ADVANTAGE LEARNING SYSTEMS INC, S-1/A, 1997-04-14

ADVANTAGE LEARNING SYSTEMS INC
S-1/A, 1997-04-14
PREPACKAGED SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 1997

REGISTRATION NO. 333-22519
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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ADVANTAGE LEARNING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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WISCONSIN 7372 39-1559474
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION) 2911 PEACH STREET
WISCONSIN RAPIDS, WISCONSIN 54495-8036
(715) 424-3636
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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MICHAEL H. BAUM, CHIEF EXECUTIVE OFFICER
ADVANTAGE LEARNING SYSTEMS, INC.
2911 PEACH STREET
WISCONSIN RAPIDS, WISCONSIN 54495-8036
(715) 424-3636
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
RANDALL J. ERICKSON WILLIAM N. WEAVER, JR.
GODFREY & KAHN, S.C. SACHNOFF & WEAVER, LTD.
780 NORTH WATER STREET 30 SOUTH WACKER DRIVE, 29TH FLOOR
MILWAUKEE, WISCONSIN 53202-3590 CHICAGO, ILLINOIS 60606-7484
(414) 273-3500 (312) 207-1000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Subject to completion, dated April 14, 1997

Prospectus
dated , 1997

3,000,000 Shares

LOGO

Common Stock

All of the 3,000,000 shares of Common Stock offered hereby are being issued and
sold by Advantage Learning Systems, Inc. (the "Company"). A significant portion
of the estimated net proceeds of the offering will be used by the Company to
satisfy obligations to its principal shareholders. See "Use of Proceeds." An
aggregate of up to 200,000 shares of the Common Stock offered hereby will be
reserved for sale at the initial public offering price to persons designated by
the Company.

Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price of the Common Stock offered hereby will be between $11.00
and $13.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Common Stock
has been approved for listing on the Nasdaq National Market under the symbol
"ALSI."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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<S> <C> <C> <C>
Per Share.................................. $ $ $
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Total (3).................................. $ $ $
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</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $750,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 450,000 additional shares of Common Stock solely to cover
over-allotments, if any, at the per share Price to Public less the
Underwriting Discount. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See "Underwriting."

The shares of Common Stock are offered by the several Underwriters subject to
prior sale when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the certificates representing shares of Common Stock will be
made at the offices of Piper Jaffray Inc. in Minneapolis, Minnesota on or about
, 1997.

Montgomery Securities
Piper Jaffray inc.
<PAGE>

THE ACCELERATED READER(R), READING RENAISSANCE(R), AND EXAM IN A CAN(R) ARE
REGISTERED TRADEMARKS OF THE COMPANY. IN ADDITION, STANDARDIZED TEST FOR
ASSESSMENT OF READING (S.T.A.R.)(TM), OBJECTIVE TRACKER(TM), MATHCHECK(TM) AND
SCIENCECHECK(TM) ARE COMMON LAW TRADEMARKS OF THE COMPANY. ALL OTHER
TRADEMARKS, SERVICE MARKS AND TRADE NAMES REFERRED TO IN THIS PROSPECTUS ARE
THE PROPERTY OF THEIR RESPECTIVE OWNERS.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Combined Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Unless the
context otherwise requires, the term "Company" includes Advantage Learning
Systems, Inc. ("ALS") and its wholly-owned subsidiaries, IPS Publishing, Inc.
("IPS") and the Institute for Academic Excellence, Inc. (the "Institute"),
including their operations while owned by affiliates of the Company. The
historical financial information presented herein represents the combined
results of these three entities prior to January 2, 1997, at which time IPS and
the Institute became wholly-owned subsidiaries of ALS. See "Certain
Transactions." In addition, unless otherwise indicated, all information in this
Prospectus (i) assumes no exercise of the Underwriters' over-allotment option,
(ii) has been adjusted to reflect the filing of the Company's Amended and
Restated Articles of Incorporation, and (iii) has been adjusted to reflect a
106 for 1 stock split in the form of a stock dividend.

THE COMPANY

The Company is a leading provider of learning information systems to
kindergarten through senior high
("K-12") schools in the United States and Canada. The Company's learning
information systems consist of computer software and related training designed
to improve student academic performance by increasing the quality, quantity and
timeliness of performance data available to educators and by facilitating
increased student practice of essential skills. The Company's flagship product,
the Accelerated Reader, is software for motivating and monitoring increased
literature-based reading practice. As of December 31, 1996, the Accelerated
Reader had been sold to approximately 26,000, or 21%, of the K-12 schools in
the United States and Canada. In a survey by Quality Education Data, Inc., the
Accelerated Reader was the software product that educators most frequently
cited as being used to improve the quality of education in K-12 schools. The
Company believes that the Accelerated Reader has achieved this leading market
position as a result of its demonstrated effectiveness in improving student
reading levels and overall academic performance. The Company's learning
information system products also include the Standardized Test for Assessment
of Reading (S.T.A.R.), a computer-adaptive reading test and database, and the
Reading Renaissance program, through which the Company provides professional
development training for educators.

Originally introduced in 1986, the Accelerated Reader administers computer-
based multiple choice tests on books popular among students in grades K-12 and
provides educators with more than 20 reports from which to monitor the amount
and quality of each student's reading practice. Through December 31, 1996, the
Company had developed tests on approximately 10,000 books and expects to
develop approximately 4,000 additional tests in 1997. In 1994, the Company
began offering Reading Renaissance training seminars to provide educators with
professional development training to most effectively use the Accelerated
Reader and the information it generates. As of December 31, 1996, approximately
26,000 educators have attended Reading Renaissance training seminars. In 1996,
the Company released S.T.A.R. which enables educators to quickly obtain student
reading scores statistically correlated to national norms. The results from
S.T.A.R. provide educators with a database of statistically accurate reading
level information on their students, from which they can generate useful
reports and adjust instructional strategies accordingly. To expand its learning
information system offerings into additional academic areas, the Company
recently acquired IPS, a provider of algorithm-based software for assessment
and skills practice in math and science.

3
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The Accelerated Reader, coupled with S.T.A.R. and the techniques taught in
the Reading Renaissance training program, improves student academic performance
by providing educators with an effective system to motivate students to
practice reading. The Company's products also provide educators with objective,
timely and accurate information to manage the learning process. Unlike many
technology-based solutions which compete with the educators' role, the
Company's products support educators and complement their existing curricula
and instructional methodologies. In addition, the Company's products utilize a
school's existing computers and books commonly found in most K-12 school
libraries.

The Company seeks to establish its products as the de facto standard for
facilitating growth in reading ability, and ultimately in other essential
academic skill areas in grades K-12. The key elements of this strategy consist
of adding new customer schools, intensifying and expanding the use of the
Company's products in existing customer schools, offering new products in other
areas of the curriculum, expanding the Company's international marketing and
sales, and expanding the Company's strategic marketing alliances.

The Company was founded in 1986 and is incorporated under the laws of the
State of Wisconsin. The Company's principal executive offices are located at
2911 Peach Street, Wisconsin Rapids, Wisconsin 54495-8036 and its telephone
number is (715) 424-3636. The Company's World Wide Website is located at
http:\\www.advlearn.com. Information contained in this Website is not deemed to
be a part of this Prospectus.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the 3,000,000 shares
Company...........................
Common Stock to be outstanding 13,896,066 shares(1)
after the Offering................
Use of Proceeds.................... For payment of undistributed S corporation
earnings, repayment of construction-related
indebtedness, repayment of acquisition-re-
lated indebtedness to principal sharehold-
ers, payment to Company employees pursuant
to certain employee benefit plans and gen-
eral corporate purposes, including working
capital and new product development. See
"Use of Proceeds."
Nasdaq National Market symbol...... ALSI
</TABLE>
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(1) Includes 41,666 shares to be issued upon closing of the Offering in
connection with the Company's acquisition of IPS (assuming an initial
public offering price of $12.00 per share). Excludes 1,500,000 shares of
Common Stock reserved for issuance pursuant to the Company's 1997 Stock
Incentive Plan, of which 299,583 shares were subject to options outstanding
immediately prior to the Offering (assuming an initial public offering
price of $12.00 per share). See "Certain Transactions" and "Management--
Executive Compensation--1997 Stock Incentive Plan."

4
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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
PRO
FORMA
1992 1993 1994 1995 1996 1996(1)
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................... $3,171 $5,288 $8,251 $12,605 $22,381 $23,062
Gross profit...................... 2,742 4,718 7,148 10,542 18,154 18,928
Purchased research and
development(2)................... -- -- -- -- 3,400 3,400
Operating income.................. 1,276 2,047 2,999 3,449 3,013 2,784
Income before taxes............... 1,298 2,070 3,022 3,462 2,858 2,419
Net income(2)..................... 1,298 2,070 3,022 3,462 4,460 4,199
PRO FORMA DATA:
Income before taxes............... $ 2,419
Net income(3)..................... 1,440
Net income per share(4)........... $ 0.13
Weighted average shares
outstanding(4)................... 10,854
OTHER OPERATING DATA(5):
Number of Accelerated Reader
customer schools................. 7,000 10,400 14,500 19,500 26,000
Number of Accelerated Reader book
test titles...................... 1,700 2,800 5,000 7,500 10,000
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------
AS
ACTUAL ADJUSTED(6)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 566 $14,948
Total assets................................................ 19,855 32,959
Long-term debt.............................................. 10,450 --
Combined equity............................................. 3,773 --
Shareholders' equity........................................ -- 28,605
</TABLE>
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(1) Reflects the acquisition of IPS as if it occurred on January 1, 1996.
Adjustments consist of (i) IPS results for the seven months ended July 31,
1996, (ii) the exclusion of revenues ($744,000) and related costs
($180,000) associated with an IPS contract not acquired in the acquisition,
(iii) additional amortization of intangibles ($143,000), (iv) additional
interest expense ($268,000) and (v) the income tax effect related to such
adjustments ($178,000).
(2) In connection with the acquisition of IPS, $3.4 million of the purchase
price was allocated to purchased research and development which was
expensed in August 1996. See Note 3 of Notes to the Company's Combined
Financial Statements. As a result, net income exceeds income before taxes
in 1996 due to the tax benefit recorded by IPS which is primarily related
to the expensed purchased research and development.

(3) Pro forma net income has been computed as if the Company had been a C
corporation rather than an S corporation for income tax purposes, based
upon an assumed effective federal and state tax rate of 40.5%. See "S
Corporation Distribution." The impact of recording the deferred income
taxes associated with the change from S corporation to C corporation
status is immaterial.

(4) Pro forma net income per share and weighted average shares outstanding
reflect (i) the shares outstanding as of January 2, 1997, reflecting the
issuance of shares by ALS to acquire IPS and the Institute and (ii) the
106 for 1 stock split.

(5) Represents the cumulative number of schools to which the Accelerated
Reader has been sold at year end and the cumulative number of book test
titles available at year end, as indicated.

(6) As adjusted to reflect the sale of 3,000,000 shares of Common Stock
offered hereby, at an assumed initial public offering price of $12.00 per
share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."

5
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RISK FACTORS

An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors in
evaluating an investment in the Common Stock.

RELIANCE ON SINGLE PRODUCT LINE AND SIGNIFICANT DISTRIBUTOR

The Company's Accelerated Reader software and supplemental Accelerated
Reader test disks accounted for approximately 91.4%, 87.1% and 67.0% of the
Company's net sales in 1994, 1995 and 1996, respectively. Sales of the
Accelerated Reader software and supplemental test disks through one book
distributor accounted for 2.6%, 12.5% and 15.2% of such net sales in 1994,
1995 and 1996, respectively. An overall decline in sales of the Accelerated
Reader and supplemental test disks, including sales through book distributors,
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Sales,
Marketing and Distribution."

DEPENDENCE ON CONTINUED PRODUCT DEVELOPMENT

The K-12 educational technology and professional development markets in
which the Company competes are characterized by evolving industry standards,
frequent product introductions and, to a lesser extent, technological change.
The Company's future success will depend, to a significant extent, on a number
of factors, including the Company's ability to enhance its existing products
and develop and successfully introduce new products, including new products
designed for use in other areas of the curriculum. The Company attempts to
maintain high standards for the demonstrated academic effectiveness of its
products. The Company's adherence to these standards could delay or inhibit
the introduction of new products. Moreover, there can be no assurance that the
Company's products will not be rendered obsolete or that the Company will have
sufficient resources to make the necessary investments or be able to develop
and market the products required to maintain its competitive position. See
"Business--Product Development."

MANAGEMENT OF GROWTH

The Company has recently experienced rapid growth. If such growth continues,
it may place a strain on the Company's financial, management and other
resources. The Company's ability to manage its growth effectively will require
it to attract, train, motivate, manage and retain key employees and to improve
its operational, financial and management information systems. If the Company
is unable to maintain and manage growth effectively, the Company's business,
financial condition and results of operations would be adversely affected.

OPPOSING EDUCATIONAL PHILOSOPHIES

The Company focuses on developing and marketing educational products and
services that demonstrate effectiveness through measurable results. This
approach, however, is not accepted by all academics and educators, some of
whom formulate opinions about the desirability of a particular educational
product or service based on philosophical or other concerns rather than the
effectiveness of the product. Certain academics and educators are opposed to
the principles and methodologies underlying and associated with the Company's
products, such as the use of objective standards, standardized testing,
computers, and motivational techniques, among others. Some of these
philosophical opponents of the Company's products and services have the
capacity to influence the market for the Company's products, and such
influence could have a material adverse impact on demand for the Company's
products and, thus, the Company's business, financial condition and results of
operations.

DEPENDENCE ON EDUCATIONAL INSTITUTIONS AND GOVERNMENT FUNDING

Substantially all of the Company's revenue is derived from sales to
educational institutions, individual educators and suppliers thereto. There
can be no assurance that educational institutions and/or individual educators
will

6
<PAGE>

continue to invest in technology-based products and professional development
for reading and other curricula or continue to respond favorably to the
Company's marketing. The inability of the Company to increase the number of
products sold or number of schools served would adversely affect the Company's
business, financial condition and results of operations. Because of the
Company's dependence on educational institutions, the funding of which is
largely dependent on government support, a substantial decrease in government
budgets or funding for educational software or technology would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, certain aspects of government sponsored
education initiatives may not endorse, or be complementary to, the principles
and methodologies underlying and associated with the Company's products, which
could adversely affect the Company's business, financial condition and results
of operations.

GEOGRAPHIC CONCENTRATION OF SALES

A substantial portion of the Company's sales are concentrated in several
states, including Texas, North Carolina, Florida and Illinois, which have a
large number of schools using the Accelerated Reader as compared to other
states. If large numbers of schools or a district controlling a large number
of schools in such states were to discontinue purchasing the Company's
products, the Company's business, financial condition and results of
operations would be materially adversely affected.

HIGHLY COMPETITIVE INDUSTRY

The K-12 educational technology and professional development markets in
which the Company operates are very competitive. The Company competes
primarily against more traditional methods of education, training and testing,
including pencil and paper testing. In addition, the Company competes with
other companies offering educational software products to schools. Existing
competitors may continue to broaden their product lines, and potential
competitors, including large hardware manufacturers, software developers and
educational publishers, may enter or increase their focus on the school
market, resulting in greater competition for the Company. There can be no
assurance that the Company will continue to be able to market its products
successfully or compete effectively in the educational products marketplace.
See "Business--Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant extent upon the continued
active participation of certain key members of management, including Judith
Paul and Terrance Paul, the Chairman and Vice Chairman of the Company,
respectively. In addition to serving as Chairman of the Company, Ms. Paul is a
spokesperson for the Company and coordinates the Company's public relations
and customer communication policies. Mr. Paul is primarily responsible for the
Company's long-term strategic planning and new product development strategy.
Mr. Paul also coordinates the research activities conducted by the Institute.
The Company does not have employment agreements with either of these persons
and has no current intention of entering into any such employment agreements.
Furthermore, the Company has key person life insurance on Mr. Paul. The loss
of services of either of these persons would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management--Directors and Executive Officers."

ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL

The Company's future success will depend, in part, upon its continuing
ability to retain the employees, including senior management personnel, who
have assisted in the development and marketing of the Company's products and
to attract and retain qualified additional employees trained in computer
technology, marketing and finance to enhance the Company's product offerings
and broaden its operations. There can be no assurance that the Company will
continue to be able to attract and retain such personnel. The failure to
attract or retain the necessary personnel would have a material adverse effect
on the Company's business, financial condition and results of operations.

7
<PAGE>

SEASONALITY; LIMITED BACKLOG; FLUCTUATIONS IN QUARTERLY PERFORMANCE

The Company's business may experience a certain degree of seasonality due to
the budget cycles of the Company's school customers. Further, because products
are generally shipped as orders are received, the Company has historically
operated with virtually no backlog. Thus, revenues in any quarter are
substantially dependent on the quantity of product orders received in that
quarter. Seasonal variations in demand may cause significant variations in the
Company's results of operations. The Company's overall gross margins fluctuate
based upon the mix of product sales and service sales. The Company realizes
significantly higher margins on its product sales. The Company's operating
margins also fluctuate based upon a number of other factors including, but not
limited to, the amount of product development expenditures, the timing of the
capitalization of product development expenditures and the timing of certain
marketing activities. The Company expects that income from operations in the
second quarter of 1997 may not exceed income from operations in the first
quarter of 1997 or the second quarter of 1996, primarily as a result of a
higher percentage of service sales and increased product development expenses.
In addition, during the second quarter of 1997, the Company will incur a $1.0
million one-time compensation expense (assuming an initial public offering
price of $12.00 per share) related to the termination of certain employee
benefit plans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

The Company regards certain of its technologies as proprietary and relies
primarily on a combination of copyright, trademark and trade secret laws and
employee non-disclosure agreements to establish and protect its proprietary
rights. The Company does not possess any patents or other registered
intellectual property rights with respect to its software. There can be no
assurance that the steps taken by the Company to protect its rights will be
adequate to prevent or deter misappropriation. In addition, while the Company
does not believe that its products, trademarks or other proprietary rights
infringe upon the proprietary rights of third parties, there can be no
assurance that a third party will not make a contrary assertion. The cost of
responding to such an assertion may be material, whether or not the assertion
is validated. The software market has traditionally experienced widespread
unauthorized reproduction of products in violation of intellectual property
rights. Such activity is difficult to detect and legal proceedings to enforce
intellectual property rights are often burdensome and involve a high degree of
uncertainty and costs. There can be no assurance that the Company's software
products will not experience unauthorized reproduction, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Intellectual Property."

S CORPORATION DISTRIBUTION; REPAYMENT OF DEBT TO PRINCIPAL SHAREHOLDERS; USE
OF PROCEEDS

Approximately $8.4 million of the net proceeds to the Company from the
Offering will be used to fund a dividend to the Company's shareholders of
undistributed S corporation earnings. Approximately $4.8 million of the net
proceeds will be used to retire the principal and accrued interest on
acquisition-related debt owed to the Company's principal shareholders.
Accordingly, approximately $13.2 million (40.4%) of the net proceeds from the
Offering will be paid to the Company's shareholders. The Company's management
will have broad discretion with respect to the application of approximately
$11.6 million (35.5%) of the remaining net proceeds of the Offering. See "S
Corporation Distribution," "Certain Transactions" and "Use of Proceeds."

CONCENTRATION OF SHARE OWNERSHIP; CONTROL BY PRINCIPAL SHAREHOLDERS/MANAGEMENT

Upon completion of the Offering, the principal shareholders of the Company,
Judith Paul and Terrance Paul, who are also the Chairman and Vice Chairman of
the Company, respectively, will beneficially own approximately 72.6% of the
outstanding Common Stock. As a result, such principal shareholders will
continue to have the ability to control the Company and direct its business
and affairs. See "Principal Shareholders."

8
<PAGE>

NO PRIOR MARKET; SHARE PRICE VOLATILITY; DETERMINATION OF OFFERING PRICE

Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that a regular trading market will develop after
the Offering or that the market price of the Common Stock will not decline
below the initial public offering price. The initial public offering price of
the Common Stock will be determined through negotiations between the Company
and the Representatives of the Underwriters. See "Underwriting." Numerous
factors, many of which are beyond the control of the Company, may cause the
market price of the Common Stock to fluctuate significantly. These factors
include announcements of technological innovations, customer orders of new
products by the Company and its competitors, earnings releases by the Company
and its competitors, market conditions in the industry and the general state
of the securities markets. In addition, the timing of orders by the Company's
customers may cause quarterly fluctuations of the Company's results of
operations which may, in turn, affect the market price of the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price for the Common
Stock. Upon completion of the Offering, the Company will have 13,896,066
shares of Common Stock outstanding, of which the 3,000,000 shares sold in the
Offering (3,450,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless purchased by "affiliates" of the Company (as such term as
defined under the Securities Act), in which case such shares will be subject
to the resale limitations (but not the holding period requirements) of Rule
144 under the Securities Act. The Company and its principal shareholders, who
hold in the aggregate 10,892,154 shares of Common Stock, have agreed that they
will not, for a period of 180 days from the date of this Prospectus, offer,
sell, contract to sell or otherwise dispose of any of their shares of Common
Stock without the prior written consent of Piper Jaffray Inc. The Company
believes that, following the expiration of such 180-day period, 10,600,000 of
these shares will be eligible for immediate sale in the public market, subject
to the Rule 144 resale limitations. In addition, the Company intends to file a
registration statement under the Securities Act to register an aggregate of
1,500,000 shares of Common Stock reserved for issuance under the Company's
1997 Stock Incentive Plan, which will, when issued in accordance with such
plan, be eligible for immediate sale in the public market, subject to the Rule
144 resale limitations. See "Shares Eligible for Future Sale" and
"Management--Executive Compensation--1997 Stock Incentive Plan."

NO PAYMENT OF CASH DIVIDENDS

The Company does not anticipate paying any cash dividends in the foreseeable
future. See "Dividend Policy."

DILUTION TO NEW INVESTORS

Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution of $10.19 in the consolidated net tangible book value
per share from the assumed initial public offering price of $12.00 per share.
See "Dilution."

POSSIBLE ANTITAKEOVER EFFECTS OF CERTAIN ARTICLES AND BY-LAW PROVISIONS AND
PROVISIONS OF WISCONSIN LAW

The Company's Articles of Incorporation and By-Laws, along with Wisconsin
statutory law, contain provisions that could discourage potential acquisition
proposals and might delay or prevent a change in control of the Company. Such
provisions could result in the Company being less attractive to a potential
acquiror and could result in the shareholders receiving less for their Common
Stock than otherwise might be available in the event of a takeover attempt.
See "Description of Capital Stock--Certain Statutory and Other Provisions."

9
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share are estimated to be approximately $32.7 million, after
deducting the underwriting discount and estimated offering expenses.

The Company intends to use the net proceeds from the Offering as follows:
(i) approximately $8.4 million will be used to fund a dividend to the
Company's shareholders of undistributed S corporation earnings, (ii)
approximately $6.9 million will be used to retire the construction financing
on the Company's Wisconsin Rapids headquarters (of which $1.2 million is
included in current liabilities), the long-term portion of which bears
interest at a floating rate equal to LIBOR plus 1.25% and matures on March 1,
2002, (iii) approximately $4.8 million will be used to repay the principal and
accrued interest on two loans from the Company's principal shareholders, which
loans funded the acquisition of IPS and which each bear interest at the rate
of 6.5% per annum and mature on January 2, 1998, and (iv) approximately $1.0
million will be used to make a one-time payment to Company employees pursuant
to certain employee benefit plans (assuming an initial public offering price
of $12.00 per share). Such payment will give rise to a compensation charge of
$1.0 million in the Company's second quarter of 1997. The balance of the
proceeds, estimated to be approximately $11.6 million, will be used for
general corporate purposes, including working capital and new product
development. Accordingly, approximately $13.2 million (40.4%) of the net
proceeds from the Offering will be paid to the Company's shareholders. See "S
Corporation Distribution," "Certain Transactions" and "Management--Executive
Compensation--Phantom Stock Plans."

Pending use of the net proceeds from the Offering as described above, the
Company intends to invest such proceeds in short-term investment grade
securities.

S CORPORATION DISTRIBUTION

Prior to completion of the Offering, ALS and the Institute were corporations
subject to taxation under Subchapter S of the Internal Revenue Code of 1986,
as amended (an "S corporation"). As a result, substantially all of the net
income of these companies has been attributed, for income tax purposes,
directly to their respective shareholders rather than to the applicable
company. See Note 7 of Notes to the Company's Combined Financial Statements.
The S corporation status of both ALS and the Institute will terminate in
connection with the Offering, and the Company will make a final distribution
to its existing shareholders of undistributed S corporation earnings.

Prior to the consummation of the Offering, the Company will declare a
dividend to its existing shareholders in an aggregate amount representing all
undistributed earnings taxable to its shareholders through the closing of the
Offering (the "S Corporation Dividend"). The S Corporation Dividend is
estimated to be approximately $8.4 million as of the date of this Prospectus
and will be paid by the Company with a portion of the net proceeds received
from the Offering. Purchasers of Common Stock in the Offering will not receive
any portion of the S Corporation Dividend. See "Use of Proceeds."

DIVIDEND POLICY

The Company intends to retain all of its future earnings to fund growth and
the operation of its business and therefore does not anticipate paying any
cash dividends in the foreseeable future. Future cash dividends, if any, will
be at the discretion of the Company's Board of Directors and will depend upon,
among other things, the Company's future operations and earnings, capital
requirements and surplus, general financial condition, contractual
restrictions and such other factors as the Board of Directors may deem
relevant. For the years ended December 31, 1995 and December 31, 1996, the
Company made S corporation distributions to its shareholders of $3.9 million
and $3.5 million, respectively. In addition, the Company expects to make an S
corporation distribution to its shareholders on or before April 15, 1997 of
approximately $1.2 million.

10
<PAGE>

CAPITALIZATION

The following table sets forth the actual and as adjusted short-term debt
and capitalization of the Company at December 31, 1996. The as adjusted short-
term debt and capitalization reflect the sale of 3,000,000 shares of Common
Stock offered hereby, at an assumed initial public offering price of $12.00
per share, and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." This table should be read in conjunction with the Company's
Combined Financial Statements and Notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
ACTUAL AS ADJUSTED
---------------- -------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Short-term debt, including current amounts
due under construction contract........... $ 1,501 $ 350
================ ================
Long-term debt ............................ $ 10,450 $ --
Shareholders' equity:
Preferred stock, $0.01 par value,
5,000,000 shares authorized, no shares
issued and outstanding.................. -- --
Common stock, $0.01 par value, 50,000,000
shares authorized, 13,896,066 shares
issued and outstanding, as
adjusted(1)(2).......................... -- 139
Additional paid in capital(1)(2)......... -- 28,466
Combined equity(2)......................... 3,773 --
---------------- ----------------
Total equity........................... 3,773 28,605
---------------- ----------------
Total capitalization................... $ 14,223 $ 28,605
================ ================
</TABLE>
- --------

(1) Includes 41,666 shares to be issued upon closing of the Offering in
connection with the Company's acquisition of IPS (assuming an initial
public offering price of $12.00 per share). Excludes 1,500,000 shares of
Common Stock reserved for issuance pursuant to the Company's 1997 Stock
Incentive Plan, of which 299,583 shares were subject to options
outstanding immediately prior to the Offering (assuming an initial public
offering price of $12.00 per share). See "Certain Transactions" and
"Management--Executive Compensation--1997 Stock Incentive Plan."
(2) Represents the reclassification of combined equity to Common Stock at par
value and additional paid in capital.

