US OFFICE PRODUCTS CO, PRE 14A, 1998-03-12

US OFFICE PRODUCTS CO
PRE 14A, 1998-03-12
CATALOG & MAIL-ORDER HOUSES

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

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[X] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

[ ] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section240.14a-12
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U.S. OFFICE PRODUCTS COMPANY

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

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[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rule 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated
and state how it was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-
11(a)(2) and identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:
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PRELIMINARY

[LOGO]
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007
(202) 339-6700

March , 1998

To our Stockholders:

We will be holding a Special Meeting on April 23, 1998 at 10 a.m. eastern
time.

At the Special Meeting we will ask you to consider and vote upon a proposed
investment in U.S. Office Products Company by an affiliate of an investment fund
managed by Clayton, Dubilier & Rice, Inc., a private investment firm.
Specifically, we need your approval to sell shares of common stock and warrants
to purchase additional shares of common stock to this affiliate of an investment
fund managed by Clayton, Dubilier & Rice, Inc. The enclosed Notice of Special
Meeting of Stockholders and Proxy Statement provides details of the proposed
investment and related information. The Board determined that the terms of the
investment are fair to U.S. Office Products and its stockholders. YOUR BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL.

The investment is one part of a comprehensive restructuring plan that your
Board has approved. The restructuring plan includes a tender offer by U.S.
Office Products to purchase from its stockholders 37,037,037 shares of U.S.
Office Products' common stock. It also includes the creation by U.S. Office
Products of four companies that will own and operate U.S. Office Products'
current print management, technology solutions, educational supplies, and
corporate travel businesses and the simultaneous distribution to U.S. Office
Products' stockholders of shares of those companies. As explained in this Proxy
Statement, the Board believes that the restructuring plan promotes the best
interests of stockholders.

We will also ask you to approve a proposed one-for reverse stock split of
U.S. Office Products' common stock. Shareholder approval for such a transaction
is required by law. YOUR BOARD ALSO HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT
YOU VOTE FOR THIS PROPOSAL.

We have enclosed with this letter a Notice of the Special Meeting, a Proxy
Statement, a proxy card and a return envelope. We urge you to read all of the
enclosed materials carefully.

Please sign, date and promptly return the enclosed proxy card in the
enclosed, prepaid return envelope. Your shares will be voted at the Special
Meeting in accordance with your proxy instructions.

On behalf of the Board of Directors and the employees of U. S. Office
Products, we cordially invite all stockholders to attend the Special Meeting. If
you plan to attend the meeting, please mark the appropriate box on the enclosed
proxy card.

Sincerely,
Jonathan J. Ledecky
Chairman of the Board of Directors

YOUR VOTE IS IMPORTANT
Please Sign, Date and Return Your Proxy Card by April 23, 1998
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[USOP LETTERHEAD]

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To the Stockholders of U.S. Office Products Company:

We are holding a Special Meeting of the stockholders of U.S. Office Products
Company on April 23, 1998 at 10 a.m., eastern time. The meeting will be held at
. At the meeting, you will be asked to vote on the following:

- A proposal to sell common stock and warrants to purchase additional shares
of common stock to CDR-PC Acquisition, L.L.C., an affiliate of an
investment fund managed by Clayton, Dubilier & Rice, Inc., a private
investment firm. The Proxy Statement that we are delivering with this
Notice describes the terms of the proposed sale of the common stock and
the warrants, as well as other related transactions.

- A proposal to amend U.S. Office Products' certificate of incorporation to
effect a one-for reverse stock split of U.S. Office Products' common
stock.

- Any other business that may properly be presented at the Special Meeting.

You will be able to vote your shares at the Special Meeting if you were a
stockholder of U.S. Office Products Company at the close of business on March
26, 1998.

By order of the Board of Directors:
Mark D. Director
Secretary

Dated: March , 1998

YOUR VOTE AT THE SPECIAL MEETING IS IMPORTANT.

PLEASE INDICATE YOUR VOTE ON THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE AS SOON AS POSSIBLE, EVEN IF YOU PLAN TO ATTEND THE MEETING.

IF YOU ATTEND THE MEETING, YOU WILL BE ABLE TO REVOKE YOUR PROXY AND VOTE IN
PERSON.
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U.S. OFFICE PRODUCTS COMPANY

1025 Thomas Jefferson Street, N.W.

Suite 600 East

Washington, D.C. 20007

PROXY STATEMENT FOR SPECIAL MEETING

This Proxy Statement provides information that you should read before you
vote on two proposals that will be presented to the stockholders of U.S. Office
Products Company at a Special Meeting to be held on April 23, 1998 at
[location].

For convenience, we first provide a question-and-answer summary of important
information. The remainder of this Proxy Statement provides specific information
about the Special Meeting, the proposals on which you will be asked to vote at
the Special Meeting, our recently announced strategic restructuring plan (which
includes the investment that is the subject of the first proposal you will be
asked to consider), the business of U.S. Office Products after completion of the
strategic restructuring plan, and other relevant information.

On , 1998, we began mailing information to people who, according
to our stockholder records, owned shares of U.S. Office Products' common stock
at the close of business on March 26, 1998.

THIS PROXY STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. WHEN USED IN THIS PROXY STATEMENT, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "INTEND," "MAY," "WILL," AND "EXPECT" AND SIMILAR
EXPRESSIONS AS THEY RELATE TO U.S. OFFICE PRODUCTS OR ITS MANAGEMENT ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. U.S. OFFICE PRODUCTS
UNDERTAKES NO OBLIGATION TO REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT
ANY FUTURE EVENTS OR CIRCUMSTANCES. U.S. OFFICE PRODUCTS' ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED
IN, OR IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW UNDER THE HEADINGS
"EFFECTS OF THE PROPOSED SALE OF EQUITY SECURITIES AND THE STRATEGIC
RESTRUCTURING PLAN" AND "FACTORS AFFECTING THE COMPANY'S BUSINESS" INCLUDED
WITHIN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" WITHIN THE FINANCIAL INFORMATION INCLUDED IN THIS PROXY STATEMENT
BEGINNING ON PAGE F-1.
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TABLE OF CONTENTS

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SUMMARY............................................................................................... 1
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING...................................................... 3

THE SPECIAL MEETING............................................................................... 3

THIS PROXY SOLICITATION........................................................................... 3

VOTING YOUR SHARES................................................................................ 3

VOTE REQUIRED FOR APPROVAL........................................................................ 4

OTHER MATTERS..................................................................................... 4
THE FIRST PROPOSAL--SALE OF EQUITY SECURITIES 4
INFORMATION ABOUT THE PROPOSED SALE OF EQUITY SECURITIES.............................................

INTRODUCTION...................................................................................... 4

RECOMMENDATION OF THE BOARD OF DIRECTORS.......................................................... 5

INFORMATION ABOUT THE INVESTMENT AGREEMENT AND RELATED AGREEMENTS................................. 5

USE OF PROCEEDS................................................................................... 11

INFORMATION ABOUT OTHER ELEMENTS OF THE STRATEGIC RESTRUCTURING PLAN.............................. 11

SERVICES AGREEMENT WITH JONATHAN LEDECKY.......................................................... 13

BACKGROUND OF AND REASONS FOR THE PROPOSED SALE OF EQUITY SECURITIES.............................. 14

OPINION OF FINANCIAL ADVISER...................................................................... 16

INFORMATION ABOUT INVESTOR AND CLAYTON, DUBILIER & RICE........................................... 19

EFFECTS OF THE PROPOSED SALE OF EQUITY SECURITIES AND THE STRATEGIC RESTRUCTURING PLAN............ 19
THE BUSINESS OF U.S. OFFICE PRODUCTS AFTER THE RESTRUCTURING.......................................... 22

NORTH AMERICAN OFFICE PRODUCTS GROUP.............................................................. 22

MAIL BOXES ETC.................................................................................... 26

OPERATIONS OUTSIDE OF NORTH AMERICA............................................................... 27

COMPETITION....................................................................................... 28

EMPLOYEES......................................................................................... 28

PROPERTIES........................................................................................ 28

RELATIONSHIP WITH SPIN-OFF COMPANIES.............................................................. 28

ADJUSTMENTS TO EMPLOYEE STOCK OPTIONS............................................................. 29
INDEBTEDNESS OF U.S. OFFICE PRODUCTS AFTER THE RESTRUCTURING.......................................... 29
INFORMATION ABOUT THE BOARD OF DIRECTORS AFTER THE PROPOSED SALE OF EQUITY SECURITIES................. 30

INFORMATION ABOUT U.S. OFFICE PRODUCTS STOCK OWNERSHIP............................................ 31
THE SECOND PROPOSAL--REVERSE STOCK SPLIT 31
INFORMATION ABOUT THE PROPOSED REVERSE STOCK SPLIT...................................................
WHERE TO GET ADDITIONAL INFORMATION................................................................... 33
ANNEX A OPINION OF MORGAN STANLEY & CO. INCORPORATED DATED JANUARY 12, 1998.......................... A-1
ANNEX B INVESTMENT AGREEMENT DATED AS OF JANUARY 12, 1998, AS AMENDED FEBRUARY 3, 1998, BETWEEN U.S. I
OFFICE PRODUCTS COMPANY AND CDR-PC ACQUISITION, L.L.C........................................
ANNEX C PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION........................................... C-1
INDEX TO FINANCIAL INFORMATION.............................................................. F-1
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SUMMARY

This summary answers basic questions about the proposals. Please read the
rest of the Proxy Statement for full information about the proposals.

WHAT ARE WE ASKING YOU TO APPROVE?

Two proposals: The first proposal for you to consider is the sale by U.S.
Office Products of shares of common stock and warrants. We propose to sell U.S.
Office Products' common stock and two types of warrants to purchase additional
shares of common stock to an affiliate of an investment fund managed by Clayton,
Dubilier & Rice, Inc. ("Clayton, Dubilier & Rice"). (We will use the term
"equity securities" to refer to the common stock and warrants that we are
proposing to sell. We will use the term "Investor" to refer to the affiliate of
an investment fund managed by Clayton, Dubilier & Rice that will be buying the
equity securities.) Investor will pay $270.0 million for the equity securities.
Investor will purchase a number of shares of common stock that equals 24.9% of
the shares outstanding after the issuance of the shares to Investor. Investor
will purchase two types of warrants. The first type of warrants (which we call
"special warrants") gives Investor the ability to maintain (at nominal cost) its
24.9% interest if U.S. Office Products issues additional shares in the special
circumstances described on page 6 of this Proxy Statement. The second type of
warrant (which we refer to as the "warrants" or "common stock warrants") gives
Investor the right to buy in the future the same number of shares Investor buys
at closing (plus the number of shares it is entitled to receive pursuant to the
special warrants) at a total cost of $405.0 million.

The second proposal for you to consider is a -for-one reverse stock
split of U.S. Office Products' common stock. A reverse stock split reduces the
number of shares of common stock outstanding and thereby proportionally
increases the trading price of the shares.

WHY IS U.S. OFFICE PRODUCTS SELLING EQUITY SECURITIES TO INVESTOR

Your Board approved the sale of equity securities to Investor because it
recognized that U.S. Office Products is moving into a new stage of development,
less reliant on acquisitions and more focused on growth through improvement and
expansion of existing operations. (We will sometimes refer to the sale of the
equity securities to Investor as the "Equity Investment.") The Board concluded
that the Equity Investment in U.S. Office Products, and Clayton, Dubilier &
Rice's support of the management of U.S. Office Products, would contribute to
this development. The Board determined that the financial and other terms of the
Equity Investment were fair to U.S. Office Products and its stockholders.

Clayton, Dubilier & Rice is a leading private investment firm. It manages a
pool of equity capital in excess of $1.5 billion. It has substantial experience
in providing companies in which its affiliates invest with financial and
managerial advisory services aimed at building value and improving operational,
marketing and financial performance. Clayton, Dubilier & Rice is also
experienced in advising and assisting companies in managing high levels of debt.

WHAT IS U.S. OFFICE PRODUCTS' STRATEGIC RESTRUCTURING PLAN?

The Equity Investment is part of a Strategic Restructuring Plan approved by
your Board. This plan includes a tender offer by U.S. Office Products for
37,037,037 shares of common stock at $27.00 per share. It also includes the
creation by U.S. Office Products of four companies that will own and operate
U.S. Office Products' current print management, technology solutions,
educational supplies, and corporate travel businesses and the distribution to
U.S. Office Products' stockholders of the shares of those companies.

Your Board decided that the Strategic Restructuring Plan promotes the best
interests of stockholders for several reasons. First, it will permit
stockholders to choose to receive cash in exchange for a portion of their U.S.
Office Products stock. Second, it will permit U.S. Office Products' management
to implement

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operational improvements in a more focused business. Third, it will give U.S.
Office Products' stockholders an opportunity to own stock in each of four
companies that will focus on a separate line of business. Finally, it will bring
to U.S. Office Products' core business the managerial assistance and support of
Clayton, Dubilier & Rice.

WHAT WILL BE U.S. OFFICE PRODUCTS' BUSINESS AFTER THESE TRANSACTIONS?

U.S. Office Products will continue to conduct its office supply, office
furniture, and office coffee, beverage and vending services businesses (which
will operate as the North American Office Products Group), its Mail Boxes Etc.
business, and its New Zealand and Australia operations. U.S. Office Products
also will continue to own its 49% interest in Dudley Stationery Limited (a U.K.
contract stationer).

WHAT FACTORS SHOULD YOU TAKE INTO ACCOUNT IN CONSIDERING THE PROPOSED EQUITY
INVESTMENT?

U.S. Office Products' Board approved the Strategic Restructuring Plan
because it believed it would be in the best interests of U.S. Office Products
and its stockholders. The Board received an opinion from its financial adviser,
Morgan Stanley & Co. Incorporated, that the Strategic Restructuring Plan was
fair from a financial point of view to the stockholders of U.S. Office Products.
The Board also considered a number of other factors, which are more fully
described at pages 19-22 below. These include:

- Current stockholders will own a smaller portion of U.S. Office Products
after Investor buys the equity securities.

- U.S. Office Products will need to borrow a large amount of money to help
fund the tender offer. As a result, U.S. Office Products will have a much
larger amount of debt outstanding than it currently does.

- U.S. Office Products will make adjustments in the number, and in the
exercise price, of options to buy U.S. Office Products' common stock that
are now held by employees, as well as in the conversion price of U.S.
Office Products' convertible notes. These adjustments probably will
increase the number of shares that holders of options and convertible
notes will be able to receive.

- There may be a significant effect on the price of U.S. Office Products'
stock and an increase in trading volatility.

- U.S. Office Products may be responsible for some of the liabilities of the
four companies that it will be spinning off to stockholders.

- There may be tax risks for you and U.S. Office Products.

WHY SHOULD STOCKHOLDERS APPROVE A REVERSE STOCK SPLIT?

The Board believes a reverse stock split is in the interests of stockholders
because it will adjust U.S. Office Products' per share trading price upward by
reducing the number of shares outstanding. The Board believes a higher trading
price will better maintain U.S. Office Products' visibility in the marketplace
and its attractiveness to investors. The reverse stock split will not affect any
stockholder's proportionate equity interest in U.S. Office Products. Of course,
U.S. Office Products cannot give any assurances as to the prices at which U.S.
Office Products' common stock will trade after any of the transactions.

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INFORMATION ABOUT THE SPECIAL MEETING AND VOTING

THE SPECIAL MEETING

The Special Meeting will be held on April 23, 1998 at [location].

THIS PROXY SOLICITATION

U.S. Office Products is sending you this Proxy Statement because U.S. Office
Products' Board of Directors is seeking your proxy to vote your shares at the
Special Meeting. This Proxy Statement includes information that U.S. Office
Products is required to provide to you under the rules of the Securities
Exchange Commission ("SEC"). It is intended to assist you in voting your shares.
On , 1998, we began mailing information to all people who, according to
our stockholder records, owned shares at the close of business on March 26,
1998.

U.S. Office Products will pay the cost of requesting these proxies. U.S.
Office Products' directors, officers and employees may request proxies in person
or by telephone or by mail, telecopy or letter. U.S. Office Products also has
retained to assist in distributing proxy solicitation materials and
seeking proxies. U.S. Office Products will pay a fee of approximately
$ , plus reasonable out-of-pocket expenses, for this assistance. U.S.
Office Products will reimburse brokers and other nominees their reasonable
out-of-pocket expenses for forwarding proxy materials to beneficial owners of
stock.

VOTING YOUR SHARES

You are entitled to one vote at the Special Meeting for each share of U.S.
Office Products' common stock that you owned of record at the close of business
on March 26, 1998. The number of shares you own (and may vote) is listed on the
enclosed proxy card.

You may vote your shares at the Special Meeting in person or by proxy. To
vote in person, you must attend the Special Meeting and obtain and submit a
ballot. We will give you a ballot at the Special Meeting. To vote by proxy, you
must complete and return the enclosed proxy card. By completing and returning
the proxy card, you will be directing the persons designated on the proxy card
to vote your shares at the Special Meeting in accordance with the instructions
you give on the proxy card.

Your proxy card will be valid only if you sign, date and return it before
the Special Meeting. IF YOU COMPLETE THE PROXY CARD EXCEPT FOR THE VOTING
INSTRUCTIONS, THEN YOUR SHARES WILL BE VOTED FOR THE PROPOSED SALE OF EQUITY
SECURITIES TO INVESTOR AND FOR THE PROPOSED ONE-FOR REVERSE STOCK SPLIT. You
may revoke your proxy at any time before it is voted by any of the following
means:

- Notifying the Secretary of U.S. Office Products in writing that you wish
to revoke your proxy.

- Submitting a proxy dated later than your original proxy.

- Attending the Special Meeting and voting. Merely attending the Special
Meeting will not by itself revoke a proxy; you must vote your shares at
the Special Meeting to revoke the proxy.

IF YOU WERE A HOLDER OF SHARES AT THE CLOSE OF BUSINESS ON MARCH 26, 1998,
YOU WILL BE ENTITLED TO VOTE YOUR SHARES WHETHER OR NOT YOU SUBSEQUENTLY TENDER
YOUR SHARES IN THE TENDER OFFER DESCRIBED ON PAGE 12 OF THIS PROXY STATEMENT.
YOU SHOULD THEREFORE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD EVEN IF YOU
HAVE ALREADY TENDERED, OR INTEND TO TENDER, YOUR SHARES IN THE TENDER OFFER.

The Board of Directors does not expect any matter other than the proposals
that are discussed in this Proxy Statement to be presented at the Special
Meeting. Under U.S. Office Products' By-laws, no business may be transacted at
the meeting other than the proposals discussed in this Proxy Statement unless
all stockholders are present in person or by proxy. However, if any other matter
properly comes before the Special Meeting, your proxies will act on such matter
in their discretion.

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VOTE REQUIRED FOR APPROVAL

We have agreed with Investor that we will ask you to approve the sale of
equity securities to Investor. Also, the rules of the Nasdaq Stock Market (where
U.S. Office Products stock is listed) require stockholders to approve
substantial sales of stock unless certain exceptions apply. Although the sale of
equity securities to Investor might fall within these exceptions, your Board of
Directors has decided it is appropriate to ask you to approve this important
transaction.

The proposed sale of equity securities to Investor will be approved if a
majority of the votes cast on the proposal are cast in favor of the proposal.
The proposed amendment to the certificate of incorporation requires a majority
of the issued and outstanding shares for approval. We expect shares to be
outstanding on the record date for the Special Meeting, March 26, 1998. In
addition, a "quorum" must be present at the Special Meeting. A quorum will be
present if shares are represented at the Special Meeting, either in person
(by the stockholders) or by proxy. If a quorum is not present, a vote cannot
occur.

In deciding whether a quorum is present, abstentions and "broker non-votes"
will be counted as shares that are represented at the Special Meeting. (A broker
non-vote can occur if you hold your shares with a broker and are asked to
instruct your broker how to vote your shares. If you do not tell your broker how
to vote, your broker will not be able to vote for or against the proposal. If
your broker returns a proxy card for your shares without any voting
instructions, your shares will be counted as "broker non-vote" shares.) In
deciding whether the Equity Investment proposal has been approved, abstentions
will be counted as if they were votes against the proposal, but broker non-votes
will not be counted. Abstentions and broker non-votes will be equivalent to a
vote against the reverse stock split proposal.

OTHER MATTERS

Price Waterhouse LLP is U.S. Office Products' independent accountants.
Representatives of Price Waterhouse LLP will attend the Special Meeting. They
will have the opportunity to make a statement if they wish, and to respond to
appropriate questions.

If you want to include a proposal in the proxy statement for U.S. Office
Products' 1998 Annual Meeting, send the proposal to U. S. Office Products
Company, Attn: Mark D. Director, Secretary, at 1025 Thomas Jefferson Street,
N.W., Suite 600 East, Washington, D.C. 20007. Proposals must be received on or
before May 12, 1998. Please note that proposals must comply with all of the
requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as well as
the requirements of U.S. Office Products' By-laws.

THE FIRST PROPOSAL--SALE OF EQUITY SECURITIES
INFORMATION ABOUT THE PROPOSED SALE OF EQUITY SECURITIES

INTRODUCTION

U.S. Office Products is asking you to approve a sale of equity securities to
CDR-PC Acquisition, L.L.C. ("Investor"), an affiliate of an investment fund
managed by Clayton, Dubilier & Rice, Inc., for $270.0 million. On January 12,
1998, Investor and U.S. Office Products signed an Investment Agreement that sets
out the terms of the proposed sale of equity securities. This contract, as
amended on February 3, 1998, is included as Annex A to this Proxy Statement. You
should read the entire Investment Agreement.

Investor's purchase of the equity securities is one part of a comprehensive
restructuring plan (the "Strategic Restructuring Plan") that your Board of
Directors approved on January 12, 1998. This Strategic Restructuring Plan
includes three stages that are expected to occur contemporaneously.

- U.S. Office Products will purchase from its stockholders 37,037,037 shares
of its common stock, at a price of $27.00 per share, in a tender offer
(the "Tender Offer"). U.S. Office Products will borrow approximately
$800.0 million to finance its purchase of shares in the Tender Offer.

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- U.S. Office Products will create four new companies to conduct its current
technology solutions, print management, educational supplies and corporate
travel services businesses (which we call collectively the "Spin-Off
Companies" and each a "Spin-Off Company"). After it buys shares in the
Tender Offer, U.S. Office Products will distribute to its remaining
stockholders shares of each of the four separate companies. (We will refer
to this distribution of shares as the "Distributions.") Each Spin-Off
Company intends to issue additional common stock in an underwritten public
offering concurrently with the Distributions.

- U.S. Office Products will then sell the equity securities to Investor, on
the terms and subject to the conditions in the Investment Agreement. (We
will sometimes refer to the sale of the equity securities to Investor as
the "Equity Investment.") Investor will not receive any shares of the
Spin-Off Companies.

U.S. Office Products hired Morgan Stanley & Co. Incorporated ("Morgan
Stanley") to advise it about the Strategic Restructuring Plan. Morgan Stanley
delivered an opinion to the Board of Directors that the transactions comprising
the Strategic Restructuring Plan, taken as a whole, are fair from a financial
point of view to the stockholders of U.S. Office Products. Morgan Stanley's
written opinion is included as Annex B to this Proxy Statement. The opinion sets
forth the assumptions made, matters considered and limitation on the review
undertaken by Morgan Stanley. Additional information about the opinion can be
found at pages 16-19. You should read the entire opinion and the additional
information.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors reviewed and considered the terms of the Strategic
Restructuring Plan and the Investment Agreement. On January 12, 1998, the Board
of Directors unanimously approved the terms of the Strategic Restructuring Plan
and the Investment Agreement.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE PROPOSED SALE OF COMMON STOCK AND WARRANTS TO INVESTOR.

INFORMATION ABOUT THE INVESTMENT AGREEMENT AND RELATED AGREEMENTS

The important terms of the Investment Agreement are described below. The
Investment Agreement is included as Annex A to this Proxy Statement. You should
read the entire Investment Agreement. U.S. Office Products also has agreed to
sign certain other agreements relating to the Distributions and the future
relationships among U.S. Office Products and the Spin-off Companies. This
section also describes the expected terms of those other agreements.

SALE OF COMMON STOCK, SPECIAL WARRANTS AND COMMON STOCK WARRANTS

U.S. Office Products has agreed to sell, and Investor has agreed to buy, the
following equity securities if the conditions in the Investment Agreement are
satisfied, for $270.0 million in cash:

- COMMON STOCK

Investor will acquire shares of U.S. Office Products' common stock, par
value $.001 per share, that will give it ownership of 24.9% of all shares
of common stock outstanding immediately after it buys these shares. U.S.
Office Products expects that, if no additional shares are issued by U.S.
Office Products, approximately 96.0 million shares will be outstanding
after the Tender Offer. In that case, Investor would buy approximately
31.8 million shares. This purchase will give Investor ownership of 24.9%
of 127.8 million outstanding shares (96 million + 31.8 million). If, for
any reason, U.S. Office Products issues more shares of common stock
before the date on which Investor buys shares (for example, pursuant to
stock options or conversion of convertible debt), Investor will buy a
larger number of shares. The result still will be that Investor will own
24.9% of all shares outstanding immediately after it buys its shares.

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- SPECIAL WARRANTS

In the following circumstances, the special warrants will permit Investor
to buy additional shares of common stock to maintain its 24.9% ownership
position:

- The special warrants will allow Investor to buy additional shares
equal to 24.9% of the number of shares that would be outstanding
(including for this purpose shares issued to Investor) if the U.S.
Office Products' convertible subordinated notes due 2001 were
converted into common stock at the conversion price in effect after
adjusting for the Tender Offer and Distributions. For purposes of
determining shares outstanding, the shares issued to Investor are
included. Investor will be entitled to exercise these warrants pro
rata as notes are converted. Any warrants not previously exercised
will be exercisable beginning two years after closing, even if all the
notes have not been actually converted.

- If U.S. Office Products issues additional shares of common stock to
Eric Watson under the terms of the agreement by which U.S. Office
Products acquired Blue Star Group Limited from Mr. Watson and certain
other people, Investor will have the right to acquire additional
shares in order to maintain a total of 24.9% of all shares outstanding
(including for this purpose shares issued to investor Investor shares
and assuming conversion of all 2001 notes). Whether Mr. Watson is
entitled to additional shares will depend on the fiscal 1999 results
of Blue Star Group and U.S. Office Products' trading price after such
results are announced.

- If U.S. Office Products issues additional shares of common stock to
other people under agreements that existed on January 12, 1998, but
were not identified to Investor in the Investment Agreement, Investor
will be entitled to acquire additional shares.

Investor will pay U.S. Office Products $0.01 for each share of common
stock that Investor purchases using the special warrants. The special
warrants will expire after twelve years, if they have not previously been
used to purchase shares.

- COMMON STOCK WARRANTS

Investor also will buy warrants that will give it the right to buy one
share of common stock for each share of common stock purchased by
Investor in the Equity Investment and each share that Investor has the
right to buy pursuant to the special warrants. Investor may use these
warrants to purchase shares of common stock at any time after the second
anniversary of the date on which Investor first buys common stock in the
Equity Investment until the twelfth anniversary of that date.

If Investor exercises all of these warrants, it will be required to pay
U.S. Office Products an additional $405.0 million for the common shares
it will receive. This amount is equal to 150% of Investor's original
investment of $270 million for the equity securities. Investor will not
be obligated to exercise these warrants and pay the additional $405.0
million. Investor is unlikely to exercise the warrants unless the price
of U.S. Office Products' stock rises to a level that makes receiving
additional shares in exchange for the exercise price attractive to
Investor. The common stock warrants will contain provisions that adjust
the number of shares Investor may purchase if U.S. Office Products takes
actions such as declaring a stock split or extraordinary dividend or
other actions that affect the value of the warrants.

Investor's warrants, together with the rights to purchase shares of U.S.
Office Products' common stock under the special warrants, would give it
ownership of approximately 34.7% of the common stock on a fully-diluted
basis. This assumes that all currently outstanding stock options were
exercised in accordance with their existing terms, and that all
subordinated convertible notes due 2003 were converted in accordance with
their existing terms, in each case without any adjustment for the
restructuring transactions. We expect to make adjustments to the number
and exercise price of outstanding options, and to the conversion price of
the subordinated convertible notes

6
<PAGE>
due 2003, on account of the restructuring transactions, and these
adjustments will result in a greater number of shares that may be issued
upon exercise of the options and conversion of the notes. Although the
amount of these adjustments will not be known until after the completion
of the Strategic Restructuring Plan, the effect of these adjustments will
be to reduce Investor's fully-diluted ownership interest in U.S. Office
Products from the amount set forth above.

CORPORATE GOVERNANCE

After the closing, U.S. Office Products' Board of Directors will have nine
members. (We will use the term "closing," or the term "closing date," to refer
to the time when we complete the sale of the equity securities to Investor.) At
closing, one of the directors must be the Chief Executive Officer of U.S. Office
Products, and three directors must be persons named by Investor. Two of the
remaining five directors also must be satisfactory to Investor. The existing
members of your Board will select those new directors who will serve on the
Board after the closing and until the next Annual Meeting of Stockholders (which
is currently scheduled for September 1998). U.S. Office Products also has agreed
that the Chairman of the Board will be one of directors named by Investor. For
information about the members of the Board after the closing, see page 30. At
each election of directors after the closing, as long as Investor continues to
hold certain levels of equity ownership in U.S. Office Products, Investor will
have the right to nominate up to three of nine directors and to name the
Chairman of the Board.

In addition, three-fourths of the directors must approve certain
transactions. These are: (i) the sale by U.S. Office Products of equity
securities, other than (A) a specified amount made available under employee
benefit plans, such as option plans, or (B) a specified amount issued to acquire
companies or issued in public offerings; (ii) any merger, tender offer or sale,
lease, or disposition of all or substantially all of U.S. Office Products'
assets, or other business combination involving U.S. Office Products, unless the
consideration for such sale is all cash or is freely tradable common stock of a
public company with a specified level of market capitalization; (iii) any major
recapitalization; (iv) certain amendments to shareholder rights plans; (v) any
dissolution or partial liquidation of U.S. Office Products; or (vi) any
modification to U.S. Office Products' charter or by-laws that is inconsistent
with Investor's rights under the Investment Agreement or the other agreements
described in this Proxy Statement. The effect of this provision is that so long
as Investor can nominate three directors, at least one of them must vote in
favor of any of these actions in order for it to be approved.

This table shows Investor's rights with respect to the nomination of
directors and how they will change if Investor disposes of equity securities.
This table also shows when the three-fourths majority requirement will apply.

SUMMARY OF CORPORATE GOVERNANCE PROVISIONS

<TABLE>
<CAPTION>
NUMBER OF
DIRECTORS INVESTOR THREE-FOURTHS
IS BOARD
PORTION OF SHARES ACQUIRED ENTITLED TO RIGHT TO APPROVAL FOR
AT CLOSING RETAINED BY NOMINATE DESIGNATE CERTAIN
INVESTOR (1) (OUT OF NINE) CHAIRMAN TRANSACTIONS
- - ------------------------------------------------------------------- ------------------ --------- ------------
<S> <C> <C> <C>
66 2/3% to 100%.................................................... Three Yes Yes
33 1/3% to 66 2/3%................................................. Two Yes Yes
Less than 33 1/3% but Investor
holds at least 5% of the then-
outstanding voting stock......................................... One No No
Less than 5% of the then-
outstanding voting stock......................................... None No No
</TABLE>

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

(1) This includes shares Investor can acquire by exercising special warrants.

7
<PAGE>
Investor can approve one additional nominee to the Board if the Chief
Executive Officer of U.S. Office Products is not a member of the Board or is not
a Board nominee. U.S. Office Products can increase the size of the Board of
Directors to as many as 12 persons, but the number of persons Investor can
nominate will increase at least proportionally. For example, if there are 12
members, Investor could nominate four directors (assuming it still held all of
its shares). Investor also will be entitled to at least proportionate
representation on all Board committees, unless it is precluded from such
membership by law or stock exchange rules.

All of Investor's corporate governance rights will expire on the earlier of
the fifth anniversary of closing or when Investor acquires more than 50% of the
voting power represented by U.S. Office Products' then-outstanding voting
securities.

SUBSCRIPTION RIGHTS

Investor will have certain rights to maintain its percentage ownership
interest in U.S. Office Products' equity securities. Under certain
circumstances, if U.S. Office Products sells equity securities for cash, it will
have to offer Investor the right to purchase its pro rata share of the new
equity securities. Investor will be able to buy the new equity securities on the
same terms and conditions as other buyers. These subscription rights will not
apply to equity securities issued: (i) to officers, directors, or employees
pursuant to any existing employee stock options, plans or arrangements, or as
approved by any director nominated by Investor; (ii) in connection with
acquisitions by U.S. Office Products; (iii) in registered public offerings; or
(iv) to Investor or its affiliates.

STANDSTILL PROVISIONS

Investor and its affiliates may not own 25% or more of the outstanding
shares of voting stock of U.S. Office Products, unless this occurs solely
because Investor has exercised the warrants. This restriction will expire on the
earlier of the fifth anniversary of closing or if Investor ever owns more than
50% of the voting power represented by U.S. Office Products' then-outstanding
voting securities. For five years beginning January 12, 1998, neither Investor
nor its affiliates may: (i) solicit proxies, seek to influence any person with
respect to voting the shares of the common stock, or initiate, propose or
otherwise solicit stockholder proposals unless Investor is acting with the
support of the Board of Directors; (ii) deposit voting securities of U.S. Office
Products into any voting trust or otherwise become a "person" within the meaning
of Section 13(d)(3) of the Securities and Exchange Act of 1934; or (iii) make a
public request to U.S. Office Products to amend or waive any provisions of the
standstill arrangements described in this sentence. Investor may solicit proxies
in opposition to a transaction involving a sale of U.S. Office Products for cash
or equity securities, if no Investor-nominated director has voted in favor of
the transaction. The standstill restrictions also will not apply where a third
party unaffiliated with Investor is seeking to buy U.S. Office Products or if a
majority of the directors (excluding Investor's nominees) otherwise approves the
transaction.

RESTRICTIONS ON TRANSFER

Investor will not be able to transfer any common stock warrants or special
warrants for two years after the closing.

Investor will not be able to transfer any of the shares of common stock
prior to the fifth anniversary of the closing without the approval of a majority
of the non-Investor directors, except in certain cases. The exceptions are
transfers (i) in a registered, underwritten public offering, (ii) as permitted
by Rule 144 of the Securities Act of 1933, (iii) in an exempt transaction to a
person who would not then beneficially own more than 5% of the outstanding
common shares, or in an exempt transaction to a registered investment company,
or (iv) in connection with a transaction in which all U.S. Office Products'
stockholders can sell their common stock on the same terms.

8
<PAGE>
These restrictions will expire on the earlier of the fifth anniversary of
closing or if Investor ever owns more than 50% of the voting power represented
by U.S. Office Products' then-outstanding voting securities. Until the seventh
anniversary of closing, Investor may not sell more than 15% of the then
outstanding common shares to any person or group without first offering U.S.
Office Products the opportunity to make an offer to purchase such shares. This
restriction also will expire if Investor owns more than 50% of the voting power
represented by U.S. Office Products' voting securities.

REGISTRATION RIGHTS

U.S. Office Products and Investor have agreed to enter into a contract that
will give Investor certain rights to require U.S. Office Products to file a
registration statement with the SEC allowing Investor to resell its shares. This
agreement will state that upon any request by Investor, U.S. Office Products
will register either shares of common stock, the special warrants or the common
stock warrants. Investor can request registration of the shares of common stock
it buys initially, shares it buys when it exercises the special warrants or the
warrants, or other shares it buys (as long as the Investment Agreement permits
the purchase). Investor can make up to four requests. U.S. Office Products also
will grant Investor unlimited "piggy-back" registration rights. A "piggy-back"
registration right permits a person who owns securities to request that the
securities be included in a registration statement that U.S. Office Products is
otherwise filing. In certain circumstances, U.S. Office Products may be
permitted to limit the number of securities that Investor could include in a
registration, or possibly exclude them altogether. U.S. Office Products will pay
the expenses of any registration.

INDEMNITY

U.S. Office Products will indemnify Investor and its affiliates against
claims against them by any person based on the transactions under the Investment
Agreement, with certain exceptions. U.S. Office Products will also, subject to
some limitations, indemnify Investor and its affiliates against losses resulting
from U.S. Office Products' breaching its representations or warranties
(generally for one year after closing) or for breaching its covenants. U.S.
Office Products will also indemnify Investor from losses resulting from the
failure of any of the Spin-Off Companies to comply with its obligations to U.S.
Office Products in connection with the Distributions.

TRANSACTION FEE AND EXPENSES

If Investor buys the equity securities, U.S. Office Products will pay
Clayton, Dubilier & Rice a $15.0 million transaction fee and will reimburse
Investor for its reasonable expenses.

CONDITIONS TO THE EQUITY INVESTMENT

Both U.S. Office Products' and Investor's obligations are subject to certain
conditions. These include: receipt of necessary antitrust and other regulatory
clearance; absence of litigation that would prevent the transactions from
closing; U.S. Office Products' stockholder approval of the issuance of equity
securities; completion of the Distributions in accordance with the terms
specified in the Investment Agreement and on other terms that Investor
reasonably approves; and execution of an Investor-approved agreement regarding
allocation of possible tax liabilities and certain other liabilities among U.S.
Office Products and the Spin-Off Companies.

Also, Investor will not be required to buy the equity securities unless
certain conditions in the Investment Agreement are satisfied. Investor can waive
any of these conditions. The conditions include: accuracy of U.S. Office
Products' representations and warranties and compliance by U.S. Office Products
with its obligations under the Investment Agreement; execution of documents
related to financing for the Tender Offer satisfactory in form and substance to
Investor; consummation of the Tender Offer; execution of the consulting
agreement with Clayton, Dubilier & Rice described below and the registration
rights agreement described above; absence of any development since October 25,
1997 that would have a

9
<PAGE>
material adverse effect on U.S. Office Products; no person or group acquiring
beneficial ownership of more than 15% of U.S. Office Products' voting securities
or entering into other transactions involving a tender offer or exchange of
shares or a sale of U.S. Office Products; and U.S. Office Products' debt
immediately following completion of the transactions contemplated by the
Strategic Restructuring Plan not exceeding $1.4 billion (assuming conversion of
the U.S. Office Products' subordinated convertible notes due 2001) and the
outstanding debt of the Spin-Off Companies being at least $130.0 million plus
all amounts (if any) that the Spin-Off Companies spend for acquisitions that are
made after January 12, 1998.

NO SOLICITATION

U.S. Office Products agreed that it will not solicit, encourage or negotiate
alternative transactions that meet certain criteria prior to closing . U.S.
Office Products may accept an alternative transaction proposal if the Board
determines (i) that the terms of the alternative transaction are superior to the
terms of Investor's proposed investment, and (ii) that failure to do so could
reasonably be expected to result in a breach of the Board's fiduciary duty to
the stockholders. In that event, U.S. Office Products would be obligated to pay
a $25.0 million termination fee to Clayton, Dubilier & Rice and to reimburse
Investor for its expenses.

TERMINATION

Investor or U.S. Office Products can terminate the Investment Agreement at
any time if they both agree in writing. Either one can terminate the agreement
if Investor has not purchased the equity securities by September 30, 1998, if
U.S. Office Products' stockholders do not approve the transaction, or if any law
or order prohibits the transaction.

In addition, Investor can terminate the Investment Agreement if:

- U.S. Office Products fails to do what it agreed to do, or if statements
U.S. Office Products made in the Investment Agreement are materially
incorrect (but U.S. Office Products will have 30 days (after being told by
Investor of the problem) to correct a situation that, when corrected,
makes the statements in the Investment Agreement accurate once again);

- the U.S. Office Products' Board of Directors withdraws, modifies, or
publicly announces the intention to withdraw or modify, its approval of
the Investment Agreement or related transactions or recommends an
alternative transaction proposal;

- the Board of Directors publicly announces that it has decided not to
complete the Distributions;

- certain conditions--including the accuracy at closing of statements made
by U.S. Office Products in the Investment Agreement--become impossible to
fulfill and Investor does not waive the conditions;

- U.S. Office Products makes substantive amendments to the agreements
setting out the terms of the Distributions as approved by Investor without
Investor's consent; or

- Investor decides not to proceed with the transaction based on its review
of the agreements relating to the Distributions or the Tender Offer
financing.

U.S. Office Products can terminate the Investment Agreement if:

- Investor fails to do what it agreed to do in the Investment Agreement, or
if statements Investor made in the Investment Agreement are materially
incorrect (but Investor will have 30 days (after being told by U.S. Office
Products of the problem) to correct a situation that, when corrected,
makes the statements in the Investment Agreement accurate once again); or

- certain conditions--including the accuracy at closing of statements made
by Investor in the Investment Agreement--become impossible to fulfill and
U.S. Office Products does not waive the conditions.

10
<PAGE>
TERMINATION FEES

U.S. Office Products will reimburse for Investor its reasonable expenses and
pay a termination fee of $25.0 million to Clayton, Dubilier & Rice under certain
circumstances. These circumstances are (i) termination due to U.S. Office
Products' Board of Directors withdrawing, modifying, or publicly announcing the
intention to withdraw or modify, approval for the Investment Agreement or
related transactions or publicly announcing its determination not to effect the
Distributions; (ii) the approval or recommendation by the Board of Directors of
an alternative transaction proposal; or (iii) U.S. Office Products, without
Investor's approval, changes substantive terms of the Distribution agreements
after Investor has approved them.

Clayton, Dubilier & Rice will also be entitled to the $25.0 million
termination fee if U.S. Office Products terminates the Investment Agreement for
any other reason, or if Investor terminates the agreement because U.S. Office
Products' stockholders do not approve the transaction, and U.S. Office Products
enters into an agreement for certain alternative transactions within 12 months
after termination. If Investor terminates the Investment Agreement because U.S.
Office Products does not perform its obligations under the Investment Agreement
or because statements U.S. Office Products made in the Investment Agreement are
materially incorrect, U.S. Office Products will reimburse Investor's reasonable
expenses and pay a termination fee to Clayton, Dubilier & Rice of $10.0 million.

CLAYTON, DUBILIER & RICE CONSULTING AGREEMENT

Clayton, Dubilier & Rice and U.S. Office Products will enter into a
consulting agreement. Under that agreement, Clayton, Dubilier & Rice will
receive an annual fee of $500,000 for providing management and financial
consulting services to U.S. Office Products. These services may include
assisting U.S. Office Products in maintaining and developing effective banking
and other business relationships and assisting management in developing and
implementing strategies for improving the operational, marketing and financial
performance of U.S. Office Products. The consulting agreement also will contain
certain other provisions agreed to by the parties, including indemnities against
certain liabilities. The consulting agreement will end at the later of (i) five
years from the date of closing and (ii) the time that Investor is entitled to
nominate only one director.

USE OF PROCEEDS

Investor will pay $270.0 million for the equity securities. U.S. Office
Products will use these funds to pay a portion of the costs of the Strategic
Restructuring Plan. The costs of the Strategic Restructuring Plan include the
purchase price of the shares that U.S. Office Products buys in the Tender Offer
($1 billion), Clayton, Dubilier & Rice's transaction fee and Investor's
expenses, and other expenses such as financing fees, professional fees and
printing costs. U.S. Office Products currently estimates that the expenses of
the restructuring transactions (including Clayton, Dubilier & Rice's fees and
Investor's expenses) will total approximately $ .

Investor will pay additional amounts to U.S. Office Products if it exercises
the common stock warrants or special warrants. If Investor exercises all of the
common stock warrants, it will pay an aggregate exercise price of $405.0
million. Also, Investor will pay a nominal amount upon exercise of the special
warrants. U.S. Office Products expects that it will use funds it receives upon
exercise of the common stock warrants for general corporate purposes, such as
acquisitions or repayment of debt. Investor has no obligation, however, to
exercise the warrants or pay any additional amounts to U.S. Office Products.

INFORMATION ABOUT OTHER ELEMENTS OF THE STRATEGIC RESTRUCTURING PLAN

The Strategic Restructuring Plan also includes the Tender Offer and the
Distributions. In this section of the Proxy Statement, we will summarize the
terms of the Tender Offer and the Distributions. U.S. Office Products is
distributing to its stockholders a Tender Offer Statement that has additional
information about the Tender Offer. The Spin-Off Companies are providing
additional information about the Distributions in

11
<PAGE>
Information Statements/Prospectuses that are being distributed to stockholders
of U.S. Office Products. The section of this Proxy Statement titled "Where to
Get Additional Information" explains how to get copies of the Tender Offer
Statement and the Information Statements/Prospectuses.

THE TENDER OFFER AND NEW BORROWINGS

In the Tender Offer U.S. Office Products will offer to purchase 37,037,037
shares of common stock at a price of $27.00 per share. The Tender Offer
commenced March , 1998 and will expire on April , 1998, unless U.S. Office
Products extends the expiration date.

The Board approved the Tender Offer--and borrowing by U.S. Office Products
to finance a substantial portion of the purchase price--to give stockholders the
opportunity to receive cash for a portion of their investment in U.S. Office
Products. The Tender Offer price of $27.00 per share represented a substantial
premium over the trading price of U.S. Office Products stock immediately prior
to the announcement of the Strategic Restructuring Plan. On a pro rata basis,
assuming that all outstanding shares of common stock are tendered, each
stockholder would receive cash for approximately 28% of their shares. Based on
information received from management and recommendations of outside advisers,
the Board concluded that after U.S. Office Products is restructured, it would be
able to generate adequate cash flow to service the additional debt.

U.S. Office Products will not be required to purchase shares of common stock
in the Tender Offer unless the following conditions, and other standard
conditions, are satisfied:

- a minimum of 37,037,037 shares of common stock are validly tendered and
not withdrawn;

- U.S. Office Products has obtained enough financing to pay for the shares
it will purchase in the Tender Offer;

- U.S. Office Products' current bank lenders have consented to the Tender
Offer or U.S. Office Products has replaced its current bank debt;

- all conditions to the completion of Investor's purchase of the equity
securities have been satisfied or waived, except completion of the Tender
Offer and Distributions; and

- registration statements covering the shares of the Spin-Off Companies to
be distributed to U.S. Office Products' stockholders in the Distributions
have become effective and all other conditions to the completion of the
Distributions have been satisfied.

U.S. Office Products will pay a total of approximately $1.0 billion to
purchase shares in the Tender Offer. U.S. Office Products expects to pay for the
shares with a combination of the money it receives from Investor when Investor
buys the equity securities, money it borrows from banks, and money it receives
by selling new subordinated debt securities to investors. U.S. Office Products
expects to borrow approximately $800.0 million of additional debt. On January
24, 1998 (the end of U.S. Office Products' third fiscal quarter), U.S. Office
Products had approximately $714.5 million in debt. See below page 30 for more
detail on the expected financing for the Tender Offer.

DISTRIBUTIONS OF THE SPIN-OFF COMPANIES

To effect the Distributions, U.S. Office Products has created the Spin-Off
Companies. These companies will hold substantially all of the businesses and
assets of, and will be responsible for substantially all of the liabilities
associated with, U.S. Office Products' technology solutions (Paradigm Concepts,
Inc.), print management (Workflow Management, Inc.), educational supplies
(School Specialty, Inc.) and corporate travel services (TDOP, Inc.) businesses.
Each of the Spin-Off Companies intends to issue additional common stock in an
underwritten public offering that is expected to occur at approximately the same
time as the Distributions.

12
<PAGE>
The Board determined that the separation of the businesses of the Spin-Off
Companies and the continuing business of U.S. Office Products as part of the
Strategic Restructuring Plan would benefit the stockholders because it would
have advantages for the Spin-Off Companies and U.S. Office Products. The
advantages that the Board considered included the following:

- The Distributions will allow each of U.S. Office Products and the Spin-Off
Companies to adopt strategies and pursue objectives that are more
appropriate to their respective industries and geographic territories.

- Each will be able to pursue an independent acquisition program that allows
for a more focused use of resources and, where stock is used as
consideration, provide stock of a public company that is in the same
industry as the businesses being acquired.

- Each can be recognized by the financial community as a distinct business
that can be evaluated more readily and compared more easily to industry
peers.

- Each can implement more focused incentive compensation packages that
respond to specific industry and market conditions and enhance employee
retention objectives.

- After the Distributions, U.S. Office Products will be focused on a more
narrow, complementary group of businesses. Each of the Spin-Off Companies
will be focused primarily on their individual businesses.

In considering the Distributions, the Board also took into account that all
U.S. Office Products stockholders remaining after the Tender Offer will receive
stock of the Spin-Off Companies. Accordingly, these stockholders will benefit
from any appreciation in value of the stocks of the Spin-Off Companies after the
Distributions. The Board also considered the diversification opportunities the
Distributions would provide stockholders. Stockholders will be able to retain an
interest in those Spin-Off Companies they want to retain and to dispose of their
interests in the others.

U.S. Office Products will distribute shares of the Spin-Off Companies to its
stockholders remaining immediately after the Tender Offer. U.S. Office Products
has not yet determined the number of shares of each of the Spin-Off Companies
that will be distributed for each share of U.S. Office Products' common stock,
but U.S. Office Products will distribute all shares of the Spin-Off Companies it
holds.

Investor will not receive shares of the Spin-Off Companies in the
Distributions. At the same time, the Investment Agreement specifies certain
terms of the Distributions, and Investor has the right to reasonably approve
certain other terms of the Distributions. Investor may require terms of the
Distributions (such as responsibility for pre-distribution liabilities) that are
less favorable to the Spin-Off Companies than would be the case if Investor also
had an interest in the Spin-Off Companies. In addition, U.S. Office Products
will indemnify Investor and its affiliates against losses resulting from any of
the Spin-Off Companies failing to satisfy their obligations to U.S. Office
Products.

SERVICES AGREEMENT WITH JONATHAN LEDECKY

Jonathan J. Ledecky, the founder, Chairman of the Board and former Chief
Executive Officer of U.S. Office Products, will resign as Chairman of U.S.
Office Products when the Distributions are completed. The U.S. Office Products
Board and Mr. Ledecky concluded that it will be important for the Spin-Off
Companies to have greater access to Mr. Ledecky's skills and experience.
Accordingly, U.S. Office Products entered into an agreement with Mr. Ledecky.
This agreement will go into effect only if the Distributions are completed. It
will replace Mr. Ledecky's existing employment agreement with U.S. Office
Products. As a result of this agreement, Mr. Ledecky will remain employed with
U.S. Office Products but his role with U.S. Office Products after the
Distributions will be substantially reduced.

The new agreement with Mr. Ledecky governs his continuing obligations to
U.S. Office Products. The agreement also provides the Spin-Off Companies with
certain benefits and obligations. Under the

13
<PAGE>
agreement, Mr. Ledecky will receive an annual salary of $48,000, through June
30, 2001. Mr. Ledecky will also retain his existing U.S. Office Products stock
options; the number of shares subject to these options, and their exercise
price, will be adjusted to take account of the transactions under the Strategic
Restructuring Plan. U.S. Office Products can terminate Mr. Ledecky's employment
only if he violates the non-competition provisions of the agreement.

