N.V. Koninklijke KNP BT to Coopers &
          Lybrand LLP dated February 9, 1998.
 *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.
</TABLE>

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

+ Management contract or compensatory plan or arrangement.

                                       60