11
<PAGE>

DILUTION

The combined net tangible book value of the Company as of December 31, 1996
was $332,000, or $0.03 per share of Common Stock. "Combined net tangible book
value per common share" represents the amount of (i) the book value of the
Company's total combined tangible assets, less total combined liabilities,
divided by (ii) the number of shares of Common Stock outstanding on such date.
Without taking into account any changes in combined net tangible book value
after December 31, 1996, other than to give effect to the sale of the Common
Stock offered hereby, after deducting the underwriting discount and estimated
expenses of the Offering, and the application of the estimated net proceeds
therefrom, the pro forma combined net tangible book value of the Company as of
December 31, 1996 would have been $25.2 million, or $1.81 per share of Common
Stock. This represents an immediate increase in combined net tangible book
value of $1.78 per share of Common Stock to existing shareholders and
immediate dilution of combined net tangible book value of $10.19 per share of
Common Stock to new investors purchasing Common Stock in the Offering. The
following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $12.00
Combined net tangible book value per share at December 31,
1996........................................................ $0.03
Increase per share attributable to new investors............. 1.78
-----
Pro forma combined net tangible book value per share after the
Offering............................................................ 1.81
------
Dilution per share to new investors.................................. $10.19
======
</TABLE>

The following table summarizes on a pro forma basis as of December 31, 1996
the differences in the total cash consideration paid and the average price per
share paid by the existing shareholders and the new investors (assuming an
initial public offering price of $12.00 per share) with respect to the
3,000,000 shares of Common Stock to be issued by the Company in this Offering:

<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)....... 10,896,066 78.4% $ 255,000 0.7% $ 0.02
New investors.................. 3,000,000 21.6 36,000,000 99.3 12.00
---------- ----- ----------- -----
Total...................... 13,896,066 100.0% $36,255,000 100.0%
========== ===== =========== =====
</TABLE>
- --------

(1) Includes 41,666 shares to be issued upon closing of the Offering in
connection with the Company's acquisition of IPS (assuming an initial
public offering price of $12.00 per share). Excludes 1,500,000 shares of
Common Stock reserved for issuance pursuant to the Company's 1997 Stock
Incentive Plan, of which 299,583 shares were subject to options
outstanding immediately prior to the Offering (assuming an initial public
offering price of $12.00 per share). See "Certain Transactions" and
"Management--Executive Compensation--1997 Stock Incentive Plan."

12
<PAGE>

SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)

The following table sets forth certain historical combined financial and
other operating data for the Company as of and for each of the five years
ended December 31, 1996 and certain pro forma combined financial data as of
and for the year ended December 31, 1996. The historical combined financial
data for the three years ended December 31, 1996 and as of December 31, 1995
and 1996 were derived from the Combined Financial Statements of the Company
included elsewhere in this Prospectus and have been audited by Arthur Andersen
LLP, independent auditors, as indicated in its report included elsewhere
herein. The historical combined financial data for the two years ended
December 31, 1993 and as of December 31, 1992, 1993 and 1994 were derived from
the accounting records of the Company and have not been audited. In the
opinion of management, the historical combined financial data for the two
years ended December 31, 1993 and as of December 31, 1992, 1993 and 1994
include all adjusting entries (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth therein.
The historical combined financial data presented herein are not necessarily
indicative of the results of operations for any future period. The pro forma
combined financial data are not necessarily indicative of the results of
operations or financial position of the Company had the transactions reflected
therein actually been consummated on the dates assumed and are not necessarily
indicative of the results of operations for any future period. The financial
and other operating data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Combined Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
PRO
FORMA
1992 1993 1994 1995 1996 1996(1)
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales:
Products...................... $3,171 $5,288 $8,088 $11,602 $18,930 $19,611
Services...................... -- -- 163 1,003 3,451 3,451
------ ------ ------ ------- ------- -------
Total net sales............. 3,171 5,288 8,251 12,605 22,381 23,062
Cost of sales:
Products...................... 429 570 937 1,468 2,329 2,236
Services...................... -- -- 166 595 1,898 1,898
------ ------ ------ ------- ------- -------
Total cost of sales......... 429 570 1,103 2,063 4,227 4,134
Gross profit:
Products...................... 2,742 4,718 7,151 10,134 16,601 17,375
Services...................... -- -- (3) 408 1,553 1,553
------ ------ ------ ------- ------- -------
Total gross profit.......... 2,742 4,718 7,148 10,542 18,154 18,928
Operating expenses:
Product development.......... 223 465 358 802 1,555 1,998
Selling and marketing........ 836 1,595 2,551 4,201 6,639 6,892
General and administrative... 407 611 1,240 2,090 3,547 3,854
Purchased research and
development(2).............. -- -- -- -- 3,400 3,400
------ ------ ------ ------- ------- -------
Total operating expenses.... 1,466 2,671 4,149 7,093 15,141 16,144
Operating income............... 1,276 2,047 2,999 3,449 3,013 2,784
Other income (expense), net.... 22 23 23 13 (155) (365)
Income tax benefit............. -- -- -- -- 1,602 1,780
------ ------ ------ ------- ------- -------
Net income..................... $1,298 $2,070 $3,022 $ 3,462 $ 4,460 $ 4,199
====== ====== ====== ======= ======= =======
PRO FORMA DATA:
Income before taxes............ $ 2,419
Net income(3).................. 1,440
Net income per share(4)........ $ 0.13
Weighted average shares
outstanding(4)................ 10,854
OTHER OPERATING DATA(5):
Number of Accelerated Reader
customer schools.............. 7,000 10,400 14,500 19,500 26,000
Number of Accelerated Reader
book test titles.............. 1,700 2,800 5,000 7,500 10,000
BALANCE SHEET DATA (AT DECEMBER
31):
Working capital................ $1,263 $2,098 $2,213 $1,105 $ 566
Total assets................... 1,792 3,063 4,070 4,761 19,855
Long-term debt................. -- -- -- -- 10,450
Combined equity................ 1,621 2,782 3,065 2,613 3,773
</TABLE>

13
<PAGE>

- --------

(1) Reflects the acquisition of IPS as if it occurred on January 1, 1996.
Adjustments consist of (i) IPS results for the seven months ended July 31,
1996, (ii) the exclusion of revenues ($744,000) and related costs
($180,000) associated with an IPS contract not acquired in the
acquisition, (iii) additional amortization of intangibles ($143,000), (iv)
additional interest expense ($268,000) and (v) the income tax effect
related to such adjustments ($178,000).
(2) In connection with the acquisition of IPS, $3.4 million of the purchase
price was allocated to purchased research and development which was
expensed in August 1996. See Note 3 of Notes to the Company's Combined
Financial Statements. As a result, net income exceeds income before taxes
in 1996 due to the tax benefit recorded by IPS which is primarily related
to the expensed purchased research and development

(5) Represents the cumulative number of schools to which the Accelerated
Reader has been sold at year end and the cumulative number of book test
titles available at year end, as indicated.

14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
information set forth under "Selected Historical and Pro Forma Combined
Financial Data" and the financial statements of the Company and IPS and the
accompanying notes thereto included elsewhere in this Prospectus.

OVERVIEW

The Company's sales are derived primarily from the sale of software
products, software support agreements and training seminars and programs. The
Company recognizes revenue from sales of its off-the-shelf software products
at the time of shipment to customers. Because software products are generally
shipped as orders are received, the Company has historically operated with
virtually no backlog. The Company also develops custom software products
through its subsidiary, IPS. The Company recognizes revenue from the sale of
custom software on the percentage of completion method. The Company records
the estimated cost of returns at the time of sale. Service revenue includes
both revenue relating to the Reading Renaissance professional development
training and revenue from software support agreements for ongoing customer
support and product upgrades. The Company recognizes revenue from sales of its
training seminars and programs primarily at the time the seminar or training
program is conducted. Revenue from software support agreements is reflected as
deferred revenue and is amortized ratably over the 24 month term of the
maintenance period, which begins after the expiration of the six months of
free support included with the purchase of the software. The Company's
deferred revenue represents payments received from customers for services
still to be rendered.

Cost of sales consists of expenses associated with sales of software
products and training seminars and programs. These costs include (i)
personnel-related costs, (ii) costs associated with the manufacture and
assembly of the Company's products, (iii) amortization of capitalized software
development costs and (iv) an allocation of facilities costs. The Company
recognizes significantly higher gross margins on its product sales than on its
service sales. As a result, the Company's total gross margin has declined
since 1994 as service sales have increased as a percent of net sales.

The Company expenses all product development costs associated with a product
until technological feasibility is established, after which time such costs
are capitalized until the product is available for general release to
customers. Capitalized product development costs are amortized into cost of
sales generally using the straight-line method over two years.

In August 1996, an affiliate of the Company acquired substantially all of
the assets of IPS for $5.0 million plus the assumption of certain liabilities
and the obligation to make certain contingent payments which will be satisfied
in connection with the Offering. Effective January 2, 1997, all of the
outstanding capital stock of IPS was contributed to the Company in return for
shares of capital stock of ALS. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the results of operations of IPS
are included in the combined results of operations of the Company effective as
of August 1, 1996. Under the purchase method of accounting, the excess of the
purchase price over the fair value of the net assets acquired is considered
goodwill. The Company is amortizing the goodwill associated with the
acquisition on a straight line basis over seven years. As part of the
acquisition, $3.4 million of the purchase price was allocated to purchased
research and development which was expensed in August 1996. See "Certain
Transactions" and Notes 3 and 5 of Notes to the Company's Combined Financial
Statements.

15
<PAGE>

The Company expects that income from operations in the second quarter of
1997 may not exceed income from operations in the first quarter of 1997 or the
second quarter of 1996, primarily as a result of a higher percentage of
service sales and increased product development expenses. In addition,
immediately prior to completion of the Offering, the Company will terminate
certain employee benefit plans and institute the 1997 Stock Incentive Plan.
Termination of the plans will result in a one-time additional compensation
expense of approximately $1.0 million (assuming an initial public offering
price of $12.00 per share) in the Company's second quarter of 1997. See
"Management--Executive Compensation."

Upon completion of the Offering, ALS and the Institute will become C
corporations for tax purposes. See "S Corporation Distribution" and Note 7 of
Notes to the Company's Combined Financial Statements.

RESULTS OF OPERATIONS

The following table sets forth certain combined income statement data as a
percentage of net sales, except that individual components of cost of sales
and gross margin are shown as a percentage of their corresponding component of
net sales:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net sales:
Products................................................. 98.0% 92.0% 84.6%
Services................................................. 2.0 8.0 15.4
----- ----- -----
Total net sales........................................ 100.0% 100.0% 100.0%
===== ===== =====
Cost of sales:
Products................................................. 11.6% 12.6% 12.3%
Services................................................. 101.9 59.3 55.0
Total cost of sales.................................... 13.4 16.4 18.9
Gross margin:
Products................................................. 88.4 87.4 87.7
Services................................................. (1.9) 40.7 45.0
Total gross margin..................................... 86.6 83.6 81.1
Operating expenses:
Product development...................................... 4.3 6.4 6.9
Selling and marketing.................................... 30.9 33.3 29.7
General and administrative............................... 15.1 16.5 15.8
Purchased research and development....................... -- -- 15.2
----- ----- -----
Operating income........................................... 36.3 27.4 13.5
Other income (expense), net................................ 0.3 0.1 (0.7)
----- ----- -----
Income before taxes........................................ 36.6 27.5 12.8
Income tax benefit......................................... -- -- 7.1
----- ----- -----
Net income................................................. 36.6% 27.5% 19.9%
===== ===== =====
</TABLE>

16
<PAGE>

YEARS ENDED DECEMBER 31, 1996 AND 1995

Net Sales. The Company's net sales increased by $9.8 million, or 77.6%, to
$22.4 million in 1996 from $12.6 million in 1995. Product sales increased by
$7.3 million, or 63.2%, to $18.9 million in 1996 from $11.6 million in 1995.
The increase in product sales is primarily attributable to (i) the sale of the
Accelerated Reader to approximately 6,500 new customer schools, (ii) increased
sales of Accelerated Reader test disks to Accelerated Reader schools,
including the introduction of Accelerated Reader test disks covering
approximately 2,500 new book titles, and (iii) the introduction of S.T.A.R.,
which was announced in April 1996 and which the Company began shipping in
September 1996. Sales of Accelerated Reader software and supplemental
Accelerated Reader test disks accounted for approximately 87.1% and 67.0% of
net sales in 1995 and 1996, respectively. Sales of the Company's products
through one book distributor contributed significantly to product sales growth
in 1996. Sales through this book distributor, as a percentage of net sales,
increased from 12.5% in 1995 to 15.2% in 1996. The Company believes this
growth represented the maturation of this book distributor's field sales
efforts. The Company does not anticipate that sales to schools through this
book distributor will significantly increase as a percentage of net sales.

Service revenue, which consists of revenue from sales of training seminars
and programs and software support agreements, increased by $2.4 million, or
244.0%, to $3.5 million in 1996 from $1.0 million in 1995. This increase is
primarily attributable to an increased number of Reading Renaissance training
sessions, and, to a lesser extent, additional revenue from software support
agreements principally associated with increased new product sales.

Cost of Sales. The cost of sales of products increased by $862,000, or
58.7%, to $2.3 million in 1996 from $1.5 million in 1995. As a percentage of
product sales, the cost of sales of products remained relatively constant at
12.3% in 1996 compared to 12.6% in 1995. The cost of sales of services
increased by $1.3 million, or 219.0%, to $1.9 million in 1996 from $595,000 in
1995. As a percentage of sales of services, however, the cost of sales of
services decreased to 55.0% in 1996 from 59.3% in 1995, primarily as a result
of greater efficiencies in conducting seminars. The Company's overall gross
profit margin declined to 81.1% in 1996 from 83.6% in 1995 due primarily to
increased sales of services, particularly sales of Reading Renaissance
training sessions, which have a lower gross margin than the Company's
products.

Product Development. Product development expenses increased by $753,000, or
93.9%, to $1.6 million in 1996 from $802,000 in 1995. These expenses increased
primarily due to the increased development staff and consulting costs
associated with new products. As a percentage of net sales, product
development costs increased to 6.9% in 1996 from 6.4% in 1995. The Company
anticipates that product development costs will increase significantly as the
Company expands its product offerings into other areas of the K-12 curriculum.

Selling and Marketing. Selling and marketing expenses increased by $2.4
million, or 58.0%, to $6.6 million in 1996 from $4.2 million in 1995. These
expenses increased due to an increase in the number of marketing personnel,
participation in more trade shows, the publication of additional catalogs, and
the introduction of the "Model Classroom" program. However, as a percentage of
net sales, selling and marketing expenses decreased to 29.7% in 1996 from
33.3% in 1995. This decrease is due primarily to economies of scale associated
with significantly increased product sales.

General and Administrative. General and administrative expenses increased by
$1.5 million, or 69.6%, to $3.5 million in 1996 from $2.1 million in 1995. The
higher expenses for 1996 are largely due to increased costs associated with
the hiring of additional personnel, including wages and related benefits, and
the write-down of the net book value of the Company's former headquarters. As
a percentage of net sales, however, general and administrative expenses
decreased to 15.8% in 1996 from 16.5% in 1995. This decline is primarily due
to economies of scale associated with significantly increased product sales.

Purchased Research and Development. In connection with the acquisition of
IPS, $3.4 million of the purchase price was allocated to purchased research
and development which was expensed in August 1996.

Operating Income. Operating income decreased by $436,000, or 12.6%, to $3.0
million in 1996 from $3.4 million in 1995, primarily due to the $3.4 million
of purchased research and development expense resulting from the acquisition
of IPS. As a percentage of net sales, operating income decreased to 13.5% in
1996 from 27.4% in 1995. Excluding the purchased research and development
expense, operating income would have increased by $3.0 million, or 86.0%, to
$6.4 million in 1996, or 28.7% of net sales compared to 27.4% of net sales in
1995.

17
<PAGE>

Interest Expense. In 1996, interest expense of $206,000 was incurred
primarily in connection with loans to finance the acquisition of IPS.

Income Tax Benefit. A tax benefit of $1.6 million was recorded in 1996
relating primarily to the expensing of $3.4 million of purchased research and
development. See Note 7 of Notes to the Company's Combined Financial
Statements.

YEARS ENDED DECEMBER 31, 1995 AND 1994

Net Sales. The Company's net sales increased by $4.4 million, or 52.8%, to
$12.6 million in 1995 from $8.3 million in 1994. Product sales increased by
$3.5 million, or 43.4%, to $11.6 million in 1995 from $8.1 million in 1994.
The increase in product sales is primarily attributable to (i) the sale of the
Accelerated Reader to approximately 5,000 new customer schools, and (ii)
increased sales of Accelerated Reader test disks to Accelerated Reader
schools, including the introduction of approximately 2,500 new book titles on
Accelerated Reader test disks. The increase in new Accelerated Reader customer
schools was largely due to the Company's strategic decision to lower the price
of the Accelerated Reader starter kits to accelerate the growth of the
installed base and drive demand for supplemental test disks. The growth in new
customer sales was also due to increased sales through book distributors.
Sales through one book distributor increased to 12.5% of net sales in 1995
from 2.6% of net sales in 1994. Sales of Accelerated Reader software and
supplemental Accelerated Reader test disks accounted for approximately 91.4%
and 87.1% of net sales in 1994 and 1995, respectively.

Service revenue increased by $841,000 to $1.0 million in 1995 from $163,000
in 1994, primarily due to the introduction in 1995 of new seminars and
expanded training programs for Reading Renaissance. In 1994, the Institute was
in a start-up phase. In addition, service revenue for software support
agreements began to be recognized in late 1994, which contributed to the
increase in service revenue.

Cost of Sales. The cost of sales of products increased by $530,000, or
56.6%, to $1.5 million in 1995 from $937,000 in 1994. As a percentage of
product sales, the cost of sales of products increased to 12.6% in 1995 from
11.6% in 1994, primarily because of the Company's new pricing policy for
Accelerated Reader starter and economy kits and the lower gross margin
associated with sales through book distributors. The cost of sales of services
increased by $430,000, or 259.0%, to $595,000 in 1995 from $166,000 in 1994.
As a percentage of sales of services, however, the cost of sales of services
decreased to 59.3% in 1995 from 101.9% in 1994. The Institute was in the
start-up phase in 1994 and, as a result, sales of services were not yet
profitable. The Company's overall gross profit margin decreased to 83.6% in
1995 from 86.6% in 1994 primarily due to the larger percentage of sales
generated by sales of services, particularly sales by the Institute, which
have a lower gross margin than the Company's products.

Product Development. Product development expenses increased by $444,000, or
123.9%, to $802,000 in 1995 from $358,000 in 1994. As a percentage of net
sales, product development costs increased to 6.4% in 1995 from 4.3% in 1994.
Product development expenses increased in 1995 due to the expansion of in-
house product development staff and the costs associated with the development
of S.T.A.R.

Selling and Marketing. Selling and marketing expenses increased by $1.6
million, or 64.7%, to $4.2 million in 1995 from $2.6 million in 1994. As a
percentage of net sales, selling and marketing expenses increased to 33.3% in
1995 from 30.9% in 1994. The increase in selling and marketing expenses is due
to start-up expenses associated with the Institute, an increase in the number
of telemarketing personnel selling the Company's products, increased
investment in lead generation to build prospect lists, and the publication of
additional quantities of catalogs and newsletters.

General and Administrative. General and administrative expenses increased by
$852,000, or 68.7%, to $2.1 million in 1995 from $1.2 million in 1994. As a
percentage of net sales, these costs increased to 16.5% in 1995 from 15.1% in
1994. The higher costs for 1995 compared with 1994 are largely due to
increased personnel and occupancy costs as well as start-up expenses
associated with the Institute.

Operating Income. Operating income increased $450,000, or 15.0%, to $3.4
million in 1995 from $3.0 million in 1994. As a percentage of net sales,
operating income decreased to 27.4% in 1995 from 36.3% in 1994, primarily due
to product development expenses associated with the development of S.T.A.R.
and start-up expenses associated with the Institute.

18
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited combined income statement data for
each quarter of the Company's last two fiscal years. The unaudited quarterly
financial information has been prepared on the same basis as the annual
information presented elsewhere in this Prospectus and, in management's
opinion, reflects all adjustments (consisting of normal recurring entries)
necessary for a fair presentation of the information provided. The operating
results for any quarter are not necessarily indicative of results for any
future period.

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996(1) 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Products............... $2,524 $2,851 $2,781 $3,446 $3,818 $4,322 $4,949 $5,841
Services............... 121 129 258 495 607 728 1,003 1,113
------ ------ ------ ------ ------ ------ ------ ------
Total net sales...... 2,645 2,980 3,039 3,941 4,425 5,050 5,952 6,954
Cost of sales:
Products............... 283 335 341 509 456 510 595 768
Services............... 80 110 164 241 345 288 522 743
------ ------ ------ ------ ------ ------ ------ ------
Total cost of sales.. 363 445 505 750 801 798 1,117 1,511
Gross profit............ 2,282 2,535 2,534 3,191 3,624 4,252 4,835 5,443
Operating expenses:
Product development.... 167 235 251 149 227 267 409 652
Selling and marketing.. 727 928 1,072 1,474 1,567 1,492 1,500 2,080
General and
administrative........ 389 483 522 696 638 746 950 1,213
Purchased research and
development(2)........ -- -- -- -- -- -- 3,400 --
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 1,283 1,646 1,845 2,319 2,432 2,505 6,259 3,945
Operating income........ 999 889 689 872 1,192 1,747 (1,424) 1,498
Other income (expense),
net.................... (4) 7 8 2 9 9 (66) (107)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
taxes.................. 995 896 697 874 1,201 1,756 (1,490) 1,391
Income tax benefit...... -- -- -- -- -- -- 1,467 135
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 995 $ 896 $ 697 $ 874 $1,201 $1,756 $ (23) $1,526
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- --------
(1) The Company acquired IPS in August 1996.
(2) In connection with the acquisition of IPS, $3.4 million of the purchase
price was allocated to purchased research and development which was
expensed in August 1996.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1996, the Company had cash and cash equivalents of
approximately $1.8 million. Historically, the Company has used cash generated
from operations to fund acquisitions of capital equipment, software
development and distributions to shareholders. The Company's operating
activities provided cash of approximately $3.3 million, $4.1 million, and $9.2
million in 1994, 1995 and 1996, respectively. The Company financed the
construction of its new facility in Wisconsin Rapids, Wisconsin with bank and
contractor financing of approximately $6.9 million. The Company financed the
purchase of IPS with loans of approximately $4.7 million and capital
contributions of $200,000 from the Company's principal shareholders. Both the
financing for the construction of the Wisconsin Rapids facility and the
principal and accrued interest on the IPS loans will be repaid from a portion
of the estimated net proceeds of the Offering. See "Use of Proceeds."

The Company has no material commitments with respect to any acquisitions of
other businesses, leases or capital expenditures except as described in the
Notes to the Company's Combined Financial Statements. The Company believes
that its existing sources of liquidity, proceeds from this Offering and
anticipated funds from operations will satisfy the Company's projected working
capital and capital expenditure requirements for the foreseeable future.

19
<PAGE>

BUSINESS

COMPANY OVERVIEW

The Company's flagship product, the Accelerated Reader, is software for
motivating and monitoring increased literature-based reading practice. As of
December 31, 1996, the Accelerated Reader had been sold to approximately
26,000, or 21%, of the K-12 schools in the United States and Canada. In a
survey by Quality Education Data, Inc. ("QED"), the Accelerated Reader was the
software product that educators most frequently cited as being used to improve
the quality of education in K-12 schools. The Accelerated Reader was also the
reading software product most frequently named by educators as used in support
of reading and language arts curricula in kindergarten through sixth grade,
according to a survey by Education Market Research ("EMR"). The Company
believes that the Accelerated Reader has achieved this leading market position
as a result of its demonstrated effectiveness in improving student reading
levels and overall academic performance. The Company's learning information
system products also include the Standardized Test for Assessment of Reading
(S.T.A.R.), a computer-adaptive reading test and database, and the Reading
Renaissance program through which the Company provides professional
development training for educators.

Originally introduced in 1986, the Accelerated Reader administers computer-
based multiple choice tests on books popular among students in grades K-12 and
provides educators with more than 20 reports from which to monitor the amount
and quality of each student's reading practice. Through December 31, 1996, the
Company had developed tests on approximately 10,000 books and expects to
develop approximately 4,000 additional tests in 1997. In 1994, the Company
began offering Reading Renaissance training seminars to provide educators with
professional development training to most effectively use the Accelerated
Reader and the information it generates. As of December 31, 1996,
approximately 26,000 educators have attended Reading Renaissance training
seminars. In 1996, the Company released S.T.A.R. which enables educators to
quickly obtain student reading scores statistically correlated to national
norms. The results from S.T.A.R. provide educators with a database of
statistically accurate reading level information on their students from which
they can generate useful reports and adjust instructional strategies
accordingly. The Company began marketing S.T.A.R. in the spring of 1996, and
by the end of that year, had sold S.T.A.R. to approximately 2,300 schools. To
expand its learning information system product offerings into additional
academic areas, the Company recently acquired IPS, a provider of algorithm-
based software for assessment and skills practice in math and science.

INDUSTRY BACKGROUND

Educators, parents and opinion leaders in the United States are increasingly
focusing on improving essential academic skills of students, and, in
particular, their reading and math proficiency. President Clinton's emphasis
on education in his recent State of the Union address, the Department of
Education's Goals 2000 program, the Learning to Read, Reading to Learn
campaign, an increase in Title I funding, and the activities of the Education
Commission of the States are indicative of this growing focus. While certain
aspects of these initiatives may not endorse, or be complementary to, the
Company's products, this focus and the resulting initiatives have generally
contributed to an increased demand for more effective methods to improve
academic performance. Schools have responded to these demands by investing in
computers, software and other educational technology, testing and other
assessment programs to measure students' progress, and professional
development training to help enhance educators' effectiveness in the
classroom.

Based on 1996 data from QED, the K-12 marketplace in the United States
consists of approximately 107,500 public and private schools. According to the
National Center for Education Statistics, the number of students enrolled in
these schools was approximately 51.7 million in 1996 and is expected to
increase to 54.6 million by the

20
<PAGE>

year 2006. According to QED, K-12 public schools in the United States invested
$4.1 billion on educational technologies in 1996. Of this amount, industry
sources estimate that approximately $630 million was invested in educational
software, which amount is expected to increase to $1.1 billion by the year
2000, representing a 15% compound annual increase. Moreover, according to data
obtained from the Software Publishers Association, the installed base of
computers in K-12 schools in the United States will grow from approximately
5.5 million units in 1995 to 10.0 million units by the year 2000, a 13%
compound annual increase.

In addition to this increased spending on educational technologies, the
Company believes that there is a growing trend towards requiring better
assessment of student performance and increased accountability of educators
and school systems. At present, 41 states use some form of norm-referenced
assessment tool to measure student performance in core curriculum areas. The
Company also believes there is a growing trend towards requiring more and
better professional development training for educators, as highlighted in the
Department of Education's Goals 2000 program.

The increased public concern over the effectiveness of K-12 schools in
teaching essential academic skills and the rapidly growing role of technology
in the K-12 marketplace have created an increased demand for technology-based
solutions which measure and improve student academic performance and for
professional development training which enables educators to effectively
implement these solutions. However, few providers of educational technology
products have developed tools with demonstrated effectiveness in improving
student academic performance because most products (i) provide inadequate
feedback useful to educators in tailoring instruction to individual students,
(ii) seek to replace educators by attempting to teach skills rather than
support their efforts by encouraging extensive practice on those skills, (iii)
compete with existing curricula and instructional methodologies, (iv) fail to
maintain student interest and (v) require more advanced technology and/or
larger numbers of computers than are typically available in schools. The
Company believes there is a growing market demand for technology-based
learning information systems that motivate students and achieve measurable
results.

THE ADVANTAGE LEARNING SYSTEMS SOLUTION

The Company develops, markets and supports learning information systems
which improve student academic performance by intensifying literature-based
reading practice and increasing the quality, quantity and timeliness of
information available to educators. Until recently, the Company's products
have focused exclusively on improving reading because reading is fundamental
to a student's overall academic performance. The Company's flagship product,
the Accelerated Reader, administers computer-based multiple choice tests on
approximately 10,000 books popular among students in grades K-12. Each test
verifies that the student has read and comprehended a book. For each book
read, the Accelerated Reader tracks the amount of reading practice by
calculating points based on the length and difficulty of the book and the
student's performance on the test, and makes these data available to educators
through a variety of reports. S.T.A.R., the Company's computer-adaptive
reading test and database, supplies educators with norm-referenced reading
scores for each of their students typically in 10 minutes or less by selecting
test questions based on a student's pattern of previous responses. Because
S.T.A.R. can be administered several times per year, it provides educators
with a database of reading level information that enables tracking of
students' progress through the school year. The Company's Reading Renaissance
professional development training combines the Company's learning information
systems technology and classroom techniques to improve reading performance by
increasing in-school accountable reading practice.

