SCHOOL SPECIALTY INC, S-1, 1998-03-06

SCHOOL SPECIALTY INC
S-1, 1998-03-06
DEPARTMENT STORES

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1998

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCHOOL SPECIALTY, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 5112 52-2080520
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

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

1000 NORTH BLUEMOUND DRIVE
APPLETON, WISCONSIN 54914
(920) 734-2756
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

DANIEL P. SPALDING
CHIEF EXECUTIVE OFFICER
SCHOOL SPECIALTY, INC.
1000 NORTH BLUEMOUND DRIVE
APPLETON, WISCONSIN 54914
(920) 734-2756
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------

<TABLE>
<S> <C>
COPIES TO:
GEORGE P. STAMAS, ESQ. EDWIN D. WILLIAMSON, ESQ.
WILMER, CUTLER & PICKERING SULLIVAN & CROMWELL
2445 M STREET, N.W. 1701 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20037 WASHINGTON, D.C. 20006
(202) 663-6000 (202) 956-7500
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as possible after the effective date of this Registration
Statement.

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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the offering. / /______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, 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(d)
under the Securities Act, 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,
check the following box. / /
------------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
OFFERING REGISTRATION
TITLE OF SECURITIES TO BE REGISTERED PRICE(1) FEE
<S> <C> <C>
Common Stock, par value $.001 per share........................ $50,000,000 $14,750.00
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) of the Securities Act.
------------------------------

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.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 6, 1998

SHARES
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.
<PAGE>
SCHOOL SPECIALTY, INC.

COMMON STOCK

(PAR VALUE $.001 PER SHARE)

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

All of the shares of Common Stock offered hereby are being sold by
the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $ and $ . For factors considered in
determining the initial public offering price, see "Underwriting".

SEE "RISK FACTORS" ON PAGE 5 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.

Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ABCZ".

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

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.
------------------------

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------------------------ ------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total(3)............................... $ $ $
</TABLE>

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

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

(2) Before deducting estimated expenses of $ payable by the Company.

(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ , $ , and
$ , respectively. See "Underwriting".
------------------------

The shares offered hereby are offered serverally by the Underwriters, as
specified herein, subject to receipt and acceptances by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York, on
or about April , 1998, against payment therefor in immediately available
funds.

GOLDMAN, SACHS & CO.

NATIONSBANC MONTGOMERY SECURITIES LLC

SALOMON SMITH BARNEY

PIPER JAFFRAY INC.

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

The date of this prospectus is April , 1998.
<PAGE>
PICTURES TO COME

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

Childcraft Education Corp.-Registered Trademark- is a trademark of
Childcraft Education Corp. Sax Arts & Crafts-Registered Trademark- is a
trademark of Sax Arts & Crafts, Inc. and School Specialty-Registered Trademark-
is a trademark of School Specialty. Gresswell is a common law trademark of
School Specialty.
------------------------

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

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. STOCKHOLDERS SHOULD READ THE PROSPECTUS IN ITS ENTIRETY. UNLESS THE
CONTEXT REQUIRES OTHERWISE, REFERENCES TO THE COMPANY INCLUDE ITS SUBSIDIARIES.

THE COMPANY

School Specialty, Inc. (the "Company" or "School Specialty") is the largest
U.S. distributor focusing on non-textbook educational supplies and furniture for
grades pre-kindergarten through 12 ("pre-K-12"). The Company provides a
comprehensive offering of high quality educational supplies and furniture to
school districts, school administrators and teachers through the broad
distribution of its catalogs. School Specialty distributes general school
supplies, including classroom and art supplies, instruction materials, furniture
and equipment. The Company also distributes supplies and furniture for certain
educational disciplines, including early childhood education under the
Childcraft name, art supplies under the Sax Arts & Crafts name and
library-related products under the Gresswell name. In order to broaden its
geographic presence and product offering, the Company has acquired 14 companies
since May 1996. For the twelve months ended October 25, 1997, the Company's pro
forma revenues aggregated $355.8 million and pro forma net income aggregated
$10.2 million, which represented compound annual increases of 47% and 105%,
respectively, over sales and net income for the year ended December 31, 1994.

With over 32,000 stock keeping units ("SKUs"), School Specialty offers
customers one source for virtually all of their non-textbook school supply and
furniture needs. School Specialty markets its products through an innovative
two-pronged approach, targeting both administrators and teachers to cover the
full spectrum of decision makers. The Company's "top down" approach, utilizing
its 290 sales representatives and its School Specialty general supply and
furniture catalog (the "School Specialty Catalog") focuses on procurement
officials at the state, regional and local levels, while its "bottom up"
approach focuses on curriculum specialists and teachers. Sales to curriculum
specialists and over 2.1 million teachers are made primarily through the 6.3
million general supply catalogs of The Re-Print Corp. ("Re-Print") and specialty
catalogs that are mailed each year.

Annual sales of non-textbook educational supplies and equipment to the
school supply market aggregate approximately $6.1 billion, with over $3.6
billion sold to institutions and $2.5 billion sold to consumers, according to
the National School Supply & Equipment Association ("NSSEA"). There are over
3,400 distributors of school supplies, the majority of which are family- or
employee-owned companies with revenues under $20 million that operate in a
single region. The Company believes the demand for timely order fulfillment at
competitive prices, combined with the need to invest in automated inventory and
electronic ordering systems, is accelerating the trend toward consolidation in
the industry. School Specialty also believes that it is well positioned to
capitalize on this consolidation as the largest distributor in its industry with
annual revenues which it believes exceed those of its next two largest
competitors combined. Although the Company is the largest distributor in the
industry, its share of the $6.1 billion school supply market is less than 6%,
giving the Company substantial growth opportunities.

The volume of school supplies is directly influenced by the size of the
student population. Kindergarten through 12th grade ("K-12") student enrollment
reached an all-time peak in 1996 with 51.5 million students and the U.S.
Department of Education projects that student enrollment will continue to grow
to 54.3 million by the year 2006. As a result of these trends, the U.S.
Department of Education projects that expenditures in public elementary and
secondary schools will continue to rise through the year 2007. These rising
expenditures include a projected increase in total per pupil spending in current
dollars from $5,961 per pupil in 1997 to $7,179 by the year 2001. The Company
believes that as the largest U.S. distributor of non-textbook educational
supplies it will be a major beneficiary of this growth in expenditures.

<PAGE>
KEY STRENGTHS

School Specialty attributes its strong competitive position to the following
key strengths:

LEADING MARKET POSITION. The Company has developed its leading market
position over its 38 year history by emphasizing high quality products, superior
order fulfillment, exceptional customer service and brand name recognition. The
Company believes its annual revenues exceed those of its next two largest
competitors combined and that its large size and brand recognition have resulted
in significant buying power, economies of scale and customer loyalty.

BROAD PRODUCT LINE. School Specialty's strategy is to provide a full range
of high quality products to meet the complete supply needs of pre-K-12 schools
and as a result currently offers over 32,000 SKUs ranging from classroom
supplies to playground equipment.

School Specialty offers customers one source for virtually all of their
school supply needs.

INNOVATIVE TWO-PRONGED DISTRIBUTION. The Company targets administrative
decision makers with a "top down" approach through its 290 person sales force
and School Specialty Catalog, and teachers and curriculum specialists with a
"bottom up" approach primarily through the 6.3 million Re-Print general supply,
and specialty catalogs mailed each year.

ABILITY TO INTEGRATE ACQUISITIONS. School Specialty has successfully
completed the acquisition of 19 companies since 1991, 14 of which have been
acquired since May 1996. The Company believes that it can generate significant
economies of scale and rapidly improve the margins of acquired entities, as well
as increase sales, by channeling acquired entities products through its broad
distribution network. See "Business--Company Strengths".

USE OF TECHNOLOGY. The Company believes that through the utilization of
technology in areas such as (i) purchasing and inventory management, (ii)
customer order fulfillment, and (iii) database management, School Specialty is
able to turn inventory more quickly than competitors, offer customers more
convenient and cost effective product ordering methods and conduct more
precisely targeted sales and marketing campaigns.

EXPERIENCED MANAGEMENT. School Specialty's management team provides depth
and continuity of experience. Management's interests are aligned with those of
its shareholders as management's incentive-based compensation is tied to School
Specialty's operating profitability.

GROWTH STRATEGY

School Specialty's objective is to further enhance its position as the
leading distributor of non-textbook educational supplies through the continued
implementation of the following strategies:

IMPROVE PROFITABILITY. School Specialty improved its operating margin from
3.1% in 1993 to 7.3% for the pro forma twelve months ended October 25, 1997.
School Specialty believes that there are substantial opportunities to further
improve margins by (i) increasing the efficiency of recent acquisitions, (ii)
expanding purchasing power and (iii) improving warehousing and distribution.

PENETRATE NEW MARKETS AND EXPAND CUSTOMER BASE IN EXISTING MARKETS. School
Specialty believes that it can increase revenues by adding sales representatives
in geographic markets in which the Company does not have a significant presence.
In addition, the Company believes that it can further increase revenues by cross
merchandising its specialty product lines to its general supplies customers.

2
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... Shares
Proposed Nasdaq National Market symbol....... ABCZ
Use of proceeds.............................. For general corporate purposes, principally
working capital and repayment of certain
indebtedness allocated to the Company by U.S.
Office Products Company ("U.S. Office
Products"), and for potential acquisitions.
</TABLE>

THE SPIN-OFF FROM U.S. OFFICE PRODUCTS

Prior to the completion of this Offering, all of the shares of School
Specialty Common Stock owned by U.S. Office Products will be distributed to the
stockholders of U.S. Office Products in a spin-off (the "School Specialty
Distribution" or the "Distribution"). The School Specialty Distribution is part
of a strategic restructuring plan (the "Strategic Restructuring Plan") in which
U.S. Office Products is spinning off the shares of the four companies (the
"Spin-Off Companies") that will conduct U.S. Office Products' current print
management, technology solutions, educational supplies and corporate travel
services businesses. (These spin-offs are collectively referred to as the
"Distributions".) See "The Spin-Off from U.S. Office Products".

3
<PAGE>
SUMMARY FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL
YEAR
FOUR MONTHS ENDED SIX MONTHS
FISCAL YEAR ENDED ENDED APRIL ENDED
DECEMBER 31, ----------- 26, -----------
------------------ APRIL 30, -------- OCTOBER 26,
1994 1995 1996 1997 1996
-------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues...................... $119,510 $150,482 $28,616 $191,746 $130,673
Cost of revenues.............. 87,750 105,757 20,201 136,577 92,740
-------- -------- ----------- -------- -----------
Gross profit.................. 31,760 44,725 8,415 55,169 37,933
Selling, general and
administrative expenses..... 27,281 39,869 10,307 43,462 24,212
Non-recurring acquisition
costs....................... 1,122 1,792 1,792
Restructuring costs........... 2,532 194
-------- -------- ----------- -------- -----------
Operating income (loss)....... 4,479 2,324 (3,014) 9,721 11,929
Interest expense.............. 3,007 5,536 1,461 2,550 1,725
Interest income............... (6) (24)
Other (income) expense........ (86) (18) 67 (196) 40
-------- -------- ----------- -------- -----------
Income (loss) before provision
for (benefit from) income
taxes....................... 1,558 (3,194) (4,536) 7,367 10,188
Provision for (benefit from)
income taxes................ 218 173 139 (1,572) (2,170)
-------- -------- ----------- -------- -----------
Net income (loss)............. $ 1,340 $ (3,367) $(4,675) $ 8,939 $ 12,358
-------- -------- ----------- -------- -----------
-------- -------- ----------- -------- -----------
Pro forma net income per
share.......................
Pro forma weighted
average shares
outstanding(3)..............

<CAPTION>
PRO FORMA
---------------------------------------------------------
TWELVE TWELVE
MONTHS MONTHS
ENDED FISCAL YEAR SIX MONTHS ENDED ENDED
----------- ENDED APRIL 26, ------------------------- -----------
OCTOBER 25, OCTOBER 25, --------------- OCTOBER 26, OCTOBER 25, OCTOBER 25,
1997 1997(6) 1997(2) 1996(2) 1997(2) 1997(2)(7)
----------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues...................... $198,490 $259,563 $339,546 $234,821 $251,119 $355,844
Cost of revenues.............. 138,781 182,618 235,327 162,158 175,374 248,543
----------- ----------- --------------- ----------- ----------- -----------
Gross profit.................. 59,709 76,945 104,219 72,663 75,745 107,301
Selling, general and
administrative expenses..... 35,682 54,932 83,239 48,194 46,269 81,314
Non-recurring acquisition
costs....................... --
Restructuring costs........... 194 194 194
----------- ----------- --------------- ----------- ----------- -----------
Operating income (loss)....... 24,027 21,819 20,786 24,469 29,476 25,793
Interest expense.............. 1,570 2,395 7,040 3,880 3,880 7,040
Interest income............... (104) (80)
Other (income) expense........ 3 (233) (159) 73 59 (173)
----------- ----------- --------------- ----------- ----------- -----------
Income (loss) before provision
for (benefit from) income
taxes....................... 22,558 19,737 13,905 20,516 25,537 18,926
Provision for (benefit from)
income taxes................ 10,151 10,749 6,396 9,437 11,747 8,706
----------- ----------- --------------- ----------- ----------- -----------
Net income (loss)............. $ 12,407 $ 8,988 $ 7,509 $ 11,079 $ 13,790 $ 10,220
----------- ----------- --------------- ----------- ----------- -----------
----------- ----------- --------------- ----------- ----------- -----------
Pro forma net income per
share....................... $ 0.08 $ 0.12 $ 0.14 $ 0.11
--------------- ----------- -----------
--------------- ----------- -----------
Pro forma weighted
average shares
outstanding(3).............. 95,963 95,963 95,963 95,963
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- APRIL 30,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................................... $ 3,512 $ (1,052) $ (3,663)
Total assets................................................................................ 44,267 54,040 54,573
Long-term debt, less current portion........................................................ 11,675 15,294 15,031
Long-term payable to U.S. Office Products...................................................
Stockholder's (deficit) equity.............................................................. 1,827 (620) (4,267)

<CAPTION>
OCTOBER 25, 1997
------------------------
APRIL 26, PRO
1997 ACTUAL FORMA(4)
--------- ----------- -----------
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................................... $ 13,619 $ 43,938 $ 81,458
Total assets................................................................................ 87,685 201,304 237,772
Long-term debt, less current portion........................................................ 565 457 79,737
Long-term payable to U.S. Office Products................................................... 31,579 103,306
Stockholder's (deficit) equity.............................................................. 17,136 33,109 119,834

PRO FORMA
AS ADJUSTED(5)
--------------
BALANCE SHEET DATA:
Working capital (deficit)...................................................................
Total assets................................................................................
Long-term debt, less current portion........................................................
Long-term payable to U.S. Office Products...................................................
Stockholder's (deficit) equity..............................................................
</TABLE>

- ------------------------
(1) The historical financial information of the businesses that were acquired in
business combinations accounted for under the pooling-of-interests method
(the "Pooled Companies") have been combined on a historical cost basis in
accordance with generally accepted accounting principles ("GAAP") to present
this financial data as if the Pooled Companies had always been members of
the same operating group. The financial information of the businesses
acquired in the business combinations accounted for under the purchase
method is included from the dates of their respective acquisitions. The pro
forma financial data reflect acquisitions completed by the Company through
March 5, 1998.

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

(3) For calculation of the pro forma weighted average shares outstanding for the
fiscal year ended April 26, 1997 and for the six months ended October 25,
1997 and October 26, 1996, see Note 2(h) of Notes to Pro Forma Combined
Financial Statements included herein.

(4) Gives effect to the School Specialty Distribution and the purchase
acquisition completed by the Company subsequent to October 25, 1997 as if
such transaction had been made on October 25, 1997. The pro forma balance
sheet data are not necessarily indicative of the financial position that
would have been achieved had these events actually then occurred and should
not be construed as representative of future financial position.

(5) Adjusted to give effect to the sale by the Company of shares of Common
Stock offered hereby at the assumed initial public offering price and the
anticipated application of the estimated net proceeds therefrom. See
"Underwriting".

(6) This column has been calculated based upon the results for fiscal year ended
April 26, 1997 less the results for the six month period ended October 26,
1996 plus the results for the six months ended October 25, 1997.

(7) The results for this period have been calculated based upon the pro forma
results for the fiscal year ended April 26, 1997 less the pro forma results
for the six months ended October 26, 1996 plus the pro forma results for the
six months ended October 25, 1997.

4
<PAGE>
RISK FACTORS

THE FOLLOWING FACTORS SHOULD BE CONSIDERED IN ADDITION TO OTHER INFORMATION
INCLUDED IN THIS PROSPECTUS.