The agreement provides for non-competition and non-solicitation restrictions
that continue for four years after the Distributions have been completed. These
provisions generally restrict Mr. Ledecky from, among other things, investing in
or working for or on behalf of any business that sells products or services in
direct competition with U.S. Office Products or the Spin-Off Companies, within
100 miles of any location where U.S. Office Products or the Spin-Off Companies
conduct business. (For this purpose, "products or services" are those that U.S.
Office Products offered on January 13, 1998.) The agreement prohibits Mr.
Ledecky from trying to hire away managerial employees of U.S. Office Products or
the Spin-Off Companies, or calling upon customers of U.S. Office Products or the
Spin-Off Companies to solicit or sell products or services in direct competition
with U.S. Office Products or the Spin-Off Companies. Mr. Ledecky also may not
hire away for Consolidation Capital Corporation any person then or in the
preceding year employed by U.S. Office Products or the Spin-Off Companies. (Mr.
Ledecky is the founder, chairman, and Chief Executive Officer of Consolidation
Capital.) U.S. Office Products is permitted to (and will) assign to the Spin-Off
Companies the ability to enforce the non-competition provisions described above
as they apply to the Spin-Off Companies' respective businesses.

Under the agreement with Mr. Ledecky, Mr. Ledecky will receive stock options
for each of the Spin-Off Companies' common stock on the date of the
Distributions. The options are intended to compensate Mr. Ledecky for his
services to each of the Spin-Off Companies as a director, and for certain
services as an employee. The options will cover up to 7.5% of each of the
Spin-Off Companies' outstanding common stock, determined as of the date of the
Distributions. For each Spin-Off Company, the options will a have per-share
exercise price equal to the price of the first trade on the day such Spin-Off
Company's common stock is first publicly traded.

It is expected that for each Spin-Off Company, Mr. Ledecky's option will
become fully exercisable as to two-thirds of the shares it covers 12 months
after the Distributions are completed. The remainder of the option will become
exercisable as follows: (i) as of the 18-month anniversary of the first trade
date, but only if the average closing trading price over the 15 business days
preceding that anniversary date exceeds the initial trading price by at least
25% or (ii) as of the sixth anniversary of the first trade date if the condition
in clause (i) above is not met and Mr. Ledecky is still employed by such
Spin-Off Company at that anniversary. Mr. Ledecky's options will all be
exercisable immediately if he dies before the option expires or, in the case of
a particular Spin-Off Company, if that company accelerates the exercise schedule
of options for substantially all management option holders. (In this latter
case, Mr. Ledecky's option will be exercisable on the same accelerated schedule
as the other management option holders.) All unexercised portions of the option
will expire ten years after the date of grant of the option or, if applicable,
as of the date Mr. Ledecky violates his non-competition agreement with a
Spin-Off Company.

BACKGROUND OF AND REASONS FOR THE PROPOSED SALE OF EQUITY SECURITIES

U.S. Office Products' Board of Directors has from time to time considered
strategic alternatives to improve U.S. Office Products' operational performance
and enhance stockholder value. In September 1997, U.S. Office Products'
management considered several possible strategies. These included the spin-off
of some of its businesses, the repurchase of shares of common stock in open
market transactions or in a tender offer, and the sale of common stock to a
strategic investor. At the end of September 1997, Clayton, Dubilier & Rice
outlined to management the general terms of a possible transaction involving the
sale of common stock and warrants, a repurchase of common stock, and the
spin-off of certain businesses. The Board of Directors decided at a special
meeting on October 1, 1997 not to pursue the Clayton,

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Dubilier & Rice proposal. Management advised Clayton, Dubilier & Rice of the
Board's decision, and discussions ceased.

In December 1997, Clayton, Dubilier & Rice advised U.S. Office Products'
management that it remained interested in investing in U.S. Office Products. On
December 17, 1997, the Board of Directors authorized management to undertake
discussions with Clayton, Dubilier & Rice to determine whether a transaction
could be structured on acceptable terms. U.S. Office Products hired Morgan
Stanley as its financial adviser. Thereafter, U.S. Office Products, with the
assistance of Morgan Stanley, negotiated with Clayton, Dubilier & Rice on the
terms of the Equity Investment. They also discussed with Clayton, Dubilier &
Rice the other elements of the Strategic Restructuring Plan. As a result of this
process, the Board of Directors approved the Strategic Restructuring Plan and
the Investment Agreement on January 12, 1998.

The Board reviewed the status of the Strategic Restructuring Plan to date at
its regular quarterly meeting on February 27, 1998. At that meeting, it
authorized management to implement certain modifications to the Strategic
Restructuring Plan, including underwritten primary offerings by each of the
Spin-Off Companies.

The Board approved the Equity Investment as part of the Strategic
Restructuring Plan. In considering the Strategic Restructuring Plan, the Board
took into account a number of considerations, including the opinion of Morgan
Stanley (see Annex A); the Board's determination that there were operational
advantages to separating the businesses of the Spin-Off Companies from U.S.
Office Products' core businesses; that the recent trading prices of U.S. Office
Products' common stock did not, in the Board's view, adequately reflect the
underlying values of U.S. Office Products' businesses; and that U.S. Office
Products' remaining operations would benefit from the assistance and support of
Clayton, Dubilier & Rice.

The Board concluded that the Equity Investment would benefit U.S. Office
Products. The Board recognized that U.S. Office Products was moving into a new
stage of development, less reliant on acquisitions and more focused on growth
through improvements in and expansion of existing operations. The Board
concluded that the Equity Investment in U.S. Office Products, and Clayton,
Dubilier & Rice's support of the management of U.S. Office Products, would
contribute to U.S. Office Products' development. Clayton, Dubilier & Rice has
substantial experience in providing companies in which its affiliates invest
with financial and managerial advisory services aimed at building value and
improving operational, marketing and financial performance. Clayton, Dubilier &
Rice also has substantial experience in advising and assisting companies in
managing high levels of debt.

The Board also considered the terms of the Equity Investment. It concluded,
based on an analysis by Morgan Stanley, that the proposed consideration of
$270.0 million was fair. The Board noted that the common stock warrant can, if
U.S. Office Products' stock appreciates sufficiently, provide additional value
to Investor. In that event, however, all other stockholders of U.S. Office
Products will also benefit from the appreciation. It also considered the rights
granted to Investor with respect to corporate governance. While Investor will
have certain rights to nominate directors to the Board, and certain decisions
will require a "super-majority" of the Board, Investor will not have the power
to control Board decisions. Investor will, however, have substantial influence
over the affairs of U.S. Office Products, and the fact that certain decisions
require a "super-majority" vote means that Investor may be able to prevent some
transactions from taking place. Finally, the Board considered the limitations in
the Investment Agreement on transactions by Investor in U.S. Office Products
stock. These limitations will preclude Investor from transferring shares in a
block to a party seeking to acquire control of U.S. Office Products, unless the
Board approves.

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OPINION OF FINANCIAL ADVISER

The Board retained Morgan Stanley to act as its financial adviser in
connection with the transactions comprising the Strategic Restructuring Plan
(the "Transactions") based upon Morgan Stanley's qualifications, expertise and
reputation. On January 12, 1998, Morgan Stanley delivered its opinion to the
Board that, as of such date and subject to certain considerations identified in
the written opinion of Morgan Stanley, the Transactions, taken as a whole, are
fair from a financial point of view to U.S. Office Products' stockholders.

THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT (THE "MORGAN STANLEY OPINION").
YOU ARE URGED TO, AND SHOULD, READ THE MORGAN STANLEY OPINION CAREFULLY AND IN
ITS ENTIRETY. THE MORGAN STANLEY OPINION IS DIRECTED TO THE BOARD AND RELATES TO
THE FAIRNESS OF THE TRANSACTIONS, FROM A FINANCIAL POINT OF VIEW, TO U.S. OFFICE
PRODUCTS' STOCKHOLDERS, AND IT DOES NOT CONSTITUTE A RECOMMENDATION TO YOU ABOUT
HOW TO VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE MORGAN STANLEY OPINION
SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION.

In arriving at its opinion, Morgan Stanley (i) reviewed certain publicly
available financial statements and other business and financial information of
U.S. Office Products; (ii) reviewed certain internal financial statements and
other financial and operating data concerning U.S. Office Products and each
Spin-Off Company prepared by the management of U.S. Office Products; (iii)
analyzed certain financial forecasts for U.S. Office Products and each Spin-Off
Company prepared by the management of U.S. Office Products; (iv) discussed the
past and current operations and financial condition and the prospects of U.S.
Office Products and each Spin-Off Company with senior executives of U.S. Office
Products; (v) reviewed the pro forma impact of the Transactions on U.S. Office
Products' and each Spin-Off Company's earnings per share, cash flow,
consolidated capitalization and financial ratios; (vi) reviewed the reported
prices and trading activity of U.S. Office Products' common stock; (vii)
compared the financial performance of each Spin-Off Company with that of certain
other companies that are comparable to each Spin-Off Company and have
publicly-traded securities; (viii) compared the financial performance of U.S.
Office Products (excluding the Spin-Off Companies) with that of certain other
comparable companies with publicly-traded securities; (ix) reviewed the
financial terms, to the extent publicly available, of certain transactions
involving minority investments in publicly traded companies; (x) reviewed and
discussed with the Board certain expertise of Clayton, Dubilier & Rice and the
strategic, financial and operational benefits anticipated from the Transactions;
(xi) participated in discussions and negotiations among representatives of U.S.
Office Products and Clayton, Dubilier & Rice and their respective legal
advisers; and (xii) performed such other analyses and considered such other
factors as Morgan Stanley deemed appropriate.

In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of the Morgan Stanley Opinion. With
respect to the financial forecasts, including information relating to certain
strategic, financial and operational benefits anticipated from the Transactions,
Morgan Stanley assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of U.S. Office Products and each Spin-Off Company. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of U.S. Office Products or any Spin-Off Company nor was Morgan
Stanley furnished with any such appraisal. The Morgan Stanley Opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to Morgan Stanley as of, the date
of the Morgan Stanley Opinion. Morgan Stanley further assumed that no spin-off
will be a taxable transaction to U.S. Office Products, any Spin-Off Company or
the U.S. Office Products' stockholders under U.S. federal income tax laws
(except to the extent of any cash distributed in lieu of fractional shares of
the Spin-Off Companies). In rendering its opinion, Morgan Stanley, with the
Board's consent, did not consider the effect of any terms of

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any commercial, allocation or other arrangements between U.S. Office Products
and any Spin-Off Company.

Morgan Stanley noted that trading in shares of U.S. Office Products' common
stock commencing with the public announcement of the Transactions and continuing
for a period of time following completion of the Distributions may involve a
redistribution of shares of U.S. Office Products' common stock and the shares of
the Spin-Off Companies' common stock among U.S. Office Products' stockholders
and other investors. Accordingly, during such period, U.S. Office Products'
common stock and the Spin-Off Companies' common stock may trade at prices below
those at which they would trade on a fully distributed basis after the
Distributions. In rendering its opinion, Morgan Stanley did not opine as to the
price at which U.S. Office Products' common stock or any Spin-Off Company's
common stock will trade after the Transactions are effected.

The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Board in connection with the preparation of the
Morgan Stanley Opinion and with its presentation to the Board:

EQUITY MARKET PERFORMANCE. Morgan Stanley presented the Board an analysis
of U.S. Office Products' common stock performance as background material to a
discussion of the Transactions. This analysis consisted of a historical analysis
of: closing prices and trading volumes from February 16, 1995, the date of the
U.S. Office Products' initial public offering ("IPO"), to January 9, 1998; U.S.
Office Products' indexed price performance from January 9, 1996 to January 9,
1998 relative to Corporate Express, Incorporated ("Corporate Express"), BT
Office Products International, Incorporated ("BT Office"), Boise Cascade Office
Products Corporation ("Boise") and Standard & Poor's industrial average of 400
stocks (the "S&P 400"); and U.S. Office Products' next 12-month P/E multiple
from January 5, 1996, to January 9, 1998, relative to Corporate Express, BT
Office, Boise and the S&P 400. Morgan Stanley observed that the high price and
the low price for U.S. Office Products' common stock from the time of the IPO to
January 9, 1998, were $29.92 per share and $6.67 per share, respectively. From
January 9, 1996 to January 9, 1998, Morgan Stanley noted that the S&P 400
increased by 51%, U.S. Office Products increased by 7%, Boise decreased by 27%,
Corporate Express decreased by 34% and BT Office decreased by 46%. Morgan
Stanley also observed that the next 12-month P/E multiples for U.S. Office
Products, Corporate Express, BT Office and Boise generally declined from January
5, 1996 to January 9, 1998, while the next 12-month P/E multiple for the S&P 400
generally increased.

COMPARABLE COMPANY ANALYSIS. Comparable company analysis examines a
company's trading performance relative to a group of publicly traded peers.
Morgan Stanley analyzed the trading performance of certain companies that may be
considered comparable to U.S. Office Products after the Transactions and each
Spin-Off Company. No company utilized in the comparable company analysis as a
comparison is identical to either U.S. Office Products after the Transactions or
the Spin-Off Companies. In evaluating the comparable companies, Morgan Stanley
made judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using comparable company data.

PRO FORMA ANALYSIS OF THE TRANSACTIONS. Morgan Stanley prepared an analysis
of the pro forma financial impact of the Transactions to U.S. Office Products'
stockholders based on financial information and projections provided to Morgan
Stanley by the management of U.S. Office Products. Subject to the qualifications
and limitations described in the next paragraph, Morgan Stanley indicated to the
Board that the weighted value of cash and equity interests in U.S. Office
Products and the Spin-Off Companies, after the Transactions, which a U.S. Office
Products stockholder would receive, was in a range in excess of the recent
trading price (prior to January 12, 1998) of U.S. Office Products' common stock.

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Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Furthermore, Morgan Stanley noted
that trading in shares of U.S. Office Products' common stock commencing with the
public announcement of the Transactions and continuing for a period of time
following completion of the Distributions may involve a redistribution of shares
of U.S. Office Products' common stock and the shares of the Spin-Off Companies'
common stock among U.S. Office Products' stockholders and other investors and
accordingly, during such period, shares of U.S. Office Products' common stock
and the shares of the Spin-Off Companies' common stock may trade at prices below
those at which they would trade on a fully distributed basis after the
Distributions. In rendering its opinion, Morgan Stanley did not opine as to the
price at which shares of U.S. Office Products' common stock or shares of each
Spin-Off Company's common stock will trade after the Transactions are effected.

ANALYSIS OF OTHER STRATEGIC ALTERNATIVES. At the Board's request, utilizing
the methodology described in Pro Forma Analysis of the Transactions, Morgan
Stanley also prepared an analysis of two alternatives to the Transactions: (i)
spin-offs without additional leverage (borrowings) or an investment by Investor
("Spin-Offs/No Leverage") and (ii) spin-offs with additional leverage but
without an investment by Investor ("Spin-Offs/Leverage/No Investor"). Morgan
Stanley assumed U.S. Office Products would use the additional leverage to
finance a tender offer to purchase a portion of its shares. Morgan Stanley
indicated to the Board that the weighted value of cash and equity interests in
U.S. Office Products after the relevant transactions was in a range that was
slightly lower than that for the Transactions, in the case of the Spin-
Offs/Leverage/No Investor alternative, and also lower than that for the
Transactions, in the case of the Spin-Offs/No Leverage alternative.

ANALYSIS OF EQUITY INVESTMENT. Morgan Stanley analyzed the value of the
equity securities Investor would acquire. Morgan Stanley analyzed the warrants
based on a Black-Scholes options valuation with certain adjustments made to the
theoretical Black-Scholes option value for liquidity and other market factors.
Based on its analysis, Morgan Stanley indicated to the Board that Investor would
be paying a premium for its shares of U.S. Office Products' common stock.

The preparation of a fairness opinion is a complex process and is not
susceptible to a partial analysis or summary description. In arriving at its
opinion, Morgan Stanley considered the results of all of its analyses as a whole
and did not attribute any particular weight to any particular analysis or factor
considered by it. Furthermore, a selection of any portions of Morgan Stanley's
analyses, without considering all analyses, would create an incomplete view of
the process underlying its opinion. In addition, Morgan Stanley may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting for any particular analysis should not be taken
to be Morgan Stanley's view of the actual value.

In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of U.S. Office Products or
Investor. As noted above, the analyses performed by Morgan Stanley are not
necessarily indicative of actual values, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
a part of Morgan Stanley's analysis of the fairness of the consideration from a
financial point of view to U.S. Office Products' stockholders and were provided
to the Board in connection with the delivery of Morgan Stanley's written opinion
of January 12, 1998. The analyses do not purport to be appraisals or reflect the
prices at which U.S. Office Products might actually be sold. Because such
estimates are inherently subject to uncertainty, none of U.S. Office Products,
Investor, Morgan Stanley or any other person assumes responsibility for their
accuracy. In addition, Morgan Stanley's opinion and presentation to the Board
was one of many factors taken into consideration by the Board in making its
determination to approve the Transactions.

The Board retained Morgan Stanley based upon its experience and expertise.
Morgan Stanley is an internationally recognized investment banking and advisory
firm. Morgan Stanley, as part of its investment

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banking business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Morgan Stanley is a full-service securities firm engaged in securities
trading and brokerage activities, as well as providing investment banking and
financial advisory services. In the ordinary course of its trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions, for its own account
or the accounts of customers, in debt or equity securities of U.S. Office
Products. In the past, Morgan Stanley and its affiliates have provided financial
advisory and financing services to U.S. Office Products and have received
customary fees for the rendering of these services.

Pursuant to a letter agreement, dated December 18, 1997, between U.S. Office
Products and Morgan Stanley, U.S. Office Products has agreed to pay Morgan
Stanley a transaction fee, payable upon consummation of the Transactions. At the
time of the execution of the Investment Agreement, the transaction fee payable
to Morgan Stanley was estimated at approximately $9.0 million. U.S. Office
Products has also agreed to reimburse Morgan Stanley for its expenses related to
the engagement and to indemnify and hold harmless Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates, against
certain liabilities and expenses, including liabilities under U.S. federal
securities laws, incurred in connection with its services. All fees will be paid
by U.S. Office Products to Morgan Stanley only after consummation of the
Transactions.

INFORMATION ABOUT INVESTOR AND CLAYTON, DUBILIER & RICE

Investor is a Delaware limited liability company formed by Clayton, Dubilier
& Rice for the purpose of making the proposed Equity Investment in U.S. Office
Products. Investor's sole member is Clayton, Dubilier & Rice Fund V Limited
Partnership ("CD&R Fund V"), a Cayman Islands exempted limited partnership that
is managed by Clayton, Dubilier & Rice. CD&R Fund V has committed to fund the
Equity Investment. Clayton, Dubilier & Rice is a private investment firm that
manages a pool of equity capital in excess of $1.5 billion. Since its founding
in 1978, Clayton, Dubilier & Rice and investment funds that it manages have
invested in 24 businesses. These businesses are primarily subsidiaries or
divisions of large, multi-business corporations.

EFFECTS OF THE PROPOSED SALE OF EQUITY SECURITIES AND THE STRATEGIC
RESTRUCTURING PLAN

You should consider the following factors in deciding whether to vote for
the proposed sale of equity securities to Investor.

YOUR VOTING POWER AND OWNERSHIP INTERESTS WILL BE REDUCED.

If you approve the proposed sale of equity securities and Investor purchases
these securities, each share of U.S. Office Products' common stock you hold will
represent a smaller portion of the total voting shares of U.S. Office Products.
The Tender Offer will offset this effect to some extent. This is because U.S.
Office Products will have fewer shares outstanding after the Tender Offer. Any
shares you own after the Tender Offer will have a smaller proportion of the vote
after the sale of common stock to Investor than they would have had if the
Tender Offer was completed and Investor did not purchase common stock. If
Investor exercises its warrants, the portion of voting power represented by one
share of common stock will be further diminished.

As part of the Strategic Restructuring Plan, the number and exercise price
of existing stock options held by U.S. Office Products' employees will be
adjusted. In addition, the conversion prices of U.S. Office Products'
outstanding convertible notes will be adjusted. These adjustments will increase
the total number of shares--and the percentage interests--represented by such
options or convertible notes.

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WE WILL INCREASE OUR DEBT SUBSTANTIALLY TO FINANCE THE TENDER OFFER.

The Tender Offer will occur if the conditions to the proposed sale of equity
securities to Investor and other conditions are satisfied. If the Tender Offer
is completed, U.S. Office Products will have significantly more debt. Prior to
the Strategic Restructuring Plan, U.S. Office Products had debt of $714.5
million as of January 24, 1998, which was % of U.S. Office Products'
stockholders equity. The pro forma financial statements showing adjustments
necessary to reflect the Strategic Restructuring Plan as if it occurred on
January 24, 1998 show debt of $1,381.9, or 392.8% of stockholders equity.

Increased debt presents risks to U.S. Office Products, including the
following:

- U.S. Office Products will need to use more of its cash flow to pay debt
service, which will limit its ability to use cash flow for other purposes,
such as paying dividends;

- U.S. Office Products will have to pay more interest to lenders, which will
reduce its reported earnings, and lower reported earnings may adversely
affect the trading price of U.S. Office Products' common stock;

- U.S. Office Products may not be able to obtain additional financing on
favorable terms;

- Covenants in U.S. Office Products' debt agreements may restrict its
ability to undertake transactions that management otherwise believes would
be beneficial; and

- U.S. Office Products may not be able to react as rapidly to changing
conditions as some of its competitors who have relatively less debt.

THE TRANSACTIONS WILL HAVE AN IMPACT ON TRADING PRICES IN U.S. OFFICE PRODUCTS
STOCK.

There can be no assurance about the prices at which U.S. Office Products'
common stock will trade after Investor buys the equity securities and the rest
of the Strategic Restructuring Plan is completed. The plan consists of a number
of elements that involve major changes to the assets and capital structure of
U.S. Office Products. Upon completion of these transactions, the trading price
of U.S. Office Products is likely to be lower to reflect the Tender Offer and
the Distributions. The actual adjustment that will be made by the market based
on its valuation of the parts of the Strategic Restructuring Plan cannot be
predicted. U.S. Office Products expects that an active trading market for its
common stock will continue, but the trading prices may be affected in the short
or long run by a number of factors in addition to those that typically affect
the trading price of stocks. These special factors may include trades by
investors seeking to change their relative ownership positions in the stock of
U.S. Office Products and each Spin-Off Company, uncertainty in the marketplace
about the impact of the Strategic Restructuring Plan on U.S. Office Products'
future operating results, possible trading strategies by investors seeking to
arbitrage disparities in pricing between the U.S. Office Products' common stock
and the stock of each Spin-Off Company, and increased volatility resulting from
market uncertainty or confusion about the transactions or their impact on U.S.
Office Products.

THE EQUITY INVESTMENT WILL RESULT IN CONCENTRATION OF OWNERSHIP.

After the sale of common stock to Investor, Investor will hold 24.9% of the
issued and outstanding shares of U.S. Office Products' common stock. Investor
will be the largest single holder of shares of U.S. Office Products' common
stock. As a result, Investor will likely be able to influence decisions that
require stockholder votes.

The warrants will give Investor the right to acquire additional shares
beginning two years after closing. Investor's warrants, together with the rights
to purchase shares of U.S. Office Products' common stock under the special
warrants, would give it ownership of approximately 34.7% of the common stock on
a fully-diluted basis. This assumes that all currently outstanding stock options
were exercised in accordance with their existing terms, and that all
subordinated convertible notes due 2003 were converted in

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accordance with their existing terms, in each case without any adjustment for
the Strategic Restructuring Plan. We expect to make adjustments to the number
and exercise price of outstanding options, and to the conversion price of the
subordinated convertible notes due 2003, on account of the restructuring
transactions, and these adjustments will result in a greater number of shares
that may be issued upon exercise of the options and conversion of the notes.
Although the amount of these adjustments will not be known until after the
completion of the Strategic Restructuring Plan, the effect of these adjustments
will be to reduce Investor's fully-diluted ownership interest in U.S. Office
Products from the amount set forth above.

As discussed above (see pages 7-8), Investor has the right to nominate
members of the Board, including the Chairman, and to have representation on
Board committees. As a result of these provisions, Investor will have influence
over the composition of the Board of Directors and actions taken by the Board of
Directors or its committees. In addition, some Board actions will require a
three-fourths majority vote. Thus, so long as Investor can nominate three
directors, some major actions could be precluded altogether unless one of the
Investor-nominated directors supports the action. Together, this ownership
position and the Board voting requirements may have the effect of discouraging
(or possibly preventing) a future change in control of U.S. Office Products. In
addition, the super-majority Board voting requirement may have the effect of
limiting the Company's future use of equity to acquire businesses, raise
capital, or provide employees with long-term incentives.

U.S. OFFICE PRODUCTS MAY BE LIABLE FOR CERTAIN LIABILITIES OF THE SPIN-OFF
COMPANIES

As part of the Strategic Restructuring Plan, the Spin-Off Companies have
agreed to indemnify U.S. Office Products for many of the liabilities that could
arise as a result of the Distributions. Nonetheless, U.S. Office Products will
share responsibility with the Spin-Off Companies for certain Distributions-
related liabilities. Shared liabilities may include:

- transaction costs (including legal, accounting, investment banking, and
financial advisory fees) that the Spin-Off Companies will incur associated
with the Strategic Restructuring Plan;

- certain taxes (as described below);

- liabilities under the U.S. federal securities laws arising before the
Distributions; and

- general corporate liabilities of U.S. Office Products before the
Distributions.

U.S. Office Products will soon be entering into an agreement with the
Spin-Off Companies as to the exact portion of these liabilities that U.S. Office
Products may be required to share.

THE DISTRIBUTION TO YOU OF THE STOCK OF THE SPIN-OFF COMPANIES INVOLVES
COMPLICATED TAX ISSUES.

U.S. Office Products has sought to structure the Distributions to qualify as
tax-free spin-offs under Section 355 of the Internal Revenue Code of 1986, as
amended (the "Code"). If the Distributions qualify as tax-free spin-offs then no
gain or loss on shares of common stock of the Spin-Off Companies for U.S.
federal income tax purposes will be attributed to U.S. Office Products, and no
gain will be attributed to you as holders of U.S. Office Products' common stock
(except with respect to cash received in lieu of fractional shares), because of
the Distributions. However, there is a risk that the Distributions will not
qualify for tax-free treatment under the Code. If this happens, U.S. Office
Products will be subject to a material tax liability, and you may be treated as
having received a taxable corporate distribution in an amount equal to the fair
market value of the common stock of the Spin-Off Companies that you receive in
the Distributions. U.S. Office Products and the Spin-Off Companies will enter
into an agreement to allocate responsibility for the possible tax burden to U.S.
Office Products (we will call this agreement the "Tax Allocation Agreement").
However, U.S. Office Products and the Spin-Off Companies have not agreed to
indemnify you for any taxes resulting from the Distributions' failing to qualify
for tax-free treatment under the Code. The Tax Allocation Agreement will provide
that the Spin-Off Companies will jointly and severally indemnify U.S. Office
Products for any losses associated with taxes related to the Distributions if

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any Spin-Off Company does or fails to do something that materially contributes
to a final determination that any or all of the Distributions are taxable. Under
the Tax Allocation Agreement, if any or all of the Distributions are found to be
taxable but neither U.S. Office Products nor any Spin-Off Company has done
anything to cause that finding, U.S. Office Products and each Spin-Off Company
will be liable for its pro rata portion of those taxes based on the value of
each company's common stock after the Distributions. You should consult your tax
adviser about the tax consequences of the Distributions.

WE MAY BE UNABLE TO ISSUE ADDITIONAL CAPITAL STOCK IN CERTAIN CIRCUMSTANCES.

Certain limitations under Section 355 of the Code may restrict U.S. Office
Products' ability to issue capital stock after the Distributions. These
limitations will generally prevent U.S. Office Products from issuing capital
stock to the extent the issuance is part of a plan pursuant to which one or more
people acquire capital stock of U.S. Office Products that represents 50% or more
of the voting power or 50% or more of the value of U.S. Office Products' capital
stock. These limitations may restrict U.S. Office Products' ability to undertake
transactions involving issuances of capital stock of U.S. Office Products that
management otherwise believes would be beneficial.

WE COULD BE REQUIRED TO PAY A SUBSTANTIAL FEE TO CLAYTON, DUBILIER & RICE.

If the Investment Agreement is terminated or U.S. Office Products does not
sell the equity securities to Investor, then, under certain circumstances, U.S.
Office Products will be obligated to pay to Clayton, Dubilier & Rice certain
fees and to reimburse Investor's expenses. For example, Clayton, Dubilier & Rice
will be entitled to a $25.0 million fee, and Investor will be entitled to
reimbursement for expenses, if stockholders do not approve the sale of equity
securities to Investor, and U.S. Office Products enters into another transaction
involving sale of 20% of U.S. Office Products' voting securities or 20% of its
assets.

THE BUSINESS OF U.S. OFFICE PRODUCTS AFTER THE RESTRUCTURING

After the Distributions, U.S. Office Products will continue to conduct its
office supply, office furniture, and office coffee, beverage and vending
services businesses (which will operate as the North American Products Group),
its Mail Boxes Etc. business, and its New Zealand and Australia operations. U.S.
Office Products also will continue to own its 49% interest in Dudley Stationary
Limited (a U.K. contract stationer). The Spin-Off Companies will operate U.S.
Office Products' print management, technology solutions, educational supplies
and corporate travel services businesses. After spinning off these businesses,
U.S. Office Products will have annualized sales of approximately $2.7 billion.

We briefly describe below the businesses that U.S. Office Products will
operate after it completes the Strategic Restructuring Plan. We also have
attached to this Proxy Statement financial information that gives effect to the
transactions contemplated by the Strategic Restructuring Plan, as well as
management's discussion and analysis of this financial information.

NORTH AMERICAN OFFICE PRODUCTS GROUP

U.S. Office Products is a leading supplier of office supplies, office
furniture, and coffee, beverage, and vending services to business customers in
North America, through its North America Office Products Group ("NAOPG"). NAOPG
operates primarily in what is commonly referred to as the contract stationery
market. It provides office products to business customers, focusing primarily on
the middle market customer (which has 25-500 employees). NAOPG also operates
approximately 30 retail outlets (primarily in Northern California under the
McWhorter's name) that sell office supplies, gifts and related products
primarily to consumers and to small and home-based businesses. NAOPG's
annualized sales are approximately $1.7 billion. NAOPG is organized into 19
geographic districts. A district president oversees each district. The districts
are organized into four regions: Northeast, Southeast, Central, and West. A
regional vice president oversees each region and reports directly to the
President of NAOPG.

22
<PAGE>
NAOPG includes the following businesses:

OFFICE SUPPLIES. NAOPG companies sell office and related supplies and
equipment, primarily in the office contract stationer market to middle market
business customers. Certain NAOPG companies also operate retail outlets that
sell primarily to consumers and small and home-based businesses. NAOPG's
offerings include thousands of items such as desktop accessories, writing
instruments, paper products, computer consumables and business machines. A
number of NAOPG's contract stationers also have begun to offer office coffee and
beverage services. U.S. Office Products generally provides next-day delivery of
ordered items and, on request, same-day delivery. This "just in time" service
enables certain customers to reduce overhead cost by reducing inventory and the
associated personnel and space requirements. U.S. Office Products obtains office
products from many sources, including manufacturers and wholesalers, and
maintains and warehouses certain frequently ordered items.

OFFICE FURNITURE. NAOPG companies sell catalog, mid-market, contract and
remanufactured furniture and provide other related furniture services to the
office furniture market. Both contract stationer businesses and companies that
principally serve the office furniture market offer these products and services.
Smaller customers typically purchase commodity furniture items, such as
lower-priced chairs and file cabinets from the office products catalogs
distributed by NAOPG's contract stationery operations. Middle market customers
typically purchase mid-market furniture, which is furniture of higher quality
and functionality than commodity furniture items. Large customers are the most
frequent purchasers of high-quality, contract furniture that often involves a
service component; they also tend to make larger project-oriented purchases.
NAOPG's strategy in its furniture division is to focus on products and services
that have traditionally higher profit margins, such as mid-market furniture,
refurbished and remanufactured furniture, moving and storage services, furniture
installation services, furniture rentals and asset management. In 1997, U.S.
Office Products initiated an office furniture rental program. One NAOPG company
also operates a wholesale furniture business.

OFFICE COFFEE, BEVERAGE AND VENDING SERVICES. Office coffee and beverage
service businesses typically provide and install coffee brewing equipment in a
customer's office at no charge but require customers to purchase, on an ongoing
basis, a minimum volume of coffee and related items from the office coffee and
beverage service business. Office coffee and beverage service businesses
generally also offer a wide assortment of both coffee and related products,
including creamers, sugar, stirrers, teas, sodas, juices and bottled waters, as
well as snack items and all other items that are likely to be found in an
employee "breakroom" or lunch room, including plastic flatware, napkins, paper
cups, straws and similar items. NAOPG also owns and operates companies that
install, stock and maintain various vending machines that provide businesses
with food and beverage products.

In September 1996, U.S. Office Products signed an agreement through which it
secured an exclusive arrangement to distribute Starbucks-Registered Trademark-
coffee in the North American office coffee and beverage services market for five
years subject to, among other things, satisfaction of certain minimum purchase
requirements. U.S. Office Products has developed promotional materials
(including materials for its office products catalogs), and its employees have
received training from Starbucks in connection with this strategic alliance.
U.S. Office Products believes that this strategic alliance strengthens its
position in the office coffee and beverage services market and will enhance its
ability to cross-sell products and services to its clients.

ORGANIZATIONAL STRUCTURE

U.S. Office Products' organizational structure reflects certain elements of
both a centralized and decentralized management philosophy. Management believes
this structure allows the company to achieve the economics of a large
organization while maintaining a flexible and responsive level of service to its
customers. U.S. Office Products manages centrally (at corporate headquarters,
through larger operating

23
<PAGE>
subsidiaries, or at district fulfillment centers ("DFCs")) where it can leverage
its size and scale, such as in purchasing, accounting, human resources and
management information systems. All functions that "touch the customer,"
including sales, marketing, customer service, credit and collections, are
managed locally, U.S. Office Products believes that this decentralized
management philosophy results in better customer service by allowing local
management the flexibility to implement policies and make decisions based upon
the needs and desires of local customers and in response to local market
conditions. Decentralized sales and customer contact also are intended to retain
the historical customers of acquired businesses. U.S. Office Products believes
that many customers purchase office products and business services based upon
established long-term commercial relationships. It seeks to preserve these
relationships by retaining the management, sales organizations and, in most
circumstances, the brand name identity of acquired companies. U.S. Office
Products has also initiated programs which are intended to assist local managers
to work collaboratively within geographic regions and to share successful
operating strategies.

OPERATING AND GROWTH STRATEGIES

U.S. Office Products has historically managed an aggressive acquisition
program. Management intends to continue to expand NAOPG after completing the
Strategic Restructuring Plan by acquiring additional businesses. However,
management believes that the vast majority of companies available to be acquired
and added to NAOPG are relatively small, with annual revenues of $20.0 million
or less. Therefore, U.S. Office Products expects that in the future, NAOPG will
acquire primarily smaller companies that are profitable and are desirable
because of their geographic location, the customer base they serve, the
management and/or sales personnel they employ, or the manner in which they
operate their businesses. Substantially all of NAOPG's operations are in the
United States. NAOPG includes three office coffee and beverage services
businesses located in Canada. U.S. Office Products does not expect to acquire
significant additional businesses in Canada in the near future.

U.S. Office Products believes that integration, improvement and expansion of
NAOPG's existing operations will contribute significantly to NAOPG's future
growth. U.S. Office Products expects that its "cross-selling" program will
generate internal growth by increasing sales to existing NAOPG customers.
"Cross-selling" is the practice of having different businesses sell their
products and services to each other's customers. For example, office supply
companies within NAOPG encourage their customers to buy office furniture and
office coffee, beverage, and vending services from other NAOPG companies. Within
NAOPG, management is implementing programs to encourage customers to buy a full
range of products and services from NAOPG companies. This program includes
customer referrals, joint marketing efforts, and other efforts designed to
demonstrate to customers the advantages of purchasing multiple lines of products
and services from NAOPG companies. At the end of 1997, U.S. Office Products
introduced an expanded catalog that promotes cross-selling and is part of an
overall marketing strategy to offer customers a broader selection of products.

U.S. Office Products has achieved, and will continue to seek additional
operating efficiencies through (i) volume purchasing arrangements for office
products and for goods and services used by U.S. Office Products' operating
subsidiaries; (ii) combining certain general and administrative functions at the
corporate level and eliminating redundant facilities; and (iii) implementing
improved technology and operating and distribution systems. One of NAOPG's major
initiatives is implementing regional plans to integrate and consolidate
facilities, personnel, and systems. This initiative involves the establishment
of DFCs throughout North America. The DFCs are intended to permit multiple
operating businesses within the same geographic area to combine and share
certain operational activities, such as inventory management, purchasing,
accounting and human resource activities. U.S. Office Products opened its first
DFC in Orlando, Florida in late 1997. That DFC supports the operations of all
ten of NAOPG's businesses throughout the state of Florida. Management expects
that it will open six additional DFCs in fiscal 1999 and will reconfigure
several additional warehouses so that they can support multiple locations. The
DFC program is still in its early stages of development. Although management
expects the DFC program to be

24
<PAGE>
successful, it cannot yet accurately assess whether this program will produce
the anticipated levels of cost savings and efficiencies.

U.S. Office Products also expects to pursue growth by continuing to develop
"greenfield" (or start-up) operations. Management anticipates following this
strategy principally in one of two situations: where management does not believe
an attractive acquisition exists to enter an important new geographic market, or
where management believes it can expand sales in an existing market by adding a
new line of business (such as opening a coffee and beverage operation in a
market where U.S. Office Products already has a successful office supply
company). Management believes that this second approach is consistent with, and
will be supported by, cross-selling efforts. U.S. Office Products expects to
continue to focus its greenfield efforts in the office coffee and beverage area.
As of January 24, 1998, U.S. Office Products had opened approximately 20 office
coffee and beverage greenfield operations serving approximately 25 markets in
the United States and Canada.

U.S. Office Products has developed operating and technology systems designed
to improve and enhance its operations, including computerized inventory
management and order processing systems, computerized quotation and job costing
systems and computerized logistics and distribution systems. NAOPG is
incorporating industry-standard technology platforms, including frame relay
networks, bar coding and radio frequency technologies at its existing and
planned DFCs. Management believes that these platforms will allow it to process
orders and track inventory and order fulfillment on a real-time basis, forecast
demand by specific inventory item, or SKU, and generate customized usage and
billing reports for its customers. Management also believes that implementation
of these systems at additional facilities will significantly increase the speed
and accuracy of order processing and fulfillment at the subsidiaries, while
increasing inventory turns and providing measurement and analysis tools that
facilitate efficient operations. Management expects that by the end of fiscal
1999, it will have more than half of the NAOPG districts connected to a common
operating system (Trinity 2.0). The Systems House, Inc., a U.S. Office Products
subsidiary, developed, installs, and maintains the Trinity system.

SALES AND MARKETING

Historically, companies in the office products industry have operated
through one of three broad channels of distribution: retail (including discount
superstores), direct mail or contract stationer. Retail and direct mail
companies have traditionally served the small office and home office ("SOHO")
market and contract stationers have traditionally served middle market
businesses and larger corporation. More recently, several major industry
participants, including U.S. Office Products' competitors, have begun to operate
through two or more of these distribution channels and offer their products and
services to more than one of the customer segments.

U.S. Office Products sells primarily through direct contact with customers
and potential customers and does not conduct significant mass market
advertising. Many of U.S. Office Products' subsidiaries conduct targeted,
business segment-specific marketing in their local areas. U.S. Office Products
establishes and maintains its relationships with customers by assigning a sales
representative to most customers. NAOPG employs approximately 2,200 sales
representatives and intends to leverage their skills and customer relationships
by assisting them in selling multiple products lines to customers. NAOPG's
cross-selling efforts include providing sales representatives with training and
selling tools to help them introduce customers to a broader line of products
that are available through U.S. Office Products.

25
<PAGE>
MAIL BOXES ETC.

U.S. Office Products historically has focused its marketing efforts on
middle market business customers. With its November 1997 acquisition of Mail
Boxes Etc. ("MBE"), U.S. Office Products entered the high-growth SOHO market. In
addition, MBE's more than 3,500 retail business service centers nationwide give
U.S. Office Products a substantial retail presence.

MBE, the world's largest franchisor of neighborhood postal, packaging,
business and communication retail service centers ("MBE Centers"). MBE offers
both individual franchises and area franchises in the United States and master
licenses in foreign countries. A typical MBE Center offers mail and parcel
receiving, packaging, and shipping services through a number of carriers and
provides small businesses with a wide range of products and services. These
products and services generally include telephone message service, word
processing, copying and printing, office supplies and communication services.
Communications services typically include fax, voice mail, pagers, and wire
transfers of funds. In addition, MBE Centers usually offer convenience items
such as stamps, packaging supplies, stationery supplies, notary, passport
photos, and money orders. Large corporations that need a national distribution
system to dispense a variety of services to their customers and field-based
employees also use MBE Centers.

MBE sells master licenses in foreign countries under which the master
licensee obtains the exclusive right to develop and operate MBE Centers in one
or more foreign countries and the right to sell franchises to others who, in
turn, own and operate individual MBE Centers.

There are more than 3,000 MBE Centers operating throughout the United States
and more than 500 MBE Centers serving customers outside the United States. With
MBE master licenses in place in more than 55 countries abroad, MBE's
distribution network is approximately ten times larger than that of its nearest
competitor. This global network of MBE Centers engages in a substantial volume
of business with SOHO customers, having sold a total of approximately $1.3
billion of products and services during fiscal 1997. While MBE's revenues
include only a percentage of this amount (in the form of royalty and marketing
fees paid to MBE on the sale of most products and services), U.S. Office
Products believes that the volume of business that MBE Centers transact makes
them a critical link to the SOHO market. According to the U.S. Bureau of Labor
Statistics, SOHO is currently a $54 billion market, and is expected to continue
to grow.

MBE's primary sources of revenues are (1) royalty and marketing fees paid by
franchisees, (2) fees paid by buyers of new franchises, and (3) sales of
supplies and equipment to MBE Centers.

The global network of MBE Centers has grown dramatically, as MBE has sold an
average of 300 new franchises in the United States each year since 1991. U.S.
Office Products expects this rapid growth to continue over the next several
years. MBE also has devoted significant attention to expanding the number of
master licensees outside of the United States, and it continues to explore
opportunities for new relationships in other countries. As a result of these
efforts, MBE expects that international growth will account for an increasingly
significant proportion of the total growth of MBE Centers.

MBE is pursuing several new programs to increase the products and services
that franchisees can offer and to create additional opportunities to generate
revenues. First, MBE has introduced MBE Business Express-TM-. MBE Business
Express sites are self-serve, credit card activated business centers designed to
serve customers in hotels and hospitality centers, airports, convention centers,
military retail outlets, and academic settings. The MBE Business Express site
includes computer (including Internet access), copying, printing, and facsimile
services. The sites also will allow users to connect with MBE centers by
telephone to order or arrange for additional services (such as package receipt
or delivery or document reproduction).

Second, as part of U.S. Office Products, MBE is now pursuing a program that
will allow franchise owners to purchase office supplies, copy paper and other
consumables more efficiently. Management believes this program will allow MBE
franchisees to offer their customers a broader range of competitively priced
office products. Third, MBE is working to increase the range of products that
MBE Centers can

26
<PAGE>
offer their customers by developing a special office products catalog for use in
MBE Centers and by MBE customers. MBE is developing this catalog together with
members of the NAOPG sales and marketing team. Customers will be able to use the
catalog to place office products offers for delivery to their local MBE Center,
to their offices, or to their homes.

Finally, in response to customer interest, MBE is working to develop a
series of new products related to computer and Internet technology. MBE expects
that these products will have applications both within MBE Centers and in
customers' homes and offices.

OPERATIONS OUTSIDE OF NORTH AMERICA

U.S. Office Products currently sells office products and business services
and certain other products and services in New Zealand and Australia through
Blue Star Group Limited ("Blue Star") and its subsidiaries. U.S. Office Products
acquired 51% of Blue Star in February 1996 and the remaining 49% in June 1996.

Since its acquisition by U.S. Office Products in 1996, Blue Star has
completed 34 acquisitions through January 1998 to become the largest office
products company in the Pacific Rim. All of Blue Star's operations are conducted
in New Zealand and Australia. It has annualized sales of approximately $900
million, the majority of which comes from New Zealand.

Blue Star sells office supplies, office furniture, stationery, packaging
supplies and similar products to corporate, commercial and small office/home
office customers in New Zealand and Australia. Blue Star offers its corporate
customers in New Zealand a centralized MIS operating system, which permits them
to place various orders that are fulfilled from a single procurement point. Blue
Star intends to further consolidate its back room functions in New Zealand to
improve customer service. It also is developing an electronic commerce system
for its customers to ease ordering and communications with Blue Star.

In addition to its contract stationery business, Blue Star operates more
than 250 retail book and stationery stores through New Zealand and Australia
(approximately 90 of which are franchises). These stores operate primarily under
the Whitcoulls brand name. Blue Star expects to expand its retail store business
through a variety of strategies, including opening new stores in selected
locations, refurbishing certain outlets, expanding product offerings, and
introducing coffee shops in selected store locations.

Blue Star's Business Solutions Group offers a range of office automation
products, such as personal computers and servers, telephone systems, facsimiles
and photocopiers, as well as services such as systems integration, project
management and consulting. Blue Star is New Zealand's largest direct seller of
personal computers, with corporate clients accounting for the largest portion of
sales. Blue Star expects to rationalize its product offering in this part of its
business, to focus on services and solutions-based products that respond to
customers' particular needs.

Blue Star's Print Group is the largest commercial print company in New
Zealand. It offers a range of print products and related services, including
commercial sheet-fed and offset printing, label manufacturing, and digital and
reprographic printing. The group also serves large specialized customers, such
as printing New Zealand's telephone directories and handling the pre-press
printing and distribution of bills, acts and other legislative materials for the
New Zealand Parliament. In its Print Group, Blue Star management expects that in
the near term, it will focus primarily on integrating the operations of several
recent acquisitions, expanding product offerings, and developing "cross-selling"
opportunities with other Blue Star companies.

U.S. Office Products also owns a 49% interest in Dudley Stationary Limited
("Dudley"), which sells a office products and business services throughout the
United Kingdom. U.S. Office Products purchased its interest in Dudley in October
1996 for L49.5 million. U.S. Office Products believes that Dudley is the largest
independent office products dealer in the United Kingdom. Dudley also serves as
stationer to Her Majesty the Queen and the Prince of Wales. Dudley is currently
in the process of acquiring a number of

27
<PAGE>
additional businesses in the United Kingdom, using the funds that U.S. Office
Products invested in Dudley. U.S. Office Products expects that Dudley will
continue to make acquisitions as it seeks to consolidate the office products and
related businesses in the United Kingdom.

U.S. Office Products expects to continue to focus significant attention and
resources on international operations in the future and expects foreign revenues
to continue to represent a significant proportion of U.S. Office Products' total
revenues. If U.S. Office Products had acquired its operations outside of North
America, as well as its other acquisitions, at the beginning of fiscal 1997,
U.S. Office Products' operations outside of North America would have accounted
for approximately 35.3% of its fiscal 1997 pro forma revenues (after giving
effect to the Strategic Restructuring Plan).

COMPETITION

U.S. Office Products operates in a highly competitive environment.
Competitors in many of the markets that it serves are smaller, independent
companies, many of which are well-established in their markets. In addition, in
the contract stationer market, U.S. Office Products competes with five large
office products companies, each of which is believed to have annual revenues in
excess of $500 million: Boise Cascade Office Products Corporation; Corporate
Express, Inc.; Office Depot, Inc.; BT Office Products International, Inc.; and
Staples, Inc. Two of these five competitors are divisions of discount superstore
chains and two others are primarily owned by large manufacturers of office
products.

In the contract stationer market, as well as the other markets that it
serves or may in the future seek to serve, U.S. Office Products believes that
customers not only are concerned with the overall reduction of their office
products costs but also place an emphasis on dependability, superior levels of
service and flexible delivery capabilities. U.S. Office Products believes that
it competes favorably with its five largest competitors in the contract
stationer market on the basis of service and price. However, some of these
companies have greater financial resources than U.S. Office Products.

EMPLOYEES

If the Strategic Restructuring Plan is completed, U.S. Office Products will
have more than 15,000 full-time employees, a small number of which are members
of labor unions. In general, U.S. Office Products considers its relations with
its employees to be satisfactory.

PROPERTIES

If the Strategic Restructuring Plan is completed, U.S. Office Products will
operate 801 facilities in various states and in New Zealand, Australia and
Canada, including one facility located in Washington, D.C. for its corporate
headquarters. Of these facilities, 753 are leased and 48 are owned. The
facilities are used for retail, warehouse and office purposes, or a combination
of these functions. The aggregate square footage for all facilities is
approximately 9.4 million square feet, consisting of approximately 2.1 million
square feet for retail use, approximately 5.5 million square feet for warehouse
use and approximately 1.8 million square feet for office use.

U.S. Office Products believes that its facilities are and will be suitable
for their respective purposes, having adequate productive capacity for U.S.
Office Products' present and anticipated needs.

RELATIONSHIP WITH SPIN-OFF COMPANIES

Before the Distributions, the Spin-Off Companies will be wholly-owned
subsidiaries of U.S. Office Products comprising U.S. Office Products' print
management, technology solutions, educational supplies and corporate travel
businesses. In order to define the relationships between U.S. Office Products
and the

28
<PAGE>
Spin-Off Companies after the Distributions, U.S. Office Products and the
Spin-Off Companies will enter into various agreements. These agreements include:

- a distribution agreement that allocates the assets and liabilities of U.S.
Office Products' businesses to the Spin-Off Companies;

- a Tax Allocation Agreement that provides for sharing certain tax
liabilities (see pages 21-22); and

- an employee benefits agreement to allow for orderly transition of benefits
coverage between U.S. Office Products and the Spin-Off Companies.

Additional information about each of these agreements is available in the
Information Statements/ Prospectuses of each of the Spin-Off Companies that we
will mail to you on or about 1998.

ADJUSTMENT TO EMPLOYEE STOCK OPTIONS.

U.S. Office Products has previously granted stock options to management and
employees. We expect that the number and exercise price of these options will be
adjusted following completion of the Strategic Restructuring Plan. The
adjustments will be made by a formula that takes account of the difference
between the price of U.S. Office Products' common stock before and after the
transactions related to the Strategic Restructuring Plan have been completed. As
a result of this, employee stock options will likely represent a greater
percentage interest in U.S. Office Products after these transactions than they
did before. At , l998, U.S. Office Products management and employees held
options to purchase a total of shares, of which approximately were
held by employees that are expected to be employees of a Spin-Off Company.

INDEBTEDNESS OF U.S. OFFICE PRODUCTS AFTER THE RESTRUCTURING

In connection with the Strategic Restructuring Plan, U.S. Office Products
expects to refinance its existing senior bank debt and to borrow additional
funds to help finance the cost of purchasing shares in the Tender Offer. At
February 12, 1998, U.S. Office Products had borrowed approximately $350.5
million under the terms of its existing bank loan arrangement.

U.S. Office Products expects to be able to obtain the necessary financing to
complete the Tender Offer. However, no lenders have formally committed
themselves to provide financing for the bank debt portion of the financing. The
availability of subordinated debt financing will depend on a number of factors,
including market conditions and interest rates.