The Company believes the combination of the Accelerated Reader, S.T.A.R. and
Reading Renaissance offers the following key benefits:

Improved Student Academic Performance. The Company is committed to
developing and releasing only those products which have demonstrated
effectiveness in improving student academic performance. The Accelerated
Reader, coupled with the techniques taught in the Reading Renaissance training
program, improves student academic performance by providing educators with an
effective system to motivate students to practice reading and encourage
students to select longer, more challenging books. Independent studies on the
effectiveness of the Accelerated Reader have demonstrated that use of the
Accelerated Reader improves standardized test performance in reading. A recent

21
<PAGE>

study conducted by the Institute based on publicly available quantitative data
confirms this result and indicates that use of the Accelerated Reader improves
standardized test performance in other academic subject areas as well,
including math, science, social studies and writing.

Ability to Assess Student Progress. The Accelerated Reader and S.T.A.R.
provide educators with timely, accurate information to manage the learning
process within their existing curricula. The objective measurement data
derived from the Company's products enable teachers to continually monitor
students' academic progress and easily identify individual students who may
require special attention.

Suitability for K-12 School Environment. The Accelerated Reader and S.T.A.R.
are easy to use by both students and educators and are capable of running on
substantially all of the computers and hardware platforms currently found in
K-12 schools. Even schools with a limited number of computers can use the
Company's products since these products emphasize literature reading by the
student and do not require extensive individual time on the computer. In
addition, the Accelerated Reader is used in conjunction with books already
commonly found in most K-12 school libraries.

Supportive of Educators. Rather than attempting to teach skills, thereby
replacing educators, the Company's products and services provide educators
with tools to encourage increased skills practice and to track student
academic performance. Due to this focus on practice and measurement, the
Company's products complement, rather than compete with, existing curricula
and instructional methodologies. As a result, educators remain in control of
the learning process.

Cost-Effective Solution. The cost of the Company's products generally
enables schools to purchase such products within their normal budgets. In
addition, schools may purchase the Company's products for use in a single
classroom, and have the flexibility to acquire additional products for more
classrooms as usage increases.

GROWTH STRATEGY

Add New Customer Schools. The Company intends to increase its market
penetration by continuing to add new customer schools. As of December 31,
1996, the Accelerated Reader has been sold to approximately 26,000 K-12
schools, which represents approximately 21% of the total number of schools in
the United States and Canada and an approximately 34% increase in the number
of schools using the Accelerated Reader over the prior year. In addition,
S.T.A.R. was sold to approximately 2,300 K-12 schools in 1996. The Company
plans to add new customer schools by increasing its direct marketing efforts
and extending its strategic alliances.

Intensify and Expand Use of Products by Existing Customer Schools. The
Company intends to intensify and expand the use of its products by existing
customers. Although the Accelerated Reader has been sold to approximately 21%
of the K-12 schools in the United States and Canada, most schools begin using
the product as a supplementary or voluntary program in a small percentage of
classrooms, thereby creating the opportunity for the Company to intensify
usage in these classrooms and expand usage to other classrooms and other grade
levels. The Company's experience has been that increased use of the
Accelerated Reader leads to increased sales of supplemental test disks,
S.T.A.R. and Reading Renaissance professional development training. To
increase the use of its products, the Company continuously develops new book
tests, publishes newsletters, catalogs and research relating to the
effectiveness of its products, sponsors seminars and maintains communication
with customers through its telephone sales force. The Company expects to
develop approximately 4,000 additional tests in 1997.

Offer New Products in Other Curriculum Areas. The Company intends to develop
groups of products similar to its reading products for other areas of the K-12
curriculum. Through its acquisition of IPS, a leading developer of algorithm-
based software for assessment and skills practice in math and science, the
Company has begun to develop math products similar to the Accelerated Reader
and S.T.A.R.

Expand International Marketing and Sales. The Company intends to expand its
international marketing and sales. To date, the Company has marketed and sold
the Accelerated Reader in Canada and to several schools in the United Kingdom,
which have begun using it on a pilot basis. In addition, IPS markets and sells
Spanish bilingual

22
<PAGE>

versions of its math products in the United States and neighboring Spanish-
speaking countries. As the Company develops new products, it plans to expand
its marketing and sales efforts into other foreign countries.

Expand Market Presence Through Strategic Alliances. In order to penetrate
the K-12 marketplace more rapidly, the Company has established strategic
alliances with educational book distributors and publishers. These firms are
particularly receptive to such alliances because use of the Company's products
in schools encourages, rather than competing with, the sale of books and other
products sold by these firms. The Company believes that such firms are under
increasing pressure from many customers to offer products supported by the
Accelerated Reader. In addition, the Company intends to seek strategic
alliances with other firms with an interest in education and literacy.

PRODUCTS

OVERVIEW

The Company offers three core products for use in the K-12 marketplace: the
Accelerated Reader, S.T.A.R. and Reading Renaissance. Together, these learning
information system products improve student academic performance by
intensifying literature-based reading practice and increasing the quality,
quantity and timeliness of information available to educators. The Company's
products historically have concentrated on reading. The Company is expanding
its product offerings into math with the Company's recent acquisition of IPS.

The following table summarizes the Company's current product offerings and
price ranges:

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION PRICE RANGE

<C> <S> <C>
Accelerated Reader Reading practice management software; $399-$1,473
available in Starter Kits (150-200 book
tests) or Economy Kits (850-1,000 book
tests)
- ------------------------------------------------------------------------------------------
Accelerated Reader Computer disks containing supplemental tests $56-$76
supplemental test on additional books to expand Starter or
disks Economy Kits (approximately 50 tests per
disk); currently 10,000 tests available
- ------------------------------------------------------------------------------------------
S.T.A.R. Computer-adaptive reading test and database $399-$1,499
- ------------------------------------------------------------------------------------------
Enhanced Support Two-year contracts for telephone support of $199-$249 initial
Plans ("ESP") software (available for the Accelerated (also included in Ac-
Reader and S.T.A.R.) celerated Reader
Economy Kits); $149-
$199 renewal
- ------------------------------------------------------------------------------------------
Reading Renais- Professional development training for Scheduled seminars,
sance educators; delivered through scheduled $99-$545 per attend-
seminars and school sponsored events ee; sponsored events,
$1,500-$20,000 per
event
- ------------------------------------------------------------------------------------------
Math and Science Off-the-shelf and custom math and science $295 for off-the-
Products test and worksheet generators, and student shelf
objective and achievement databases products; $5,000-
$40,000 per project
for custom products
- ------------------------------------------------------------------------------------------
Other Related Video and printed training materials, Varies
Products graphics and motivational items
</TABLE>

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

THE ACCELERATED READER

The Accelerated Reader is a learning information system for motivating and
monitoring increased literature-based reading practice. As of December 31,
1996, the Accelerated Reader has been sold to approximately 26,000 K-12

23
<PAGE>

schools in the United States and Canada and, according to a survey published
by EMR in the fall of 1995, is the reading software product most frequently
named by educators as used in support of reading and language arts curricula
in kindergarten through sixth grade. EMR is an independent research
organization that conducts research and publishes studies on education. The
EMR survey was not commissioned by the Company and was obtained from EMR for
$495. In addition, according to a survey published by QED in December 1994,
the Accelerated Reader is one of the products that educators most frequently
cite as being used to improve the quality of education in K-12 schools. QED is
an independent company which collects and maintains information on educators.
The QED survey was not commissioned by the Company and was obtained free of
charge from QED. The Accelerated Reader has received numerous awards and
recognition, including the Association for Supervision and Curriculum
Development's "Only the Best" designation.

The Accelerated Reader is designed to be very easy to use by students and
educators alike. A student selects a book from a list of books for which the
school has an Accelerated Reader test at an appropriate reading level and
reads the book. The student then takes a multiple choice test on a computer.
The questions contained in the tests are carefully drafted to ensure that a
student who has thoroughly read a book at the appropriate level will pass. For
each book read, the Accelerated Reader tracks the amount of reading practice
achieved by calculating points based on the length and difficulty of the book
and the student's performance on the test. The information generated from this
process--titles read, percent of comprehension and amount of reading done--
creates a database of student reading achievement. From this database, the
Accelerated Reader generates more than 20 different reports from which
educators can monitor the amount and quality of reading practice for each of
their students and easily identify individual students who may require special
attention. The Company currently has a library of more than 10,000
computerized book tests. The Company developed approximately 2,500 tests in
1996 and expects to develop approximately 4,000 additional tests in 1997.
Titles on disk are organized by reading level and subject matter. Continued
usage of the Accelerated Reader creates demand for additional tests, S.T.A.R.,
Reading Renaissance training and related products.

STANDARDIZED TEST FOR ASSESSMENT OF READING (S.T.A.R.)

S.T.A.R. is a computer-adaptive reading test which the Company believes is
the first software to provide reading scores statistically correlated to
national norms in ten minutes or less at the computer. S.T.A.R. administers a
series of multiple choice questions for which students choose the best word to
complete each sentence. S.T.A.R. adapts itself to each student's reading level
by applying a proprietary branching logic which evaluates the pattern of the
student's answers to determine the level of difficulty required for subsequent
questions. The results from this test provide educators with a database of
statistically accurate reading level information on their students from which
they can generate useful reports and adjust instructional strategies
accordingly. S.T.A.R. is easy to use and can be administered several times per
year. The Company announced S.T.A.R. in the spring of 1996 and started
shipping it to customers in the fall of 1996. As of December 31, 1996,
S.T.A.R. has been sold to approximately 2,300 schools. In 1997, Media &
Methods magazine, a professional journal for instructional technology
educators, selected S.T.A.R. as an Awards Portfolio Winner in its annual
competition to determine the best education equipment, resources and system
products. Because of its repeated successes in this competition, the Company
has been inducted into Media & Methods' "Hall of Fame," in recognition of the
Company's status as "a consistent provider of superior quality educational
products."

ENHANCED SUPPORT PLANS

The Company offers Enhanced Support Plans which provide users of the
Accelerated Reader and S.T.A.R. access to telephone support beyond the six-
month period of support included with the purchase of the software, and other
benefits such as free or reduced-cost upgrades. Packaged with Accelerated
Reader economy kits and sold as add-ons to buyers of Accelerated Reader
starter kits and S.T.A.R. kits, ESPs entitle educators to expert help
resolving questions regarding technical problems with Company products,
networks, and other software interacting with Company products.

24
<PAGE>

READING RENAISSANCE

The Reading Renaissance program provides educators with professional
development training to most effectively use the Accelerated Reader, S.T.A.R.
and the learning information they generate. This training combines technology
and classroom techniques to increase in-school accountable reading practice.
Through the Institute, the Company offers a variety of Reading Renaissance
seminars and workshops, including one- or three-day scheduled training
programs, which are conducted throughout the year at various hotel locations
in the United States, and on-site training programs pursuant to which the
Institute's training staff visit an individual school, school district or
region to conduct a seminar or workshop. The Institute's training staff
consists of 27 presenters, most of whom are K-12 educators who use the Reading
Renaissance techniques in their own classrooms. Since its inception in late
1993, the Institute has trained approximately 26,000 educators, of whom
approximately 22,000 were trained in 1996.

To encourage educators who have completed Reading Renaissance training to
implement the methodology fully, the Institute in 1995 initiated the "Model
Classroom" certification program. This program recognizes educators who meet
certain objective implementation standards related to the amount of
accountable reading among students, regular diagnosis and intervention with
at-risk students, and other key variables. In its first year, the program
received approximately 2,000 applications and certified 400 "Model Classroom"
teachers, and 10 "Model Schools" in which the majority of classrooms have
"Model Classroom" teachers.

The Company also produces videotapes and manuals to be used in conjunction
with its training programs. Further, through the Institute, the Company
conducts research on best practices, performs field validation of techniques,
and gathers information to guide the development of the Company's learning
information systems.

MATH AND SCIENCE PRODUCTS

Through its subsidiary, IPS, the Company develops algorithm-based software
for assessment and skills practice in math and science. IPS has a proprietary
library of more than 20,000 algorithms, each capable of generating virtually
unlimited variations of specific math and science problems. These algorithms
are incorporated into off-the-shelf software for sale to educators and custom
software developed primarily for educational textbook publishers and school
districts. Current products include MathCheck and Exam in a Can. Two
additional products, ScienceCheck and Objective Tracker, are in the final
stages of testing. Objective Tracker is a test and worksheet generator which
allows educators, schools and school districts to specify precise academic
objectives and track the attainment of those objectives for each student.
Objective Tracker will be available in both off-the-shelf and custom forms.
The Company has begun to use IPS products as a basis for developing math
products similar to the Accelerated Reader and S.T.A.R.

OTHER RELATED PRODUCTS

The Company sells other products to support its primary products, including
video and printed training materials, graphics and motivational items.

PRODUCT DEVELOPMENT

The Company believes that continued investment in product development is
required to remain competitive in the K-12 marketplace. The Company invests
continuously in the development of new products, enhancement of existing
products and development of tools to increase the efficiency of product
development. For the years ended December 31, 1994, 1995 and 1996, the Company
expended approximately $598,000, $919,000 and $1.9 million, respectively, on
product development (including amounts capitalized).

As of December 31, 1996, the Company employed 30 persons dedicated to
product development and software design. The Company expects this number to
increase in the next year. The Company's product development staff has a high
level of expertise in learning information theory, test writing, interface
design, software engineering, quality assurance and technical writing.

25
<PAGE>

The Company generates new product concepts which it believes will help
educators improve student academic performance, based on the Company's
understanding of learning information theory and the need for practice of
essential academic skills. These product concepts are then refined based on
feedback from its customers, which the Company continuously solicits and
incorporates throughout the new product development process. Based on the
refined product concepts, product proposals are then formulated by the product
development group and reviewed by management to determine which should be
developed into prototypes. The product development and software design groups
collaborate to create the prototypes, which are then tested in customer
schools. From this market testing, the Company creates product specifications.
However, before beginning production, management makes a final evaluation of
each new product to determine that it is both desired by educators and
effective in meeting their needs. The Company also continuously expands its
library of book tests by creating supplemental Accelerated Reader test disks
and creates new algorithms and algorithm libraries for MathCheck and Objective
Tracker.

The Reading Renaissance professional development training program was
originally developed, and is continually refined, through field experience
with the Accelerated Reader and research by the Institute staff. Through the
Institute, the Company conducts research into effective education techniques
related to the Company's products and services. This research provides the
staff with a standard against which to develop and refine training programs to
help educators accelerate learning.

SALES, MARKETING AND DISTRIBUTION

The Company markets its products primarily to individual educators in the K-
12 market, including teachers, school librarians and principals. The Company
is also beginning to market its products to entire schools and school
districts. The Company's sales and marketing strategy consists primarily of
direct marketing to potential and existing customers. The Company uses a
variety of lead generating techniques, including trade shows, advertisements
in educational publications, direct mail, Web sites and referrals. Once
product literature has been forwarded to a current or potential customer, one
of the Company's in-house staff of 30 telephone sales representatives contacts
the customer to answer questions and, ultimately, direct the customer to a
purchase. Having an in-house sales force affords the Company better control
over its marketing efforts.

In addition, the Company has resale arrangements with three U.S. and two
Canadian book distributors which are authorized to sell the Accelerated Reader
to their customers. Sales to Perma-Bound, a division of Hertzberg-New Method,
Inc. ("Perma-Bound"), accounted for 2.6%, 12.5% and 15.2% of the Company's net
sales in 1994, 1995 and 1996, respectively. The Company believes this growth
represented maturation of Perma-Bound's field sales efforts and anticipates
that, as a percentage of net sales, sales to schools through Perma-Bound will
not significantly increase. Under these resale arrangements, distributors take
orders which are then filled by the Company. This control over product
shipment ensures premium customer service and retention of customer contacts
for future marketing and sales opportunities.

In addition to the book distributors which resell the Company's products,
approximately 12 other book distributors and publishers promote the sale of
the Accelerated Reader by publishing special catalogs that advertise book sets
assembled specifically for Accelerated Reader test disks. Further, 24
distributors and publishers have engaged the Company to create test disks to
support their product lines. The Company retains the proprietary rights to all
tests created. The Company intends to seek additional strategic alliances with
book distributors and publishers and to use alliances formed by IPS to expand
its base of strategic partners to sell its products. Furthermore, the Company
plans to continue to develop other cross-marketing arrangements with third-
party firms selling non-competing products into the education market.

The Company believes it maintains a very high level of customer
satisfaction. Historically, the Company has experienced less than a 1% rate of
return for its products.

CUSTOMER SERVICE AND TECHNICAL SUPPORT

Most of the Company's customers have low levels of computer knowledge and do
not have any technical support on-site to assist them. The Company therefore
provides a variety of customer and technical support services to purchasers of
its software products. In order to provide the level of customer service that
results in a consistently

26
<PAGE>

high level of customer satisfaction, the Company employs an experienced staff
of technical service representatives who are capable of answering technical
questions relating to the Company's software products, regardless of platform,
as well as questions regarding hardware and networks. Two full-time computer
programmers support the telephone service representatives by helping to answer
customer questions by recreating the customer's problem in the Company's
simulation laboratory.

PRODUCTION

Currently, all of the Company's software products are distributed on
diskettes. The Accelerated Reader and S.T.A.R. disks are duplicated and
packaged at Company headquarters, with the exception of Apple II disks which
are produced by a third-party contractor. Other related products, including
videotapes, books, graphics and motivational items, are purchased from third-
party vendors. IPS's math and science custom software products are produced at
its offices in Vancouver, Washington and provided to customers in master form
which allows the customer to duplicate the software. IPS's off-the-shelf
products such as MathCheck are also produced by in-house staff, but duplicated
by a third-party contractor.

COMPETITION

The K-12 educational technology and professional development markets in
which the Company operates are very competitive. The Company competes
primarily against more traditional methods of education, training and testing,
including pencil and paper testing. In addition, the Company competes with
other companies offering educational software products to schools, including
larger companies with greater resources than the Company, such as
International Business Machines Corporation, Apple Computer, Inc., Broderbund
Software, Inc., and The Learning Company, Inc. The Company also competes with
certain other companies, including The Electronic Bookshelf Inc. and
Booksharp, which offer software products which are more directly competitive
with the products offered by the Company. While the Company's existing
competitors may broaden their product lines, and potential competitors,
including large hardware manufacturers, software developers and educational
publishers, may enter or increase their focus on the school market, the
Company believes it is well positioned to continue to compete favorably in the
markets in which it participates.

INTELLECTUAL PROPERTY

While the Company believes that its products, trademarks and other
proprietary rights do not infringe upon the proprietary rights of third
parties, as the number of software products in the educational technology
industry increases and the functionality of these products begins to overlap,
software developers may become increasingly subject to infringement claims.
There can be no assurance that third parties will not assert infringement
claims against the Company in the future with respect to current or future
products, trademarks or other Company works or that any such assertion may not
require the Company to enter into royalty arrangements or result in costly
litigation.

The software market has traditionally experienced widespread unauthorized
reproduction of products in violation of intellectual property rights. Such
activity is difficult to detect and legal proceedings to enforce intellectual
property rights are often burdensome and involve a high degree of uncertainty
and costs. While the Company electronically codes its software products to
protect against unauthorized copying and use, there can be no assurance that
the Company's software products will not experience unauthorized reproduction.

27
<PAGE>

EMPLOYEES

As of December 31, 1996, the Company had 238 full and part-time employees.
The Company believes its relations with employees are good. None of the
Company's employees is represented by a union or subject to collective
bargaining agreements.

PROPERTIES

The Company owns a 125,000 square foot facility in Wisconsin Rapids,
Wisconsin which was completed in December 1996. Approximately one-third of the
Wisconsin Rapids facility is currently occupied. The Company also owns and is
currently seeking to sell its former office facility in Wisconsin Rapids,
Wisconsin. The Institute leases 10,000 square feet of office space in Madison,
Wisconsin, which lease expires in April 2000. IPS leases 3,000 square feet of
office space in Vancouver, Washington, which lease expires in January 1999.
While the Company believes its facilities are adequate for its current
operations, the Company anticipates leasing additional office space in Madison
and Vancouver during the next 12 to 18 months.

BACKLOG

Because ALS generally ships products as orders are received, it has
historically operated with very little or no backlog. The Institute and IPS,
however, operate in the normal course of business with backlogs. As of
February 28, 1997, the Institute and IPS had backlogs which aggregated
approximately $878,000 and $503,000, respectively. With respect to the
Institute, approximately $863,000 of this backlog is expected to be eliminated
by the end of 1997, with the remaining amount eliminated by the end of
February 1998. With respect to IPS, all of the backlog that existed as of
February 28, 1997 is expected to be eliminated by the end of 1997.

LEGAL PROCEEDINGS

The Company is involved from time to time in litigation incidental to its
business. The Company is not currently a party to any litigation.

28
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company as of April 11, 1997
are:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------ --- --------------------------------------------------------
<S> <C> <C>
Judith A. Paul.... 50 Chairman of the Board
Terrance D. Paul.. 50 Vice Chairman of the Board
Michael H. Baum... 49 Chief Executive Officer and Director
John R. Hickey.... 41 President and Director
Timothy P. Welch.. 54 Chief Executive Officer of IPS and Director
Richard W. Fickey. 57 Secretary and Vice President, Finance and Administration
</TABLE>

Judith A. Paul is the co-founder of the Company and has been Chairman of the
Board of Directors since 1986. In addition to her continuing and active
involvement in the daily operations of the Company, including serving as the
Company spokesperson and coordinating the Company's public relations and
customer communication policies, Ms. Paul has published 101 Ways to Motivate
Students to Read (1995), The Family Reading Night Kit (1996) and The Literacy
Partnership Kit (1997). Ms. Paul holds a bachelors degree in elementary
education from the University of Illinois.

Terrance D. Paul is the co-founder of the Company and has been Vice Chairman
of the Board of Directors since July 1996. Mr. Paul is primarily responsible
for the Company's long-term strategic planning and new product development
strategy. Mr. Paul also coordinates the research activities conducted by the
Institute. From November 1995 until July 1996, Mr. Paul served as the
Company's Chief Executive Officer. From January 1992 until August 1993 and
again from September 1994 until November 1995, Mr. Paul served as President of
the Company. For the 12 years prior to 1992, Mr. Paul was President of Best
Power Technology, a manufacturer of uninterruptible power supplies. Mr. Paul
is the author of several publications, including How to Create World-Champion
Readers (1993), Patterns of Reading Practice (1996) and The New Technology of
Learning Information Systems (1997). He is also the general editor of
Fundamentals of Reading Renaissance (1994-1996), the textbook used in seminars
on reading improvement by the Institute. Mr. Paul holds a law degree from the
University of Illinois and an MBA from Bradley University. Terrance Paul is
Judith Paul's husband.

Michael H. Baum has been Chief Executive Officer of the Company since July
1996. Mr. Baum served as President of the Company between November 1995 and
June 1996. From September 1994 until November 1995, Mr. Baum served as the
Managing Director of the Institute and from June 1994 until September 1994, he
served as the Director of Educational Consulting for the Institute. From 1984
until June 1994, Mr. Baum held a variety of positions with Francorp, Inc., an
international management consulting firm based in Chicago, his last position
being that of Executive Vice President, which he held from September 1991
until June 1994. Mr. Baum holds a bachelors degree and a masters degree in
teaching from Yale University and an MBA from Northwestern University.

John R. Hickey has been President of the Company since July 1996. From
January 1996 until June 1996, Mr. Hickey served as Executive Vice President of
R.F. Technologies, Inc., a manufacturer of protection devices, and from
September 1995 until December 1995, he served as Executive Vice President of
Liebert Corporation (a subsidiary of Emerson Electric), a manufacturer of
uninterruptible power supplies. From January 1989 until June 1995, Mr. Hickey
held various senior management positions with Best Power Technology, including
Executive Vice President of Operations, Senior Vice President of Sales and
Marketing and Vice President-International. In addition, Mr. Hickey spent
approximately ten years with Briggs and Stratton, a manufacturer of air-cooled
gasoline engines for outdoor power equipment, headquartered in Milwaukee,
Wisconsin. While at Briggs and Stratton, Mr. Hickey served in various
management positions, eventually rising to the position of the Director of
International Sales and Finance Administration, a position he held from
October 1985 until January 1989. Mr. Hickey holds a bachelors degree in
international business from the University of Wisconsin.

Timothy P. Welch is the founder of the predecessor to IPS. Mr. Welch has
served as the Chief Executive Officer of IPS since August 1996, and for the 15
years prior thereto, he served as the President of its predecessor. Mr. Welch

29
<PAGE>

is also the founder and Chief Executive Officer of Curriculum Technologies,
Inc., a firm specializing in multi-media compact disc development for the
adult literacy and English as a second language markets. Mr. Welch holds a
bachelors degree in journalism from the University of Wisconsin. Mr. Welch has
informed the Company that during 1997, he intends to move to another position
with IPS. When this occurs, the Company expects that Mr. Ric Rocca, who is
currently the Sales and Marketing Manager of IPS, will succeed Mr. Welch as
Chief Executive Officer of IPS.

Richard W. Fickey joined the Company as Secretary and Vice President of
Finance and Administration in January 1997. Prior to that, Mr. Fickey was
employed by Rapid Signs, a sign company which he founded in 1991, and
Independent Systems Consultants, a partnership that provides management and
information systems consulting services, which he co-founded in 1992. For the
24 years prior thereto, Mr. Fickey was employed by Great Northern Nekoosa, a
paper manufacturer, in various positions including, most recently, Treasurer
and Vice President of Administration of the Nekoosa Papers division. Mr.
Fickey holds a bachelors degree in industrial engineering from Iowa State
University and an MBA from the University of Wisconsin.

The Company will add two independent directors to its Board of Directors
(the "Independent Directors") concurrently with the completion of the
Offering. Information concerning these directors, Messrs. Akins and Grunewald,
is set forth below.

Perry S. Akins will be joining the Board of Directors concurrently with the
completion of the Offering. From 1966 to the present, Mr. Akins has been
employed by ELS Educational Services, Inc. ("ELS") (formerly known as
Washington Educational Research Associates, Inc.) in various capacities. He is
currently the President of ELS and has served in that position since 1977. ELS
teaches English as a second language to students and professionals at its
various ELS Language Centers in the United States and abroad. ELS also
publishes and distributes English as a second language materials worldwide.
Mr. Akins holds a bachelors degree in Russian language and history and a
masters degree in education with a minor in Russian language from Southern
Illinois University.

John H. Grunewald will be joining the Board of Directors concurrently with
the completion of the Offering. From September 1993 to January 1997, Mr.
Grunewald served as the Executive Vice President, Chief Financial Officer and
Secretary of Polaris Industries Inc., a manufacturer of snowmobiles, all-
terrain vehicles and personal watercraft. From June 1977 until June 1993, Mr.
Grunewald served as the Vice President of Finance, Chief Financial Officer and
Secretary of Pentair, Inc., a diversified manufacturing company. Mr. Grunewald
currently serves as a director of the Nash Finch Company, a wholesale food
distributor, Braun Engineering, an environmental engineering company, and
Hydrobikes, Inc., a manufacturer of recreational water bikes. Mr. Grunewald
also serves as the Chairman of the Board of Rise, Inc., a charitable
institution providing occupations for handicapped and disabled children, and
as a member of the Board of Governors of the Bethel College Foundation. Mr.
Grunewald holds a bachelors degree in business from St. Cloud State University
and an MBA in business finance from the University of Minnesota.

Directors of the Company are elected at the annual shareholders' meeting to
serve until the next annual meeting of shareholders or until their respective
successors are elected and qualified. Officers of the Company serve at the
discretion of the Board of Directors. Terrance and Judith Paul are husband and
wife. There are no other family relationships among any of the directors or
officers of the Company. Pursuant to his employment agreement with IPS,
Timothy Welch has agreed to serve on the Board of Directors of both IPS and
ALS, subject to shareholder approval, for the term of the agreement. See "--
Management Employment Agreement."

After the Offering, the Board of Directors will establish two standing
committees: the Audit Committee and the Compensation Committee. The Audit
Committee will recommend the appointment of auditors and oversee the
accounting and audit functions of the Company. The Compensation Committee will
determine executive officers' compensation and will administer the Company's
executive compensation plans, including the 1997 Stock Incentive Plan. Messrs.
Akins and Grunewald will comprise both the Audit Committee and the
Compensation Committee.