POTENTIAL VOLATILITY OF STOCK PRICE, RISKS ASSOCIATED WITH SHARES ELIGIBLE FOR
IMMEDIATE SALE

As a result of the School Specialty Distribution, stockholders of U.S.
Office Products are acquiring shares of School Specialty Common Stock
that are freely tradeable at the time of this Offering without restrictions or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except that any shares held by "affiliates" of School
Specialty within the meaning of the Securities Act will be subject to the resale
limitations of Rule 144 promulgated under the Securities Act ("Rule 144").
Because the School Specialty Distribution is being made to existing shareholders
of U.S. Office Products, who have not made an affirmative decision to invest in
School Specialty Common Stock, there can be no assurance that some or all of
these shareholders will not sell the shares of School Specialty Common Stock
into the market shortly after the School Specialty Distribution. In addition,
U.S. Office Products is included in certain broad-based indices tracked by a
number of investment companies and other institutional investors, and such
investors can be expected to sell the shares of School Specialty Common Stock
they receive in the School Specialty Distribution shortly thereafter.

A "when-issued" trading market in School Specialty Common Stock may develop
immediately. Such trading could increase the volatility of, and adversely affect
the market price of, the School Specialty Common Stock.

In addition, upon completion of this Offering and the School Specialty
Distribution, School Specialty will have outstanding (i) shares of
School Specialty Common Stock issued in this Offering, and (ii) immediately
exercisable options to acquire approximately shares of School
Specialty Common Stock following this offering. Following this Offering and the
School Specialty Distribution, in view of the large number of shares
freely-tradeable and available for immediate sale, the market for School
Specialty's Common Stock could be highly volatile and could adversely affect the
trading price of School Specialty Common Stock. See "Management of School
Specialty--Director Compensation and Other Arrangements". The officers and
directors of School Specialty who together hold shares of School Specialty
Common Stock have agreed not to sell or otherwise dispose of any School
Specialty Common Stock without the prior written consent of the Underwriters for
a period of 180 days from the date of this Prospectus (the "Lock-Up
Agreements"). The Company intends to register the shares of School
Specialty Common Stock reserved for issuance pursuant to its stock option plan
as soon as practicable after the closing of this Offering.

POTENTIAL LIABILITY FOR TAXES RELATED TO THE DISTRIBUTIONS

In connection with the Distributions, U.S. Office Products will enter into a
tax allocation agreement with School Specialty and the other Spin-Off Companies
(the "Tax Allocation Agreement") which will provide that the Spin-Off Companies
will jointly and severally indemnify U.S. Office Products for any losses
associated with taxes related to the Distributions ("Distribution Taxes") if an
action or omission (an "Adverse Tax Act") of any of the Spin-Off Companies
materially contributes to a final determination that any or all of the
Distributions are taxable. School Specialty will also enter into a tax
indemnification agreement with the other Spin-Off Companies (the "Tax
Indemnification Agreement") under which the Spin-Off Company that is responsible
for the Adverse Tax Act will indemnify the other Spin-Off Companies for any
liability to indemnify U.S. Office Products under the Tax Allocation Agreement.
As a consequence, School Specialty will be liable for any Distribution Taxes
resulting from any Adverse Tax Act by School Specialty and liable (subject to
indemnification by the other Spin-Off Companies) for any Distribution Taxes
resulting from an Adverse Tax Act by the other Spin-Off Companies. If there is a
final determination that any or all of the Distributions are taxable and it is
determined that there has not been

5
<PAGE>
an Adverse Tax Act by either U.S. Office Products or any of the Spin-Off
Companies, U.S. Office Products and each of the Spin-Off Companies will be
liable for its pro rata portion of the Distribution Taxes based on the value of
each company's common stock after the Distributions. As a result, School
Specialty could become liable for a pro rata portion of any Distribution Taxes
with respect not only to the School Specialty Distribution, but also any of the
other Distributions. See "The Spin-Off from U.S. Office Products--Tax Allocation
Agreement and Tax Indemnification Agreement" for a detailed discussion of the
Tax Allocation Agreement and the Tax Indemnification Agreement.

RISKS RELATED TO INTEGRATION OF OPERATIONS AND ACQUISITIONS

An important element of School Specialty's business strategy for its
distribution divisions is to integrate its acquisitions into its existing
operations. There can be no assurance that School Specialty will be able to
integrate future acquisitions in a timely manner without substantial costs,
delays, or other problems. Once integrated, acquisitions may not achieve sales,
profitability, and asset productivity commensurate with School Specialty's
existing divisions. In addition to integration risks for distribution divisions,
acquisitions of both distribution divisions and specialty brand companies
involve a number of special risks, including adverse short-term effects on
School Specialty's reported operating results (including those adverse
short-term effects caused by severance payments to employees of acquired
companies, restructuring charges associated with the acquisitions and other
expenses associated with a change of control, as well as non-recurring
acquisition costs including accounting and legal fees, investment banking fees,
recognition of transaction-related obligations, and various other acquisition-
related costs), the diversion of management's time and attention, the dependence
on retaining, hiring, and training key personnel, the amortization of acquired
intangible assets, and risks associated with unanticipated problems or
liabilities, some or all of which could have a material adverse effect on School
Specialty's operations and financial condition. Furthermore, although School
Specialty conducts due diligence and generally requires representations,
warranties, and indemnifications from the former owners of acquired companies,
there can be no assurance that such owners will have accurately represented the
financial and operating conditions of their companies. If an acquired company's
financial or operating results were misrepresented, the acquisition could have a
material adverse effect on the results of operations and financial condition of
School Specialty. See "Business--Business Strategy-- Acquisition Strategy".

DEPENDENCE UPON ACQUISITIONS FOR FUTURE GROWTH

One of School Specialty's strategies is to increase its revenues and the
markets it serves through the acquisition of additional school supply
distribution businesses. There can be no assurance that suitable candidates for
acquisitions can be identified or, if suitable candidates are identified, that
acquisitions can be completed on acceptable terms, if at all. There can be no
assurance that future acquisitions will prove profitable at the time of their
acquisition or will achieve sales and profitability that justify the investment
therein. The failure to complete acquisitions and continue its expansion could
have a material adverse effect on School Specialty's financial condition. In
addition, prior to the School Specialty Distribution, School Specialty's
acquisitions were completed with substantial business, legal, and accounting
assistance from U.S. Office Products, and some of the acquisitions were paid for
with U.S. Office Products Common Stock. The pace of School Specialty's
acquisition program may be adversely affected by the absence of U.S. Office
Products support for the acquisitions. Also, School Specialty intends to use
School Specialty Common Stock to pay for a portion of the consideration for its
acquisitions, and therefore, if the owners of potential acquisition candidates
are not willing to receive, or School Specialty is not able to issue, shares of
School Specialty Common Stock in exchange for their business, School Specialty's
acquisition program could be adversely affected. Furthermore, the Company's
ability to pay for acquisitions with stock may be materially limited in the
two-year period following the School Specialty Distribution. See "--Possible
Limitations on Issuances of Common Stock".

6
<PAGE>
POSSIBLE LIMITATIONS ON ISSUANCES OF COMMON STOCK

U.S. Office Products has sought to structure the School Specialty
Distribution to qualify as a tax-free spin-off under Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code"). Assuming the School Specialty
Distribution qualifies as a tax-free spin-off and is not taxable under section
355(e) of the Code, no gain or loss will be recognized by either U.S. Office
Products or the holders of U.S. Office Products Common Stock (except with
respect to cash received in lieu of fractional shares) solely as a result of the
distribution or receipt of School Specialty Common Stock in connection with the
School Specialty Distribution. As a result of certain U.S. federal income tax
limitations under Section 355 of the Code, the amount of School Specialty
capital stock that can be issued in connection with the School Specialty
Distribution without jeopardizing the tax-free treatment of the School Specialty
Distribution may be limited to 20% of the amount of School Specialty capital
stock that would be issued and outstanding after giving effect to all such
issuances, if such issuances are deemed to occur prior to the School Specialty
Distribution. It is unclear whether stock in the Company that is acquired
pursuant to immediately exercisable options counts toward this 20% limitation.

Section 355(e) of the Code, which was added in 1997, provides generally that
a company that distributes shares in a spin-off that is otherwise tax-free will
incur material U.S. federal income tax if 50% or more, by vote or value, of the
capital stock of the company making the spin-off or of the spun-off entity is
acquired by one or more persons, acting pursuant to a plan or series of related
transactions that includes the spin-off. Stock acquired by persons acting
pursuant to a plan or arrangement, and stock acquired by certain related persons
is aggregated in determining whether this 50% test has been met. There is a
rebuttable presumption that any acquisition occurring two years before or after
the spin-off is pursuant to a plan that includes the spin-off. Such presumption
may be rebutted by establishing that the spin-off and such acquisition are not
pursuant to a plan or series of related transactions. As a result of the
provisions of Section 355(e), there can be no assurance that issuances of stock
by School Specialty, including issuances in connection with an acquisition of
another business by School Specialty, will not create a tax liability for U.S.
Office Products. School Specialty has entered into a Tax Allocation Agreement
and a Tax Indemnification Agreement, pursuant to which School Specialty will be
liable to U.S. Office Products and the other Spin-Off Companies if its actions
result in a tax liability relating to the spin-off. See "The Spin-Off from U.S.
Office Products--Tax Allocation Agreement and Tax Indemnification Agreement".

These limitations could adversely affect the pace of School Specialty's
acquisitions and its ability to issue School Specialty Common Stock for other
purposes, including equity offerings.

RISKS RELATED TO INABILITY TO USE POOLING-OF-INTERESTS METHOD TO ACCOUNT FOR
FUTURE ACQUISITIONS

Generally accepted accounting principles require that an entity be
autonomous for a period of two years before it is eligible to complete business
combinations under the pooling-of-interests method. As a result of School
Specialty being a wholly-owned subsidiary of U.S. Office Products prior to the
Distribution, School Specialty will be unable to satisfy this criterion for a
period of two years following the Distribution. Therefore, School Specialty will
be precluded from completing business combinations under the
pooling-of-interests method for a period of two years and any business
combinations completed by School Specialty during such period will be accounted
for under the purchase method resulting in the recording of goodwill. See
"--Material Amount of Intangible Assets".

SEASONALITY: FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

School Specialty's business is subject to seasonal influences, with sales
and profitability substantially higher from May to October due to increased
school orders during these months. As a result of this seasonality,
historically, School Specialty has earned more than 100% of its annual net
income in the first

7
<PAGE>
six months of its fiscal year and has historically operated at a loss in its
third fiscal quarter. Also, quarterly results may be materially affected by the
timing of acquisitions and the timing and magnitude of acquisition assimilation
costs. Therefore, operating results for any quarter are not necessarily
indicative of the results that may be achieved for any subsequent fiscal quarter
or full fiscal year. Fluctuations caused by variations in quarterly results may
adversely affect the market price of the School Specialty Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of School Specialty" and "Business".

RELIANCE ON KEY PERSONNEL

School Specialty's operations depend on the continued efforts of Daniel P.
Spalding, its Chief Executive Officer, its other executive officers, and the
senior management of certain of its subsidiaries. Furthermore, School
Specialty's operations will likely depend on the senior management of certain of
the companies that may be acquired in the future. If any of these people become
unable to continue in his or her present role, or if School Specialty is unable
to attract and retain other skilled employees, its business could be adversely
affected. School Specialty does have employment contracts with some Named
Officers, as defined herein, but most of the Companies' executive officers and
senior management do not have employment contracts with School Specialty. See
"Management of School Specialty--Director Compensation and Other Arrangements".
School Specialty does not have and does not intend to obtain key man life
insurance covering any of its executive officers or other members of senior
management of its subsidiaries. In addition, Jonathan J. Ledecky will serve as a
director of School Specialty and is expected to provide services to School
Specialty after the School Specialty Distribution pursuant to an agreement
entered into between Mr. Ledecky and U.S Office Products which provides that the
Company and the other Spin-Off Companies will succeed to certain rights of, and
obligations under, such agreement following the Distribution. See "Management of
School Specialty--Director Compensation and Other Arrangements". Mr. Ledecky
will also serve as a director of each of the other Spin-Off Companies, and is
the director or an officer of other public companies. Mr. Ledecky may be
unable to devote substantial time to the activities of School Specialty.

DEPENDENCE ON SYSTEMS

School Specialty believes that one of the competitive advantages of its
distribution divisions is its information systems, including its proprietary
PC-based customer Order Management System ("OMS"). School Specialty's operations
in each of its integrated divisions under School Specialty are generally
dependent on these systems, which are run on a host system located at School
Specialty's headquarters in Appleton, Wisconsin. Each division of School
Specialty is linked to School Specialty's host system and disruption or
unavailability of these links could have a material adverse effect on School
Specialty's business and results of operations.

None of School Specialty's subsidiaries has a redundant computer system or a
redundant dedicated communication line. School Specialty has taken precautions
to protect itself from events that could interrupt its operations.
Notwithstanding these precautions, there can be no assurance that a fire, flood
or other natural disaster affecting School Specialty's system or its
communication lines would not disable the system or prevent the system from
communicating with School Specialty's divisions or the specialty brand
subsidiaries. The occurrence of any of these events would have a material
adverse effect on School Specialty's operations and financial condition.

School Specialty does not expect that it will incur any material costs and
expenses to meet information standards for Year 2000 compliance; however, there
is no assurance that School Specialty's customers or vendors meet information
standards for Year 2000 compliance, and their failure to meet such standards
could adversely affect School Specialty's revenues and product costs.

8
<PAGE>
RISK OF RAPID GROWTH; ABSENCE OF HISTORY AS A STAND-ALONE COMPANY

Since 1991, School Specialty and U.S. Office Products have significantly
expanded the scope of School Specialty's operations by acquiring sixteen
regional distributors of educational supplies in different regions of the United
States and three specialty brand school supply companies. All of School
Specialty's specialty brand acquisitions and eleven of its regional distribution
acquisitions have occurred since June 1996. There can be no assurance that
School Specialty's management and financial controls, personnel, computer
systems, and other corporate support systems will be adequate to manage the
increased size and scope of School Specialty's operations as a result of School
Specialty's recently completed acquisitions.

Prior to the School Specialty Distribution, certain general and
administrative functions relating to School Specialty's business (including
legal, accounting, purchasing and management information services) were handled
by U.S. Office Products. School Specialty's future performance will depend on
its ability to function as a stand-alone entity, on its ability to finance and
manage expanding operations and to adapt its information systems to changes in
its business. As a result, School Specialty's expenses are likely to be higher
than when it was a part of U.S. Office Products, and School Specialty may
experience disruptions it would not encounter as a part of U.S. Office Products.
Furthermore, the financial information included herein may not necessarily
reflect what the results of operations and financial condition would have been
had School Specialty been a separate, stand-alone entity during the periods
presented or be indicative of future results of operations and financial
condition of School Specialty.

DEPENDENCE ON KEY SUPPLIERS AND SERVICE PROVIDERS

School Specialty is dependent on (i) a limited number of suppliers for
certain of its product lines, particularly its franchise furniture lines, and
(ii) a limited number of service providers, such as delivery service from United
Parcel Service. Any interruption of supply from current vendors or any material
increased costs, particularly in the peak season of June through September,
could cause significant delays in the shipment of such products and could have a
material adverse effect on School Specialty's business, financial condition, and
results of operations. Increases in freight costs charged to School Specialty or
inability to ship product, whether real or perceived, could have a material
adverse effect on School Specialty's business, financial condition, and results
of operations. In addition, as part of its business strategy, School Specialty
strives to reduce its number of suppliers and minimize duplicative lines, which
may have the effect of increasing its dependence on remaining vendors. The
United Parcel Service Strike during August 1997 had an adverse effect on School
Specialty due to the perceived inability of School Specialty to ship products.

COMPETITION

The market for school supplies is highly competitive and fragmented. School
Specialty estimates that over 3,400 companies distribute educational materials
to pre-K-12 schools as a primary focus of their business. In addition, School
Specialty competes with alternate channel distributors such as office product
contract stationers and superstores, which may continue to broaden their product
lines in school supplies. Some of these competitors have greater financial
resources and buying power than School Specialty. School Specialty believes that
the educational supplies market will consolidate over the next several years,
which may make School Specialty's general and specialty supply businesses more
competitive. In addition, there may be increasing competition for acquisition
candidates and there can be no assurance that acquisitions will continue to be
available to School Specialty on favorable terms, if at all. See
"Business--Competition".

9
<PAGE>
MATERIAL AMOUNT OF GOODWILL

Approximately $93.9 million, or 39.5% of the School Specialty's pro forma
total assets as of October 25, 1997 represents intangibles assets, the
significant majority of which is goodwill. Goodwill represents the excess of
cost over the fair market value of net assets acquired in business combinations
accounted for under the purchase method. School Specialty generally amortizes
goodwill on a straight line method over a period of 40 years with the amount
amortized in a particular period constituting a non-cash expense that reduces
School Specialty's net income. Amortization of goodwill resulting from certain
past acquisitions, and additional goodwill recorded in certain acquisitions may
not be deductible for tax purposes. In addition, School Specialty will be
required to periodically evaluate the recoverability of goodwill by reviewing
the anticipated undiscounted future cash flows from the operations of the
acquired companies and comparing such cash flows to the carrying value of the
associated goodwill. If goodwill becomes impaired, School Specialty would be
required to write down the carrying value of the goodwill and incur a related
charge to its income. A reduction in net income resulting from the amortization
or write down of goodwill could have a material and adverse impact upon the
market price of School Specialty Common Stock.