U.S. Office Products currently is negotiating the terms of a new bank loan
facility with a group of lenders. U.S. Office Products expects that the facility
will provide for an aggregate principal amount of $1.225 billion, consisting of
(i) seven-year term loan facilities totaling $350.0 million, (ii) an eight year
term loan in the principal amount of $475.0 million, and (iii) a revolving
credit facility in the principal amount of $400.0 million. The loan facilities
will be secured by substantially all assets of U.S. Office Products and its
material domestic subsidiaries. U.S. Office Products will be required to
maintain interest rate protection arrangements on at least 50% of its
outstanding bank and subordinated debt. The loan documents likely will include
financial and other covenants and other customary provisions, including
representations by U.S. Office Products and conditions to funding.

U.S. Office Products also expects to issue senior subordinated notes in a
principal amount of at least $400.0 million. The notes will be subordinated in
right of payment to the new bank loans. U.S. Office Products expects to offer
these notes in a private placement. The notes will not be registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.

29
<PAGE>
INFORMATION ABOUT THE BOARD OF DIRECTORS
AFTER THE PROPOSED SALE OF EQUITY SECURITIES

As described above (see pages 7-8), Investor has the right to designate
three members of the Board of Directors of U.S. Office Products who will serve
beginning at closing. In addition, the Chief Executive Officer of U.S. Office
Products, Thomas Morgan, will be a director. Two of the remaining directors at
closing must be mutually acceptable to Investor and the current directors of
U.S. Office Products. Investor has informed U.S. Office Products that it intends
to designate Charles P. Pieper, and as the three directors it is
entitled to designate. Mr. Pieper will serve as Chairman of the Board after
closing. In addition, intend to resign from the Board of Directors of U.S.
Office Products effective as of the time that Investor purchases the equity
securities, and the Board intends to appoint to fill these vacancies.
will remain as directors of U.S. Office Products after the sale of common
stock and warrants to Investor. Investor has advised U.S. Office Products that
it approves of and as directors.

Here is information about the directors of U.S. Office Products after
closing who have been identified to date:

<TABLE>
<CAPTION>
NAME TITLE AGE BUSINESS EXPERIENCE
- - -------------------- -------------------------- --------- ---------------------------------------------------------
<S> <C> <C> <C>
Charles P. Pieper Chairman of the Board of 51 Mr. Pieper has been a principal of Clayton, Dubilier &
Directors Rice since March 1997. Previously, Mr. Pieper was
President and Chief Executive Officer of GE Lighting
Europe and GE Japan, GE Korea, GE Taiwan, GE Medical
Systems Asia, Yokogawa Medical Systems and GE Trading Co.
Mr. Pieper is a director of Alliant Foodservice, Inc.,
and its parent, CDRF Holding, Inc., a corporation in
which a Clayton, Dubilier & Rice-managed investment fund
has an investment.
Thomas Morgan President, Chief Executive 44 Mr. Morgan joined U.S. Office Products in and Director
Officer February 1997 as President of U.S. Office Products' North
American Office Products Group. He was promoted to Chief
Operating Officer in June 1997 and to Chief Executive
Officer in November 1997. Before joining U.S. Office
Products, he spent more than 20 years with Genuine Parts
Company where he was most recently Executive Vice
President of S.P. Richards Company, the nation's second
largest office products wholesaler.
</TABLE>

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<PAGE>
INFORMATION ABOUT U.S. OFFICE PRODUCTS STOCK OWNERSHIP

There were shares of common stock of U.S. Office Products issued and
outstanding on , 1998. The following table shows how many shares were
owned by each person who owned more than 5% of the issued and outstanding shares
on that date, based on filings these persons have made with the SEC.

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES SHARES
- - ---------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, MA 02109 15,754,406 %
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116 8,262,886 %
</TABLE>

The following table shows how many shares were owned by each of (1) the
directors of U.S. Office Products, (2) the Chief Executive Officer of U.S.
Office Products and (3) the four other most highly paid officers of U.S. Office
Products. The table also shows how many shares were owned by all of the
directors and executive officers of U.S. Office Products together.

<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF
NAME OF BENEFICIAL OWNER SHARES SHARES
- - ------------------------------------------------------------------------------- ------------------------ -----------
<S> <C> <C>

</TABLE>

Charles P. Pieper, who will become Chairman of the Board upon completion of
the Equity Investment, does not beneficially own any U.S. Office Products'
common stock.

THE SECOND PROPOSAL--REVERSE STOCK SPLIT

INFORMATION ABOUT THE PROPOSED REVERSE STOCK SPLIT

We are asking you to approve a one-for- reverse stock split of U.S.
Office Products' common stock. We will do this, subject to your approval, by
amending Article Four of U.S. Office Products' certificate of incorporation. The
amendment will provide that each shares of common stock outstanding will
be reclassified and converted into one share of new common stock. The text of
this proposed amendment is in Annex C. The proposed reverse stock split will
reduce the total number of shares of common stock outstanding. However, the
number of authorized shares of common stock will still be 500 million. The par
value of the common stock will remain $.001 per share.

The reverse stock split will have the effect of reducing the number of
shares owned by each stockholder, while proportionately increasing the per share
price. Accordingly, the aggregate value of your stock ownership (number of
shares multiplied by market price) immediately before and after the reverse
split will not change as a result of the split. In addition, because the reverse
split will apply to all stockholders, it will not alter your percentage
ownership interest in U.S. Office Products.

The Board believes the reverse stock split is in the best interests of all
stockholders. The trading price of U.S. Office Products' common stock likely
will be lower after the Tender Offer and the Distributions than it was
immediately prior to these transactions. The Board expects this to occur because
a significant portion of U.S. Office Products' assets will have been distributed
to stockholders through the repurchase of shares in the Tender Offer and the
distribution to stockholders of the shares of the Spin-Off Companies in

31
<PAGE>
the Distributions. As a result of these transactions, shares of U.S. Office
Products will not give you any ownership interest in either the cash that is
distributed through the Tender Offer or the businesses of the Spin-Off
Companies. (Stock of the Spin-Off Companies that you receive in the
Distributions will give you an ownership interest in these businesses.) In
addition, as discussed above on page 20, the cost of paying interest on the
additional money that U.S. Office Products will borrow to help finance the
Tender Offer will reduce its reported earnings. Lower reported earnings are
expected to reduce the trading price of U.S. Office Products shares.

The Board believes that U.S. Office Products' visibility in the marketplace
and attractiveness to investors will be better maintained if its stock price
trades, at least initially after completing the Strategic Restructuring Plan, at
a level of at least $ per share. The reverse stock split, by reducing the
number of shares outstanding, will have the effect of proportionately increasing
the price at which the stock will trade relative to what it would if the split
did not occur. However, there can be no assurance as to the price at which the
common stock will trade after giving effect to the reverse stock split or any of
the other transactions contemplated by the Strategic Restructuring Plan.

After the reverse split, U.S. Office Products will have approximately
shares outstanding. Thus, the Board does not believe that the reverse
split will materially harm the liquidity of your investment in U.S. Office
Products' common stock. However, the Board cannot predict whether the trading
market for U.S. Office Products' common stock will be more or less active after
the restructuring transactions have been completed.

Because the number of authorized shares of common stock will remain 500
million after the reverse split, additional shares will become available for
issuance as a result of the reverse split. The availability of the additional
shares could discourage or frustrate an attempt to effect a change in control of
U.S. Office Products. The additional shares could be used to dilute the stock
ownership of a person seeking to obtain control of U.S. Office Products.

The reverse stock split will occur automatically upon the filing of the
amendment to the certificate of incorporation with the Delaware Secretary of
State. U.S. Office Products currently expects this to occur concurrently with
the record date for the Distributions. U.S. Office Products' transfer agent will
send to each stockholder of record on the effective date of the reverse stock
split information about replacement of old stock certificates with stock
certificates stating the new number of shares held by such holder after the
split.

U.S. Office Products will not issue fractional shares as a result of the
split. In lieu of fractional shares, U.S. Office Products will pay in cash the
fair market value of the fractional share, based on the closing sale price of
common stock on the last trading day immediately preceding the effective date of
the reverse stock split (after giving effect to the other transactions
contemplated in the Strategic Restructuring Plan).

The reverse stock split will not be taxable to you except that the receipt
of cash in lieu of a fractional share will be taxable as if the fractional share
had been issued and then redeemed for cash. For holders of de minimis interests
in U.S. Office Products whose percentage interest in U.S. Office Products is
decreased as a result of the deemed redemption, such deemed redemption should
give rise to capital gain or loss in an amount equal to the difference between
the amount of cash received for the fractional share and your tax basis
allocable to the fractional share. If, however, your interest (even if it is de
minimis) in U.S. Office Products does not decrease by a certain amount (the IRS
has published guidance that a 3.3% decrease is sufficient for capital gain
treatment for a de minimis stockholder) as a result of the deemed redemption,
the cash received in lieu of fractional shares will be treated as a dividend to
the extent of U.S. Office Products' earnings and profits and taxable to you at
ordinary income rates. You should consult your tax adviser with respect to the
tax treatment of cash received in lieu of a fractional share.

32
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE PROPOSED REVERSE STOCK SPLIT

WHERE TO GET ADDITIONAL INFORMATION

Additional information about the Distributions is set forth in the
Information Statement/Prospectuses that have been prepared by the Spin-Off
Companies. Every person who is a stockholder of U.S. Office Products when these
statements are distributed will receive all four Information
Statement/Prospectuses before the completion of the Tender Offer. We currently
expect that these statements will be mailed on or before , 1998.
Preliminary copies of the Information Statement/Prospectuses have been filed
with the SEC as part of registration statements on Form S-1 filed by each of the
Spin-Off Companies. You can obtain copies of the registration statements as
described below.

Additional information about the Tender Offer is set forth in a Tender Offer
Statement. The Tender Offer Statement is being distributed at approximately the
same time as this Proxy Statement. Every person who is a stockholder of U.S.
Office Products when the Tender Offer Statement is distributed will receive a
copy of the Tender Offer Statement. The Tender Offer Statement is part of a
statement on Schedule 13E-4 filed by U.S. Office Products on , 1998. You
can obtain copies of the statement on Schedule 13E-4 as described below.

U.S. Office Products files, annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information U.S. Office Products files (including
the statement on Schedule 13E-4 described above) at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. You may
also read and copy the registration statements filed by the Spin-Off Companies
at the SEC's public reference rooms. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. The SEC filings of U.S.
Office Product and the Spin-Off Companies are also available to the public from
commercial document retrieval services and through the website maintained by the
SEC at "http://www.sec.gov." The filings of U.S. Office Products are also
available through our website at "http://www.usop.com."

The SEC allows U.S. Office Products to "incorporate by reference" the
information it files with the SEC. This means that U.S. Office Products can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this Proxy
Statement, and later information filed with the SEC will update and supersede
this information. U.S. Office Products incorporates by reference any future
filings made with the SEC under Section 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 until the vote is taken at the Special Meeting.

If this Proxy Statement was delivered to you by U.S. Office Products, U.S.
Office Products will provide you without charge a copy of any document
incorporated by reference that you request (excluding exhibits, unless they are
specifically incorporated by reference). Written requests for such copies should
be sent to Mark D. Director, Chief Administrative Officer, General Counsel, and
Secretary of U.S. Office Products, at 1025 Thomas Jefferson Street, N.W., Suite
600 East, Washington, D.C. 20007. Telephone requests for copies can be made to
(202) 339-6700.

33
<PAGE>
ANNEX A--OPINION OF MORGAN STANLEY & CO. INCORPORATED

MORGAN STANLEY

MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000

January 12, 1998

Board of Directors
U.S. Office Products Company
1025 Thomas Jefferson Street, NW
Suite 600 East
Washington, DC 20007

Members of the Board:

We understand that U.S. Office Products Company (the "Company"), proposes to
engage in a series of transactions (collectively, the "Transactions") in which
the Company will:

(i) distribute 100% of the common stock of each of the newly formed
subsidiaries of the Company (each distribution, a "Spin-Off") which will
hold, respectively, the Company's education, travel, technology and
printing divisions (each, a "Spin-Off Company") to the holders of shares
of common stock, par value $.001 per share (the "Shares"), of the
Company, on a pro rata basis;

(ii) offer to purchase up to 37.0 million of the currently outstanding
Shares at a price of $27 per Share (the "Tender Offer"); and

(iii) sell to Clayton, Dubilier & Rice Inc. (the "Investor"), upon the terms
and subject to the conditions set forth in the Agreement dated January
12, 1998 between the Investor and the Company, (a) newly issued Shares
representing 24.9% of the outstanding Shares immediately following
consummation of the Transactions (the "Originally Issued Shares") and
warrants to purchase a number of Shares equal to the difference between
(i) the Originally Issued Shares and (ii) 24.9% of the Shares
outstanding immediately following consummation of the Transactions
(assuming conversion of all of the Company's 5 1/2% Convertible
Subordinated Notes due 2001) (the "Special Warrant Issued Shares") and
(b) warrants to purchase that number of Shares equal to the number of
Originally Issued Shares and Special Warrant Issued Shares.

You have asked for our opinion as to whether the proposed Transactions, taken as
a whole, are fair, from a financial point of view, to the holders of the Shares.

A-1
<PAGE>
For purposes of the opinion set forth herein, we have:

(i) reviewed certain publicly available financial statements and other
business and financial information of the Company;

(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company and each Spin-Off Company
prepared by the management of the Company;

(iii) analyzed certain financial forecasts for the Company and each Spin-Off
Company prepared by the management of the Company;

(iv) discussed the past and current operations and financial condition and
the prospects of the Company and each Spin-Off Company with senior
executives of the Company;

(v) reviewed the pro forma impact of the Transactions on the Company's and
each of the Spin-Off Company's earnings per share, cash flow,
consolidated capitalization and financial ratios;

(vi) reviewed the reported prices and trading activity for the Shares;

(vii) compared the financial performance of each Spin-Off Company with that
of certain other companies that are comparable to each Spin-Off Company
and have publicly-traded securities;

(viii) compared the financial performance of the Company (excluding the
Spin-Off Companies) with that of certain other comparable companies
with publicly-traded securities;

(ix) reviewed the financial terms, to the extent publicly available, of
certain transactions involving minority investments in publicly traded
companies;

(x) reviewed and discussed with the Board of Directors certain expertise of
the Investor and the strategic, financial and operational benefits
anticipated from the Transactions;

(xi) participated in discussions and negotiations among representatives of
the Company and the Investor and their respective legal advisors; and

(xii) performed such other analyses and considered such other factors as we
have deemed appropriate.

We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial forecasts, including information relating
to certain strategic, financial and operational benefits anticipated from the
Transactions, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of the Company and each Spin-Off Company. We have not made
any independent valuation or appraisal of the assets or liabilities of the
Company or each Spin-Off Company, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. We have further assumed that no Spin-Off will be a taxable
transaction to the Company, any Spin-Off Company or the holders of the Shares
under federal income tax laws (except to the extent of any cash distributed in
lieu of fractional shares of each Spin-Off Company). In rendering our opinion,
we have, with your consent, not considered the effect of any terms of any
commercial, allocation or other arrangements between the Company and any
Spin-Off Company.

In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition, business
combination or other extraordinary transaction, involving the Company, nor did
we negotiate with any party, other than the Investor, with respect to any such
transaction.

We note that trading in Shares commencing with the public announcement of the
Transactions and continuing for a period of time following completion of the
Spin-Offs may involve a redistribution of the Shares and the shares of the
Spin-Off Companies among the Company's stockholders and other investors

A-2
<PAGE>
and, accordingly, during such period, the Shares and the shares of the Spin-Off
Companies may trade at prices below those at which they would trade on a fully
distributed basis after the Spin-Offs. In rendering our opinion, we are not
opining as to the price at which the common stock of the Company or each Spin-
Off Company will trade after the Transactions are effected.

We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services,
including a fee contingent upon the completion of the Transactions. In the past,
Morgan Stanley & Co. Incorporated and its affiliates have provided financial
advisory and financing services for the Company and have received fees for the
rendering of these services.

It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Transactions. In addition, we express no opinion and make no
recommendation as to how the holders of the Shares should vote at the
stockholders' meeting held in connection with the Transactions.

Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the proposed Transactions, taken as a whole, are fair from a
financial point of view to the holders of the Shares.

Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ R. Bradford Evans
R. Bradford Evans
Managing Director

A-3
<PAGE>
ANNEX B

INVESTMENT AGREEMENT

DATED AS OF JANUARY 12, 1998

AMENDED AS OF FEBRUARY 3, 1998

BETWEEN

U.S. OFFICE PRODUCTS COMPANY

AND

CDR-PC ACQUISITION, L.L.C.
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ARTICLE I

Purchase and Sale of Shares, Special Warrants and Warrants................................................. 2
1.01 Purchase and Sale of Shares, Special Warrants and Warrants.......................................... 2
1.02 Time and Place of the Closing....................................................................... 3
1.03 Transactions at the Closing......................................................................... 3

ARTICLE II

Covenants.................................................................................................. 3
2.01 Covenants of the Company............................................................................ 3

ARTICLE III

Representations and Warranties............................................................................. 4
3.01 Representations and Warranties of the Company....................................................... 4
3.02 Representations and Warranties of Purchaser......................................................... 14

ARTICLE IV

Corporate Governance....................................................................................... 15
4.01 Composition of the Board of Directors............................................................... 16
4.02 Supermajority Voting Provisions..................................................................... 16
4.03 Committees.......................................................................................... 17
4.04 By-laws............................................................................................. 17
4.05 Termination of Article IV........................................................................... 17

ARTICLE V

Equity Purchases from the Company.......................................................................... 17
5.01 Subscription Rights................................................................................. 17
5.02 Issuance and Delivery of New Securities and Voting Stock............................................ 18

ARTICLE VI

Limitations on Purchases of Additional Equity Securities................................................... 18
6.01 Purchases of Equity Securities...................................................................... 18
6.02 Additional Limitations.............................................................................. 18

ARTICLE VII

Transfer of Common Stock................................................................................... 19
7.01 Transfer of Common Stock............................................................................ 19

ARTICLE VIII

Covenants and Additional Agreements........................................................................ 20
8.01 Covenants of the Company............................................................................ 20
8.02 Transaction Proposals............................................................................... 22
8.03 Modification of Transaction Agreements; Abandonment of Distributions................................ 23
8.04 Transaction Agreements and Schedules................................................................ 23
8.05 Company Stockholder Approval; Proxy Statement....................................................... 24
8.06 Retained Companies Financing........................................................................ 24
8.07 Tender Offer........................................................................................ 25
8.08 Information Statements.............................................................................. 25
8.09 [Intentionally omitted.]............................................................................ 26
8.10 Tax Standstill...................................................................................... 26
</TABLE>

ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
8.11 Access and Information.............................................................................. 26
8.12 Further Actions..................................................................................... 26
8.13 Further Assurances.................................................................................. 27

ARTICLE IX

Conditions Precedent....................................................................................... 27
9.01 Conditions to Each Party's Obligations.............................................................. 27
9.02 Conditions to the Obligations of the Company........................................................ 28
9.03 Conditions to the Obligations of Purchaser.......................................................... 29

ARTICLE X

Termination................................................................................................ 30
10.01 Termination........................................................................................ 30
10.02 Effect of Termination.............................................................................. 31

ARTICLE XI

Indemnification............................................................................................ 31
11.01 Indemnification of Purchaser....................................................................... 31
11.02 Indemnification Procedures......................................................................... 32

ARTICLE XII

Interpretation; Definitions................................................................................ 33
12.01 Interpretation..................................................................................... 33
12.02 Definitions........................................................................................ 33

ARTICLE XIII

Miscellaneous.............................................................................................. 39
13.01 Severability....................................................................................... 39
13.02 Specific Enforcement............................................................................... 39
13.03 Entire Agreement................................................................................... 39
13.04 Counterparts....................................................................................... 39
13.05 Notices............................................................................................ 39
13.06 Amendments......................................................................................... 40
13.07 Cooperation........................................................................................ 40
13.08 Successors and Assigns............................................................................. 41
13.09 Expenses and Remedies.............................................................................. 41
13.10 Transfer of Shares and Warrants.................................................................... 41
13.11 Governing Law...................................................................................... 42
13.12 Publicity.......................................................................................... 42
13.13 No Third Party Beneficiaries....................................................................... 42
13.14 Consent to Jurisdiction............................................................................ 42

EXHIBITS

Exhibit 1 Terms of Special Warrants
Exhibit 2 Terms of Warrants
Exhibit 3 Terms of Registration Rights Agreement
</TABLE>

iii
<PAGE>
THIS INVESTMENT AGREEMENT (this "Agreement"), dated as of January 12, 1998,
amended as of February 3, 1998, is entered into between CDR-PC Acquisition,
L.L.C., a Delaware limited liability company ("Purchaser"), and U.S. Office
Products Company, a Delaware corporation (the "Company").

WHEREAS the Board of Directors of the Company has approved a series of
transactions pursuant to which:

(a) the Company will conduct a tender offer (the "Tender Offer") to
repurchase 37,037,037 shares of common stock, par value $.001 per share, of
the Company (the "Common Stock"), at $27 per share,

(b) the Company will enter into arrangements for new high-yield and bank
financing in connection with the Tender Offer and the other transactions
contemplated hereby (the "Proposed Financings"),

(c) the Company will distribute all of the issued and outstanding shares
of common stock of a corporation that will own, following the
Pre-Distribution Transactions (as defined herein), the Subsidiaries of the
Company comprising the Company's education division ("School"), to the
holders of record of the Common Stock after completion of the Tender Offer
on a pro rata basis (the "School Distribution"),

(d) the Company will distribute all of the issued and outstanding shares
of common stock of a corporation that will own, following the
Pre-Distribution Transactions (as defined herein), the Subsidiaries of the
Company comprising the Company's corporate travel services division
("Travel"), to the holders of record of the Common Stock after completion of
the Tender Offer on a pro rata basis (the "Travel Distribution"),

(e) the Company will distribute all of the issued and outstanding shares
of common stock of a corporation that will own, following the
Pre-Distribution Transactions (as defined herein), the Subsidiaries of the
Company comprising the Company's technology solutions division
("Technology"), to the holders of record of the Common Stock after
completion of the Tender Offer on a pro rata basis (the "Technology
Distribution"), and

(f) the Company will distribute all of the issued and outstanding shares
of common stock of a corporation that will own, following the
Pre-Distribution Transactions (as defined herein), the Subsidiaries of the
Company comprising the Company's print management division ("Print"), to the
holders of record of the Common Stock after completion of the Tender Offer
on a pro rata basis (the "Print Distribution", and, together with the School
Distribution, the Travel Distribution and the Technology Distribution, the
"Distributions");

WHEREAS, in connection with the Distributions, the Company expects:

(a) (i) to execute and deliver a distribution agreement to effect the
School Distribution (the "School Distribution Agreement"), (ii) to cause
School to execute and deliver the School Distribution Agreement, and (iii)
after the satisfaction or waiver of all of the conditions to the Company's
obligation to consummate the School Distribution set forth in the School
Distribution Agreement, and pursuant to the terms of the School Distribution
Agreement, to effect the School Distribution,

(b) (i) to execute and deliver a distribution agreement to effect the
Travel Distribution (the "Travel Distribution Agreement"), (ii) to cause
Travel to execute and deliver the Travel Distribution Agreement, and (iii)
after the satisfaction or waiver of all of the conditions to the Company's
obligation to consummate the Travel Distribution set forth in the Travel
Distribution Agreement, and pursuant to the terms of the Travel Distribution
Agreement, to effect the Travel Distribution,

(c) (i) to execute and deliver a distribution agreement to effect the
Technology Distribution (the "Technology Distribution Agreement"), (ii) to
cause Technology to execute and deliver the Technology Distribution
Agreement, and (iii) after the satisfaction or waiver of all of the
conditions to the Company's obligation to consummate the Technology
Distribution set forth in the Technology
<PAGE>
Distribution Agreement, and pursuant to the terms of the Technology
Distribution Agreement, to effect the Technology Distribution,

(d) (i) to execute and deliver a distribution agreement to effect the
Print Distribution (the "Print Distribution Agreement", and, together with
the School Distribution Agreement, the Travel Distribution Agreement and the
Technology Distribution Agreement, the "Distribution Agreements"), (ii) to
cause Print to execute and deliver the Print Distribution Agreement, and
(iii) after the satisfaction or waiver of all of the conditions to the
Company's obligation to consummate the Print Distribution set forth in the
Print Distribution Agreement, and pursuant to the terms of the Print
Distribution Agreement, to effect the Print Distribution, and

(e) to execute and deliver, and to cause each of School, Travel,
Technology and Print (together, the "Distributed Companies") to execute and
deliver, a tax allocation agreement (the "Tax Allocation Agreement") and
certain other Transaction Agreements;

WHEREAS, prior to the Distributions and pursuant to the terms of the
Distribution Agreements, the Company and the Distributed Companies will
consummate the Pre-Distribution Transactions (as herein defined);

WHEREAS, following the Pre-Distribution Transactions and the record date for
the Distributions:

(a) Purchaser wishes to purchase from the Company, and the Company
wishes to sell to Purchaser, shares of Common Stock and warrants having the
terms and conditions set forth in Exhibit 1 (the "Special Warrants")
entitling the holder thereof to purchase shares of Common Stock together
representing 24.9% of the shares of Common Stock as of the Closing Date (as
herein defined) that would be outstanding after giving effect to the
issuance of such shares (and assuming the conversion into Common Stock of
all of the Company's issued and outstanding 5 1/2% Convertible Subordinated
Notes Due 2001 issued pursuant to an Indenture, dated as of February 7,
1996, between the Company and State Street Bank and Trust Company (the "2001
Notes") that are outstanding on the Closing Date, and after giving effect to
the issuance of any Contingent Stock (as defined herein)), and warrants
entitling the holder thereof to purchase one share of Common Stock for each
share and Special Warrant so purchased on the terms and subject to the
conditions set forth in Exhibit 2 (the "Warrants"), and

(b) the Company and Purchaser wish to enter into a registration rights
agreement (the "Registration Rights Agreement"), the principal terms of
which are attached hereto as Exhibit 3;

WHEREAS Purchaser and the Company are entering into this Agreement to
provide for such purchase and sale and to establish various rights and
obligations in connection therewith;

NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, the parties agree as follows:

ARTICLE I

PURCHASE AND SALE OF SHARES, SPECIAL WARRANTS AND WARRANTS

SECTION 1.01 PURCHASE AND SALE OF SHARES, SPECIAL WARRANTS AND
WARRANTS. Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell to Purchaser and Purchaser agrees to purchase from the
Company for an aggregate purchase price of $270 million (the "Purchase Price")
(a) shares of Common Stock representing 24.9% of the outstanding shares of
Common Stock as of the Closing Date after giving effect to the issuance of such
shares (the "Shares"), (b) Special Warrants representing the right to acquire a
number of shares of Common Stock equal to the difference between (i) 24.9% of
the sum of (A) the outstanding shares of Common Stock as of the Closing Date
after giving effect to the issuance of the Shares and the exercise of the
Special Warrants, and assuming the conversion

2
<PAGE>
into Common Stock of all the 2001 Notes outstanding on the Closing Date at the
conversion price resulting from adjustments made as a result of the Tender Offer
and the Distributions and (B) the number of any shares of Contingent Stock that
are issued, and (ii) 24.9% of the outstanding shares of Common Stock as of the
Closing Date after giving effect to the issuance of the Shares and (c) Warrants
to purchase one share of Common Stock for each Share so purchased and for each
share into which the Special Warrants become exercisable.

SECTION 1.02 TIME AND PLACE OF THE CLOSING. The closing (the "Closing")
shall take place at the offices of Debevoise & Plimpton, 875 Third Avenue, New
York, New York, 10022, at 10:00 A.M., New York time, on the third Business Day
following the first date on which the conditions to Closing set forth in Article
IX have first been satisfied or waived, or at such other place, time and date as
the parties may agree. The Company shall give Purchaser ten Business Days prior
written notice of the date the Closing is scheduled to occur. The "Closing Date"
shall be the date the Closing occurs.

SECTION 1.03 TRANSACTIONS AT THE CLOSING. At the Closing, subject to the
terms and conditions of this Agreement, (a) the Company shall issue and sell to
Purchaser and Purchaser shall purchase the Shares, the Special Warrants and the
Warrants; (b) the Company shall deliver to Purchaser a certificate representing
the Shares and certificates representing the Special Warrants and the Warrants,
in each case registered in the name of Purchaser against payment of the Purchase
Price with respect thereto by wire transfer of immediately available funds to an
account or accounts previously designated by the Company; and (c) the Company
and Purchaser shall enter into the Registration Rights Agreement.

ARTICLE II

COVENANTS

SECTION 2.01 COVENANTS OF THE COMPANY.

(a) FINANCIAL STATEMENTS AND OTHER REPORTS. The Company covenants that it
will deliver to Purchaser so long as Purchaser's Percentage Interest exceeds
10%:

(i) as soon as practicable and in any event within 45 days after the end of
each quarterly period (other than the last quarterly period) in each fiscal
year, a consolidated statement of income and a consolidated statement of cash
flow of the Retained Companies for the period from the beginning of the then
current fiscal year to the end of such quarterly period, and a consolidated
balance sheet of the Retained Companies as of the end of such quarterly period,
setting forth in each case in comparative form figures for the corresponding
period or date in the preceding fiscal year, all in reasonable detail and
certified by the principal financial officer of the Company as presenting
fairly, in accordance with GAAP applied (except as specifically set forth
therein) on a basis consistent with such prior fiscal period, the information
contained therein, subject to changes resulting from year-end closing and audit
adjustments; provided, however, that delivery pursuant to clause (iii) below of
a copy of the Quarterly Report on Form 10-Q of the Company for such quarterly
period filed with the SEC shall be deemed to satisfy the requirements of this
clause (i);

(ii) as soon as practicable and in any event within 90 days after the end of
each fiscal year, a consolidated statement of income, a consolidated statement
of cash flow and a consolidated statement of stockholders equity of the Retained
Companies for such year, and a consolidated balance sheet of the Retained
Companies as of the end of such year, setting forth in each case in comparative
form the corresponding figures from the preceding fiscal year, all in reasonable
detail and examined and reported on by independent public accountants of
recognized national standing selected by the Company, which report shall state
that such consolidated financial statements present fairly the financial
position of the Retained Companies as at the dates indicated and the results of
their operations and changes in their financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior years
(except as otherwise specified in such report) and that the audit by such
accountants in

3
<PAGE>
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards; provided, however, that
delivery pursuant to clause (iii) below of a copy of the Annual Report on Form
10-K of the Company for such fiscal year filed with the SEC shall be deemed to
satisfy the requirements of this clause (ii);

(iii) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as it shall send to its
stockholders and copies of all such registration statements (without exhibits),
and all such regular and periodic reports as it shall file with the SEC;

(iv) promptly upon receipt thereof, copies of all reports submitted to the
Retained Companies by independent public accountants in connection with each
annual, interim or special audit of the books of the Retained Companies made by
such accountants, including the comment letter submitted by such accountants to
management in connection with their annual audit; and

(v) with reasonable promptness, such other financial data of the Retained
Companies as Purchaser may reasonably request.

(b) INSPECTION OF PROPERTY. The Company covenants that so long as
Purchaser's Percentage Interest exceeds 10%, it will permit representatives of
Purchaser to visit and inspect, at Purchaser's expense, any of the properties of
the Retained Companies, to examine the corporate books and make copies or
extracts therefrom and to discuss the affairs, finances and accounts of the
Retained Companies with the officers and employees of the Retained Companies and
independent public accountants (and by this provision the Company authorizes
such accountants to discuss with such representatives the affairs, finances and
accounts of the Retained Companies), all at such reasonable times and as often
as Purchaser may reasonably request. Purchaser agrees not to disclose to any
Person any information or data obtained by it pursuant to this Section 2.01(b)
or Section 2.01(a)(iv) or (a)(v) until such information or data otherwise
becomes publicly available or except pursuant to a valid subpoena, judicial
process or its equivalent or in connection with a claim against the Company;
provided that Purchaser shall have used its reasonable best efforts to give the
Company advance notice of such subpoena or judicial process so that the Company
may seek an appropriate protective order. Purchaser acknowledges that
information obtained pursuant to the rights granted hereby may constitute
material non-public information and agrees that it will comply with all
applicable laws relating to the purchase or sale of securities of the Company
while in possession of such information.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to Purchaser as follows:

(a) CORPORATE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each Retained Subsidiary having assets or annual revenues of $500,000 or more or
which is otherwise material to the Retained Business (each a "Material
Subsidiary") is duly organized and validly existing and, if applicable, except
as set forth in Schedule 3.01(a), is in good standing, under the laws of the
jurisdiction of its incorporation or organization.

Each of the Retained Companies is duly qualified or licensed and, if
applicable, is in good standing as a foreign corporation, in each jurisdiction
in which the properties owned, leased or operated, or the business conducted, by
it require such qualification or licensing, except for any such failure so to
qualify or be in good standing which, individually or in the aggregate, would
not have a Material Adverse Effect on the Retained Companies, taken as a whole.
Each of the Material Subsidiaries has the requisite power and authority to carry
on its businesses as they are now being or will be (immediately after the
Distributions) conducted. The Company has heretofore made available to Purchaser
complete and correct copies of the

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Certificate of Incorporation of the Company (the "Company Charter") and the
By-laws of the Company (the "Company By-laws") and the certificate of
incorporation and by-laws, or the comparable organizational documents, of each
of the Material Subsidiaries, each as amended to date and currently in full
force and effect.

(b) CORPORATE AUTHORITY. Each of the Company, School, Travel, Technology
and Print has (or will have at the time of such act) the requisite corporate
power and authority to execute, deliver and perform each Transaction Agreement
to which it is or will be a party and to consummate the transactions
contemplated thereby other than, with respect to the Distributions, formal
declaration of the Distributions by the Company's Board of Directors (provided
that, with respect to the issuance and sale by the Company of the Shares, the
Special Warrants and the Warrants, the Company shall obtain pursuant to Nasdaq
Stock Market rules the approval of such issuance and sale by the affirmative
vote of the holders of a majority of the shares of Common Stock represented at
the Company Meeting and entitled to vote thereon (the "Company Stockholder
Approval")). The execution, delivery and performance of each Transaction
Agreement by the Company and the consummation by the Company of the
Pre-Distribution Transactions, the Distributions, the Proposed Financings, the
Tender Offer and the issuance and sale by the Company of the Shares, Special
Warrants and Warrants and of the other transactions contemplated by the
Transaction Agreements have been duly authorized (or will have been duly
authorized at the time of such act) by the Company's Board of Directors, and no
other corporate proceedings on the part of the Company are necessary to
authorize any Transaction Agreement or for the Company to consummate the
Transactions so contemplated (other than, with respect to the issuance and sale
by the Company of the Shares, the Special Warrants and the Warrants, the Company
Stockholder Approval and, with respect to the Distributions, formal declaration
of the Distributions by the Company's Board of Directors). The execution,
delivery and performance by each of School, Travel, Technology and Print of each
Transaction Agreement to which it will be party and the consummation by it of
the Transactions contemplated thereby will be duly authorized at the time of
such act by the Board of Directors and the stockholders of each, if required,
and no other corporate proceedings on the part of School, Travel, Technology or
Print will be necessary to authorize the execution, delivery and performance of
any Transaction Agreement to which they will be a party or for them to
consummate the Transactions so contemplated. Each Transaction Agreement to which
the Company, School, Travel, Technology or Print is or will be a party is, or
when executed and delivered will be, a valid and binding agreement of such
party, enforceable against such party in accordance with the terms thereof,
assuming (in the case of this Agreement and the Registration Rights Agreement)
that each Transaction Agreement to which Purchaser is a party is a valid and
binding agreement of Purchaser.

(c) NO VIOLATIONS; CONSENTS AND APPROVALS. (i) None of the execution,
delivery or performance by the Company, School, Travel, Technology or Print of
each Transaction Agreement to which any of them is or will be a party or the
consummation by the Company or School, Travel, Technology or Print of the
transactions contemplated thereby (A) will result in a violation or breach of
the Company Charter or the Company By-laws, the articles of incorporation or
by-laws of School, Travel, Technology or Print or the organizational documents
of any of the Retained Subsidiaries or (B) will result in a violation or breach
of (or give rise to any right of termination, revocation, cancellation or
acceleration under or increased payments under), or constitute a default (with
or without due notice or lapse of time or both) under, or result in the creation
of any lien, charge, encumbrance or security interest of any kind (a "Lien")
upon any of the properties or assets of the Retained Companies under, (1)
subject to the governmental filings and other matters referred to in clause (ii)
below, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, contract, agreement, obligation, instrument, offer, commitment,
understanding or other arrangement (each a "Contract") or of any license,
waiver, exemption, order, franchise, permit or concession (each a "Permit") to
which any of the Retained Companies is a party or by which any of their
properties or assets may be bound (except for the Company's credit facility with
Bankers Trust Company in effect on the date hereof), or (2) subject to the
governmental filings and other matters referred to in clause (ii) below, any
judgment, order, decree, statute, law, regulation or rule applicable to the
Retained Companies, except, in the case of clause (B), for violations, breaches,
defaults, rights of cancellation,

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termination, revocation or acceleration or Liens that would not, individually or
in the aggregate, have a Material Adverse Effect on the Retained Companies,
taken as a whole.

(ii) Except for consents, approvals, orders, authorizations, registrations,
declarations or filings as may be required under, and other applicable
requirements of, the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), filings under state securities or "blue sky" laws and filings or consents
referred to in Schedule 3.01(c)(ii), no consent, approval, order or
authorization of, or registration, declaration or filing with, any government or
any court, administrative agency or commission or other governmental authority
or agency, federal, state or local or foreign (a "Governmental Entity"), is
required with respect to the Company, School, Travel, Technology or Print or any
of their respective Subsidiaries, in connection with the execution, delivery or
performance by each of the Company, School, Travel, Technology and Print of each
Transaction Agreement to which any of them is or will be a party or the
consummation by the Company and School, Travel, Technology and Print of the
Transactions contemplated thereby (except where the failure to obtain such
consents, approvals, orders or authorizations, or to make such registrations,
declarations, filings or agreements would not, individually or in the aggregate,
have a Material Adverse Effect on the Retained Companies, taken as a whole).

(d) CAPITAL STOCK. As of the date hereof, the authorized capital stock of
the Company consists of (i) 500,000,000 shares of Common Stock, of which an
aggregate of 132,958,606 shares of Common Stock were issued and outstanding as
of the close of business on January 9, 1998, and (ii) 500,000 shares of
preferred stock, $.001 par value per share, of which none were issued and
outstanding as of the close of business on January 9, 1998. As of the close of
business on January 9, 1998, there were outstanding under the Company's 1994
Long-Term Incentive Plan, the 1994 Amended and Restated Long-Term Incentive
Plan, the 1996 Non-Employee Directors' Stock Plan, the 1997A Stock Option Plan
for Employees of Mail Boxes Etc., the 1997B Stock Option Plan for Employees of
Mail Boxes Etc. and the 1997 Stock Option Plan for former Non-Employee Directors
of Mail Boxes Etc. (collectively, the "Company Stock Plans") options to acquire
an aggregate of 21,236,778 shares of Common Stock (subject to adjustment on the
terms set forth therein) of which 706,778 are subject to allocation pursuant to
option pools, as set forth on Schedule 3.01(d)(ii). As of the close of business
on January 9, 1998, there were outstanding under the Company Stock Plans no
shares of restricted stock and 3,220 deferred shares had been reserved for
issuance pursuant to the 1996 Non-Employee Directors Stock Plan. As of the close
of business on January 9, 1998, the Company had no shares of Common Stock
reserved for issuance of restricted stock. All of the outstanding shares of
Common Stock have been duly authorized and validly issued, and are fully paid
and nonassessable. As of the date hereof the Company has outstanding
$230,000,000 in 5 1/2% Convertible Subordinated Notes Due 2003 issued pursuant
to an Indenture, dated as of May 22, 1996, between the Company and The Chase
Manhattan Bank, N.A. (the "2003 Notes") and $143,750,000 in 2001 Notes,
convertible into shares of Common Stock at any time prior to maturity at a
conversion price of $31.60 and $19.00 per share, respectively. Except as set
forth on Schedule 3.01(d), there are no preemptive or similar rights on the part
of any holders of any class of securities of the Company or of any of the
Retained Subsidiaries. Except for the Common Stock, the 2003 Notes and the 2001
Notes, as set forth above, the Company has outstanding no bonds, debentures,
notes or other obligations or securities the holders of which have the right to
vote (or are convertible or exchangeable into or exercisable for securities
having the right to vote) with the stockholders of the Company on any matter.
Except as set forth above or on Schedule 3.01(d), as of the date of this
Agreement, there are no securities convertible into or exchangeable for, or
options, warrants, calls, subscriptions, rights, contracts, commitments,
arrangements or understandings of any kind to which the Company or any of its
Subsidiaries is a party or by which any of them is bound obligating the Company
or any of its Subsidiaries contingently or otherwise to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of the Company or of any of the Retained Subsidiaries.
Except (y) with respect to the withholding of exercise price or withholding
taxes under any Company Stock Plan or (z) pursuant to the Tender Offer,

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there are no outstanding Contracts of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or of any of the Retained Subsidiaries.

(e) SUBSIDIARIES. (i) Schedule 3.01(e) contains a complete and correct
description of the shares of stock or other equity interests that are
authorized, or issued and outstanding, of each of the Retained Companies (other
than the Company). Except for Subsidiaries that will not be Subsidiaries of the
Company after the Distributions, the Company has no equity interests with a
value of $500,000 or more in any Person other than the Retained Companies, and
there are no commitments on the part of the Company or any Material Subsidiary
to contribute additional capital in respect of any equity interest in any
Person. Each of the outstanding shares of capital stock of each of the Retained
Subsidiaries has been duly authorized and validly issued, and is fully paid and
nonassessable. Except as set forth on Schedule 3.01(e)(i), all of the
outstanding shares of capital stock of each Retained Subsidiary are owned,
either directly or indirectly, by the Company free and clear of all Liens.

(ii) Schedule 3.01(e)(ii) contains a complete and correct list of all
Material Subsidiaries of the Company.

(iii) Schedule 3.01(e)(iii) contains a complete and correct list setting
forth the respective Material Subsidiaries of each of the Company, School,
Travel, Technology and Print immediately following the Distributions.

(f) SEC FILINGS. The Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
SEC under the Securities Act and the Exchange Act since June 30, 1995 (the
"Company SEC Documents"). As of its filing date, each Company SEC Document
filed, as amended or supplemented, if applicable, (i) complied in all
material respects with the applicable requirements of the Securities Act or
the Exchange Act, as applicable, and the rules and regulations thereunder
and (ii) did not, at the time it was filed, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

(g) RETAINED BUSINESS FINANCIAL STATEMENTS. (i) Attached hereto as
Annex A(i) are a consolidated balance sheet as of April 26, 1997 (the
"Balance Sheet") and a consolidated balance sheet as of April 30, 1996 and
consolidated statements of income, consolidated statements of cash flow and
consolidated statements of stockholders' equity for the years ended April
30, 1995 and 1996 and April 26, 1997, in each case for the Company (such
financial statements, including the notes thereto, the "Company Business
Financial Statements"), together with the report of the Company's
independent accountants thereon. Each of the Balance Sheet and the
consolidated balance sheet as of April 30, 1996 (including any related notes
and schedules) presents fairly in all material respects the consolidated
financial position of the Company as of their respective dates, and each of
the consolidated statements of income, consolidated statements of cash flow
and consolidated statements of stockholders' equity included in the Company
Business Financial Statements (including any related notes and schedules)
fairly presents in all material respects the income, cash flows and
stockholders equity, as the case may be, of the Company for the periods set
forth therein, in each case in accordance with GAAP applied on a consistent
basis throughout the periods presented therein except as indicated in the
notes thereto, prior to the announcement of the Transactions. Upon
announcement of the Transactions, the Company Business Financial Statements
will require adjustment to reflect (i) the change in the accounting
treatment of certain acquisitions from the pooling-of-interests method to
the purchase method; (ii) the treatment of certain of the Distributions as
discontinued operations, and (iii) certain footnote disclosure regarding the
Transactions.

(ii) Attached hereto as Annex A (ii) are the unaudited consolidated
balance sheet for the Company as of October 25, 1997 and the unaudited
consolidated statement of income of the Company for the six months then
ended (such financial statements, including the notes thereto, the
"Unaudited Company Business Financial Statements"). The Unaudited Company
Business Financial

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Statements have been prepared in all material respects in accordance with
GAAP consistently applied and on that basis fairly present the consolidated
financial condition and results of operations of the Company as of the date
thereof and for the period indicated, except that the Company Business
Financial Statements omit footnote disclosures required by GAAP and are
subject to normal, recurring year-end closing and audit adjustments, prior
to the announcement of the Transactions. Upon announcement of the
Transactions, the Unaudited Company Business Financial Statements will
require adjustment to reflect (i) the change in the accounting treatment of
certain acquisitions from the pooling-of-interests method to the purchase
method; (ii) the treatment of certain of the Distributions as discontinued
operations, and (iii) certain footnote disclosure regarding the
Transactions.

(iii) Attached hereto as Annex A(iii) are the unaudited pro forma
combined balance sheet for the Retained Business as of October 25, 1997 (the
"Pro Forma Balance Sheet"), the unaudited pro forma combined statement of
income for the Retained Business for the fiscal year ended April 26, 1997
and the six month period ended October 25, 1997 (the "Pro Forma Income
Statements"), and the notes to such unaudited pro forma financial statements
(the "Notes to Pro Forma Financial Statements", and, together with the Pro
Forma Balance Sheet and the Pro Forma Income Statements, the "Pro Forma
Retained Business Financial Statements"). The Pro Forma Retained Business
Financial Statements have been prepared in accordance with Article 11 of
Regulation S-X; reflect the adjustments necessary to change accounting
treatment for certain past acquisitions from the pooling of interests method
to the purchase method; and give effect to the Proposed Financings, the
Tender Offer, the Distributions and the purchase of the Shares, Special
Shares and Warrants by Purchaser. The Pro Forma Income Statements have been
prepared as if all such Transactions had occurred at the beginning of fiscal
1997 and the Pro Forma Balance Sheet has been prepared as if all such
transactions had occurred as of October 25, 1997.

(iv) Attached hereto as Annex A(iv) are a consolidated balance sheet for
the Retained Business as of April 26, 1997 (the "Audited Balance Sheet") and
the consolidated statements of income of the Retained Business for the
fiscal year then ended (such financial statements, including the notes
thereto, the "Audited Retained Business Financial Statements"), together
with the report of the Company's independent accountants thereon. The
Audited Retained Business Financial Statements (including any related notes
and schedules) will fairly present in all material respects the consolidated
financial position of the Retained Business as of the date thereof, and
fairly present in all material respects the income of the Retained Business
for the period set forth therein, in accordance with GAAP applied on a
consistent basis throughout the periods presented therein except as
indicated in the notes thereto.

(v) The balance sheets included in the Pro Forma Retained Business
Financial Statements do not include any material assets or liabilities not
intended to constitute a part of the Retained Business after giving effect
to the Transactions. The statements of income, statements of stockholders
equity and statements of cash flows included in the Pro Forma Retained
Business Financial Statements do not reflect the operations of any entity or
business not intended to constitute a part of the Retained Business after
giving effect to all such Transactions. The statements of income included in
the Pro Forma Retained Business Financial Statements reflect all of the
material costs and expenses incurred in connection with the Retained
Business, including those incurred in generating the revenues reflected in
the Pro Forma Retained Business Financial Statements, in each case, for the
periods covered thereby, that would be required to be so reflected under
GAAP in consolidated financial statements of the Retained Business prepared
on a pro forma basis after giving effect to all such transactions.

(h) UNDISCLOSED LIABILITIES. Except (i) for the items listed in Schedule
3.01(h) hereto, (ii) as and to the extent disclosed or reserved against on the
Balance Sheet, the Pro Forma Balance Sheet and the Audited Balance Sheet or in
the footnotes thereto and (iii) as incurred after the date of the Pro Forma
Balance Sheet in the ordinary course of the Retained Business consistent with
prior practice and not

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prohibited by this Agreement, the Retained Companies do not have any liabilities
or obligations of any nature, whether known or unknown, absolute, accrued,
contingent or otherwise and whether due or to become due, that, individually or
in the aggregate, are or would be material to the Retained Companies, taken as a
whole.

(i) ABSENCE OF CERTAIN EVENTS AND CHANGES. Except as disclosed in the
Company SEC Documents filed with the SEC and publicly available prior to the
date hereof and any amendments filed with respect thereto prior to the date
hereof (the "Filed Company SEC Documents") or as otherwise contemplated or
permitted by this Agreement or the other Transaction Agreements, and except for
any items referred to in Schedule 3.01(i), since October 25, 1997, the Company
and its Subsidiaries have conducted the Retained Business in the ordinary course
consistent with past practice and there has not been any event, change or
development which, individually or in the aggregate, would have a Material
Adverse Effect on the Retained Companies, taken as a whole.

(j) COMPLIANCE WITH APPLICABLE LAWS. Except as disclosed in the Filed
Company SEC Documents, each of the Retained Companies is in compliance with all
statutes, laws, regulations, rules, judgments, orders and decrees of all
Governmental Entities applicable to it that relate to the Retained Business, and
neither the Company nor any of the Retained Companies has received any notice
alleging noncompliance except, with reference to all the foregoing, where the
failure to be in compliance would not, individually or in the aggregate, have a
Material Adverse Effect on the Retained Companies, taken as a whole. This
Section 3.01(j) does not relate to employee benefits matters (for which Section
3.01(o) is applicable), environmental matters (for which Section 3.01(p) is
applicable) or tax matters (for which Section 3.01(n) is applicable). Each of
the Retained Companies has all Permits that are required in order to permit it
to carry on its business as it is presently conducted, except where the failure
to have such Permits or rights would not, individually or in the aggregate, have
a Material Adverse Effect on the Retained Companies, taken as a whole. All such
Permits are in full force and effect and the Retained Companies are in
compliance with the terms of such Permits, except where the failure to be in
full force and effect or in compliance would not, individually or in the
aggregate, have a Material Adverse Effect on the Retained Companies, taken as a
whole.

(k) TITLE TO ASSETS. (i) Except as set forth in Schedule 3.01(k)(i), each
of the Retained Companies owns and has good and valid title to, or a valid
leasehold interest in, or otherwise has sufficient and legally enforceable
rights to use, all of the properties and assets (real, personal or mixed,
tangible or intangible), used by the Retained Business or held for use by the
Retained Business in connection with the conduct of, or otherwise material to,
the Retained Business (the "Assets"), including Assets reflected on the Balance
Sheet or acquired since the date thereof, except for Assets disposed of in the
ordinary course of business consistent with past practice and in accordance with
this Agreement and except for such defects in title which, individually or in
the aggregate, would not have a Material Adverse Effect on the Retained
Companies, taken as a whole, in each case free and clear of any Liens except for
Permitted Liens. This Section 3.01(k) does not relate to intellectual property
(for which Section 3.01(s) is applicable). A list of all owned real property and
leased real property having an annual base rental of more than $20,000 or having
square footage in excess of 5,000 square feet relating to the Retained Business
is set forth on Schedule 3.01(k) and such owned and leased real property
constitutes all the fee and leasehold interests meeting such description held by
the Retained Companies, except for any such fee or leasehold interests acquired
or disposed of in the ordinary course of business consistent with past practice
after the date hereof and in accordance with this Agreement, and constitutes all
the fee and leasehold interests meeting such description used by the Retained
Business or held for use by the Retained Business in connection with the conduct
of the Retained Business.