30
<PAGE>

Each director of the Company who is not an employee of the Company will
receive $1,000 for each meeting of the Board of Directors attended and $500
for each committee meeting attended, plus out-of-pocket expenses incurred in
connection with attendance at such meeting. In addition, concurrently with the
completion of the Offering, each non-employee director will receive options to
purchase a total of 5,000 shares of Common Stock at the initial public price
per share, which options will vest 50% after one year and 50% after two years.
The Company will grant an additional 3,000 shares to each such director at the
conclusion of each of the first and second years of service with the Company
(i.e., 6,000 shares total per director), both of which grants will have two
year vesting schedules. These options will be granted pursuant to the 1997
Stock Incentive Plan. See "--1997 Stock Incentive Plan."

The Company currently maintains key person life insurance on Messrs. Paul,
Baum and Hickey in the amount of $5.0 million, $1.0 million and $500,000,
respectively.

EXECUTIVE COMPENSATION

Summary Compensation Information. The following table sets forth all cash
compensation paid or accrued for services rendered to the Company for the year
ended December 31, 1996 to the Company's Chief Executive Officer and the other
executive officers whose salary and bonus exceeded $100,000 (collectively, the
"named executives"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
------------ ------------
PAYOUTS
------------
NAME AND LTIP ALL OTHER
PRNCIPAL POSITIONI SALARY PAYOUTS COMPENSATION(1)
- ------------------ ------------ ------- ---------------
<S> <C> <C> <C>
Judith A. Paul
Chairman of the Board............... $156,184 -- $5,230
Terrance D. Paul
Vice Chairman of the Board.......... 156,184 -- 5,969
Michael H. Baum
Chief Executive Officer............. 141,080 $1,849 5,587
</TABLE>
- --------
(1) Reflects 401(k) plan matching amount paid by the Company.

Compensation Committee Interlocks and Insider Participation. For the year
ended December 31, 1996, the Company did not have a compensation committee.
However, Judith Paul, Terrance Paul and Michael Baum participated in
deliberations concerning executive officer compensation.

Management Employment Agreement. On August 1, 1996, IPS entered into an
Employment Agreement (the "Employment Agreement") with Timothy Welch in
connection with the Company's acquisition of substantially all of the assets
of the IPS business. See "Certain Transactions." Pursuant to such agreement,
Mr. Welch has agreed to serve as IPS's Chief Executive Officer and to serve as
a member of the Board of Directors of both IPS and ALS, subject to shareholder
approval, for the term of his Employment Agreement. The Employment Agreement
has a term of two years and provides for an annual salary of $125,000, which
may be increased but not decreased during the term of the agreement. Mr. Welch
has informed the Company that during 1997, he intends to move to another
position with IPS, at which time the Company expects that Mr. Ric Rocca, who
is currently the Sales and Marketing Manager of IPS, will succeed Mr. Welch as
Chief Executive Officer of IPS. Mr. Welch is also entitled to receive such
other benefits generally available to executive employees of IPS. Mr. Welch is
also entitled to receive deferred compensation under certain employee benefit
plans adopted by ALS and the Institute and to participate in such stock-based
incentive plans as the Company may adopt, including the 1997 Stock Incentive
Plan. As of January 1, 1997, Mr. Welch has been awarded an aggregate of 100
shares of phantom stock under the terms of the phantom stock plans adopted by
ALS and the Institute, for which he will receive a cash payment from the
Company following

31
<PAGE>

the Offering of approximately $86,000 (assuming an initial public offering
price of $12.00 per share). See "--Phantom Stock Plans." In addition, pursuant
to the Employment Agreement, Mr. Welch has agreed not to compete with ALS, IPS
or the Institute during his employment and for a period of two years following
termination of his employment and has agreed to maintain as confidential the
Company's proprietary information and trade secrets. IPS and Mr. Welch may
each unilaterally terminate the Employment Agreement under certain
circumstances upon 30 days written notice to the other party.

1997 Stock Incentive Plan. The Board of Directors of the Company has adopted
the 1997 Stock Incentive Plan (the "Stock Incentive Plan") to provide officers
and other key employees of the Company and its subsidiaries, as well as
Independent Directors, with additional incentives by increasing their
proprietary interest in the Company. An aggregate of 1,500,000 shares of
Common Stock is subject to the Stock Incentive Plan, of which a maximum of
750,000 are subject to incentive stock options. In addition, no one person may
receive options or rights over more than 750,000 shares during the term of the
Stock Incentive Plan.

The Stock Incentive Plan permits the Company to grant awards in the form of
stock options (including both incentive stock options that meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended,
and non-qualified stock options), stock appreciation rights and restricted
shares of Common Stock (individually, an "Award" and collectively, "Awards").
All stock options awarded under the Stock Incentive Plan will be granted at an
exercise price of no less than fair market value of the Common Stock on the
date of grant. No Award may be granted under the Stock Incentive Plan after
February , 2007.

The Stock Incentive Plan will be administered by the Compensation Committee
of the Board, which will have exclusive authority to grant Awards under the
Stock Incentive Plan and to make all interpretations and determinations
affecting the Stock Incentive Plan. The Compensation Committee will have the
discretion to determine the individuals to whom Awards are granted, the amount
of such Award, any applicable vesting schedule and other terms of any Award.
In the event of any changes in the capital structure of the Company, the
Compensation Committee will make equitable adjustments to outstanding Awards
so that the net value of the Award is not changed. Any unvested Awards will
vest upon the occurrence of a Change in Control of the Company (as defined in
the Stock Incentive Plan).

The Company anticipates that prior to the Offering, it will have outstanding
options to purchase a total of approximately 299,583 shares of Common Stock
(assuming an initial public offering price of $12.00 per share) exercisable at
the initial public offering price. The vesting schedule for employees is 25%
per year with each option being fully exercisable four years from the date of
grant. The Company has not granted any other Awards under the Stock Incentive
Plan as of the date hereof.

Phantom Stock Plans. Prior to this Offering, ALS and the Institute each had
in place a phantom stock plan (the "ALS Plan" and the "Institute Plan,"
respectively) for the benefit of certain employees. In 1996, Mr. Baum received
an award of 50 shares of phantom stock under the plans. Under each plan, each
share of phantom stock granted entitles the owner of such share to an annual
payment equal to 0.001% of the respective company's net profits before taxes.
Upon the occurrence of certain "triggering events," including the
effectiveness of a registration statement filed in connection with an initial
public offering of common stock, each share of phantom stock granted to
employees of the affected company is entitled to payment equal to 0.001% of
the difference between the fair market value and the book value per share of
such company as of the end of the month preceding the triggering event.
Although the effectiveness of the registration statement relating to the
Offering is a triggering event under the ALS Plan, it is not a triggering
event under the Institute Plan. Nevertheless, pursuant to authority granted to
it under the terms of each plan, the Board of Directors of the Company
determined that it would be in the best interests of employees to terminate
the Institute Plan concurrently with the ALS Plan, and amend the ALS Plan to
provide for payments based on the fair market value of the Company. In
connection with such determination, the Company will make appropriate payments
to all covered employees and institute the 1997 Stock Incentive Plan. As a
result, approximately $1.0 million will be paid out under the plans, and, of
this amount, Messrs. Baum, Hickey, Welch, and Fickey will receive
approximately $207,000, $138,000, $86,000 and $17,000, respectively (assuming
an initial public offering price of $12.00 per share). See "Use of Proceeds."

32
<PAGE>

CERTAIN TRANSACTIONS

Pursuant to an Asset Purchase Agreement dated as of August 1, 1996, as
subsequently amended as of February 25, 1997 (the "Asset Purchase Agreement"),
by and among Welch Publishing, Inc. (formerly known as IPS Publishing, Inc.
("Welch Publishing")), IPS and Timothy P. Welch, individually and as sole
trustee of the Timothy Peter Welch Revocable Trust (the "Welch Trust"), IPS
purchased substantially all of the assets of Welch Publishing for $5.0 million
plus the assumption of certain of its liabilities and the obligation to make
certain future contingent payments in the event of a closing of an initial
public offering by the Company (the "Contingent Payments"). IPS's obligations
under the Asset Purchase Agreement have since been assumed by the Company. Of
the total purchase price, $3.1 million was paid to the Welch Trust at closing,
$1.5 million was deposited pursuant to an Escrow Agreement, which amount will
be paid to the Welch Trust at the closing of the Offering, and the remaining
$350,000 is due on August 1, 1997. In addition, upon the closing of the
Offering, the Welch Trust and two current employees of IPS will receive an
aggregate of approximately 41,666 shares of Common Stock (assuming an initial
public offering price of $12.00 per share) from the Company in satisfaction of
the Company's obligations with respect to the Contingent Payments. The Welch
Trust, of which Mr. Welch is the trustee and sole beneficiary, will receive
approximately 37,754 of these shares of Common Stock. Mr. Welch also has an
understanding with the Company that he will be able to purchase up to an
aggregate of $500,000 of Common Stock in the Offering. See "Underwriting." In
connection with the Asset Purchase Agreement, Mr. Welch entered into an
Employment Agreement with IPS. See "Management--Management Employment
Agreement."

In order to facilitate the purchase of the assets of the IPS business and to
provide working capital to IPS after the acquisition, Judith Paul and Terrance
Paul, the Company's principal shareholders, each (i) made a capital
contribution of $100,000 to IPS, and (ii) loaned IPS $2.35 million. In
connection with the loans to IPS, IPS issued each of the Pauls a promissory
note in the principal amount of $2.35 million and bearing interest at an
annual rate of 6.5%. The entire balance of principal and accrued interest for
each note is due and payable on January 2, 1998. The notes may be prepaid
without penalty. A portion of the proceeds from the Offering will be used to
prepay the notes. See "Use of Proceeds."

Effective January 2, 1997, Judith Paul and Terrance Paul contributed all of
the outstanding stock of IPS and the Institute to ALS in return for an
aggregate of 254,400 shares of Common Stock.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information known to the Company
concerning the beneficial ownership of the Company's Common Stock immediately
prior to the Offering by (i) each person known to the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock,
(ii) each director, (iii) each named executive, and (iv) all executive
officers and directors as a group. Except as otherwise indicated, the address
of each shareholder listed below is 2911 Peach Street, Wisconsin Rapids,
Wisconsin 54495-8036.

<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED COMMON STOCK
PRIOR TO BENEFICIALLY OWNED
OFFERING(1) AFTER OFFERING(1)(2)
------------------ ------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Judith A. Paul......................... 5,044,010 46.3% 5,044,010 36.3%
Terrance D. Paul....................... 5,044,010 46.3 5,044,010 36.3
Mark J. Bradley, as Trustee of the
Terrance
and Judith Paul Descendants' Trust(3). 766,380 7.0 766,380 5.5
Michael H. Baum........................ 0 0 0 0
John R. Hickey......................... 0 0 0 0
Timothy P. Welch(4).................... 37,754 * 37,754 *
All executive officers and directors as
a group (6 persons)................... 10,892,154 99.9 10,892,154 78.4
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock.
(1) Except as otherwise noted, the persons named in this table have sole
voting and investment power with respect to all shares of Common Stock
listed.
(2) Does not reflect shares of Common Stock which may be purchased in the
Offering.
(3) The address of the Trustee of the Terrance and Judith Paul Descendants'
Trust is 500 Third Street, Suite 700, Wausau, Wisconsin 54403.
(4) Reflects shares of Common Stock to be issued upon the closing of this
Offering to the Welch Trust, of which Mr. Welch is the beneficial owner,
in connection with the Company's acquisition of IPS (assuming an initial
public offering price of $12.00 per share). See "Certain Transactions."

33
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following description of the Company's capital stock assumes the
Company's Amended and Restated Articles of Incorporation (the "Articles of
Incorporation"), which, among other things, converts all outstanding shares of
ALS' capital stock to Common Stock on a one for one basis, has been filed. The
following description is a summary only and is qualified in its entirety by
reference to the Company's Articles of Incorporation and Amended and Restated
By-Laws (the "By-Laws") and the Wisconsin Business Corporation Law (the
"WBCL").

GENERAL

Immediately prior to completion of the Offering, the Company's authorized
capital stock will consist of 50,000,000 shares of Common Stock, par value
$0.01 per share, and 5,000,000 shares of preferred stock, par value $0.01 per
share (the "Preferred Shares"). At such time, there will be 10,896,066 shares
of Common Stock issued and outstanding (including 41,666 shares to be issued
upon closing of the Offering at an assumed initial public offering price of
$12.00 per share in connection with the Company's acquisition of IPS) and no
Preferred Shares issued and outstanding. Following the Offering, there will be
13,896,066 shares of Common Stock outstanding. At February 28, 1997, there
were three record holders of the Common Stock.

COMMON STOCK

Holders of the Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders. Voting rights are not cumulative, and,
therefore, holders of a majority of the Common Stock are able to elect all of
the Company's directors. Holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors in its discretion
out of funds legally available therefor. Subject to the rights of any holders
of outstanding Preferred Shares, upon liquidation or dissolution of the
Company, the holders of Common Stock will be entitled to receive on a pro rata
basis all assets remaining for distribution to shareholders. The Common Stock
does not have preemptive or other subscription rights, conversion rights or
sinking fund provisions. All shares of Common Stock currently outstanding are,
and the Common Stock to be issued in the Offering will, upon issuance be,
fully paid and non-assessable except to the extent provided in Section
180.0622(2)(b) of the WBCL. Under Section 180.0622(2)(b), holders of Common
Stock are liable up to the amount equal to the par value of the Common Stock
owned by such holders for all debt owing to Company employees for services
performed for the Company, but not exceeding six months' service in any one
case. Certain Wisconsin courts have interpreted "par value" to mean the full
amount paid upon the purchase of the Common Stock.

PREFERRED SHARES

The Board of Directors of the Company is authorized, without further
shareholder action, to issue Preferred Shares in one or more series and to fix
and determine the relative rights and preferences thereof, including voting
rights, dividend rights, liquidation rights, redemption provisions, sinking
fund provisions and/or conversion rights. Although there is no current
intention to do so, the Board of Directors may issue such Preferred Shares
with voting, dividend, liquidation and/or other rights that could adversely
affect the holders of Common Stock and that could have the effect of delaying,
deferring or preventing a change in control of the Company.

CERTAIN STATUTORY AND OTHER PROVISIONS

The provisions of the Company's Articles of Incorporation and By-Laws and
the WBCL described in this section may delay or make more difficult
acquisitions or changes of control of the Company not approved by the
Company's Board of Directors. Such provisions have been implemented to enable
the Company, particularly (but not exclusively) in the initial years of its
existence as a publicly-traded company, to develop its business in a manner
which will foster its long-term growth without disruption caused by the threat
of a takeover not deemed by its Board of Directors to be in the best interests
of the Company and its shareholders. Such provisions could have the effect of
discouraging third parties from making proposals involving an acquisition or
change of control of the Company, although such proposals, if made, might be
considered desirable by a majority of the Company's shareholders. Such
provisions may also have the effect of making it more difficult for third
parties to cause the replacement of the current management of the Company
without the concurrence of the Board of Directors.

34
<PAGE>

Number of Directors; Removal; Vacancies. The Articles of Incorporation
provide that the number of directors shall be determined from time to time by
vote of a majority of the directors then in office, provided that in no case
shall the authorized number of directors be less than one or more than 15. The
Articles of Incorporation also provide that the Company's Board of Directors
shall have the exclusive right to fill vacancies on the Board of Directors,
including vacancies created by expansion of the Board or removal of a
director, and that any director elected to fill a vacancy shall serve until
the next annual meeting of shareholders. The Articles of Incorporation further
provide that directors may be removed by the shareholders but only for cause
and only by the affirmative vote of the holders of at least a majority of the
votes then entitled to be cast in an election of directors. This provision, in
conjunction with the provisions of the Articles of Incorporation authorizing
the Board to fill vacant directorships, could prevent shareholders from
removing incumbent directors without cause and fill the resulting vacancies
with their own nominees.

Shareholder Action by Written Consent; Special Meetings. The By-Laws do not
allow shareholders to act without a meeting of shareholders by less than
unanimous written consent. The By-Laws provide that special meetings of
shareholders may be called by either the Company's Chairman of the Board, Vice
Chairman of the Board, President, Chief Executive Officer or a majority of the
Board of Directors, and shall be called, if and as required by the WBCL, upon
written demand by holders of Common Stock with at least 10% of the votes
entitled to be cast at such a meeting.

Advance Notice for Raising Business or Making Nominations at Annual
Meetings. The Company's By-Laws establish an advance notice procedure for
shareholder proposals to be brought before an annual meeting of shareholders
of the Company and for nominations by shareholders of candidates for election
as directors at an annual meeting or a special meeting at which directors are
to be elected. Subject to any other applicable requirements, only such
business may be conducted at an annual meeting of shareholders as has been
brought before the meeting by, or at the direction of, the Company's Board of
Directors, or by a shareholder who has provided the Company timely written
notice of the shareholder's intention to bring such business before the
meeting. Only persons who are nominated by, or at the direction of, the
Company's Board of Directors, or who are nominated at the meeting by a
shareholder who has given timely written notice to the Company prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of the Company.

To be timely, notice of nominations or other business to be brought before
an annual meeting must be received by the Company not later than 120 days
prior to the anniversary date of the annual meeting of shareholders in the
immediately preceding year. All such notices shall include: (i) a
representation that the person sending the notice is a shareholder of record
and will remain such through the record date for the meeting, (ii) the name
and address, as they appear on the Company's books, of such shareholder, (iii)
the class and number of the Company's shares which are owned beneficially and
of record by such shareholders and (iv) a representation that such shareholder
intends to appear in person or by proxy at such meeting to make the nomination
or move for the consideration of other business set forth in the notice.
Notice as to proposals with respect to any business to be brought before the
meeting other than the election of directors shall also set forth the text of
the proposal and may set forth any statement in support thereof that the
shareholder wishes to bring to the attention of the Company, and shall specify
any material interests of such shareholder in such business. Notice as to
nominations of a director shall set forth the name(s) of the nominee(s),
address(es) of each, a description of all arrangements or understandings
between the shareholder and each nominee and any person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the shareholder, the written consent of each nominee to serve as a
director if so elected and such other information as would be required to be
included in a proxy statement soliciting proxies for the election of the
nominee(s) of such shareholder.

Amendments to the Articles of Incorporation. The WBCL provides authority to
the Company to amend its Articles of Incorporation at any time to add or
change a provision that is required or permitted to be included in the
Articles of Incorporation or to delete a provision that is not required to be
included in the Articles of Incorporation. The Company's Board of Directors
may propose one or more amendments to the Company's Articles of Incorporation
for submission to shareholders and may condition its submission of the
proposed amendment on any basis if the Board of Directors notifies each
shareholder, whether or not entitled to vote, of the shareholders' meeting at
which

35
<PAGE>

the proposed amendment shall be voted upon. The meeting notice shall state
that the purpose, or one of the purposes, of the meeting is to consider and to
act upon a proposed amendment to the Articles of Incorporation. Any such
notice shall contain or be accompanied by a copy of summary of the amendment.

Amendments to By-Laws. The Articles of Incorporation and By-Laws both
provide that the holders of at least two-thirds of all of the Company's Common
Stock then outstanding and entitled to vote thereon shall have the power to
adopt, amend, alter, change or repeal the Company's By-Laws. The By-Laws
further provide that the Company's Board of Directors may amend or repeal the
existing By-Laws and adopt new By-Laws by the vote of at least a majority of
the directors present at a meeting at which a quorum is present, provided
that: (i) no By-Law adopted by shareholders shall be amended, repealed or
readopted by the Board of Directors if the By-Law so adopted so provides and
(ii) a By-Law adopted or amended by the shareholders that fixes a greater or
lower quorum requirement or a greater voting requirement for the Board of
Directors than otherwise provided in the WBCL may not be amended or repealed
by the Board of Directors unless the By-Law expressly provides that it may be
amended or repealed by a specified vote of the Board of Directors. Action by
the Board of Directors to adopt or amend a By-Law that changes the quorum or
voting requirement for the Board of Directors must meet the same quorum
requirement and be adopted by the same vote required to take action under the
quorum and voting requirement then in effect, unless a different voting
requirement is specified as provided by the preceding sentence. A By-Law that
fixes a greater or lower quorum requirement or a greater voting requirement
for shareholders or voting groups of shareholders than otherwise is provided
in the WBCL may not be adopted, amended or repealed by the Board of Directors.

Constituency or Stakeholder Provision. Under Section 180.0827 of the WBCL
(the "Wisconsin Stakeholder Provision"), in discharging his or her duties to
the Company and in determining what he or she believes to be in the best
interests of the Company, a director or officer may, in addition to
considering the effects of any action on shareholders, consider the effects of
the action on employees, suppliers, customers, the communities in which the
Company operates and any other factors that the director or officer considers
pertinent.

Wisconsin Antitakeover Statutes. Sections 180.1140 to 180.1144 of the WBCL
(the "Wisconsin Business Combination Statutes") regulate a broad range of
"business combinations" between a "resident domestic corporation" (which the
Company is) and an "interested stockholder." The Wisconsin Business
Combination Statutes define a "business combination" to include a merger or
share exchange, or a sale, lease, exchange, mortgage, pledge, transfer, or
other disposition of assets equal to at least 5% of the market value of the
stock or assets of the corporation or 10% of its earning power, or the
issuance of stock or rights to purchase stock with a market value equal to at
least 5% of the outstanding stock, the adoption of a plan of liquidation or
dissolution, and certain other transactions involving an "interested
stockholder." An "interested stockholder" is defined as a person who
beneficially owns 10% of the voting power of the outstanding voting stock of
the corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% of the voting power of the then outstanding voting
stock within the last three years. Section 180.1141 of the Wisconsin Business
Combination Statute prohibits a corporation from engaging in a business
combination (other than a business combination of a type specifically excluded
from the coverage of the statute) with an interested stockholder for a period
of three years following the date such person becomes an interested
stockholder, unless the board of directors approved the business combination
or the acquisition of the stock that resulted in a person becoming an
interested stockholder before such acquisition. Accordingly, the Wisconsin
Business Combination Statutes' prohibition on business combinations cannot be
avoided during the three-year period by subsequent action of the board of
directors or shareholders. Business combinations after the three-year period
following the stock acquisition date are permitted only if (i) the board of
directors approved the acquisition of the stock by the interested stockholder
prior to the acquisition date, (ii) the business combination is approved by a
majority of the outstanding voting stock not beneficially owned by the
interested stockholder, (iii) the consideration to be received by shareholders
meets certain requirements of the statute with respect to form and amount or
(iv) the business combination is excluded from the business combination
restrictions of this section.

In addition, the WBCL provides, in Sections 180.1130 to 180.1133, that
business combinations involving a "significant shareholder" and an "issuing
public corporation" (each as defined below) are subject to a supermajority
vote of shareholders (the "Wisconsin Fair Price Statute"), in addition to any
approval otherwise required. A "significant shareholder," with respect to an
issuing public corporation, is defined as a person who beneficially owns,
directly or indirectly, 10% or more of the voting stock of the corporation, or
an affiliate of the corporation which beneficially owned, directly or
indirectly, 10% or more of the voting stock of the corporation within the last
two

36
<PAGE>

years. An "issuing public corporation" is defined as a Wisconsin corporation
that has (i) total assets exceeding $1 million and a class of equity
securities held of record by 500 or more persons and (ii) at least 100
shareholders of record who have unlimited voting rights and who are residents
of Wisconsin. It is anticipated that after completion of the Offering, the
Company will be considered an "issuing public corporation." Under the WBCL,
the business combinations described above must be approved by 80% of the
voting power of the corporation's stock and at least two-thirds of the voting
power of the corporation's stock not beneficially held by the significant
shareholder who is party to the relevant transaction or any of its affiliates
or associates, in each case voting together as a single group, unless the
following fair price standards have been met: (i) the aggregate value of the
per share consideration is equal to the higher of (a) the highest price paid
for any common stock of the corporation by the significant shareholder in the
transaction in which it became a significant shareholder or within two years
before the date of the business combination, (b) the market value of the
corporation's shares on the date of commencement of any tender offer by the
significant shareholder, the date on which the person became a significant
shareholder or the date of the first public announcement of the proposed
business combination, whichever is highest, or (c) the highest liquidation or
dissolution distribution to which holders of the shares would be entitled, and
(ii) either cash, or the form of consideration used by the significant
shareholder to acquire the largest number of shares, is offered.

Under Section 180.1150 (the "Wisconsin Control Share Statute") of the WBCL,
the voting power of shares, including shares issuable upon the exercise of
options, of an issuing public corporation held by any person or persons acting
as a group, in excess of 20% of the voting power in the election of directors,
is limited (in voting on any matter) to 10% of the full voting power of those
excess shares. This restriction does not apply to shares acquired
directly from the issuing public corporation, in certain specified
transactions, or in a transaction with respect to which the corporation's
shareholders have voted to approve restoration of the full voting power of
otherwise restricted shares.

Section 180.1134 (the "Wisconsin Defensive Action Restrictions") of the WBCL
provides that, in addition to the vote otherwise required by law or the
articles of incorporation of an issuing public corporation, the approval of
the holders of a majority of the shares entitled to vote is required before
such corporation can take certain action while a takeover offer is being made
or after a takeover offer has been publicly announced and before it is
concluded. Under the Wisconsin Defensive Action Restrictions, shareholder
approval is required for the corporation to (i) acquire more than 5% of the
outstanding voting shares at a price above the market price from any
individual who or organization which owns more than 3% of the outstanding
voting shares and has held such shares for less than two years, unless a
similar offer is made to acquire all voting shares, or (ii) sell or option
assets of the corporation which amount to at least 10% of the market value of
the corporation, unless the corporation has at least three independent
directors (directors who are not officers or employees) and a majority of the
independent directors vote not to have this provision apply to the
corporation. The restrictions described in clause (i) above may have the
effect of deterring a shareholder from acquiring shares of the Company's
Common Stock with the goal of seeking to have the Company repurchase such
shares at a premium over the market price.

Certain Antitakeover Effects. Certain provisions of the Company's Articles
of Incorporation and By-Laws may have significant antitakeover effects,
including the inability of the shareholders to remove directors without cause,
the ability of the remaining directors to fill vacancies, and the ability of
the Board of Directors to issue "blank check" preferred stock which, in turn,
allows the directors to adopt a so-called "rights plan" which would entitle
shareholders (other than a hostile bidder) to acquire stock of the Company at
a discount.

The explicit grant in the Wisconsin Stakeholder Provision of discretion to
directors to consider nonshareholder constituencies could, in the context of
an active "auction" of the Company, have antitakeover effects in situations
where the interests of stakeholders of the Company, including employees,
suppliers, customers and communities in which the Company does business,
conflict with the short-term maximization of shareholder value.

The Wisconsin Control Share Statute may deter any shareholder from acquiring
in excess of 20% of the outstanding voting stock of the Company and the
Wisconsin Fair Price Statute may discourage any attempt by a shareholder to
squeeze out other shareholders without offering an appropriate premium
purchase price. In addition, the Wisconsin Defensive Action Restrictions may
have the effect of deterring a shareholder from acquiring the Company's Common
Stock with the goal of seeking to have the Company repurchase the Common Stock
at a

37
<PAGE>

premium. The WBCL statutory provisions and the Company's Articles of
Incorporation and By-Law provisions referenced above are intended to encourage
persons seeking to acquire control of the Company to initiate such an
acquisition through arms-length negotiations with the Company's Board of
Directors, and to ensure that sufficient time for consideration of such a
proposal, and any alternatives, is available. Such measures are also designed
to discourage investors from attempting to accumulate a significant minority
position in the Company and then use the threat of a proxy contest as a means
to pressure the Company to repurchase shares of Common Stock at a premium over
the market value. To the extent that such measures make it more difficult for,
or discourage, a proxy contest or the assumption of control by a holder of a
substantial block of the Company's Common Stock, they could increase the
likelihood that incumbent directors will retain their positions, and may also
have the effect of discouraging a tender offer or other attempt to obtain
control of the Company, even though such attempt might be beneficial to the
Company and its shareholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company is Firstar Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 13,896,066 shares of
Common Stock outstanding, excluding shares of Common Stock issuable pursuant
to the 1997 Stock Incentive Plan (assuming an initial public offering price of
$12.00 per share). See "Management -- Executive Compensation." Of these
shares, the 3,000,000 shares of Common Stock sold in the Offering will be
freely tradable without restriction under the Securities Act except for shares
of Common Stock purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act, which shares will be subject to
the resale limitations (but not the holding period requirements) of Rule 144.
The remaining 10,896,066 shares will be "restricted securities" under the
Securities Act.