NO PRIOR PUBLIC TRADING MARKET

Prior to the School Specialty Distribution, there has been no public market
for School Specialty Common Stock, and there can be no assurance that an active
trading market will develop or, if one does develop, that it will continue. The
price of School Specialty Common Stock will be determined in the marketplace and
may be influenced by many factors, including (i) the depth and liquidity of the
market for School Specialty Common Stock, (ii) developments affecting School
Specialty's businesses generally, (iii) investor perception of the school
supplies industry generally, and (iv) general economic and market conditions.
See "Underwriting" for a discussion of factors considered in determining the
initial public offering price.

NO DIVIDENDS

School Specialty does not expect to pay cash dividends on School Specialty
Common Stock in the foreseeable future. In addition, School Specialty's ability
to pay dividends may be restricted from time to time by financial covenants in
its credit agreements. See "Dividend Policy".

DILUTION

Purchasers of Common Stock in this Offering will sustain a substantial and
immediate dilution of $ per share (determined by subtracting its adjustable
pro forma book value per share as of October 25, 1997, adjusted to give effect
to the Offering, from the assumed initial public offering price). In addition,
the exercise of stock options could have a further dilutive effect. See
"Dilution".

10
<PAGE>
THE SPIN-OFF FROM U.S. OFFICE PRODUCTS

Prior to this Offering, School Specialty has been a wholly-owned subsidiary
of U.S. Office Products. At the time of this Offering, School Specialty will
hold all of the business and assets of, and will be responsible for
substantially all of the liabilities associated with, U.S. Office Products'
Educational Supplies and Products Division. Prior to the completion of this
Offering, all of the shares of School Specialty Common Stock owned by
U.S. Office Products will be distributed to the stockholders of U.S. Office
Products in the School Specialty Distribution. U.S. Office Products is spinning
off School Specialty as part of the Strategic Restructuring Plan in which U.S.
Office Products is spinning off the shares of the four companies (the "Spin-Off
Companies") that will conduct U.S. Office Products' current print management,
technology solutions, educational supplies and corporate travel services
businesses. At the same time as the Distributions, U.S. Office Products will
repurchase approximately 28% of its issued and outstanding common stock in a
tender offer and sell a 24.9% equity interest in U.S. Office Products (but no
interest in the Spin-Off Companies) to an affiliate (the "Investor") of an
investment fund managed by Clayton, Dubilier & Rice, Inc.

In connection with the School Specialty Distribution, School Specialty is
entering into a series of agreements with U.S. Office Products and the other
Spin-Off Companies to provide mechanisms for an orderly transition and to define
certain relationships among School Specialty, U.S. Office Products and the other
Spin-Off Companies after the Travel Distribution. These agreements are: a
distribution agreement (the "Distribution Agreement") among School Specialty,
U.S. Office Products and the other Spin-Off Companies; a tax allocation
agreement (the "Tax Allocation Agreement") among School Specialty, U.S. Office
Products and the other Spin-Off Companies; an employee benefits agreement (the
"Employee Benefits Agreement") among School Specialty, U.S. Office Products and
the other Spin-Off Companies; and a tax indemnification agreement (the "Tax
Indemnification Agreement") among School Specialty and the Other Spin-Off
Companies. The terms of the Distribution Agreement, the Tax Allocation
Agreement, the Tax Indemnification Agreement and the Employee Benefits Agreement
have not yet been finally determined. Those terms will be agreed to while School
Specialty is a wholly-owned subsidiary of U.S. Office Products. In addition, the
agreement between U.S. Office Products and the Investor relating to the
Investor's investment in U.S. Office Products (the "Investment Agreement")
specifies certain terms of this Agreement and provides that they are subject to
the Investor's reasonable approval. Therefore, they will not be the result of
arms'-length negotiations between independent parties.

Although the terms of the Distribution Agreement, Tax Allocation Agreement,
Tax Indemnification Agreement, and Employee Benefits Agreement have not been
finally determined, School Specialty currently expects that the terms will
include those described below. There can be no assurance that the terms of the
Distribution Agreement, Tax Allocation Agreement, Tax Indemnification Agreement
and Employee Benefits Agreement will not be less favorable to the stockholders
of School Specialty than the terms set out below.

DISTRIBUTION AGREEMENT

TRANSFER OF SUBSIDIARIES AND ASSETS. The Distribution Agreement is expected
to provide for the transfer from U.S. Office Products to School Specialty of
substantially all of the equity interests in the U.S. Office Products
subsidiaries that are engaged in the business of School Specialty as well as the
transfer, in certain instances, of other assets related to the business of
School Specialty. It is also expected to provide that the recovery on any claims
under applicable acquisition agreements that U.S. Office Products may have
against the persons who sold businesses to U.S. Office Products that will become
part of School Specialty in connection with the Distributions (the "School
Specialty Acquisition Indemnity Claims") will be allocated between U.S. Office
Products and School Specialty under a formula to be determined. In addition, to
the extent that the School Specialty Acquisition Indemnity Claims are secured by
the pledge of stock of U.S. Office Products and the Spin-Off Companies that is
owned by persons

11
<PAGE>
who sold businesses to U.S. Office Products that will become part of School
Specialty (and no previous claims have been made against such shares), the
pledged shares will be used, subject to the final resolution of the claim, to
reimburse U.S. Office Products and the applicable Spin-Off Company their
respective damages and expenses in accordance with the agreed upon allocation of
recovery rights, which will be determined prior to the School Specialty
Distribution.

DEBT. The Distribution Agreement is expected to provide that School
Specialty will have, at the time of the School Specialty Distribution, $80.0
million of debt plus the amount of any additional debt incurred after the date
of the Investment Agreement by U.S. Office Products or School Specialty in
connection with the acquisition of entities that will become subsidiaries of
School Specialty in connection with the Distributions. School Specialty
estimates that there will be no additional debt.

ASSUMPTION OF LIABILITIES. The Distribution Agreement is expected to
allocate and provide for the assumption of financial responsibility for certain
liabilities (other than taxes and employee benefit matters which will be
governed by separate agreements) among U.S. Office Products, School Specialty
and the other Spin-Off Companies. School Specialty will be responsible for (i)
any liabilities arising out of or in connection with the businesses conducted by
School Specialty and/or its subsidiaries, (ii) its liabilities under the
Distribution Agreement and the Employee Benefits Agreement and related
agreements, (iii) its liabilities for the debt described above, (iv) certain
securities liabilities and (v) any liabilities of U.S. Office Products relating
to earn-out or bonus payments owed by U.S. Office Products in respect of School
Specialty or its subsidiaries. In addition, the Distribution Agreement is
expected to provide for sharing of certain liabilities among some or all of the
parties. Each of U.S. Office Products, School Specialty and the other Spin-Off
Companies will bear a portion, on a basis to be determined, of (i) any
liabilities of U.S. Office Products' under the securities laws arising from
events prior to the Distributions (other than claims relating solely to a
specific Spin-Off Company or relating specifically to the continuing businesses
of U.S. Office Products), (ii) U.S. Office Products' general corporate
liabilities (other than debt, except for that specifically allocated to the
Spin-Off Companies) incurred prior to the Distributions (I.E., liabilities not
related to the conduct of a particular distributed or retained subsidiary's
business) and (iii) transactions costs (including legal, accounting, investment
banking, and financial advisory) and other fees incurred by U.S. Office Products
in connection with the Strategic Restructuring Plan, U.S. Office Products
estimates that the direct legal, financial advisory, investment banking,
financing, accounting, printing, mailing and other expenses (including the fees
of U.S. Office Products' and the Spin-Off Companies' transfer agents) of the
Strategic Restructuring Plan, including the Distributions, will total
approximately $ .

The Distribution Agreement is expected to provide that each party will
indemnify and hold all of the other parties harmless from any and all
liabilities for which the former assumed liability under the Distribution
Agreement. All indemnity payments will be subject to adjustment upward or
downward to take account of tax costs or tax benefits as well as insurance
proceeds. If there are any claims made under U.S. Office Products' existing
insurance policies, the amount of any deductible or retention will be allocated
by U.S. Office Products among the claimants in a fair and reasonable manner.

OTHER PROVISIONS. The Distribution Agreement is expected to have other
customary provisions including provisions relating to mutual release, access to
information, witness services, confidentiality and alternative dispute
resolution.

TAX ALLOCATION AGREEMENT AND TAX INDEMNIFICATION AGREEMENT

The Tax Allocation Agreement will provide that each Spin-Off Company will be
responsible for its respective share of U.S. Office Products' consolidated tax
liability for the years that each such corporation was included in U.S. Office
Products' consolidated U.S. federal income tax return. The Tax Allocation
Agreement also will provide for sharing, where appropriate, of state, local and
foreign taxes attributable to periods prior to the Distributions.

12
<PAGE>
The Tax Allocation Agreement will further provide that the Spin-Off
Companies will jointly and severally indemnify U.S. Office Products for any
Distribution Taxes assessed against U.S. Office Products if an Adverse Tax Act
of any of the Spin-Off Companies materially contributes to a final determination
that any or all of the Distributions are taxable. School Specialty will also
enter into the Tax Indemnification Agreement with the other Spin-Off Companies
under which the Spin-Off Company that is responsible for the Adverse Tax Act
will indemnify the other Spin-Off Companies for any liability to U.S. Office
Products under the Tax Allocation Agreement. As a consequence, School Specialty
will be liable for any Distribution Taxes resulting from any Adverse Tax Act by
School Specialty and liable (subject to indemnification by the other Spin-Off
Companies) for any Distribution Taxes resulting from an Adverse Tax Act by the
other Spin-Off Companies. If there is a final determination that any or all of
the Distributions are taxable and it is determined that there has not been an
Adverse Tax Act by either U.S. Office Products or any of the Spin-Off Companies,
each of U.S. Office Products and the Spin-Off Companies will be liable for its
pro rata portion of such Distribution Taxes based on the value of each company's
common stock after the Distributions. As a result, School Specialty could become
liable for a pro rata portion of any Distribution Taxes with respect not only to
the School Specialty Distribution but also any of the other Distributions.

U.S. Office Products and School Specialty will receive an opinion of Wilmer,
Cutler & Pickering, counsel to U.S. Office Products and School Specialty, that
for U.S. federal income tax purposes the School Specialty Distribution should
qualify as a tax-free spin-off under Section 355 of the Code, and should not be
taxable under Section 355(e) of the Code. The opinion of counsel will be based
on certain assumptions and the accuracy of factual representations made by U.S.
Office Products and School Specialty. Neither U.S. Office Products nor School
Specialty is aware of any present facts or circumstances which should cause such
representations and assumptions to be untrue. However, the opinion of counsel is
not binding on either the IRS or the courts. A ruling has not been, and will not
be, sought from the IRS with respect to the U.S. federal income tax consequences
of the School Specialty Distribution and it is possible that the IRS may take
the position that the School Specialty Distribution does not qualify as a
tax-free spin-off or is taxable under Section 355(e).

EMPLOYEE BENEFITS AGREEMENT

In connection with the Distributions, U.S. Office Products expects to enter
into the Employee Benefits Agreement with School Specialty and the other
Spin-Off Companies to provide for an orderly transition of benefits coverage
between U.S. Office Products and the Spin-off Companies. Pursuant to this
agreement, the respective Spin-Off Companies will retain or assume liability for
employment-related claims and severance for persons currently or previously
employed by the respective Spin-Off Companies and their subsidiaries, while U.S.
Office Products and its post-Distribution subsidiaries will retain or assume
responsibility for their current and previous employees. The proposed Employee
Benefits Agreement reflects U.S. Office Products' expectation that each of the
Spin-Off Companies will establish 401(k) plans for their respective employees
effective as of, or shortly after, the Distribution Date and that U.S. Office
Products will transfer 401(k) accounts to those plans as soon as practicable.
The proposed agreement also provides for spinning off portions of the U.S.
Office Products' cafeteria plan that relate to employees of the Spin-Off
Companies (and their subsidiaries) and having those spun-off plans assume
responsibilities for claims submitted on or after the Distribution.

USE OF PROCEEDS

The net proceeds to School Specialty from the sale of the shares of
Common Stock offered pursuant to the Offering are estimated to be approximately
$ million ($ million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $ per
share and after deducting the estimated underwriting discount and offering
expenses payable by the Company.

13
<PAGE>
School Speciality intends to use the net proceeds of the offering for
general corporate purposes, including working capital and the repayment of a
portion of the $80.0 million indebtedness allocated to the Company by U.S.
Office Products in connection with the School Specialty Distribution, and for
acquisitions.

DIVIDEND POLICY

School Specialty does not anticipate declaring and paying cash dividends on
School Specialty Common Stock in the foreseeable future. School Specialty's
ability to pay dividends may be restricted from time to time by financial
covenants in its credit agreements.

DILUTION

The pro forma net tangible book value of School Specialty at October 25,
1997 was , or $ per share of Common Stock, after giving effect to the
School Specialty Distribution. Pro forma net tangible book value per share is
determined by dividing the pro forma net tangible book value (total pro forma
tangible assets less total pro forma liabilities) of School Specialty by the pro
forma number of shares of Common Stock outstanding. Without taking into account
any changes in the pro forma net tangible book value of School Specialty, other
than to give effect to the sale of the shares of Common Stock offered hereby
(assuming an initial public offering price of $ per share and after
deducting the estimated underwriting discount and offering expenses to be paid
by the Company) and the receipt of the net proceeds therefrom, the adjusted pro
forma net tangible book value of School Specialty at October 25, 1997 would have
been $ or $ per share of Common Stock. This represents an immediate
dilution in net tangible book value of $ per share to new investors
purchasing shares in this offering. The following table illustrates this per
share dilution.

<TABLE>
<CAPTION>
Assumed initial public offering price per share............................ $
<S> <C> <C>
Pro forma net tangible book value per share at October 25, 1997.......... $
Increase per share attributable to new investors(1)......................
---------
Pro forma net tangible book value after the offering.......................
---------
Dilution per share to new investors(2)(3)..................................
---------
---------
</TABLE>

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

(1) Before deduction of the estimated underwriting discount and offering
expenses to be paid by the Company and assuming no exercise of the
Underwriters' over-allotment option.

(2) Determined by subtracting the adjusted pro forma net tangible book value per
share after the offering from the amount of cash paid by a new investor for
one share of Common Stock.

(3) The foregoing information does not give effect to the issuance of
shares of Common Stock pursuant to stock options granted or to be granted.
See "Management--Executive Compensation".

14
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of School Specialty at
October 25, 1997 (i) on an actual basis, (ii) on a pro forma basis to reflect
the School Specialty Distribution, including the assumption of $80.0 million of
U.S. Office Products' debt and U.S. Office Products' forgiveness of $86.7
million of debt as a contribution to equity, and the purchase acquisition
completed subsequent to October 25, 1997 and (iii) on such pro forma basis, as
adjusted to give effect to the issuance of the Common Stock offered hereby and
the application of a portion of the proceeds therefrom to the payment of a
portion of the U.S. Office Products' debt assumed by the Company (assuming an
initial public offering price of $ per share and no exercise of the
Underwriters' over-allotment option, but without deducting the estimated
underwriting discount and offering expenses). This table should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations of School Specialty," the historical
consolidated financial statements and the pro forma combined financial
statements of School Specialty, and the related notes to each thereof, included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
OCTOBER 25, 1997
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt..................................... $ 273 $ 263
Short-term payable to U.S. Office Products.......... 31,356 -- --
--------- -------------- ------------
Total short-term debt......................... $ 31,629 $ 263
--------- -------------- ------------
--------- -------------- ------------

Long-term debt...................................... $ 457 $ 79,737
Long-term payable to U.S. Office Products........... 103,306 -- --

Stockholder's equity:
Divisional equity................................. 23,551 110,276
Preferred stock, ( shares authorized; no
shares outstanding)............................. -- -- --
Common stock, $0.001 par value ( shares
authorized; shares outstanding pro forma;
shares outstanding pro forma, as
adjusted)(1).................................... -- -- --
Additional paid-in capital........................ -- --
Retained earnings................................. 9,558 9,558
--------- -------------- ------------
Total stockholder's equity.................... 33,109 119,834
--------- -------------- ------------
Total capitalization.......................... $ 136,872 $ 199,571
--------- -------------- ------------
--------- -------------- ------------
</TABLE>

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

(1) Outstanding shares do not include shares authorized for issuance
upon exercise of stock options granted or to be granted.