(ii) Except as referred to in Schedule 3.01(k)(ii), each Retained
Company has (A) good and insurable title to its owned real properties and
(B) valid and subsisting leasehold interests in its leased real properties,
in each case, free and clear of any Liens, except for (1) Permitted Liens
and (2) easements, covenants, rights-of-way, other matters of record and
other matters subject to which the leases of the Retained Companies' real
properties are granted.

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(l) LITIGATION. Except as disclosed in the Filed Company SEC Documents or
referred to on Schedule 3.01(l), as of the date hereof there are no civil,
criminal or administrative actions, suits or proceedings pending or, to the
knowledge of the Company, threatened, against any of the Retained Companies
that, individually or in the aggregate, are likely to have a Material Adverse
Effect on the Retained Companies, taken as a whole. Except as disclosed in the
Company SEC Documents, there are no outstanding judgments, orders, decrees, or
injunctions of any Governmental Entity against any of the Retained Companies
that, insofar as can reasonably be foreseen, individually or in the aggregate,
in the future would have a Material Adverse Effect on the Retained Companies,
taken as a whole.

(m) CONTRACTS. (i) Schedule 3.01(m) contains a complete and correct list,
as of the date hereof, of all Contracts that are of the types listed in clauses
(A) through (G) below to which any of the Retained Companies is a party (the
"Material Contracts"):

(A) employment, consulting, severance, and other material Contracts
relating to or for the benefit of current, future or former employees,
officers or directors (excluding sales persons) of the Retained Business
requiring annual base payments going forward in excess of $250,000;

(B) Contracts relating to the borrowing of money or obtaining of or
extension of credit (other than in the ordinary course of business),
including letters of credit, guarantees and material security agreements;

(C) joint venture, partnership and similar Contracts (excluding joint
purchasing arrangements with no minimum purchase requirements), involving a
sharing of profits or expenses, that are material or involve any obligation
on the part of the Company to commit capital (excluding commitments not
exceeding $100,000 in the aggregate);

(D) Contracts prohibiting or materially restricting the ability of any
Retained Company to conduct its business, to engage in any business or
operate in any geographical area or to compete with any Person;

(E) Contracts that are material to the business, operations, results of
operations, condition (financial or otherwise), assets or properties of the
Retained Companies taken as a whole;

(F) any employment agreement (and any other agreement involving annual
payments in excess of $150,000) with change of control or "event risk"
provisions relating to the Company; and

(G) any employment agreement or other agreement requiring the Company to
compensate any employee for any tax imposed as a result of any excess
parachute payment under Section 280G of the Code.

(ii) All Material Contracts are legal, valid, binding, in full force and
effect and enforceable against each party thereto, except to the extent that
any failure to be enforceable, individually and in the aggregate, would not
reasonably be expected to have or result in a Material Adverse Effect on the
Retained Companies, taken as a whole, provided that no representation is
made as to the enforceability of any non-competition provision in any
employment agreements. Except as set forth in Schedule 3.01(n), there does
not exist under any Material Contract any violation, breach or event of
default, or event or condition that, after notice or lapse of time or both,
would constitute a violation, breach or event of default thereunder, on the
part of any of the Retained Companies or, to the knowledge of the Company,
any other Person, other than such violations, breaches or events of default
as would not, individually or in the aggregate, have a Material Adverse
Effect on the Retained Companies, taken as a whole. Except as set forth in
Schedule 3.01(m), the enforceability of all Material Contracts will not be
adversely affected in any manner by the execution, delivery or performance
of this Agreement or the consummation of the Transactions, and no Material
Contract contains any change in control or other terms or conditions that
will become applicable or inapplicable as a result of the consummation of
the Transactions.

(n) TAXES. (i) Except as set forth on Schedule 3.01(n), (A) all Tax
Returns required to be filed by or on behalf of each of the Company and the
Retained Subsidiaries have been filed except to the extent that a failure

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to file, individually or in the aggregate, would not have a Material Adverse
Effect on the Retained Companies, taken as a whole; (B) all such Tax Returns
filed are complete and accurate in all respects, other than any incompleteness
or any inaccuracy that would not, individually or in the aggregate, have a
Material Adverse Effect on the Retained Companies taken as a whole, and all
Taxes shown to be due on such Tax Returns have been paid; (C) no written claim
(other than a claim that has been finally settled) has been made by a taxing
authority that any of the Company or the Retained Subsidiaries is subject to an
obligation to file Tax Returns or to pay or collect Taxes imposed by any
jurisdiction in which such Retained Company does not file Tax Returns or pay or
collect Taxes, other than any such claim that would not have a Material Adverse
Effect on such Retained Company or for which adequate reserves have been
provided on the balance sheet contained in the Unaudited Company Business
Financial Statements and the Pro Forma Balance Sheet; (D) there is no deficiency
with respect to any Taxes which would, individually or in the aggregate, have a
Material Adverse Effect on the Retained Companies, taken as a whole, other than
any such deficiency for which adequate reserves have been provided on the
balance sheet contained in the Unaudited Company Business Financial Statements
and the Pro Forma Balance Sheet; and (E) all material assessments for Taxes due
with respect to completed and settled examinations or concluded litigation have
been paid which, individually or in the aggregate (with respect to any Retained
Company), exceed $100,000. As used in this Agreement, "Taxes" shall include all
federal, state, local and foreign income, franchise, property, sales, excise and
other taxes, tariffs or governmental charges of any nature whatsoever, including
interest and penalties, and additions thereto; and "Tax Returns" shall mean all
federal, state, local and foreign tax returns, declarations, statements,
reports, schedules, forms and information returns relating to Taxes.

(ii) Except as set forth in Schedule 3.01(n), each of the Company and
the Retained Subsidiaries has duly and timely withheld all Taxes required to
be withheld in connection with its business and assets, and such withheld
Taxes have been either duly and timely paid to the proper governmental
authorities or properly set aside in accounts for such purpose, except to
the extent that any failure to do so would not have a Material Adverse
Effect on the Retained Companies, taken as a whole.

(iii) Except as set forth in Schedule 3.01(n), (A) none of the Company
and the Retained Subsidiaries is a party to or bound by or has any
obligation under any Tax allocation, sharing, indemnification or similar
agreement or arrangement (other than any agreement for the acquisition of
one or more of the Retained Subsidiaries) with any Person other than any of
the Retained Companies, which might result in a Material Adverse Effect to
the Retained Company which entered into such agreement or arrangement; and
(B) none of the Company and the Retained Subsidiaries is or has been at any
time a member of any group of companies filing a consolidated, combined or
unitary income tax return other than any such group (1) the common parent of
which is the Company or any Retained Subsidiary or (2) the common parent of
which has not held any asset other than shares of one or more of the
Retained Subsidiaries.

(iv) Except as set forth in Section 3.01(n) of the Disclosure Schedule,
(A) all taxable periods of each of the Company and the Retained Subsidiaries
ending before December 31, 1993 are closed or no longer subject to audit;
(B) none of the Company and the Retained Subsidiaries is currently under any
audit by any taxing authority as to which such taxing authority has asserted
in writing any claim which, if adversely determined, could have a Material
Adverse Effect on such Retained Company; and (C) no waiver of the statute of
limitations is in effect with respect to any taxable year of the Company or
any of the Retained Subsidiaries.

(o) EMPLOYEE BENEFIT PLANS AND RELATED MATTERS; ERISA. (i) Employee
Benefit Plans. Each Employee Benefit Plan that provides for equity-based
compensation or that has associated costs that are expected to be material to
the Company or the Retained Companies in the aggregate and that is expected to
provide for contributions to be made by any of the Retained Companies or their
Employees after the date hereof or to permit the accrual of additional benefits
by any Employee of the Retained Companies after the date hereof is either listed
on Schedule 3.01(o) or has been filed with the SEC as a material contract
(collectively, the "Retained Plans"). Except as set forth on Schedule 3.01(o),
neither the Company nor any of its Subsidiaries has communicated to any Employee
any intention or commitment to modify any Retained Plan or to establish or

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implement any other employee or retiree benefit or compensation plan or
arrangement which would, if it existed on the date hereof, be a Retained Plan.

(ii) QUALIFICATION. Except to the extent that failure to meet the
requirements of section 401(a) of the Code would not result in any material
liability as to which adequate reserves have not been established, each Employee
Benefit Plan intended to be qualified under section 401(a) of the Code, and the
trust (if any) forming a part thereof, (A) has received a favorable
determination letter from the IRS as to its qualification under the Code and to
the effect that each such trust is exempt from taxation under section 501(a) of
the Code, and nothing has occurred since the date of such determination letter
that could adversely affect such qualification or tax-exempt status or (B) a
timely application for such a favorable determination letter was filed and the
Company has no reason to believe that such a favorable determination letter will
not be granted.

(iii) COMPLIANCE; LIABILITY. (A) No liability has been or is reasonably
expected to be incurred under or pursuant to Title I or IV of ERISA or the
penalty, excise Tax or joint and several liability provisions of the Code
relating to employee benefit plans that is or would be material to the Company
or, following the Closing, to the Retained Companies in the aggregate.

(B) Each of the Employee Benefit Plans has been operated and
administered in all respects in compliance with its terms, all applicable
laws and all applicable collective bargaining agreements, except for any
failure so to comply that, individually and in the aggregate, could not
reasonably be expected to result in a material liability or obligation on
the part of the Retained Companies in the aggregate. There are no pending or
threatened claims by or on behalf of any of the Employee Benefit Plans, by
any Employee or otherwise involving any such Employee Benefit Plan or the
assets of any Employee Benefit Plan (other than routine claims for benefits,
all of which have been fully reserved for on the regularly prepared balance
sheets of the Company) which would reasonably be expected to result in any
material liability to the Retained Companies in the aggregate.

(C) Except to the extent that it would not give rise to a material
liability or obligation on the part of the Company or the Retained
Companies, no Employee is or will become entitled to post-employment
benefits of any kind by reason of employment with the Company or its
Subsidiaries, including, without limitation, death or medical benefits
(whether or not insured), other than (x) coverage mandated by section 4980B
of the Code, (y) retirement benefits payable under any Plan qualified under
section 401(a) of the Code or (z) accrued deferred compensation. The
consummation of the Transactions will not result in an increase in the
amount of compensation or benefits or the acceleration of the vesting or
timing of payment of any compensation or benefits payable to or in respect
of any Employee by any of the Retained Companies.

(iv) Employees, Labor Matters, etc. Except as set forth on Schedule 3.01(o),
neither the Company nor any of its Subsidiaries is a party to or bound by any
collective bargaining agreement, and there are no labor unions or other
organizations representing, purporting to represent or attempting to represent
any employees employed by the Company or any of its Subsidiaries.

Since April 26, 1997, there has not occurred or been threatened any strike,
slowdown, picketing, work stoppage, concerted refusal to work overtime or other
similar labor activity with respect to any employees of the Company or any of
its Subsidiaries. Except as set forth on Schedule 3.01(o), there are no labor
disputes currently subject to any grievance procedure, arbitration or litigation
and there is no petition pending or threatened with respect to any employee of
any the Company or its Subsidiaries. The Company and its Subsidiaries has
complied with all applicable Laws pertaining to the employment or termination of
employment of their respective employees, including, without limitation, all
such laws relating to labor relations, equal employment opportunities, fair
employment practices, prohibited discrimination or distinction and other similar
employment activities, except for any failure so to comply that, individually
and in the aggregate, could not result in any material liability to the Retained
Companies in the aggregate.

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(p) ENVIRONMENTAL MATTERS. Except as disclosed in the Filed Company SEC
Documents or as set forth on Schedule 3.01(p) and except for such matters that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Retained Companies, taken as a whole, (i) the Retained Companies are in
compliance with all applicable Environmental Laws (as defined below), (ii) the
Retained Companies have all Permits required under Environmental Laws for the
operation of the Retained Business as presently conducted ("Environmental
Permits"), (iii) none of the Retained Companies has received notice from any
Governmental Entity asserting that any of the Retained Companies may be in
violation of, or liable under, any Environmental Law, and (iv) there are no
actions, proceedings or claims pending (or, to the knowledge of the Retained
Companies, threatened) seeking to impose any liability on the Retained Companies
in respect of any Environmental Laws, Environmental Permits or Hazardous
Substances.

For purposes of this Agreement, "Environmental Law" means any federal,
state, local or foreign law, statute, regulation or decree relating to (x) the
protection of the environment or (y) the use, storage, treatment, generation,
transportation, processing, handling, release or disposal of Hazardous
Substances, in each case as in effect on the date hereof. "Hazardous Substance"
means any waste, substance, material, pollutant or contaminant listed, defined,
designated or classified as hazardous, toxic or radioactive, or otherwise
regulated, under any Environmental Law.

(q) DELAWARE LAW. The Company has taken all action necessary to ensure
that the provisions of Section 203 of the Delaware General Corporation Law (the
"DGCL") will not be applicable to Purchaser or its Affiliates as a result of the
transactions contemplated by this Agreement.

(r) STATUS OF SHARES. The Shares being issued at the Closing have been
duly authorized by all necessary corporate action on the part of the Company,
and at Closing such Shares will have been validly issued and, assuming payment
therefor has been made, will be fully paid and nonassessable, and the issuance
of such Shares will not be subject to preemptive rights of any other stockholder
of the Company. The Warrant Shares and the Special Warrant Shares have been duly
authorized by all necessary corporate action on the part of the Company, and
such shares of Common Stock have been validly reserved for issuance, and,
assuming payment therefor has been made, upon issuance and exercise of the
Warrants or the Special Warrants, as the case may be, will be validly issued and
outstanding, fully paid and nonassessable. Assuming the Company Stockholder
Approval has been obtained, the Shares, Warrants and Special Warrants will be
eligible for listing on the Nasdaq Stock Market.

(s) INTELLECTUAL PROPERTY. The Intellectual Property that is owned by the
Retained Companies constitutes all of the Intellectual Property that is material
to the Retained Companies as a whole, except for Intellectual Property subject
to written or oral licenses, agreements or arrangements pursuant to which the
use of Intellectual Property by any Retained Company is permitted by any Person
(the "Company Intellectual Property"). The Company Intellectual Property that is
owned by the Retained Companies is owned free from any Liens (other than
Permitted Liens). Except as set forth in Schedule 3.01(s), all material
Intellectual Property Licenses are in full force and effect in accordance with
their terms, and are free and clear of any Liens (other than Permitted Liens).
Except as set forth in Schedule 3.01(s), immediately after the Closing, the
Retained Companies will own or have the right to use all the Company
Intellectual Property, in each case free from Liens (except for Permitted Liens
incurred in the ordinary course of business) and on the same terms and
conditions as in effect prior to the Closing. Except as set forth in Schedule
3.01(s), the conduct of the Retained Business does not infringe or conflict with
the rights of any third party in respect of any Intellectual Property, except
where such conduct would not materially affect the ability of the Retained
Companies to conduct their business as presently conducted. Except as set forth
in Schedule 3.01(s), to the knowledge of the Company, none of the Company
Intellectual Property is being infringed by any third party except where such
infringement would not have a Material Adverse Effect on the Retained Companies
taken as a whole. Except as set forth in Schedule 3.01(s), there is no claim or
demand of any Person pertaining to, or any proceeding which is pending or, to
the knowledge of the Company, threatened, that challenges the rights of any of
the Retained Companies in respect of any Company Intellectual Property, or that
claims that any default exists under any Intellectual

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Property License, except where such claim, demand or proceeding would not
materially affect the ability of the Retained Companies to conduct their
business as presently conducted. Except as set forth in Schedule 3.01(s), none
of the Company Intellectual Property is subject to any outstanding order,
ruling, decree, judgment or stipulation by or with any court, tribunal,
arbitrator, or other Governmental Entity materially adverse to the Company.
Except as set forth in Schedule 3.01(s), the Intellectual Property owned by the
Retained Companies and material to the Retained Companies taken as a whole has
been duly registered with, filed in or issued by, as the case may be, the
appropriate filing offices, domestic or foreign, to the extent necessary or
desirable to ensure usual and customary protection for the Company Intellectual
Property in the relevant jurisdiction under any applicable law, and the same
remain in full force and effect. The Retained Companies have taken all necessary
actions to ensure usual and customary protection for the Company Intellectual
Property in the relevant jurisdiction of the Company Intellectual Property
(including maintaining the secrecy of all confidential Intellectual Property)
under any applicable law.

(t) Guarantees. Except as set forth on Schedule 3.01(t), none of the
obligations or liabilities of any of the Distributed Companies will be
guaranteed by or subject to a contingent obligation of any of the Retained
Companies following the Distributions (excluding lease guarantees involving
obligations in an aggregate amount not to exceed $100,000).

(u) Brokers or Finders. Except as set forth on Schedule 3.01(u), no agent,
broker, investment banker or other firm is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement.

(v) Acquisitions. Schedule 3.01(v) sets forth a true and correct list of the
25 largest acquisitions (in terms of aggregate consideration) of businesses made
by the Company since its inception. The Company has provided Purchaser with
copies of the acquisition agreements and all schedules thereto for each
acquisition listed on Schedule 3.01(v).

(w) Disclosure. No representation or warranty by the Company contained in
this Agreement or in any certificate to be furnished by or on behalf of the
Company pursuant hereto contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances under
which they were made, not misleading with respect to the Retained Business as a
whole or the transactions contemplated by this Agreement.

(x) Fairness Opinion. The Board of Directors of the Company has received a
fairness opinion, customary in form and substance, from Morgan, Stanley & Co.,
Incorporated.

SECTION 3.02 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants as of the date hereof as follows:

(a) ORGANIZATION. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with all requisite power and authority to
own, lease and operate its properties and to conduct its business as now
being conducted.

(b) AUTHORITY. Purchaser has the requisite limited liability company
power and authority to execute, deliver and perform each Transaction
Agreement to which it is a party and to consummate the Transactions. All
necessary action required to have been taken by or on behalf of Purchaser by
applicable law, its limited liability company agreement or otherwise to
authorize the approval, execution, delivery and performance by Purchaser of
this Agreement and the consummation by it of the Transactions have been duly
authorized, and no other proceedings on its part are or will be necessary to
authorize this Agreement or for it to consummate the Transactions. This
Agreement is a valid and binding agreement of Purchaser, enforceable against
Purchaser in accordance with the terms hereof, assuming that this Agreement
is a valid and binding agreement of the Company.

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(c) CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the execution
and delivery of this Agreement nor the performance by Purchaser of its
obligations hereunder will conflict with, result in a breach of the terms,
conditions or provisions of, constitute a default under, result in the
creation of any mortgage, security interest, encumbrance, lien or charge of
any kind upon any of the properties or assets of Purchaser pursuant to, or
require any consent, approval or other action by or any notice to or filing
with any court or administrative or governmental body pursuant to, the
organizational documents or agreements of Purchaser or any agreement,
instrument, order, judgment, decree, statute, law, rule or regulation by
which Purchaser is bound (assuming that the Company shall have made or
obtained all consents, approvals, orders, authorizations, registrations,
declarations or filings referred to in Section 3.01(c)(ii)), except for
filings after the Closing under Section 13(d) of the Exchange Act and
filings under the HSR Act.

(d) ACQUISITION FOR INVESTMENT. Purchaser is acquiring the Shares,
Warrants and Special Warrants being purchased by it for its own account for
the purpose of investment and not with a view to or for sale in connection
with any distribution thereof, and Purchaser has no present intention or
plan to effect any distribution of Shares, Warrants, Special Warrants,
Warrant Shares or Special Warrant Shares; provided that the disposition of
such Purchaser's property shall at all times be and remain within its
control and subject to the provisions of this Agreement and the Registration
Rights Agreement. Purchaser has delivered to the Company a complete and
correct copy of a commitment letter from the Fund for $270 million of common
equity financing. The Fund constitutes a "venture capital operating company"
within the meaning of Section 2510.3-101(d) of the regulations promulgated
under ERISA and the transactions contemplated by this Agreement shall not
adversely affect such status.

(e) OWNERSHIP OF SECURITIES. At the date hereof Purchaser does not
Beneficially Own, directly or, to the knowledge of Purchaser, indirectly (or
have any option or other right to acquire), any securities of the Company
other than the Shares, Warrants and Special Warrants being purchased by it
hereunder.

(f) BROKERS OR FINDERS. Except as set forth in Schedule 3.02(f), no
agent, broker, investment banker or other firm is or will be entitled to any
broker's or finder's fee or any other commission or similar fee from
Purchaser in connection with any of the transactions contemplated by this
Agreement.

(g) FUTURE ACQUISITIONS. Purchaser has no present plan or intention to
acquire, directly or indirectly, shares of capital stock comprising 50% or
more of the Total Voting Power or 50% or more of the total fair market value
of all shares of outstanding capital stock of the Company.

ARTICLE IV

CORPORATE GOVERNANCE

SECTION 4.01 COMPOSITION OF THE BOARD OF DIRECTORS.

(a) At and after the Closing, the Board of Directors of the Company shall
consist of nine directors (subject to the right to increase the Board of
Directors pursuant to Section 4.01(b)(iii)). Three members of the Board of
Directors shall initially be designated by the Purchaser (the "Investor
Directors"). Six members of the Board (the "Non-Investor Directors") shall
initially be designated by the Company, subject to the conditions set forth in
Section 9.03(l), and shall include the chief executive officer of the Company.
So long as Purchaser shall have the right to nominate at least two directors
pursuant to clause (i) below, Purchaser shall be entitled to designate the
Chairman of the Board of Directors, provided that the Chairman of the Board, if
designated by Purchaser, shall be an Investor Director.

(b) Purchaser shall be entitled to nominate three directors for election,
provided:

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(i) if the total number of shares of Common Stock represented by the Shares,
the Special Warrants and the Warrants ("Purchaser's Total Securities") declines
by more than 33 1/3% but less than 66 2/3% from Purchaser's Total Securities at
Closing by reason of sales or other dispositions of Common Stock, Warrants or
Special Warrants by Purchaser, Purchaser shall have the right to nominate two
directors;

(ii) if Purchaser's Total Securities declines by 66 2/3% or more from
Purchaser's Total Securities at Closing, but Purchaser's Percentage Interest
remains at least 5% of the outstanding Voting Securities, by reason of sales or
other dispositions of Common Stock, Warrants or Special Warrants by Purchaser,
Purchaser shall have the right to nominate one director;

(iii) in the event that the size of the Board of Directors shall be
increased, Purchaser shall have the right to at least proportionate
representation on the Board following such increase based on the composition of
the Board as between Investor Directors and Non-Investor Directors immediately
prior to such increase; provided that in no event shall the Board consist of
more than 12 directors; and

(iv) if the chief executive officer of the Company is not then a member of
the Board of Directors or a nominee for membership thereon, the Purchaser shall
be entitled to approve an additional nominee to the Board of Directors.

(c) The Company shall not, and shall not permit its Affiliates to, solicit
proxies (as such terms are used in the proxy rules of the SEC) of the
stockholders of the Company to vote against any of the nominees selected by the
Purchaser or for the approval of any stockholder or other proposals that are
inconsistent with the rights afforded the Purchaser pursuant to this Agreement
and the other Transaction Agreements.

SECTION 4.02 SUPERMAJORITY VOTING PROVISIONS. So long as Purchaser has the
right to designate at least two nominees to the Board of Directors of the
Company pursuant to Section 4.01(b):

(a) neither the Company nor the Board of Directors shall cause or permit to
occur any of the following events without the affirmative vote of not less than
three-fourths of the members of the Board of Directors of the Company:

(i) any issuance of Equity Securities other than (A) issuances pursuant to
employee stock option or incentive compensation plans of Equity Securities
(other than in respect of options outstanding as of the date hereof) in an
aggregate amount not to exceed 5% of the Common Stock outstanding immediately
following the Closing on a fully diluted basis ("Permitted Options"), or (B)
issuances pursuant to acquisitions or in public offerings, such issuances not to
exceed 5% of the Common Stock outstanding immediately following the Closing on a
fully diluted basis in any one issuance or 20% in the aggregate, provided,
however, that no such issuance shall be permitted if as a result thereof any
Person would own 10% of the Common Stock outstanding immediately following such
issuance on a fully diluted basis;

(ii) (A) any merger, consolidation or other business combination to which
the Company is a party or any decision whether to approve a tender offer
involving the Company's Equity Securities, in any case other than a Cash
Transaction (as defined in Section 4.02(b)(i) below) or a Permitted Securities
Transaction (as defined in Section 4.02(b)(ii)) below, or (B) any amendment of
any shareholder rights plan (or "poison pill") maintained by the Company and any
redemption of the rights issued thereunder, except to permit a Cash Transaction
or a Permitted Securities Transaction;

(iii) any sale, lease, transfer or other disposition in one transaction or a
series of related transactions of all or substantially all the assets of the
Company, in any case other than a Cash Transaction or Permitted Securities
Transaction; or

(iv) any major recapitalization or similar transaction or series of
transactions involving the Company;

(v) any dissolution or complete or partial liquidation of the Company; or

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(vi) any amendment or modification of the Company Charter or the Company
By-laws that is inconsistent with the provisions of this Agreement and the
rights afforded to Purchaser hereunder.

(b) For purposes of this Agreement:

(i) "Cash Transaction" means any merger, consolidation or other business
combination or sale of all or substantially all the assets of the Company to
which the Company is a party or any decision whether to approve a tender offer
for all of the Company's Equity Securities, in any case if the consideration
involved in such transaction is all cash;

(ii) "Permitted Securities Transaction" means any merger, consolidation or
other business combination to which the Company is a party or any decision
whether to approve a tender or exchange offer for all of the Company's Equity
Securities, in any case if all consideration involved in such transaction is
cash and/ or shares of a registered, freely tradeable, listed common equity
security for which there was an aggregate public market capitalization equal to
at least the greater of $5 billion or the market capitalization of the Company's
Equity Securities, in each case determined immediately prior to the approval of
such transaction by the Board of Directors of the Company.

SECTION 4.03 COMMITTEES. Subject to any law or stock exchange rule
prohibiting committee membership by Affiliates of the Company, Purchaser shall
be entitled to at least proportionate representation by Investor Directors on
any committee of the Board of Directors, based on the composition of the Board
as between Investor Directors and Non-Investor Directors.

SECTION 4.04 BY-LAWS. The Company and Purchaser shall take or cause to be
taken all lawful action necessary to ensure at all times as of and following the
Closing Date that the Company By-laws are not inconsistent with the provisions
of this Agreement or the transactions contemplated hereby.

SECTION 4.05 TERMINATION OF ARTICLE IV. This Article IV shall terminate and
be of no further force or effect on the earlier to occur of (a) the fifth
anniversary of the Closing and (b) the date on which the percentage of the Total
Voting Power represented by the aggregate voting power of all Voting Securities
then owned by Purchaser (other than any Voting Securities acquired in violation
of this Agreement) is greater than 50%.

ARTICLE V

EQUITY PURCHASES FROM THE COMPANY

SECTION 5.01 SUBSCRIPTION RIGHTS. So long as Purchaser has the right to
nominate an Investor Director pursuant to Section 4.01, if the Company's Board
of Directors shall authorize the issuance of New Securities for cash (other than
any New Securities issued (i) to officers, employees or directors of the Company
or any of its Subsidiaries pursuant to any employee stock offering, plan or
arrangement (x) in effect on the date hereof, (y) which constitutes Permitted
Options or (z) approved by any Investor Director, (ii) in connection with any
acquisition transaction, (iii) in any public offering registered under the
Securities Act or in any financing transaction in which sales or resales are
effected through Rule 144A or Regulation S under the Securities Act or any
successor or comparable provisions thereto and (iv) to Purchaser or its
Affiliates (other than the Company and its Subsidiaries)), then, prior to each
such issuance of New Securities, the Company shall offer to Purchaser a Pro Rata
Share of such New Securities. Any offer of New Securities made to Purchaser
under this Section 5.01 shall be made by notice in writing (the "Subscription
Notice") at least 10 Business Days prior to the date on which the meeting of the
Company's Board of Directors is held to authorize the issuance of such New
Securities. The Subscription Notice shall set forth (i) the number of New
Securities proposed to be issued to Persons other than Purchaser and the terms
of such New Securities, (ii) the consideration (or manner of determining the
consideration), if any, for which such New Securities are proposed to be issued
and the terms of payment, (iii) the number of New Securities offered to
Purchaser in compliance with the provisions of this Section 5.01 and (iv) the

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proposed date of issuance of such New Securities. Not later than 20 Business
Days after its receipt of a Subscription Notice, Purchaser shall notify the
Company in writing whether it elects to purchase all or any portion of the New
Securities offered to Purchaser pursuant to the Subscription Notice. If
Purchaser shall elect to purchase any such New Securities, the New Securities
which it shall have elected to purchase shall be issued and sold to Purchaser by
the Company at the same time and on the same terms and conditions as the New
Securities are issued and sold to third parties. If, for any reason, the
issuance of New Securities to third parties is not consummated, Purchaser's
right to its Pro Rata Share of such issuance shall lapse, subject to Purchaser's
ongoing subscription right with respect to issuances of New Securities at later
dates or times.

SECTION 5.02 ISSUANCE AND DELIVERY OF NEW SECURITIES AND VOTING STOCK. The
Company represents and covenants to Purchaser that (i) upon issuance, all the
shares of New Securities sold to Purchaser pursuant to this Article V shall be
duly authorized, validly issued, fully paid and nonassessable and will be
approved (if outstanding securities of the Company of the same type are at the
time already approved) for listing on the Nasdaq Stock Market or for quotation
or listing on the principal trading market for the securities of the Company at
the time of issuance, (ii) upon delivery of such shares, they shall be free and
clear of all claims, Liens, encumbrances, security interests and charges of any
nature and shall not be subject to any preemptive right of any stockholder of
the Company and (iii) in connection with any such issuance, the Company shall
take such actions as are specified in Section 3.01(q) with respect to such
shares. Each share issued or delivered by the Company hereunder shall bear the
legend set forth in Section 13.11.

ARTICLE VI

LIMITATIONS ON PURCHASES OF ADDITIONAL EQUITY SECURITIES

SECTION 6.01 PURCHASES OF EQUITY SECURITIES. (a) Except as permitted by
Section 6.01(b) or 6.01(c), neither Purchaser nor its Affiliates will directly
or indirectly acquire any securities (including by exercise of the Warrants or
Special Warrants) or take any other action that would cause the percentage of
the Total Voting Power represented by the aggregate voting power of all Voting
Securities then held by Purchaser to equal or exceed 25%.

(b) Nothing herein shall prevent Purchaser from purchasing any Securities
pursuant to the terms of this Agreement (including through exercise of the
Warrants and the Special Warrants in accordance with their respective terms) and
the Purchaser shall not be treated as having breached any covenant in this
Agreement solely as a result of such purchase.

(c) This Section 6.01 shall terminate and be of no further force or effect
on the earlier to occur of (i) the fifth anniversary of the Closing and (ii) the
date on which the percentage of the Total Voting Power represented by the
aggregate voting power of all Voting Securities then owned by Purchaser (other
than any Voting Securities acquired in violation of this Agreement) is greater
than 50%.

SECTION 6.02 ADDITIONAL LIMITATIONS. Other than in connection with a Buyout
Transaction that is not solicited or proposed by Purchaser or its Affiliates or
as specifically approved by a majority of the Non-Investor Directors, during the
five-year period beginning on the date of this Agreement, Purchaser shall not,
and shall not permit its Affiliates to:

(i) contrary to the recommendation of the Company's Board of Directors, in
any "solicitation" of "proxies" (as such terms are used in the proxy rules of
the SEC), vote any shares of capital stock of the Company, initiate, propose or
otherwise solicit stockholders of the Company for the approval of one or more
stockholder proposals or induce or attempt to induce any other individual, firm,
corporation, partnership or other entity to initiate any stockholder proposal,
provided, however, that this clause shall be inapplicable to any solicitation of
proxies, or inducement or attempt to induce any other entity to initiate

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any stockholder proposal, in respect of any Cash Transaction or Permitted
Securities Transaction approved by the Board of Directors of the Company without
the approval of at least one Investor Director;

(ii) deposit any Voting Securities into a voting trust or subject any Voting
Securities to any arrangement or agreement with respect to the voting of such
securities or form, join a partnership, limited partnership, syndicate or other
group, or otherwise act in concert with any other Person, for the purpose of
acquiring, holding, voting or disposing of Voting Securities, or otherwise
become a "person" within the meaning of Section 13(d)(3) of the Exchange Act; or

(iii) make a public request to the Company (or its directors, officers,
stockholders, employees or agents) to amend or waive any provisions of this
Section 6.02.

ARTICLE VII

TRANSFER OF COMMON STOCK

SECTION 7.01 TRANSFER OF COMMON STOCK. (a) Other than as specifically
approved by a majority of the Non-Investor Directors, prior to the second
anniversary of the Closing, Purchaser will not, directly or indirectly, sell,
transfer or otherwise dispose of any Shares, Special Warrants or Warrants
(except to any Affiliate of Purchaser).

(b) Other than as specifically approved by a majority of the Non-Investor
Directors, prior to the fifth anniversary of the Closing, Purchaser will not,
directly or indirectly, sell, transfer or otherwise dispose of any Shares except
(i) pursuant to a registered underwritten public offering intended to achieve a
broad distribution in accordance with the Registration Rights Agreement, (ii) in
accordance with the volume and manner-of-sale limitations of Rule 144
promulgated under the Securities Act (regardless of whether such limitations are
applicable), (iii) in a transaction exempt from the registration requirements of
the Securities Act to any Person or group (within the meaning of Section
13(d)(3) of the Exchange Act) of Persons, if, prior to and after giving effect
to such sale, such Person or group of Persons (A) does not or would not to
Purchaser's knowledge after due inquiry, Beneficially Own (provided that for
purposes of this Section 7.01(a) a Person shall be deemed to Beneficially Own
all shares that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time) 5% or more of the
then outstanding shares of Common Stock or (B) is an investment company
registered under the Investment Company Act of 1940, as amended, or (iv) in
connection with a Buyout Transaction. Purported transfers of shares of Common
Stock that are not in compliance with this Article VII shall be of no force or
effect.

(c) The provisions of clauses (a) and (b) of this Article VII shall
terminate and be of no further force or effect on the earlier to occur of (i)
the fifth anniversary of the Closing and (ii) the date on which the percentage
of the Total Voting Power represented by the aggregate voting power of all
Voting Securities then owned by Purchaser (other than any Voting Securities
acquired in violation of this Agreement) is greater than 50%.

(d) Prior to the seventh anniversary of the Closing, the Purchasers will
not, directly or otherwise dispose of Shares representing 15% or more of the
then outstanding Common Stock to any Person or group (within the meaning of
Section 13(d)(3) of the Exchange Act) without first offering the Company the
right to make an offer to purchase the Shares proposed to be so sold,
transferred or otherwise disposed of. The provisions of the previous sentence
shall terminate and be of no effect on the date on which the percentage of the
Total Voting Power represented by the aggregate voting power of all Voting
Securities then owned by Purchaser (other than any Voting Securities acquired in
violation of this Agreement) is greater than 50%.

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ARTICLE VIII

COVENANTS AND ADDITIONAL AGREEMENTS

SECTION 8.01 COVENANTS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the Closing, the Company agrees as to itself
and the Retained Subsidiaries that, except as set forth in the Distribution
Agreements or in Schedule 8.01, or to the extent that Purchaser otherwise
consents in writing:

(a) ORDINARY COURSE. The Retained Business will be conducted in the
ordinary course in substantially the same manner as presently conducted and the
Company will use commercially reasonable efforts to keep available the services
of the current officers and employees engaged primarily in the Retained Business
and to preserve the relationships with customers, suppliers and others having
business dealings with the Retained Business.

(b) NO ACQUISITIONS. The Company will not, nor will it permit any of the
Retained Subsidiaries to, acquire or agree to acquire (excluding any non-binding
letters of intent) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets (other
than inventory) involving aggregate consideration having a value in excess of
$25 million in any case or $150 million in the aggregate (in either case whether
payable in cash, stock or a combination thereof); provided that (i) no such
consideration shall be payable in Common Stock or stock of any Retained
Subsidiary and (ii) any such consideration payable in stock of a Distributed
Company shall not be payable prior to completion of the Distributions; and
provided, further, that this paragraph (b) shall not limit the ability of the
Company or the Retained Subsidiaries to make acquisitions in respect of
businesses which will constitute part of a Distributed Company if all
acquisition debt associated therewith is allocated to such Distributed Company.

(c) NO DISPOSITIONS. The Company will not, nor will it permit any of the
Retained Subsidiaries to, sell, lease, license, encumber or otherwise dispose
of, or agree to sell, lease, license, encumber or otherwise dispose of, any of
the Assets of the Retained Business other than at fair market value in the
ordinary course of business consistent with past practice.

(d) OTHER TRANSACTIONS. The Company will not, nor will it permit any of
the Retained Subsidiaries to, do any of the following (except as otherwise
expressly provided herein or in any other Transaction Agreement):

(i) Amend its Certificate of Incorporation (except to the extent necessary
to implement a shareholder rights plan pursuant to clause (ii) below), By-laws
or other organizational documents (except for immaterial amendments to the
Certificate of Incorporation or By-laws of any Subsidiaries, provided such
amendments in no way adversely affect Purchaser or the rights granted to
Purchaser hereunder);

(ii) declare or pay any non-cash dividend or make any non-cash distribution
with respect to the Assets; provided, however, that the Company shall be
permitted to issue rights under a customary shareholder rights plan or "poison
pill" that (A) expires at Closing and (B) expressly exempts Purchaser and its
Affiliates from its operation;

(iii) redeem or otherwise acquire any shares of its capital stock or issue
any capital stock (except upon exercise of options issued prior to the date
hereof under a Company Stock Plan), or any option, or warrant or right relating
thereto (other than grants under the Company's 1994 Amended and Restated Long
Term Incentive Plan of options to acquire not more than 685,778 shares of Common
Stock in the aggregate from the separate "pools" of options that the Company has
heretofore allocated in connection with certain acquisitions that the Company
has made for award to employees of such acquired companies; provided that each
such option shall (A) have a per share exercise price that is not less than the
fair market value per share of Common Stock at the date of grant, (B) vest and
become exercisable no more rapidly than

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25% on each of the first four anniversaries of the date of grant, and (C) shall
not vest or become earlier exercisable as a result of the consummation of the
Transactions);

(iv) incur any liabilities, obligations or indebtedness for borrowed money
or guarantee any such liabilities, obligations or indebtedness, other than in
the ordinary course of business consistent with past practice (except as
otherwise provided herein with respect to the Proposed Financings or as incurred
in connection with acquisitions to the extent permitted hereby) and in an
aggregate amount that would not be material to the Company;

(v) permit, allow or suffer any assets of the Retained Business to be
subject to any Lien other than Permitted Liens;

(vi) guarantee or otherwise become contingently liable for any obligation of
any of the Distributed Companies;

(vii) cancel any material indebtedness (individually or in the aggregate)
relating to the Retained Business or waive any claims or rights of substantial
value relating to the Retained Business;

(viii) pay, loan or advance any amount to, or sell, transfer or lease any of
its assets relating to the Retained Business, or enter into any agreement or
arrangement relating to the Retained Business with, any of the Distributed
Companies or any of their respective Affiliates other than in the ordinary
course of business consistent with past practice;

(ix) make any change in any method of accounting or accounting practice or
policy, except as may be required by GAAP;

(x) modify, amend, terminate or permit the lapse of any lease of real
property used in connection with, and which is material to, the Retained
Business (except modifications or amendments associated with renewals of such
leases in the ordinary course of business consistent with past practice of the
Retained Companies with respect to which Purchaser shall have the right to
participate and to approve);

(xi) enter into, terminate, renew or modify any Contract to which the
Company or any Retained Subsidiary is a party or by which any of their assets
are bound and which is material to the Company;

(xii) enter into any agreement or take any action in violation of the terms
of this Agreement or any of the other Transaction Agreements;

(xiii) settle any material tax audit, make or change any tax election or amend
any Tax Returns; or

(xiv) agree, whether in writing or otherwise, to do any of the foregoing.

(e) EMPLOYEE BENEFITS. Except (w) as set forth in Schedule 8.01(e), (x) in
connection with acquisitions to the extent permitted by this Agreement or (y) in
the ordinary course of business and as consistent with past practice (which
shall include normal periodic performance reviews and related benefit increases)
or (z) pursuant to the existing terms of any collective bargaining agreement,
the Company will not, nor will it permit any of the Retained Subsidiaries to (i)
increase in any manner the compensation of any of the officers or other
employees of the Retained Companies; (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required by any existing
plan, agreement or arrangement to any such officer or employee, whether past or
present; (iii) enter into, or negotiate, any collective bargaining agreement
with respect to employees of the Retained Companies except as required by law,
in which case the Company or such Retained Subsidiary shall first notify
Purchaser; or (iv) commit itself to any additional pension, profit-sharing,
bonus, incentive, deferred compensation, stock purchase, stock option, equity
purchase (or other equity based plan), stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan, policy,
program, understanding, agreement or arrangement, or to any employment agreement
or consulting agreement (arising out of prior employment), regardless of the
applicable funding arrangements, with or for the benefit of any officer or
employee of the Retained Companies, or amend, renew or extend any of such plan
or any of such agreements in existence on the date

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hereof in any manner which would, in the case of clauses (i), (ii), (iii) and
(iv) above, result in liabilities that are material to the Retained Companies
taken as a whole.

SECTION 8.02 TRANSACTION PROPOSALS. (a) Subject to Section 8.02(d), the
Company shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize or permit any officer, director or employee of, or any investment
banker, attorney, accountant or other advisor, agent or representative of, the
Company or any of its Subsidiaries to, (i) solicit or initiate, or encourage
(including by furnishing non-public information) the submission of, any
Transaction Proposal (as defined below) or (ii) participate in any discussions
or negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Transaction Proposal; provided, however, that prior to the Company Meeting, in
response to an unsolicited written bona fide Transaction Proposal that in the
good faith opinion of the Board of Directors of the Company could reasonably be
expected to result in a Superior Proposal (as defined below), if the Board of
Directors of the Company determines in good faith, after consultation with
outside counsel, that failure to do so could reasonably be expected to result in
a breach of its fiduciary duties to stockholders under applicable law, the
Company may, subject to compliance with Section 8.02(c), (A) furnish information
with respect to the Company to such Person making such proposal pursuant to a
customary confidentiality and standstill agreement with such Person and (B)
participate in negotiations regarding such Transaction Proposal. For purposes of
this Agreement, "Transaction Proposal" means any inquiry, proposal or offer from
any Person relating to (x) any purchase or other acquisition from the Company of
assets representing 25% or more of the net revenues, net income or profits of
the Company and its Subsidiaries, taken as a whole, (y) any purchase or other
acquisition of 10% or more of any class of Equity Securities of the Company, or
(z) any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company (or any
Subsidiary whose business constitutes 25% or more of the net revenues, net
income or assets of the Company and its Subsidiaries, taken as a whole), in each
case other than the transactions contemplated by this Agreement. Immediately
after the execution and delivery of this Agreement, the Company will, and will
cause its Subsidiaries and Affiliates, and their respective officers, directors,
employees, investment bankers, attorneys, accountants and other agents to, cease
and terminate any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any possible Transaction Proposal.

(b) Nothing contained in this Section 8.02 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act; provided that except as set forth
in this Section 8.02(b) or as permitted by Section 8.02(d), neither the Board of
Directors of the Company nor any committee thereof shall (A) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to Purchaser, the approval
or recommendation by such Board of Directors or any such committee of this
Agreement or the Transactions, (B) approve or recommend, or propose to approve
or recommend, any Transaction Proposal (C) cause or permit the Company or any of
its Subsidiaries to enter into any agreement with respect to any Transaction
Proposal or (D) terminate this Agreement in response to a Transaction Proposal.
Notwithstanding the foregoing, if prior to the Company Meeting the Company has
received a Transaction Proposal that the Board determines in good faith is a
Superior Proposal, then the Board of Directors of the Company, if it determines
in good faith, after consultation with outside counsel, that failure to do so
could reasonably be expected to result in a breach of its fiduciary duties to
stockholders under applicable law, may (subject to the terms of this sentence
and compliance with the following sentence) (i) withdraw or modify its
recommendation of this Agreement, or the transactions contemplated hereby, (ii)
approve or recommend such Superior Proposal, (iii) cause the Company to enter
into an agreement with respect to a Superior Proposal and (iv) terminate this
Agreement, in each case (as contemplated by this Section 8.02(b)) no earlier
than five Business Days following Purchaser's receipt of a written notice from
the Company advising Purchaser that the Board of Directors of the Company has
received a Superior Proposal, specifying the terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal;
provided, however, that neither the Company nor its Board of Directors shall
take any of the actions specified in such clauses (i),

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(ii), (iii) or (iv) unless the Company shall have furnished Purchaser with
written notice on a date prior to the date any such actions are proposed to be
taken specifying such actions to be taken. In addition, if the Company or the
Board of Directors of the Company proposes to take any of the actions permitted
by the preceding sentence with respect to any Transaction Proposal, then the
Company shall, prior to the taking of any such action, pay, or cause to be paid,
to Purchaser, Purchaser's Expenses and the Termination Fee (each as defined in
Section 12.09). The term "Superior Proposal" shall mean any bona fide written
Transaction Proposal that has the following characteristics: (1) it is a
proposal to acquire, directly or indirectly, for consideration consisting of
cash and/or readily marketable securities, (x) shares of Common Stock
representing at least 20% of the Total Voting Power, or (y) at least 25% of the
assets of the Retained Subsidiaries and (2) the terms of such proposal in the
good faith judgment of the Board of Directors of the Company, based on advice
from the Company's financial adviser, provide consideration to the Company or
the Company's stockholders that is superior to the consideration provided
pursuant to this Agreement (after taking into account any modifications to this
Agreement proposed by Purchaser).

(c) The Company shall immediately advise Purchaser orally and in writing of
(i) any request for information which may relate to a Transaction Proposal, (ii)
any Transaction Proposal, (iii) any inquiry with respect to or that could lead
to any Transaction Proposal or (iv) any action taken in accordance with Section
8.02(a)(A) or (B), and in each case the material terms and conditions of such
request, Transaction Proposal, inquiry or action and the identity of the Person
making any such request, Transaction Proposal or inquiry with respect to which
such action is taken. The Company will keep Purchaser reasonably informed of
material developments concerning the status and details (including amendments or
proposed amendments) of any such request, Transaction Proposal, inquiry or
action.

SECTION 8.03 MODIFICATION OF TRANSACTION AGREEMENTS; ABANDONMENT OF
DISTRIBUTIONS. Notwithstanding anything to the contrary in this Agreement, the
Company may in its sole discretion modify each of the Transaction Agreements
relating to the Distributions and, if the Board of Directors of the Company
determines in good faith that it is in the best interest of the Company to do
so, abandon the Distributions.

SECTION 8.04 TRANSACTION AGREEMENTS AND SCHEDULES. The Company shall use
reasonable best efforts to cause (i) each of the Transaction Agreements to be
entered into by the Company, School, Travel, Technology or Print, as the case
may be, in connection with the Distributions, and each of the Annexes called for
in this Agreement that have not been provided to Purchaser prior to the
execution of this Agreement, to be delivered to Purchaser and its counsel by
7:00 p.m., New York Time, February 13, 1998 (the "Agreement Delivery Cut-Off
Time"); and (ii) each of the Schedules called for in this Agreement that have
not been provided to Purchaser prior to execution of this Agreement (and prior
to the Schedule Review Cut-Off Time (as defined below) may supplement Schedules
that have previously been supplied or may unilaterally amend this Agreement to
add additional Schedules) to be delivered to Purchaser and its counsel by 7:00
p.m., New York time, January 20, 1998 (the "Schedule Delivery Cut-off Time").
Purchaser shall review such Transaction Agreements, Schedules and Annexes in
good faith. Prior to the applicable Review Cut-off Time (as defined below) the
Company shall make available to Purchaser and its counsel at their request all
documentation related to any item set forth on any Schedule or Annex. Purchaser
shall complete its review of the Transaction Agreements, and the Annexes and
notify the Company that such review is complete by 7:00 p.m., New York time, on
February 27, 1998 (the "Agreement Review Cut-off Time") and shall complete its
review of the Schedules and notify the Company that such review is complete by
7:00 p.m., New York time, on February 3, 1998 (the "Schedule Review Cut-Off
Time"); provided, however, that if any Transaction Agreement, Schedule or Annex
is delivered after the applicable Delivery Cut-off Time, the applicable Review
Cut-off Time for all Transaction Agreements and Annexes and for the Schedules,
as the case may be shall be extended by the number of days elapsed (which, in
any case, shall not be less than one) between the date of such Delivery Cut-off
Time and the date of receipt by Purchaser and its counsel of such Transaction
Agreement or Annex or such Schedule, as the case may be; and provided further,
however, that if (A) the Transaction Agreements are not satisfactory to
Purchaser in its good faith reasonable judgment, (B) the Audited Retained
Business Financial Statements reflect

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financial information materially different from that presented in the Pro Forma
Retained Business Financial Statements, or (C) any new Schedule or change or
addition to the Schedules made after the date hereof is not satisfactory to
Purchaser in its good faith reasonable judgment, Purchaser may terminate this
Agreement upon written notice to the Company without further liability on the
part of Purchaser or the Company other than pursuant to Sections 10.02 and
13.09.

SECTION 8.05 COMPANY STOCKHOLDER APPROVAL; PROXY STATEMENT. (a) The Company
shall call a meeting of its stockholders (the "Company Meeting") for the
purpose, among others, of voting upon the issuance (the "Issuance") of the
Shares, the Special Warrants and the Warrants to Purchaser (the "Company Meeting
Proposal").

(b) The Company will prepare and file with the SEC a proxy statement
relating to the Company Meeting (as amended or supplemented and including
documents incorporated by reference therein, the "Proxy Statement") and shall
use its reasonable best efforts to respond to any comments of the SEC or its
staff and to cause the Proxy Statement to be cleared by the SEC. The Company
shall notify Purchaser of the receipt of any comments from the SEC or its staff
and of any request by the SEC or its staff for amendments or supplements to the
Proxy Statement or for additional information and shall supply Purchaser and its
counsel with copies of all correspondence between the Company or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement. The Company shall give Purchaser and its
counsel the opportunity to review the Proxy Statement prior to its being filed
with the SEC and shall give Purchaser and its counsel the opportunity to review
all amendments and supplements to the Proxy Statement and all responses to
requests for additional information and replies to comments prior to their being
filed with, or sent to, the SEC. Each of the Company and Purchaser agrees to use
its reasonable best efforts, after consultation with the other party hereto, to
respond promptly to all such comments of and requests by the SEC. After the
Proxy Statement has been cleared by the SEC, the Company shall mail the Proxy
Statement to the stockholders of the Company. If at any time prior to the
Company Meeting there shall occur any event that should be set forth in an
amendment or supplement to the Proxy Statement, the Company will prepare and
mail to its stockholders such an amendment or supplement.

(c) The Proxy Statement will not, at the date mailed to the Company's
stockholders and at the date of the Company Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, except that no
representation is made by the Company with respect to statements made therein
based on information concerning Purchaser or its Affiliates supplied in writing
by Purchaser or any of its Affiliates specifically for inclusion in the Proxy
Statement. The Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder.

(d) Subject to Section 8.02(b), the Board of Directors of the Company shall
recommend that the Company's stockholders approve the Company Meeting Proposal
and the Company shall use its best efforts to obtain the necessary approvals by
its stockholders of the Company Meeting Proposal.