The Company and its principal shareholders have agreed not to offer, sell,
contract to sell or otherwise dispose of any of their shares of Common Stock
in the public market for a period of 180 days after the date of this
Prospectus without the prior written consent of Piper Jaffray Inc. Upon
expiration of the 180-day lock-up period, 10,600,000 shares of Common Stock
will be eligible for immediate sale in the public market, subject to
compliance with the volume and other limitations of Rule 144 described below.

In general, under Rule 144 as in effect on and after April 29, 1997, an
affiliate of the Company, or any other person (or persons whose Common Stock
is aggregated) who has beneficially owned restricted securities for at least
one year but less than two years, will be entitled to sell in any three-month
period a number of shares of Common Stock that does not exceed the greater of
(i) 1% of the outstanding Common Stock (approximately 139,000 shares after
completion of the Offering), or (ii) the average weekly trading volume during
the four calendar weeks immediately preceding the date on which notice of the
sale is filed with the Securities and Exchange Commission (the "SEC"). Sales
pursuant to Rule 144 are subject to certain requirements relating to manner of
sale, notice and availability of current public information about the Company.
A person (or persons whose Common Stock is aggregated) who is not deemed to
have been an affiliate of the Company at any time during the 90 days
immediately preceding the sale and who has beneficially owned the shares of
Common Stock for at least two years is entitled to sell such shares pursuant
to Rule 144(k) without regard to certain limitations described above.

The Company intends to file a registration statement under the Securities
Act to register the 1,500,000 shares of Common Stock issuable pursuant to the
1997 Stock Incentive Plan. Shares of Common Stock covered by this registration
statement will, when issued in accordance with the 1997 Stock Incentive Plan,
be eligible for sale in the public market (subject to the Rule 144 limitations
discussed above for "affiliates" of the Company).

Since there has been no public market for the Common Stock prior to this
Offering, no predictions can be made as to the effect, if any, that market
sales of Common Stock or the availability of such Common Stock for sale will
have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of such shares.

38
<PAGE>

UNDERWRITING

The Company has entered into a Purchase Agreement (the "Purchase Agreement")
with the underwriters listed in the table below (the "Underwriters"), for whom
Piper Jaffray Inc. and Montgomery Securities are acting as representatives
(the "Representatives"). Subject to the terms and conditions set forth in the
Purchase Agreement, the Company has agreed to sell to each Underwriter, and
the Underwriters have severally agreed to purchase, the number of shares of
Common Stock set forth opposite each Underwriter's name in the table below:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Piper Jaffray Inc........................................
Montgomery Securities....................................
---------
Total................................................ 3,000,000
=========
</TABLE>

Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold
pursuant to the Purchase Agreement, if any is purchased (excluding Common
Stock covered by the over-allotment option granted to the Underwriters). In
the event of a default by any Underwriter, the Purchase Agreement provides
that, in certain circumstances, purchase commitments of nondefaulting
Underwriters may be increased or the Purchase Agreement may be terminated.

The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock directly to the public initially at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such public offering price less a concession not in excess of
$ per share. Additionally, the Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the Offering, the public offering price and other selling terms
may be changed by the Underwriters.

Of the 3,000,000 shares of Common Stock offered hereby by the Company, up to
200,000 of such shares will be reserved for sale at the initial public
offering price to persons designated by the Company. Of these shares, Timothy
P. Welch, a Director of the Company, has an understanding with the Company
that he will be entitled to purchase up to an aggregate of $500,000 of Common
Stock (approximately 41,666 shares, assuming an initial public offering price
of $12.00 per share). There can be no assurance that such shares will be
purchased by these persons. Any such reserved shares of Common Stock not so
purchased will be reoffered immediately by the Underwriters to the public at
the initial public offering price.

The Company has granted to the Underwriters an option, exercisable by the
Representatives within 30 days after the date of this Prospectus, to purchase
up to an additional 450,000 shares of Common Stock at the same price per share
to be paid by the Underwriters for the other shares offered hereby. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments incurred in the sale of shares of Common Stock offered

39
<PAGE>

hereby. To the extent such option to purchase is exercised, each Underwriter
will become committed to purchase such additional shares of Common Stock in
approximately the same proportion as set forth in the above table.

The Representatives have informed the Company that neither they nor any
member of the National Association of Securities Dealers, Inc. participating
in the distribution of the Common Stock will make sales of the Common Stock
offered hereby to accounts over which they exercise discretionary authority
without the prior specific written approval of the customer.

The Offering of the shares of Common Stock is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the Offering without notice. The Underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.

The Company and its principal shareholders (holding in the aggregate of
10,892,154 shares of Common Stock upon completion of the Offering) have agreed
not to offer, sell, contract to sell or otherwise dispose of any of their
shares of Common Stock for the 180-day period after the date of this
Prospectus without the prior written consent of Piper Jaffray Inc.

Prior to the Offering, there has been no market for the Common Stock.
Consequently, the initial public offering price of the Common Stock will be
determined through negotiations among the Company and the Representatives.
Among the factors considered in such determination will be prevailing market
and economic conditions, the Company's revenue and earnings, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, an assessment of the Company's management and
the consideration of the above factors in relation to the market valuations of
companies in similar businesses. The initial public offering price for the
Common Stock should not be considered an indication of the actual value of the
Common Stock offered hereby. In addition, there can be no assurance that an
active or orderly trading market will develop for the Common Stock or that the
Common Stock will trade in the public market subsequent to this Offering at or
above the initial public offering price.

During and after the Offering, the Underwriters may purchase and sell Common
Stock in the open market. These transactions may include overallotment,
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the Offering for their
account may be reclaimed by the syndicate if such securities are repurchased
by the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise, and these activities, if commenced,
may be discontinued at any time.

The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "ALSI."

The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required
to make in respect thereof.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Godfrey & Kahn, S.C., Milwaukee, Wisconsin. Certain legal matters
in connection with the Offering will be passed upon for the Underwriters by
Sachnoff & Weaver, Ltd., Chicago, Illinois.

40
<PAGE>

EXPERTS

The Combined Financial Statements of ALS, the Institute and IPS as of
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 and the statements of income, changes in shareholders'
equity and cash flows of IPS for the year ended December 31, 1995 and the
seven months ended July 31, 1996 included in this Prospectus and the
Registration Statement of which this Prospectus is a part have been audited by
Arthur Andersen LLP, independent auditors, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
such firm as experts in giving such reports.

ADDITIONAL INFORMATION

The Company has filed with the SEC a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement
and the exhibits thereto. Statements contained in this Prospectus as to the
contents of any contract, agreement or any other document referred to are not
necessarily complete, and in certain circumstances reference is made to the
copy of such contract agreement or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement and the exhibits thereto may be
inspected and copied at the public reference facilities maintained by the SEC
located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 as well
as the regional offices of the SEC located at Citicorp Center, 14th Floor, 500
West Madison Street, Chicago, Illinois, 60661 and Seven World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can also be
obtained at prescribed rates by writing to the SEC's Public Reference Section
at 450 Fifth Street, N.W., Washington, D.C., 20549. Such information may also
be accessed electronically by means of the SEC's Website on the Internet at
http://www.sec.gov.

As a result of the Offering, the Company will be subject to the requirements
of the Securities Exchange Act of 1934, as amended, and, in accordance
therewith, will file reports, proxy statements and other information with the
SEC on a periodic basis. Such reports, proxy statements and other information
filed by the Company with the SEC can be inspected and copied at the offices
of the SEC, at the Website listed above, and at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements examined by its independent
accountants and quarterly reports containing unaudited financial information
for each of the first three fiscal quarters of each fiscal year.

41
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES
INDEX TO COMBINED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-1
Combined Balance Sheets as of December 31, 1995 and 1996 and pro forma
combined balance sheet as of December 31, 1996......................... F-2
Combined Statements of Income for the Years Ended December 31, 1994,
1995 and 1996.......................................................... F-3
Statements of Combined Equity for the Years Ended December 31, 1994,
1995 and 1996.......................................................... F-4
Combined Statements of Cash Flows for the Years Ended December 31, 1994,
1995 and 1996.......................................................... F-5
Notes to Combined Financial Statements.................................. F-6
IPS PUBLISHING, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-13
Statements of Income for the Year Ended December 31, 1995 and the Seven
Months Ended July 31, 1996............................................. F-14
Statements of Changes in Shareholders' Equity for the Year Ended
December 31, 1995 and the Seven Months Ended July 31, 1996............. F-15
Statements of Cash Flows for the Year Ended December 31, 1995 and the
Seven Months Ended July 31, 1996....................................... F-16
Notes to Financial Statements........................................... F-17
</TABLE>

42
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Advantage Learning Systems, Inc. and Affiliates:

We have audited the accompanying combined balance sheets of Advantage
Learning Systems, Inc. (a Wisconsin corporation) and Affiliates, referred to
as the "Companies" (see Note 1), as of December 31, 1995 and 1996, and the
related combined statements of income, equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion of 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Advantage
Learning Systems, Inc. and Affiliates as of December 31, 1995, and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

Arthur Andersen LLP

Milwaukee, Wisconsin,

April 8, 1997.

F-1
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

COMBINED BALANCE SHEETS

AS OF DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER
ASSETS 1995 1996 31, 1996
------ ---------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 275,762 $ 1,755,866 $ 1,755,866
Accounts receivable, less allowance of
$48,000 and $161,000, respectively.... 1,688,352 2,523,388 2,523,388
Inventories............................ 232,848 543,902 543,902
Prepaid expenses....................... 325,512 265,026 265,026
---------- ----------- -----------
Total current assets................. 2,522,474 5,088,182 5,088,182
---------- ----------- -----------
Property, plant and equipment:
Land and improvements.................. 98,248 744,720 744,720
Buildings.............................. 893,488 7,977,735 7,977,735
Furniture, fixtures and office
equipment............................. 623,613 1,071,002 1,071,002
Computer and production equipment...... 805,974 1,531,231 1,531,231
---------- ----------- -----------
Total property, plant and equipment.. 2,421,323 11,324,688 11,324,688
---------- ----------- -----------
Less--Accumulated depreciation......... (419,574) (746,979) (746,979)
---------- ----------- -----------
Net property, plant and equipment.... 2,001,749 10,577,709 10,577,709
Other assets:
Building held for sale................. -- 747,392 747,392
Deferred tax asset..................... -- 1,601,708 1,601,708
Intangibles, net....................... -- 1,445,798 1,445,798
Capitalized software, net.............. 237,007 393,956 393,956
---------- ----------- -----------
Total other assets................... 237,007 4,188,854 4,188,854
---------- ----------- -----------
Total assets......................... $4,761,230 $19,854,745 $19,854,745
========== =========== ===========
<CAPTION>
LIABILITIES AND COMBINED EQUITY
-------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable....................... $ 236,993 $ 332,689 $ 332,689
Current portion of deferred revenue.... 725,894 1,442,356 1,442,356
Payroll and employee benefits.......... 334,645 577,613 577,613
Retainage and amounts due under
construction contract................. -- 1,151,157 1,151,157
Other current liabilities.............. 119,482 668,421 668,421
Due to former owner of IPS............. -- 350,000 350,000
Distribution payable to shareholders... -- -- 6,900,000
Amounts due under phantom stock plan... -- -- 1,000,000
---------- ----------- -----------
Total current liabilities............ 1,417,014 4,522,236 12,422,236
---------- ----------- -----------
Long-term debt........................... -- 5,750,000 5,750,000
Notes payable to shareholders............ -- 4,700,000 4,700,000
Deferred revenue......................... 731,198 1,109,519 1,109,519
Combined equity.......................... 2,613,018 3,772,990 (4,127,010)
---------- ----------- -----------
Total liabilities and combined
equity.............................. $4,761,230 $19,854,745 $19,854,745
========== =========== ===========
</TABLE>

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

F-2
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Products.............................. $8,088,132 $11,601,971 $18,930,334
Services.............................. 162,726 1,003,417 3,450,758
---------- ----------- -----------
Total net sales..................... 8,250,858 12,605,388 22,381,092
Cost of sales:
Products.............................. 937,393 1,467,559 2,329,171
Services.............................. 165,826 595,362 1,898,175
---------- ----------- -----------
Total cost of sales................. 1,103,219 2,062,921 4,227,346
---------- ----------- -----------
Gross profit........................ 7,147,639 10,542,467 18,153,746
Operating expenses:
Product development................... 358,360 802,331 1,555,411
Selling and marketing................. 2,551,070 4,200,701 6,638,822
General and administrative............ 1,239,039 2,090,560 3,546,144
Purchased research and development.... -- -- 3,400,000
---------- ----------- -----------
Total operating expenses............ 4,148,469 7,093,592 15,140,377
---------- ----------- -----------
Operating income.................... 2,999,170 3,448,875 3,013,369
Other income (expense):
Interest income....................... 24,170 17,068 34,752
Interest expense...................... (177) -- (205,755)
Other, net............................ (1,159) (3,728) 15,898
---------- ----------- -----------
Income before taxes..................... 3,022,004 3,462,215 2,858,264
---------- ----------- -----------
Income tax benefit...................... -- -- 1,601,708
---------- ----------- -----------
Net income.............................. $3,022,004 $ 3,462,215 $ 4,459,972
========== =========== ===========
Pro Forma information (note 4)
(Unaudited)
Income before taxes................... $ 2,858,264
Income taxes.......................... 1,157,597
-----------
Net income............................ $ 1,700,667
===========
Net income per share.................. $ 0.15
Weighted average shares outstanding... 11,429,400
===========
</TABLE>

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

F-3
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

STATEMENTS OF COMBINED EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<S> <C>
BALANCE, December 31, 1993.......................................... $2,866,150
Net income........................................................ 3,022,004
Distributions to shareholders..................................... (2,823,021)
----------
BALANCE, December 31, 1994.......................................... 3,065,133
Net income........................................................ 3,462,215
Distributions to shareholders..................................... (3,914,330)
----------
BALANCE, December 31, 1995.......................................... 2,613,018
Net income........................................................ 4,459,972
Distributions to shareholders..................................... (3,500,000)
Contribution from shareholders.................................... 200,000
----------
BALANCE, December 31, 1996.......................................... $3,772,990
==========
</TABLE>

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

F-4
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income to net
cash provided by operating activities:
Net income............................ $ 3,022,004 $ 3,462,215 $ 4,459,972
Noncash (income) expenses included in
net income--
Depreciation and amortization........ 115,181 325,817 711,135
(Gain) Loss on disposal of assets.... -- 24,925 (239)
Loss on building held for sale....... -- -- 200,000
Purchased research and development... -- -- 3,400,000
Deferred income taxes................ -- -- (1,601,708)
Change in assets and liabilities--
(Increase) decrease in--
Accounts receivable................ (509,974) (476,453) (755,765)
Inventory.......................... (12,631) (161,052) (311,054)
Prepaid expenses................... (30,325) (204,779) 60,486
Increase (decrease) in--
Accounts payable and other current
liabilities....................... 172,544 352,780 858,332
Retainage and amounts due under
construction contract............. -- -- 1,151,157
Deferred revenue................... 586,090 790,517 1,030,783
----------- ----------- -----------
Net cash provided by operating
activities....................... 3,342,889 4,113,970 9,203,099
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment............................ (363,866) (1,224,844) (9,897,551)
Capitalized software development
costs................................ (240,485) (117,432) (365,444)
Acquisition of IPS.................... -- -- (4,610,000)
----------- ----------- -----------
Net cash used in investing
activities....................... (604,351) (1,342,276) (14,872,995)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuances of stock...... -- -- 200,000
Proceeds from long-term debt and notes
payable to shareholders -- -- 10,600,000
Payments on debt...................... -- -- (150,000)
Distributions to shareholders......... (2,823,021) (3,914,330) (3,500,000)
----------- ----------- -----------
Net cash provided by (used in)
financing activities............. (2,823,021) (3,914,330) 7,150,000
----------- ----------- -----------
Net increase (decrease) in cash........ (84,483) (1,142,636) 1,480,104
Cash and cash equivalents, beginning of
year.................................. 1,502,881 1,418,398 275,762
----------- ----------- -----------
Cash and cash equivalents, end of year. $ 1,418,398 $ 275,672 $ 1,755,866
=========== =========== ===========
</TABLE>

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

F-5
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 1994, 1995 AND 1996

(1) COMBINATION

The combined financial statements include the financial results of Advantage
Learning Systems, Inc. ("ALS"), the Institute for Academic Excellence, Inc.
("Institute") and, since its date of acquisition (see Note 3), IPS Publishing,
Inc. ("IPS"), collectively the "Companies." The Companies are all under common
ownership. The Companies conduct their business within one industry segment.
Combined equity represents the combination of the common stock, paid-in
capital and retained earnings of each of the Companies. All significant
intercompany transactions have been eliminated in the combined financial
statements.

(2) NATURE OF OPERATIONS

ALS is a provider of learning information systems to K-12 schools in the
United States and Canada. ALS's flagship product is the Accelerated Reader, a
learning information system for motivating and monitoring increased
literature-based reading practice. ALS has also developed S.T.A.R., a
computer-adaptive reading test and database which provides reading scores
correlated to national norms in ten minutes or less at the computer.

The Institute develops and delivers the Reading Renaissance program, which
provides educators with professional development training to most effectively
use the Accelerated Reader, S.T.A.R. and the learning information they
generate.

IPS provides algorithm-based software for assessment and skills practice in
math and science, including MathCheck and Objective Tracker.

(3) ACQUISITION

Effective August 1, 1996, IPS Acquisition, Inc. ("Acquisition") acquired
substantially all of the assets of IPS. Acquisition was formed by the
shareholders of ALS for the sole purpose of acquiring certain assets of IPS.
Acquisition was capitalized with $200,000 of equity and $4.7 million of loans
from shareholders. Subsequent to the transaction, Acquisition changed its name
to IPS Publishing, Inc.

The acquisition was accounted for under the purchase method of accounting.
The purchase price ($4,610,000 in cash and $350,000 due in 1997) was allocated
based on fair values as follows:

<TABLE>
<S> <C>
Current assets................................................ $ 101,000
Plant & equipment............................................. 26,000
Intangibles................................................... 4,948,000
Current liabilities........................................... (115,000)
----------
Purchase price............................................ $4,960,000
==========
</TABLE>

A certain portion of the purchase price (approximately $1.5 million) was
placed in escrow. At the discretion of the seller, such amounts can remain in
escrow or be withdrawn. If not withdrawn, the seller will receive additional
consideration as a return on the amount which was placed in escrow. In
addition, the purchaser is allowed to borrow funds in the escrow up to
$400,000. No such borrowings have taken place. The contingent consideration is
equal to the greater of the amount in escrow times (i) 10% or (ii) the
percentage of appreciation of ALS stock between the IPO price and closing
price on December 31, 1997, if ALS completes an IPO prior to December 1, 1997.

The purchase included the acquisition of certain in process research and
development included in intangibles above, which resulted in a charge to
income of $3,400,000 for the year ended December 31, 1996. The amount
allocated to the in process research and development was determined by
appraisal. The projects in process require resolution of high-risk development
and testing issues in order to reach technological feasibility. At the date of
acquisition, the purchased technology had no alternative uses.

F-6
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Unaudited pro forma results of operations assuming the acquisition of IPS as
of January 1, 1995 and the $3,400,000 write-off of purchased research and
development in 1996 would be as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Net sales......................................... $13,733,000 $23,062,000
Net income........................................ 2,972,000 4,199,000
</TABLE>

(4) SIGNIFICANT ACCOUNTING POLICIES

(a) 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
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.

(b) Revenue recognition

Revenue from product sales is recognized when the products are shipped, net
of estimated allowances for bad debts and for product returns and exchanges.
Insignificant post-contract support obligations, primarily telephone support
provided by ALS, are also accrued for at the time of the sale.

Revenue from IPS's custom products (see Note 2) is recognized on the
percentage of completion method. IPS defers revenue for advance payments from
customers that are in excess of revenues earned. Included in receivables at
December 31, 1996 is $37,000 of amounts earned on contracts which are not yet
billable.

The Institute generates service revenue both from (i) conducting seminars
and (ii) contracts with schools and school districts to provide training
programs and consulting services. The Institute recognizes revenue from the
seminars at the time the seminar actually takes place. For school and school
district contracts, revenue is generally recognized when the training session
is performed, while certain support services are recognized on a straight-line
basis over the life of the contract. The Institute includes as deferred
revenue (i) prepayments on contract revenues and (ii) payments received for
seminars not yet held.

Service revenues also include separate maintenance fees whereby ALS provides
ongoing customer support and product upgrades. Such contracts are reflected as
deferred revenue and are amortized ratably over the 24 month term of the
maintenance period which begins after the expiration of the six months (twelve
months for contracts sold prior to May 1996) of free support included with the
purchase of the software.

For purposes of the Statements of Cash Flows, the Companies consider all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. Cash and cash equivalents are carried at cost,
which approximates fair market value.

(d) Supplemental disclosure of cash flow information

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------
1994 1995 1996
---- ---- -------
<S> <C> <C> <C>
Cash paid for:
Interest.............................................. -- -- $94,000
Income taxes.......................................... -- -- --
</TABLE>

F-7
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(e) Inventories

Inventories are valued at the lower of first-in, first-out (FIFO) cost or
market. Inventories primarily consist of purchased materials which include
manuals, diskettes and motivational items.

(f) Catalog and advertising costs

Costs related to direct response advertising, primarily catalogs, are
capitalized and amortized over their expected period of future benefits,
generally three to six months. At December 31, 1995 and 1996, capitalized
catalog costs of approximately $183,000 and $29,000, respectively, are
included in prepaid expenses. All other advertising costs are expensed the
first time the advertising takes place. Advertising expenses for 1994, 1995
and 1996 were approximately $1,235,000, $1,854,000 and $2,999,000,
respectively.

(g) Property, plant and equipment

Property, plant and equipment are recorded at cost and are depreciated over
the estimated useful lives of the assets using principally the straight-line
method for financial reporting purposes. The estimated useful lives of the
assets are as follows: building--25 to 40 years; furniture, fixtures and
office equipment--5 to 8 years; and computer and production equipment--3 to 5
years. Accelerated depreciation methods are used for income tax purposes.

Maintenance and repair costs are charged to expense as incurred, and
renewals and improvements that extend the useful life of the assets are added
to the plant and equipment accounts.

(h) Software development costs

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," the Companies capitalize certain software development
costs incurred after technological feasibility is achieved. Capitalized costs
are reported at the lower of unamortized cost or net realizable value.
Capitalized software development costs are amortized on a product-by-product
basis based on the greater of the amount computed using (a) the ratio that
current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product or (b) the straight-line
method over the estimated economic life of the products which is generally
estimated to be 24 months. Amortization begins when the products are available
for general release to customers. All other research and development
expenditures are charged to product development expense in the period
incurred. Amounts capitalized were approximately $240,000, $117,000 and
$365,000 in 1994, 1995 and 1996, respectively. Amortization expense of
approximately $0, $120,000 and $208,000 for the years ended December 31, 1994,
1995 and 1996, respectively, is included in cost of sales--products in the
statements of income. Accumulated amortization of capitalized software
development costs was $120,000 and $328,000 as of December 31, 1995 and 1996,
respectively.

(i) Sales and concentration of credit risks

For the years ended December 31, 1994, 1995 and 1996, one customer (a book
distributor) contributed 2.6%, 12.5% and 15.2% of total combined revenues,
respectively. No other customer represented more than 10% of combined
revenues. At December 31, 1995 and 1996, this customer had a receivable
balance of 17.3% and 12.9% of combined trade receivables, respectively.

The Companies grant credit to customers in the ordinary course of business.
The majority of the Company's customers are schools and teachers.
Concentrations of credit risk with respect to trade receivables are limited
due to the significant number of customers and their geographic dispersion.

F-8
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(j) Pro forma information (unaudited)

In connection with the initial public offering, ALS and the Institute will
no longer be treated as S corporations for tax purposes.

Pro forma income taxes reflect the application of statutory corporate income
tax rates to the net income as if the termination of the S corporation status
of the Companies had occurred on January 1, 1996. The effective derived income
tax rate is 40.5%.

Pro forma net income per share and weighted average shares outstanding
reflects (i) the shares outstanding as of January 2, 1997 reflecting the
issuance of shares by ALS to acquire IPS and the Institute, (ii) the stock
dividend, and (iii) the issuance of 575,000 shares (assuming an offering price
of $12 per share) to pay the estimated $6,900,000 S Corporation Distribution.
Historical earnings per share of the Companies have not been presented because
such amounts are not meaningful.

The pro forma balance sheet as of December 31, 1996 reflects the recognition
of a liability for the S corporation distribution and a $1.0 million liability
for payments to be made for the phantom stock plan, all of which will be paid
from the proceeds of the Offering. A corresponding reduction in combined
equity is reflected as a result of these liabilities.

(5) INTANGIBLE ASSETS

Intangible assets (acquired in the IPS acquisition) are amortized on the
straight line basis over their estimated useful lives and are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 USEFUL LIFE
----------------- -----------
<S> <C> <C>
Algorithms.................................. $ 510,000 5 years
Tradename................................... 210,000 10 years
Assembled workforce......................... 90,000 7 years
Goodwill.................................... 738,000 7 years
----------
1,548,000
Accumulated amortization.................... (102,202)
----------
Net intangibles............................. $1,445,798
==========
</TABLE>

Management periodically reviews the carrying value of its intangible assets,
including goodwill, for potential impairment. To date, no impairment of these
assets exists.

(6) BUILDING HELD FOR SALE

In December, 1996, ALS completed construction of its new building. The
building previously occupied by ALS is being offered for sale. In 1996, a
reserve of $200,000 was recorded as a component of general and administrative
expense in the combined statements of income to reflect the write-down of the
net book value of the building to its estimated fair value.

(7) INCOME TAXES

The shareholders of ALS and the Institute have elected to have these
companies treated as "S corporations" under the Internal Revenue Code. As an S
corporation, a company's taxable income or loss is includable in the
individual tax returns of its shareholders for Federal and state income tax
purposes. Accordingly, the accompanying financial statements do not include
any provision or liability for current or deferred Federal or state income
taxes related to ALS or the Institute. Upon completion of the Offering, these
companies will become subject to federal and state income taxes and will
recognize deferred taxes in accordance with Statement of Financial Accounting
Standards No. 109. The temporary differences existing as of December 31, 1996
and related deferred tax assets and liabilities are not material.

IPS is organized as a C corporation under the provisions of the Internal
Revenue Code and similar state laws. Therefore, included in the 1996 combined
financial statements are income tax provisions and related deferred income
taxes for IPS's activities since its acquisition on August 1, 1996.

F-9
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The provision for income taxes consists of:

<TABLE>
<S> <C>
Current--
Federal..................................................... $ --
State....................................................... --
----------
Total current............................................. --
Deferred...................................................... 1,601,708
----------
Total income tax benefit.................................. $1,601,708
==========
</TABLE>

The following is a reconciliation of IPS's effective income tax rate to the
statutory Federal tax rate:

<TABLE>
<S> <C>
Statutory Federal rate.............................................. 35.0%
State taxes net of Federal benefit.................................. 5.5
----
40.5%
====
</TABLE>

Temporary differences which give rise to the net deferred tax asset are as
follows:

<TABLE>
<S> <C>
Accruals not deductible....................................... $ 2,210
Intangibles................................................... 1,362,727
Net tax operating loss carryforward........................... 236,771
----------
Net deferred tax asset.................................... $1,601,708
==========
</TABLE>

No valuation allowance has been recorded as the net deferred tax assets are
assumed to be realizable through future profitable operations of IPS. The tax
operating loss carryforward expires in 2011.

(8) LINE OF CREDIT

The Companies have a bank line of credit through November 1997, which
provides for borrowings of up to $225,000. The line of credit bears interest
at the prime rate (8.25% at December 31, 1996), plus 4.9%. Amounts borrowed,
approximately $2,400 as of December 31, 1995, are included in accounts
payable. The line of credit was not utilized during 1996.

(9) NOTES PAYABLE TO SHAREHOLDERS

Notes payable to shareholders consist of notes payable that financed the
acquisition of IPS. The notes accrue interest at an annual rate of 6.5%. The
entire balance of principal and interest is due on January 2, 1998. Interest
expense for the five month period ended December 31, 1996 was approximately
$127,000.