15
<PAGE>
SELECTED FINANCIAL DATA

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

The historical Statement of Income Data for the years ended December 31,
1994 and 1995, the four months ended April 30, 1996 and the fiscal year ended
April 26, 1997 (except pro forma amounts) and the Balance Sheet Data at April
30, 1996 and 1997 have been derived from School Specialty's consolidated
financial statements that have been audited and are included elsewhere in the
Prospectus. The historical Statement of Income Data for the years ended December
31, 1992 and 1993 and the Balance Sheet Data at December 31, 1992, 1993, 1994
and 1995 have been derived from unaudited consolidated financial statements
which are not included elsewhere in this Prospectus or incorporated herein by
reference. The Selected Financial Data for the six months ended October 26, 1996
and October 25, 1997 (except pro forma amounts) have been derived from unaudited
consolidated financial statements that appear elsewhere in this Prospectus.
These unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements and, in the opinion of
management, contain all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations for the periods presented. The results of operations for the six
months ended October 25, 1997 do not necessarily reflect results for the full
fiscal year ending April 25, 1998.

The pro forma financial data gives effect, as applicable, to the School
Specialty Distribution and the acquisitions completed by School Specialty
between May 1, 1996 and March 5, 1998 as if all such transactions had been made
on May 1, 1996. In addition, the pro forma information is based on available
information and certain assumptions and adjustments, and does not purport to
represent what the Company's financial position or results of operations would
have been had such transactions and Distribution which are the subject of the
pro forma adjustments occurred on such date as assumed, and are not necessarily
representative of the Company's financial position or results of operation in
any future period.

16
<PAGE>
SELECTED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
FOUR MONTHS APRIL 26,
ENDED ------------------------
YEAR ENDED DECEMBER 31, ------------- PRO
------------------------------------------------ APRIL 30, FORMA
1992 1993 1994 1995 1996 1997 1997(2)
---------- ---------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.............................. $ 65,042 $ 76,926 $ 119,510 $ 150,482 $ 28,616 $ 191,746 $ 339,546
Cost of revenues...................... 48,111 56,280 87,750 105,757 20,201 136,577 235,327
---------- ---------- ----------- ----------- ------------- ----------- -----------
Gross profit.......................... 16,931 20,646 31,760 44,725 8,415 55,169 104,219
Selling, general and administrative
expenses............................ 17,729 18,294 27,281 39,869 10,307 43,462 83,239
Non-recurring acquisition costs....... 1,048 1,122 1,792
Restructuring costs................... 2,532 194 194
---------- ---------- ----------- ----------- ------------- ----------- -----------
Operating income (loss)............... (1,846) 2,352 4,479 2,324 (3,014) 9,721 20,786
Interest expense...................... 1,660 1,845 3,007 5,536 1,461 2,550 7,040
Interest income....................... (6)
Other (income) expense................ 99 228 (86) (18) 67 (196) (159)
---------- ---------- ----------- ----------- ------------- ----------- -----------
Income (loss) before provision for
(benefit from) income taxes......... (3,605) 279 1,558 (3,194) (4,536) 7,367 13,905
Provision for (benefit from) income
taxes............................... 216 199 218 173 139 (1,572) 6,396
---------- ---------- ----------- ----------- ------------- ----------- -----------
Net income (loss)..................... $ (3,821) $ 80 $ 1,340 $ (3,367) $ (4,675) $ 8,939 $ 7,509
---------- ---------- ----------- ----------- ------------- ----------- -----------
---------- ---------- ----------- ----------- ------------- ----------- -----------
Pro forma net income per share........ $ 0.08
-----------
-----------
Pro forma weighted average shares
outstanding(3)...................... 95,963

<CAPTION>
SIX MONTHS ENDED
------------------------------------------------------
PRO PRO
FORMA FORMA
OCTOBER 26, OCTOBER 25, OCTOBER 26, OCTOBER 25,
1996 1997 1996(2) 1997(2)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.............................. $ 130,673 $ 198,490 $ 234,821 $ 251,119
Cost of revenues...................... 92,740 138,781 162,158 175,374
------------ ------------ ------------ ------------
Gross profit.......................... 37,933 59,709 72,663 75,745
Selling, general and administrative
expenses............................ 24,212 35,682 48,194 46,269
Non-recurring acquisition costs....... 1,792
Restructuring costs...................
------------ ------------ ------------ ------------
Operating income (loss)............... 11,929 24,027 24,469 29,476
Interest expense...................... 1,725 1,570 3,880 3,880
Interest income....................... (24) (104)
Other (income) expense................ 40 3 73 59
------------ ------------ ------------ ------------
Income (loss) before provision for
(benefit from) income taxes......... 10,188 22,558 20,516 25,537
Provision for (benefit from) income
taxes............................... (2,170) 10,151 9,437 11,747
------------ ------------ ------------ ------------
Net income (loss)..................... $ 12,358 $ 12,407 $ 11,079 $ 13,790
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma net income per share........ $ 0.12 $ 0.14
------------ ------------
------------ ------------
Pro forma weighted average shares
outstanding(3)...................... 95,963 95,963
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1992 1993 1994 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................ $ (51) $ 1,140 $ 3,512 $ (1,052)
Total assets............................................................. 21,905 23,190 44,267 54,040
Long-term debt, less current portion..................................... 8,205 7,175 11,675 15,294
Long-term payable to U.S. Office Products................................
Stockholder's (deficit) equity........................................... (365) 545 1,827 (620)

<CAPTION>
OCTOBER 25, 1997

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

APRIL 30, APRIL 26, PRO

1996 1997 ACTUAL FORMA (4)

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

<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................ $ (3,663) $ 13,619 $ 43,938 $ 81,458

Total assets............................................................. 54,573 87,685 201,304 237,772

Long-term debt, less current portion..................................... 15,031 565 457 79,737

Long-term payable to U.S. Office Products................................ 31,579 103,306
Stockholder's (deficit) equity........................................... (4,267) 17,136 33,109 119,834

</TABLE>

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

(1) The historical financial information of the Pooled Companies have been
combined on a historical cost basis in accordance with GAAP to present this
financial data as if the Pooled Companies had always been members of the
same operating group. The financial information of the Purchased Companies
is included from the dates of their respective acquisitions. The pro forma
financial data reflect acquisitions completed by School Specialty through
March 5, 1998.

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

(4) Gives effect to the School Specialty Distribution and the purchase
acquisition completed by School Specialty subsequent to October 25, 1997 as
if such transactions had been made on October 25, 1997. The pro forma
balance sheet data are not necessarily indicative of the financial position
that would have been achieved had these events actually then occurred and
should not be construed as representative of future financial position.

17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF SCHOOL SPECIALTY

OVERVIEW

THE COMPANY

School Specialty is the largest U.S. distributor focusing on non-textbook
educational supplies and furniture for grades pre-K-12. The Company provides a
comprehensive offering of high quality educational supplies and furniture to
school districts, school administrators and teachers through the broad
distribution of its catalogs. Specialty brands, which target specific curriculum
disciplines, include Childcraft, which sells to the early childhood market; Sax
Arts & Crafts, which distributes a broad line of art supplies and materials; and
Gresswell, which distributes library-related products in the United Kingdom.

Revenues have increased from $65.0 million in the fiscal year ended December
31, 1992 to $259.6 million for the twelve months ended October 25, 1997. This
increase resulted primarily from 15 purchase acquisitions, 13 of which had
occurred since May 1996, as well as internally generated growth. The pro forma
revenues include the revenues of the 13 purchased companies as if all such
transactions had occurred on May 1, 1996.

School Specialty's gross profit margins have improved by achieving increased
buying power and by acquiring specialty companies which usually have higher
gross margins than the Company's general products divisions. The Company expects
gross profit margins to be further enhanced by acquiring additional specialty
companies and continuing to improve its purchasing power.

School Specialty's operating margin have improved significantly over the
last several years. This improvement reflects the Company's acquisition of
specialty companies which have higher operating margins than the Company's
general products divisions. In addition, operating margins have increased as the
Company has reduced selling, general and administrative expenses of acquired
companies by eliminating redundant administrative functions. Currently, nine of
the ten general school supply companies acquired since May 1996 have been
integrated. However, the Company believes that the full benefit of the
integrations has not yet been realized.

School Specialty's business and working capital needs are highly seasonal
with peak sales levels occurring from May through October. During this period,
the Company receives, ships and bills the majority of its orders so that schools
and teachers receive their merchandise by the start of each school year. School
Specialty's inventory levels increase in April through July in anticipation of
the peak selling season. The majority of cash receipts are collected from
September through December.

The Company's consolidated financial statements give retroactive effect to
the two business combinations accounted for under the pooling-of-interests
method during the period from May 1996 to July 1996 (the "Pooled Companies") and
include the results of companies acquired in business combinations accounted for
under the purchase method from their respective dates of acquisition. Prior to
their respective dates of acquisition by U.S. Office Products the Pooled
Companies reported results, on years ending on December 31. Upon acquisition by
U.S. Office Products and effective for the fiscal year ended April 26, 1997
("fiscal 1997"), the Pooled Companies changed their year-ends from December 31
to conform to U.S. Office Products' fiscal year, which ends on the last Saturday
in April.

The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto and pro forma
financial statements and related notes thereto appearing elsewhere in this
Prospectus.

18
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth various items as a percentage of revenues for
the years ended December 31, 1994 and 1995, fiscal 1997 and for the six months
ended October 26, 1996 and October 25, 1997, as well as for fiscal 1997 and for
the six months ended October 26, 1996 and October 25, 1997 on a pro forma basis
reflecting the School Specialty Distribution and the companies acquired in
business combinations accounted for under the purchase method as if such
transactions had occurred on May 1, 1996.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED ------------------------ -------------------------------------------
-------------------------------- PRO FORMA PRO FORMA
DECEMBER 31, DECEMBER 31, APRIL 26, APRIL 26, OCTOBER 26, OCTOBER 25, OCTOBER 26,
1994 1995 1997 1997 1996 1997 1996
--------------- --------------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of
revenues....... 73.4 70.3 71.2 69.3 71.0 69.9 69.1
------- ------- ----------- ----------- ------------- ------------- -------------
Gross profit... 26.6 29.7 28.8 30.7 29.0 30.1 30.9
Selling, general
and
administrative
expenses....... 22.9 26.5 22.7 24.5 18.5 18.0 20.5
Non-recurring
acquisition
costs.......... 0.9 1.4
Restructuring
costs.......... 1.7 0.1 0.1
------- ------- ----------- ----------- ------------- ------------- -------------
Operating
income....... 3.7 1.5 5.1 6.1 9.1 12.1 10.4
Interest expense,
net............ 2.5 3.6 1.3 2.0 1.3 0.8 1.7
Other (income)... (0.1) (0.1) (0.1)
------- ------- ----------- ----------- ------------- ------------- -------------
Income (Loss)
before
provision for
income taxes... 1.3 (2.1) 3.9 4.1 7.8 11.4 8.7
Provision for
(benefit from)
income taxes... 0.2 0.1 (0.8) 1.9 (1.7) 5.1 4.0
------- ------- ----------- ----------- ------------- ------------- -------------
Net income
(Loss)......... 1.1% (2.2)% 4.7% 2.2% 9.5% 6.3% 4.7%
------- ------- ----------- ----------- ------------- ------------- -------------
------- ------- ----------- ----------- ------------- ------------- -------------

PRO FORMA
OCTOBER 25,
1997
-------------
<S> <C>
Revenues......... 100.0%
Cost of
revenues....... 69.8
-------------
Gross profit... 30.2
Selling, general
and
administrative
expenses....... 18.5
Non-recurring
acquisition
costs..........
Restructuring
costs..........
-------------
Operating
income....... 11.7
Interest expense,
net............ 1.5
Other (income)...
-------------
Income (Loss)
before
provision for
income taxes... 10.2
Provision for
(benefit from)
income taxes... 4.7
-------------
Net income
(Loss)......... 5.5%
-------------
-------------
</TABLE>

PRO FORMA COMBINED RESULTS OF OPERATIONS

SIX MONTHS ENDED OCTOBER 25, 1997 COMPARED TO SIX MONTHS ENDED OCTOBER 26,
1996

Pro forma revenues increased 6.9%, from $234.8 million for the six months
ended October 26, 1996, to $251.1 million for the six months ended October 25,
1997. This increase was primarily due to sales to new accounts, increased sales
to existing customers, and higher pricing on certain products in response to
increased product costs. Product cost is the most significant element in cost of
revenues. Inbound freight, occupancy and delivery charges are also included in
cost of revenues.

Gross profit increased 4.2%, from $72.7 million, or 30.9% of revenues, for
the six months ended October 26, 1996 to $75.7 million, or 30.2% of revenues,
for the six months ended October 25, 1997. The decrease in gross profit as a
percentage of revenues was primarily due to higher freight costs and the
discontinuation of higher margin retail operations at some of the six companies
acquired during fiscal 1997 in business combinations accounted for under the
purchase method ("the Fiscal 1997 Purchased Companies").

19
<PAGE>
Selling, general and administrative expenses include selling expenses (the
most significant component of which is sales wages and commissions), catalog
costs, general administrative overhead (which includes information systems and
customer service), and accounting, legal, human resources and purchasing
expenses. Selling, general and administrative expenses decreased 4.0%, from
$48.2 million, or 20.5% of revenues, for the six months ended October 26, 1996
to $46.3 million, or 18.5% of revenues, for the six months ended October 25,
1997. The decrease in selling, general and administrative expenses as a
percentage of revenues reflects the assimilation of the Fiscal 1997 Purchased
Companies and the consolidation of two warehouses into one regional facility in
the Northeastern U.S. during the third quarter of fiscal 1997.

Provision for income taxes increased 24.5% from $9.4 million for the six
months ended October 26, 1996 to $11.7 million for the six months ended October
25, 1997, reflecting an effective income tax rate of 46.0% in both periods. The
high effective income tax rate, compared to the federal statutory rate of 35.0%,
was primarily due to state income taxes and non-deductible goodwill
amortization.

CONSOLIDATED RESULTS OF OPERATIONS

SIX MONTHS ENDED OCTOBER 25, 1997 COMPARED TO SIX MONTHS ENDED OCTOBER 26,
1996

Consolidated revenues increased 51.9%, from $130.7 million for the six
months ended October 26, 1996, to $198.5 million for the six months ended
October 25, 1997. This increase was primarily due to the inclusion of revenues
from the six companies acquired in business combinations accounted for under the
purchase method during the six months ended October 25, 1997 (the "Fiscal 1998
Purchased Companies") from their respective dates of acquisition and revenues
from the Fiscal 1997 Purchased Companies for the entire six month period.
Revenues also increased due to sales to new accounts, increased sales to
existing customers and higher pricing on certain products in response to
increased product costs.

Gross profit increased 57.4%, from $37.9 million, or 29.0% of revenues, for
the six months ended October 25, 1996 to $59.7 million, or 30.1% of revenues,
for the six months ended October 25, 1997. The increase in gross profit as a
percentage of revenues was due primarily to an increase in revenues from higher
margin products, primarily as a result of the purchase acquisitions of three
companies selling higher margin specialty product lines during the six months
ended October 25, 1997, and as a result of improved purchasing power and rebate
programs negotiated with vendors.

Selling, general and administrative expenses increased 47.4%, from $24.2
million, or 18.5% of revenues, for the six months ended October 26, 1996 to
$35.7 million, or 18.0% of revenues, for the six months ended October 25, 1997.
The decrease in selling, general and administrative expenses as a percentage of
revenues was due primarily to efficiencies generated from the assimilation of
the Fiscal 1997 Purchased Companies and the consolidation of two warehouses into
one regional facility in the Northeastern U.S during the third quarter of fiscal
1997.

The Company incurred non-recurring acquisition costs of $1.8 million for the
six months ended October 26, 1996, in conjunction with the acquisition of the
Pooled Companies. These non-recurring acquisition costs included accounting,
legal, investment-banking fees, real estate and environmental assessments and
appraisals, various regulatory fees and recognition of transaction-related
obligations. The Company does not anticipate incurring any additional such costs
for the next two years because the Company is precluded from completing
acquisitions under the pooling-of-interests method as a result of the School
Specialty Distribution. Generally accepted accounting principles ("GAAP")
require the Company to expense all acquisition costs (both those paid by the
Company and those paid by the sellers of the acquired companies) related to
business combinations accounted for under the pooling-of-interest method of
accounting.

20
<PAGE>
Interest expense, net of interest income, decreased 13.8%, from $1.7 million
for the six months ended October 26, 1996 to $1.6 million for the six months
ended October 25, 1997.