SECTION 8.06 RETAINED COMPANIES FINANCING. In connection with the Proposed
Financings, the Company and Purchaser shall jointly select all sources of the
Proposed Financings, including determining the respective roles of such sources;
provided, however, that Bankers Trust Company shall have the opportunity to be a
lead in the bank financing with economics at least as favorable as any other
lead in the bank financing if Bankers Trust Company's pricing is competitive. In
addition, (i) Purchaser and its counsel shall have the right to participate in
any discussions or negotiations between the Company and any of its
representatives, on the one hand, and its prospective lenders and their counsel,
on the other, and to comment on draft loan and other documentation in respect of
any such Proposed Financings and (ii) the Company shall provide Purchaser and
its counsel copies of all correspondence between the Company and its lenders
relating thereto. If, prior to the execution of any definitive documentation
with respect to the

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Proposed Financings, based on its review of such definitive documentation,
Purchaser determines in the good faith exercise of its reasonable judgment not
to proceed with the transactions contemplated by this Agreement, Purchaser may
terminate this Agreement upon written notice to the Company.

SECTION 8.07 TENDER OFFER. (a) The Company shall cause the commencement (as
such term is defined in Rule 13e-4(a)(4) under the Exchange Act) of the Tender
Offer to purchase 37,037,037 shares of Common Stock, at a price per share equal
to $27, net to the seller in cash, no later than the date specified in Schedule
8.07. Unless Purchaser shall otherwise agree, the Company's obligation to
complete the Tender Offer shall be subject only to the conditions (the "Offer
Conditions") set forth in Schedule 8.07. Subject to the provisions hereof, the
Tender Offer shall expire on the date set forth in Schedule 8.07; provided that
the Tender Offer shall be extended from time to time if the Offer Conditions
shall not have been satisfied, so long as this Agreement shall remain in effect.

(b) On the date of commencement of the Tender Offer, the Company shall file
with the SEC an Issuer Tender Offer Statement on Schedule 13E-4 with respect to
the Tender Offer (the "Tender Offer Statement"), which shall contain an offer to
purchase and a related letter of transmittal (such Tender Offer Statement and
the documents therein pursuant to which the Tender Offer will be made, together
with any supplements or amendments thereto, are referred to hereinafter as the
"Offer Documents"). After the Offer Documents are filed with the SEC, the
Company shall disseminate the Offer Documents to the stockholders of the
Company. If at any time prior to the expiration of the Tender Offer there shall
occur any event that should be set forth in an amendment or supplement to the
Offer Documents, the Company will prepare and file with the SEC and disseminate
to its stockholders such an amendment or supplement.

(c) The Company shall give Purchaser and its counsel the opportunity to
review the Offer Documents prior to their being filed with the SEC and shall
give Purchaser and its counsel the opportunity to review all amendments and
supplements to the Offer Documents and all responses to requests for additional
information and replies to comments prior to their being filed with, or sent to,
the SEC. The Company shall notify Purchaser of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Offer Documents or for additional information and shall
supply Purchaser and its counsel with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the Offer Documents.

(d) The Offer Documents will not, on the date filed with the SEC and as of
the date first published, sent or given to the Company's stockholders, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
except that no representation is made by the Company with respect to statements
made therein based on information concerning Purchaser or its Affiliates
supplied in writing by Purchaser or any of its Affiliates specifically for
inclusion in the Offer Documents. The Offer Documents will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.

SECTION 8.08 INFORMATION STATEMENTS. (a) The Company shall give Purchaser
and its counsel the opportunity to review the information statements to be
disseminated to stockholders of the Company in connection with the Distributions
(the "Information Statements") prior to its being filed with the SEC and shall
give Purchaser and its counsel the opportunity to review all amendments and
supplements to the Information Statements and all responses to requests for
additional information and replies to comments prior to their being filed with,
or sent to, the SEC. The Company shall notify Purchaser of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Information Statements or for additional
information and shall supply Purchaser and its counsel with copies of all
correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the
Information Statements. If at any time prior to completion of the Distributions
there shall occur any event that should be set forth in an

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amendment or supplement to the Information Statement, the Company will prepare
and file with the SEC and disseminate to its stockholders such an amendment or
supplement.

(b) The Information Statements will not, on the date filed with the SEC and
as of the date first disseminated to the Company's stockholders, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading except that
no representation is made by the Company with respect to statements made therein
based on information concerning Purchaser or its Affiliates supplied in writing
by Purchaser or any of its Affiliates specifically for inclusion in the
Information Statements. The Information Statements will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.

SECTION 8.09 [INTENTIONALLY OMITTED.]

SECTION 8.10 TAX STANDSTILL. Except as permitted by Section 6.01(b) or
6.01(c), during the period ending two years after the date of the Distributions,
(i) Purchaser shall not acquire any Securities or take any other action that
would cause Purchaser's Percentage Interest to equal or exceed 50%, (ii) none of
Purchaser, the Fund or CD&R shall act in concert with any other Person to
acquire any Securities if aggregating such acquisition with the Purchaser's
holdings would cause the Purchaser's Percentage Interest to equal or exceed 50%,
and (iii) none of Purchaser, the Fund or CD&R shall solicit the acquisition of
any Securities, provided that the provision by the Fund to its limited partners
of customary reports and information, and customary communication with such
limited partners on behalf of the Fund, with respect to the Fund's investment in
the Company that, in either case, do not recommend any such acquisition, shall
not be treated as a solicitation by the Purchaser within the meaning of this
clause (iii).

SECTION 8.11 ACCESS AND INFORMATION. (a) So long as this Agreement remains
in effect, prior to the Closing, the Company will (and will cause each of the
Retained Companies, and each of their respective accountants, counsel,
consultants, officers, directors, employees, agents and representatives of or to
any of the Retained Companies, to) give Purchaser and its Representatives, full
access during reasonable business hours to all of their respective properties,
assets, books, contracts, commitments, reports and records relating to the
Retained Companies, and furnish to them all such documents, records and
information with respect to the properties, assets and business of the Retained
Companies and copies of any work papers relating thereto as Purchaser shall from
time to time reasonably request. The Company will keep Purchaser generally
informed as to the affairs of the Retained Business.

(b) In addition, the Company shall deliver to Purchaser, not later than the
35th day following the end of each fiscal month prior to the Closing, updated
Pro Forma Retained Business Financial Statements as of the end of such fiscal
month.

SECTION 8.12 FURTHER ACTIONS. (a) The Company shall, and shall cause each
of the Retained Companies to, use reasonable best efforts to take or cause to be
taken all actions, and to do or cause to be done all other things, necessary,
proper or advisable in order for each of the Retained Companies to fulfill and
perform its obligations in respect of this Agreement and the Transaction
Agreements to which it is a party, or otherwise to consummate and make effective
the transactions contemplated hereby and thereby.

(b) The Company shall (and shall cause each of the Retained Companies to),
as promptly as practicable, (i) make, or cause to be made, all filings and
submissions (including but not limited to under the HSR Act and foreign
antitrust filings) required under any law applicable to any of the Retained
Companies, and give such reasonable undertakings as may be required in
connection therewith, and (ii) use all reasonable efforts to obtain or make, or
cause to be obtained or made, all Permits necessary to be obtained or made by
any of the Retained Companies, in each case in connection with this Agreement or
the Transaction Agreements, the sale and transfer of the Shares, the Special
Warrants and the Warrants pursuant hereto, or the consummation of the other
transactions contemplated hereby or thereby.

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(c) The Company shall, and shall cause each of the Retained Companies to,
coordinate and cooperate with Purchaser in exchanging such information and
supplying such reasonable assistance as may be reasonably requested by Purchaser
in connection with the filings and other actions contemplated by this Agreement.

(d) At all times prior to the Closing Date, the Company shall promptly
notify Purchaser in writing of any fact, condition, event or occurrence that
could reasonably be expected to result in the failure of any of the conditions
contained in Article IX to be satisfied, promptly upon becoming aware of the
same.

SECTION 8.13 FURTHER ASSURANCES. Following the Closing Date, the Company
shall, and shall cause each of the Retained Companies to, from time to time,
execute and deliver such additional instruments, documents, conveyances or
assurances and take such other actions as shall be necessary, or otherwise
reasonably be requested by Purchaser, to confirm and assure the rights and
obligations provided for in this Agreement and the Transaction Agreements and
render effective the consummation of the transactions contemplated hereby and
thereby, or otherwise to carry out the intent and purposes of this Agreement.

ARTICLE IX

CONDITIONS PRECEDENT

SECTION 9.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The obligations of the
Company and Purchaser to consummate the transactions contemplated to occur at
the Closing shall be subject to the satisfaction prior to the Closing of each of
the following conditions, each of which may be waived only if it is legally
permissible to do so:

(a) HSR AND OTHER APPROVALS. Any applicable waiting period under the HSR
Act relating to the transactions contemplated hereby shall have expired or been
terminated, and all other material authorizations, consents, orders or approvals
of, or regulations, declarations or filings with, or expirations of applicable
waiting periods imposed by, any Governmental Entity (including, without
limitation, any foreign antitrust filing) necessary for the consummation of the
transactions contemplated hereby, shall have been obtained or filed or shall
have occurred.

(b) NO LITIGATION, INJUNCTIONS, OR RESTRAINTS. No statute, rule,
regulation, executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced or
issued by any Governmental Entity or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this Agreement
or any of the Transaction Agreements shall be in effect.

(d) NASDAQ LISTING. The Shares shall have been approved for listing on the
Nasdaq Stock Market, subject only to official notice of issuance.

(e) CONSUMMATION OF DISTRIBUTIONS. The distribution of the businesses of
School, Travel, Technology, Print and their respective Subsidiaries shall have
occurred pursuant to the Distribution Agreements, which shall contain
provisions:

(i) effecting the Pre-Distribution Transactions;

(ii) allocating assets and liabilities among the Distributed Companies and
the Retained Companies;

(iii) allocating among the Distributed Companies an aggregate of $130 million
of corporate debt, in addition to acquisition debt incurred in respect of
acquisitions effected after the date hereof;

(iv) allocating among the Distributed Companies and the Company on a pro
rata basis all liabilities of the Distributed Companies not properly allocable
to any specific Distributed Company or to the Company;

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(v) with respect to current and planned cross-selling opportunities between
the Distributed Companies and the Retained Companies; and

(vi) allocating on a pro rata basis the transaction costs associated with
the Transactions.

(f) Tax Allocation Agreement. The Tax Allocation Agreement shall have been
executed and shall contain the following provisions:

(i) a joint and several indemnity from the Distributed Companies in favor of
the Company and the Retained Subsidiaries from and against any Losses with
respect to Taxes resulting from any Adverse Tax Act of any of the Distributed
Companies or their Subsidiaries;

(ii) an indemnity from each of the Distributed Companies in favor of the
Company from and against any Losses with respect to Taxes resulting from the
Pre-Distribution Transactions or the Distributions, as a result of the failure
of the Pre-Distribution Transactions or the Distributions to qualify under
sections 355 or 368 of the Code or otherwise, including, without limitation, by
reason of any stock or securities of any Distributed Company failing to qualify
as "qualified property" within the meaning of section 355(c)(2) of the Code,
except to the extent such Losses result from any Adverse Tax Act by any of the
Company, the Retained Subsidiaries, the Distributed Companies or any of their
Subsidiaries, provided that each Distributed Company shall be only liable for
the portion of such Losses that bears the same ratio to the aggregate amount of
such Losses as the Market Capitalization of such Distributed Company bears to
the aggregate Market Capitalization of the Company and the Distributed Companies
and provided, further, that each Distributed Company shall be liable for 100% of
any such Losses attributable to any "deferred intercompany transaction" to the
extent such Loss is attributable to any "intercompany item" that such
Distributed Company or any of its Subsidiaries is required to take into account
immediately prior to the Distributions pursuant to Treasury Regulations section
1.1502-13;

(iii) customary provisions providing for control and participation rights
with respect to any administrative and judicial proceedings with respect to
Taxes, including the right of the Person primarily responsible for the relevant
indemnification obligation thereunder to control any such proceeding.
Notwithstanding anything to the contrary in the preceding sentence, no
Distributed Company shall be entitled to assume control of any portion of any
administrative or judicial proceeding with respect to Taxes unless such
Distributed Company shall have theretofore acknowledged in writing its liability
for such Taxes pursuant to the Tax Allocation Agreement; and

(iv) Any tax saving or other benefit attributable any compensation deduction
arising from or in connection with the exercise by any Employee of the Company
or any of its Subsidiaries of any option granted under any of the Company Stock
Plans shall be apportioned to the entity whose shares were issued upon the
exercise of such option, provided that any compensation deduction arising from
or in connection with any such exercise on or prior to the Closing Date by any
Employee of any Distributed Company or any of its Subsidiaries shall be
apportioned to such Distributed Company.

SECTION 9.02 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the transactions contemplated to occur at the
Closing shall be subject to the satisfaction or waiver thereof prior to the
Closing of each of the following conditions:

(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Purchaser that are qualified as to materiality shall be true and correct,
and those that are not so qualified shall be true and correct in all
material respects, as of the date of this Agreement and as of the time of
the Closing as though made at and as of such time, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, on and as of such
earlier date) and the Company shall have received a certificate signed by an
authorized officer of Purchaser to such effect.

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(b) OPINION OF PURCHASER'S COUNSEL. The Company shall have received an
opinion dated as of the Closing of Debevoise & Plimpton, counsel to
Purchaser, in form and substance reasonably satisfactory to the Company.

SECTION 9.03 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate the transactions contemplated to occur at the Closing
shall be subject to the satisfaction or waiver thereof prior to the Closing of
each of the following conditions:

(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company set forth in this Agreement that are qualified as to materiality
shall be true and correct, and those that are not so qualified shall be true and
correct in all material respects, as of the date of this Agreement and as of the
time of the Closing as though made at and as of such time, except to the extent
such representations and warranties expressly relate to an earlier date (in
which case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified shall
be true and correct in all material respects, on and as of such earlier date),
and Purchaser shall have received a certificate signed by the chief executive
officer and chief financial officer of the Company to such effect.

(b) TRANSACTION AGREEMENTS. Each Transaction Agreement to which the
Company is a party shall have been executed without modification from the forms
as in existence at the Review Cut-off Time or such earlier date as Purchaser
completed its review of such agreement.

(c) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed or complied in all material respects with all obligations and
covenants required to be performed or complied with by the Company under this
Agreement, and Purchaser shall have received a certificate signed by the chief
executive officer and chief financial officer of the Company to such effect.

(d) OPINION OF THE COMPANY'S COUNSEL. Purchaser shall have received
opinions dated as of the Closing of the general counsel of the Company, and
Wilmer, Cutler & Pickering, counsel to the Company, in form and substance
reasonably satisfactory to Purchaser.

(e) REGISTRATION RIGHTS AGREEMENT. The Company shall have executed and
delivered the Registration Rights Agreement.

(f) FINANCINGS. The Company shall have entered into definitive
documentation for the Proposed Financings and such definitive documentation
shall be satisfactory in form and substance to Purchaser.

(g) TENDER OFFER. The Company shall have consummated the Tender Offer as
provided for herein.

(h) CONSULTING AGREEMENT; TRANSACTION FEE. The Company shall have (A)
entered into a consulting agreement with CD&R providing for an annual fee of
$500,000 (plus reasonable out-of-pocket expenses) in connection with consulting
and advisory services and a related indemnification agreement and (B) authorized
payment to CD&R of the Transaction Fee and the Transaction Fee shall have been
paid to CD&R. The consulting agreement shall terminate at the later of (i) the
fifth anniversary of the Closing Date and (ii) such time as Purchaser is
entitled to nominate only one Investor Director.

(i) OTHER PARTIES. (A) No Person or "group" (as defined in the Exchange
Act), other than Purchaser, shall have acquired beneficial ownership of more
than 15% of the outstanding shares of Voting Securities, and (B) no Person
(other than Purchaser or one or more of its Affiliates) shall have entered into
an agreement in principle or definitive agreement with the Company with respect
to a tender or exchange offer for any shares of Common Stock or a merger,
consolidation or other business combination with or involving the Company.

(j) CORPORATE PROCEEDINGS. All corporate proceedings of the Company in
connection with the transactions contemplated by this Agreement and the
Transaction Agreements, and all documents and

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instruments incident thereto, shall be satisfactory in form and substance to
Purchaser and its counsel, and Purchaser and its counsel shall have received all
such documents and instruments, or copies thereof, certified or requested, as
may be reasonably requested.

(k) MANAGEMENT PLAN. Purchaser shall have completed discussions with
management which satisfactorily confirm to Purchaser that the operating
prospects of the Retained Business (exclusive of acquisitions), are, taken as a
whole, not materially inconsistent with the Company's forecasts (excluding (i)
the impact on the Company's earnings for fiscal quarters ending prior to or
including the Closing caused by the inability of the Company to complete
acquisitions following announcement of the Transactions and/or to account for
acquisitions as poolings of interest and (ii) the effect on the Company of being
required as a result of the Transactions to change accounting treatment for past
acquisitions from poolings of interests to purchases); provided, however, that
this condition shall be deemed satisfied if Purchaser shall not have given
notice to the Company on or prior to February 3, 1998 that Purchaser has
concluded that this condition has not been satisfied.

(l) BOARD OF DIRECTORS. The Board of Directors of the Company shall
consist of 9 persons, including the chief executive officer of the Company,
three designees of Purchaser, three persons selected by the current Board of
Directors and two persons who shall be satisfactory to both Purchaser and the
current Board of Directors of the Company.

(m) MATERIAL ADVERSE EFFECT. No event, change or development shall exist
or have occurred since October 25, 1997 which has had or is reasonably likely to
have a Material Adverse Effect on the Retained Companies, taken as a whole.

(n) DEBT AMOUNTS. The outstanding debt of the Retained Companies shall not
exceed $1.4 billion (after giving effect to the Transactions and assuming
conversion of all issued and outstanding 2001 Notes) and the outstanding debt of
the Distributed Companies shall be at least $130 million plus the expenditures
by the entities comprising such Distributed Companies for acquisitions after the
date hereof.

(o) OPTIONS. The Company's arrangements with respect to Management options
shall be satisfactory to Purchaser in its good faith reasonable judgment.

ARTICLE X

TERMINATION

SECTION 10.01 TERMINATION. This Agreement may be terminated at any time
prior to the Closing, whether before or after the Company Stockholder Approval
has been obtained:

(a) by mutual written consent of Purchaser and the Company;

(b) by Purchaser or the Company:

(i) if the Closing shall not have occurred prior to September 30, 1998,
provided, that the right to terminate this Agreement pursuant to this clause (i)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement results in the failure of the Closing to occur;

(ii) if the Company Stockholder Approval shall not have been obtained by
reason of the failure to obtain the required vote upon a vote held at the
Company Meeting, or such meeting shall not have been held by September 30, 1998;

(iii) if there shall be any statute, law, regulation or rule that makes
consummating the transactions contemplated hereby illegal or if any court or
other Governmental Entity of competent jurisdiction shall have issued a
judgment, order, decree or ruling, or shall have taken such other action
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby and such judgment, order, decree or ruling
shall have become final and non-appealable;

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(c) by Purchaser:

(i) if the Company shall have failed to perform in any material respect any
of its obligations hereunder or shall have breached in any respect any
representation or warranty contained herein qualified by materiality or shall
have breached in any material respect any representation or warranty not so
qualified, and the Company has failed to perform such obligation or cure such
breach, within 30 days of its receipt of written notice thereof from Purchaser,
and such failure to perform shall not have been waived in accordance with the
terms of this Agreement;

(ii) if the Board of Directors of the Company or any committee thereof
withdraws or modifies (or publicly announces its intention to do so, or
resolves to do so) in a manner adverse to Purchaser (as determined by
Purchaser in its reasonable judgment) its approval or recommendation of this
Agreement or the transactions contemplated hereby or approves or recommends
a Transaction Proposal;

(iii) if the Board of Directors of the Company publicly announces its
determination not to effect the Distributions;

(iv) if any of the conditions set forth in Section 9.01 or 9.03 shall
become impossible to fulfill (other than as a result of any breach by
Purchaser of the terms of this Agreement) and shall not have been waived in
accordance with the terms of this Agreement;

(v) if permitted pursuant to Section 8.04 or 8.06;

(vi) if the Company shall make any substantive amendment to any
Transaction Agreement after the Review Cut-Off Time without Purchaser's
consent;

(d) by the Company:

(i) if Purchaser shall have failed to perform in any material respect
any of its obligations hereunder or shall have breached in any respect any
representation or warranty contained herein qualified by materiality or
shall have breached in any material respect any representation or warranty
not so qualified, and Purchaser has failed to perform such obligation or
cure such breach, within 30 days of its receipt of written notice thereof
from the Company, and such failure to perform shall not have been waived in
accordance with the terms of this Agreement;

(ii) if any of the conditions set forth in Section 9.01 or 9.02 shall
become impossible to fulfill (other than as a result of any breach by the
Company of the terms of this Agreement) and shall not have been waived in
accordance with the terms of this Agreement;

(iii) if permitted pursuant to Section 8.02(b).

SECTION 10.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Purchaser as provided in Section 10.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Purchaser or the Company, other than the provisions
of this Section 10.02, Section 13.09 and Article XI and except to the extent
that such termination results from the wilful and material breach by a party of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.

ARTICLE XI

INDEMNIFICATION

SECTION 11.01 INDEMNIFICATION OF PURCHASER. The Company covenants and
agrees to defend, indemnify and hold harmless each of Purchaser, its Affiliates
(other than the Company and any Retained Companies), and their respective
officers, directors, partners, employees, agents, advisers and representatives
including, without limitation, the Fund, CD&R Investment Associates, Inc., a
Delaware corporation,

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and CD&R Associates V Limited Partnership, a Cayman Islands exempted limited
partnership, and CD&R (collectively, the "Purchaser Indemnitees") from and
against, and pay or reimburse the Purchaser Indemnitees for, any and all claims,
demands, liabilities, obligations, losses, costs, expenses, fines or damages
(whether absolute, accrued, conditional or otherwise and whether or not
resulting from third party claims), including interest and penalties with
respect thereto and out-of-pocket expenses and reasonable attorneys' and
accountants' fees and expenses incurred in the investigation or defense of any
of the same or in asserting, preserving or enforcing any of their respective
rights hereunder (collectively, "Losses"), resulting from or based on (or
allegedly resulting from or based on):

(i) any actions (including by any shareholders of the Company in
connection with any derivative actions) resulting from or based on (or
allegedly resulting from or based on) any of the Transactions, provided that
the indemnity provided in this clause (i) shall not include (A) actions
brought by any limited partner of the Fund against Purchaser or any of its
Affiliates relating to the transactions contemplated by this Agreement, (B)
Losses resulting from or based on the acts or omissions of a Purchaser
Indemnitee following the Closing, (C) claims resulting from or based on (1)
a breach by Purchaser of its obligations under this Agreement, (2) any
contract, agreement, obligation, commitment, understanding or other
arrangement between the claimant and any Purchaser Indemnitee, (3) any
intentional tort by a Purchaser Indemnitee or (4) any fee, compensation or
other payment to be paid to any Purchaser Indemnitee;

(ii) subject to the limitations set forth in Section 11.03, any breach
by the Company of any representation, warranty, covenant or obligation of
the Company hereunder; and

(iii) any failure of any of the Distributed Companies to satisfy its
stated obligations and liabilities under the Distribution Agreements, the
Tax Allocation Agreement or any of the other Transaction Agreements to which
it is a party, whether by virtue of such agreement's unenforceability, the
Distributed Company's bankruptcy or otherwise.

The Losses described in clauses (i), (ii) and (iii) of this Section 11.01(a)
are herein referred to as "Purchaser Indemnifiable Losses". The Company shall
reimburse the Purchaser Indemnitees for any legal or other expenses incurred by
such Purchaser Indemnitees in connection with investigating or defending any
such Purchaser Indemnifiable Losses as such expenses are incurred.

SECTION 11.02 INDEMNIFICATION PROCEDURES. Promptly after receipt by a
Purchaser Indemnitee of notice of the commencement of any action or the written
assertion of any claim, such Purchaser Indemnitee shall, if a claim in respect
thereof is to be made against the Company, as the case may be (the "Indemnifying
Person"), notify the Indemnifying Person in writing of the commencement or the
written assertion thereof. Failure by a Purchaser Indemnitee to so notify the
Indemnifying Person shall relieve the Indemnifying Person from the obligation to
indemnify such Purchaser Indemnitee only to the extent that the Indemnifying
Person suffers actual and material prejudice as a result of such failure but in
no event shall such failure to notify the Indemnifying Person (i) constitute
prejudice suffered by the Indemnifying Person if it has otherwise received
notice of the actions giving rise to such obligation to indemnify or (ii)
relieve it from any liability or obligation that it may otherwise have to such
Purchaser Indemnitee. In case any such action or claim shall be brought or
asserted against any Purchaser Indemnitee and it shall notify the Indemnifying
Person of the commencement or assertion thereof, the Indemnifying Person shall
be entitled to participate therein but the defense of such action or claim shall
be conducted by counsel to the Purchaser Indemnitee, provided, however, that the
Indemnifying Person shall not, in connection with any one such action or
proceeding or separate but substantially similar actions or proceedings arising
out of the same general allegations, be liable for the fees and expenses of more
than one separate firm of attorneys at any time for all Purchaser Indemnitees,
except to the extent that local counsel, in addition to regular counsel, is
required in order to effectively defend against such action or proceeding and
provided further that a Purchaser Indemnitee shall not enter into any settlement
of any such claim without the prior consent of the Company, such consent not to
be unreasonably withheld or delayed.

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SECTION 11.03 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained in this Agreement shall
expire for all purposes on the first anniversary of the Closing Date, except for
the representations and warranties contained in Sections 3.01(n), 3.01(o) and
3.01(p), which shall expire for all purposes upon expiration of the applicable
statute of limitations.

ARTICLE XII

INTERPRETATION; DEFINITIONS

SECTION 12.01 INTERPRETATION. As used in this Agreement:

(a) any reference to the Company and its Subsidiaries means the Company and
each of its Subsidiaries;

(b) any reference to the "Retained Company" and its Subsidiaries or the
"Retained Companies" means the Company and those of its Subsidiaries included in
the Retained Business;

(c) any reference to the "Retained Subsidiaries" means the Subsidiaries of
the Company included in the Retained Business;

(d) any reference to School, Travel, Technology or Print and their
Subsidiaries means School, Travel, Technology or Print immediately after
completion of the Distributions and those entities that immediately after the
completion of the Distributions will be Subsidiaries of School, Travel,
Technology or Print.

SECTION 12.02 DEFINITIONS. For purposes of this Agreement, the following
terms shall have the following meanings:

"2001 Notes" is defined in the recitals to this Agreement.

"2003 Notes" is defined in Section 3.01(d).

"Adverse Tax Act" means, for any Person, any action of such Person, or any
omission by such Person of an action reasonably available to it, after the date
of the Distributions, that materially contributes to a Final Determination that
the Pre-Distribution Transactions or any of the Distributions results in the
recognition of gain to the Company by virtue of the Pre-Distribution
Transactions or any of the Distributions failing to qualify under sections 355
or 368 of the Code, including, without limitation, by reason of any stock or
securities of any Distributed Company failing to qualify as "qualified property"
within the meaning of section 355(c)(2) of the Code, or otherwise.

"Affiliate" shall have the meaning set forth in Rule 12b-2 under the
Exchange Act (as in effect on the date of this Agreement).

"Agreement" is defined in the recitals to this agreement.

"Assets" is defined in Section 3.01(k).

"Audited Balance Sheet" is defined in Section 3.01(g)(iv).

"Audited Retained Business Financial Statements" is defined in 3.01(g)(iv).

"Balance Sheet" is defined in Section 3.01(g)(i).

"Beneficially Own" with respect to any securities means having "beneficial
ownership" of such securities (as determined pursuant to Rule 13d-3 under the
Exchange Act), including pursuant to any agreement, arrangement or
understanding, whether or not in writing.

"Business Day" means any day on which banking institutions are open in the
City of New York.

"Buyout Transaction" means a tender offer, merger, sale of all or
substantially all the Company's assets or any similar transaction that offers
each holder of Voting Securities (other than, if applicable, the

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Person proposing such transaction) the opportunity to dispose of Voting
Securities Beneficially Owned by each such holder for the same consideration or
otherwise contemplates the acquisition of Voting Securities Beneficially Owned
by each such holder for the same consideration.

"Cash Transaction" is defined in Section 4.02(b)(i).

"CD&R" means Clayton, Dubilier & Rice, Inc., a Delaware corporation.

"Closing" is defined in Section 1.02.

"Closing Date" is defined in Section 1.02.

"Code" means the Internal Revenue Code of 1986, as amended.

"Common Stock" is defined in the recitals to this Agreement.

"Company" is defined in the recitals to this Agreement.

"Company Business Financial Statements" is defined in Section 3.01(g)(i).

"Company By-laws" is defined in Section 3.01(a).

"Company Charter" is defined in Section 3.01(a).

"Company Intellectual Property" is defined in Section 3.01(s).

"Company Meeting" is defined in Section 8.05(a).

"Company Meeting Proposal" is defined in Section 8.05(a).

"Company SEC Documents" is defined in Section 3.01(f).

"Company Stock Plans" is defined in Section 3.01(d).

"Company Stockholder Approval" is defined in Section 3.01(b).

"Contingent Stock" means Common Stock issued after the Closing Date pursuant
to (i) the Amendment to Stock Purchase Agreement, dated as of June 20, 1996, by
and between the Company and Eric Watson or (ii) any security, option, warrant,
call, subscription, right, contract, commitment, arrangement or understanding
required to be disclosed on Schedule 3.01(d) but not disclosed thereon.

"Contract" is defined in Section 3.01(c)(i).

"Delivery Cut-off Time" is defined in Section 8.04.

"DGCL" is defined in Section 3.01(q).

"Distribution Agreements" is defined in the recitals to this Agreement.

"Distributions" is defined in the recitals to this Agreement.

"Distributed Companies" is defined in the recitals to this Agreement.

"Employee" means any employee or former employee of any member of the
Company or any of its Subsidiaries or any beneficiary or dependent of any such
employee or former employee.

"Employee Benefit Plans" means all defined contribution, defined benefit,
welfare benefit, bonus, incentive compensation, stock option, stock purchase,
stock appreciation right, stock bonus, incentive, deferred compensation,
insurance, medical, dental, vision, life, death benefit, fringe benefit or other
employee benefit plans, programs, policies or arrangements, including without
limitation, any employment, consulting, offer, secondment, severance or other
termination agreement, whether or not an employee benefit plan within the
meaning of section 3(3) of ERISA, maintained by the Company or any of its
Subsidiaries.

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"Environmental Law" is defined in Section 3.01(p).

"Environmental Permits" is defined in Section 3.01(p).

"Equity Security" means (i) any Common Stock or other Voting Securities,
(ii) any securities of the Company convertible into or exchangeable for Common
Stock or other Voting Securities or (iii) any options, rights or warrants (or
any similar securities) issued by the Company to acquire Common Stock or other
Voting Securities.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"Exchange Act" is defined in Section 3.01(c)(ii).

"Filed Company SEC Documents" is defined in Section 3.01(i).

"Final Determination" means the final resolution of liability for any Tax
for any taxable period, including any related interest or penalties, by or as a
result of: (i) a final and unappealable decision, judgment, decree or other
order of a court of competent jurisdiction; (ii) a closing agreement or accepted
offer in compromise under Section 7121 or 7122 of the Code, or comparable
agreement under the laws of other jurisdictions, which resolves the entire tax
liability for any tax period; (iii) any allowance of a refund or credit in
respect of an overpayment of Tax, but only after the expiration of all periods
during which such refund may be recovered (including by way of offset) by the
applicable taxing jurisdiction; or (iv) any other final disposition, including
by reason of the expiration of the applicable statute of limitations.

"Fund" means Clayton, Dubilier & Rice Fund V Limited Partnership, a Cayman
Islands exempted limited partnership.

"GAAP" means United States generally accepted accounting principles.

"Governmental Entity" is defined in Section 3.01(c)(ii).

"Hazardous Substance" is defined in Section 3.01(p).

"HSR Act" is defined in Section 3.01(c)(ii).

"Indemnifying Person" is defined in Section 11.02.

"Information Statement" is defined in Section 8.08(a).

"Intellectual Property" means trademarks, trade names, trade dress, service
marks, copyrights, domain names, and similar rights (including registrations and
applications to register or renew the registration of any of the foregoing),
patents and patent applications, trade secrets, ideas, inventions, improvements,
practices, processes, formulas, designs, know-how, confidential business or
technical information, computer software, firmware, data and documentation,
licenses of or agreements relating to any of the foregoing, rights of privacy
and publicity, moral rights, and any other similar intellectual property rights
and tangible embodiments of any of the foregoing (in any medium including
electronic media).

"Investor Directors" is defined in Section 4.01.

"Issuance" is defined in Section 8.05(a).

"knowledge of the Company" or any like expression means to the knowledge of
the persons listed on Schedule 12.02 after due inquiry.

"Lien" is defined in Section 3.01(c)(i).

"Losses" is defined in Section 11.01(a).

"Market Capitalization" means, for any entity, the market capitalization of
such entity determined on the basis of the average closing price for the common
stock of such entity for the five-day period ending on the tenth day after the
date of the Distributions.

35
<PAGE>
"Material Adverse Effect" on or with respect to an entity (or group of
entities taken as a whole) means any state of facts, event, change or effect
that has had, or would reasonably be expected to have, a material adverse effect
on the business, properties, results of operations or financial condition of
such entity (or, if with respect thereto, of such group of entities taken as a
whole), or on the ability of such entity (or group of entities) to consummate
the transactions contemplated hereby, including the Pre-Distribution
Transactions and the Distributions, or to perform its obligations under the
Transaction Agreements to which it is or will be a party; provided, however,
that a "Material Adverse Effect" shall exclude (i) the impact on the Company's
earnings for fiscal quarters ending prior to or including the Closing caused by
the inability of the Company to complete acquisitions following the announcement
of the Transactions and/or to account for acquisitions as poolings of interest
and (ii) the effect on the Company of being required as a result of the
Transactions to change accounting treatment for past acquisitions from poolings
of interests to purchases.

"Material Contracts" is defined in Section 3.01(m).

"Material Subsidiary" is defined in Section 3.01(a).

"New Security" means any Equity Security issued by the Company after the
Closing; provided that "New Security" shall not include (i) any securities
issuable upon conversion of any convertible Equity Security, (ii) any securities
issuable upon exercise of any option, warrant or other similar Equity Security
or (iii) any securities issuable in connection with any stock split, stock
dividend or recapitalization of the Company where such securities are issued to
all stockholders of the Company on a pro rata basis.

"Non-Investor Directors" is defined in Section 4.01.

"Notes to Pro Forma Financial Statements" is defined in Section
3.01(g)(iii).

"Offer Conditions" is defined in Section 8.07(a).

"Offer Documents" is defined in Section 8.07(b).

"Other Holders" means the holders of the Other Shares.

"Other Shares" means Voting Securities not Beneficially Owned by Purchaser
or its Affiliates.

"Permit" is defined in Section 3.01(c)(i).

"Permitted Liens" shall mean those Liens (A) securing debt that is reflected
on the Balance Sheet or the notes thereto or securing debt incurred as part of
the Proposed Financings, (B) referred to in Schedule 3.01(l), (C) for Taxes not
yet due or payable or being contested in good faith and for which adequate
reserves have been established in accordance with GAAP, (D) that constitute
mechanics', carriers', workmens' or like liens, liens arising under original
purchase price conditional sales contracts and equipment leases with third
parties entered into in the ordinary course, (E) Liens incurred or deposits made
in the ordinary course of business consistent with past practice in connection
with workers' compensation, unemployment insurance and social security,
retirement and other legislation and (F) easements, covenants, declarations,
rights of way, encumbrances, or similar restrictions in connection with real
property owned by certain of the Retained Subsidiaries that do not materially
impair the use of such real property by such Retained Subsidiaries, and in the
case of Liens described in clauses (B), (C), (D), (E) or (F) that, individually
or in the aggregate, would not have a Material Adverse Effect on the Retained
Companies, taken as a whole.

"Permitted Options" is defined in Section 4.02(a)(i).

"Permitted Securities Transaction" is defined in Section 4.02(b)(ii).

"Person" means any individual, partnership, joint venture, corporation,
limited liability company, trust, unincorporated organization, government or
department or agency of a government.

36
<PAGE>
"Plans" is defined in Section 3.01(o)(ii).

"Pre-Distribution Transactions" means the contribution of certain assets,
the assumption of certain liabilities and other transfers contemplated by the
respective Distribution Agreements, pursuant to which the respective businesses
of School, Travel, Technology and Print will be consolidated under such
corporations prior to the Distributions.

"Print" is defined in the recitals to this Agreement.

"Print Distribution" is defined in the recitals to this Agreement.

"Print Distribution Agreement" is defined in the recitals to this Agreement.

"Pro Forma Balance Sheet" is defined in Section 3.01(g)(iii).

"Pro Forma Income Statements" is defined in Section 3.01(g)(iii).

"Pro Forma Retained Business Financial Statements" is defined in Section
3.01(g)(iii).

"Pro Rata Share" means the fraction of an entire issuance of New Securities,
the numerator of which shall be the number of shares of Common Stock owned or
receivable upon exercise of the Warrant and the Special Warrant by Purchaser and
its Affiliates (other than the Company and its Subsidiaries) immediately prior
to such issuance of such New Securities and the denominator of which shall be
the aggregate number of shares of Common Stock outstanding immediately prior to
such issuance of such New Securities and receivable upon exercise of the Warrant
and the Special Warrant.

"Proposed Charter Amendments" is defined in Section 4.05.

"Proposed Financings" is defined in the recitals to this Agreement.

"Proxy Statement" is defined in Section 8.05(b).

"Purchase Price" is defined in Section 1.01.

"Purchaser" is defined in the recitals to this Agreement.

"Purchaser Indemnifiable Losses" is defined in Section 11.01(a).

"Purchaser Indemnitees" is defined in Section 11.01(a).

"Purchaser's Expenses" is defined in Section 13.09(b).

"Purchaser's Percentage Interest" means the greater of (i) the percentage of
Total Voting Power, determined on the basis of the number of Voting Securities
actually outstanding, that is controlled directly or indirectly by Purchaser or
any Subsidiary or Affiliate of Purchaser (other than the Company and its
Subsidiaries), including by beneficial ownership and (ii) the percentage of the
total Fair Market Value of all classes of outstanding capital stock of the
Company that is owned directly or indirectly by Purchaser or any Subsidiary or
Affiliate of Purchaser (other than the Company and its Subsidiaries), including
by beneficial ownership. For purposes of determining Purchaser's Percentage
Interest, (a) any options, rights, warrants (including the Warrants and the
Special Warrants) and similar securities that entitle the holder thereof to
acquire shares of any class of capital stock of the Company, whether voting or
non-voting, shall be treated as exercised; (b) any debt security that is
convertible into shares of any class of capital stock of the Company, whether
voting or non-voting, shall be treated as converted; and (c) any equity security
that is convertible into shares of any class of capital stock of the Company,
whether voting or non-voting, shall be treated as converted, but only to the
extent that such conversion would result in Purchaser's Percentage Interest
being greater than such interest would be if such conversion had not been deemed
to occur.

"Purchaser's Total Securities" is defined in Section 4.01(b)(i).

"Registration Rights Agreement" is defined in the recitals to this
Agreement.

37
<PAGE>
"Retained Business" means the business and operation of the Retained
Companies.

"Retained Companies" is defined in Section 12.01(b).

"Retained Plans" is defined in Section 3.01(O)(i).

"Retained Subsidiaries" is defined in Section 12.01(c).

"Review Cut-off Time" is defined in Section 8.04.

"School" is defined in the recitals to this Agreement.

"School Distribution" is defined in the recitals to this Agreement.

"School Distribution Agreements" is defined in the recitals to this
Agreement.

"SEC" means the Securities and Exchange Commission.

"Securities Act" is defined in Section 3.01(c)(ii).

"Security" means at any time Equity Securities and any shares of any class
of capital stock of the Company.

"Shares" is defined in Section 1.01.

"Special Warrants" is defined in the recitals to this Agreement.

"Special Warrant Shares" means shares of Common Stock issuable upon exercise
of the Special Warrants.

"Subscription Notice" is defined in Section 5.01.

"Subsidiary" means, as to any Person, any corporation at least a majority of
the shares of stock of which having general voting power under ordinary
circumstances to elect a majority of the Board of Directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency) is, at the time as of which the determination is being made, owned
by such Person, or one or more of its Subsidiaries or by such Person and one or
more of its Subsidiaries.

"Superior Proposal" is defined in Section 8.02(b).

"Tax Allocation Agreement" is defined in the recitals to this Agreement.

"Tax Returns" is defined in Section 3.01(n)(i).

"Taxes" is defined in Section 3.01(n)(i).

"Technology" is defined in the recitals to this Agreement.

"Technology Distribution" is defined in the recitals to this Agreement.

"Technology Distribution Agreement" is defined in the recitals to this
Agreement.

"Tender Offer" is defined in the recitals to this Agreement.

"Tender Offer Statement" is defined in Section 8.07(b).

"Termination Fee" is defined in Section 13.09(b).

"Total Voting Power" means at any time the total combined voting power in
the general election of directors of all the Voting Securities then outstanding.

"Transactions" means the execution, delivery and performance of each
Transaction Agreement by the Company and the consummation by the Company of the
Pre-Distribution Transactions, the Distributions,

38
<PAGE>
the Proposed Financings, the Tender Offer, the issuance and sale by the Company
of the Shares, the Special Warrants and the Warrants, and of the other
transactions contemplated by the Transaction Agreements.

"Transaction Agreements" means, collectively, this Agreement, the Special
Warrant, the Warrant, the Registration Rights Agreement, the Distribution
Agreements, the Tax Allocation Agreement, the tax representation letters to be
delivered in connection with the Distributions and such other agreements as are
entered into to effect the Pre-Distribution Transactions, including, without
limitation, any employee benefits agreement, intellectual property agreement and
transitional services agreement.

"Transaction Fee" means an amount equal to $15 million plus out-of-pocket
expenses.

"Transaction Proposal" is defined in Section 8.02.

"Travel" is defined in the recitals to this Agreement.

"Travel Distribution" is defined in the recitals to this Agreement.

"Travel Distribution Agreement" is defined in the recitals to this
Agreement.

"Unaudited Company Business Financial Statements" is defined in Section
3.01(g)(ii).

"Voting Securities" means at any time shares of any class of capital stock
of the Company which are then entitled to vote generally in the election of
directors.

"Warrants" is defined in the recitals to this Agreement.

"Warrant Shares" means the shares of Common Stock issuable upon exercise of
the Warrants.

ARTICLE XIII

MISCELLANEOUS

SECTION 13.01 SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such which may be hereafter declared invalid, void or unenforceable.

SECTION 13.02 SPECIFIC ENFORCEMENT. Purchaser, on the one hand, and the
Company, on the other, acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, this being in addition to any
other remedy to which they may be entitled at law or equity.

SECTION 13.03 ENTIRE AGREEMENT. This Agreement (including the documents set
forth in the Exhibits and Schedules hereto) and the other Transaction Agreements
contain the entire understanding of the parties with respect to the transactions
contemplated hereby.

SECTION 13.04 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.

39
<PAGE>
SECTION 13.05 NOTICES. All notices, consents, requests, instructions,
approvals and other communications provided for herein and all legal process in
regard hereto shall be validly given, made or served, if in writing and
delivered personally, by telecopy (except for legal process) or sent by
registered mail, postage prepaid, if to:

The Company:

U.S. Office Products Company
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007

Attention of: Mark D. Director
Telecopy No.: (202) 339-6727

with a copy to:

Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037

Attention of: George P. Stamas
Telecopy No.: (202) 663-6363

Purchaser:

c/o Clayton, Dubilier & Rice Fund V
Limited Partnership
1043 Foulk Road, Suite 106
Wilmington, Delaware

with a copy to:

Clayton, Dubilier & Rice, Inc.
375 Park Avenue, 18th Floor
New York, New York 10152

Attention of: Brian D. Finn
Telecopy No.: (212) 407-5200

with a copy to:

Debevoise & Plimpton
875 Third Avenue
New York, New York 10022

Attention of: Franci J. Blassberg
Telecopy No.: (212) 909-6836

or to such other address or telex number as any party may, from time to time,
designate in a written notice given in a like manner.

SECTION 13.06 AMENDMENTS. This Agreement may be amended as to Purchaser and
their successors and assigns (determined as provided in Section 13.08), and the
Company may take any action herein prohibited, or omit to perform any act
required to be performed by it, if the Company shall obtain the written consent
of Purchaser. This Agreement may not be waived, changed, modified, or discharged
orally, but only by an agreement in writing signed by the party or parties
against whom enforcement of any waiver, change, modification or discharge is
sought or by parties with the right to consent to such waiver, change,
modification or discharge on behalf of such party.

40
<PAGE>
SECTION 13.07 COOPERATION. Purchaser and the Company agree to take, or
cause to be taken, all such further or other actions as shall reasonably be
necessary to make effective and consummate the transactions contemplated by this
Agreement, including, without limitation, making all required filings under the
HSR Act, if any; provided, however, that the foregoing shall not limit the
ability of the Company to abandon the Distributions pursuant to Section 8.03.

SECTION 13.08 SUCCESSORS AND ASSIGNS.

All covenants and agreements contained herein shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that neither party may assign any of its rights under this
Agreement without the written consent of the other party.

SECTION 13.09 EXPENSES AND REMEDIES.

(a) Whether or not the Closing takes place, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be borne by the party incurring such expense, except as set forth in the next
seven paragraphs.

(b) Notwithstanding Section 13.09(a), if Purchaser terminates this Agreement
pursuant to Section 10.01(c)(ii), (c)(iii) or (c)(vi) the Company shall
reimburse Purchaser for the reasonable out-of-pocket expenses (including
reasonable fees and expenses of legal counsel) incurred by Purchaser in
connection with this Agreement or the matters contemplated hereby ("Purchaser's
Expenses") and shall pay CD&R a termination fee of $25 million (the "Termination
Fee").

(c) Notwithstanding Section 13.09(a), if the Company terminates this
Agreement pursuant to Section 10.01(d)(iii), the Company shall pay Purchaser's
Expenses to Purchaser and the Termination Fee to CD&R.

(d) Notwithstanding Section 13.09(a), if Purchaser terminates this Agreement
pursuant to any provision of Section 10.01 other than those referred to in
Sections 13.09(b) or the Company terminates this Agreement pursuant to any
provision of Section 10.01 other than those referred to in Section 13.09(c) and
other than pursuant to Section 10.01(d)(i), the Company shall pay Purchaser's
Expenses to Purchaser; provided that if Purchaser terminates this Agreement
pursuant to Section 10.01(c)(iv) by reason of the failure to be satisfied of the
condition set forth in Section 9.03(k), Purchaser's Expenses shall be limited to
$2,000,000.

(e) Notwithstanding Section 13.09(a), if (i) the Company terminates this
Agreement pursuant to any provision of Section 10.01 other than those referred
to in Sections 13.09(c) or Purchaser terminates this Agreement pursuant to
Section 10.01(b)(ii), (ii) a Transaction Proposal was made prior to September
30, 1998 and (iii) during the period ending 12 months after termination the
Company enters into an agreement relating to or publicly announces, a
transaction including the sale or other disposition of Equity Securities
representing in excess of 20% of the Total Voting Power or 20% of the assets of
the Company and its Subsidiaries, taken as a whole, then upon consummation of
such transaction, the Company shall pay Purchaser's Expenses (without
duplication of any Purchaser's Expenses paid pursuant to Section 13.09(d)) and
the Termination Fee to CD&R.

(f) Notwithstanding Section 13.09(a), upon the occurrence of the Closing,
the Company shall pay Purchaser's Expenses to Purchaser.

(g) Notwithstanding Section 13.09(a), if Purchaser terminates this Agreement
pursuant to Section 10.01(c)(i) the Company shall reimburse Purchaser for
Purchaser's Expenses and shall pay CD&R a termination fee of $10 million.

41
<PAGE>
SECTION 13.10 TRANSFER OF SHARES AND WARRANTS.

Purchaser understands and agrees that neither any shares of Common Stock or
any Warrants, Special Warrants, Warrant Shares or Special Warrant Shares have
been registered under the Securities Act or the securities laws of any state and
that they may be sold or otherwise disposed of only in one or more transactions
registered under the Securities Act and, where applicable, such laws or as to
which an exemption from the registration requirements of the Securities Act and,
where applicable, such laws is available. Purchaser acknowledges that except as
provided in the Registration Rights Agreement, Purchaser has no right to require
the Company to register shares of Common Stock, the Warrants, the Special
Warrants, the Warrant Shares or the Special Warrant Shares. Purchaser
understands and agrees that each certificate representing shares of Common
Stock, Warrants, Special Warrants, Warrant Shares or Special Warrant Shares
(other than, with respect to the first legend, shares of Common Stock, Warrants,
Special Warrants, Warrant Shares or Special Warrant Shares that are no longer
subject to the provisions of Article VII and other than, with respect to the
second legend, shares of Common Stock, Warrants, Special Warrants, Warrant
Shares or Special Warrant Shares which have been transferred in a transaction
registered under the Securities Act or exempt from the registration requirements
of the Securities Act pursuant to Rule 144 thereunder or any similar rule or
regulation) shall bear the following legends:

"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED BY AN AGREEMENT ON FILE AT THE OFFICES OF THE CORPORATION."

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS."

and Purchaser agrees to transfer shares of Common Stock, Warrants and Warrant
Shares only in accordance with the provisions of such legends.

SECTION 13.11 GOVERNING LAW.

This Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, except to the extent that
Delaware law mandatorily governs.

SECTION 13.12 PUBLICITY.

The Company and Purchaser will consult and cooperate with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press releases or otherwise making public statements with respect to the
transactions contemplated by this Agreement.

SECTION 13.13 NO THIRD PARTY BENEFICIARIES.

(a) Nothing contained in this Agreement is intended to confer upon any
person or entity other than the parties hereto and their respective successors
and permitted assigns, any benefit, right or remedies under or by reason of this
Agreement; provided, however, that the parties hereto hereby acknowledge and
agree that the Distributed Companies are each third party beneficiaries of
Section 6.01 of this Agreement and that the Purchaser Indemnitees (other than
Purchaser) are third party beneficiaries of Article XI of this Agreement.

(b) Purchaser shall cooperate with the Company in connection with any tax
audits or administrative or judicial proceedings with respect to the application
of Section 355(e) (as ultimately enacted), including in rebutting any
presumption arising under Section 355(e) of the Code.

42
<PAGE>
SECTION 13.14 CONSENT TO JURISDICTION.

Each of the Company and Purchaser irrevocably submits to the personal
exclusive jurisdiction of the United States District Court for the Southern
District of New York for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transaction contemplated hereby (and, to
the extent permitted under applicable rules of procedure, agrees not to commence
any action, suit or proceeding relating hereto except in such court). Each of
the Company and Purchaser further agrees that service of any process, summons,
notice or document hand delivered or sent by registered mail to such party's
respective address set forth in Section 13.05 will be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction as set forth in the
immediately preceding sentence. Each of the Company and Purchaser irrevocably
and unconditionally waives any objection to the laying of venue of any action,
suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in the United States District Court for the Southern
District of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in such court that any such action, suit or
proceeding brought in such court has been brought in an inconvenient forum.

43
<PAGE>
IN WITNESS WHEREOF, Purchaser and the Company have caused this Agreement to
be duly executed as of the day and year first above written.