(10) LONG-TERM DEBT

Long-term debt consisted of the following at December 31, 1996:

<TABLE>
<S> <C>
Note payable to Woodlands Building Center, due December 31,
1998, noninterest bearing................................... $ 50,000
Note payable to bank, payable in annual installments of
$700,000 beginning March 1, 1998 through March 1, 2002 at
which time the note is due in full, interest at the 30-day
LIBOR rate (5.53% at December 31, 1996) plus 1.25%, with a
maximum interest rate of 8.5%, payable monthly (a).......... 5,700,000
Less--Current maturities..................................... --
----------
Total long-term debt......................................... $5,750,000
==========
</TABLE>

F-10
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

- --------
(a) The loan agreement provides for total borrowings of $7,000,000 through
March 31, 1997. Borrowings are secured by substantially all assets. The
note payable to bank contains certain covenants, which, among other
things, require maintenance of a minimum tangible net worth and leverage
ratio. In 1996, ALS violated the leverage ratio covenant which has been
subsequently waived by the Bank through December 31, 1997.

Aggregate maturities of long-term debt outstanding at December 31, 1996 are
as follows:

<TABLE>
<S> <C>
1997........................................................... $ --
1998........................................................... 750,000
1999........................................................... 700,000
2000........................................................... 700,000
2001........................................................... 700,000
Thereafter..................................................... 2,900,000
----------
$5,750,000
==========
</TABLE>

The fair value of debt, based on current market rates offered on notes with
similar terms and maturities, approximates carrying value.

(11) LEASE COMMITMENT

The Institute leases its offices under an operating lease agreement
effective May 1, 1995, with a five year term and a renewal option. The lease
calls for a monthly base rent of approximately $7,900 per month plus a pro
rata share of real estate taxes, utilities and insurance, with an annual
escalation rate based on the Consumer Price Index up to 3.5% annually. IPS is
also party to various operating leases for facilities and equipment which
expire at various dates through 1999.

Rent expense for 1994, 1995 and 1996 was approximately $21,000, $116,000 and
$159,000, respectively for the Companies.

Future approximate minimum rental payments (including estimated operating
costs) required under the operating leases as of December 31, 1996, are as
follows:

<TABLE>
<S> <C>
1997............................................................. $190,000
1998............................................................. 179,000
1999............................................................. 145,000
2000............................................................. 47,000
Thereafter....................................................... --
</TABLE>

(12) DEFINED CONTRIBUTION BENEFIT PLAN

The Companies have a defined contribution benefit plan covering all of its
full-time employees meeting certain service requirements. The plan provides
for matching employer contributions based on 67% of employees' elective
contributions up to 6% of compensation. The plan allows employee contributions
up to 15% of compensation. Discretionary employer contributions may also be
made to the plan. There were no discretionary contributions made in 1994, 1995
or 1996. Expense under the plan totaled approximately $42,000 in 1994, $93,000
in 1995 and $192,000 in 1996.

F-11
<PAGE>

ADVANTAGE LEARNING SYSTEMS, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(13) PHANTOM STOCK PLAN

As an incentive for certain key employees, ALS and the Institute each have a
phantom stock plan. A total of 415 phantom shares have been issued as of
December 31, 1996.

The terms of each plan include an annual per share payment in an amount
equal to .001% (.00001) of each of the entities net profit before tax. Expense
under the plans was approximately $4,000, $6,000 and $21,000 for the years
ended December 31, 1994, 1995 and 1996, respectively. In addition, the plans
call for payments if a "Triggering Event" occurs which is generally defined as
the sale of substantially all the assets, a change in control or filing of a
registration statement that becomes effective. If such a Triggering Event
occurs, each phantom share will generally be paid an amount equal to .001% of
the product of the fair market value per share less the book value per share
multiplied by the total shares outstanding.

(14) SUBSEQUENT EVENTS

(a) Effective January 2, 1997, the shareholders of IPS and the Institute
contributed their shares of IPS and the Institute to ALS in return for shares
of ALS. As a result, IPS and the Institute became wholly owned subsidiaries of
the Company. As of January 2, 1997, there were 15.9 million shares authorized
and 10.9 million shares of ALS stock issued and outstanding. Because the
Companies were under common control, there will be no change in the net asset
value of the Institute or IPS as a result of the exchange of shares.

(b) The filing of a Registration Statement that becomes effective is a
Triggering Event pursuant to the ALS phantom stock plan. Based on preliminary
estimates, the Company believes approximately $1.0 million will be paid and
expensed in the second quarter of 1997.

(c) In February 1997, the IPS purchase agreement was amended providing for
the release of the $1.5 million held in escrow and the issuance of $500,000 in
Common Stock in settlement of the contingent consideration, upon closing of
the Offering.

(d) On April 8, 1997, the Company executed a 106 for 1 stock split in the
form of a dividend. All share and per share information has been retroactively
adjusted.

(e) In March 1997, IPS filed an S Corporation election effective January 1,
1997. Accordingly, the previously recorded deferred tax asset of $1.6 million
will be charged against income during the first quarter of 1997.

As discussed in Note 7, effective with the Offering, the Companies will
become subject to federal and state income taxes and will recognize deferred
income taxes in accordance with Statement of Financial Accounting Standards
No. 109. The Company expects the net deferred tax assets to be recorded upon
completion of this Offering to not be materially different than what is
reflected in the December 31, 1996 balance statements.

F-12
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholder of IPS Publishing, Inc.:

We have audited the accompanying statements of income, changes in
shareholder's equity and cash flows of IPS Publishing, Inc. (a Washington
corporation) for the year ended December 31, 1995 and the seven months ended
July 31, 1996. 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 results of operations and cash flows of IPS
Publishing, Inc. for the year ended December 31, 1995 and the seven months
ended July 31, 1996, in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Milwaukee, Wisconsin,
January 10, 1997.

F-13
<PAGE>

IPS PUBLISHING, INC.

STATEMENTS OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SEVEN MONTHS ENDED JULY 31, 1996

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net sales................................................ $1,670,934 $1,425,639
Operating expenses:
Production............................................. 203,296 86,660
Product development.................................... 441,151 442,951
Selling and marketing.................................. 338,214 252,989
General and administrative............................. 394,187 164,734
---------- ----------
1,376,848 947,334
---------- ----------
Income from operations................................... 294,086 478,305
Other income............................................. 9,302 58,113
---------- ----------
Net income............................................... $ 303,388 $ 536,418
========== ==========
</TABLE>

The accompanying footnotes are an integral part of these statements.

F-14
<PAGE>

IPS PUBLISHING, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SEVEN MONTHS ENDED JULY 31,1996

<TABLE>
<CAPTION>
UNREALIZED
TREASURY UNDISTRIBUTED GAINS ON
STOCK EARNINGS INVESTMENTS TOTAL
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994...... $(165,000) $ 365,240 $ 21,168 $ 221,408
Net income.................... -- 303,388 -- 303,388
Unrealized gains.............. -- -- 27,752 27,752
--------- --------- -------- ---------
BALANCE, December 31, 1995...... (165,000) 668,628 48,920 552,548
Net income.................... -- 536,418 -- 536,418
Distribution.................. -- (430,000) -- (430,000)
Sale of investments........... -- -- (48,920) (48,920)
--------- --------- -------- ---------
BALANCE, July 31, 1996.......... $(165,000) $ 775,046 $ -- $ 610,046
========= ========= ======== =========
</TABLE>

The accompanying footnotes are an integral part of these statements.

F-15
<PAGE>

IPS PUBLISHING, INC.

STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SEVEN MONTHS ENDED JULY 31, 1996

<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Cash provided by operations:
Net income................ $303,388 $ 536,418
Depreciation.............. 14,660 8,081
Gain on sale of
investments.............. -- (60,081)
Changes in current assets
and liabilities--
Accounts receivable...... (48,412) (562,166)
Accounts payable......... 6,185 12,720
Accrued liabilities...... (37,541) 338,540
Deferred revenue......... 165,878 (242,710)
Other.................... 1,377 (11,001)
-------- ---------
Net cash provided by
operations............. 405,535 19,801
Cash provided by (used for)
investment activities:
Proceeds from sale of
investments.............. -- 210,237
Purchases of property..... (18,053) (3,000)
Dividends reinvested...... (6,287) --
-------- ---------
Net cash provided by
(used for) investment
activities............. (24,340) 207,237
Cash (used for) financing
activities:
Shareholder distribution.. -- (430,000)
-------- ---------
Net increase (decrease) in
cash....................... 381,195 (202,962)
Cash, beginning of year..... 186,944 568,139
-------- ---------
Cash, end of year........... $568,139 $ 365,177
======== =========
</TABLE>

The accompanying footnotes are an integral part of these statements.

F-16
<PAGE>

IPS PUBLISHING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND JULY 31, 1996

(1) BUSINESS DESCRIPTION

IPS Publishing, Inc. ("IPS") develops, produces and markets software that
uses proprietary algorithms to generate test questions for the education
industry. IPS has two major sources of revenue: off-the-shelf software and
custom software.

Off-the-Shelf Software--Off-the-shelf software consists of proven products
which are copyrighted such as Exam in a Can, MathCheck and ScienceCheck (to be
released). Exam in a Can consists of algorithm generated questions relating to
standard mathematic concepts (e.g. algebra, calculus, etc.) using the DOS and
Macintosh platforms. MathCheck and ScienceCheck use the Windows platform to
run the software. The off-the-shelf products are purchased primarily by
teachers and distributors of education products.

Custom Software--Custom software consists of customized software development
and production performed primarily for various publishers of educational
textbooks and school districts. IPS is contracted to develop and manufacture
the software that will be used to test concepts within the publisher's or
school district's textbooks. This software uses algorithms to enable the users
of the textbooks to customize tests.

(2) USE OF ESTIMATES

(3) ACQUISITION

Effective August 1, 1996, IPS Acquisition, Inc. ("Acquisition") acquired
substantially all of the assets of IPS. Acquisition was formed by the
shareholders of Advantage Learning Systems, Inc. ("ALS") for the sole purpose
of acquiring certain assets of IPS. Acquisition was capitalized with $200,000
of equity and $4.7 million of loans from shareholders. Subsequent to the
transaction, Acquisition changed its name to IPS Publishing, Inc.

Excluded from the transaction described above was a custom contract on which
IPS recognized revenues of $542,000 and $744,000 in the accompanying financial
statements for the year ended December 31, 1995 and the seven months ending
July 31, 1996, respectively.

(4) REVENUE RECOGNITION

Revenue from sales of IPS's off-the-shelf products is recognized upon
shipment. Revenue from IPS's custom products is recognized on the percentage
of completion method. IPS defers revenue for advance payments from customers
that are in excess of revenues earned. Receivables include amounts billed as
well as amounts earned on contracts which are not yet billable.

(5) INVENTORIES

IPS expenses as incurred various materials (diskettes) and supplies used to
produce, package and ship its products.

(6) PLANT AND EQUIPMENT

Plant and equipment, which consists primarily of office and computer
equipment, is stated at cost and is depreciated over the estimated useful
lives of the assets (five years) using the double declining method.

F-17
<PAGE>

IPS PUBLISHING, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(7) SOFTWARE DEVELOPMENT COSTS

IPS expenses all research and development costs associated with establishing
technological feasibility as incurred. From the time a software product is
technically feasible until the product is released, all research and
development costs are capitalized as computer software development costs.
During 1995 and 1996, there were no research and development costs
capitalized. In addition, there was no amortization of capitalized software.

(8) COMMITMENTS

IPS is party to various operating leases for facilities and equipment. Rent
expenses were $37,423 for the year ended December 31, 1995 and $17,390 for the
seven months ended July 31, 1996.

(9) CAPITAL STOCK

IPS has 100,000 shares of no par common stock authorized of which 5,555
shares are issued and 3,056 shares are outstanding.

(10) BENEFIT PLANS

IPS had a profit sharing plan under which discretionary amounts could be
paid to eligible employees. $90,000 and $67,350 was expensed under this plan
in the year ended December 31, 1995 and the seven months ended July 31, 1996,
respectively.

(11) INVESTMENTS

Investments consist of marketable equity securities and mutual funds.

Investments are accounted for according to the requirements of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." IPS's investments are classified
as available-for-sale and are adjusted to their fair market value, with any
unrealized gains or losses being recorded as a separate component of
stockholders equity. Prior to the sale to Acquisition, all investments were
liquidated with all realized gains being recognized in the statement of
income.

(12) ROYALTIES

IPS was party to various royalty agreements which have since expired. Under
the terms of these contracts, $22,050 and $22,101 in royalty costs were
incurred for the year ended December 31, 1995 and the seven months ending July
31, 1996, respectively.

(13) INCOME TAXES

Under provisions of the Internal Revenue Code and similar state tax laws,
the shareholders have elected to treat IPS as an S Corporation for both
Federal and state income taxes. In lieu of corporate income taxes, the
shareholders of an S Corporation are taxed on their proportionate share of
IPS's taxable income. Therefore, no provision or liability for income taxes
has been included in the accompanying financial statements. Cash payments to
shareholders are treated as distributions and are made primarily to fund the
shareholders' estimated tax liabilities that result from reporting this
income.

F-18
<PAGE>

<PAGE>

NO DEALER, SALES PERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITA-
TION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION
IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OF-
FER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 10
S Corporation Distribution................................................ 10
Dividend Policy........................................................... 10
Capitalization............................................................ 11
Dilution.................................................................. 12
Selected Historical and Pro Forma Combined Financial Data................. 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 15
Business.................................................................. 20
Management................................................................ 29
Certain Transactions...................................................... 33
Principal Shareholders.................................................... 33
Description of Capital Stock.............................................. 34
Shares Eligible for Future Sale........................................... 38
Underwriting.............................................................. 39
Legal Matters............................................................. 40
Experts................................................................... 41
Additional Information.................................................... 41
Index to Financial Statements............................................. 42
</TABLE>

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

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

3,000,000 Shares

LOGO

Common Stock

----------------
PROSPECTUS

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

Piper Jaffray inc.

Montgomery Securities

, 1997

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The Registrant estimates that expenses payable by it in connection with the
Offering described in this Registration Statement (other than the underwriting
discount) will be as follows:

<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 13,591
NASD Filing Fee................................................. 4,985
Nasdaq National Market Listing Fee.............................. 55,000
Blue Sky Fees and Expenses...................................... 5,000
Printing Expenses............................................... 100,000
Accounting Fees and Expenses.................................... 200,000
Legal Fees and Expenses......................................... 290,000
Registrar and Transfer Agent's Fees and Expenses................ 10,000
Miscellaneous................................................... 71,424
--------
Total....................................................... $750,000
========
</TABLE>

All amounts except the SEC Registration Fee, the NASD Filing Fee and the
Nasdaq National Market Listing Fee are estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Sections 180.0850 to 180.0859 of the Wisconsin Statutes require a
corporation to indemnify any director or officer who is a party to any
threatened, pending or completed civil, criminal, administrative or
investigative action, suit, arbitration or other proceeding, whether formal or
informal, which involves foreign, federal, state or local law and which is
brought by or in the right of the corporation or by any other person. A
corporation's obligation to indemnify any such person includes the obligation
to pay any judgment, settlement, penalty, assessment, forfeiture or fine,
including any excise tax assessed with respect to an employee benefit plan,
and all reasonable expenses including fees, costs, charges, disbursements,
attorney's and other expenses except in those cases in which liability was
incurred as a result of the breach or failure to perform a duty which the
director or officer owes to the corporation and the breach or failure to
perform constitutes: (i) a willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the director or
officer has a material conflict of interest; (ii) a violation of criminal law,
unless the person has reasonable cause to believe his conduct was lawful or
had no reasonable cause to believe his conduct was unlawful; (iii) a
transaction from which the person derived an improper personal profit; or (iv)
willful misconduct.

Unless otherwise provided in a corporation's articles of incorporation or
by-laws or by written agreement, an officer or director seeking
indemnification is entitled to indemnification if approved in any of the
following manners: (i) by majority vote of a disinterested quorum of the board
of directors, or if such quorum of disinterested directors cannot be obtained,
by a majority vote of a committee of two or more disinterested directors; (ii)
by independent legal counsel; (iii) by a panel of three arbitrators; (iv) by
affirmative vote of shareholders; (v) by a court; or (vi) with respect to any
additional right to indemnification granted by any other method permitted in
Section 180.0858 of the Wisconsin Statutes.

Reasonable expenses incurred by a director or officer who is a party to a
proceeding may be reimbursed by a corporation at such time as the director or
officer furnishes to the corporation written affirmation of his good faith
belief that he has not breached or failed to perform his duties and a written
undertaking to repay any amounts advanced if it is determined that
indemnification by the corporation is not required.

II-1
<PAGE>

The indemnification provisions of Sections 180.0850 to 180.0859 are not
exclusive. A corporation may expand an officer's or director's right to
indemnification (i) in its articles of incorporation or by-laws; (ii) by
written agreement; (iii) by resolution of its board of directors; or (iv) by
resolution of a majority of all of the corporation's voting shares then issued
and outstanding.

As permitted by Section 180.0858, the Registrant has adopted indemnification
provisions in its By-Laws which closely track the statutory indemnification
provisions with certain exceptions. In particular, Article VII of the
Registrant's By-Laws provides (i) that an individual shall be indemnified
unless it is proven by a final judicial adjudication that indemnification is
prohibited, and (ii) payment or reimbursement of expenses, subject to certain
limitations, will be mandatory rather than permissive. Pursuant to Article VII
of the Registrant's By-Laws, the Registrant expects to obtain directors' and
officers' liability insurance to insure the Registrant's officers and
directors against certain liabilities, including those which may arise under
the Securities Act.

Reference is made to the Purchase Agreement filed as Exhibit 1.1 hereto for
provisions relating to indemnification of officers and directors of the
Company by the Underwriters.

The Company intends to obtain directors' and officers' liability insurance.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In the three years preceding the filing of this Registration Statement, the
Registrant has issued the following securities which were not registered under
the Securities Act of 1933:

1. On December 20, 1995, ALS issued an aggregate of 20,000 shares of
Class A common stock and 80,000 shares of Class B common stock
(representing 10,600,000 shares of the Registrant's Common Stock after
completion of the 106 for 1 stock split in the form of a stock dividend) to
Judith and Terrance Paul in exchange for their shares of ALS common stock
pursuant to a reorganization. The shares of the Class A and Class B common
stock were issued without registration under the Securities Act in reliance
on Section 3(a)(9) and Section 4(2) thereunder.

2. On January 2, 1997, ALS issued an aggregate of 480 shares of Class A
common stock and 1,920 shares of Class B common stock (representing 254,400
shares of the Registrant's Common Stock after completion of the 106 for 1
stock split in the form of a stock dividend) to Judith and Terrance Paul in
exchange for their shares of IPS and the Institute pursuant to a
reorganization. See "Certain Transactions" in the Prospectus. The shares of
Class A and Class B common stock were issued without registration under the
Securities Act in reliance on Section 3(a)(9) and Section 4(2) thereunder.

3. Pursuant to an Asset Purchase Agreement dated as of August 1, 1996, as
subsequently amended as of February 25, 1997, the Registrant agreed to
issue upon closing of the Offering $500,000 of the Registrant's Common
Stock at the initial public offering price to the Timothy Peter Welch
Revocable Trust, of which Timothy P. Welch is the beneficial owner, and two
current employees of IPS as partial consideration for the Registrant's
acquisition of IPS. See "Certain Transactions" in the Prospectus. The
shares of common stock have been sold without registration under the
Securities Act in reliance on Section 4(2) thereunder.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
<C> <S> <C>
1.1 Form of Purchase Agreement*
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated By-Laws
4.1 Form of Common Stock Certificate
5.1 Legal Opinion of Godfrey & Kahn, S.C.*
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
<C> <S> <C>
10.1 Asset Purchase Agreement dated as of August 1, 1996 by and
among IPS Acquisition, Inc., IPS Publishing, Inc. and
Timothy P. Welch, individually and as sole Trustee of the
Timothy P. Welch Revocable Trust**
10.2 Supplement to Asset Purchase Agreement dated as of
February 25, 1997, by and among IPS Publishing, Inc.
(f/k/a IPS Acquisition, Inc.), Welch Publishing, Inc.
(f/k/a IPS Publishing, Inc.) and Timothy P. Welch,
individually and as sole Trustee of the Timothy P. Welch
Revocable Trust**
10.3 Employment Agreement between IPS Publishing, Inc. (f/k/a
IPS Acquisition, Inc.) and Timothy P. Welch dated as of
August 1, 1996**
10.4 1997 Stock Incentive Plan**
10.5 Advantage Learning Systems, Inc. Phantom Stock Plan**
10.6 Institute for Academic Excellence, Inc. Phantom Stock
Plan**
10.7 Accelerated Reader Resale Agreement dated May 1, 1994,
between Advantage Learning Systems, Inc. and Perma-Bound,
a division of Hertzberg-New Method, Inc.**
10.8 Promissory Note dated August 1, 1996 in the principal
amount of $2,350,000 from IPS Publishing, Inc. to Judith
A. Paul**
10.9 Promissory Note dated August 1, 1996 in the principal
amount of $2,350,000 from IPS Publishing, Inc. to Terrance
D. Paul**
10.10 Loan Agreement dated June 21, 1996, by and between M&I
Mid-State Bank, N.A. and Advantage Learning Systems,
Inc.**
21.1 Subsidiaries of Advantage Learning Systems, Inc.**
23.1 Consent of Godfrey & Kahn, S.C. (included in Exhibit 5.1)*
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney (included on the signature page of this
Registration Statement)**
27.1 Financial Data Schedule**
99.1 Consent of John H. Grunewald pursuant to Rule 438 under
the Securities Act of 1933
99.2 Consent of Perry S. Akins pursuant to Rule 438 under the
Securities Act of 1933
</TABLE>
- --------

*To be filed by Amendment.

**Incorporated by reference to the Registrant's Registration Statement on Form
S-1 as filed with the Securities and Exchange Commission on February 28,
1997 (Regis. No. 333-22519).

(b) FINANCIAL STATEMENT SCHEDULES.

All schedules are omitted because the required information is not present or
is not present in amounts sufficient to require submission of a schedule or
because the information required is included in the consolidated financial
statements of the Registrant or notes thereto or the schedule is not required
or inapplicable under the related instructions.

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes that:

(1) For purposes or determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

II-3
<PAGE>

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(b) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.

(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-4
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WISCONSIN RAPIDS, STATE
OF WISCONSIN, ON APRIL 11, 1997.

Advantage Learning Systems, Inc.

/s/ Michael H. Baum
By___________________________________
Michael H. Baum
Chief Executive Officer and a
Director

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE DATE
--------- ----

<S> <C>
* April 11, 1997
___________________________________________
Judith A. Paul
Chairman of the Board

* April 11, 1997
___________________________________________
Terrance D. Paul
Vice Chairman of the Board

/s/ Michael H. Baum April 11, 1997
___________________________________________
Michael H. Baum
Chief Executive Officer and a Director
(Principal Executive Officer)

* April 11, 1997
___________________________________________
John R. Hickey
President and a Director

* April 11, 1997
___________________________________________
Richard W. Fickey
Secretary and Vice President, Finance and
Administration
(Principal Financial and Accounting
Officer)

* April 11, 1997
___________________________________________
</TABLE> Timothy P. Welch
Director

/s/ Michael H. Baum

*By: ___________________________

(as attorney-in-fact pursuant to
authoritygranted by power of
attorney included on this
signature page in initial filing
of thisRegistration Statement)

II-5
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
1.1 Form of Purchase Agreement*
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated By-Laws
4.1 Form of Common Stock Certificate
5.1 Legal Opinion of Godfrey & Kahn, S.C.*
10.1 Asset Purchase Agreement dated as of August 1, 1996 by and among
IPS Acquisition, Inc., IPS Publishing, Inc. and Timothy P.
Welch, individually and as sole Trustee of the Timothy P. Welch
Revocable Trust**
10.2 Supplement to Asset Purchase Agreement dated as of February 25,
1997, by and among IPS Publishing, Inc. (f/k/a IPS Acquisition,
Inc.), Welch Publishing, Inc. (f/k/a IPS Publishing, Inc.) and
Timothy P. Welch, individually and as sole Trustee of the
Timothy P. Welch Revocable Trust**
10.3 Employment Agreement between IPS Publishing, Inc. (f/k/a IPS
Acquisition, Inc.) and Timothy P. Welch dated as of August 1,
1996**
10.4 1997 Stock Incentive Plan**
10.5 Advantage Learning Systems, Inc. Phantom Stock Plan**
10.6 Institute for Academic Excellence, Inc. Phantom Stock Plan**
10.7 Accelerated Reader Resale Agreement dated May 1, 1994, between
Advantage Learning Systems, Inc. and Perma-Bound, a division of
Hertzberg-New Method, Inc.**
10.8 Promissory Note dated August 1, 1996 in the principal amount of
$2,350,000 from IPS Publishing, Inc. to Judith A. Paul**
10.9 Promissory Note dated August 1, 1996 in the principal amount of
$2,350,000 from IPS Publishing, Inc. to Terrance D. Paul**
10.10 Loan Agreement dated June 21, 1996, by and between M&I Mid-State
Bank, N.A. and Advantage Learning Systems, Inc.**
21.1 Subsidiaries of Advantage Learning Systems, Inc.**
23.1 Consent of Godfrey & Kahn, S.C. (included in Exhibit 5.1)*
23.2 Consent of Arthur Andersen LLP
24.1 Powers of Attorney (included on the signature page of this
Registration Statement)**
27.1 Financial Data Schedule**
99.1 Consent of John H. Grunewald pursuant to Rule 438 under the
Securities Act of 1933
99.2 Consent of Perry S. Akins pursuant to Rule 438 under the
Securities Act of 1933
</TABLE>
- --------

* To be filed by Amendment.

** Incorporated by reference to the Registrant's Registration Statement on Form
S-1 as filed with the Securities and Exchange Commission on February 28,
1997 (Regis. No. 333-22519).
<PAGE>

Page 2 of the Prospectus contains the following graphical material:
------------------------------------------------------------------

1. A picture of a man and a child looking at a computer and using the
Accelerated Reader.

2. A picture of a report generated by the Accelerated Reader.

3. The Company's logo and the Accelerated Reader's logo.

4. The statement "A leader in learning information systems."

The inside back cover of the Prospectus contains the following graphical
------------------------------------------------------------------------
material:
- --------

1. A picture of a woman and a child reading a book.

2. A picture of a report generated by S.T.A.R.

3. The Company's mission statement.

4. The Company's logo and its product logos.

5. A graphic showing the results of a survey involving the Accelerated
Reader.

<PAGE>

Exhibit 3.1

AMENDED AND RESTATED ARTICLES OF INCORPORATION

ADVANTAGE LEARNING SYSTEMS, INC.

These amended and restated Articles of Incorporation supersede and
replace the heretofore existing Articles of Incorporation of Advantage Learning
Systems, Inc., as amended, a corporation organized under Chapter 180 of the
Wisconsin Statutes:

ARTICLE I

The name of the Corporation is Advantage Learning Systems, Inc.

ARTICLE II

The period of existence of the Corporation shall be perpetual.

ARTICLE III

The Corporation is authorized to engage in any lawful activity for
which corporations may be organized under Chapter 180 of the Wisconsin Statutes
and any successor provisions.

ARTICLE IV

The aggregate number of shares which the Corporation shall have the
authority to issue, the designation of each class of shares, the authorized
number of shares of each class and the par value thereof per share shall be as
follows:
<TABLE>
<CAPTION>

Designation Par Value Authorized
of Class Per Share Number of Shares
-------- --------- ----------------
<S> <C> <C>

Common Stock........... $.01 50,000,000
Preferred Stock........ $.01 5,000,000
</TABLE>

The preferences, limitations and relative rights of shares of each
class and the authority of the Board of Directors of the Corporation to create
and to designate series of Preferred Stock and to determine the preferences,
limitations and relative rights as between series shall be as follows:
<PAGE>

A. Common Stock.

1. Voting. Except as otherwise provided by law and except as
may be determined by the Board of Directors of the Corporation with respect
to shares of Preferred Stock as provided in Section B, below, only the
holders of shares of Common Stock shall be entitled to vote for the
election of directors of the Corporation and for all other corporate
purposes. Except as otherwise provided by law, upon any such vote, each
holder of Common Stock shall be entitled to one vote for each share of
Common Stock held of record by such shareholder.