Provision for income taxes increased from a tax benefit of $2.2 million for
the six months ended October 25, 1996 to tax expense of $10.2 million for the
six months ended October 25, 1997, reflecting effective income tax rates of
- -21.3% and 45.0%, respectively. The income tax benefit during the six months
ended October 26, 1996 is primarily due to the reversal of a deferred tax asset
valuation allowance of approximately $5.3 million established by one of the
Pooled Companies prior to acquisition, consisting primarily of the tax benefit
of a net operating loss carryforward, as it was considered more likely than not
the deferred tax benefits would be realized. The high effective income tax rate
for the six months ended October 25, 1997, compared to the federal statutory
rate of 35.0%, was primarily due to state income taxes and non-deductible
goodwill amortization.

YEAR ENDED APRIL 26, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Consolidated revenues increased 27.4%, from $150.5 million in 1995, to
$191.7 million in fiscal 1997. This increase was primarily due to the inclusion,
for fiscal 1997, of revenues from the Fiscal 1997 Purchased Companies from their
respective dates of acquisition, sales to new accounts, increased sales to
existing customers and higher pricing on certain products in response to
increased product costs.

Gross profit increased 23.4%, from $44.7 million, or 29.7% of revenues, in
1995 to $55.2 million, or 28.8% of revenues, in fiscal 1997. The decrease in
gross profit as a percentage of revenues was due primarily to a shift in revenue
mix, resulting from the acquisition of the Fiscal 1997 Purchased Companies,
which traditionally had lower gross profits as a percentage of revenues. This
decrease was partially offset by improved purchasing and rebate programs
negotiated with vendors and the Company's ability to take advantage of term
discounts due to improved cash flows.

Selling, general and administrative expenses increased 9.0%, from $39.9
million, or 26.5% of revenues, in 1995 to $43.5 million, or 22.7% of revenues,
in fiscal 1997. The decrease in selling, general and administrative expenses as
a percentage of revenues was due primarily to the consolidation of two
warehouses into one regional facility in the Northeastern U.S. during third
quarter of fiscal 1997, the assimilation of a company acquired during 1995 in a
business combination accounted for under the purchase method (the "1995
Purchased Company") and reduced executive compensation expense at one of the
Pooled Companies after being acquired by U.S. Office Products in July 1996.

The Company incurred non-recurring acquisition costs of $1.8 million in
fiscal 1997, in conjunction with business combinations accounted for under the
pooling-of-interests method. These non-recurring acquisition costs included
accounting, legal, investment-banking fees, real estate and environmental
assessments and appraisals, various regulatory fees and recognition of
transaction-related obligations. The Company does not anticipate incurring any
additional such costs for the next two years because the Company is precluded
from completing acquisitions under the pooling-of-interests method as a result
of the School Specialty Distribution. GAAP requires the Company to expense all
acquisition costs (both those paid by the Company and those paid by the sellers
of the acquired companies) related to business combinations accounted for under
the pooling-of-interest method.

The Company incurred restructuring costs of $2.5 million and $0.2 million
during 1995 and fiscal 1997, respectively. These costs represent the external
costs and liabilities to close redundant Company facilities, severance costs
related to the Company's employees and other costs associated with the Company's
restructuring plans. The Company expects to incur similar costs in the future as
the Company continues to review its operations, with the intention of continuing
to eliminate redundant facilities. See "Business--Cost Reduction and Other
Efficiencies".

Interest expense, net of interest income, decreased 53.9%, from $5.5 million
in 1995 to $2.6 million in fiscal 1997. The decrease was due primarily to the
repayment of substantially all of the Company's

21
<PAGE>
debt in conjunction with the acquisition of the Pooled Companies by U.S. Office
Products, lower interest rates being charged on the Company's short-term debt
with U.S. Office Products and no interest being charged on the Company's
long-term debt with U.S. Office Products.

Provision for income taxes decreased from $173,000 in 1995 to a tax benefit
of $1.6 million in fiscal 1997, reflecting effective income tax rates of -5.4%
and -21.3%, respectively. The provision for income taxes in 1995 is a result of
the Company recording a full valuation allowance on the deferred tax asset
resulting from the net operating loss carry forwards created during 1995. The
income tax benefit in fiscal 1997 was the result of the Company reversing a
deferred tax asset valuation allowance of approximately $5.3 million.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Consolidated revenues increased 25.9%, from $119.5 million in 1994, to
$150.5 in 1995. This increase was primarily due to the inclusion in 1995 of the
1995 Purchased Company from its date of acquisition and revenues from one
company acquired in a business combination accounted for under the purchase
method of accounting during 1994 (the "1994 Purchased Company") for the entire
year.

Gross profit increased 40.8%, from $31.8 million, or 26.6% of revenues, in
1994 to $44.7 million, or 29.7% of revenues, in 1995. The increase in gross
profit as a percentage of revenues was due primarily to a shift in revenue mix,
primarily attributed to the acquisition of the 1995 Purchased Company, which had
a higher gross profit as a percentage of revenues and a reduction in lower
margin bid revenues.

Selling, general and administrative expenses increased 46.1%, from $27.3
million, or 22.9% of revenues, in 1994 to $39.9 million, or 26.5% of revenues,
in 1995. The increase in selling, general and administrative expenses as a
percentage of revenues was due primarily to the 1994 and 1995 Purchased
Companies, which operated with higher levels of selling general and
administrative expenses as a percentage of revenues.

Interest expense, net of interest income, increased 84.1%, from $3.0 million
in 1994 to $5.5 million in 1995. The increase was due primarily to additional
borrowings to finance the acquisition of the 1995 Purchased Company, a full year
of interest expense on debt incurred to finance the acquisition of the 1994
Purchased Company and higher average borrowings on the Company's revolving
credit facility resulting from financing the operations of the 1994 and 1995
Purchased Companies.

Provision for income taxes decreased from $218,000 in 1994 to $173,000 in
1995, reflecting effective income tax rates of 14.0% and -5.4%, respectively.
The low effective income tax rate in 1994 is due to the Company's utilization of
a net operating loss carry forward the benefit of which had not been reflected
as income in prior years.

LIQUIDITY AND CAPITAL RESOURCES

At October 25, 1997 the Company had working capital of $43.9 million. The
Company's capitalization, defined as the sum of long-term debt, long-term
payable to U.S. Office Products and stockholders' equity, at October 25, 1997
was $136.9 million. On a pro forma basis at October 25, 1997, the Company had
working capital of $81.5 million and capitalization of $199.6 million.

During the six months ended October 25, 1997, net cash used in operating
activities was $3.0 million. Operating activities were primarily impacted by
increased receivables attributed to the seasonality of the Company's business.
Net cash used in investing activities was $71.5 million, including $68.1 million
for acquisitions and $3.4 million for additions to property and equipment. Net
cash provided by financing activities was $74.4 million, including $76.4 million
provided by U.S. Office Products to fund the cash portion of the purchase price
and the repayment of debt assumed with the acquisition of the fiscal 1998
Purchased Companies, partially offset by $1.9 million used to repay
indebtedness.

22
<PAGE>
During the six months ended October 26, 1996, net cash used in operating
activities was $7.7 million. Operating activities were impacted by increased
receivables attributed to the seasonality of the Company's business. Net cash
used in investing activities was $14.5 million, including $7.2 million for
acquisitions, $5.7 million for additions to property and equipment and $1.6
million to pay non-recurring acquisition costs. Net cash provided by financing
activities was $22.2 million, including $65.0 million provided by U.S. Office
Products to fund the cash portion of the purchase price and the repayment of
debt associated with those companies acquired during the six months ended
October 26, 1996, partially offset by $45.6 million used for the repayment of
indebtedness, primarily at the companies acquired during the six months ended
October 26, 1996.

During fiscal 1997, net cash provided by operating activities was $2.6
million. Net cash used in investing activities was $16.7 million, including $7.7
million for acquisitions, $7.2 million for additions to property and equipment
and $1.8 million to pay non-recurring acquisition costs. Net cash provided by
financing activities was $14.1 million, including $58.3 million provided by U.S.
Office Products to fund the cash portion of the purchase price and the repayment
of debt associated with the fiscal 1997 Purchased Companies and the payment of
debt of the Pooled Companies, partially offset by $46.9 million used for the net
repayment of indebtedness, primarily at the fiscal 1997 Purchased Companies.

During 1995, net cash provided by operating activities was $4.8 million. Net
cash used in investing activities was $6.0 million, including $5.4 million for
acquisitions and $881,000 for additions to property and equipment. Net cash
provided by financing activities was $1.2 million, including net proceeds from
the issuance of debt of $2.4 million and $500,000 received from the issuance of
common stock partially offset by payments of indebtedness of $1.5 million.

During 1994, net cash used in operating activities was $268,000. Net cash
used in investing activities was $2.9 million, including $2.1 million for
acquisitions and $630,000 for additions to property and equipment. Net cash
provided by financing activities was $3.2 million, consisting of proceeds from
the issuance of debt of $5.1 million, partially offset by payments of
indebtedness of $2.0 million.

The Company's anticipated capital expenditures budget for the next twelve
months is approximately $2.0 million. The largest items include operational and
financial reporting software, computer hardware and warehouse equipment.

School Specialty intends to use a portion of the net proceeds of this
Offering to repay a portion of the $80.0 million of U.S. Office Products debt
assumed by School Specialty. The remainder of the net proceeds of this Offering
will be retained by School Specialty for general corporate purposes, including
working capital, and for acquisitions.

The Company expects that the Distribution Agreement with U.S. Office
Products will call for an allocation of $80.0 million of debt by U.S. Office
Products resulting in the forgiveness of $86.7 million at October 25, 1997,
which will be reflected in the pro forma combined financial statements as a
contribution of capital by U.S. Office Products. The Company intends to enter
into a credit facility concurrently with the Distribution which will contain
certain financial and other covenants, including maintenance of certain
financial tests and ratios, limitations on capital expenditures and restrictions
on the incurrence of debt or liens, the sale of assets, the payment of
dividends, transactions with affiliates and other transactions. The Company
expects that the credit facility will be adequate to repay the debt allocated by
U.S. Office Products and to fund working capital and capital expenditure needs.
The Company expects that a portion of the credit facility will also be available
to fund the cash portion of future acquisitions subject to the maintenance of
required covenants.

23
<PAGE>
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS

The Company's business is subject to seasonal influences. The Company's
historical revenues and profitability have been dramatically higher in the first
two quarters of its fiscal year (May-October) primarily due to increased
shipments to customers coinciding with the start of each school year.

Quarterly results also may be materially affected by the timing of
acquisitions, the timing and magnitude of costs related to such acquisitions,
variations in the prices paid by the Company for the products it sells, the mix
of products sold and general economic conditions. Moreover, the operating
margins of companies acquired by the Company may differ substantially from those
of the Company, which could contribute to the further fluctuation in its
quarterly operating results. Therefore, results for any quarter are not
indicative of the results that the Company may achieve for any subsequent fiscal
quarter or for a full fiscal year.

The following table sets forth certain unaudited consolidated quarterly
financial data for the year ended December 31, 1995 and fiscal 1997 (in
thousands). The information has been derived from unaudited consolidated
financial statements that in the opinion of management reflect all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of such quarterly information. This quarterly information is not comparative
because of the high degree of seasonability in School Specialty's business.
Revenues and profitability are significantly higher in the months of May through
October, with the most significant portion of revenue and profit occurring in
the months of July through September. On a fiscal year basis (years ending in
April) this six month (May through October) period falls in the first two
quarters of the fiscal year. On a calendar year basis, the most profitable three
months (July through September) fall in the third quarter.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
Revenues.................................. $ 18,760 $ 36,702 $ 69,192 $ 25,828 $ 150,482
Gross profit.............................. 4,960 11,130 20,795 7,840 44,725
Operating income (loss)................... (3,014) 1,196 8,934 (4,792) 2,324
Net income (loss)......................... (3,711) (252) 4,309 (3,713) (3,367)

YEAR ENDED APRIL 26, 1997
-----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................................. $ 58,991 $ 71,682 $ 29,304 $ 31,769 $ 191,746
Gross profit.............................. 18,110 19,823 7,664 9,572 55,169
Operating income (loss)................... 5,197 6,732 (1,520) (688) 9,721
Net income (loss)......................... 5,345 7,013 (787) (2,632) 8,939
</TABLE>

INFLATION

The Company does not believe that inflation has had a material impact on its
results of operations during the years ended December 31, 1994 and 1995 or the
fiscal year ended April 26, 1997.

NEW ACCOUNTING PRONOUNCEMENTS

EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
128 "Earnings Per Share". SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997; earlier
application is not permitted. SFAS No. 128 requires restatement of all
prior-period EPS data presented. The Company intends to adopt SFAS No. 128 in
fiscal 1998. The implementation of SFAS No. 128 is not expected to

24
<PAGE>
have a material effect on the Company's earnings per share as determined under
current accounting rules.

REPORTING COMPREHENSIVE INCOME. In June 1997, FASB issued SFAS No. 130.
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company intends to
adopt SFAS No. 130 in fiscal 1999.

25
<PAGE>
INDUSTRY OVERVIEW

The school supply market consists of the sale of non-textbook school
supplies, furniture and equipment to school districts, individual schools,
teachers and curriculum specialists who purchase products for school and
classroom use. According to data collected by the NSSEA, sales of educational
supplies and equipment (which is defined by NSSEA as educational products sold
by dealers for use by educational institutions or as a supplement to learning
outside of the classroom) to the school supply market is approximately $6.1
billion, with over $3.6 billion sold to institutions and $2.5 billion sold to
consumers.

According to the U.S. Department of Education, in all 50 states, there are
15,996 school districts, 108,577 public and private elementary and secondary
schools, and 3.1 million teachers. School supply procurement decisions are made
at the school district level by administrators and curriculum specialists, at
the school level by principals and at the classroom level by teachers. Some
school supplies are purchased directly from manufacturers while others are
purchased through distributors. The NSSEA study states that there are over 3,400
distributors of school supplies. The majority of these distributors are family-
or employee-owned companies with revenues under $20 million that operate in a
single region. In addition to School Specialty, only two other companies have a
measurable presence in the market, with annual revenues in excess of $130
million. School Specialty believes the demand for timely order fulfillment at
competitive prices, combined with the need to invest in automated inventory
management systems and electronic ordering systems, is accelerating the trend
toward consolidation in the industry.

The volume of school supplies is directly influenced by the size of the
student population. According to the U.S. Department of Education, student
enrollment in grades K-12 began growing in 1986, reaching an all-time peak in
1996 with 51.5 million students (1997 data not yet available). Current
projections by the U.S. Department of Education indicate that student enrollment
will continue to grow to 54.3 million by the year 2006. As a result of these
trends, the U.S. Department of Education projects that expenditures in public
elementary and secondary schools will rise through the year 2007. In current
dollars, expenditures of $272.4 billion in 1997 are projected to increase to
$340.7 billion by the year 2001. These projected increases in expenditures
include a projected increase in total per pupil spending in current dollars from
$5,961 per pupil in 1997 to $7,179 by the year 2001.

26
<PAGE>
BUSINESS

School Specialty is a Delaware corporation formed in February 1998 to hold
the Educational Supplies and Products Division of U.S. Office Products. School
Specialty, Inc., a Wisconsin corporation ("Old School") was formed in October
1959, and was acquired by U.S. Office Products in May 1996. U.S. Office
Products' Educational Supplies and Products Division also includes Re-Print,
which it acquired in July 1996, and which has been in operation since 1921. The
specialty product lines, Childcraft, Sax Arts & Crafts and Gresswell, were all
acquired by U.S. Office Products in 1997, and have been in operation since 1946,
1945, and 1938, respectively. School Specialty has 1,322 employees in the United
States and the United Kingdom, providing service to all 50 states and the United
Kingdom. School Specialty's principal offices are located at 1000 North
Bluemound Drive, Appleton, Wisconsin 54914, and its telephone number is (920)
734-2756. School Specialty's world wide website is located at
http:\\www.schoolspecialty.com. Information contained in this website is not
deemed to be a part of this Prospectus.

COMPANY STRENGTHS

School Specialty attributes its strong competitive position to the following
key strengths:

LEADING MARKET POSITION. The Company has developed its leading market
position over its 38 year history by emphasizing high quality products, superior
order fulfillment and exceptional customer service. School Specialty has
developed a group of strong brand names including School Specialty, Re-Print,
Childcraft, Sax Arts & Crafts and Gresswell. The Company believes its annual
revenues exceed those of its next two largest competitors combined and that its
large size and brand recognition have resulted in significant buying power,
economies of scale and customer loyalty.

BROAD PRODUCT LINE. School Specialty's strategy is to provide a full range
of high quality products to meet the complete supply needs of pre-K-12 schools
and, as a result, currently offers over 32,000 SKUs ranging from classroom
supplies to playground equipment. The Company's specialty brands enrich its
general product offering and create opportunities to cross merchandise its
specialty school supplies to the customers of its general lines. Specialty
brands include Childcraft, which sells materials, classroom furniture and
equipment such as library shelving, cubbies, easels, desks and play vehicles to
the early childhood market; Sax Arts & Crafts, which distributes art supplies
such as paint, brushes, paper, ceramics, leather and wood crafts; and Gresswell,
which distributes library-related products including supplies, furniture and
media display and storage in the United Kingdom. School Specialty offers
customers one source for virtually all of their school supply and furniture
needs.