<TABLE>
<S> <C> <C>
U.S. OFFICE PRODUCTS COMPANY

/S/ THOMAS I. MORGAN
-----------------------------------------
Name: Thomas I. Morgan
TITLE: PRESIDENT

CDR-PC ACQUISITION, L.L.C.

By: /s/ DONALD J. GOGEL
-----------------------------------------
Name: Donald J. Gogel
TITLE: PRESIDENT
</TABLE>

44
<PAGE>
EXHIBIT 1
TO INVESTMENT AGREEMENT

TERMS OF SPECIAL WARRANTS

<TABLE>
<S> <C>
Exercise Price: $.01 per share.

Expiration Date: 12 years from date of issuance.

Exercisability: To the extent of 24.9% of sum of (A) the number of shares
of Common Stock issued upon conversion of the 2001
Notes, (B) the number of any shares of Contingent Stock
that are issued, and (C) the number of shares of Common
Stock issuable pursuant to this Special Warrant in
respect of shares described in clauses (A) and (B)
above; or after the second anniversary of the issuance
of this Special Warrant, whichever is earlier.

Shares Subject to Warrant: Equal to the number of shares of Common Stock that is the
difference between (i) 24.9% of the sum of (A) the
outstanding shares of Common Stock as of the Closing
Date after giving effect to the issuance of the Shares
and the exercise of this Special Warrant, and assuming
the conversion into Common Stock of all the 2001 Notes
outstanding on the Closing Date at the conversion price
resulting from adjustments made as a result of the
Tender Offer and the Distributions and (B) the number of
any shares of Contingent Stock that are issued, and (ii)
24.9% of the outstanding shares of Common Stock as of
the Closing after giving effect to the issuance of the
Shares.

Transferability: Transferable to the same extent as Shares.

Cashless Exercise: Permitted.

Antidilution Protection: Customary.

Registration Rights: Same as for Shares.

Listing of Warrants: Upon request of Purchaser.

Listing of Shares issuable upon
exercise of Warrants: Prior to Closing.

Listing of Special Covenants: The Company will not be permitted to repurchase Common
Stock if as a result thereof the exercisability of the
Special Warrant will be limited.
</TABLE>
<PAGE>
EXHIBIT 2
TO INVESTMENT AGREEMENT

TERMS OF WARRANTS

<TABLE>
<S> <C>
Exercise Price: 1.5 times $270 million divided by the total number of
Shares and shares of Common Stock subject to Special
Warrants.

Expiration Date: 12 years from date of issuance.

Exercisability: Only after the second anniversary of issuance.

Shares Subject to Warrant: Equal to the number of the Shares.

Transferability: Transferable to the same extent as the Shares under
Section 7.01.

Cashless Exercise: Permitted.

Antidilution Protection: Customary.

Registration Rights: Same as for Shares.

Listing of Warrants: Upon request of Purchaser.

Listing of Shares issuable upon
exercise of Warrants: Prior to Closing.

Listing of Special Covenants: The Company will not be permitted to repurchase Common
Stock if as a result thereof the exercisability of the
Warrant will be limited.
</TABLE>
<PAGE>
EXHIBIT 3
TO INVESTMENT AGREEMENT

TERMS OF REGISTRATION RIGHTS AGREEMENT

<TABLE>
<S> <C>
Registrable Securities: Shares issued under Investment Agreement, Warrants,
Special Warrants and other Common Stock purchased by
Purchaser in compliance with the Investment Agreement.

Demand Registrations: Four.

Piggyback Registrations: Unlimited.

Registration Fees and Expenses: Payable by the Company, including counsel for selling
stockholder.

Selection of Underwriters: Purchaser selects underwriters for Demand Registrations
subject to Company's consent which shall not be
unreasonably withheld. Company selects underwriters for
Piggyback Registrations subject to Purchaser's consent
which shall not be unreasonably withheld.

Priority in Exercise of
Registration of Rights: In the event of cutbacks, securities to be registered for
the account of the Purchaser shall have priority over
other securities to be registered in connection with
Demand Registrations and over other securities to be
registered for the account other selling stockholders in
Piggyback Registrations.

Indemnification: Customary.

Registration Procedures: Customary including, without limitation, provision of
opinions of counsel and comfort letter.
</TABLE>
<PAGE>
ANNEX C--PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION

Article Four of the Amended and Restated Certificate of Incorporation of
U.S. Office Products Company shall be amended by adding the following paragraph
4 under the heading "Common Stock:"

4. Reclassification

As of 5:00 p.m., Eastern time, on the date on which this Certificate of
Amendment is filed with the Secretary of State of Delaware (the "Effective
Time"), each outstanding shares of common stock, $.001 per share ("Old
Common Stock") shall thereupon be reclassified and changed into one share of
common stock, par value $.001 per share ("New Common Stock"). Upon such
Effective Time, each holder of Old Common Stock shall thereupon
automatically be and become the holder of one share of New Common Stock for
every shares of Old Common Stock held by such holder prior thereto.
Upon such Effective Time, each certificate formerly representing a stated
number of shares of Old Common Stock shall thereupon be deemed for all
corporate purposes to evidence ownership of New Common Stock in the
appropriately reduced whole number of shares. As soon as practicable after
such Effective Time, stockholders as of the date of the reclassification
will be notified thereof and upon their delivery of their certificates of
Old Common Stock to the Corporation or its designated agent, will be sent
stock certificates representing their shares of New Common Stock, rounded
down to the nearest whole number, together with cash representing the fair
value of such holder's fractional shares of Old Common Stock. No scrip or
fractional share certificate for New Common Stock will be issued in
connection with this reverse stock split. All references elsewhere in the
Amended and Restated Certificate of Incorporation to the "Common Stock"
shall, after the Effective Time, refer to the New Common Stock.

C-1
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Introduction to Selected Financial Data................................................................... F-2
Selected Financial Data................................................................................... F-3
Management's Discussion and Analysis of Financial Position and Results of Operations...................... F-5
Introduction to Pro Forma Financial Information........................................................... F-20
Pro Forma Combined Balance Sheet as of January 24, 1998 (unaudited)....................................... F-22
Pro Forma Combined Statement of Income for the nine months ended January 24, 1998 (unaudited)............. F-23
Pro Forma Combined Statement of Income for the nine months ended January 25, 1997 (unaudited)............. F-24
Pro Forma Combined Statement of Income for the fiscal year ended April 26, 1997
(unaudited).............................................................................................. F-25
Notes to Pro Forma Combined Financial Statements.......................................................... F-26
Report of Price Waterhouse LLP, Independent Accountants................................................... F-28
Report of Ernst & Young LLP, Independent Accountants...................................................... F-29
Report of BDO Seidman, LLP, Independent Accountants....................................................... F-30
Report of KPMG Peat Marwick LLP, Independent Accountants.................................................. F-31
Report of KPMG Peat Marwick LLP, Independent Accountants.................................................. F-32
Report of Rubin, Koehmstedt and Nadler, Independent Accountants........................................... F-33
Report of Deloitte & Touche LLP, Independent Accountants.................................................. F-34
Report of Hertz, Herson & Company, LLP, Independent Accountants........................................... F-35
Report of Hertz, Herson & Company, LLP, Independent Accountants........................................... F-36
Consolidated Balance Sheet as of April 30, 1996, April 26, 1997 and January 24, 1998 (unaudited).......... F-37
Consolidated Statement of Income for the fiscal years ended April 30, 1995 and 1996, April 26, 1997 and
the nine months ended January 25, 1997 (unaudited) and January 24, 1998 (unaudited)...................... F-38
Consolidated Statement of Stockholders' Equity for the fiscal years ended April 30, 1995 and 1996, April
26, 1997 and the nine months ended January 24, 1998 (unaudited).......................................... F-39
Consolidated Statement of Cash Flows for the fiscal years ended April 30, 1995 and 1996, April 26, 1997
and the nine months ended January 25, 1997 (unaudited) and January 24, 1998 (unaudited).................. F-41
Notes to Consolidated Financial Statements................................................................ F-43
</TABLE>

F-1
<PAGE>
INTRODUCTION TO SELECTED FINANCIAL DATA

The historical Statement of Income Data for the fiscal years ended April 30,
1995 and 1996 and April 26, 1997 and the Balance Sheet Data at April 30, 1996
and April 26, 1997 have been derived from the Company's consolidated financial
statements that have been audited and are included elsewhere in this Proxy
Statement. The historical Statement of Income Data for the years ended April 30,
1993 and 1994 and the Balance Sheet Data at April 30, 1993, 1994, and 1995 have
been derived from unaudited consolidated financial statements which are not
included elsewhere in this Proxy Statement. The Selected Financial Data for the
nine months ended January 25, 1997 and January 24, 1998 (except pro forma
amounts) have been derived from unaudited consolidated financial statements that
appear elsewhere in this Proxy Statement. These unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, contain all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the financial position and results of operations for the periods presented.

The pro forma financial data gives effect, as applicable, to the
Distributions and the acquisitions completed by the Company after May 1, 1996 as
if all such transactions had been consummated on May 1, 1996. In addition, the
pro forma information is based on available information and certain assumptions
and adjustments.

The Selected Financial Data provided herein should be read in conjunction
with the historical financial statements, including the notes thereto, the pro
forma financial information, including the notes thereto, and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
appear elsewhere in this Proxy Statement.

F-2
<PAGE>
SELECTED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------------------------------------------ -----------
PRO FORMA
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 26, APRIL 26, JANUARY 25,
1993 1994 1995 1996 1997 1997 (2) 1997
----------- ----------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.......................... $ 486,763 $ 523,755 $ 658,494 $1,061,528 $2,115,954 $2,794,009 $1,498,320
Cost of revenues.................. 350,647 377,494 485,955 789,436 1,518,287 1,988,315 1,077,408
----------- ----------- ----------- --------- --------- ----------- -----------
Gross profit.................. 136,116 146,261 172,539 272,092 597,667 805,694 420,912

Selling, general and
administrative expenses......... 124,065 132,320 152,176 231,569 488,215 646,867 344,474
Amortization expense.............. 601 733 801 2,711 12,416 25,138 8,072
Non-recurring acquisition costs... 8,057 8,001 7,316
Restructuring costs............... 682 4,201 4,201
----------- ----------- ----------- --------- --------- ----------- -----------
Operating income.............. 11,450 13,208 19,562 29,073 84,834 129,488 61,050

Interest expense.................. 2,914 2,519 3,401 8,132 36,047 102,515 27,540
Interest income................... (327) (411) (675) (3,506) (6,857) (6,048)
Other income...................... (1,463) (1,315) (1,456) (684) (4,233) (7,150) (4,073)
----------- ----------- ----------- --------- --------- ----------- -----------
Income from continuing operations
before provision for income
taxes and extraordinary items... 10,326 12,415 18,292 25,131 59,877 34,123 43,631
Provision for income taxes........ 1,594 1,727 2,800 6,032 27,939 22,180 18,238
----------- ----------- ----------- --------- --------- ----------- -----------
Income from continuing operations
before extraordinary items...... 8,732 10,688 15,492 19,099 31,938 $ 11,943 25,393
-----------
-----------
Income from discontinued
operations, net of income taxes
(3)............................. 2,824 10,953 15,675 15,778 26,800 20,411
----------- ----------- ----------- --------- --------- -----------
Income before extraordinary
items........................... 11,556 21,641 31,167 34,877 58,738 45,804
Extraordinary items, net of income
taxes (4)....................... 701 1,450 612
----------- ----------- ----------- --------- --------- -----------
Net income........................ $ 11,556 $ 21,641 $ 31,167 $ 34,176 $ 57,288 $ 45,192
----------- ----------- ----------- --------- --------- -----------
----------- ----------- ----------- --------- --------- -----------

Weighted average common shares
outstanding
Basic......................... 44,260 44,260 45,562 67,545 90,026 127,822(5) 85,978
Diluted....................... 44,260 44,260 45,704 68,374 91,761 129,557(5) 87,824

Per share amounts:
Basic:
Income from continuing
operations before
extraordinary items......... $ 0.20 $ 0.24 $ 0.34 $ 0.28 $ 0.35 $ 0.09 $ 0.30
-----------
-----------
Income from discontinued
operations.................. 0.06 0.25 0.34 0.24 0.31 0.24
Extraordinary items........... (0.01) (0.02) (0.01)
----------- ----------- ----------- --------- --------- -----------
Net income.................... $ 0.26 $ 0.49 $ 0.68 $ 0.51 $ 0.64 $ 0.53
----------- ----------- ----------- --------- --------- -----------
----------- ----------- ----------- --------- --------- -----------
Diluted:
Income from continuing
operations before
extraordinary items......... $ 0.20 $ 0.24 $ 0.34 $ 0.28 $ 0.35 $ 0.09 $ 0.29
-----------
-----------
Income from discontinued
operations.................. 0.06 0.25 0.34 0.23 0.29 0.23
Extraordinary items........... (0.01) (0.02) (0.01)
----------- ----------- ----------- --------- --------- -----------
Net income.................... $ 0.26 $ 0.49 $ 0.68 $ 0.50 $ 0.62 $ 0.51
----------- ----------- ----------- --------- --------- -----------
----------- ----------- ----------- --------- --------- -----------

PRO FORMA PRO FORMA
JANUARY 24, JANUARY 25, JANUARY 24,
1998 1997 (2) 1998 (2)
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.......................... $1,930,113 $2,087,861 $2,070,655
Cost of revenues.................. 1,390,855 1,487,711 1,481,421
----------- ----------- -----------
Gross profit.................. 539,258 600,150 589,234
Selling, general and
administrative expenses......... 436,037 483,908 467,356
Amortization expense.............. 13,830 18,415 18,433
Non-recurring acquisition costs...
Restructuring costs...............
----------- ----------- -----------
Operating income.............. 89,391 97,827 103,445
Interest expense.................. 27,534 76,886 76,886
Interest income................... (1,545)
Other income...................... (6,369) (6,730) (6,711)
----------- ----------- -----------
Income from continuing operations
before provision for income
taxes and extraordinary items... 69,771 27,671 33,270
Provision for income taxes........ 32,535 17,986 21,626
----------- ----------- -----------
Income from continuing operations
before extraordinary items...... 37,236 $ 9,685 $ 11,644
----------- -----------
----------- -----------
Income from discontinued
operations, net of income taxes
(3)............................. 25,464
-----------
Income before extraordinary
items........................... 62,700
Extraordinary items, net of income
taxes (4).......................
-----------
Net income........................ $ 62,700
-----------
-----------
Weighted average common shares
outstanding
Basic......................... 114,758 127,822(5) 127,822(5)
Diluted....................... 117,185 129,668(5) 130,248(5)
Per share amounts:
Basic:
Income from continuing
operations before
extraordinary items......... $ 0.32 $ 0.08 $ 0.09
----------- -----------
----------- -----------
Income from discontinued
operations.................. 0.23
Extraordinary items...........
-----------
Net income.................... $ 0.55
-----------
-----------
Diluted:
Income from continuing
operations before
extraordinary items......... $ 0.32 $ 0.07 $ 0.09
----------- -----------
----------- -----------
Income from discontinued
operations.................. 0.22
Extraordinary items...........
-----------
Net income.................... $ 0.54
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
JANUARY
APRIL 30, 24, 1998
------------------------------------------ APRIL 26, ---------
1993 1994 1995 1996 1997 ACTUAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $ 13,609 $ 51,344 $ 70,153 $ 274,124 $ 285,963 $ 134,038
Net assets of discontinued operations........................ 19,199 26,879 33,514 33,674 59,231 346,083
Total assets................................................. 130,666 172,656 259,904 805,978 1,706,991 2,469,442
Long-term debt, less current portion......................... 2,414 15,112 18,841 176,230 380,209 381,844
Stockholders' equity......................................... 27,986 77,735 128,512 394,746 921,148 1,472,922

PRO FORMA (6)
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital.............................................. $ 64,888
Net assets of discontinued operations........................
Total assets................................................. 2,020,064
Long-term debt, less current portion......................... 1,049,273
Stockholders' equity......................................... 351,839
</TABLE>

F-3
<PAGE>
- - ------------------------------

(1) The historical financial information of the businesses that were acquired in
business combinations accounted for under the pooling-of-interests method
(the "Pooled Companies") have been combined on a historical cost basis in
accordance with generally accepted accounting principles ("GAAP") to present
this financial data as if the Pooled Companies had always been members of
the same operating group. The financial information of the businesses
acquired in the business combinations accounted for under the purchase
method (the "Purchased Companies") have been included from the dates of
their respective acquisitions. The pro forma financial data reflect purchase
acquisitions completed by the Company through March 9, 1998.

(2) Gives effect to the Strategic Restructuring Plan and the purchase
acquisitions completed by the Company since May 1, 1996 as if such
transactions had been made on May 1, 1996. The pro forma statement of income
data are not necessarily indicative of the operating results that would have
been achieved had these events actually then occurred and should not be
construed as representative of the Company's future operating results.

(3) The results of the companies included in the Distributions are reflected as
discontinued operations for all periods presented in the Company's
consolidated statement of income.

(4) Extraordinary items represent the losses associated with the early
terminations of credit facilities, net of the related income tax benefits.

(5) For calculation of the pro forma weighted average shares outstanding for the
fiscal year ended April 26, 1997 and for the nine months ended January 25,
1997 and January 24, 1998, see Note (l) of Notes to Pro Forma Combined
Financial Statements included elsewhere in this Proxy Statement.

(6) Gives effect to the Strategic Restructuring Plan and the purchase
acquisitions completed by the Company subsequent to January 24, 1998 as if
such transactions had been made on January 24, 1998. The pro forma balance
sheet data are not necessarily indicative of the financial position that
would have been achieved had these events actually then occurred and should
not be construed as representative of the Company's future financial
position.

F-4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION
AND RESULTS OF OPERATIONS

THIS PROXY STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. WHEN USED IN THIS PROXY STATEMENT, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "INTEND," "MAY," "WILL," AND "EXPECT" AND SIMILAR
EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION
TO REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY FUTURE EVENTS OR
CIRCUMSTANCES. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD
DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR IMPLIED BY, THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW UNDER THE HEADINGS "EFFECTS OF THE
PROPOSED SALE OF EQUITY SECURITIES AND THE STRATEGIC RESTRUCTURING PLAN" WITHIN
THE BODY OF THE PROXY STATEMENT, AND "FACTORS AFFECTING THE COMPANY'S BUSINESS"
BELOW.

INTRODUCTION

The following discussion should be read in conjunction with the consolidated
historical financial statements and the pro forma combined financial statements
of the Company, including the related notes to each thereto, appearing elsewhere
in this Proxy Statement. The discussion of the Company's pro forma results of
operations is based on the assumptions and conditions described in the Pro Forma
Combined Financial Statements and the Notes thereto. The Company's audited
consolidated financial statements have been restated to reflect (i) the results
of the businesses to be spun off to shareholders in the Company's recently
announced Strategic Restructuring Plan as discontinued operations; and (ii) the
change in accounting treatment of the 22 business combinations completed during
the nine months ended January 24, 1998, from the pooling-of-interests method to
the purchase method.

In January 1998, the Company's Board of Directors approved the Strategic
Restructuring Plan. The principal elements of the Strategic Restructuring Plan
are (1) the Tender Offer and the incurrence of debt to pay a portion of the
purchase price in the Tender Offer; (2) after acceptance of shares in the Tender
Offer, the Distributions; and (3) the Equity Investment by Investor following
acceptance of shares in the Tender Offer and the record date for the
Distributions. (Capitalized terms not defined herein shall have the meaning
given such term in the text of the Proxy Statement.)

As a result of the Strategic Restructuring Plan, the Company's consolidated
financial statements reflect the results of those companies to be owned by the
Spin-Off Companies (and thus included in the Distributions) as discontinued
operations. Assuming completion of the transactions contemplated by the
Strategic Restructuring Plan, the Company's continuing operations will consist
of its North American Office Products Group (which includes office supply,
office furniture, and coffee, beverage, and vending service businesses), its
Mail Boxes Etc. subsidiary (acquired in late November 1997), its operations in
New Zealand and Australia, and its 49% interest in Dudley Stationery Limited, a
U.K. contract stationer ("Dudley"). The Company's North American Office Products
Group operates primarily in the United States; it includes three coffee and
beverage businesses located in Canada.

Except where specifically noted, the discussion of financial condition and
results of operations that appears below covers only the Company's continuing
operations, assuming completion of the transactions contemplated by the
Strategic Restructuring Plan. For additional information about the results of
discontinued operations, see Note 4 of the Company's Notes to Consolidated
Financial Statements.

The Company's continuing operations derived revenues primarily from the sale
of a wide variety of office supplies, office furniture, and other office
products (including coffee, beverage, and vending products and services) to
corporate, commercial and industrial customers. Cost of revenues represents the
purchase price for office supplies, office furniture and other office products
and includes occupancy and delivery costs and is reduced by rebates and
discounts on purchases.

F-5
<PAGE>
The Company's financial condition and results of operations have changed
dramatically from the Company's inception in October 1994 to January 24, 1998 as
a result of the Company's aggressive acquisition program. The Company completed
165 business combinations (144 related to continuing operations and 21 related
to discontinued operations) from its inception through the end of fiscal 1997,
54 of which were accounted for under the pooling-of-interests method (39 related
to continuing operations and 15 related to discontinued operations). During the
nine months ended January 24, 1998, the Company completed an additional 60
business combinations (40 related to continuing operations and 20 related to
discontinued operations). As a result of the Board's adoption of the Strategic
Restructuring Plan, all 60 business combinations completed during the nine
months ended January 24, 1998 are accounted for under the purchase method. Prior
to the adoption of the Strategic Restructuring Plan, 22 of these 60 business
combinations were accounted for under the pooling-of-interests method (12
related to continuing operations and 10 related to discontinued operations).
Following adoption of the Strategic Restructuring Plan, the Company restated its
historical consolidated financial statements to account for these 22 business
combinations under the purchase method (including the Company's acquisition of
Mail Boxes Etc.) The Company's consolidated financial statements give
retroactive effect to the business combinations accounted for under the
pooling-of-interests method during the fiscal year ended April 26, 1997 and
include the results of companies acquired in business combinations accounted for
under the purchase method from their respective acquisition dates.

Due to the Company's growth through acquisitions, year-to-year comparisons
of the historical results of the Company's operations have been affected
primarily by the addition of acquired companies. In most instances, these dollar
increases in the various revenues and expense components of the Company's
results are due primarily to growth from acquisitions. Neither the magnitude nor
the source of such year-to-year changes is necessarily indicative of changes
that will occur in the future. As a result of the Strategic Restructuring Plan,
the Company expects to focus more on improving and expanding existing
operations, and less on acquisitions as a means of growth. In any event, the
Company expects that the impact of acquisitions on the future results of the
Company's continuing operations will decrease because the size of companies that
it expects to be available for acquisition will be smaller than in prior periods
and the Company's existing operations are larger than in prior years.

RESULTS OF OPERATIONS

The following table sets forth various items as a percentage of revenues for
the fiscal years ended April 30, 1995 and 1996 and April 26, 1997 and for the
nine months ended January 25, 1997 and January 24, 1998, as well as for the
fiscal year ended April 26, 1997 and for the nine months ended January 25, 1997
and January 24, 1998 on a pro forma basis reflecting the Tender Offer, the
Distributions, the Equity Investment and the results of the companies acquired
between May 1, 1996 and March 9, 1998 in business combinations accounted for
under the purchase method as if such transactions had occurred on May 1, 1996.

F-6
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
---------------------------------------------------- -------------------------------------------
PRO FORMA PRO FORMA
APRIL 30, APRIL 30, APRIL 26, APRIL 26, JANUARY 25, JANUARY 24, JANUARY 25,
1995 1996 1997 1997 1997 1998 1997
----------- ----------- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............. 73.8 74.4 71.8 71.2 71.9 72.1 71.2
----- ----- ----- ----- ----- ----- -----
Gross profit 26.2 25.6 28.2 28.8 28.1 27.9 28.8

Selling, general and
administrative expenses.... 23.1 21.8 23.1 23.2 23.0 22.6 23.2
Amortization expense 0.1 0.3 0.6 0.9 0.5 0.7 0.9
Non-recurring acquisition
costs...................... 0.7 0.4 0.5
Restructuring charges........ 0.1 0.1 0.1
----- ----- ----- ----- ----- ----- -----
Operating income........... 3.0 2.7 4.0 4.6 4.1 4.6 4.7

Interest expense, net........ 0.4 0.4 1.4 3.6 1.5 1.3 3.7
Other income................. (0.2) (0.1) (0.2) (0.2) (0.3) (0.3) (0.3)
----- ----- ----- ----- ----- ----- -----
Income from continuing
operations before provision
for income taxes and
extraordinary items........ 2.8 2.4 2.8 1.2 2.9 3.6 1.3
Provision for income taxes... 0.4 0.6 1.3 0.8 1.2 1.7 0.9
----- ----- ----- ----- ----- ----- -----
Income from continuing
operations before
extraordinary items........ 2.4 1.8 1.5 0.4% 1.7 1.9 0.4%
----- -----
----- -----
Discontinued operations, net
of income taxes............ 2.3 1.5 1.3 1.4 1.3
----- ----- ----- ----- -----
Income before extraordinary
items...................... 4.7 3.3 2.8 3.1 3.2
Extraordinary items - losses
on early terminations of
credit facilities, net of
income taxes............... 0.1 0.1 0.1
----- ----- ----- ----- -----
Net income................... 4.7% 3.2% 2.7% 3.0% 3.2%
----- ----- ----- -----
----- ----- ----- ----- -----
-----

<CAPTION>
PRO FORMA
JANUARY 24,
1998
-------------
<S> <C>
Revenues..................... 100.0%
Cost of revenues............. 71.5
-----
Gross profit 28.5
Selling, general and
administrative expenses.... 22.6
Amortization expense 0.9
Non-recurring acquisition
costs......................
Restructuring charges........
-----
Operating income........... 5.0
Interest expense, net........ 3.7
Other income................. (0.3)
-----
Income from continuing
operations before provision
for income taxes and
extraordinary items........ 1.6
Provision for income taxes... 1.0
-----
Income from continuing
operations before
extraordinary items........ 0.6%
-----
-----
Discontinued operations, net
of income taxes............
Income before extraordinary
items......................
Extraordinary items - losses
on early terminations of
credit facilities, net of
income taxes...............
Net income...................
</TABLE>

PRO FORMA RESULTS OF OPERATIONS

The Company's pro forma results of operations for the fiscal year ended
April 26, 1997 and the nine months ended January 25, 1997 and January 24, 1998
reflect significant decreases in net income and net income per share from the
amounts reported in the Company's historical consolidated financial statements.
The significant decreases can be attributed primarily to (i) substantially
higher amortization expenses as compared to prior periods (as a result of
reclassifying 12 business combinations as purchase acquisitions (including the
Company's acquisitions of Mail Boxes Etc.), rather than under the pooling-of-
interests method, as the Company had expected when it completed those
acquisitions); (ii) substantially higher interest expense, as a result of
increased borrowing that the Company expects to incur to help finance the cost
of the Tender Offer; and (iii) higher effective income tax rates, due to
increased non-deductible goodwill expense. The pro forma results do not purport
to represent the results the Company would have obtained had the transactions
which are the subject of pro forma adjustments occurred at the beginning of the
applicable periods, as assumed, or of the future results of the Company.

CONSOLIDATED RESULTS OF OPERATIONS

NINE MONTHS ENDED JANUARY 24, 1998 COMPARED TO NINE MONTHS ENDED JANUARY 25,
1997

Consolidated revenues increased 28.8%, from $1,498.3 million for the nine
months ended January 25, 1997, to $1,930.1 million for the nine months ended
January 24, 1998. This increase was primarily due to

F-7
<PAGE>
acquisitions. Revenues for the nine months ended January 24, 1998 include
revenues from 111 companies acquired in business combinations accounted for
under the purchase method after the beginning of fiscal 1997 (the "Fiscal 1997
and 1998 Purchased Companies"). Revenues for the nine months ended January 25,
1997 include revenues from 54 of the Fiscal 1997 and 1998 Purchased Companies
for a portion of such period. This increase was partially offset by a reduction
in the increase in international revenues due to the devaluation of the New
Zealand and Australian dollars versus the USD. Because revenues generated in New
Zealand and Australia contributed approximately one-third of the Company's
consolidated revenues during this period, management estimates that currency
devaluation had the effect of reducing the Company's reported consolidated
revenues (in U.S. dollar terms) by approximately 3.8%.

International revenues increased 36.5%, from $488.8 million, or 32.6% of
consolidated revenues, for the nine months ended January 25, 1997, to $667.4
million, or 34.6% of consolidated revenues, for the nine months ended January
24, 1998. The increase in international revenues was primarily due to the
inclusion, in the revenues for the nine months ended January 24, 1998, of
revenues from 31 companies that were acquired in business combinations accounted
for under the purchase method after the beginning of fiscal 1997, the most
significant of which was Whitcoulls Group Limited, which the Company's
wholly-owned subsidiary Blue Star Group Limited acquired in July 1996. Revenues
from 14 of such companies were included in international revenues for a portion
of the nine months ended January 25, 1997. The growth in international revenues
was partially reduced by a decline in the exchange rates of the New Zealand and
Australian dollars against the USD. The following table details the declines in
the average exchange rates of the New Zealand and Australian dollars versus the
USD for the nine months ended January 24, 1998 and January 25, 1997:

<TABLE>
<CAPTION>
AVERAGE EXCHANGE RATES FOR
THE NINE MONTHS ENDED
----------------------------
JANUARY 24, JANUARY 25,
1998 1997 DECLINE
------------- ------------- -----------
<S> <C> <C> <C>
New Zealand dollar............................................................. $ .64 $ .70 $ (.06)
Australian dollar.............................................................. $ .72 $ .79 $ (.07)
</TABLE>

International revenues in New Zealand and Australia, calculated in their
local currencies, increased 49.4% for the nine months ended January 24, 1998, as
compared to the nine months ended January 25, 1997. This increase was due
primarily to the inclusion, in the revenues for the nine months ended January
24, 1998, of revenues from the acquired companies discussed above.

Gross profit increased 28.1%, from $420.9 million for the nine months ended
January 25, 1997, to $539.3 million for the nine months ended January 24, 1998.
Gross profit as a percentage of revenues decreased from 28.1% for the nine
months ended January 25, 1997 to 27.9% for the nine months ended January 24,
1998. The slight decrease in gross profit as a percentage of revenues was due
primarily to a shift in revenue mix, primarily as a result of acquisitions, to
revenues from traditionally lower margin products and services, partially offset
by improved purchasing and rebate programs negotiated with vendors.

Selling, general and administrative expenses increased 26.6%, from $344.5
million for the nine months ended January 25, 1997, to $436.0 million for the
nine months ended January 24, 1998 primarily due to the inclusion of the results
of the Fiscal 1997 and 1998 Purchased Companies. Selling, general and
administrative expenses as a percentage of revenues decreased from 23.0% for the
nine months ended January 25, 1997 to 22.6% for the nine months ended January
24, 1998. The decrease in selling, general and administrative expenses as a
percentage of revenues was due to several factors, including (i) a shift in
revenue mix, primarily as a result of acquisitions, to revenues from products
and services traditionally having lower selling, general and administrative
expenses; (ii) reductions in selling, general and administrative expenses by the
Company through the consolidation of certain redundant facilities and job
functions; and (iii) reductions in the costs of many general and administrative
expenses incurred by the Company

F-8
<PAGE>
through the negotiation of national or other large-scale contracts with the
providers of certain services affecting these general and administrative
expenses.

Amortization expense increased 71.3%, from $8.1 million for the nine months
ended January 25, 1997, to $13.8 million for the nine months ended January 24,
1998. This increase is due exclusively to the increase in the number of purchase
acquisitions, including the 12 acquisitions that were originally planned to be
accounted for under the pooling-of-interests method but were restated as
purchase acquisitions as a result of the Strategic Restructuring Plan, included
in the results for the nine months ended January 24, 1998 versus the nine months
ended January 25, 1997.

The Company incurred non-recurring acquisition costs of approximately $7.3
million during the nine months ended January 25, 1997, in conjunction with
business combinations that were accounted for under the pooling-of-interests
method. These non-recurring acquisition costs included accounting, legal and
investment banking fees, real estate and environmental assessments and
appraisals, various regulatory fees and recognition of transaction related
obligations. Generally accepted accounting principles require the Company to
expense all acquisition costs (both those paid by the Company and those paid by
the sellers of the acquired companies) related to business combinations
accounted for under the pooling-of-interests method. In accordance with
generally accepted accounting principles, the Company will be unable to utilize
the pooling-of-interests method to account for acquisitions for a period of up
to 6-9 months following the completion of the Strategic Restructuring Plan.
During this period, the Company will not reflect any non-recurring acquisition
costs in its results of operations, as all costs incurred of this nature would
be related to acquisitions accounted for under the purchase method and would,
therefore, be capitalized as a portion of the purchase consideration.

Interest expense, net of interest income, increased 20.9% from $21.5 million
for the nine months ended January 25, 1997, to $26.0 million for the nine months
ended January 24, 1998. This was due primarily to a reduction in interest income
during the nine months ended January 24, 1998. The Company earned interest
income on the proceeds from the issuance of an aggregate of $230.0 million of
convertible subordinated notes in May and June of 1996 (the first quarter of
fiscal 1997). These proceeds were subsequently used to fund a portion of the
cash consideration used in business combinations. Interest expense has remained
relatively consistent, as steadily increasing borrowings and a declining cash
position have been offset by the repayment of debt from the proceeds of a stock
offering in January 1997 and declining interest rates.

Other income increased 56.4%, from $4.1 million for the nine months ended
January 25, 1997, to $6.4 million for the nine months ended January 24, 1998.
Other income for the nine months ended January 24, 1998 of $6.4 million
consisted primarily of a $4.7 million marketing fee, a gain on the sale of an
investment and the Company's 49% share of the net income of the Company's 49%
equity investment in Dudley. The Company acquired its 49% interest in Dudley in
November 1996. Other income for the nine months ended January 25, 1997 of $4.1
million consisted primarily of a foreign currency gain of $3.4 million. Although
management is pursuing additional opportunities to generate other income from
arrangements with third parties that desire access to the Company's distribution
network and customer base, management can not predict whether or when such
opportunities will be realized, or what amount of other income might be
available to the Company.

F-9
<PAGE>
YEAR ENDED APRIL 26, 1997 COMPARED TO THE YEAR ENDED APRIL 30, 1996

Consolidated revenues increased 99.3%, from $1,061.5 million in fiscal 1996,
to $2,116.0 million in fiscal 1997. This increase was primarily due to the
inclusion in fiscal 1997 revenues of revenues from the 91 companies related to
continuing operations that were acquired in business combinations accounted for
under the purchase method during fiscal 1997 (the "Fiscal 1997 Purchased
Companies") from their respective dates of acquisition and revenues from the 31
companies related to continuing operations that were acquired in business
combinations accounted for under the purchase method during fiscal 1996 (the
"Fiscal 1996 Purchased Companies") for the entire year. Revenues in fiscal 1996
include revenues from the Fiscal 1996 Purchased Companies from their respective
dates of acquisition.

International revenues increased from $84.8 million, or 8.0% of consolidated
revenues, in fiscal 1996, to $708.4 million, or 33.5% of consolidated revenues
in fiscal 1997. International revenues consisted primarily of revenues from New
Zealand and Australia, with the balance from Canada. The increase in
international revenues was primarily due to the inclusion, in the revenues for
fiscal 1997, of revenues from 15 companies that were acquired in business
combinations accounted for under the purchase method during fiscal 1997. Fiscal
1996 international revenues include the results of two companies for the entire
year and the results of two companies acquired in fiscal 1996 in business
combinations accounted for under the purchase method.

Gross profit increased 119.7%, from $272.1 million, or 25.6% of revenues, in
fiscal 1996, to $597.7 million, or 28.2% of revenues, in fiscal 1997. The
increase in gross profit as a percentage of revenues was due primarily to a
shift in revenue mix resulting in a higher proportion of revenues in
traditionally higher margin products and services, primarily as a result of the
increase in products sold in New Zealand and Australia and as a result of
improved purchasing and rebate programs negotiated with vendors.

Selling, general and administrative expenses increased 110.8%, from $231.6
million, or 21.8% of revenues, in fiscal 1996, to $488.2 million, or 23.1% of
revenues, in fiscal 1997. The increase in selling, general and administrative
expenses as a percentage of revenues was due primarily to a shift in revenue mix
resulting in a higher proportion of revenues from products and services with
traditionally higher selling, general and administrative expenses, such as
products sold in New Zealand and Australia.

Amortization expense increased from $2.7 million in fiscal 1996 to $12.4
million in fiscal 1997. This increase is due exclusively to the increase in the
number of purchase acquisitions included in the results for fiscal 1997 versus
fiscal 1996.

The Company incurred non-recurring acquisition costs of $8.1 million and
$8.0 million during fiscal 1996 and 1997, respectively, in conjunction with
business combinations accounted for under the pooling-of-interests method. The
non-recurring acquisition costs reflect the completion of 14 and 25 business
combinations accounted for under the pooling-of-interests method during fiscal
1996 and fiscal 1997, respectively. The non-recurring acquisition costs in
fiscal 1996 included a charge of approximately $4.7 million related to one
business combination which included the payment of significant
transaction-related compensation obligations.

The Company also incurred restructuring costs of approximately $682,000 and
$4.2 million during fiscal 1996 and 1997, respectively. These costs represent
the external costs and liabilities to close redundant Company facilities,
severance costs related to the Company's employees and other costs associated
with the Company's restructuring plans. The Company expects to incur similar
costs in the future as the Company continues to review its operations. On a
regional level, the Company is implementing regional consolidation and
integration plans for its office supply, office coffee and beverage services and
office furniture divisions through which the Company has established and expects
to continue to establish district fulfillment centers ("DFCs"). The DFCs are
intended to enable certain operational activities, such as inventory management,
purchasing, accounting and human resources, to be shared among hubs and spokes
located within the same geographic area. This regional approach is intended to
permit the elimination of duplicative facilities and costs and promote
integration of the operations within each region.

F-10
<PAGE>
Interest expense, net of interest income, increased 531.0%, from $4.6
million in fiscal 1996, to $29.2 million in fiscal 1997. This increase was due
primarily to the increase in the Company's borrowings through the issuance of an
aggregate of $373.75 million of 5 1/2% Convertible Subordinated Notes (the
"Notes") during the fourth quarter of fiscal 1996 and the first quarter of
fiscal 1997 and an increase in the outstanding balance under the Company's
credit facility. The proceeds from the issuance of the Notes and the additional
borrowings under the credit facility were used primarily to fund the cash
portion of the consideration in certain business combinations accounted for
under the purchase method and to refinance indebtedness assumed in business
combinations.

Other income increased 518.9%, from $684,000 in fiscal 1996, to $4.2 million
in fiscal 1997. Fiscal 1997 other income consists primarily of foreign currency
gains and equity in the net income of the Company's 49% investment in Dudley,
the largest independent office products dealer in the United Kingdom. The
Company anticipates that foreign currency transaction gains and losses will be
immaterial in the future and that the income from its equity investment will
increase as the fiscal 1997 amount represented earnings from November 14, 1996,
the date of the Company's investment, through April 26, 1997.

Provision for income taxes increased from $6.0 million in fiscal 1996 to
$27.9 million in fiscal 1997, reflecting effective income tax rates of 24.0% and
46.7%, respectively. The low effective income tax rate in fiscal 1996, compared
to the federal statutory rate of 35.0%, was primarily due to the fact that
several of the companies included in the results for such year, which were
acquired in business combinations accounted for under the pooling-of-interests
method, were not subject to federal income taxes on a corporate level as they
had elected to be treated as subchapter S corporations prior to being acquired
by the Company. In fiscal 1997, this effect was offset by the increase in
nondeductible expenses, including amortization of goodwill and non-recurring
acquisition costs.

Income from discontinued operations increased 69.9% from $15.8 million in
fiscal 1996 to $26.8 million in fiscal 1997. See Note 4 of the Company's Notes
to Consolidated Financial Statements.

During fiscal 1997, the Company incurred extraordinary items totaling $1.5
million, which represent the aggregate expenses, net of the expected tax
benefit, associated with the early termination of the Company's $50 million
credit facility with First Bank National Association and the early termination
of credit facilities at two companies acquired in transactions accounted for
under the pooling-of-interests method during fiscal 1997.

YEAR ENDED APRIL 30, 1996 COMPARED TO THE YEAR ENDED APRIL 30, 1995

Consolidated revenues increased 61.2%, from $658.5 million in fiscal 1995,
to $1,061.5 million in fiscal 1996. This increase was primarily due to the
inclusion in the revenues for fiscal 1996 of revenues from the Fiscal 1996
Purchased Companies from their respective dates of acquisition and revenues from
five companies that were acquired in business combinations accounted for under
the purchase method during fiscal 1995 (the "Fiscal 1995 Purchased Companies")
for the entire year. Revenues in fiscal 1995 include revenues from the Fiscal
1995 Purchased Companies from their respective dates of acquisition.

International revenues increased from $35.7 million, or 5.4% of consolidated
revenues, in fiscal 1995, to $84.8 million, or 8.0% of consolidated revenues, in
fiscal 1996. This increase was primarily due to the inclusion in the revenues
for fiscal 1996 of revenues from two companies for the entire year and two
companies that were acquired in business combinations accounted for under the
purchase method during fiscal 1996.

Gross profit increased 57.7%, from $172.5 million, or 26.2% of revenues, in
fiscal 1995, to $272.1 million, or 25.6% of revenues, in fiscal 1996. The
decrease in gross profit as a percentage of revenues was due primarily to a
shift in revenue mix, primarily resulting from acquisitions, to revenues in
traditionally lower gross margin products and services.

F-11
<PAGE>
Selling, general and administrative expenses increased 52.2%, from $152.2
million, or 23.1% of revenues, in fiscal 1995, to $231.6 million, or 21.8% of
revenues, in fiscal 1996. The decrease in selling, general and administrative
expenses as a percentage of revenues was due primarily to a shift in revenue
mix, primarily resulting from acquisitions, to revenues in products and services
traditionally lower in selling, general and administrative expenses.

Amortization expense increased 238.5%, from $801,000 in fiscal 1995 to $2.7
million in fiscal 1996. This increase is due exclusively to the increase in the
number of purchase acquisitions included in the results for fiscal 1996 versus
fiscal 1995.

The Company incurred non-recurring acquisition costs of approximately $8.1
million in fiscal 1996, in conjunction with 14 business combinations accounted
for under the pooling-of-interests method. The non-recurring acquisition costs
in fiscal 1996 included a charge of approximately $4.7 million related to one
business combination which included the payment of significant
transaction-related compensation obligations. During fiscal 1996, the Company
also recorded restructuring charges of $682,000 related to the discontinuation
of the printing division at one subsidiary.

Interest expense, net of interest income, increased 69.7% from $2.7 million,
in fiscal 1995, to $4.6 million in fiscal 1996. This increase was due primarily
to the increase in the Company's borrowings through the issuance of $143.75
million of Notes during the fourth quarter of fiscal 1996 and an increase in the
outstanding balance on the Company's credit facility. The proceeds from the
issuance of the Notes and the additional borrowings from the credit facility
were used to fund the cash portion of the consideration in business combinations
and to refinance indebtedness assumed in such business combinations.

Provision for income taxes increased from $2.8 million in fiscal 1995 to
$6.0 million in fiscal 1996 reflecting effective income tax rates of 15.3% and
24.0%, respectively. The low effective income tax rates in fiscal 1995 and 1996,
compared to the federal statutory rate of 35.0%, are primarily due to the fact
that several companies included in the results for fiscal 1995 and 1996, which
were acquired in business combinations accounted for under the
pooling-of-interests method, were not subject to federal income taxes on a
corporate level as they had elected to be treated as subchapter S corporations
prior to being acquired by the Company.

Income from discontinued operations increased from $15.7 million in fiscal
1995 to $15.8 million in fiscal 1996.

During fiscal 1996, the Company incurred an extraordinary item of $701,000,
which represented the aggregate expenses, net of the expected tax benefit,
associated with the early termination of a credit facility at a company acquired
in a business combination accounted for under the pooling-of-interests method.

Basic and diluted income from continuing operations per share decreased $.06
from fiscal 1995 to fiscal 1996. These decreases are primarily the result of the
fact that U.S. Office Products began operations in February 1995 and the
majority of the results included prior to that date represented the results of
companies acquired in business combinations accounted for under the
pooling-of-interests method, many of which were subchapter S corporations. This
resulted in an effective income tax rate of 15.3% in fiscal 1995 versus 24.0% in
fiscal 1996. In addition, the Company incurred $8.1 million in non-recurring
acquisition costs and $682,000 in restructuring costs during fiscal 1996
compared to no such costs in fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

On a pro forma basis, at January 24, 1998, the Company had working capital
of $64.9 million, long-term debt of $1.0 billion and capitalization of $1.4
billion. Such pro forma amounts give effect to the Strategic Restructuring Plan
and purchase acquisitions completed subsequent to January 24, 1998 as if such
transactions had occurred on January 24, 1998.

The Company anticipates that after the Strategic Restructuring Plan is
completed, its cash on hand, cash flow from operations and borrowings available
from its expected refinancing of its exisiting bank

F-12
<PAGE>
credit facility (the "Credit Facility") will be sufficient to meet its liquidity
requirements for its operations and for its additional debt service obligations
for the remainder of the calendar year.

The Credit Facility provides the Company with a $500 million line of credit,
bearing interest, at the Company's option, at the bank's base rate plus an
applicable margin of up to 1.25%, or a eurodollar rate plus an applicable margin
of up to 2.5%. At March 9, 1998, the Company had approximately $357.4 million
outstanding under the Credit Facility, at an annual interest rate of
approximately 6.5%, and $142.6 million available under the Credit Facility for
acquisition and working capital purposes. Because certain elements of the
Strategic Restructuring Plan would violate covenants in the Credit Facility,
that facility will either have to be modified with the lenders' consent or
refinanced. The Company currently expects to finance the aggregate cost of
purchasing shares in the Tender Offer (approximately $1 billion) with the
proceeds of the Equity Investment, additional senior secured bank debt, and the
net proceeds from the issuance of subordinated debt securities. The Company is
currently engaged in discussions with potential lenders and investment banks
regarding financing for the Tender Offer and refinancing of the Credit Facility.
The Company expects that it will be able to obtain the necessary financing on
acceptable terms. However, to date, no commitments have been obtained and there
can be no assurance that financing for the Tender Offer will be obtained on
acceptable terms. In connection with the completion of the Strategic
Restructuring Plan, the Company expects to incur approximately $800 million of
additional indebtedness. The Company also expects to incur significant
transaction (including financing) costs and expenses. If the Company were unable
to refinance its Credit Facility, the Company would be forced to pursue
alternative strategies to complete the Strategic Restructuring Plan. See
"--Factors Affecting the Company's Business."

During the nine months ended January 24, 1998, the New Zealand and
Australian dollars weakened against the USD. The New Zealand exchange rate
declined from $0.69 USD at April 27, 1997 to $0.58 USD at January 24, 1998. The
Australian exchange rate declined from $.78 USD at April 27, 1997 to $.66 USD at
January 24, 1998. This resulted in a reduction in stockholders' equity, through
a cumulative translation adjustment, of approximately $105.5 million, reflecting
the impact of the declining exchange rate on the Company's investments in its
New Zealand and Australian subsidiaries.

Subsequent to April 26, 1997 and through March 9, 1998, the Company
completed 64 (43 related to continuing operations and 21 related to discontinued
operations) business combinations for an aggregate purchase price of $770.2
million, consisting of approximately $186.3 million of cash and 27.8 million
shares of the Company's common stock with an aggregate market value on the dates
of acquisition of approximately $583.9 million.

During the nine months ended January 24, 1998, net cash provided by
operating activities was $36.8 million. Net cash used in investing activities
was $99.5 million, including $33.6 million used for acquisitions, $28.2 million
used for additions to property and equipment and $40.8 million paid to Dudley to
satisfy the remaining commitment related to the Company's 49% equity investment
in Dudley. Net borrowings increased $62.6 million during the nine months ended
January 24, 1998, primarily to fund the purchase prices of acquisitions, to
repay higher-cost debt assumed in acquisitions and to fund the remaining equity
investment in Dudley. Discontinued operations used $3.8 million of cash during
the nine months ended January 24, 1998.

During the nine months ended January 25, 1997, net cash used in operating
activities was $9.2 million which resulted primarily from a decrease in accounts
payable due to the Company's aggressive policy of taking negotiated cash
discounts. Net cash used in investing activities was $390.5 million, including
$323.8 million used for acquisitions, $15.9 million used for additions to
property and equipment and $41.3 million paid to Dudley as the initial payment
related to the Company 49% equity investment in Dudley. Net borrowings increased
$244.7 million during the nine months ended January 25, 1997, primarily to fund
the purchase prices of acquisitions, to repay higher-cost debt assumed in
acquisitions and to fund the initial equity investment in Dudley. The Company
also received $41.9 million in cash as a result of the sale of common stock
during the period. Discontinued operations used $3.2 million of cash during the
nine months ended January 25, 1997.

F-13
<PAGE>
During fiscal 1997, net cash provided by operating activities was $15.8
million. Net cash provided by operating activities was impacted by the Company's
aggressive cash payment policies related to bringing current the accounts
payable balances at all acquired companies and earning all available cash
discounts offered by vendors for paying balances on reduced payment terms. Net
cash used in investing activities was $424.0 million, including $345.3 million
for acquisitions, $34.0 million for additions to property and equipment and
$41.3 million to make an equity investment in Dudley. Net cash provided by
financing activities was $277.4 million. The Company received net proceeds from
the sale of shares of its common stock of $318.9 million and approximately
$225.4 million from the issuance of the Notes. These net proceeds were used
primarily to fund acquisitions and repay higher interest rate debt assumed in
acquisitions. Net cash used in discontinued operations was $8.2 million.

During fiscal 1996, net cash provided by operating activities was $19.2
million. Net cash used in investing activities was $120.1 million, including
$89.2 million used for acquisitions and $17.9 million used for additions to
property and equipment. Net cash provided by financing activities was $257.8
million. The Company received net proceeds from the sale of shares of its common
stock of $180.2 million and net proceeds from the issuance of the Notes of
approximately $139.0 million. These net proceeds were used primarily to fund
acquisitions, including the repayment of higher interest rate debt assumed in
business combinations. Net cash provided by discontinud operations was $1.7
million.

During fiscal 1995, net cash provided by operating activities was $7.7
million. Net cash used in investing activities was $26.2 million, including
$16.0 million used for acquisitions and $11.0 million used for additions to
property and equipment. Net cash provided by financing activities was $22.3
million, representing net proceeds from the initial public offering, partially
offset by the payment of $11.3 million to the stockholders of four of the
companies acquired simultaneously with the completion of the Company's initial
public offering and the payment of dividends to certain of the companies
acquired in business combinations accounted for under the pooling-of-interests
method of $7.7 million. Net cash provided by discontinued operations was $3.5
million.

FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS

The Company's business is subject to seasonal influences. The Company's
historical revenues and profitability in its core office products business have
been lower in the first two quarters of its fiscal year, primarily due to the
lower level of business activity in North America during the summer months. The
seasonality of the core office products business, however, is expected to be
impacted by the seasonality of the Company's other operations, which have
expanded through acquisitions. For example, the revenues and profitability of
the Company's operations in New Zealand and Australia have generally been higher
in the Company's third quarter. As the Company's mix of businesses evolves
through future acquisitions, these seasonal fluctuations may continue to change.
Therefore, results for any quarter are not necessarily indicative of the results
that the Company may achieve for any subsequent fiscal quarter or for a full
fiscal year.