2. Dividends. Subject to the provisions of paragraph (2) of
Section B, below, the holders of Common Stock shall be entitled to receive
such dividends as may be declared thereon from time to time by the Board of
Directors of the Corporation, in its discretion, out of any funds of the
Corporation at the time legally available for payment of dividends.

3. Liquidation. In the event of the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, after there have
been paid to or set aside for the holders of shares of Preferred Stock the
full preferential amounts, if any, to which they are entitled as provided
in paragraph (3) of Section B, below, the holders of outstanding shares of
Common Stock shall be entitled to share ratably, according to the number of
shares held by each, in the remaining assets of the Corporation available
for distribution.

B. Preferred Stock.

1. Series and Variations Between Series. The Board of Directors
of the Corporation is authorized, to the full extent permitted under the
Wisconsin Business Corporation Law and the provisions of this Section B, to
provide for the issuance of the Preferred Stock in one or more series, each
of such series to be distinctively designated, and to have such voting
rights, redemption or conversion rights, dividend or distribution rights,
preferences with respect to dividends or distributions, or other
preferences, limitations or relative rights as shall be provided by the
Board of Directors of the Corporation consistent with the provisions of
this Article IV. The Board of Directors of the Corporation, unless
otherwise provided when the series is established, may increase or decrease
the number of shares of any series, provided that the number of shares of
any series shall not be reduced below the number of shares then
outstanding.

2. Dividends. Before any dividends (other than a dividend
payable solely in Common Stock) shall be paid or set apart for payment upon
shares of Common Stock, the holders of each series of Preferred Stock shall
be entitled to receive dividends at the rate (which may be fixed or
variable) and at such times as specified in the particular series, if any.
The holders of shares of Preferred Stock shall have no rights to
participate with the

2
<PAGE>

holders of shares of Common Stock in any dividends in excess of the
preferential dividends, if any, fixed for such Preferred Stock.

3. Liquidation. In the event of liquidation, dissolution or
winding up (whether voluntary or involuntary) of the Corporation, the
holders of shares of Preferred Stock shall be entitled to be paid the full
amount payable on such shares upon the liquidation, dissolution or winding
up of the Corporation fixed by the Board of Directors with respect to such
shares, if any, before any amount shall be paid to the holders of the
Common Stock.

ARTICLE V

No holder of any shares of the Corporation shall have any pre-emptive
or subscription rights nor be entitled, as of right, to purchase or subscribe
for any part of the unissued shares of the Corporation or of any additional
shares issued by reason of any increase of authorized shares of the Corporation
or other securities whether or not convertible into shares of the Corporation.

ARTICLE VI

A dividend payable in shares of any class or series of the Corporation
may be paid in shares of any other class or series.

ARTICLE VII

The address of the initial registered office of the Corporation is 44
East Mifflin Street, Madison, Wisconsin 53703. The name of its initial
registered agent at such address is CT Corporation System.

ARTICLE VIII

The number of directors (exclusive of directors, if any, elected by
the holders of one or more series of Preferred Stock established pursuant to
Article IV of these Articles of Incorporation) shall not be less than one (1)
nor more than fifteen (15) directors, the exact number of directors to be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the entire Board of Directors then in office.

The term of office of each director shall be one year. A director
shall hold office until the next annual meeting following his or her election
and until his or her successor shall be elected and shall qualify. Any newly
created directorship resulting from an increase in the number of directors and
any other vacancy on the Board of Directors, however caused, shall be filled by
the vote of a majority of the directors then in office, although less than a
quorum, or by a sole

3
<PAGE>

remaining director. Any director so elected to fill any vacancy in the Board of
Directors, including a vacancy created by an increase in the number of
directors, shall hold office until the next annual meeting following his or her
election and until his or her successor shall be elected and shall qualify.

Exclusive of directors, if any, elected by the holders of one or more
series of Preferred Stock, no director of the Corporation may be removed from
office, except for Cause and by the affirmative vote of a majority of the
outstanding shares of the Corporation entitled to vote at a meeting of
shareholders duly called for such purpose. As used in this Article VIII, the
term "Cause" shall mean solely malfeasance arising from the performance of a
director's duties which has a materially adverse effect on the business of the
Corporation.

ARTICLE IX

The Corporation's By-Laws may be amended, altered or repealed, and new
By-Laws may be enacted, only by the affirmative vote of the holders of not less
than two-thirds of the outstanding shares of the Corporation entitled to vote at
a meeting of shareholders duly called for such purpose and by the affirmative
vote of the holders of not less than two-thirds of the shares of each class or
series, if any, entitled to vote thereon at such meeting, or by the affirmative
vote of not less than a majority of the entire Board of Directors then in
office.

MW1-62149-3

<PAGE>

Exhibit 3.2

AMENDED AND RESTATED BY-LAWS

ADVANTAGE LEARNING SYSTEMS, INC.

ARTICLE I. OFFICES
-------------------

SECTION 1.1. Principal and Other Offices. The principal office of the
Corporation shall be located at any place either within or outside the State of
Wisconsin as designated in the Corporation's most current Annual Report filed
with the Wisconsin Secretary of State. The Corporation may have such other
offices, either within or outside the State of Wisconsin, as the Board of
Directors may designate or as the business of the Corporation may require from
time to time.

SECTION 1.2. Registered Office. The registered office of the
Corporation required by the Wisconsin Business Corporation Law to be maintained
in the State of Wisconsin may, but need not, be the same as any of its places of
business. The registered office may be changed from time to time.

SECTION 1.3. Registered Agent. The registered agent of the Corporation
required by the Wisconsin Business Corporation Law to maintain a business office
in the State of Wisconsin may, but need not, be an officer or employee of the
Corporation. The registered agent may be changed from time to time.

ARTICLE II. SHAREHOLDERS
------------------------

SECTION 2.1. Annual Meeting. The annual meeting of shareholders shall
be held on the first Tuesday in May of each year at 10:00 a.m. (local time) or
at such other date and time as shall be fixed by, or at the direction of, the
Board of Directors, for the purpose of electing directors and for the
transaction of such other business as may have been properly brought before the
meeting in compliance with the provisions of Section 2.5. If the day fixed for
the annual meeting shall be a legal holiday in the State of Wisconsin, such
meeting shall be held on the next succeeding business day.

SECTION 2.2. Special Meetings. Except as otherwise required by
applicable law, special meetings of shareholders of the Corporation may only be
called by the Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer, the President or by not less than a majority of the Board of
Directors; provided, however, that the Corporation shall hold a special meeting
of shareholders of the Corporation if a signed and dated written demand or
demands by the holders of at least 10% of all the votes entitled to be cast on
any issue proposed to be considered at the proposed special meeting is delivered
to the Corporation as required under the
<PAGE>

Wisconsin Business Corporation Law, which demand or demands must describe one or
more purposes for which the shareholders demand a meeting be called, and the
shareholders demanding the meeting pay to the Corporation, or make satisfactory
arrangements with the Corporation for payment of, the Corporation's anticipated
costs of holding the meeting, including the costs of printing and mailing any
proxy materials. Only business within the purpose described in the notice
required by Section 2.4 may be conducted at a special shareholders' meeting.

SECTION 2.3. Place of Meeting. The Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board, the Chief Executive Officer or the
President may designate any place, within or outside the State of Wisconsin, as
the place of meeting for the annual meeting or for any special meeting. If no
designation is made the place of meeting shall be the principal office of the
Corporation, but any meeting may be adjourned to reconvene at any place
designated by vote of a majority of the shares represented thereat.

SECTION 2.4. Notice of Meeting. The Corporation shall notify
shareholders of the date, time and place of each annual and special
shareholders' meeting. Notice of a special meeting shall include a description
of each purpose for which the meeting is called. Notice of all meetings need be
given only to shareholders entitled to vote, unless otherwise required by the
Wisconsin Business Corporation Law, and shall be given not less than ten nor
more than sixty days before the meeting date. The Corporation may give notice in
person, by telephone, teletype, facsimile, electronic mail or other forms of
wire or wireless communication, or by mail or private carrier, and, if these
forms of personal communication are impracticable, notice may be communicated by
a newspaper of general circulation in the area where published, or by radio,
television or other form of public broadcast communication. Written notice shall
be deemed to be effective at the earlier of receipt or mailing and may be
addressed to the shareholder's address shown in the Corporation's current record
of shareholders. The Corporation may give oral notice and such oral notice shall
be deemed to be effective when communicated. Notice by newspaper, radio,
television or other form of public broadcast communication shall be deemed to be
effective on the date of publication or broadcast.

SECTION 2.5. Advance Notice Shareholder-Proposed Business at Annual
Meeting. At an annual meeting of shareholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (a) specified in the notice
of meeting (or any amendment or supplement thereto) given in accordance with
Section 2.4, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, or the President, or (c)
otherwise properly brought before the meeting by a shareholder. In addition to
any other requirements under applicable law, the Articles of Incorporation or
the By-Laws for business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice must be
received at the principal office of the Corporation, not less than 120 days
prior to the anniversary date of the annual meeting of shareholders in the
immediately preceding year. A shareholder's notice to the Secretary shall set
forth as to each matter the shareholder proposes to bring before the annual
meeting (i) the text of such proposal or a brief description of the business
desired to be brought before the annual meeting

2
<PAGE>

and the reasons for conducting such business at the annual meeting, (ii) the
name and record address of the shareholder proposing such business, (iii) the
class and number of shares of the Corporation which are beneficially owned by
the shareholder, (iv) any interest of the shareholder in such business, (v) a
representation that the person sending the notice is a shareholder of record and
will remain such through the record date for the meeting, and (vi) a
representation that such shareholder intends to appear in person or by proxy at
such meeting to move for the consideration of the business set forth in the
notice. In addition, any such shareholder shall be required to provide such
further information as may be requested by the Corporation in order to comply
with federal and state securities laws, and rules and regulations thereunder.
The Corporation may require evidence by any person giving notice under this
Section 2.5 that such person is a bona fide beneficial owner of the
Corporation's shares.

Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.5; provided, however, that nothing in
this Section 2.5 shall be deemed to preclude discussion by any shareholder of
any business properly brought before the annual meeting in accordance with said
procedure.

The presiding officer at an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section
2.5, and if he or she should so determine, he or she shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.

SECTION 2.6. Procedure for Nomination of Directors. Only persons
nominated in accordance with all of the procedures set forth in the
Corporation's Articles of Incorporation and By-Laws shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of shareholders by or at
the direction of the Board of Directors, by any nominating committee or persons
appointed by the Board, or by any shareholder of the Corporation entitled to
vote for election of directors at the meeting who complies with all of the
notice procedures set forth in this Section 2.6.

Nominations other than those made by or at the direction of the Board
of Directors or any nominating committee or person appointed by the Board shall
be made pursuant to timely notice in proper written form to the Secretary of the
Corporation. To be timely, a shareholder's request to nominate a person for
director, together with the written consent of such person to serve as a
director, must be received by the Secretary of the Corporation at the
Corporation's principal office (i) with respect to an election held at an annual
meeting of shareholders, not less than 120 days prior to the anniversary date of
the annual meeting of shareholders in the immediately preceding year, or (ii)
with respect to an election held at a special meeting of shareholders for the
election of directors, not less than the close of business on the eighth day
following the date of the earlier of public announcement or notice of such
meeting. To be in proper written form, such shareholder's notice shall set
forth in writing (a) as to each person whom the shareholder proposes to nominate
for election or reelection as a director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment of
such person, (iii) the class

3
<PAGE>

and number of shares of stock of the Corporation which are beneficially owned by
such person, and (iv) such other information relating to such person as would be
required to be disclosed in solicitations of proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, and any successor to such Regulation; and (b) as to the shareholder
giving the notice (i) the name and address, as they appear on the Corporation's
books, of such shareholder, (ii) the class and number of shares of the
Corporation which are owned beneficially and of record by such shareholder,
(iii) a representation that the shareholder is a holder of record of shares of
the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice, and (iv) a representation that the person sending the notice is a
shareholder of record and will remain such through the record date for the
meeting. The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as a director of the Corporation
or the shareholder to nominate the proposed nominee. The presiding officer at
the meeting shall, if the facts so warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures or other
requirements prescribed by the Corporation's Articles of Incorporation and By-
Laws; and if he or she should so determine, such presiding officer shall so
declare to the meeting and the defective nomination(s) shall be disregarded.

SECTION 2.7. Fixing of Record Date. For the purpose of determining
shareholders of any voting group entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, or shareholders entitled to receive
payment of any distribution or dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders.
Such record date shall not be more than 70 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
If no record date is so fixed for the determination of shareholders entitled to
notice of, or to vote at a meeting of shareholders, or shareholders entitled to
receive a share dividend or distribution, the record date for determination of
such shareholders shall be at the close of business on:

(a) With respect to an annual shareholders meeting or any
special shareholders meeting called by the Board of Directors or any
person specifically authorized by the Board of Directors or these By-
Laws to call a meeting, the day before the first notice is mailed to
shareholders;

(b) With respect to a special shareholders meeting demanded by
the shareholders, the date the first shareholder signs the demand;

(d) With respect to a distribution to shareholders (other than
one involving a repurchase or reacquisition of shares), the date the
Board of Directors authorizes the distribution.

4
<PAGE>

SECTION 2.8. Voting Lists. After fixing a record date for a meeting,
the Corporation, shall prepare a list of the names of all its shareholders who
are entitled to notice of a shareholders meeting. The list shall be arranged by
class or series of shares and show the address of and the number of shares held
by each shareholder. The shareholders list must be available for inspection by
any shareholder, beginning two business days after notice of the meeting is
given for which the list was prepared and continuing to the date of the meeting.
The list shall be available at the Corporation's principal office or at a place
identified in the meeting notice in the city where the meeting is to be held.
Subject to the provisions of the Wisconsin Business Corporation Law, a
shareholder or his or her agent or attorney may, on written demand, inspect and
copy the list during regular business hours at his or her expense, during the
period that it is available for inspection. The Corporation shall make the
shareholders list available at the meeting, and any shareholder or his or her
agent or attorney may inspect the list at any time during the meeting or any
adjournment thereof. Refusal or failure to prepare or make available the
shareholders list shall not affect the validity of any action taken at such
meeting.

SECTION 2.9. Shareholder Quorum and Voting Requirements. Shares
entitled to vote as a separate voting group may take action on a matter at a
meeting only if a quorum of those shares exists with respect to that matter.
Unless the Articles of Incorporation, By-Laws adopted under authority granted in
the Articles of Incorporation or the Wisconsin Business Corporation Law provide
otherwise, a majority of the votes entitled to be cast on the matter by the
voting group constitutes a quorum of that voting group for action on that
matter.

If the Articles of Incorporation or the Wisconsin Business Corporation
Law provide for voting by two or more voting groups on a matter, action on that
matter is taken only when voted upon by each of those voting groups counted
separately. Action may be taken by one voting group on a matter even though no
action is taken by another voting group entitled to vote on the matter.

Once a share is represented for any purpose at a meeting, other than
for the purpose of objecting to holding the meeting or transacting business at
the meeting, it is deemed present for purposes of determining whether a quorum
exists, for the remainder of the meeting and for any adjournment of that meeting
to the extent provided in Section 2.14.

If a quorum exists, action on a matter by a voting group is approved
if the votes cast within the voting group favoring the action exceed the votes
cast opposing the action, unless the Articles of Incorporation, the By-Laws or
the Wisconsin Business Corporation Law require a greater number of affirmative
votes; provided, however, that for purposes of electing directors, unless
otherwise provided in the Articles of Incorporation, directors are elected by a
plurality of the votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present. For purposes of electing directors, (i) a
"plurality" means that the individuals with the largest number of votes are
elected as directors up to the maximum number of directors to be chosen at the
election, and (ii) votes against a candidate are not given legal effect and are
not counted as votes cast in an election of directors.

SECTION 2.10. Proxies. For all meetings of shareholders, a shareholder
may appoint a proxy to vote or otherwise act for the shareholder by signing an
appointment form, either

5
<PAGE>

personally or by a duly authorized attorney-in-fact. Such proxy shall be
effective when filed with the Secretary of the Corporation or other officer or
agent authorized to tabulate votes before or at the time of the meeting. No
proxy shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.

SECTION 2.11. Voting of Shares. Unless otherwise provided in the
Articles of Incorporation or the Wisconsin Business Corporation Law, each
outstanding share entitled to vote shall be entitled to one vote upon each
matter submitted to a vote at a meeting of shareholders.

No shares in the Corporation held by another corporation may be voted
if the Corporation owns, directly or indirectly, a sufficient number of shares
entitled to elect a majority of the directors of such other corporation;
provided, however, that the Corporation shall not be limited in its power to
vote any shares, including its own shares, held by it in a fiduciary capacity.

SECTION 2.12. Voting Shares Owned by the Corporation. Shares of the
Corporation belonging to it shall not be voted directly or indirectly at any
meeting and shall not be counted in determining the total number of outstanding
shares at any given time, but shares held by this Corporation in a fiduciary
capacity may be voted and shall be counted in determining the total number of
outstanding shares at any given time.

SECTION 2.13. Acceptance of Instruments Showing Shareholder Action.

(a) If the name signed on a vote, consent, waiver or proxy
appointment corresponds to the name of a shareholder, the Corporation, if
acting in good faith, may accept the vote, consent, waiver or proxy
appointment and give it effect as the act of the shareholder.

(b) If the name signed on a vote, consent, waiver or proxy
appointment does not correspond to the name of its shareholder, the
Corporation, if acting in good faith, may accept the vote, consent, waiver
or proxy appointment and give it effect as the act of the shareholder if
any of the following apply:

(1) the shareholder is an entity, within the meaning of the
Wisconsin Business Corporation Law, and the name signed purports to be
that of an officer or agent of the entity;

(2) the name signed purports to be that of a personal
representative, administrator, executor, guardian or conservator
representing the shareholder and, if the Corporation or its agent
requests, evidence of fiduciary status acceptable to the Corporation
is presented with respect to the vote, consent, waiver or proxy
appointment;

(3) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the Corporation or
its agent requests, evidence

6
<PAGE>

of this status acceptable to the Corporation is presented with respect
to the vote, consent, waiver or proxy appointment;

(4) the name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
Corporation or its agent requests, evidence acceptable to the
Corporation of the signatory's authority to sign for the shareholder
is presented with respect to the vote, consent, waiver or proxy
appointment; or

(5) two or more persons are the shareholder as co-tenants
or fiduciaries and the name signed purports to be the name of at least
one of the co-owners and the person signing appears to be acting on
behalf of all co-owners.

(c) The Corporation may reject a vote, consent, waiver or proxy
appointment if the Secretary or other officer or agent of the Corporation
who is authorized to tabulate votes, acting in good faith, has reasonable
basis for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder.

SECTION 2.14. Adjournments. An annual or special meeting of
shareholders may be adjourned at any time, including after action on one or more
matters, by a majority of shares represented, even if less than a quorum. The
meeting may be adjourned for any purpose, including, but not limited to,
allowing additional time to solicit votes on one or more matters, to disseminate
additional information to shareholders or to count votes. Upon being reconvened,
the adjourned meeting shall be deemed to be a continuation of the initial
meeting.

(a) Quorum. Once a share is represented for any purpose at the
original meeting, other than for the purpose of objecting to holding the
meeting or transacting business at a meeting, it is considered present for
purposes of determining if a quorum exists, for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is
or must be set for that adjourned meeting.

(b) Record Date. When a determination of shareholders entitled
to notice of or to vote at any meeting of shareholders has been made as
provided in Section 2.7, such determination shall be applied to any
adjournment thereof unless the Board of Directors fixes a new record date,
which it shall do if the meeting is adjourned to a date more than 120 days
after the date fixed for the original meeting.

(c) Notice. Unless a new record date for an adjourned meeting is
or must be fixed pursuant to Section 2.14(b), the Corporation is not
required to give notice of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment.

SECTION 2.15. Polling. In the sole discretion of the presiding officer
of an annual or special meeting of shareholders, polls may be closed at any time
after commencement of any annual or special meeting. When there are several
matters to be considered at a meeting, the polls

7
<PAGE>

may remain open during the meeting as to any or all matters to be considered, as
the presiding officer may declare. Polls will remain open as to matters to be
considered at any adjournment of the meeting unless the presiding officer
declares otherwise. At the sole discretion of the presiding officer, the polls
may remain open after adjournment of a meeting for not more than 72 hours for
the purpose of collecting proxies and counting votes. All votes submitted prior
to the announcement of the results of the balloting shall be valid and counted.
The results of balloting shall be final and binding after announcement of such
results.

SECTION 2.16. Waiver of Notice by Shareholders. A shareholder may
waive any notice required by the Wisconsin Business Corporation Law, the
Articles of Incorporation or the By-Laws before or after the date and time
stated in the notice. The waiver shall be in writing and signed by the
shareholder entitled to the notice, contain the same information that would have
been required in the notice under any applicable provisions of the Wisconsin
Business Corporation Law, except that the time and place of the meeting need not
be stated, and be delivered to the Corporation for inclusion in the
Corporation's records. A shareholder's attendance at a meeting, in person or by
proxy, waives objection to (i) lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting or promptly upon
arrival objects to the holding of the meeting or transacting business at the
meeting, and (ii) consideration of a particular matter at the meeting that is
not within the purpose described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.

SECTION 2.17. Unanimous Consent without Meeting. Any action required
or permitted to be taken at a meeting of shareholders may be taken without a
meeting only by unanimous written consent or consents signed by all of the
shareholders of the Corporation and delivered to the Corporation for inclusion
in the Corporation's records. Such consent must describe the action taken and
must be delivered to the corporation for inclusion in the corporate records. The
record date for determining shareholders entitled to take action under this
section is the date that the first shareholder signs the consent. A consent
signed under this section has the effect of a meeting vote and may be described
as such in any document.

ARTICLE III. BOARD OF DIRECTORS
-------------------------------

SECTION 3.1. General Powers. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the Corporation
managed under the direction of, its Board of Directors, subject to any
limitations set forth in the Articles of Incorporation.

SECTION 3.2. Number, Tenure, Qualifications and Term.

(a) Number. Except as otherwise provided in the Articles of
Incorporation, the number of directors (exclusive of directors, if any,
elected by the holders of one or more series of Preferred Stock, voting
separately as a series pursuant to the provisions of the Articles of
Incorporation) shall be not less than one (1) nor more than fifteen (15)
directors, the exact number of directors to be determined from time to time
by resolution adopted by affirmative vote of a majority of the entire Board
of Directors then in office.

8
<PAGE>

(b) Tenure. A director shall hold office until the next annual
meeting following his or her election and until his or her successor shall
be duly elected and shall qualify.

(c) Qualifications. A director need not be a resident of the
state of Wisconsin or a shareholder of the Corporation except if required
by the Articles of Incorporation. The Board of Directors, at its
discretion, may establish any qualifications for directors, which
qualifications, if any, shall only be applied for determining
qualifications of a nominee for director as of the date of the meeting at
which such nominee is to be elected or appointed.

(d) Term. The term of office of each director shall be one
year.

Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Articles of Incorporation applicable thereto. Directors so elected
shall not be divided into classes unless expressly provided by such Articles,
and during the prescribed terms of office of such directors, the Board of
Directors shall consist of such directors in addition to the number of directors
determined as provided in Section 3.2(a).

SECTION 3.3. Removal. Exclusive of directors, if any, elected by the
holders of one or more classes of Preferred Stock, no director of the
Corporation may be removed from office except for Cause and by the affirmative
vote of a majority of the outstanding shares of the Corporation entitled to vote
at a meeting of shareholders duly called for such purpose. As used in this
Section 3.3, the term "Cause" shall mean solely malfeasance arising from the
performance of a director's duties which has a materially adverse effect on the
business of the Corporation.

SECTION 3.4. Resignation. A director may resign at any time by
delivering written notice to the Board of Directors, the Chairman of the Board
or to the Corporation (which shall be directed to the Secretary). Such
resignation is effective when the notice is delivered unless the notice
specifies a later effective date.

SECTION 3.5. Vacancies. Exclusive of a vacancy in directors, if any,
elected by the holders of one or more series of Preferred Stock, any vacancy on
the Board of Directors, however caused, including, without limitation, any
vacancy resulting from an increase in the number of directors, shall be filled
by the vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. Any director so elected to fill any
vacancy in the Board of Directors, including a vacancy created by an increase in
the number of directors, shall hold office until the next annual meeting
following his or her election and until his or her successor shall be elected
and shall qualify. A vacancy that will occur at a specific later date may be
filed before the vacancy occurs, but the new director will not take office until
the vacancy occurs.

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<PAGE>

SECTION 3.6. Committees. The Board of Directors by resolution adopted
by the affirmative vote of a majority of the number of directors fixed by
Section 3.2(a) then in office may create one or more committees, appoint members
of the Board of Directors to serve on the committees and designate other members
of the Board of Directors to serve as alternates. Each committee shall consist
of two or more members of the Board of Directors. Unless otherwise provided by
the Board of Directors, members of the committee shall serve at the pleasure of
the Board of Directors. Each committee may exercise those aspects of the
authority of the Board of Directors which are within the scope of the
committee's assigned responsibilities or which the Board of Directors otherwise
confers upon such committee; provided, however, a committee may not do any of
the following:

(a) authorize distributions;

(b) approve or propose to shareholders action that the Wisconsin
Business Corporation Law requires be approved by shareholders;

(c) fill vacancies on the Board of Directors or, unless the
Board of Directors has specifically granted authority to the committee, its
committees;

(d) amend the Articles of Incorporation pursuant to the
authority of directors to do so granted by the Wisconsin Business
Corporation Law;

(e) adopt, amend, or repeal by-laws;

(f) approve a plan of merger not requiring shareholder approval;

(g) authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the Board of Directors; or

(h) authorize or approve the issuance or sale or contract for
sale of shares or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except that the
Board of Directors may authorize a committee (or a senior executive officer
of the Corporation, including without limitation the President and any Vice
President) to do so within limits prescribed by the Board of Directors.

Except as required or limited by the Articles of Incorporation, the By-Laws, the
Wisconsin Business Corporation Law, or resolution of the Board of Directors,
each committee shall be authorized to fix its own rules governing the conduct of
its activities. Each committee shall make such reports to the Board of
Directors of its activities as the Board of Directors may request.

SECTION 3.7. Compensation. Except as provided in the Articles of
Incorporation, the Board of Directors, irrespective of any personal interest of
any of its members, may fix the compensation of directors.

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<PAGE>

SECTION 3.8. Regular Meeting. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law immediately after,
and at the same place as, the annual meeting of shareholders, and each adjourned
session thereof. A regular meeting of a committee, if any, shall be at such
date, place, either within or outside the State of Wisconsin, and time as such
committee determines. Other regular meetings of the Board of Directors shall be
held at such dates, times and places, either within or outside the State of
Wisconsin, as the Board of Directors may provide by resolution, which resolution
shall constitute exclusive notice of such meeting.

SECTION 3.9. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board, the
Vice Chairman of the Board, the Chief Executive Officer, the President or a
majority of the members of the Board of Directors. Special meetings of a
committee may be called by or at the request of the Chairman of a committee or a
majority of the committee members. The person or persons authorized to call
special meetings of the Board of Directors or a committee may fix any date, time
and place, either within or outside the State of Wisconsin, for any special
meeting of the Board of Directors or committee called by them.

SECTION 3.10. Notice; Waiver. Notice of meetings, except for regular
meetings, shall be given at least five days previously thereto and shall state
the date, time and place of the meeting of the Board of Directors or committee.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors or committee need be specified in the
notice of such meeting. Notice may be communicated in person, by telephone,
telegraph, teletype, facsimile or other form of wire or wireless communication,
or by mail or private carrier. Written notice is effective at the earliest of
the following: (1) when received; (2) on the date shown on the return receipt,
if sent by registered or certified mail, return receipt requested, and the
receipt is signed by or on behalf of the addressee; or (3) two days after it is
deposited with a private carrier. Oral notice is deemed effective when
communicated. Facsimile notice is deemed effective when sent.