INNOVATIVE TWO-PRONGED DISTRIBUTION. School supply procurement decisions
are made at the district and school levels by administrators and principals, and
at the classroom level by curriculum specialists and teachers. The Company
targets both of these groups, addressing administrative decision makers with a
"top down" approach through its 290 person sales force and School Specialty
Catalog, and targeting teachers and curriculum specialists with a "bottom up"
approach primarily through the 6.3 million Re-Print general supply, Childcraft,
Sax Arts & Crafts and Gresswell specialty catalogs mailed each year. School
Specialty utilizes its customer database across its family of catalogs to
maximize their effectiveness and increase the Company's marketing reach.

ABILITY TO INTEGRATE ACQUISITIONS. School Specialty has successfully
completed the acquisition of 19 companies since 1991, 14 of which have been
acquired since May 1996. School Specialty has established an efficient 24 month
integration process in which a transition team is assigned to (i) sell or
discontinue incompatible business units, (ii) reduce the number of SKUs, (iii)
eliminate redundant administrative functions, (iv) integrate the acquired
entity's MIS system, and (v) improve buying power. To date, the Company's
integration efforts have focused on acquired general products companies. The
Company intends to consolidate certain administrative functions at its specialty
divisions. The Company believes that through these processes it can generate
significant economies of scale and rapidly

27
<PAGE>
improve the margins of acquired entities, as well as increase sales by
channeling acquired entities' products through its broad distribution network.

COMPANY GROWTH STRATEGY

School Specialty's objective is to further enhance its position as the
leading distributor of non-textbook educational supplies through the continued
implementation of the following strategies:

PURSUE ACQUISITIONS AGGRESSIVELY. The Company believes that there are
extensive acquisition opportunities among the over 3,400 school distributors in
the U.S. The Company intends to pursue two types of acquisitions: (i) general
school supply and furniture companies in geographic markets in which the Company
has a limited presence, and (ii) specialty companies focusing on disciplines
such as physical education, science, technology and music. School Specialty
believes it can improve the margins of acquired entities through its efficient
integration process to achieve economies of scale. Although the Company is the
largest distributor in the industry, its share of the $6.1 billion school supply
market is less than 6%, giving the Company substantial growth opportunities.

PENETRATE NEW MARKETS AND EXPAND CUSTOMER BASE IN EXISTING MARKETS. School
Specialty believes that it can increase sales by adding sales representatives in
geographic markets in which the Company does not have a significant presence. In
addition, the Company believes that it can further increase sales by cross
merchandising its specialty supplies to its general supplies customers. Lastly,
the Company intends to increase international sales in English-speaking
countries.

PRODUCT LINES

SCHOOL SPECIALTY. The School Specialty Catalog offers a comprehensive
selection of classroom supplies, instructional materials, educational games, art
supplies, school forms (such as reports, planners and academic calendars),
physical education equipment, audio-visual equipment, school furniture, and
indoor and outdoor equipment and is targeted to administrative decision makers.
School Specialty believes it is the largest school furniture resale source in
the United States. School Specialty has been granted exclusive franchises for
certain furniture lines in specific territories and School Specialty enjoys
significant purchasing power in open furniture lines.

The Company's specialty brands offer product lines for specific educational
disciplines.

RE-PRINT. Re-Print offers its customers substantially the same products as
the School Specialty Catalog but focuses on reaching teachers and curriculum
specialists directly through its mail-order catalogs.

28
<PAGE>
CHILDCRAFT. Childcraft distributes early childhood education products and
materials. Childcraft also distributes over 1,000 proprietary or exclusive
products manufactured by its Bird-in-Hand Woodworks subsidiary, including wood
classroom furniture and equipment such as library shelving, cubbies, easels,
desks and play vehicles.

SAX ARTS & CRAFTS. Sax Arts & Crafts is a leading distributor of art
supplies and art instruction materials, including paints, brushes, paper,
ceramics, art metals and glass, leather and wood crafts. Sax Arts & Crafts
offers customers a toll free "Art Savvy Hotline" staffed with 15 professional
artists to respond to customer questions.

GRESSWELL. Gresswell distributes library-related products in the U.K.
including furniture, and media display and storage. Gresswell's dedicated sales
and design team helps customers plan, design and install library projects using
Computer Assisted Design equipment.

School Specialty employs merchandising managers who continually review and
update the product lines for each operating division. The merchandising managers
convene customer focus groups and advisory panels to ascertain whether current
offerings are well-received and to anticipate future demand. The merchandising
managers also travel to product fairs and conventions seeking out new product
lines. This annual review process results in an organic reshaping and expansion
of the educational materials being offered by School Specialty.

OPERATIONS

SALES AND MARKETING

School Specialty believes it has developed a substantially different sales
and marketing model from that of traditional school supply and school
furnishings distribution companies in the United States. School Specialty's
strategy is to use its position of owning two distribution platforms with which
it can approach the school market. School Specialty's 290 sales representatives
focus on "top down" selling (through districts, school purchasing authorities
and schools), while School Specialty's Re-Print Division uses the "bottom up"
approach through its direct mail catalog selling directly to teachers. To
further strengthen its position in the market, School Specialty also owns
premier specialty education brands (Childcraft, Sax Arts & Crafts, and
Gresswell) that have the potential to enrich the general product offering
through cross-merchandising.

School Specialty has a broad customer base and no single customer accounted
for more than 2% of sales during fiscal 1997. Schools typically purchase school
supplies and furniture based on an established relationship with relatively few
suppliers. School Specialty establishes and maintains its relationship with its
customers by assigning accounts within a specific geographic territory to a
local area sales representative. Additionally, each account is assigned its
designated inside customer service representative.

School Specialty's customer service representatives call on existing
customers frequently to ascertian and fulfill their school supply needs. The
representatives maintain contact with customers throughout the order cycle and
assist in processing orders.

School Specialty's primary compensation program for sales representatives is
based on commissions as a percentage of gross profit on sales. For new and
transitioning sales representatives, School Specialty offers salary and expense
reimbursement until the representative is moved to a full commission
compensation structure.

School Specialty utilizes direct mail catalogs to reach its broader customer
base. School Specialty distributes five major catalogs, one for each of its
School Specialty general supply, Re-Print, Childcraft, Gresswell, and Sax Arts &
Crafts lines. The catalog distribution calendar is generally the same across all
product lines. A major catalog containing all product offerings is distributed
toward the end of the calendar year so that it is available for school buyers at
the beginning of the year. During the year, various catalog supplements are
distributed to coincide with the peak school buying season in June through
September and following the return of students to school in the fall.

29
<PAGE>
The number of catalogs distributed for School Specialty, Re-Print,
Childcraft, Gresswell and Sax Arts & Crafts for each of the past three calendar
years and projected catalog distribution for 1998 is set out below. The figures
set forth below include all books of over 32 pages sent out (or, with respect to
1998, expected to be sent out) during the calendar year but do not include
catalogs that were distributed by discontinued operations.

<TABLE>
<CAPTION>
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
School Specialty Catalog............................ 115,000 296,750 450,750 600,000
Re-Print............................................ 998,000 1,175,000 2,275,000 3,400,000
Childcraft.......................................... 1,583,000 1,308,000 1,360,000 1,728,000
Gresswell........................................... 100,000 180,000(1) 130,000 150,000
Sax Arts & Crafts................................... 750,000 823,000 1,043,500 1,064,000
--------- --------- --------- ---------
Total........................................... 3,546,000 3,782,750 5,259,250 6,942,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

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

(1) Includes an extra catalog published against a competitive launch.

Pricing for School Specialty's general and specialty product offerings
varies by product and channel of distribution. The Company generally offers a
negotiated discount from catalog prices for supplies and responds to quote and
bid requests for furniture and equipment. In addition, local sales
representatives work with the Company's corporate sales force and school supply
buyers to achieve an acceptable pricing structure based upon the mix of products
being procured.

School Specialty distributes products through its distribution centers as
well as placing customer orders directly with School Specialty's suppliers.
Furniture is generally shipped directly from the manufacturer to the user,
bypassing School Specialty's distribution centers.

PURCHASING AND INVENTORY MANAGEMENT

School Specialty manages its inventory by continually reviewing daily
inventory levels compared to a running 90-day inventory for the previous year,
adjusted for incoming orders. School Specialty constantly refines the focus of
inventory products through its automated inventory management system to pursue
the optimum level of scope and depth of product offered. Every item in each of
the various distribution regions is forecasted on a daily basis to account for
the anticipated demand curve, current order activity, and available stock as
well as the expected lead time from the supplier. The forecast allows inventory
purchases to respond quickly to the high seasonal demand while keeping
off-season inventory to a minimum. The information systems for all of School
Specialty's distribution centers are interconnected to allow transfer of
inventory between facilities to fill regional demand. In addition, all orders
can be redirected to the distribution center which is the primary stocking
location for a product. School Specialty's inventory management results in
inventory turnover that management believes is higher than industry turnover
rates and reduces the level of discontinued, excess and obsolete inventory
compared to businesses acquired by School Specialty.

School Specialty believes its large size enhances its purchasing power with
suppliers and results in lower product costs than most of the Company's
competitors. Further, School Specialty believes it can leverage this purchasing
power to acquired companies in the future to improve the operating margins for
both general supply and specialty businesses. The Company also believes its
purchasing power for general supplies should result in improved margins for its
specialty businesses.

Market surveys by Krebs and Company have shown that the primary determinants
of customer satisfaction in the educational supply industry are the completeness
and accuracy of shipments received and the timeliness of delivery. School
Specialty continues to invest in sophisticated computer systems to automate the
order taking, inventory allocation and management, and order shipment processes.
As a result, School Specialty has been able to provide superior order
fulfillment to its customers. In addition, School Specialty has developed OMS,
which allows schools to customize their

30
<PAGE>
orders and enter them electronically with School Specialty and provides
historical usage reports to schools useful for their budgeting process. During
the academic year, School Specialty seeks to fill orders within twenty-four
hours of receipt of the order at a 95.0% fill rate and a 99.5% order accuracy
rate. During the summer months, School Specialty shifts to a production
environment and schedules shipments to coincide with the start of the school
year. During the summer months, School Specialty's objectives are to meet a 100%
fill rate at a 99.5% order accuracy rate. In the aggregate, School Specialty's
order fill rate for June, July and August 1997 exceeded 97.0%.

During the peak shipping season between June 1 and September 30, each of
School Specialty's distribution centers contracts with local common carriers to
deliver its product to schools and school warehouses. Re-Print and Sax Arts &
Craft rely on carriers such as Roadway Package Service, United Parcel Service
and the U.S. Postal Service for distribution to customers.

INFORMATION SYSTEMS

The Company believes that through the utilization of technology in areas
such as (i) purchasing and inventory management, (ii) customer order fulfillment
and (iii) database management, School Specialty is able to turn inventory more
quickly than competitors, offer customers more convenient and cost effective
product ordering methods and conduct more precisely targeted sales and marketing
campaigns. School Specialty uses two principal information systems, one for its
general distribution and another for its specialty market distribution. In
general school supply distribution, School Specialty utilizes a specialized
distribution software package used primarily by office products and paper
distributors. The software offers a fully integrated process from sales order
entry through customer invoicing, and inventory requirements planning through
accounts payable. School Specialty's system provides information through daily
automatic posting to the general ledger and integrated inventory control. School
Specialty has made numerous enhancements to this process that allow greater
flexibility in addressing seasonal requirements of the industry and meeting
specific customer needs.

The specialty divisions are moving towards a common mail order system
provided by Smith-Gardner & Associates. The Mail-order and Catalog System
("MACS") meets the unique needs of the direct marketing approach with extensive
list management and tracking of multiple marketing efforts. The system provides
complete and integrated order processing, inventory control, warehouse
management, and financial applications.

Although School Specialty has two principal information systems, these
systems integrate general ledger, purchasing and inventory management functions.
The software and hardware allow for continued incremental growth as well as the
opportunity to integrate new client-server and other technologies into the
information systems. Currently, all acquired School Specialty general
distribution companies (except one acquired in December 1997) are on the same
computer system. The specialty businesses and Re-Print operate on different
systems but intend to implement the common MACS system. School Specialty intends
to continue to use two principal information systems in its business.

YEAR 2000 COMPLIANCE

School Specialty's current information systems as well as those being
considered for acquisition by School Specialty's mail order and specialty
distribution divisions, currently meet information standards for Year 2000
compliance. School Specialty does not expect that it will incur any material
costs and expenses related to bringing its information systems to Year 2000
compliance. See "Risk Factors-- Dependence on Systems".

COMPETITION

School Specialty operates in a highly competitive environment. The Company's
principal competitors are other national and regional school supply distribution
companies. School Specialty is also faced with increasing competition from
non-traditional alternate channel competitors, such as office products contract
stationers and superstores. Among traditional school supply distributors, School
Specialty

31
<PAGE>
believes that there are only two other companies with sales in excess of $130
million: Beckley-Cardy and the J.L. Hammett Co. School Specialty believes that
it competes favorably with these companies on the basis of service and price.

The market is highly competitive on a regional basis, but School Specialty
believes its heaviest competition is coming from alternate channel competitors
such as office product contract stationers and superstores. Their primary
advantages over School Specialty are size, location, greater financial resources
and buying power. Their primary disadvantage is that their product mix covers
only 15% to 20% of the school's needs (measured by volume). In addition, the
Company's competitors do not offer special order fulfillment software, which
School Specialty believes is increasingly important to adequately service school
needs. School Specialty believes it competes favorably with these companies on
the basis of service and product offering.

EMPLOYEES

As of December 31, 1997, School Specialty had 1,322 full-time employees, 266
of whom were employed primarily in management and administration, 430 in
regional warehouse and distribution operations, and 626 in marketing, sales,
order processing, and customer service. To meet the seasonal demands of its
customers, School Specialty employs many seasonal employees during the late
spring and summer seasons. Historically, School Specialty has been able to meet
its requirements for seasonal employment. As of January 12, 1998, approximately
27 of School Specialty's employees were members of the Teamsters Labor Union at
Sax Arts & Crafts' New Berlin, Wisconsin facility. School Specialty considers
its relations with its employees to be very good.

FACILITIES

School Specialty's corporate headquarters are located at 1000 North
Bluemound Drive, Appleton, Wisconsin, a combined office and warehouse facility
of approximately 120,000 square feet. School Specialty's lease on the Appleton
headquarters expires on December 31, 2001. School Specialty leases or owns the
following distribution facilities.

<TABLE>
<CAPTION>
APPROXIMATE
SQUARE OWNED/ LEASE
LOCATIONS FOOTAGE LEASED EXPIRATION
- ----------------------------------------------- ------------- ----------- ------------------
<S> <C> <C> <C>
Agawam, Massachusetts.......................... 163,300 Owned --
Bethlehem, Pennsylvania........................ 25,600 Leased February 28, 1998
Birmingham, Alabama............................ 180,365 Leased November 20, 2006
Bowling Green, Kentucky........................ 42,000 Leased June 30, 2001
Cary, Illinois................................. 75,767 Owned --
Enfield, London, England....................... 8,000 Owned --
Fresno, California............................. 18,480 Leased December 31, 2001
Hoddesdon, London, England..................... 10,000 Leased September 1999
Hoddesdon, London, England..................... 10,000 Leased September 2015
Lancaster, Pennsylvania........................ 75,434 Leased December 31, 2002
Lancaster, Pennsylvania........................ 204,105 Leased February 28, 1999
Mt. Laurel, New Jersey......................... 48,000 Leased May 31, 1998
New Berlin, Wisconsin.......................... 97,500 Leased March 31, 2002
Oklahoma City, Oklahoma........................ 37,340 Leased July 16, 2001
Pollocksville, North Carolina.................. 84,071 Owned --
Portland, Oregon............................... 30,456 Leased May 31, 2001
Salina, Kansas................................. 123,000 Owned --
</TABLE>

The Lancaster, Pennsylvania facility is used for manufacturing and the
Salina, Kansas facility is used for production of school forms. In addition,
School Specialty has ten sales offices throughout the United States.

School Specialty believes that its properties are adequate to support its
operations for the foreseeable future. School Specialty reviews on a regular
basis the consolidation of its facilities.