Quarterly results also may be materially affected by the timing of
acquisitions, the timing and magnitude of costs related to such acquisitions,
variations in the prices paid by the Company for the products it sells, the mix
of products sold, general economic conditions and the retroactive restatement in
accordance with generally accepted accounting principles of the Company's
consolidated financial statements for acquisitions accounted for under the
pooling-of-interests method. Moreover, the operating margins of companies
acquired by the Company may differ substantially from those of the Company,
which could contribute to the further fluctuation in its quarterly operating
results. Therefore, results for any quarter are not necessarily indicative of
the results that the Company may achieve for any subsequent fiscal quarter or
for a full fiscal year.

The following tables set forth certain unaudited consolidated quarterly
financial data for the fiscal years ended April 30, 1996 and April 26, 1997 and
the fiscal year ending April 25, 1998 (in thousands,

F-14
<PAGE>
except for per share amounts). The information has been derived from unaudited
consolidated financial statements that in the opinion of management reflect all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of such quarterly information.

<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS (UNAUDITED)
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 205,940 $ 246,956 $ 268,645 $ 339,987 $ 1,061,528
Gross profit....................................... 50,976 60,487 66,742 93,887 272,092
Operating income................................... 1,484 6,666 8,115 12,808 29,073
Income from continuing operations before
extraordinary items.............................. 1,460 4,629 5,789 7,221 19,099
Income (loss) from discontinued operations......... 3,387 5,550 7,727 (886) 15,778
Net income......................................... 4,847 10,179 13,516 5,634 34,176

Per share amounts:
Basic:
Income from continuing operations before
extraordinary items.......................... 0.02 0.07 0.09 0.09 0.28
Income (loss) from discontinued operations..... 0.06 0.08 0.11 (0.01) 0.24
Net income..................................... 0.08 0.15 0.20 0.07 0.51
Diluted:
Income from continuing operations before
extraordinary items.......................... 0.02 0.07 0.09 0.09 0.28
Income (loss) from discontinued operations..... 0.06 0.08 0.11 (0.01) 0.23
Net income..................................... 0.08 0.15 0.20 0.07 0.50
</TABLE>

<TABLE>
<CAPTION>
FISCAL 1997 QUARTERS (UNAUDITED)
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 364,195 $ 537,334 $ 596,791 $ 617,634 $ 2,115,954
Gross profit....................................... 98,299 153,284 169,329 176,755 597,667
Operating income................................... 12,909 22,473 25,668 23,784 84,834
Income from continuing operations before
extraordinary items.............................. 6,855 9,771 8,767 6,545 31,938
Income from discontinued operations................ 9,475 8,933 2,003 6,389 26,800
Net income......................................... 16,330 18,092 10,770 12,096 57,288

Per share amounts:
Basic:
Income from continuing operations before
extraordinary items.......................... 0.08 0.11 0.10 0.06 0.35
Income from discontinued operations............ 0.12 0.10 0.02 0.06 0.31
Net income..................................... 0.20 0.21 0.12 0.12 0.64
Diluted:
Income from continuing operations before
extraordinary items.......................... 0.08 0.11 0.10 0.06 0.35
Income from discontinued operations............ 0.12 0.10 0.02 0.06 0.29
Net income..................................... 0.20 0.20 0.12 0.12 0.62
</TABLE>

F-15
<PAGE>

<TABLE>
<CAPTION>
FISCAL 1998 QUARTERS (UNAUDITED)
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 614,814 $ 649,340 $ 665,959 $ 1,930,113
Gross profit....................................... 170,782 179,256 189,220 539,258
Operating income................................... 23,802 28,300 37,289 89,391
Income from continuing operations before
extraordinary items.............................. 9,035 12,770 15,431 37,236
Income from discontinued operations................ 10,951 11,428 3,085 25,464
Net income......................................... 19,986 24,198 18,516 62,700

Per share amounts:
Basic:
Income from continuing operations before
extraordinary items.......................... 0.09 0.12 0.12 0.32
Income from discontinued operations............ 0.10 0.10 0.03 0.23
Net income..................................... 0.19 0.22 0.15 0.55
Diluted:
Income from continuing operations before
extraordinary items.......................... 0.08 0.11 0.12 0.32
Income from discontinued operations............ 0.10 0.10 0.02 0.22
Net income..................................... 0.18 0.21 0.14 0.54
</TABLE>

INFLATION

The Company does not believe that inflation has had a material impact on its
results of operations during fiscal 1995, 1996 or 1997 or during the nine months
ended January 24, 1998.

NEW ACCOUNTING PRONOUNCEMENTS

EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997; earlier
application is not permitted. SFAS No. 128 requires restatement of all prior
period EPS data presented. The Company has adopted SFAS No. 128 during the nine
months ended January 24, 1998 and has restated all prior period EPS data.

REPORTING COMPREHENSIVE INCOME. In June 1997, FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company intends to adopt SFAS
No. 130 in the fiscal year ending April 24, 1999.

FACTORS AFFECTING THE COMPANY'S BUSINESS

A number of factors, including those discussed below, may affect the
Company's future operating results. Where indicated, the following discussion
addresses factors that management believes will be applicable to the Company's
business upon completion of the Strategic Restructuring Plan.

U.S. Office Products' aggressive acquisition program has produced a
significant increase in sales, employees, facilities and distribution systems.
While the Company's decentralized management strategy,

F-16
<PAGE>
together with operating efficiencies resulting from the elimination of
duplicative functions and economies of scale, may present opportunities to
reduce costs, such strategies may initially require additional costs and
expenditures to expand operational and financial systems and corporate
management administration. Because of the various costs and possible
cost-savings strategies, historical operating results may not be indicative of
future performance. There also can be no assurance that the pace of the
Company's acquisitions will not adversely affect efforts to implement
cost-savings and integration strategies and to manage operations and
acquisitions profitably. Delays in implementing planned integration and
consolidation strategies, or the failure of such strategies to achieve
anticipated cost savings, also could adversely affect the Company's results.

U.S. Office Products has historically depended upon both acquisitions and
organic growth to increase its earnings. Management expects that in the future,
the Company will continue to pursue an aggressive acquisition program, although
it is expected that future growth will be driven more significantly by expansion
and improvement of existing operations. See "--Introduction." There can be no
assurance that U.S. Office Products will be successful in completing future
acquisitions or in implementing its internal growth strategies. In addition,
acquired companies may not achieve future sales and profitability levels that
justify the prices that the Company paid to acquire them. Acquisitions also may
involve a number of special risks that could have a material adverse effect on
future operations and financial performance, including diversion of management's
attention; unanticipated declines in revenues or profitability following
acquisition; difficulties with the retention, hiring and training of key
personnel; risks associated with unanticipated business problems or legal
liabilities; and the amortization of acquired intangible assets, such as
goodwill.

As a result of the Tender Offer and the Distributions, U.S. Office Products
will be precluded from completing business combinations under the
pooling-of-interests accounting method for a period up to 6-9 months. Any
business combinations that U.S. Office Products completes during this period
will have to be accounted for under the purchase method. Under the purchase
method of accounting, U.S. Office Products will have to record goodwill for each
such acquisition, in an amount equal to any excess of the purchase price paid
for the acquired company over the fair market value of the acquired company's
net assets. Under the pooling-of-interests method, no goodwill is recorded in
connection with the acquisition of a pooled company, and there is no
corresponding expense associated with the amortization of such goodwill.

Approximately $917.0 million, or 45.4% of the Company's pro forma total
assets as of January 24, 1998, represents intangible assets, the substantial
majority of which is goodwill. This amount will increase to the extent that U.S.
Office Products acquires additional companies under the purchase method of
accounting. The Company amortizes goodwill on a straight-line method over a
period of up to 40 years. The amount amortized in a particular fiscal period is
a non-cash expense that reduces the Company's net income. As a result of the
accounting for the acquisition of Mail Boxes Etc. ("MBE") under the purchase
method (rather than the pooling-of-interests method that had been intended at
the time of the acquisition), the Company's amortization charge will increase by
approximately $6.5 million annually. The substantial majority of goodwill also
is not a deductible expense for U.S. federal income tax purposes. The Company
expects that its effective tax rate will be higher than the federal statutory
rate, because its net earnings will be reduced by a significant amount of
non-deductible goodwill charges.

The Company is currently reviewing the year 2000 compliance of software that
it uses in its business. The Company's Trinity system, which it is currently
installing throughout its North American Office Products Group operations as the
core operations system, is year 2000 compliant. However, the Company's operating
subsidiaries are, in some cases, using billing or other software that is not
year 2000 compliant. Based upon information that the Company has collected from
its operating subsidiaries, it expects to be able to achieve year 2000
compliance in 1999 and does not expect that the cost of making necessary
adaptations will be material to the Company. If the Company cannot make the
necessary adaptations on a timely basis, or if the costs are greater than
expected, the Company's business could be adversely affected.

F-17
<PAGE>
Management intends to continue to focus significant attention and resources
on international operations and expects foreign revenues to continue to
represent a significant portion of the Company's total revenues. The factors
described in this section that apply to U.S. Office Products' domestic
operations also may affect the Company's foreign operations. In addition, the
Company's foreign operations are subject to a number of other risks, including
currency exchange rates, new and different legal, regulatory and competitive
requirements, difficulties in staffing and managing foreign operations, and
risks specific to different business lines that the Company may enter.

U.S. Office Products expects to incur substantial additional borrowings in
connection with the Tender Offer. See Note 1 of the Company's Notes to
Consolidated Financial Statement and "--Liquidity and Capital Resources." This
substantial increase in U.S. Office Products' leverage could have material
consequences to U.S. Office Products and the holders of common stock, including,
but not limited to, the following: (i) U.S. Office Products' ability to obtain
additional financing in the future for acquisitions, working capital, capital
expenditures, and general corporate or other purposes may be impaired, (ii) a
substantial portion of U.S. Office Products' cash flow will be required for debt
service and, as a result, will not be available for other purposes; and (iii)
U.S. Office Products' level of indebtedness could make it more vulnerable to
economic downturns, limit its ability to withstand competitive pressures and
reduce its flexibility in responding to changing business and economic
conditions. In addition, it is expected that the Company's financing agreements
will contain covenants that may restrict its ability to take certain actions
(such as buying or selling assets, paying dividends, making capital
expenditures, or engaging in other transactions). If U.S. Office Products is
unable to service its indebtedness, it will be forced to pursue one or more
alternative strategies, such as selling assets, restructuring or refinancing its
indebtedness, or seeking additional equity capital. The Company's management
does not have experience operating a business with a substantial amount of
leverage.

U.S. Office Products operates in a highly competitive environment. It
generally competes with a large number of smaller, independent companies, many
of which are well-established in their markets. In addition, in North America,
the North American Office Products Group competes with five large office
products companies, each of which has significant financial resources. No
assurances can be give that competition will not have an adverse effect on the
Company's business.

U.S. Office Products acquired MBE in November 1997. Various factors may
affect MBE's business, including recent changes in MBE's senior management, the
reliance of MBE franchisees on United Parcel Service for ground shipping
services, the limited control that MBE has over its franchisees, the impact of
government regulation of MBE as a franchisor, the historically litigious nature
of franchise relationships and the growing competition from the United States
Postal Service.

As part of the Strategic Restructuring Plan, it is expected that Investor
will acquire shares of U.S. Office Products common stock representing 24.9% of
the outstanding shares of the Company's common stock after giving effect to the
issuance of such shares. Investor also will purchase various warrants that give
it the right to acquire additional shares of common stock in the future. Under
the Investment Agreement that Investor and the Company signed on January 12,
1998 (the "Investment Agreement"), Investor will have, among other things, the
right (subject to certain conditions) to nominate three of the nine members of
the U.S. Office Products Board of Directors, including the Chairman of the
Board, and certain Board decisions will be subject to super-majority voting
provisions that, in certain circumstances, may require the concurrence of at
least one director nominated by Investor. Matters subject to super-majority
Board approval include (i) the issuance of new shares in excess of certain
amounts specified in the Investment Agreement, (ii) certain business
combinations, (iii) a disposition by the Company of all or substantially all of
its assets, (iv) a major recapitalization, dissolution, or liquidation of the
Company, or (v) an amendment of the Company's Charter or By-Laws that is
inconsistent with the terms of the Investment Agreement. Investor's significant
ownership of U.S. Office Products common stock may permit Investor to influence
significantly matters requiring the approval of the Company's stockholders. The
super-majority Board voting requirements may give Investor the ability to block
the approval of certain actions requiring

F-18
<PAGE>
the super-majority vote of the Board. Together, this ownership position and the
Board voting requirements may have the effect of discouraging (or possibly
preventing) a future change in control of U.S. Office Products. In addition, the
super-majority Board voting requirement may have the effect of limiting the
Company's future use of equity to acquire businesses, raise capital, or provide
employees with long-term incentives.

The Distributions involve complex tax considerations. The Company will
receive an opinion from its counsel that for U.S. federal income tax purposes,
the Distributions should qualify as tax-free spin-offs under Section 355 of the
Code and should not be taxable under Section 355(e) of the Code. If the
Distributions qualify as tax-free spin-offs under Section 355, and are not
taxable under Section 355(e), no gain or loss for U.S. federal income tax
purposes will be attributed to the Company or those persons who hold U.S. Office
Products common stock on the record date of the Distributions (except with
respect to cash received in lieu of fractional shares) because of the
Distributions. The opinion of counsel will be based on certain assumptions and
the accuracy of factual representations made by the Company and the Spin-Off
Companies. Neither the Company nor the Spin-Off Companies are aware of any
present facts or circumstances that would cause the such representations and
assumptions to be untrue. However, the opinion of counsel is not binding on
either the Internal Revenue Service (the "IRS") or the courts. The Company will
not seek a ruling from the IRS with respect to the U.S. federal income tax
consequences of the Distributions. The IRS could take the position that some or
all of the Distributions do not qualify as tax-free spin-offs or that some or
all of the Distributions are taxable under Section 355(e). If any of the
Distributions fail to qualify under Section 355 of the Code as tax-free
spin-offs, both the Company and those persons who hold U.S. Office Products
common stock on the record date of the Distributions will be subject to U.S.
federal income tax liabilities as a result of those Distributions. If any of the
Distributions are taxable under Section 355(e) of the Code, the Company (but not
those persons who hold U.S. Office Products common stock) will be subject to
U.S. federal income tax liabilities as a result of those Distributions.

In connection with the Distributions, the Company will enter into an
agreement with the Spin-Off Companies to allocate responsibility for the tax
liabilities to U.S. Office Products if the Distributions fail to qualify as
tax-free spin-offs. This agreement is expected to provide that if any Spin-Off
Company does (or fails to do) something that materially contributes to any of
the Distributions being deemed taxable, the Spin-Off Companies will jointly and
severally indemnify U.S. Office Products for losses resulting from the
additional tax liabilities. If any of the Distributions are found to be taxable,
but if neither the actions nor the inactions of the Company and the Spin-Off
Companies has caused such a result, the Company and the Spin-Off Companies will
share the resulting tax liabilities on a pro rata basis, based on the value of
each company's common stock after the Distributions. There can be no assurance
that the Company, if it needs to seek indemnification from the Spin-Off
Companies, will be successful in recovering the full amount of the losses caused
by the Distributions being deemed to be taxable transactions.

Certain limitations under Section 355 of the Code may restrict the Company's
ability to issue capital stock after the Distributions. These limitations will
generally prevent the Company from issuing capital stock to the extent the
issuance is part of a plan, which includes the Distributions, pursuant to which
one or more people acquire capital stock of the Company that represents 50% or
more of the voting power or 50% or more of the value of the Company's capital
stock. These limitations may restrict the Company's ability to undertake
transactions involving issuances of capital stock of the Company that management
otherwise believes would be beneficial.

F-19
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)

The unaudited pro forma financial statements give effect to (i) the Tender
Offer, (ii) the Distributions, and (iii) the Equity Investment contemplated by
the Strategic Restructuring Plan, and (iv) to all acquisitions completed through
March 9, 1998. The unaudited pro forma combined financial statements do not give
effect to the allocation of corporate overhead to the Spin-Off Companies.

The pro forma combined balance sheet gives effect to the Tender Offer, the
Distributions, the Equity Investment and the businesses acquired by the Company
after January 24, 1998 in business combinations accounted for under the purchase
method (the "Post January 24, 1998 Purchase Acquisitions"), as if all such
transactions had occurred as of the Company's most recent balance sheet date,
January 24, 1998.

The pro forma combined statement of income for the fiscal year ended April
26, 1997 gives effect to (i) the Tender Offer; (ii) the Distributions, (iii) the
Equity Investment; (iv) the business combinations accounted for under the
purchase method during fiscal 1997 (the "Fiscal 1997 Purchase Acquisition"); (v)
the business combinations accounted for under the purchase method during fiscal
1998 (the "Fiscal 1998 Purchase Acquisitions"); and (vi) the sales by the
Company of 5.5% Convertible Subordinated Notes due 2003 in May and June 1996 in
the principal amount of $230.0 million (the "2003 Notes"), as if all such
transactions had occurred on May 1, 1996. The pro forma combined statement of
income for the year ended April 26, 1997 is comprised of (i) the audited
financial information of the Company for the fiscal year ended April 26, 1997;
(ii) the unaudited financial information of the Fiscal 1997 Purchase
Acquisitions for the period from May 1, 1996 through their respective dates of
acquisition and (iii) the unaudited financial information of the Fiscal 1998
Purchase Acquisitions for the period from May 1, 1996 through April 26, 1997.

The pro forma combined statement of income for the nine months ended January
24, 1998 gives effect to (i) the Tender Offer; (ii) the Distributions; (iii) the
Equity Investment; and (iv) the Fiscal 1998 Purchase Acquisitions, as if all
such transactions had occurred on April 27, 1997. The pro forma combined
statement of income for the nine months ended January 24, 1998 is comprised of
(i) the unaudited financial information of the Company for the nine months ended
January 24, 1998; and (ii) the unaudited financial information of the Fiscal
1998 Purchase Acquisitions for the period from April 27, 1997 through their
respective acquisition dates, except for the financial information of the Post
January 24, 1998 Purchase Acquisitions which is included through January 24,
1998.

The pro forma combined statement of income for the nine months ended January
25, 1997 gives effect to (i) the Tender Offer, (ii) the Distributions; (iii) the
Equity Investment; (iv) the Fiscal 1997 Purchase Acquisitions; (v) the Fiscal
1998 Purchase Acquisitions; and (vi) the sales by the Company of the 2003 Notes,
as if all such transactions had occurred on May 1, 1996. The pro forma combined
statement of income for the nine months ended January 25, 1997 is comprised of
(i) the unaudited financial information of the Company for the nine months ended
January 25, 1997; (ii) the unaudited financial information of the Fiscal 1997
Purchase Acquisitions for the period from May 1, 1996 through the earlier of
January 25, 1997 or their respective dates of acquisitions; and (iii) the
unaudited financial information of the Fiscal 1998 Purchase Acquisitions for the
period from May 1, 1996 through January 25, 1997.

The historical financial statements of the Company give retroactive effect
to the results of the 25 companies (related to continuing operations) acquired
by the Company during the fiscal year ended April 26, 1997 which were acquired
in business combinations accounted for under the pooling-of-interests method of
accounting. The results of the companies included in the Spin-Off Companies have
been reflected as discontinued operations in the Company's historical statement
of income.

F-20
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)

The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport to
represent the results that the Company would have obtained had the transactions
which are the subject of pro forma adjustments occurred at the beginning of the
applicable periods, as assumed, or the future results of the Company. The pro
forma combined financial statements should be read in conjunction with the
Company's audited consolidated financial statements.

F-21
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

PRO FORMA COMBINED BALANCE SHEET

JANUARY 24, 1998

(IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
POST
JANUARY 24, PRO FORMA ADJUSTMENTS
U.S. OFFICE 1998 -------------------------------------------------
PRODUCTS PURCHASE PURCHASE TENDER EQUITY PRO FORMA
COMPANY ACQUISITIONS ACCOUNTING OFFER SPIN-OFFS INVESTMENT COMBINED
----------- --------------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 45,258 $ 108 $ (22,754)(a) $ 977,388(b) $ $ 270,000(e) $
(1,000,000 (b) (270,000)(e)
Accounts receivable,
net................... 324,976 5,077 330,053
Inventory, net.......... 239,043 2,035 241,078
Short-term receivable
from discountinued
operations............ 26,918 (26,918)(c)
Prepaid and other
current assets........ 103,624 94 103,718
----------- --------------- ----------- ---------- ----------- ----------- -----------
Total current
assets............ 739,819 7,314 (22,754) (22,612) (26,918) 674,849

Property and equipment,
net..................... 217,228 6,144 223,372
Intangible assets, net.... 903,722 13,255(a) 916,977
Other assets.............. 174,549 317 30,000(f) 204,866
Long-term receivable from
discontinued
operations.............. 88,041 (88,041)(c)
Net assets of discontinued
operations.............. 346,083 (80,932)(c)
(265,151)(d)
----------- --------------- ----------- ---------- ----------- ----------- -----------
Total assets........ $2,469,442 $ 13,775 $ (9,499) $ (22,612) $(461,042) $ 30,000 $2,020,064
----------- --------------- ----------- ---------- ----------- ----------- -----------
----------- --------------- ----------- ---------- ----------- ----------- -----------

LIABILITES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term debt......... $ 332,636 $ 640 $ (640)(a) $ $ $ $ 332,636
Accounts payable........ 164,229 2,438 166,667
Accrued compensation.... 41,262 41,262
Other accrued
liabilities........... 67,654 1,742 69,396
----------- --------------- ----------- ---------- ----------- ----------- -----------
Total current
liabilities....... 605,781 4,820 (640) 609,961

Long-term debt............ 381,844 3,817 (3,817)(a) 977,388(b) (114,959)(c) (270,000)(e) 1,049,273
75,000(f)
Deferred income taxes..... 2,845 2,845
Other long-term
liabilities and minority
interests............... 6,050 96 6,146
----------- --------------- ----------- ---------- ----------- ----------- -----------
Total liabilities... 996,520 8,733 (4,457) 977,388 (114,959) (195,000) 1,668,225

Stockholders' equity:
Common stock............ 133 133
Paid-in capital......... 1,405,883 (999,963 (b) (80,932)(c) 269,968(e) 329,805
(265,151)(d)
Cumulative translation
adjustment............ (113,022) (113,022)
Retained earnings....... 179,928 (45,000)(f) 134,928
Treasury stock.......... (37 (b) 32(e) (5)
Equity of purchased
companies............. 5,042 (5,042) (a)
----------- --------------- ----------- ---------- ----------- ----------- -----------
Total stockholders'
equity............ 1,472,922 5,042 (5,042) (1,000,000) (346,083) 225,000 351,839
----------- --------------- ----------- ---------- ----------- ----------- -----------
Total liabilities
and stockholders'
equity............ $2,469,442 $ 13,775 $ (9,499) $ (22,612) $(461,042) $ 30,000 $2,020,064
----------- --------------- ----------- ---------- ----------- ----------- -----------
----------- --------------- ----------- ---------- ----------- ----------- -----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-22
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED JANUARY 24, 1998

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
U.S. OFFICE FISCAL 1998
PRODUCTS PURCHASE PRO FORMA PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS COMBINED
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues.......................................... $ 1,930,113 $ 140,542 $ $ 2,070,655
Cost of revenues.................................. 1,390,855 90,566 1,481,421
------------ ----------- ------------- ------------
Gross profit.................................... 539,258 49,976 589,234

Selling, general and administrative expenses...... 436,037 33,676 (2,357 (g) 467,356
Amortization expense.............................. 13,830 4,603(h) 18,433
------------ ----------- ------------- ------------
Operating income................................ 89,391 16,300 (2,246) 103,445

Other (income) expense:
Interest expense................................ 27,534 506 48,846(j) 76,886
Interest income................................. (1,545) (169) 1,714(j)
Other........................................... (6,369) (342) (6,711)
------------ ----------- ------------- ------------
Income from continuing operations before provision
for income taxes................................ 69,771 16,305 (52,806) 33,270
Provision for income taxes........................ 32,535 2,161 (13,070 (k) 21,626
------------ ----------- ------------- ------------
Income from continuing operations................. $ 37,236 $ 14,144 $ (39,736) $ 11,644
------------ ----------- ------------- ------------
------------ ----------- ------------- ------------

Weighted average shares outstanding:
Basic........................................... 114,758 127,822(l)
Diluted......................................... 117,185 130,248(l)

Income per share from continuing operations:
Basic........................................... $ 0.32 $ 0.09
Diluted......................................... $ 0.32 $ 0.09
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-23
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED JANUARY 25, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
U.S. OFFICE FISCAL 1997 FISCAL 1998
PRODUCTS PURCHASE PURCHASE PRO FORMA PRO FORMA
COMPANY ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $ 1,498,320 $ 363,229 $ 226,312 $ $ 2,087,861
Cost of revenues....................... 1,077,408 259,958 150,345 1,487,711
------------ ----------- ----------- ----------- ------------
Gross profit....................... 420,912 103,271 75,967 600,150

Selling, general and administrative
expenses............................. 344,474 93,201 53,931 (7,698)(g) 483,908
Amortization expense................... 8,072 10,343(h) 18,415
Non-recurring acquisition costs........ 7,316 (7,316)(i)
------------ ----------- ----------- ----------- ------------
Operating income................... 61,050 10,070 22,036 4,671 97,827

Other (income) expense:
Interest expense..................... 27,540 3,109 1,855 44,382(j) 76,886
Interest income...................... (6,048) (186) (1,017) 7,251(j)
Other................................ (4,073) (2,156) (501) (6,730)
------------ ----------- ----------- ----------- ------------
Income from continuing operations
before provision for income taxes and
extraordinary items.................. 43,631 9,303 21,699 (46,962) 27,671
Provision for income taxes............. 18,238 3,007 7,341 (10,600)(k) 17,986
------------ ----------- ----------- ----------- ------------
Income from continuing operations
before extraordinary items........... $ 25,393 $ 6,296 $ 14,358 $ (36,362) $ 9,685
------------ ----------- ----------- ----------- ------------
------------ ----------- ----------- ----------- ------------

Weighted average shares outstanding:
Basic................................ 85,978 127,822(l)
Diluted.............................. 87,824 129,668(l)
Income per share from continuing
operations before extraordinary
items:
Basic................................ $ 0.30 $ 0.08
Diluted.............................. $ 0.29 $ 0.07
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-24
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE FISCAL YEAR ENDED APRIL 26, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
U.S. OFFICE FISCAL 1997 FISCAL 1998
PRODUCTS PURCHASE PURCHASE PRO FORMA PRO FORMA
COMPANY ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 2,115,954 $ 374,886 $ 303,169 $ $ 2,794,009
Cost of revenues........................... 1,518,287 268,618 201,410 1,988,315
------------ ------------ ------------ ------------ ------------
Gross profit........................... 597,667 106,268 101,759 805,694

Selling, general and administrative
expenses................................. 488,215 95,913 70,996 (8,257)(g) 646,867
Amortization expense....................... 12,416 12,722(h) 25,138
Non-recurring acquisition costs............ 8,001 (8,001)(i)
Restructuring costs........................ 4,201 4,201
------------ ------------ ------------ ------------ ------------
Operating income....................... 84,834 10,355 30,763 3,536 129,488

Other (income) expense:
Interest expense......................... 36,047 3,170 2,552 60,746(j) 102,515
Interest income.......................... (6,857) (212) (1,448) 8,517(j)
Other.................................... (4,233) (2,164) (753) (7,150)
------------ ------------ ------------ ------------ ------------
Income from continuing operations before
provision for income taxes and
extraordinary items...................... 59,877 9,561 30,412 (65,727) 34,123
Provision for income taxes................. 27,939 3,056 9,933 (18,748)(k) 22,180
------------ ------------ ------------ ------------ ------------
Income from continuing operations before
extraordinary items...................... $ 31,938 $ 6,505 $ 20,479 $ (46,979) $ 11,943
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
------------

Weighted average shares outstanding:
Basic.................................... 90,026 127,822(l)
Diluted.................................. 91,761 129,557(l)
Income per share from continuing operations
before extraordinary items:
Basic.................................... $ 0.35 $ 0.09
Diluted.................................. $ 0.35 $ 0.09
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-25
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

(IN THOUSANDS)
(UNAUDITED)

1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS

(a) Adjustment to reflect purchase price adjustments and repayment of
certain short-term and long-term debt associated with the Post January
24, 1998 Purchase Acquisitions. The portion of the consideration assigned
to goodwill ($13,255) in transactions accounted for under the purchase
method represents the excess of the cost over the fair market value of
the net assets acquired. The Company amortizes goodwill over a period of
40 years. The recoverability of the unamortized goodwill will be assessed
on an ongoing basis by comparing anticipated undiscounted future cash
flows from operations to net book value.

(b) Adjustment to reflect the Tender Offer, including an increase in
borrowings of $977,388 to finance the Tender Offer and the repurchase of
37,037 shares of common stock by the Company for $1,000,000.

(c) Adjustment to reflect the repayment of $114,959 and the forgiveness of
the remaining $80,932 of debt payable to U.S. Office Products by the
companies included in the Spin-Off Companies, as U.S. Office Products
agreed to allocate a total of $130,000 of debt to the companies included
in the Spin-Off Companies at the date of the Distributions.

(d) Adjustment to remove the remaining net assets of the companies included
in the Spin-Off Companies.

(e) Adjustment to reflect the Equity Investment of $270,000.

(f) Adjustment to reflect the estimated transaction fees and expenses
(including financing costs) associated with the Tender Offer, the
Distributions and the Equity Investment of $75,000. These fees and
expenses have not been reflected in the unaudited pro forma combined
statements of income because they are either capitalizable or are of a
non-recurring nature and are directly related to the restructuring
transactions.

2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS

(g) Adjustment to reflect reductions in executive compensation as a result
of the elimination of certain executive positions and the renegotiations
of executive compensation agreements resulting from certain acquisitions.

(h) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1997
Purchase Acquisitions and the Fiscal 1998 Purchase Acquisitions for the
periods prior to the respective dates of acquisition. The Company has
recorded goodwill amortization in the historical financial statements
from the respective dates of acquisition forward. The goodwill is being
amortized over an estimated life of 40 years.

(i) Adjustment to reflect the reduction in non-recurring acquisition costs
related to pooling-of-interests business combinations of $8,001 and
$7,316 for the fiscal year ended April 26, 1997 and the nine months ended
January 25, 1997, respectively.

(j) Adjustment to reflect the increase in interest expense resulting from
the increase in debt as a result of the Tender Offer, partially offset by
the proceeds from the Equity Investment. In

F-26
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS)
(UNAUDITED)

2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS (CONTINUED)
addition, the adjustment reflects additional interest expense resulting
from the 2003 Notes being outstanding for the entire period presented.

(k) Adjustment to calculate the provision for income taxes on the combined
pro forma results at effective income tax rates of approximately 65%. The
difference between the effective tax rate of 65% and the statutory tax
rate of 35% relates primarily to state income taxes and non-deductible
goodwill amortization expense.

(l) Basic pro forma earnings per share is calculated based upon 127,822
weighted average shares of common stock outstanding for the year ended
April 26, 1997 and the nine months ended January 24, 1998 and January 25,
1997. The amounts are comprised of 133,042 shares outstanding for each of
the periods, 37,037 shares repurchased as a result of the Tender Offer
and 31,817 shares issued as a result of the Equity Investment. The
weighted average shares outstanding used to calculate diluted pro forma
earnings per share is based upon the basic weighted average shares
outstanding plus 1,735, 2,426 and 1,846 common stock equivalents
considered to be outstanding related to stock options for the year ended
April 26, 1997 and the nine months ended January 24, 1998 and January 25,
1997, respectively.

F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
U.S. Office Products Company

In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the consolidated statements of
income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of U.S. Office Products Company and
its subsidiaries at April 26, 1997 and April 30, 1996, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended April 26, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
certain wholly-owned subsidiaries, which statements reflect net income of $7.4
million and $10.4 million included in the Company's income from discontinued
operations, net of income taxes, for fiscal years ended April 30, 1996 and 1995,
respectively. Those statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for those wholly-owned subsidiaries, is based
solely on the reports of the other auditors. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for the opinion expressed above.

As described in Note 4, as a result of the Strategic Restructuring Plan, the
Company has restated its financial statements to account for certain business
combinations as purchase transactions.

PRICE WATERHOUSE LLP

Minneapolis, Minnesota
June 6, 1997, except as to the second paragraph
of the Common Stock section of Note 15, which
is as of November 6, 1997 and Note 4, which is
as of January 13, 1998

F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors
School Specialty, Inc.

We have audited the balance sheets of School Specialty, Inc. (formerly known
as EDA Corporation) (the Company) as of December 31, 1995 and 1994, and the
related statements of operations, changes in shareholders' deficit and cash
flows for the years then ended (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with 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 financial position of the Company at December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Milwaukee, Wisconsin
February 2, 1996

F-29
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors
The Re-Print Corporation
Birmingham, Alabama

We have audited the accompanying balance sheets of the Re-Print Corporation
as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for three years ended December 31, 1995,
1994, and 1993 (not presented separately herein). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of The Re-Print Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for three years ended December 31, 1995, 1994, and 1993 in conformity with
generally accepted accounting principles.

BDO SEIDMAN, LLP

Atlanta, Georgia
February 8, 1996

F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Hano Document Printers, Inc.:

We have audited the balance sheet of Hano Document Printers, Inc. as of
December 31, 1995 and the related statements of income, stockholders' equity,
and cash flows for the year then ended, which are not included herein. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 financial position of Hano Document Printers, Inc.
as of December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Norfolk, Virginia
August 28, 1996

F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
SFI Corp. and Hano Document Printers, Inc.:

We have audited the combined balance sheet of SFI Corp. and Hano Document
Printers, Inc. (collectively referred to as the "Companies") as of December 31,
1994, and the related statements of income, stockholders' equity, and cash flows
for each of the years in the two-year period ended December 31, 1994, which are
not included herein. These combined financial statements are the responsibility
of the Companies' management. Our responsibility is to express an opinion on
these combined financial statements based on our audit.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of SFI Corp. and Hano
Document Printers, Inc. as of December 31, 1994 and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1994 in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Norfolk, Virginia
August 28, 1996

F-32
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors
Fortran Corp.
Newington, Virginia

We have audited the accompanying balance sheet of Fortran Corp. as of March
31, 1996, and 1995 and the related statements of earnings, changes in
stockholders' equity, and cash flows for the years ended March 31, 1996, 1995,
and 1994 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to and above present
fairly, in all material respects, the financial position of Fortran Corp. as of
March 31, 1996, and 1995 and the results of its operations and its cash flows
for three years ended March 31, 1996, 1995 and 1994 in conformity with generally
accepted accounting principles.

As described in Note 9 to the financial statements, on August 21, 1996, the
Company entered into a letter of intent to exchange all of its issued and
outstanding shares of common stock for shares of U.S. Office Products Company
common stock.

RUBIN, KOEHMSTEDT AND NADLER

Springfield, Virginia
June 7, 1996, except for Note 9,
as to which the date is
October 24, 1996

F-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
MTA, Inc.
Seattle, Washington

We have audited the consolidated balance sheet of MTA, Inc. (the Company) as
of December 31, 1995 and the related statements of income and retained earnings
and of cash flows for the period from January 25, 1995 (date of incorporation)
to December 31, 1995 (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MTA, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the period from January 25, 1995 (date of incorporation) to December 31, 1995,
in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Seattle, Washington
September 23, 1996

F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
United Envelope Co., Inc.

We have audited the combined balance sheets of United Envelope Co., Inc. and
its affiliate, Rex Envelope Co., Inc., as at December 31, 1995 and 1994, and the
related combined statements of income and retained earnings and cash flows for
the years then ended (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

As referred to in Note A on "Principles of Combination," the companies,
whose financial statements are combined, are related through common ownership
and control. In addition, each has pledged certain assets and guaranteed
long-term indebtedness of the other as described in the notes to financial
statements. In view of their close operating and financial relationship, the
preparation of combined financial statements was considered appropriate. The
combined statements, however, do not refer to a legal entity and neither of the
companies guarantees trade obligations of the other.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of United
Envelope Co., Inc. and its affiliate as at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

HERTZ, HERSON & COMPANY, LLP

New York, New York
March 6, 1996

F-35
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
Huxley Envelope Corporation

We have audited the balance sheets of Huxley Envelope Corporation as of
December 31, 1995 and 1994, and the related statements of income and retained
earnings (accumulated deficit) and cash flows for the years then ended (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Huxley Envelope Corporation
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.

HERTZ, HERSON & COMPANY, LLP

New York, New York
March 4, 1996

F-36
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 183,483 $ 44,026 $ 45,258
Accounts receivable, less allowance for doubtful accounts of $3,586,
$7,337 and $9,110, respectively....................................... 159,448 283,751 324,976
Inventory............................................................... 103,768 225,998 239,043
Short-term receivable from discontinued operations...................... 51,977 26,918
Prepaid expenses and other current assets............................... 47,994 74,580 103,624
---------- ------------ ------------
Total current assets................................................ 494,693 680,332 739,819

Property and equipment, net............................................... 77,529 182,633 217,228
Intangible assets, net.................................................... 135,140 611,474 903,722
Other assets.............................................................. 64,942 113,407 174,549
Long-term receivable from discontinued operations......................... 59,914 88,041
Net assets of discontinued operations..................................... 33,674 59,231 346,083
---------- ------------ ------------
Total assets........................................................ $ 805,978 $ 1,706,991 $ 2,469,442
---------- ------------ ------------
---------- ------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt......................................................... $ 94,174 $ 144,125 $ 332,636
Accounts payable........................................................ 87,546 153,915 164,229
Accrued compensation.................................................... 16,775 32,515 41,262
Other accrued liabilities............................................... 22,074 63,814 67,654
---------- ------------ ------------
Total current liabilities........................................... 220,569 394,369 605,781

Long-term debt............................................................ 176,230 380,209 381,844
Deferred income taxes..................................................... 6,186 2,458 2,845
Other long-term liabilities and minority interests........................ 8,247 8,807 6,050
---------- ------------ ------------
Total liabilities................................................... 411,232 785,843 996,520
---------- ------------ ------------

Commitments and contingencies

Stockholders' equity:
Preferred stock, $.001 par value, 500,000 shares authorized, none
outstanding
Common stock, $.001 par value, 500,000,000 shares authorized,
79,464,423, 104,479,004 and 133,041,979 shares issued and outstanding,
respectively.......................................................... 79 104 133
Additional paid-in capital.............................................. 313,278 809,399 1,405,883
Cumulative translation adjustment....................................... 770 (5,583) (113,022)
Retained earnings....................................................... 80,619 117,228 179,928
---------- ------------ ------------
Total stockholders' equity.......................................... 394,746 921,148 1,472,922
---------- ------------ ------------
Total liabilities and stockholders' equity.......................... $ 805,978 $ 1,706,991 $ 2,469,442
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-37
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

CONSOLIDATED STATEMENT OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE FISCAL YEAR ENDED ENDED
--------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
APRIL 30, APRIL 30, APRIL 26, JANUARY 25, JANUARY 24,
1995 1996 1997 1997 1998
----------- --------- --------- ----------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ 658,494 $1,061,528 $2,115,954 $1,498,320 $1,930,113
Cost of revenues..................................... 485,955 789,436 1,518,287 1,077,408 1,390,855
----------- --------- --------- ----------- -----------
Gross profit..................................... 172,539 272,092 597,667 420,912 539,258

Selling, general and administrative expenses......... 152,176 231,569 488,215 344,474 436,037
Amortization expense................................. 801 2,711 12,416 8,072 13,830
Non-recurring acquisition costs...................... 8,057 8,001 7,316
Restructuring costs.................................. 682 4,201
----------- --------- --------- ----------- -----------
Operating income................................. 19,562 29,073 84,834 61,050 89,391

Interest expense..................................... 3,401 8,132 36,047 27,540 27,534
Interest income...................................... (675) (3,506) (6,857) (6,048) (1,545)
Other income......................................... (1,456) (684) (4,233) (4,073) (6,369)
----------- --------- --------- ----------- -----------
Income from continuing operations before provision
for income taxes and extraordinary items........... 18,292 25,131 59,877 43,631 69,771
Provision for income taxes........................... 2,800 6,032 27,939 18,238 32,535
----------- --------- --------- ----------- -----------
Income from continuing operations before
extraordinary items................................ 15,492 19,099 31,938 25,393 37,236
Income from discontinued operations, net of income
taxes.............................................. 15,675 15,778 26,800 20,411 25,464
----------- --------- --------- ----------- -----------
Income before extraordinary items.................... 31,167 34,877 58,738 45,804 62,700
Extraordinary items--losses on early terminations of
credit facilities, net of income taxes............. 701 1,450 612
----------- --------- --------- ----------- -----------
Net income........................................... $ 31,167 $ 34,176 $ 57,288 $ 45,192 $ 62,700
----------- --------- --------- ----------- -----------
----------- --------- --------- ----------- -----------
Per share amounts:
Basic:
Income from continuing operations before
extraordinary items............................ $ 0.34 $ 0.28 $ 0.35 $ 0.30 $ 0.32
Income from discontinued operations.............. 0.34 0.24 0.31 0.24 0.23
Extraordinary items.............................. (0.01) (0.02) (0.01)
----------- --------- --------- ----------- -----------
Net income....................................... $ 0.68 $ 0.51 $ 0.64 $ 0.53 $ 0.55
----------- --------- --------- ----------- -----------
----------- --------- --------- ----------- -----------
Diluted:
Income from continuing operations before
extraordinary items............................ $ 0.34 $ 0.28 $ 0.35 $ 0.29 $ 0.32
Income from discontinued operations.............. 0.34 0.23 0.29 0.23 0.22
Extraordinary items.............................. (0.01) (0.02) (0.01)
----------- --------- --------- ----------- -----------
Net Income....................................... 0.68 $ 0.50 $ 0.62 $ 0.51 $ 0.54
----------- --------- --------- ----------- -----------
----------- --------- --------- ----------- -----------

Unaudited pro forma income from continuing operations
before extraordinary items (see Note 11)........... $ 29,962
---------
---------

Unaudited pro forma basic income per share from
continuing operations before extraordinary items... $ 0.33
---------
---------

Unaudited pro forma diluted income per share from
continuing operations before extraordinary items... $ 0.33
---------
---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-38
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------------ PAID-IN TRANSLATION RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
---------- ------ ---------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994............... 38,443,262 $ 38 $26,483 $ (340) $ 58,733 $ (7,562) $77,352
Transactions of Combined Companies
upon formation of Company:
Issuance of common stock............ 5,817,000 6 (5) 1
Capital contribution................ 1,500 1,500
Distributions to stockholders....... (11,300) (11,300)
Adjustments to stockholders'
equity............................ (12,597) 5,035 7,562
Cash dividends...................... (222) (222)
Issuance of common stock, net of
associated expenses in conjunction
with:
Initial public offering............. 5,606,250 6 32,684 32,690
Acquisition......................... 1,312,500 1 8,749 8,750
Transactions of Pooled Companies:
Exercise of warrants and stock
options........................... 20,345 201 201
Cash dividends...................... (16,086) (16,086)
Adjustment to conform the year-ends of
Pooled Companies.................... 2,235 2,235
Cumulative translation adjustments.... 207 207
Net income............................ 31,167 31,167
---------- ------ ---------- ---------- -------- -------- -------------

Balance at April 30, 1995............... 51,199,357 51 57,015 (133) 69,562 126,495
Issuances of common stock, net of
associated expenses in conjunction
with:
Public offerings.................... 14,352,068 14 174,723 174,737
Acquisitions........................ 11,120,163 11 68,607 68,618
Exercise of stock options, including
tax benefits...................... 95,025 1,023 1,023
Transactions of Pooled Companies:
Issuances of common stock for cash
and repayment of debt............. 872,249 1 8,297 8,298
Capital contributions............... 500 500
Exercise of warrants and stock
options........................... 978,923 1 1,752 1,753
Cash and stock dividends............ 846,638 1 1,361 (32,017) (30,655)
Adjustment to conform the year-ends of
Pooled Companies.................... 8,898 8,898
Cumulative translation adjustments.... 903 903
Net income............................ 34,176 34,176
---------- ------ ---------- ---------- -------- -------- -------------

Balance at April 30, 1996............... 79,464,423 79 313,278 770 80,619 394,746
</TABLE>

(Continued)

F-39
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
-------------------------- PAID-IN TRANSLATION RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
------------- ----------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996.......... 79,464,423 $ 79 $ 313,278 $ 770 $ 80,619 $ 394,746
Issuances of common stock, net of
associated expenses in
conjunction with:
Public offering................ 13,023,497 13 275,699 275,712
Direct equity investment....... 1,875,000 2 38,111 38,113
Acquisitions................... 8,685,450 9 166,071 166,080
Exercise of stock options,
including tax benefits....... 197,742 2,843 2,843
Employee stock purchase plan... 229,998 3,145 3,145
Transactions of Pooled Companies:
Issuances of common stock for
repayment of debt and payment
of acquisition expenses...... 409,631 6,859 6,859
Capital contributions.......... 12,342 1,857 1,857
Exercise of warrants and stock
options...................... 478,616 1 1,979 1,980
Retirement of common stock..... 102,305 (443) (34) (477)
Cash dividends paid and
declared..................... (20,931) (20,931)
Adjustment to conform the
year-ends of Pooled
Companies...................... 286 286
Cumulative translation
adjustments.................... (6,353) (6,353)
Net income....................... 57,288 57,288
------------- ----- ------------ ----------- ---------- ----------- ------------
Balance at April 26, 1997.......... 104,479,004 104 809,399 (5,583) 117,228 921,148
Unaudited data:
Issuance of common stock, net of
associated expenses in
conjunction with:
Acquisitions..................... 27,792,099 28 585,509 585,537
Repayment of debt................ 28,179 570 570
Exercise of stock options,
including tax benefits......... 609,494 1 7,600 7,601
Employee stock purchase plan..... 169,723 2,805 2,805
Share adjustments at Pooled
Companies........................ (36,520)
Cumulative translation
adjustments...................... (107,439) (107,439)
Net income......................... 62,700 62,700
------------- ----- ------------ ----------- ---------- ----------- ------------
Balance at January 24, 1998
(unaudited)...................... 133,041,979 $ 133 $ 1,405,883 $ (113,022) $ 179,928 $1,472,922
------------- ----- ------------ ----------- ---------- ----------- ------------
------------- ----- ------------ ----------- ---------- ----------- ------------
</TABLE>

See accompanying notes to consolidated financial statements

F-40
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE FISCAL YEAR ENDED ENDED
--------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
APRIL 30, APRIL 30, APRIL 26, JANUARY 25, JANUARY 24,
1995 1996 1997 1997 1998
----------- --------- --------- ----------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ 31,167 $ 34,176 $ 57,288 $ 45,192 $ 62,700
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Income from discontinued operations....................... (15,675) (15,778) (26,800) (20,411) (25,464)
Depreciation and amortization............................. 6,521 10,999 36,102 23,233 41,787
Non-recurring acquisition costs........................... 8,057 8,001 7,316
Unrealized foreign currency gain.......................... (3,420) (3,420)
Deferred income taxes..................................... (367) (196) (1,035) 3,600 73
Extraordinary losses...................................... 701 1,450 612
Equity in net income of affiliate......................... (782) (265) (878)
Gain on sale of investment................................ (1,059)
Changes in current assets and liabilities (net of assets
acquired and liabilities assumed in business
combinations):
Accounts receivable..................................... (18,911) 969 (26,237) (32,154) (29,940)
Inventories............................................. (6,130) 1,861 (3,400) (6,718) (14,417)
Prepaid expenses and other current assets............... (1,417) (23,780) (6,059) (1,539) (3,909)
Accounts payable........................................ 7,349 2,802 (26,692) (22,922) 2,245
Accrued liabilities..................................... 5,204 (565) 7,396 (1,771) 5,699
----------- --------- --------- ----------- -----------
Net cash provided by (used in) operating activities... 7,741 19,246 15,812 (9,247) 36,837
----------- --------- --------- ----------- -----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received............. (15,993) (89,223) (345,319) (323,813) (33,642)
Payments of acquisition and restructuring costs............. (7,283) (5,343) (4,094) (5,771)
Additions to property and equipment, net of disposals....... (11,049) (17,868) (34,036) (15,891) (28,200)
Investment in affiliate..................................... (41,270) (41,270) (40,773)
Proceeds from sale of investment............................ 5,729
Other....................................................... 867 (5,687) 2,013 (5,476) 3,190
----------- --------- --------- ----------- -----------
Net cash used in investing activities................. (26,175) (120,061) (423,955) (390,544) (99,467)
----------- --------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock...................... 32,811 180,230 318,899 41,868 8,239
Proceeds from issuance of long-term debt.................... 6,553 139,040 225,387 224,080 457
Payments of long-term debt.................................. (3,643) (13,143) (174,788) (163,112) (10,647)
Net advances to discontinued operations..................... (111,891) (76,021) (99,213)
Proceeds from (payments of) short-term debt, net............ 3,433 (39,077) 24,132 259,705 172,000
Payments to terminate credit facility....................... (261) (261)
Payments of dividends at Pooled Companies................... (7,700) (8,287) (6,158) (6,122)
Capital contributed by stockholders of Pooled Companies..... 400 1,814 1,814
Adjustment to conform fiscal year-ends of certain Pooled
Companies................................................. 601 (1,397) 286 286
Capital contributed by Combined Company stockholder......... 1,500
Payments to stockholders of Combined Companies.............. (11,300)
----------- --------- --------- ----------- -----------
Net cash provided by financing activities............. 22,255 257,766 277,420 282,237 70,836
----------- --------- --------- ----------- -----------
Effect of exchange rates on cash and cash equivalents......... (180) (121) (511) (345) (3,159)
----------- --------- --------- ----------- -----------
Cash provided by (used in) discontinued operations............ 3,549 1,707 (8,223) (3,170) (3,815)
----------- --------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.......... 7,190 158,537 (139,457) (121,069) 1,232
Cash and cash equivalents at beginning of period.............. 17,756 24,946 183,483 183,483 44,026
----------- --------- --------- ----------- -----------
Cash and cash equivalents at end of period.................... $ 24,946 $ 183,483 $ 44,026 $ 62,414 $ 45,258
----------- --------- --------- ----------- -----------
----------- --------- --------- ----------- -----------
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 7,731 $ 3,426 $ 36,536 $ 28,980 $ 26,962
Income taxes paid......................................... 7,044 7,814 22,734 18,852 24,017
</TABLE>

F-41
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The Company issued common stock, notes payable and cash in connection with
certain business combinations accounted for under the purchase method during
fiscal 1995, 1996 and 1997 and the nine months ended January 25, 1997 and
January 24, 1998. The fair values of the assets and liabilities of the acquired
companies at the dates of the acquisitions are presented as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE FISCAL YEAR ENDED ENDED
------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
APRIL 30, APRIL 30, APRIL 26, JANUARY 25, JANUARY 24,
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accounts receivable............................................. $ 15,350 $ 70,640 $ 99,747 $ 88,202 $ 27,284
Inventories..................................................... 10,331 49,602 115,995 119,584 18,970
Prepaid expenses and other current assets....................... 956 8,412 20,874 13,559 15,806
Property and equipment.......................................... 3,248 30,442 94,112 107,202 52,695
Intangible assets............................................... 21,079 119,493 490,011 432,219 371,606
Other assets.................................................... (1,149) 51,698 7,748 5,174 34,759
Short-term debt................................................. (8,253) (95,971) (20,612) (12,819) (8,755)
Accounts payable................................................ (9,180) (44,034) (99,753) (89,338) (20,058)
Accrued liabilities............................................. (3,297) (19,719) (52,464) (81,506) (13,870)
Long-term debt.................................................. (905) (11,635) (153,448) (115,017) (20,320)
Other long-term liabilities and minority interest............... (437) (7,751) (1,296) (8,262) (357)
----------- ----------- ----------- ----------- -----------
Net assets acquired..................................... $ 27,743 $ 151,177 $ 500,914 $ 458,998 $ 457,760
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
The acquisitions were funded as follows:

Common stock.................................................... $ 8,750 $ 61,167 $ 155,595 $ 135,185 $ 424,118
Debt............................................................ 3,000 787
Cash............................................................ 15,993 89,223 345,319 323,813 33,642
----------- ----------- ----------- ----------- -----------
Total....................................................... $ 27,743 $ 151,177 $ 500,914 $ 458,998 $ 457,760
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

Noncash transactions:

- - - During fiscal 1996, 1997 and the nine months ended January 24, 1998
(unaudited) the Company issued 291,671, 384,630 and 28,179 shares of common
stock, respectively, to repay $2,470, $6,359 and $570 of indebtedness,
respectively.