A director may waive any notice required by the Wisconsin Business
Corporation Law, the Articles of Incorporation or the By-Laws before or after
the date and time stated in the notice. The waiver shall be in writing, signed
by the director entitled to the notice and retained by the Corporation.
Notwithstanding the foregoing, a director's attendance at or participation in a
meeting waives any required notice to such director of the meeting unless the
director at the beginning of the meeting or promptly upon such director's
arrival objects to holding the meeting or transacting business at the meeting
and does not thereafter vote for or assent to action taken at the meeting.

SECTION 3.11. Quorum; Voting. Unless otherwise provided in the
Articles of Incorporation or the Wisconsin Business Corporation Law, a majority
of the number of directors fixed by Section 3.2(a) or appointed by the Board of
Directors to a committee shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors or committee; provided,
however, that even though less than such quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice. Except as

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<PAGE>

otherwise provided in the Articles of Incorporation, the By-Laws or the
Wisconsin Business Corporation Law, if a quorum is present when a vote is taken,
the affirmative vote of a majority of directors present is the act of the Board
of Directors or committee.

SECTION 3.12. Presumption of Assent. A director of the Corporation
who is present and is announced as present at a meeting of the Board of
Directors or a committee thereof at which action on any corporate matter is
taken is deemed to have assented to the action taken unless (i) such director
objects at the beginning of the meeting or promptly upon arrival to holding the
meeting or transacting business at the meeting, (ii) such director dissents or
abstains from an action taken and minutes of the meeting are prepared that show
the director's dissent or abstention from the action taken, (iii) such director
delivers written notice of his or her dissent or abstention to the presiding
officer of the meeting before its adjournment or to the Corporation (directed to
the Secretary) immediately after adjournment of the meeting, or (iv) such
director dissents or abstains from an action taken, minutes of the meeting are
prepared that fail to show the director's dissent or abstention from the action
taken and the director delivers to the Corporation (directed to the Secretary) a
written notice of that failure promptly after receiving the minutes. A director
who votes in favor of action taken may not dissent or abstain from that action.

SECTION 3.13. Informal Action Without Meeting. Any action required or
permitted by the Articles of Incorporation, the By-Laws or the Wisconsin
Business Corporation Law to be taken by the Board of Directors or a committee at
a meeting may be taken without a meeting if the action is taken by all of the
directors or committee members then in office. The action shall be evidenced by
one or more written consents describing the action taken, signed by each
director and retained by the Corporation. Any such consent is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this section has the effect of a
unanimous vote taken at a meeting at which all directors were present, and may
be described as such in any document.

SECTION 3.14. Telephonic or Other Meetings. Unless the Articles of
Incorporation provide otherwise, any or all directors may participate in a
regular or special meeting of the Board of Directors or any committee thereof
by, or conduct the meeting through the use of, any means of communication by
which (i) all directors participating may simultaneously hear each other during
the meeting, (ii) all communication during the meeting is immediately
transmitted to each participating director, and (iii) each participating
director is able to immediately send messages to all other participating
directors. If the meeting is to be conducted through the use of any such means
of communication all participating directors shall be informed that a meeting is
taking place at which official business may be transacted. A director
participating in a meeting by this means is deemed to be present in person at
the meeting. Notwithstanding the foregoing, the Chairman of the Board, or other
presiding officer, shall, at any time, have the authority to deem any business
or resolution not appropriate for meetings held pursuant to this Section 3.14.

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<PAGE>

ARTICLE IV. OFFICERS
--------------------

SECTION 4.1. Number. The principal officers of the Corporation shall
be a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive
Officer, a President, one or more Vice Presidents, any number of whom may be
designated as Senior Executive Vice President, Executive Vice President or
Senior Vice President, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. Until such time as the Board of Directors
shall deem it desirable to elect a Chairman of the Board such office may remain
vacant, and while such office is vacant, the powers and duties of the Chairman
of the Board shall vest in and be performed by the Chief Executive Officer of
the Corporation. Such other officers as may be deemed necessary may be elected
or appointed by the Board of Directors. Such other assistant officers as may be
deemed necessary may be appointed by the Board of Directors, the Chief Executive
Officer or the President for such term as is specified in the appointment. The
same natural person may simultaneously hold more than one office in the
Corporation.

SECTION 4.2. Election and Term of Office. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
the annual meeting of the shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
convenient. Each officer shall hold office until his or her successor shall have
been duly elected and qualified or until his or her death or until he or she
shall resign or shall have been removed in the manner hereinafter provided.

SECTION 4.3. Resignation and Removal. An officer may resign at any
time by delivering notice to the corporation (directed to the Secretary). The
resignation is effective when the notice is delivered, unless the notice
specifies a later effective date and the corporation accepts the later effective
date. If a resignation is effective at a later date, the Board of Directors may
fill the pending vacancy before the effective date if the Board of Directors
provides that the successor may not take office until the effective date. The
Board of Directors may remove any officer at any time with or without cause and
notwithstanding the contract rights, if any, of the officer removed. The Board
of Directors, the Chief Executive Officer or the President may remove any
assistant officer who was appointed by the Board, the Chief Executive Officer or
the President. The appointment of an officer or assistant officer does not
itself create contract rights.

SECTION 4.4. Vacancies. A vacancy in any principal office because of
death, resignation, removal, disqualification or otherwise, shall be filled by
the Board of Directors for the unexpired portion of the term. A vacancy in any
assistant office because of death, resignation, removal, disqualification or
otherwise may be filled by the Board of Directors, the Chief Executive Officer
or the President.

SECTION 4.5. Chairman of the Board. The Chairman of the Board shall
preside at all annual and special meetings of shareholders and all regular and
special meetings of the Board of Directors, shall advise and counsel with the
Chief Executive Officer and shall be responsible for the administration and
management of the areas of the business and affairs of the Corporation assigned
to him or her from time to time by the Board of Directors.

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<PAGE>

SECTION 4.6. Vice Chairman of the Board. The Vice Chairman of the
Board shall advise and counsel with the Chief Executive Officer and shall be
responsible for the administration and management of the areas of the business
and affairs of the Corporation assigned to him or her from time to time by the
Board of Directors.

SECTION 4.7. Chief Executive Officer. The Chief Executive Officer
shall be the principal executive officer of the Corporation and, subject to the
control of the Board of Directors, shall have general supervision and control of
the business and affairs of the Corporation and its officers. The Chief
Executive Officer shall have the authority, subject to such rules as may be
prescribed by the Board of Directors, to appoint such agents and employees of
the Corporation as the Chief Executive Officer deems necessary, prescribe their
powers, duties and compensation, and delegate authority to them. Such agents and
employees shall hold offices at the discretion of the Chief Executive Officer.
The Chief Executive Officer shall have authority to sign, execute and
acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds, stock
certificates, contracts, leases, reports and all other documents or instruments
necessary or proper to be executed in the course of the Corporation's regular
business or which shall be authorized by the Board of Directors. Except as
otherwise provided by the Wisconsin Business Corporation Law or the Board of
Directors, the Chief Executive Officer may authorize any other officer or agent
of the Corporation to sign, execute and acknowledge such documents in his or her
place and stead. In general, the Chief Executive Officer shall have all
authority and perform all duties incident to the office of the chief executive
offices and such other duties as may be prescribed by the Board of Directors
from time to time.

SECTION 4.8. President. In the absence of the Chief Executive Officer
or in the event of his or her death, inability or refusal to act, the President
shall perform the duties of the Chief Executive Officer, and when so acting
shall have all the powers and duties of the Chief Executive Officer. In
addition, the President shall be responsible for the administration and
management of the areas of the business and affairs of the Corporation assigned
to him from time to time by the Board of Directors or the Chief Executive
Officer.

SECTION 4.9. Vice Presidents. One or more of the Vice Presidents may
be designated as Senior Executive Vice President, Executive Vice President or
Senior Vice President. In the absence of the President or in this event of his
or her death, inability or refusal to act, the Vice Presidents in the order
designated at the time of their election, shall perform the duties of the
President and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President may sign with the
Secretary or Assistant Secretary certificates for shares of the Corporation. Any
Vice President shall perform such other duties as are incident to the office of
Vice President or as may be prescribed from time to time by the Board of
Directors, the Chief Executive Officer or the President.

SECTION 4.10. Secretary. The Secretary shall: (i) keep the minutes
of the shareholders and Board of Directors meetings in one or more books
provided for that purpose, (ii) see that all notices are duly given in
accordance with the provisions of the By-Laws or as required by law, (iii) be
custodian of the Corporation's records and of the seal of the Corporation, (iv)
see

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<PAGE>

that the seal of the Corporation is affixed to all appropriate documents the
execution of which on behalf of the Corporation under its seal is duly
authorized, (v) keep a register of the address of each shareholder which shall
be furnished to the Secretary by such shareholder, and (vi) perform all duties
incident to the office of Secretary and such other duties as may be prescribed
from time to time by the Board of Directors, the Chief Executive Officer or the
President.

SECTION 4.11. Treasurer. The Treasurer shall: (i) have charge and
custody of and be responsible for all funds and securities of the Corporation,
(ii) receive and give receipts for moneys due and payable to the Corporation
from any source whatsoever, and deposit all such moneys in the name of the
Corporation, and (iii) in general perform all of the duties incident to the
office of Treasurer and have such other duties and exercise such other authority
as from time to time may be delegated or assigned by the Board of Directors, the
Chief Executive Officer or the President.

SECTION 4.12. Assistant Secretaries and Assistant Treasurers. An
Assistant Secretary, if any, when authorized by the Board of Directors, may sign
with the Chief Executive Officer, the President or any Vice President
certificates for shares of the Corporation, the issuance of which shall have
been authorized by a resolution of the Board of Directors. An Assistant
Treasurer, if any, shall, if required by the Board of Directors, give bonds for
the faithful discharge of his or her duties in such sums and with such sureties
as the Board of Directors shall determine. The Assistant Secretaries and
Assistant Treasurers, in general, shall perform such duties as shall be assigned
to them by the Board of Directors, the Chief Executive Officer, the President,
the Secretary or the Treasurer, respectively.

SECTION 4.13. Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors or a committee authorized by the
Board to fix the same, and no officer shall be prevented from receiving such
salary by reason of the fact that he or she is also a director of the
Corporation or a member of such committee.

ARTICLE V. CONTRACTS; VOTING OF STOCK IN OTHER CORPORATIONS
-----------------------------------------------------------

SECTION 5.1. Contracts. The Board of Directors may authorize any
officer or officers, committee, or any agent or agents to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation, and such authorization may be general or confined to specific
instances.

SECTION 5.2. Voting of Stock in Other Corporations. The Board of
Directors by resolution shall from time to time designate one or more persons to
vote all stock held by this Corporation in any other corporation or entity, may
designate such persons in the alternative and may empower them to execute
proxies to vote in their stead. In the absence of any such designation by the
Board of Directors, the President shall be authorized to vote any stock held by
the Corporation or execute proxies to vote such stock.

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<PAGE>

ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------------------

SECTION 6.1. Certificates for Shares. Certificates representing
shares of the Corporation shall be in such form as shall be determined by, or
under the authority of a resolution of, the Board of Directors, which shall be
consistent with the requirements of the Wisconsin Business Corporation Law. Such
certificates shall be signed by the Chief Executive Officer, the President or a
Vice President and by the Secretary or an Assistant Secretary. The validity of a
share certificate is not affected if a person who signed the certificate no
longer holds office when the certificate is issued. All certificates for shares
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors or its designee may prescribe.

SECTION 6.2. Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the Corporation by
the holder of record thereof or by his or her legal representative, who shall
furnish proper evidence of authority to transfer or by his or her attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose name shares stand on the books
of the Corporation shall be deemed by the Corporation to be the owner thereof
for all purposes, except as otherwise required by the Wisconsin Business
Corporation Law.

SECTION 6.3. Stock Regulations. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with the statutes of the State of Wisconsin as they may deem
expedient concerning the issue, transfer and registration of certificates
representing shares of the Corporation, including the appointment or designation
of one or more stock transfer agents and one or more stock registrars.

ARTICLE VII. INDEMNIFICATION; INSURANCE
---------------------------------------

SECTION 7.1. Indemnity of Directors, Officers, Employees and
Designated Agents.

(a) Definitions to Indemnification and Insurance Provisions.

(1) "Director, Officer, Employee or Agent" means any of the
following: (i) a natural person who is or was a director, officer,
employee or agent of the Corporation; (ii) a natural person who, while
a director, officer, employee or agent of the Corporation, is or was
serving either pursuant to the Corporation's specific request or as a
result of the nature of such person's duties to the Corporation

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<PAGE>

as a director, officer, partner, trustee, member of any governing or
decision-making committee, manager, employee or agent of another
corporation or foreign corporation, partnership, joint venture, trust
or other enterprise; (iii) a natural person who, while a director,
officer, employee or agent of the Corporation, is or was serving an
employee benefit plan because his or her duties to the Corporation
also impose duties on, or otherwise involve services by, the person to
the plan or to participants in or beneficiaries of the plan; or (iv)
unless the context requires otherwise, the estate or personal
representative of a director, officer, employee or agent.
Notwithstanding the foregoing, an agent falls within the foregoing
definition only upon resolution of the Board of Directors or committee
appointed thereby that such agent shall be entitled to the
indemnification provided herein.

(2) "Expenses" means all reasonable fees, costs, charges,
disbursements, attorneys' fees and any other expenses incurred in
connection with a Proceeding.

(3) "Liability" means the obligation to pay a judgment,
penalty, assessment, forfeiture or fine, including an excise tax
assessed with respect to an employee benefit plan, the agreement to
pay any amount in settlement of a Proceeding (whether or not approved
by a court order), and reasonable expenses and interest related to the
foregoing.

(4) "Party" means a natural person who was or is, or who is
threatened to be made, a named defendant or respondent in a
Proceeding.

(5) "Proceeding" means any threatened, pending or completed
civil, criminal, administrative or investigative action, suit,
arbitration or other proceeding, whether formal or informal (including
but not limited to any act or failure to act alleged or determined to
have been negligent, to have violated the Employee Retirement Income
Security Act of 1974, or to have violated Section 180.0833 of the
Wisconsin Statutes, or any successor thereto, regarding improper
dividends, distributions of assets, purchases of shares of the
Corporation, or loans to officers), which involves foreign, federal,
state or local law and which is brought by or in the right of the
Corporation or by any other person or entity.

(b) Indemnification of Officers, Directors, Employees and Agents.

(1) The Corporation shall indemnify a Director, Officer,
Employee or Agent to the extent he or she has been successful on the
merits or otherwise in the defense of any Proceeding, for all
reasonable Expenses incurred in the Proceeding if the Director,
Officer, Employee or Agent was a Party because he or she is a
Director, Officer, Employee or Agent of the Corporation.

(2) In cases not included under subsection (1), the
Corporation shall indemnify a Director, Officer, Employee or Agent
against Liability and Expenses

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<PAGE>

incurred in a Proceeding to which the Director, Officer, Employee or
Agent was a Party because he or she is a Director, Officer, Employee
or Agent of the Corporation, unless it is determined by final judicial
adjudication that such person breached or failed to perform a duty
such person owed to the Corporation and the breach or failure
constitutes any of the following:

(i) A willful failure to deal fairly with the
Corporation or its shareholders in connection with a matter in
which the Director, Officer, Employee or Agent has a material
conflict of interest;

(ii) A violation of criminal law, unless the Director,
Officer, Employee or Agent had reasonable cause to believe that
his or her conduct was lawful or no reasonable cause to believe
his or her conduct was unlawful;

(iii) A transaction from which the Director, Officer,
Employee or Agent derived an improper personal profit; or

(iv) Willful misconduct.

(3) Indemnification under this Section 7.1 is not required
to the extent the Director, Officer, Employee or Agent has previously
received indemnification or allowance of expenses from any person or
entity, including the Corporation, in connection with the same
Proceeding.

(4) Indemnification required under subsection (b) (1) shall
be made within 10 days of receipt of a written demand for
indemnification. Indemnification required under subsection (b) (2)
shall be made within 30 days of receipt of a written demand for
indemnification.

(5) Upon written request by a Director, Officer, Employee
or Agent who is a Party to a Proceeding, the Corporation shall pay or
reimburse his or her reasonable Expenses as incurred if the Director,
Officer, Employee or Agent provides the Corporation with all of the
following:

(i) A written affirmation of his or her good faith
belief that he or she is entitled to indemnification under
Section 7.1; and

(ii) A written undertaking, executed personally or on
his or her behalf, to repay all amounts advanced without interest
to the extent that it is ultimately determined that
indemnification under Section 7.1(b)(2) is prohibited. The
undertaking under this subsection shall be accepted without
reference to the ability of the Director, Officer, Employee or
Agent to repay the allowance. The undertaking shall be unsecured.

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<PAGE>

(1) Unless provided otherwise by a written agreement
between the Director, Officer, Employee or Agent and the Corporation,
determination of whether indemnification is required under subsection
(b) shall be made by one of the following methods, which in the case
of a Director or Officer seeking indemnification shall be selected by
such Director or Officer: (i) by a majority vote of a quorum of the
Board of Directors consisting of directors who are not at the time
Parties to the same or related Proceedings or, if a quorum of
disinterested directors cannot be obtained, by a majority vote of a
committee duly appointed by the Board of Directors (which appointment
by the Board may be made by directors who are parties to the
Proceeding) consisting solely of two or more directors who are not at
the time parties to the same or related Proceedings, (ii) by
independent legal counsel selected by a quorum of the Board of
Directors or its committee constituted as required under (i) above or,
if unable to obtain such a quorum or constitute such committee, by a
majority vote of the full Board of Directors, including directors who
are parties to the same or related Proceedings, (iii) by a panel of
three arbitrators consisting of (a) one arbitrator selected by a
quorum of the Board of Directors or its committee constituted as
required under (i), above, or, if unable to obtain such a quorum or
committee, by a majority vote of the full Board of Directors,
including directors who are parties to the same or related
Proceedings, (b) one arbitrator selected by the director or officer
seeking indemnification and (c) one arbitrator selected by the other
two arbitrators, (iv) by an affirmative vote of shareholders as
provided under Section 2.9, except that shares owned by, or voted
under the control of, persons who are at the time parties to the same
or related proceedings, whether as plaintiffs or defendants or in any
other capacity, may not be voted in making the determination, or (v)
by a court of competent jurisdiction as permitted under the Wisconsin
Business Corporation Law; provided, however, that with respect to any
additional right to indemnification permissible under the Wisconsin
Business Corporation Law and granted by the Corporation, the
determination of whether such additional right of indemnification is
required shall be made by any method permissible under the Wisconsin
Business Corporation Law, as such methods may be limited by the grant
of such additional right to indemnification. The termination of a
Proceeding by judgment, order, settlement or conviction, or upon a
plea of no contest or an equivalent plea, does not, by itself create a
presumption that indemnification of the Director, Officer, Employee or
Agent is not required under this Article.

(2) A Director, Officer, Employee or Agent who seeks
indemnification under this Section 7.1 shall make a written request to
the Corporation. As a further pre-condition to any right to receive
indemnification, the writing shall contain a declaration that the
Corporation shall have the right to exercise all rights and remedies
available to such Director, Officer, Employee or Agent against any
other person, corporation, foreign corporation, partnership, joint
venture, trust or other enterprise, arising out of, or related to, the
Proceeding which

19
<PAGE>

resulted in the Liability and the Expense for which such Director,
Officer, Employee or Agent is seeking indemnification, and that the
Director, Officer, Employee or Agent is hereby deemed to have assigned
to the Corporation all such rights and remedies.

(d) Severability. The provisions of this Section 7.1 shall not
apply in any circumstance where a court of competent jurisdiction
determines that indemnification would be invalid as against public policy,
but such provisions shall not apply only to the extent that they are
invalid as against public policy and shall otherwise remain in full force
and effect.

(e) Limitation or Expansion of Indemnification. The right to
indemnification under this Section 7.1 may be limited or reduced only by
subsequent affirmative vote of not less than two-thirds of the
Corporation's outstanding shares entitled to vote on such matters. Any
limitation or reduction in the right to indemnification may only be
prospective from the date of such vote. The Board of Directors, however,
shall have the authority to expand the indemnification permitted under this
Section 7.1 to the fullest extent permissible under the Wisconsin Business
Corporation Law as in effect on the date of any such resolution with or
without further amendment to this Section 7.1.

SECTION 7.2. Insurance. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is a Director,
Officer, Employee or Agent against any Liability asserted against or incurred by
the individual in any such capacity or arising out of his or her status as such,
regardless of whether the Corporation is required or authorized to indemnify or
allow expenses to the individual under Section 7.1.

ARTICLE VIII. AMENDMENTS
------------------------

SECTION 8.1. Amendment by the Board of Directors. The By-Laws of the
Corporation may be amended or repealed by the Board of Directors unless any of
the following apply:

(a) The Articles of Incorporation, the particular by-law or the
Wisconsin Business Corporation Law reserve this power exclusively to the
shareholders in whole or part;

(b) The shareholders in adopting, amending, or repealing a
particular by-law provide expressly within the by-law that the Board of
Directors may not amend, repeal or readopt that by-law; or

(c) The by-law fixes a greater or lower quorum requirement or
greater voting requirement for the Board of Directors, unless the
shareholders in adopting or amending such by-law provide expressly within
the by-law that it may be amended or repealed by a specified vote of the
Board of Directors.

20
<PAGE>

The Corporation's By-Laws may be amended, altered, or repealed, and new By-Laws
may be enacted, only by the affirmative vote of not less than a majority of the
entire Board of Directors then in office. Action by the Board of Directors to
adopt or amend a by-law that changes the quorum or voting requirement for the
Board of Directors must meet the same quorum requirement and be adopted by the
same vote required to take action under the quorum and voting requirement then
in effect, except where a different voting requirement is specified as provided
in Section 8.1(c). A by-law that fixes a greater or lower quorum requirement or
a greater voting requirement for shareholders or voting groups of shareholders
than otherwise provided in the Wisconsin Business Corporation Law may not be
adopted, amended or repealed by the Board of Directors.

SECTION 8.2. Amendment by the Corporation's Shareholders. The
Corporation's shareholders may amend or repeal the Corporation's By-Laws or
adopt new by-laws even though the Board of Directors may also amend or repeal
the Corporation's By-Laws or adopt new by-laws. The Corporation's By-Laws may be
amended, altered or repealed, and new By-Laws may be enacted, only by the
affirmative vote of the holders of not less than two-thirds of the outstanding
shares of the Corporation entitled to vote at a meeting of shareholders duly
called for such purpose and by the affirmative vote of the holders of not less
than two-thirds of the shares of each class or series, if any, entitled to vote
thereon at such meeting. The adoption or amendment of a by-law that adds,
changes or deletes a greater or lower quorum requirement or a greater voting
requirement for shareholders or the Board of Directors must meet the same quorum
and voting requirement then in effect.

SECTION 8.3. Implied Amendments. Any action taken or authorized by
the Board of Directors or by the shareholders which would be inconsistent with
the By-Laws then in effect but which is taken or authorized by affirmative vote
of not less than the number of directors or the shares required to amend the By-
Laws so that the By-Laws would be consistent with such action shall be given the
same effect as though the By-Laws had been temporarily amended or suspended so
far, but only so far, as is necessary to permit the specific action so taken or
authorized.

ARTICLE IX. CORPORATE SEAL
--------------------------

SECTION 9.1. Corporate Seal. The Board of Directors may provide for a
corporate seal which may be circular in form and have inscribed thereon any
designation including the name of the Corporation, Wisconsin as the state of
incorporation, and the words "Corporate Seal." Any instrument executed in the
corporate name by the proper officers of the Corporation under any seal,
including the words "Seal," "Corporate Seal" or similar designation, is sealed
even though the corporate seal is not used.

ARTICLE X. EMERGENCY BY-LAWS
----------------------------

SECTION 10.1. Emergency By-Laws. Unless the Articles of Incorporation
provide otherwise, the following provisions of this Article X shall be effective
during an "Emergency,"

21
<PAGE>

which is defined as a catastrophic event that prevents a quorum of the
Corporation's directors from being readily assembled.

SECTION 10.2. Notice of Board Meetings. During an Emergency, any one
member of the Board of Directors or any one of the following officers: Chairman
of the Board, Vice Chairman of the Board, Chief Executive Officer, President,
any Vice-President, Secretary or Treasurer, may call a meeting of the Board of
Directors. Notice of such meeting need be given only to those directors whom it
is practicable to reach, and may be given in any practical manner, including by
publication or radio. Such notice shall be given at least six hours prior to
commencement of the meeting.

SECTION 10.3. Temporary Directors and Quorum. One or more officers of
the Corporation present at the Emergency meeting of the Board of Directors, as
is necessary to achieve a quorum, shall be considered to be directors for the
meeting, and shall so serve in order of rank, and within the same rank, in order
of seniority. In the event that less than a quorum (as determined by Section
3.11) of the directors are present (including any officers who are to serve as
directors for the meeting), those directors present (including the officers
serving as directors) shall constitute a quorum.

SECTION 10.4. Actions Permitted To Be Taken. The Board of Directors
as constituted in Section 10.3, and after notice as set forth in Section 10.2
may:

(a) Officers' Powers. Prescribe emergency powers to any officers
of the Corporation;

(b) Delegation of Any Power. Delegate to any officer or
director, any of the powers of the Board of Directors;

(c) Lines of Succession. Designate lines of succession of
officers and agents, in the event that any of them are unable to discharge
their duties;

(d) Relocate Principal Place of Business. Relocate the principal
place of business, or designate successive or simultaneous principal places
of business; and

(e) All Other Action. Take any and all other action, convenient,
helpful, or necessary to carry on the business of the Corporation.

Corporate action taken in good faith in accordance with the emergency by-laws
binds the Corporation and may not be used to impose liability on any of the
Corporation's directors, officers, employees or agents.

<PAGE>
Exhibit 4.1

[LOGO OF ADVANTAGE LEARNING SYSTEMS, INC.]

<TABLE>
<CAPTION>
<C> <S> <C>
[NUMBER] [SHARES]

SEE REVERSE SIDE FOR
CERTAIN DEFINITIONS INCORPORATED UNDER THE LAWS OF THE STATE OF WISCONSIN CUSIP 00757K-10-0

Advantage Learning Systems, Inc.

AUTHORIZED COMMON SHARES OF 50,000,000 PAR VALUE $0.01 EACH

</TABLE>
This to certify that
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF ADVANTAGE LEARNING SYSTEMS, INC.
transferable on the books of the Corporation in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof the Corporation has caused this Certificate to be signed
by its duly authorized officers and sealed with the Seal of the Corporation.

Dated

Richard W. Fickey Judith A. Paul
Secretary Chairman

Countersigned and Registered:
FIRSTAR TRUST COMPANY
(Milwaukee, WI) Transfer Agent

Authorized Signature
<PAGE>

The following abbreviations, when used in the inscription on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations:

UNIF GIFT MIN ACT___________Custodian_____________
(Cust) (Minor)
Under Uniform Gift to Minors.

Act = ________
(State)

UNIF TRANS MIN ACT___________Custodian_____________
(Cust) (Minor)
Under Uniform Transfer to Minors

Act = ________
(State)

TEN COM = as tenants in common
TEN ENT = as tenants by the entities
JT TEN = as joint tenants with right of survivorship
and not as tenants in common

Additional abbreviations may also be used though not in the above list.

For Value Received ________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------

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

- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)

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

- ------------------------------------------------------------------------- Shares

of the common stock represented by the within Certificate and do hereby
irrevocably constitute and appoint ____________________________ Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.

Date________________________ X_________________________________
SIGNATURE

NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRE-
SPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.

_________________________________
SIGNATURE GUARANTEED

SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR STOCK
BROKER AFFILIATED WITH ONE OF THE MAJOR STOCK EXCHANGES

2 OF 3

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement.

Arthur Andersen LLP

Milwaukee, Wisconsin
April 8, 1997

<PAGE>

EXHIBIT 99.1

CONSENT OF DIRECTOR DESIGNEE

April 11, 1997

The undersigned hereby consents, pursuant to Rule 438 under the Securities
Act of 1933, as amended, to the references to him as a future director of
Advantage Learning Systems, Inc., in the Prospectus included in this
Registration Statement.

/s/ John H. Grunewald
Signed: _____________________________
John H. Grunewald

<PAGE>

EXHIBIT 99.2

CONSENT OF DIRECTOR DESIGNEE

April 8, 1997

/s/ Perry S. Akins

Signed: ________________________

Perry S. Akins