32
<PAGE>
MANAGEMENT OF SCHOOL SPECIALTY

DIRECTORS AND EXECUTIVE OFFICERS

Following the School Specialty Distribution, it is anticipated that the
directors and executive officers of School Specialty will be as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Daniel P. Spalding........................ 43 Chairman of the Board and Chief Executive
Officer
David J. Vander Zanden.................... 43 President, Chief Operating Officer, and
Director*
Donald J. Noskowiak....................... 40 Executive Vice President and Chief
Financial Officer
Douglas Moskonas.......................... 53 Executive Vice President for School
Specialty Divisions
Melvin D. Hilbrown........................ 49 Executive Vice President for Gresswell
Richard H. Nagel.......................... 57 Executive Vice President for Sax Arts &
Crafts
Donald Ray Pate, Jr....................... 35 Executive Vice President for Re-Print
Ronald E. Suchodolski..................... 51 Executive Vice President for Childcraft
Michael J. Killoren....................... 41 Vice President for School Specialty
Divisions
Jonathan J. Ledecky....................... 40 Director*
Leo C. McKenna............................ 64 Director*
Rochelle Lamm Wallach..................... 48 Director*
</TABLE>

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

* Messrs. Vander Zanden, Ledecky and McKenna and Ms. Wallach are expected to
join the Board of Directors of School Specialty promptly following the School
Specialty Distribution.

DANIEL P. SPALDING became Chairman of the Board and Chief Executive Officer
of School Specialty in February 1998. Mr. Spalding has served as President of
the Educational Supplies and Products Division of U.S. Office Products since
1996. Prior to that time, he served as President, Chief Executive Officer, and a
director of Old School since 1988. Prior to 1988, Mr. Spalding was an officer of
JanSport, a manufacturer of sports apparel and backpacking equipment. Mr.
Spalding was a co-founder of JanSport, and served as President and Chief
Executive Officer from 1977 to 1984. Mr. Spalding has been a director of the
National School Supply and Equipment Association since 1992 and completed his
term as the association's Chairman in November 1997. Mr. Spalding is Michael J.
Killoren's cousin.

DAVID J. VANDER ZANDEN became the Chief Operating Officer of School
Specialty in March 1998. Prior to that time, he served as President of Ariens
Company since 1992, a manufacturer of outdoor lawn and garden equipment.

DONALD J. NOSKOWIAK has served as Chief Financial Officer of School
Specialty since 1997. In February 1998, Mr. Noskowiak became an Executive Vice
President of School Specialty. He was Vice President, Treasurer and Principal
Financial Officer of Old School since 1994. From 1992 through 1994 he was the
Corporate Controller of Old School.

DOUGLAS MOSKONAS joined Old School in 1993 as Vice President of Sales for
the Valley Division. Since that time he has served as General Manager for the
Valley Division from 1994 through 1996 and was appointed President of School
Specialty Distribution in 1997. Prior to joining School Specialty, Mr. Moskonas
served as Vice President of Sales for Emmons-Napp Office Products from 1979
through 1993. As of the School Specialty Distribution, Mr. Moskonas is expected
to be elected an Executive Vice President of School Specialty for School
Specialty Divisions.

33
<PAGE>
MELVIN D. HILBROWN joined School Specialty as Managing Director of Gresswell
with School Specialty's acquisition of Don Gresswell, Ltd. in 1997. He has been
Managing Director of Gresswell since 1989. As of the School Specialty
Distribution, Mr. Hilbrown is expected to be elected an Executive Vice President
of School Specialty for Greswell.

RICHARD H. NAGEL joined School Specialty with the acquisition of Sax Arts &
Crafts in 1997 and serves as President of Sax Arts & Crafts. Mr. Nagel has been
with Sax Arts & Crafts since 1975 when he was hired as Assistant General
Manager. He was named President of Sax Arts & Crafts in 1990. As of the School
Specialty Distribution, Mr. Nagel is expected to be elected an Executive Vice
President of School Specialty for Sax Arts & Crafts.

DONALD RAY PATE, JR. joined School Specialty with the acquisition of The
Reprint Corp. in 1996 and serves as President of The Re-Print Corp. Mr. Pate has
served as President of The Re-Print Corp. since he acquired it in 1988. As of
the School Specialty Distribution, Mr. Pate is expected to be elected an
Executive Vice President of School Specialty for Re-Print.

RONALD E. SUCHODOLSKI joined School Specialty with the acquisition of
Childcraft Education Corp. in 1997 and serves as President of Childcraft
Education Corp. Mr. Suchodolski has been President of Childcraft Education Corp.
since 1995 and was Director of Childcraft's School Division from 1984 through
1989. From 1989 to 1993, Mr. Suchodolski was President of the Judy/Instructo
Division of Paramount, and from 1993 through 1995 Mr. Suchodolski served as
Senior Vice President of Sales and Marketing for Paramount Publishing's
Supplementary Materials Division. As of the School Specialty Distribution, Mr.
Suchodolski is expected to be elected an Executive Vice President of School
Specialty for Childcraft.

MICHAEL J. KILLOREN has served as Chief Operating Officer of School
Specialty Distribution since 1997. From 1992 to 1997, he was Vice
President/Operations of School Specialty. Mr. Killoren is Daniel P. Spalding's
cousin. As of the School Specialty Distribution, Mr. Killoren is expected to be
elected an Vice President of School Specialty for School Speciality Divisions.

JONATHAN J. LEDECKY will serve as a Director of School Specialty as of the
Distribution Date. He founded Consolidation Capital Corporation in February 1997
and serves as its Chairman and Chief Executive Officer. Mr. Ledecky founded U.S.
Office Products in October 1994 and will serve as its Chairman of the Board
until the Distribution Date and served as its Chief Executive Officer until
November 5, 1997. Mr. Ledecky has also served as the Non-Executive Chairman of
the Board of USA Floral Products, Inc. since April 1997 and as the Non-Executive
Chairman of the Board of UniCapital Corporation since October 1997. Mr. Ledecky
served from 1989 to 1991 as the President of The Legacy Fund, Inc., and from
1991 to September 1994 as President and Chief Executive Officer of Legacy Dealer
Capital Fund, Inc., a wholly-owned subsidiary of Steelcase Inc., the nation's
largest manufacturer of office furniture products. Prior to his tenure at The
Legacy Fund, Inc., Mr. Ledecky was a partner at Adler and Company and a Senior
Vice President at Allied Capital Corporation, an investment management company.

LEO C. MCKENNA is a self-employed financial consultant working with personal
asset management, corporate planning, acquisitions, merger studies, and
negotiations. Mr. McKenna is currently a Member of the Board of Life Insurance
Company of Boston and New York (Subsidiary of Boston Mutual Life). He is founder
and a director of Ledyard National Bank, where he also serves on the Audit
Committee. He is also a director of Rosenthal, A.G. USA. He is a director and
member of the John Brown Cook Foundation and an overseer and Chairman of the
Finance Committee for the Catholic Student Center at Dartmouth.

ROCHELLE LAMM WALLACH is President of Strong Advisory Services, a division
of Strong Capital Management. Ms. Wallach joined Strong Capital Management in
1994. Prior to that time, she was Chief Operating Officer of AAL Capital
Management, a mutual fund manager which she founded in 1986.

34
<PAGE>
The Company intends to name two additional independent directors after the
effective date of the Distribution.

COMMITTEES OF THE BOARD

The School Specialty Board will create an Audit Committee effective
immediately following the effective date of the Offering. The Audit Committee is
charged with reviewing School Specialty's annual audit and meeting with School
Specialty's independent accountants to review School Specialty's internal
controls and financial management practices.

The School Specialty Board will create a Compensation Committee effective
immediately following the effective date of the Offering. The Compensation
Committee is charged with determining the compensation of executive officers of
School Specialty and administering any stock option plan School Specialty may
adopt.

EXECUTIVE COMPENSATION

The following table sets forth information with respect to the compensation
paid by School Specialty for services rendered during the year ended April 26,
1997 to the Chief Executive Officer and to each of the four other most highly
compensated officers of School Specialty (the "Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
LONG TERM
-------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------------------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
Daniel P. Spalding..................... $ 178,846 -- -- --
Chairman of the Board, CEO and
Director
Ronald E. Suchodolski(1)............... 141,535 $ 30,000 -- --
President, Childcraft
Richard H. Nagel(1)(2)................. 118,000 29,500 -- $ 32,000
President, Sax Arts & Crafts
Donald Ray Pate, Jr.................... 220,901 -- -- --
President, Re-Print
Douglas Moskonas....................... 97,266 44,500 15,000 --
President, School Specialty Division
</TABLE>

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

(1) Mr. Suchodolski and Mr. Nagel joined School Specialty in May and July 1997,
respectively. The compensation information included in this table reflects
the compensation received when employed by predecessor companies.

(2) Other compensation refers to Mr. Nagel's automobile allowance and stay-bonus
compensation received by his prior employer.

The following table sets forth certain information regarding options to
acquire U.S. Office Products Common Stock granted to the Named Officers during
the year ended April 26, 1997. As described above, all options were generated by
U.S. Office Products as options to acquire U.S. Office Products Common Stock and
are expected to be replaced with options to acquire School Specialty Common
Stock in connection with the School Specialty Distribution. No options to
acquire securities of School Specialty were granted to or held by the Named
Officers in the year ended April 26, 1997. See "The Spin-Off from U.S. Office
Products".

35
<PAGE>
OPTIONS GRANTED IN FISCAL YEAR ENDED APRIL 26, 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE
TOTAL OPTIONS APPRECIATION FOR
GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE DATE 5% 10%
- -------------------------------------- ----------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Daniel P. Spalding (4)................ -- 0.0% $ -- -- $ -- $ --
Ronald E. Suchodolski(5).............. -- 0.0% -- -- -- --
Richard H. Nagel(6)................... -- 0.0% -- -- -- --
Donald Ray Pate, Jr................... -- 0.0% -- -- -- --
Douglas Moskonas(7)................... 15,000 6.0% $ 26.58 5/13/2006 250,740 635,425
</TABLE>

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

(1) The options granted are non-qualified stock options, which are exercisable
at the market price on the date of grant beginning one year from the date of
grant in cumulative yearly amounts of 25% of the shares and expire ten years
from the date of grant. The options become fully exercisable upon a change
in control, as defined in the Incentive Plan.

(2) Total options granted refers to options to acquire U.S. Office Products
Common Stock given to all employees of the Educational Supplies and Products
Division of U.S. Office Products during fiscal 1997.

(3) The dollar amounts under these columns are the results of calculations at
assumed annual rates of stock appreciation of 5% and 10%. These assumed
rates of growth were selected by the SEC for illustration purposes only.
They are not intended to forecast possible future appreciation, if any, of
stock prices. No gain to the optionees is possible without an increase in
stock prices, which will benefit all stockholders.

(4) After the end of the fiscal year, Daniel P. Spalding was granted 150,000
options at an exercise price of $15.17, which expire on April 28, 2007.

(5) After the end of the fiscal year, Ronald E. Suchodolski was granted 20,000
options at an exercise price of $18.00, which expire on December 12, 2007.

(6) After the end of the fiscal year, Richard H. Nagel was granted 20,000
options at an exercise price of $18.00, which expire on December 12, 2007.

(7) After the end of the fiscal year, Douglas Moskonas was granted 20,000
options at an exercise price of $18.00, which expire on December 12, 2007.

The following table sets forth certain information regarding unexercised
options held by the Named Officers at April 26, 1997. As described above, all
options were granted by U.S. Office Products as options to acquire U.S. Office
Products Common Stock and are expected to be replaced with options to acquire
shares of School Specialty Common Stock in connection with the Distribution. See
"The Spin-Off from U.S. Office Products".

36
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED 1997
AND FISCAL YEAR ENDED 1997 OPTION VALUES

<TABLE>
<CAPTION>
NUMBER UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS MONEY (3) OPTIONS AT FISCAL
SHARES HELD AT APRIL 26, 1997(#) YEAR END($)(4)
ACQUIRED ON VALUE ------------------------------ ------------------------------
NAME EXERCISE(#)(1) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ --------------- -------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Daniel P. Spalding............ -- $ -- -- -- $ -- $ --
Ronald E. Suchodolski......... -- -- -- -- -- --
Richard H. Nagel.............. -- -- -- -- -- --
Donald Ray Pate, Jr........... -- -- -- -- -- --
Douglas Moskonas.............. -- -- -- 15,000 -- --
</TABLE>

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

(1) Represents the number of shares received upon exercise or, if no shares were
received, the number of shares with respect to which options were exercised.

(2) The value of exercised options represents the difference between the
exercise price of such options and the closing market price of U.S. Office
Products Common Stock on the date of exercise.

(3) Options are "in-the-money" if the closing market price of U.S. Office
Products Common Stock exceeds the exercise price of the options.

(4) The value of unexercised options represents the difference between the
exercise price of such options and $15.08, the closing market price of U.S.
Office Products' Common Stock at April 26, 1997.

EMPLOYEE STOCK OPTION PLAN

School Specialty expects to adopt an employee stock option plan at
approximately the time of the School Specialty Distribution. The terms of the
plan and the initial amount of options have not yet been approved but School
Specialty currently expects that options for up to 7.5% of the issued and
outstanding capital stock of School Specialty will be granted to senior
management concurrent with the School Specialty Distribution. Option prices will
not exceed the market price of School Specialty Common Stock on the respective
dates of grant.

DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS

School Specialty expects to grant non-management directors options
to purchase School Specialty Common Stock for each year of service.
Non-management directors will be paid $ for each meeting attended and will
also be reimbursed for all out-of-pocket expenses related to their service as
directors.

Jonathan J. Ledecky entered into a services agreement (the "Ledecky Services
Agreement") with U.S. Office Products on January 13, 1998, to become effective
on the date of the School Specialty Distribution and contingent on the
consummation of the Distributions. The agreement will expire on September 30,
1998 if none of the Distributions has occurred by that date. If the Ledecky
Services Agreement becomes effective, it will replace his November 4, 1997
employment agreement with U.S. Office Products.

The Ledecky Services Agreement governs Mr. Ledecky's continuing obligations
to U.S. Office Products and also provides certain benefits and obligations with
respect to School Specialty and the other Spin-Off Companies. Under the Ledecky
Services Agreement, Mr. Ledecky will remain an employee of U.S. Office Products,
at an annual salary of $48,000, through June 30, 2001, with the contract
terminable only if he violates the non-competition provision of the Ledecky
Services Agreement.

The Ledecky Services Agreement provides for non-competition and
non-solicitation restrictions, until the fourth anniversary of the date of the
School Specialty Distribution. These provisions generally restrict Mr. Ledecky
from, among other things, investing in or working for or on behalf of any
business

37
<PAGE>
selling any products or services in direct competition with U.S. Office Products
and the Spin-Off Companies (collectively, the "U.S. Office Products Companies"),
within 100 miles of any location where any U.S. Office Products Company conducts
business. (For this purpose, "products or services" are those in effect as of
January 13, 1998.) The Ledecky Services Agreement prohibits calling upon
managerial employees of the U.S. Office Products Companies to hire them away and
Mr. Ledecky from calling upon customers of the U.S. Office Products Companies to
solicit or sell products or services in direct competition with the U.S. Office
Products Companies. Mr. Ledecky is also barred from hiring away for
Consolidation Capital Corporation any person then or in the preceding one year
employed by the U.S. Office Products Companies. The Ledecky Services Agreement
includes Mr. Ledecky's agreement that four years is a reasonable period of time
for this provision and that U.S. Office Products will assign to School Specialty
and the other Spin-Off Companies the ability to enforce the non-competition
provisions described above as to their own businesses.

Under the Ledecky Services Agreement, the Board of Directors of U.S. Office
Products has agreed that Mr. Ledecky will receive stock options for School
Specialty Common Stock from School Specialty as of the date of the School
Specialty Distribution. The Board of Directors of U.S. Office Products intends
the options to be compensation for Mr. Ledecky's services to School Specialty as
a director, and certain services as an employee. The options will cover up to
7.5% of the outstanding School Specialty Common Stock determined as of the
Distribution Date, with no anti-dilution provisions in the event of issuance of
additional shares of School Specialty Common Stock (other than with respect to
stock splits or reverse stock splits). The options will have a per share
exercise price equal to the price of the first trade (the "Initial Trading
Price") on the day School Specialty's Common Stock is first publicly traded (the
"First Trade Date").

It is expected that Mr. Ledecky's options will become fully exercisable as
to two-thirds of the shares it covers as of the 12-month anniversary of the
First Trade Date. The remainder of the options will become exercisable as
follows: (i) as of the 18-month anniversary of the First Trade Date if the
average closing trading price over the 15 business days preceding that
anniversary date exceeds the Initial Trading Price (with the prices adjusted for
stock splits or reverse stock splits or other corporate events that cause School
Specialty to adjust substantially all outstanding options) by at least 25% or
(ii) as of the sixth anniversary of the First Trade Date if the clause (i)
condition is not met and Mr. Ledecky is still employed by U.S. Office Products
at that anniversary. Option exercisability will accelerate if Mr. Ledecky dies
before the options expire or if and to the extent that School Specialty
accelerates the exercise schedule of options for substantially all management
option holders. All unexercised portions of the options will expire ten years
after its date of grant or, if applicable, as of the date Mr. Ledecky violates
his non-competition agreement with School Specialty.