- - - During fiscal 1996, 1997 and the nine months ended January 24, 1998
(unaudited), the Company recorded additional paid-in capital of
approximately $426, $1,250 and $2,168, respectively, related to the tax
benefit on stock options exercised.

- - - During fiscal 1996, one Pooled Company converted $1,385 of debt to common
stock.

- - - During fiscal 1996, one Pooled Company paid a dividend of $9,851 through the
issuance of 846,638 shares of common stock

See accompanying notes to consolidated financial statements.

F-42
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1--BUSINESS ORGANIZATION

U.S. Office Products Company ("U.S. Office Products" and the "Company") was
founded in October 1994. The Company is a supplier of a broad range of office
and educational products and business services to corporate, commercial,
industrial and educational customers. The Company operates throughout the United
States, as well as in New Zealand, Australia and Canada and, through a 49% owned
affiliate, in the United Kingdom.

NOTE 2--FORMATION OF COMPANY

Concurrent with the closing of its initial public offering in February 1995,
the Company acquired four companies (the "Combined Companies") for a combination
of its common stock and cash and acquired two companies in business combinations
accounted for under the purchase method. Because of the substantial ongoing
interest of the stockholders of the Combined Companies in U.S. Office Products,
the assets and liabilities of the Combined Companies were combined on a
historical cost basis. The capital stock of the Combined Companies is included
in additional paid-in capital.

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of U.S. Office Products,
the Combined Companies and the companies acquired in business combinations
accounted for under the purchase method (the "Purchased Companies") from their
respective acquisition dates and give retroactive effect to the results of the
companies acquired in business combinations accounted for under the
pooling-of-interests method (the "Pooled Companies") for all periods presented.

USE OF ESTIMATES

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

DEFINITION OF FISCAL YEAR

As used in these consolidated financial statements and related notes to
consolidated financial statements, "fiscal 1997," "fiscal 1996" and "fiscal
1995" refer to the Company's fiscal years ended April 26, 1997 and April 30,
1996 and 1995, respectively. On August 20, 1996, the Company's Board of
Directors approved a change in the Company's fiscal year-end, effective for the
1997 fiscal year, from April 30 to the last Saturday in April.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. Investments in less than 50% owned entities
are accounted for under the equity method. All significant intercompany
transactions and accounts are eliminated in consolidation.

F-43
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS

The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss.

INVENTORIES

Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 3 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases is being amortized over the lesser of its useful life or its lease terms.

INTANGIBLE ASSETS

Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. Substantially all goodwill is amortized
on a straight line basis over estimated useful lives of 25 to 40 years.
Management periodically evaluates the recoverability of goodwill, which would be
adjusted for a permanent decline in value, if any, by comparing anticipated
undiscounted future cash flows from operations to net book value.

TRANSLATION OF FOREIGN CURRENCIES

Balance sheet accounts of foreign subsidiaries are translated using the
year-end exchange rate, and statement of income accounts are translated using
the average exchange rate for the year. Translation adjustments are recorded as
a separate component of stockholders' equity.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company's wholly-owned foreign subsidiary has entered into forward
foreign currency exchange contracts (the "Exchange Contracts") with
counterparties to hedge the exposure of foreign currency fluctuations to the
extent permissible by hedge accounting requirements. At April 26, 1997, the
Exchange Contracts, in the notional amount of $3,319, hedge certain foreign
currency denominated assets. The Exchange Contracts generally have maturity
dates of 60 days or less. Discounts or premiums on the Exchange Contracts are
amortized over the life of the contracts.

F-44
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's wholly-owned foreign subsidiary also entered into interest
rate swap agreements (the "Swap Agreements") with counterparties to convert the
interest rates associated with certain outstanding debt from variable rates to
fixed rates. The notional amount of the Swap Agreements was $43,000 at April 30,
1996. During fiscal 1997, the Swap Agreements were terminated resulting in a
loss of $117.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of the Company's financial instruments has been
determined using the following methods and assumptions:

- - - The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value;

- - - The fair values of the 5 1/2% Convertible Subordinated Notes due 2001 and the
5 1/2% Convertible Subordinated Notes due 2003 are based on quoted market
prices;

- - - The carrying amounts of the Company's debt, other than the 5 1/2% Convertible
Subordinated Notes due 2001 and the 5 1/2% Convertible Subordinated Notes
due 2003, approximate fair value, estimated by discounted cash flow analyses
based on the Company's current incremental borrowing rates for similar types
of borrowing arrangements.

INCOME TAXES

Income taxes have been computed utilizing the asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. Certain
companies acquired in pooling-of-interests transactions elected to be taxed as
Subchapter S corporations, and accordingly, no federal income taxes were
recorded by those companies for periods prior to their acquisition by U.S.
Office Products.

TAXES ON UNDISTRIBUTED EARNINGS

No provision is made for U.S. income taxes on earnings of subsidiary
companies which the Company controls but does not include in the consolidated
federal income tax return since it is management's practice and intent to
permanently reinvest the earnings of these subsidiaries.

REVENUE RECOGNITION

Revenue is recognized upon the delivery of products or upon the completion
of services provided to customers as no additional obligations to the customers
exist. The Company also leases equipment to customers under both short-term and
long-term lease agreements. Revenue related to short-term leases is recognized
on a monthly basis over the life of the lease. Certain long-term leases qualify
as sales-type leases and, accordingly, the present value of the future lease
payments is recognized as income upon delivery of the equipment to the customer.

F-45
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COST OF REVENUES

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

NON-RECURRING ACQUISITION COSTS

Non-recurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include legal and accounting fees, investment banking fees,
recognition of transaction related obligations and various other acquisition
related costs.

RESTRUCTURING COSTS

The Company records the costs of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs related to the
Company's employees in accordance with EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in Restructuring)."

ACCRUED ACQUISITION COSTS

The Company accrues the direct external costs incurred in conjunction with
the consummation of business combinations and the costs incurred to consolidate
acquired operations into existing Company facilities, including the external
costs and liabilities to close redundant facilities and severance and relocation
costs related to the acquired entity's employees in accordance with EITF Issue
No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination."

NET INCOME PER SHARE

Net income per share is calculated in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share."

NEW ACCOUNTING PRONOUNCEMENTS

The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
The adoption of SFAS 121 did not have a material effect on the Company's
consolidated operating results or financial position.

The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
during fiscal 1997. Under the provisions of SFAS 123, companies can elect to
account for stock-based compensation plans using a fair-value based method or
continue measuring compensation expense for those plans using the intrinsic
value method prescribed in APB Opinion No. 25. The Company has elected to
continue using the intrinsic value method to account for stock-based
compensation plans. Pro forma disclosures of net income and net income per
share, as if the fair value-based method of accounting defined in SFAS 123 has
been applied, are presented in Note 15.

F-46
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED INTERIM FINANCIAL DATA

In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of January 24, 1998 and the results
of operations and of cash flows for the nine months ended January 25, 1997 and
January 24, 1998, as presented in the accompanying unaudited consolidated
financial data.

NOTE 4--STRATEGIC RESTRUCTURING PLAN

In January 1998, the Company's Board of Directors (the "Board") approved a
comprehensive restructuring plan (the "Strategic Restructuring Plan"). The
principal elements of the Strategic Restructuring Plan are (i) a self-tender
offer by the Company (the "Tender Offer") to purchase 37,037 shares of Company
common stock at $27.00 per share and the incurrence of significant additional
debt to pay a portion of the purchase price of the shares in the Tender Offer;
(ii) after acceptance of shares in the Tender Offer, the pro rata distribution
to U.S. Office Products stockholders of shares of four companies (the "Spin-Off
Companies") that will conduct the Company's current print management, corporate
travel services, educational supplies and technology solutions businesses (the
"Distributions"); and (iii) following acceptance of shares in the Tender Offer
and the record date for the Distributions, the sale to an affiliate of an
investment fund managed by Clayton, Dubilier & Rice, Inc. ("Investor") of equity
interests in U.S. Office Products. In these transactions, Investor will not
acquire any equity interest in the Spin-Off Companies. The Distributions are
expected to be tax-free to both the Company and its stockholders (except for any
cash in lieu of fractional shares received by stockholders). The Company expects
the Strategic Restructuring Plan to be completed in the second calendar quarter
of 1998. The transactions are subject to a number of conditions, including
financing, approval of the Company's stockholders and receipt of regulatory
approvals.

DISCONTINUED OPERATIONS

As a result of the Strategic Restructuring Plan, the Spin-Off Companies are
reflected as discontinued operations for all periods presented in the Company's
consolidated financial statements. The income from discontinued operations
included in the consolidated statement of income represents the sum of the
results of the Company's Print Management, Corporate Travel Services,
Educational Supplies and Technology Solutions divisions for the periods
presented and is summarized as follows:

F-47
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 4--STRATEGIC RESTRUCTURING PLAN (CONTINUED)

FISCAL 1997:
Revenues..................................... $ 334,220 $ 57,677 $ 191,746 $ 136,278 $ 719,921
Operating income............................. 16,426 5,668 10,295 11,198 43,587
Income before provision for income taxes..... 11,224 5,450 6,375 10,914 33,963
Provision for (benefit from) income taxes.... 3,651 1,353 (2,034) 4,193 7,163
Income from discontinued operations,
net of income taxes........................ 7,573 4,097 8,409 6,721 26,800

NINE MONTHS ENDED JANUARY 25, 1997
(UNAUDITED):
Revenues..................................... $ 244,764 $ 41,527 $ 159,977 $ 101,295 $ 547,563
Operating Income............................. 14,750 3,105 10,839 8,448 37,142
Income before provision for income taxes..... 10,259 3,031 7,878 8,182 29,350
Provision for income taxes................... 2,249 551 4,085 2,054 8,939
Income from discontinued operations net of
income taxes............................... 8,010 2,480 3,793 6,128 20,411

NINE MONTHS ENDED JANUARY 24, 1998
(UNAUDITED):
Revenues..................................... $ 257,777 $ 80,707 $ 247,880 $ 142,512 $ 728,876
Operating Income............................. 14,028 5,719 21,349 11,630 52,726
Income before provision for income taxes..... 12,577 5,522 16,916 11,644 46,659
Provision for income taxes................... 5,629 2,794 7,734 5,038 21,195
Income from discontinued operations net of
income taxes............................... 6,948 2,728 9,182 6,606 25,464
</TABLE>

F-48
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 4--STRATEGIC RESTRUCTURING PLAN (CONTINUED)
The results of the Spin-Off Companies include allocations of interest
expense, at U.S. Office Products' weighted average interest rates, and do not
include any allocations of corporate overhead from U.S. Office Products during
the periods presented.

The net assets of the discontinued operations included in the Company's
consolidated balance sheet represent the sum of the net assests of the Company's
Print Management, Corporate Travel Services, Educational Supplies and Technology
Solutions divisions for the periods presented and are summarized as follows:

<TABLE>
<CAPTION>
CORPORATE TOTAL
PRINT TRAVEL EDUCATIONAL TECHNOLOGY DISCONTINUED
MANAGEMENT SERVICES SUPPLIES SOLUTIONS OPERATIONS
------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
APRIL 30, 1996:
Current assets............................... $ 78,071 $ 6,103 $ 38,557 $ 25,640 $ 148,371
Property, plant and equipment, net........... 32,703 7,948 7,647 1,756 50,054
Intangible assets, net....................... 879 5,456 7,142 13,477
Other assets................................. 6,029 539 777 875 8,220
Current liabilities.......................... (56,532) (7,402) (42,670) (22,344) (128,948)
Long-term liabilities........................ (34,065) (6,869) (15,766) (800) (57,500)
------------ ---------- ------------ ----------- ------------
Net assets of discontinued operations...... $ 27,085 $ 5,775 $ (4,313) $ 5,127 $ 33,674
------------ ---------- ------------ ----------- ------------
------------ ---------- ------------ ----------- ------------
APRIL 26, 1997:
Current assets............................... $ 81,310 $ 6,935 $ 55,709 $ 30,542 $ 174,496
Property, plant and equipment, net........... 34,175 7,953 14,478 2,164 58,770
Intangible assets, net....................... 705 7,112 20,824 28,641
Other assets................................. 7,807 581 359 2,005 10,752
Current liabilities.......................... (66,413) (11,886) (39,712) (20,530) (138,541)
Long-term liabilities........................ (31,399) (5,218) (35,052) (3,218) (74,887)
------------ ---------- ------------ ----------- ------------
Net assets of discontinued operations...... $ 26,185 $ 5,477 $ 16,606 $ 10,963 $ 59,231
------------ ---------- ------------ ----------- ------------
------------ ---------- ------------ ----------- ------------
JANUARY 24, 1998 (UNAUDITED):
Current assets............................... $ 85,326 $ 22,609 $ 86,676 $ 64,618 $ 259,229
Property, plant and equipment, net........... 31,063 19,406 20,489 5,074 76,032
Intangible assets, net....................... 5,369 85,525 94,651 63,891 249,436
Other assets................................. 5,099 1,002 2,595 508 9,204
Current liabilities.......................... (58,449) (20,236) (35,529) (31,252) (145,466)
Long-term liabilities........................ (10,530) (15,957) (63,307) (12,558) (102,352)
------------ ---------- ------------ ----------- ------------
Net assets of discontinued operations...... $ 57,878 $ 92,349 $ 105,575 $ 90,281 $ 346,083
------------ ---------- ------------ ----------- ------------
------------ ---------- ------------ ----------- ------------
</TABLE>

The short-term and long-term receivables from discontinued operations
reflected in the unaudited January 24, 1998 Consolidated Balance Sheet are
expected to be recovered from the Spin-Off Companies in connection with the
Distributions.

F-49
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 4--STRATEGIC RESTRUCTURING PLAN (CONTINUED)
PURCHASE ACCOUNTING RESTATEMENT

On December 24, 1997, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission which included audited supplemental
consolidated financial statements (the "Supplemental Financial Statements"). The
Supplemental Financial Statements gave retroactive effect to 20 fiscal 1998
business combinations, including the Mail Boxes Etc. acquisition, which were
originally accounted for under the pooling-of-interests method.

As a result of the Strategic Restructuring Plan and as required by generally
accepted accounting principles, the Company has restated its consolidated
financial statements for all periods to account for these acquisitions (as well
as two subsequent business combinations originally accounted for under the
pooling-of-interests method) under the purchase method. In relation to amounts
reflected in the Supplemental Financial Statements, this restatement and the
reclassification of assets and liabilities for discontinued operations, as
discussed above, had the combined effect of reducing the Company's reported
total assets at April 26, 1997 by $267,430 and reported net income for the
fiscal year then ended by $17,811 (or $0.02 per share). Additionally, the
restatement of the 22 business combinations as purchase transactions gave rise
to approximately $422.8 million of goodwill, associated with both continuing and
discontinued operations, during the nine months ended January 24, 1998.

NOTE 5--BUSINESS COMBINATIONS

POOLING-OF-INTERESTS METHOD

In fiscal 1996 and 1997, the Company issued 8,440,852 and 22,108,776 shares
of common stock, respectively, to acquire 14 companies (the "1996 Poolings") and
40 companies, including 25 companies related to the continuing operations (the
"1997 Poolings"), respectively, in business combinations accounted for under the
pooling-of-interests method. The Company's consolidated financial statements
give retroactive effect to the acquisitions of the Pooled Companies for all
periods presented. Certain of the Pooled Companies previously reported on fiscal
years ending other than April 30, 1996 and April 26, 1997.

Commencing on May 1, 1995 and 1996, the year-ends of the 1996 Poolings and
the 1997 Poolings were changed to April 30, 1996 and April 26, 1997,
respectively, resulting in adjustments to retained earnings of $2,235, $8,898
and $286 during fiscal 1995, 1996 and 1997, respectively. Following is a summary
of the results related to the adjustments to retained earnings:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
---------------------------------
<S> <C> <C> <C>
APRIL 30, APRIL 30, APRIL 26,
1995 1996 1997
--------- ---------- ----------
Revenues....................................................................... $ 55,126 $ 245,737 $ (9,907)
Costs and expenses............................................................. 52,891 236,839 (10,193)
--------- ---------- ----------
Net adjustment............................................................. $ 2,235 $ 8,898 $ 286
--------- ---------- ----------
--------- ---------- ----------
</TABLE>

F-50
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 5--BUSINESS COMBINATIONS (CONTINUED)
The following presents the separate results, in each of the periods
presented, of U.S. Office Products (excluding the results of Pooled Companies
prior to the dates on which they were acquired), and the Pooled Companies up to
the dates on which they were acquired:

<TABLE>
<CAPTION>
U.S. OFFICE POOLED
PRODUCTS COMPANIES COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
FOR THE YEAR ENDED APRIL 30, 1995:
Revenues.............................................................. $ 120,479 $ 538,015 $ 658,494
Income from continuing operations before extraordinary items.......... $ 1,514 $ 13,978 $ 15,492

FOR THE YEAR ENDED APRIL 30, 1996:
Revenues.............................................................. $ 488,670 $ 572,858 $ 1,061,528
Income from continuing operations before extraordinary items.......... $ 7,828 $ 11,271 $ 19,099

FOR THE YEAR ENDED APRIL 26, 1997:
Revenues.............................................................. $ 1,906,496 $ 209,458 $ 2,115,954
Income from continuing operations before extraordinary items.......... $ 27,978 $ 3,960 $ 31,938

FOR THE NINE MONTHS ENDED JANUARY 25, 1997 (UNAUDITED):
Revenues.............................................................. $ 1,300,421 $ 197,899 $ 1,498,320
Income from continuing operations before extraordinary items.......... $ 19,677 $ 5,716 $ 25,393

FOR THE NINE MONTHS ENDED JANUARY 24, 1998 (UNAUDITED):
Revenues.............................................................. $ 1,930,113 $ $ 1,930,113
Income from continuing operations before extraordinary items.......... $ 37,236 $ $ 37,236
</TABLE>

PURCHASE METHOD

In fiscal 1995, in addition to the acquisitions of the Combined Companies,
the Company made six acquisitions, including five related to continuing
operations, accounted for under the purchase method for an aggregate purchase
price of $29,849, consisting of $18,099 of cash, $3,000 of notes payable and
1,312,500 shares of common stock with a market value of $8,750. The total assets
related to these six acquisitions were $72,192, including goodwill of $21,079.
The results of these acquisitions have been included in the Company's results
form their respective dates of acquisition.

In fiscal 1996, the Company made 34 acquisitions, including 31 related to
continuing operations, accounted for under the purchase method for an aggregate
purchase price of $206,937, consisting of $130,178 of cash, $8,141 of debt and
11,120,163 shares of common stock with a market value of $68,618. The total
assets related to these 34 acquisitions were $414,113, including goodwill of
$127,870. The results of these acquisitions have been included in the Company's
results from their respective dates of acquisition.

In fiscal 1997, the Company made 77 acquisitions, including 71 related to
continuing operations, accounted for under the purchase method for an aggregate
purchase price of $520,891 consisting of $354,811 of cash, and 8,685,450 shares
of common stock with a market value of $166,080. The total assets related to
these 77 acquisitions were $861,647, including goodwill of $506,386. The results
of these acquisitions have been included in the Company's results from their
respective dates of acquisition.

F-51
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 5--BUSINESS COMBINATIONS (CONTINUED)
The following presents the unaudited pro forma results of operations of the
Company for the fiscal years ended April 30, 1996 and April 26, 1997 and
includes the Company's consolidated financial statements, which give retroactive
effect to the acquisitions of the Pooled Companies for all periods presented,
and the results of the Purchased Companies as if all such purchase acquisitions
had been made at the beginning of fiscal 1996. The results presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, adjustments in executive compensation and the inclusion of a federal
income tax provision on all earnings:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------
<S> <C> <C>
APRIL 30, APRIL 26,
1996 1997
------------ ------------
Revenues.................................................................... $ 2,413,720 $ 2,496,519
Income from continuing operations before extraordinary items................ 35,361 48,825
Income per share from continuing operations before extraordinary items...... 0.30 0.42
</TABLE>

The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1996 or the
results which may occur in the future.

EQUITY INVESTMENT IN AFFILIATE

In November 1996, the Company acquired a 49% equity interest in Dudley
Stationery Limited ("Dudley"), which is being accounted for under the equity
method. Under the terms of the agreement, the Company agreed to invest
approximately $80 million for working capital into Dudley over a two-year
period. The Company has currently invested approximately $41.3 million of the
total $80 million in Dudley.

NOTE 6--ACCRUED ACQUISITION COSTS

In conjunction with the acquisitions of the fiscal 1997 Purchased Companies,
the Company accrued the direct external costs incurred in conjunction with the
consummation of the acquisitions and the costs to consolidate acquired
operations into existing Company facilities, including the external costs
associated with closing redundant facilities of acquired companies, and
severance and relocation costs related to the acquired companies' employees.

As of the consummation date of the acquisition, the Company begins to assess
and formulate a plan to exit activities of the acquired companies. Typically,
this involves evaluating the facilities of the Company and the acquired
companies in the specific geographic areas, determining which of the acquired
facilities will be exited and identifying employee groups that will be
terminated or relocated. In most cases, the facilities are closed and the
employees terminated within one year of the completion of the plan.

F-52
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 6--ACCRUED ACQUISITION COSTS (CONTINUED)
The following table sets forth the Company's accrued acquisition costs for
the periods ended April 30, 1996, April 26, 1997 and January 24, 1998:

<TABLE>
<CAPTION>
EMPLOYEE DISPOSAL OF
REDUNDANT SEVERANCE & ASSETS &
FACILITIES RELOCATION OTHER TOTAL
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at April 30, 1996................... $ $ $ $
Additions................................. 1,593 2,484 6,712 10,789
----------- ------ ----------- ---------
Balance at April 26, 1997................... 1,593 2,484 6,712 10,789
Unaudited data:

Additions................................. 1,442 3,244 4,686
Utilizations.............................. (256) (141) (5,400) (5,797)
----------- ------ ----------- ---------
Balance at January 24, 1998................. $ 1,337 $ 3,785 $ 4,556 $ 9,678
----------- ------ ----------- ---------
----------- ------ ----------- ---------
</TABLE>

NOTE 7--RESTRUCTURING COSTS

The Company records the costs of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs related to the
Company's employees. The following table sets forth the Company's accrued
restructuring costs for the periods ended April 30, 1996, April 26, 1997 and
January 24, 1998:

<TABLE>
<CAPTION>
FACILITY SEVERANCE OTHER ASSET
CLOSURE AND AND WRITE- DOWNS
CONSOLIDATION TERMINATIONS AND COSTS TOTAL
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at April 30 1995:
Additions.............................. $ 682 $ 682
Utilizations........................... (682) (682)
------ ----- ----------- ---------

Balance at April 30, 1996................
Additions.............................. 1,337 308 2,556 4,201
Utilizations........................... (302) (229) (2,150) (2,681)
------ ----- ----------- ---------

Balance at April 26, 1997................ 1,035 79 406 1,520
Unaudited data:
Utilizations........................... (937) (79) (348) (1,364)
------ ----- ----------- ---------

Balance at January 24, 1998.............. $ 98 $ $ 58 $ 156
------ ----- ----------- ---------
------ ----- ----------- ---------
</TABLE>

F-53
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 8--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- ----------
<S> <C> <C>
Land........................................................................... $ 4,878 $ 31,934
Buildings...................................................................... 32,140 44,814
Furniture and fixtures......................................................... 42,340 121,701
Warehouse equipment............................................................ 23,290 24,726
Equipment under capital leases................................................. 7,308 8,602
Leasehold improvements......................................................... 8,653 16,107
----------- ----------
118,609 247,884
Less: Accumulated depreciation................................................. (41,080) (65,251)
----------- ----------
Net property and equipment..................................................... $ 77,529 $ 182,633
----------- ----------
----------- ----------
</TABLE>

Depreciation expense for fiscal years 1995, 1996 and 1997 was $4,906, $7,926
and $20,699, respectively.

NOTE 9--INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill......................................................... $ 136,338 $ 625,074 $ 928,365
Other............................................................ 2,549 3,063 3,915
---------- ---------- ------------
138,887 628,137 932,280
Less: Accumulated amortization................................... (3,747) (16,663) (28,558)
---------- ---------- ------------
$ 135,140 $ 611,474 $ 903,722
---------- ---------- ------------
---------- ---------- ------------
</TABLE>

Amortization expense for fiscal years 1995, 1996, 1997 and the nine months
ended January 24, 1998 was $801, $2,711, $12,416 and $13,830, respectively.

F-54
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 10--CREDIT FACILITIES

SHORT-TERM DEBT

Short-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
---------- ----------
<S> <C> <C>
Credit facilities with banks, average interest rates of 7.6% at April 26, 1997 and
7.8% at April 30, 1996.......................................................... $ 1,020 $ 140,090
Annual renewal loans provided by banks and other financial institutions of foreign
subsidiary secured by lease receivables of foreign subsidiary. Interest rates
ranging from 7.8% to 10.2% at April 30, 1996.................................... 67,660
Bank lines of credit of foreign subsidiary operations secured by assets of those
operations. Interest rates ranging from 9.2% to 9.8% at April 30, 1996......... 12,731
Other............................................................................. 4,749 1,367
Current maturities of long-term debt.............................................. 8,014 2,668
---------- ----------
Total short-term debt....................................................... $ 94,174 $ 144,125
---------- ----------
---------- ----------
</TABLE>

The Company currently has an agreement under which a syndicate of financial
institutions, led by Bankers Trust Company, as Agent (the "Bank"), is providing
the Company with a $500 million credit facility (the "Credit Facility") bearing
interest, at the Company's option, at the Bank's base rate plus an applicable
margin of up to 1.25%, or a eurodollar rate plus an applicable margin of up to
2.5%. The availability under the Credit Facility is subject to certain
sublimits including $100 million for working capital loans and $400 million for
acquisition loans. The Credit Facility is secured by a majority of the assets
of the Company and its subsidiaries and contains customary covenants, including
financial covenants with respect to the Company's consolidated leverage and
interest coverage ratios, capital expenditures, payment of dividends and
purchases and sales of assets, and customary default provisions, including
provisions related to non-payment of principal and interest, default under other
debt agreements and bankruptcy. The Company was in compliance with or obtained
waivers relating to these covenants at April 26, 1997. At April 26, 1997, the
balance outstanding under the Credit Facility was $140,090 and included five
eurodollar contracts, expiring within 30 days, totaling $105,000 at an average
interest rate of 7.2%.

F-55
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 10--CREDIT FACILITIES (CONTINUED)
LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
---------- ----------
<S> <C> <C>
Convertible Subordinated Notes due 2003, interest at 5 1/2%, convertible into
shares of common stock at any time prior to maturity at a conversion price of
$31.60 per share, subject to adjustment in certain events....................... $ 230,000
Convertible Subordinated Notes due 2001, interest at 5 1/2%, convertible into
shares of common stock at any time prior to maturity at a conversion price of
$19.00 per share, subject to adjustment in certain events....................... $ 143,750 143,750
Notes payable, secured by certain assets of the Company, interest rates ranging
from 8.0% to 10.0%, maturities from October 1996 through 2003................... 13,384
Other............................................................................. 22,370 3,610
Capital lease obligations......................................................... 4,740 5,517
---------- ----------
184,244 382,877
Less: Current maturities of long-term debt........................................ (8,014) (2,668)
---------- ----------
Total long-term debt........................................................ $ 176,230 $ 380,209
---------- ----------
---------- ----------
</TABLE>

The 5 1/2% Convertible Subordinated Notes due 2003 (the "2003 Notes") are
redeemable, in whole or in part, at the Company's option at specified redemption
prices on or after May 22, 1998, but may not be redeemed prior to May 15, 1999
unless the closing price of the common stock is at least 150% of the conversion
price for a period of time prior to the notice of redemption. Costs incurred in
connection with the issuance of the 2003 Notes are included in other assets and
are being amortized over the seven year period of maturity. The fair value of
the 2003 Notes at April 26, 1997, based upon quoted market prices, totaled
$184,000.

The 5 1/2% Convertible Subordinated Notes due 2001 (the "2001 Notes") are
redeemable, in whole or in part, at the Company's option at specified redemption
prices on or after February 3, 1998, but may not be redeemed prior to February
2, 1999 unless the closing price of the common stock is at least 150% of the
conversion price for a period of time prior to the notice of redemption. Costs
incurred in connection with the issuance of the 2001 Notes are included in other
assets and are being amortized over the five year period of maturity. The fair
value of the 2001 Notes at April 26, 1997, based upon quoted market prices,
totaled $147,344.

F-56
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 10--CREDIT FACILITIES (CONTINUED)
MATURITIES OF LONG-TERM DEBT

Maturities on long-term debt, including capital lease obligations, are as
follows:

<TABLE>
<S> <C>
1998.............................................................. $ 2,668
1999.............................................................. 2,211
2000.............................................................. 1,524
2001.............................................................. 144,436
2002.............................................................. 219
Thereafter........................................................ 231,819
---------
$ 382,877
---------
---------
</TABLE>

NOTE 11--INCOME TAXES

Domestic and foreign income from continuing operations before provision for
income taxes and extraordinary items consist of the following:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------
APRIL 30, APRIL 30, APRIL 26,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Domestic......................................................................... $ 16,099 $ 22,139 $ 38,024
Foreign.......................................................................... 2,193 2,992 21,853
--------- --------- ---------
Total...................................................................... $ 18,292 $ 25,131 $ 59,877
--------- --------- ---------
--------- --------- ---------
</TABLE>

The provision for income taxes consists of:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------
APRIL 30, APRIL 30, APRIL 26,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income taxes currently payable:
Federal...................................................................... $ 2,126 $ 4,632 $ 18,776
State........................................................................ 232 351 1,987
Foreign...................................................................... 809 1,245 8,211
--------- --------- ---------
3,167 6,228 28,974
--------- --------- ---------
Deferred income tax expense (benefit)............................................ (367) (196) (1,035)
--------- --------- ---------
Total provision for income taxes........................................... $ 2,800 $ 6,032 $ 27,939
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-57
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 11--INCOME TAXES (CONTINUED)
Deferred taxes are comprised of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Current deferred tax assets:
Inventory.................................................................................. $ 1,386 $ 708
Allowance for doubtful accounts............................................................ 1,325 1,253
Accrued liabilities........................................................................ 2,971 6,091
--------- ---------
Total current deferred tax assets...................................................... 5,682 8,052
--------- ---------

Long-term deferred tax liabilities:
Property and equipment..................................................................... (4,457) (2,357)
Intangible assets.......................................................................... (1,063) (961)
Internal Revenue Service tax assessment.................................................... (3,383) (3,383)
Other...................................................................................... 2,717 4,243
--------- ---------
Total long-term deferred tax liabilities................................................. (6,186) (2,458)
--------- ---------
Net deferred tax asset (liability)....................................................... $ (504) $ 5,594
--------- ---------
--------- ---------
</TABLE>

The Internal Revenue Service ("IRS") tax assessment relates to the deferral
of a gain on the sale of land and a building by a subsidiary of the Company. The
IRS has determined that a portion of the gain recorded by the subsidiary does
not qualify for deferral and has assessed the Company additional taxes. The
subsidiary has recorded a deferred tax liability, including interest, as a
result of the assessment. The Company has filed an appeal with the IRS relating
to the above assessment; however, the IRS has not yet responded to the appeal.

The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------
APRIL 30, APRIL 30, APRIL 26,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
U.S. federal statutory rate........................................................ 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit.............................. 1.3 1.4 3.3
Subchapter S corporation income not subject to
corporate level taxation......................................................... (27.2) (26.1) (3.3)
Foreign earnings not subject to U.S. taxes......................................... (4.2) (4.1) (12.8)
Nondeductible goodwill............................................................. 2.7 3.7 4.9
Nondeductible acquisition costs.................................................... 8.4 4.7
Foreign taxes...................................................................... 4.4 4.9 13.7
Other.............................................................................. 3.3 0.8 1.2
----------- ----------- -----------
Effective income tax rate.......................................................... 15.3% 24.0% 46.7%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to these acquisitions by the Company.

F-58
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 11--INCOME TAXES (CONTINUED)
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the specific Pooled Companies had been subject to
federal income taxes for the entire periods presented.

<TABLE>
<CAPTION>
FOR THE FISCAL
YEAR ENDED
-----------------
APRIL 26,
1997
-----------------
<S> <C>
Income from continuing operations before extraordinary items per consolidated statement of
income....................................................................................... $ 31,938
Pro forma income tax provision adjustment...................................................... 1,976
-------
Pro forma income from continuing operations before extraordinary items......................... $ 29,962
-------
-------
</TABLE>

NOTE 12--LEASE COMMITMENTS

The Company leases various types of retail, warehouse and office facilities
and equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
1998................................................................... $ 953 $ 46,645
1999................................................................... 1,662 38,434
2000................................................................... 1,055 30,700
2001................................................................... 697 20,514
2002................................................................... 470 15,458
Thereafter............................................................. 3,433 53,778
--------- ----------
Total minimum lease payments........................................... 8,270 $ 205,529
----------
----------
Less: Amounts representing interest.................................... (2,753)
---------
Present value of net minimum lease payments............................ $ 5,517
---------
---------
</TABLE>

Rent expense for all operating leases for fiscal 1995, 1996 and 1997 was
$12,587, $19,023 and $40,183, respectively.

NOTE 13--COMMITMENTS AND CONTINGENCIES

LITIGATION

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

F-59
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

POSTEMPLOYMENT BENEFITS

The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at April 30, 1996 or April
26, 1997 related to these agreements.

NOTE 14--EMPLOYEE BENEFIT PLANS

Effective September 1, 1996, the Company implemented the U.S. Office
Products 401(k) Retirement Plan (the "401(k) Plan") which allows employee
contributions in accordance with Section 401(k) of the Internal Revenue
Code. The Company matches a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after one year of
service. In fiscal 1997, the Company's matching contribution expense was
$1,195.

Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. For fiscal 1995, 1996 and 1997, the
subsidiaries incurred expenses totaling $2,023, $2,138 and $1,398, respectively,
related to these plans.

NOTE 15--STOCKHOLDERS' EQUITY

EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 requires the dual
presentation of basic and diluted EPS on the face of the statement of income.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Company has adopted SFAS No. 128 during the nine months
ended January 24, 1998 and has restated all prior period EPS data. The following
information presents the

F-60
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 15--STOCKHOLDERS' EQUITY (CONTINUED)
Company's computations of basic and diluted EPS from continuing operations
before extraordinary items for the periods presented in the consolidated
statement of income.

<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- -------------
<S> <C> <C> <C>
FISCAL 1995:
Basic EPS.............................................................. $ 15,492 45,562 $ .34
---
---
Effect of dilutive employee stock options.............................. 142
------------ -------------
Diluted EPS............................................................ $ 15,492 45,704 $ .34
------------ ------------- ---
------------ ------------- ---
FISCAL 1996:
Basic EPS.............................................................. $ 19,099 67,545 $ .28
---
---
Effect of dilutive employee stock options.............................. 829
------------ -------------
Diluted EPS............................................................ $ 19,099 68,374 $ .28
------------ ------------- ---
------------ ------------- ---
FISCAL 1997:
Basic EPS.............................................................. $ 31,938 90,026 $ .35
---
---
Effect of dilutive employee stock options.............................. 1,735
------------ -------------
Diluted EPS............................................................ $ 31,938 91,761 $ .35
------------ ------------- ---
------------ ------------- ---
NINE MONTHS ENDED JANUARY 25, 1997 (UNAUDITED):
Basic EPS.............................................................. $ 25,393 85,978 $ .30
---
---
Effect of dilutive employee stock options.............................. 1,846
------------ -------------
Diluted EPS............................................................ $ 25,393 87,824 $ .29
------------ ------------- ---
------------ ------------- ---
NINE MONTHS ENDED JANUARY 24, 1998 (UNAUDITED):
Basic EPS.............................................................. $ 37,236 114,758 $ .32
---
---
Effect of dilutive employee stock options.............................. 2,427
------------ -------------
Diluted EPS............................................................ $ 37,236 117,185 $ .32
------------ ------------- ---
------------ ------------- ---
</TABLE>

The Company had additional employee stock options and two series of
convertible debt securities outstanding during the periods presented that were
not included in the computation of diluted EPS because they were anti-dilutive.

COMMON STOCK

In November 1994, the Board of Directors of the Company approved a one
thousand-for-one split of the Company's common stock and changed the par value
of common stock from $1 per share to $.001 per share. The consolidated
financial statements have been adjusted to reflect the stock split. In February
1996, the Company's stockholders approved the amendment to the Company's
Restated Certificate of Incorporation to increase the number of authorized
shares of common stock from 25,000,000 to 100,000,000 shares. In August 1996,
the Company's stockholders approved the amendment to the

F-61
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 15--STOCKHOLDERS' EQUITY (CONTINUED)
Company's Restated Certified of Incorporation to increase the number of
authorized shares of common stock from 100,000,000 to 500,000,000.

In October 1997, the Board of Directors of the Company approved a three for
two split of the Company's common stock. The financial statements give
retroactive effect for the split for all periods presented.

STOCK COMPENSATION PLANS

In October 1994, the Board of Directors and the Company's stockholders
approved the Company's 1994 Long-Term Compensation Plan (the "Plan"). The
purpose of the Plan is to provide officers, key employees and consultants with
additional incentives by increasing their ownership interests in the
Company. The maximum number of options to purchase common stock granted in any
calendar or fiscal year under the Plan, as amended, is equal to 20% of the
aggregate number of shares of the Company's common stock outstanding at the time
an award is granted, less, in each case, the number of shares subject to
previously outstanding awards under the Plan.

In August 1996, the Board of Directors and the Company's stockholders
approved the Company's 1996 Non-Employee Directors' Stock Plan (the "Directors'
Plan"). The purpose of the Directors' Plan is to promote ownership by
non-employee directors of a greater proprietary interest in the Company, thereby
aligning such directors' interests more closely with the interests of
stockholders of the Company. A total of 750,000 shares of common stock has been
reserved for issuance under the Directors' Plan. At April 26, 1997, options to
acquire 108,000 shares of common stock have been granted under the Directors'
Plan.

The Company applies APB Opinion No. 25 in accounting for its stock option
plans. Accordingly, because the exercise prices of the options have equaled the
market price on the date of grant, no compensation expense has been recognized
for stock options granted. Had compensation cost for the Company's stock
options been recognized based upon the fair value of the stock options on the
grant date under the methodology prescribed by SFAS 123, the Company's net
income and net income per share would have been impacted as indicated in the
following table. The pro forma results shown below reflect only the impact of
options granted in fiscal 1996 and 1997.

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED
--------------------
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Income from continuing operations:
As reported..................................................... $ 18,398 $ 30,488
Pro forma....................................................... 16,339 17,842

Income from continuing operations per share:
As reported:
Basic......................................................... $ 0.27 $ 0.33
Diluted....................................................... 0.27 0.33
Pro forma:
Basic......................................................... $ 0.24 $ 0.20
Diluted....................................................... 0.24 0.19
</TABLE>

F-62
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 15--STOCKHOLDERS' EQUITY (CONTINUED)
The fair value of options granted (which is amortized to expense over the
option vesting period in determining the pro forma impact) is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:

<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Expected life of option.................................................. 7 years 7 years
Risk free interest rate.................................................. 6.58% 6.66%
Expected volatility of USOP stock........................................ 58.5% 44.0%
</TABLE>

The weighted-average fair value of options granted was $12.44 and $17.06 for
fiscal 1996 and 1997, respectively.

A summary of option transactions follows:

<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE OPTIONS EXERCISE
OPTIONS PRICE EXERCISABLE PRICE
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at April 30, 1994.......... 125,498 $ 0.45 125,498 $ 0.45
Granted.......................... 944,250 5.95
Canceled......................... (10,500) 6.67
------------

Balance at April 30, 1995.......... 1,059,248 5.29 177,998 1.89
Granted.......................... 4,146,886 12.55
Exercised........................ (95,025) 6.25
Canceled......................... (24,300) 8.47
------------

Balance at April 30, 1996.......... 5,086,809 11.18 324,798 3.77
Granted.......................... 6,729,165 20.41
Exercised........................ (197,744) 8.39
Canceled......................... (73,444) 12.65
------------
Balance at April 26, 1997.......... 11,544,786 $ 16.60 1,598,228 $ 10.10
------------
------------
</TABLE>

The following table summarizes information about stock options outstanding
at April 26, 1997:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE EXERCISABLE PRICE
- - ------------------------------- ------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$0.45 to $6.67................. 884,498 7.2 years $ 5.09 476,630 $ 4.32
$6.68 to $13.33................ 2,660,398 7.9 years 9.33 702,303 9.70
$13.34 to $20.00............... 4,234,986 9.3 years 17.55 313,866 16.25
$20.01 to $26.67............... 3,737,004 9.3 years 23.27 105,429 20.65
$26.68 to $29.92............... 27,900 9.1 years 28.13
------------ ----------
$0.45 to $29.92................ 11,544,786 8.7 years $ 16.60 1,598,228 $ 10.10
------------ ----------
------------ ----------
</TABLE>

F-63
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 15--STOCKHOLDERS' EQUITY (CONTINUED)
The options outstanding information includes 125,498, 58,802 and 343,488
options to acquire common stock at exercise prices of $.45, $10.59 and $10.70,
respectively, which were granted at certain Pooled Companies prior to their
respective acquisitions by the Company.

Non-qualified options granted to employees are generally exercisable
beginning one year from the date of grant in cumulative yearly amounts of 25% of
the shares under option and generally expire ten years from the date of grant.

NOTE 16--SEGMENT REPORTING

GEOGRAPHIC SEGMENTS

The following table sets forth information as to the Company's operations in
its different geographic segments:

<TABLE>
<CAPTION>
NEW ZEALAND
NORTH AND
AMERICA AUSTRALIA TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
FISCAL 1995:
Revenues.......................................... $ 629,920 $ 28,574 $ 658,494
Operating income.................................. 18,133 1,429 19,562
Identifiable assets of continuing operations at
year-end........................................ 220,878 5,512 226,390

FISCAL 1996:
Revenues.......................................... $ 984,387 $ 77,141 $ 1,061,528
Operating income.................................. 25,540 3,533 29,073
Identifiable assets of continuing operations at
year-end........................................ 584,170 188,134 772,304

FISCAL 1997:
Revenues.......................................... $ 1,415,161 $ 700,793 $ 2,115,954
Operating income.................................. 56,126 28,708 84,834
Identifiable assets of continuing operations at
year-end........................................ 894,506 753,254 1,647,760
</TABLE>

NOTE 17--QUARTERLY FINANCIAL DATA (UNAUDITED)

The following presents certain unaudited quarterly financial data. The
amounts differ from the amounts previously reported during fiscal 1996 and 1997
in the Company's Quarterly Reports on Form 10-Q as a result of the restatement
of the financial statements to give retroactive effect to the results of the
companies acquired during fiscal 1996 and 1997 in business combinations
accounted for under the pooling-

F-64
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 17--QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
of-interests method and as a result of the reporting of the results of Spin-Off
Companies as discontinued operations.

<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS
---------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................................ $ 205,940 $ 246,956 $ 268,645 $ 339,987 $ 1,061,528
Gross profit.................................... 50,976 60,487 66,742 93,887 272,092
Operating income................................ 1,484 6,666 8,115 12,808 29,073
Income from continuing operations before
extraordinary items........................... 1,460 4,629 5,789 7,221 19,099
Income (loss) from discontinued operations...... 3,387 5,550 7,727 (886) 15,778
Net income...................................... 4,847 10,179 13,516 5,634 34,176

Per share amounts:
Basic:
Income from continuing operations before
extraordinary items....................... 0.02 0.07 0.09 0.09 0.28
Income (loss) from discontinued
operations................................ 0.06 0.08 0.11 (0.01) 0.24
Net income.................................. 0.08 0.15 0.20 0.07 0.51
Diluted:
Income from continuing operations before
extraordinary items....................... 0.02 0.07 0.09 0.09 0.28
Income (loss) from discontinued
operations................................ 0.06 0.08 0.11 (0.01) 0.23
Net income.................................. 0.08 0.15 0.20 0.07 0.50
</TABLE>

F-65
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 17--QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FISCAL 1997 QUARTERS
---------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
----------- ----------- ----------- ---------- ------------
Revenues........................................ $ 364,195 $ 537,334 $ 596,791 $ 617,634 $ 2,115,954
<S> <C> <C> <C> <C> <C>
Gross profit.................................... 98,299 153,284 169,329 176,755 597,667
Operating income................................ 12,909 22,473 25,668 23,784 84,834
Income from continuing operations before
extraordinary items........................... 6,855 9,771 8,767 6,545 31,938
Income from discontinued operations............. 9,475 8,933 2,003 6,389 26,800
Net income...................................... 16,330 18,092 10,770 12,096 57,288

Per share amounts:
Basic:
Income from continuing operations before
extraordinary items....................... 0.08 0.11 0.10 0.06 0.35
Income from discontinued operations......... 0.12 0.10 0.02 0.06 0.31
Net income.................................. 0.20 0.21 0.12 0.12 0.64
Diluted:
Income from continuing operations before
extraordinary items....................... 0.08 0.11 0.10 0.06 0.35
Income from discontinued operations......... 0.12 0.10 0.02 0.06 0.29
Net income.................................. 0.20 0.20 0.12 0.12 0.62
Pro forma income from continuing operations
before extraordinary items (see Note 11)...... 6,431 9,166 8,225 6,140 29,962
Pro forma basic income per share from continuing
operations before extraordinary item.......... 0.08 0.11 0.09 0.06 0.33
Pro forma diluted income per share from
continuing operations before extraordinary
item.......................................... 0.08 0.10 0.09 0.06 0.33
</TABLE>

NOTE 18--SUBSEQUENT EVENTS (UNAUDITED)

In January 1998, U.S. Office Products announced its intention to complete
the Strategic Restructuring Plan described in Note 4. In addition, subsequent to
April 26, 1997 and through March 9, 1998, the Company has completed 42 business
combinations related to continuing operations for an aggregate purchase price of
$502.3 million, consisting of approximately $79.8 million of cash and 20.4
million shares of the Company's common stock with an aggregate market value on
the dates of acquisition of approximately $422.5 million. In addition, on
December 22, 1997, U.S. Office Products made an additional equity investment of
$40.8 million in Dudley Stationery Limited, its 49% owned independent office
products dealer in the United Kingdom, to fund additional acquisitions at
Dudley.

The following presents the unaudited pro forma results of operations of the
Company for fiscal 1997 as if the Strategic Restructuring Plan and the
acquisitions described above had been consummated as of

F-66
<PAGE>
U.S. OFFICE PRODUCTS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 18--SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
the beginning of fiscal 1997. The results presented below include certain pro
forma adjustments to reflect (i) substantially higher amortization expenses as
compared to prior periods (as a result of reclassifying 12 business combinations
as purchase acquisitions (including the Company's acquisition of Mail Boxes
Etc.), rather than under the pooling-of-interests method, as the Company had
expected when it completed those acquisitions); (ii) substantially higher
interest expense, as a result of increased borrowing that the Company expects to
incur to help finance the cost of the Tender Offer; and (iii) higher effective
income tax rates, due to increased non-deductible goodwill expense and the
Company's inability to acquire subchapter S corporations in pooling-of-interests
transactions:

<TABLE>
<CAPTION>
FISCAL YEAR
ENDED NINE MONTHS ENDED
APRIL 26, 1997 JANUARY 24, 1998
---------------- ------------------
<S> <C> <C>
Revenues............................................... $ 2,794,009 $ 2,070,655
Income from continuing operations before extraordinary
items................................................ 11,943 11,644
Basic income per share from continuing operations
before extraordinary items........................... 0.09 0.09
Diluted income per share from continuing operations
before extraordinary items........................... 0.09 0.09
</TABLE>

F-67
<PAGE>
REVOCABLE PROXY

U.S. OFFICE PRODUCTS COMPANY
ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 1998

Revoking all prior proxies, the undersigned, a stockholder of U.S. OFFICE
PRODUCTS COMPANY (the "Company"), hereby appoints Mark D. Director and Donald H.
Platt, and each of them, attorneys and agents of the undersigned, with full
power of substitution, to vote all shares of the Common Stock, par value $.001
per share (the "Common Stock"), of the undersigned in the Company at the Special
Meeting of Stockholders of the Company to be held on April 23, 1998 at 10:00
a.m., local time, and at any adjournment thereof, as fully and effectively as
the undersigned could do if personally present and voting, hereby approving,
ratifying and confirming all that said attorneys and agents or their substitutes
may lawfully do in place of the undersigned as indicated below.
<TABLE>
<CAPTION>
FOR AGAINST
----------------- -----------------
<S> <C> <C> <C>
1. Approval of the Equity Investment by CDR-PC Acquisition, L.L.C. / / / /

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

<CAPTION>
FOR AGAINST
----------------- -----------------
<S> <C> <C> <C>
2. Approval to ammend U.S. Office Products' certificate of incorporation to / / / /
effect a one-for- stock split of U.S. Office Products' common stock.

<CAPTION>
ABSTAIN
-----------------
<S> <C>
1. / /
----------------------------------
ABSTAIN
-----------------
<S> <C>
2. / /
</TABLE>

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournment thereof and after notification to the Secretary of the
Company at the Meeting of the stockholder's decision to terminate this proxy,
then the power of said attorneys and proxies shall be deemed terminated and of
no further force and effect. This proxy may also be revoked by sending written
notice to the Secretary of the Company at the address set forth on the Notice of
Special Meeting of Stockholders, or by the filing of a later proxy prior to a
vote being taken on a particular proposal at the Special Meeting.
<PAGE>
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ANY OTHER
MATTERS WHICH MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENT
THEREOF.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE PROPOSED EQUITY
INVESTMENT AND FOR THE -FOR-ONE REVERSE STOCK SPLIT.

Please sign exactly as name appears below.

When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporation name by President or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.

PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE
Dated:

-----------------------------------, 1998

-----------------------------------
(Signature)

------------------------------------
(Signature if held jointly)

/ / PLEASE CHECK HERE IF YOU PLAN TO
ATTEND THE
SPECIAL MEETING.