EMPLOYMENT CONTRACTS AND RELATED MATTERS

School Specialty has entered into employment agreements with the following
three of its Named Officers that will continue after the School Specialty
Distribution: Daniel P. Spalding (Chairman and Chief Executive Officer), Donald
Ray Pate, Jr. (Executive Vice President and President of Re-Print), and Richard
H. Nagel (Executive Vice President and President of Sax Arts & Crafts). After
the School Specialty Distribution, the Company intends to enter into an
employment agreement with David J. Vander Zanden (President and Chief Operating
Officer), that will take effect upon the commencement of his employment in March
1998.

Daniel P. Spalding, Chief Executive Officer of School Specialty, entered
into an employment contract with Old School on April 29, 1996. The contract has
an initial term of four years but, unless terminated, is automatically extended
at the end of each of the last three years of the initial term for another year.
Mr. Spalding receives a base salary of $180,000 and participates in an incentive
bonus plan which provides for an annual bonus up to 100% of base salary upon the
attainment of profit and revenue objectives. Following the termination of his
employment for any reason, Mr. Spalding has agreed not to

38
<PAGE>
compete with School Specialty for a period equal to the longer of two years or,
in the case of early termination, the years remaining on his contract. If Mr.
Spalding is terminated without cause, as defined in the contract, he is entitled
to his entire base salary for the years remaining on the contract. In addition,
Mr. Spalding may terminate his contract for good cause (e.g., a material,
adverse change in his position or responsibilities or any material breach on the
part of School Specialty) or within five days of a change in control of School
Specialty. The contract defines a change of control to mean: (i) the acquisition
of beneficial ownership of 50% or more of voting securities of School Specialty
by any person other than U.S. Office Products; (ii) a loss of majority status by
the combination of members of U.S. Office Products' Board at the time of its
initial public offering and any Board members installed by a two-thirds vote of
the then-present initial Directors or any Directors subsequently installed by
them; (iii) any reorganization of U.S. Office Products unless 75% of the
beneficial ownership of U.S. Office Products voting securities remains in the
same hands; or (iv) U.S. Office Products or more than 49% of its assets are
liquidated.

David J. Vander Zanden will become President and Chief Operating Officer in
March 1998. School Specialty expects to enter into an employment contract with
Mr. Vander Zanden with an initial term of two years, with automatic two year
extensions unless School Specialty or Mr. Vander Zanden gives 90 days written
notice of either party's intent not to renew. School Specialty expects that Mr.
Vander Zanden's employment contract will provide for a base salary of $225,000
and participation in an incentive bonus plan based upon the attainment of profit
and revenue objectives. School Specialty also expects that Mr. Vander Zanden's
employment contract will contain a covenant not to compete upon termination of
the agreement, and provide Mr. Vander Zanden the right to terminate the
agreement upon a change of control in School Specialty, with change of control
to be defined in the agreement. School Specialty also expects to grant options
to Mr. Vander Zanden on or shortly after the Distribution.

Donald Ray Pate, Jr., serves as President of Re-Print and entered into an
employment contract with Re-Print on July 26, 1996 to serve as its President.
The contract runs for four years but provides for two automatic one-year
extensions unless Re-Print gives 60 days written notice of its intent not to
renew. Mr. Pate's annual base salary is $125,000, and he participates in an
executive compensation program developed by U.S. Office Products. Following the
termination of his employment for any reason, Mr. Pate has agreed not to compete
with Re-Print for the longer of two years or until the end of the contractual
term. If Mr. Pate is terminated without cause, he is entitled to receive his
base salary for three months or until the end of the initial contractual term,
whichever period is greater.

Richard H. Nagel, President of Sax Arts & Crafts, entered into a four-year
employment contract with Sax Arts & Crafts on June 27, 1997 to serve as its
President. Mr. Nagel's annual base salary is $125,000, and he participates in
School Specialty's management bonus program. Following the termination of his
employment for any reason, Mr. Nagel has agreed not to compete with Sax Arts &
Crafts for one year. If Mr. Nagel is terminated without cause, he is entitled to
receive his base salary for one year or until the end of the contractual term,
whichever period is lesser.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The School Specialty Board will create a Compensation Committee, immediately
following the Offering. The Compensation Committee will be charged with
determining the compensation of all executive officers. Until the Compensation
Committee of the School Specialty Board is created, decisions regarding
compensation of the executive officers will be made by the School Specialty
Board. No member of the School Specialty Board has ever been an officer of
School Specialty or any of its subsidiaries, except that Mr. Spalding is the
Chief Executive Officer of School Specialty. In addition, Mr. Ledecky was the
Chief Executive Officer of U.S. Office Products until November 5, 1997 and will
be the Chairman of U.S. Office Products until the Distribution Date.

39
<PAGE>
RELATED PARTY TRANSACTIONS

On April 29, 1996, U.S. Office Products acquired Old School through a merger
in which 2,307,693 shares of U.S. Office Products Common Stock were issued as
consideration. Current officers of School Specialty who received shares of U.S.
Office Products Common Stock in the transaction include Daniel P. Spalding
(309,766 shares, and an additional 30,018 through an IRA for his benefit),
Michael J. Killoren (27,018 shares), and Donald J. Noskowiak (27,018 shares). In
addition, John S. Spalding (Daniel P. Spalding's father) received 661 shares and
an additional 60,034 through an IRA for his benefit, the Patricia M. Spalding
Revocable Trust received 70,923 shares, Joanne Lee Killoren received 60,304
shares, Donald Killoren (Michael J. Killoren's father) received 60,778 shares
and Leo C. McKenna received 278,005 shares.

U.S. Office Products acquired Re-Print on July 26, 1996 through a reverse
merger in which it issued 1,950,000 shares of U.S. Office Products Common Stock
as consideration. In that transaction, Donald Ray Pate, Jr., President of
Re-Print, received 1,076,028 shares of U.S. Office Products Common Stock for his
interest in Re-Print. Other shareholders related to Mr. Pate who received shares
of U.S. Office Products Common Stock in the merger were Celita Pate Carmichael
(30,240 shares), Phillip S. Pate (85,351 shares), Richard K. Pate (73,921
shares), and Mary K. Pate (116,505 shares).

School Specialty's main office and warehouse facility, a 120,000 square foot
building located in Appleton, Wisconsin, is leased from Bluemound Corporation.
John S. Spalding, a former member of the Board of Old School and the father of
Daniel P. Spalding, Chairman of the Board and Chief Executive Officer of School
Specialty, holds a one-third stake in Bluemound. Donald Killoren, father of
Michael J. Killoren, an officer of School Specialty, also holds a one-third
stake in Bluemound. The lease provides for annual payments of $196,000 through
December 31, 2001.

For a discussion of matters related to the spin-off of the Company from U.S.
Office Products, see "The Spin-Off From U.S. Office Products".

For a discussion of transactions between the Company and Mr. Ledecky, see
"Management-- Director Compensation and Other Arrangements".

40
<PAGE>
PRINCIPAL STOCKHOLDERS OF SCHOOL SPECIALTY

The following table sets forth the number and percentage of outstanding
shares of School Specialty Common Stock that are beneficially owned by (i) all
persons known by School Specialty to own beneficially more than 5% of U.S.
Office Products Common Stock, (ii) each director and each Named Officer who is a
stockholder, and (iii) all directors and executive officers as a group. The
table reflects shares of U.S. Office Products Common Stock owned as of February
12, 1998 after giving effect to the School Specialty Distribution (assuming one
share of Company Common Stock is distributed for each share of U.S. Office
Products Common Stock). Except as otherwise indicated, the business address of
each of the following is 1000 North Bluemound Drive, Appleton, Wisconsin 54914.

<TABLE>
<CAPTION>
PERCENT
------------------------
PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Daniel P. Spalding (1)......................................................... 200,299 *
Ronald Suchodolski............................................................. 0 0
Jonathan J. Ledecky(2)......................................................... 2,428,125 1.7%
Richard H. Nagel............................................................... 0 0
Donald Ray Pate, Jr............................................................ 1,076,028 *
Douglas Moskonas(3)............................................................ 7,500 *
Leo C. McKenna................................................................. 13,088 *
All current executive officers and directors as a group (12 persons)........... 3,756,128 3.4%

5% STOCKHOLDERS
FMR Corp.(4)................................................................... 15,754,406 11.2
82 Devonshire Street
Boston, MA 02109
Massachusetts Financial Services Company(4).................................... 8,262,886 5.9
500 Boylston Street
Boston, MA 02116
</TABLE>

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

* Less than 1%.

(1) Includes 37,500 shares which may be acquired upon exercise of options
exercisable within 60 days following the School Specialty Distribution.

(2) Does not include Mr. Ledecky's options described under "Management of School
Specialty-- Director Compensation and Other Arrangements", none of which are
exercisable within the next twelve months.

(3) Includes 7,500 shares which may be acquired upon exercise of options
exercisable within 60 days following the School Specialty Distribution.

(4) Based on a Schedule 13G filed with the Securities and Exchange Commission
("SEC").

41
<PAGE>
DESCRIPTION OF SCHOOL SPECIALTY CAPITAL STOCK

GENERAL

Set forth below is a summary of the terms of School Specialty's Capital
Stock. At the time of the School Specialty Distribution, the Company's
authorized capital stock will consist of 150,000,000 shares of School Specialty
Common Stock, par value $.001 per share, and 1,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). At the time of the
School Specialty Distribution, the Company is expected to have outstanding
approximately shares of School Specialty Common Stock and no shares of
Preferred Stock.

COMMON STOCK

The holders of School Specialty Common Stock are entitled to one vote for
each share on all matters voted upon by stockholders, including the election of
directors.

Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of School Specialty Common Stock are entitled to such dividends as may
be declared in the discretion of the Board of Directors out of funds legally
available therefor. See "Dividend Policy". The holders of School Specialty
Common Stock are entitled to share ratably in the net assets of School Specialty
upon liquidation after payment or provision for all liabilities and any
preferential liquidation rights of any Preferred Stock then outstanding. The
holders of School Specialty Common Stock have no preemptive rights to purchase
shares of stock of School Specialty. Shares of School Specialty Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of School Specialty. All of the shares of School Specialty Common
Stock to be distributed pursuant to the Distribution will be fully paid and
nonassessable.

PREFERRED STOCK

The Preferred Stock may be issued from time to time by the School Specialty
Board of Directors as shares of one or more classes or series. Subject to the
provisions of School Specialty's Certificate of Incorporation and limitations
prescribed by law, the School Specialty Board of Directors is expressly
authorized to adopt resolutions to issue the shares, to fix the number of shares
and to change the number of shares constituting any series, and to provide for
or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (including whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation preferences of
the shares constituting any class or series of the Preferred Stock, in each case
without any further action or vote by the stockholders. School Specialty has no
current plans to issue any shares of Preferred Stock of any class or series.

One of the effects of undesignated Preferred Stock may be to enable the
School Specialty Board of Directors to render more difficult or to discourage an
attempt to obtain control of School Specialty by means of a tender offer, proxy
contest, merger or otherwise, and thereby to protect the continuity of School
Specialty's management. The issuance of shares of the Preferred Stock pursuant
to the School Specialty Board of Directors' authority described above may
adversely affect the rights of the holders of School Specialty Common Stock. For
example, Preferred Stock issued by School Specialty may rank prior to School
Specialty Common Stock as to dividend rights, liquidation preference or both,
may have full or limited voting rights and may be convertible into shares of
School Specialty Common Stock. Accordingly, the issuance of shares of Preferred
Stock may discourage bids for School Specialty Common Stock or may otherwise
adversely affect the market price of School Specialty Common Stock.

42
<PAGE>
OTHER CHARTER AND BY LAWS PROVISIONS

School Specialty's Board of Directors is considering the adoption of certain
take-over defense measures, including but not limited to a shareholders' rights
plan and a staggered board. The School Specialty Board expects to complete such
consideration prior to the Offering.

STATUTORY BUSINESS COMBINATION PROVISION

School Specialty is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the board of directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is: (i) the owner of 15% or more of the outstanding
voting stock of the corporation; or (ii) an affiliate or associate of the
corporation if such affiliate or associate was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.

A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action of
its stockholders, to exempt itself from coverage, provided that such bylaws or
certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. School Specialty has not adopted such an
amendment to its Certificate of Incorporation or Bylaws.

LIMITATION ON DIRECTORS' LIABILITIES

Pursuant to School Specialty's Certificate of Incorporation and under
Delaware law, directors of School Specialty are not liable to School Specialty
or its stockholders for monetary damages for breach of fiduciary duty, except
for liability in connection with a breach of duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, for dividend payments or stock repurchases illegal under
Delaware law or any transaction in which a director has derived an improper
personal benefit.

TRANSFER AGENT AND REGISTRAR

School Specialty has not yet appointed a Transfer Agent and Registrar for
the School Specialty Common Stock but expects to do so prior to the School
Specialty Distribution.

43
<PAGE>
EXPERTS

The financial statements included in this Prospectus (except as they relate
to the unaudited interim periods) have been audited by various independent
accountants. The companies and periods covered by these audits are indicated in
the individual accountants' reports. Such financial statements have been so
included in reliance on the reports of the various independent accountants given
on the authority of such firms as experts in auditing and accounting.

VALIDITY OF SHARES

The validity of shares of School Specialty Common Stock offered hereby will
be passed upon on behalf of School Specialty and U.S. Office Products by Wilmer,
Cutler & Pickering, Washington, D.C. and on behalf of the Underwriters by
Sullivan & Cromwell, Washington, D.C.

ADDITIONAL INFORMATION

School Specialty has filed with the SEC a Registration Statement on Form S-1
(including exhibits, schedules, and amendments thereto, the "School Specialty
Form S-1") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), with respect to School Specialty Common Stock. This Prospectus, while
forming a part of the School Specialty Form S-1, does not contain all of the
information set forth in the School Specialty Form S-1. Reference is hereby made
to the School Specialty Form S-1 for further information with respect to School
Specialty. Statements contained herein concerning the provisions of documents
filed as exhibits to the School Specialty Form S-1 are necessarily summaries of
such documents, and each such statement is qualified in its entirety by
reference to the copy of the applicable document filed with the SEC.

The School Specialty Form S-1 is available for inspection and copying at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the Regional Offices of the SEC
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such information can be obtained by mail from the Public Reference
Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates or on the Internet at http://www.sec.gov.

Following the School Specialty Distribution, School Specialty will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, will file
reports, proxy statements and other information with the SEC that will be
available for inspection and copying at the SEC's public reference facilities
referred to above. Copies of such material can be obtained by mail at prescribed
rates by writing to the Public Reference Branch of the SEC at the address
referred to above.

School Specialty intends to furnish its stockholders annual reports
containing financial statements audited by its independent auditor. School
Specialty does not intend to furnish its stockholders quarterly reports.

Holders of School Specialty Common Stock having inquiries related to their
investment in School Specialty should contact Daniel P. Spalding, Chief
Executive Officer, at 1000 North Bluemound Drive, P.O. Box 1579, Appleton,
Wisconsin 54914, telephone (920) 734-2756.

44
<PAGE>
SCHOOL SPECIALTY, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SCHOOL SPECIALTY, INC.
Introduction to Pro Forma Financial Information.................................. F-2
Pro Forma Combined Balance Sheet as of October 25, 1997 (unaudited).............. F-4
Pro Forma Combined Statement of Income for the six months ended October 25, 1997
(unaudited)..................................................................... F-5
Pro Forma Combined Statement of Income for the six months ended October 26, 1996
(unaudited)..................................................................... F-6
Pro Forma Combined Statement of Income for the fiscal year ended April 26, 1997
(unaudited)..................................................................... F-7
Notes to Pro Forma Combined Financial Statements................................. F-8
Report of Price Waterhouse LLP, Independent Accountants.......................... F-9
Report of Ernst & Young LLP, Independent Auditors................................ F-10
Report of BDO Seidman, LLP, Independent Auditors................................. F-11
Consolidated Balance Sheet as of April 30, 1996, April 26, 1997 and October 25,
1997 (unaudited)................................................................ F-12
Consolidated Statement of Operations for the years ended December 31, 1994 and
1995, the four months ended April 30, 1996, the fiscal year ended April 26, 1997
and the six months ended October 26, 1996 (unaudited) and October 25, 1997
(unaudited)..................................................................... F-13
Consolidated Statement of Stockholder's (Deficit) Equity for the years ended
December 31, 1994 and 1995, the four months ended April 30, 1996, the fiscal
year ended April 26, 1997 and the six months ended October 25, 1997
(unaudited)..................................................................... F-14
Consolidated Statement of Cash Flows for the years ended December 31, 1994 and
1995, the four months ended April 30, 1996, the fiscal year ended April 26, 1997
and the six months ended October 26, 1996 (unaudited) and October 25, 1997
(unaudited)..................................................................... F-15
Notes to Consolidated Financial Statements....................................... F-17

AMERICAN ACADEMIC SUPPLIERS HOLDING CORPORATION AND SUBSIDIARY
Report of Altschuler, Melvoin and Glasser LLP, Independent Accountants............. F-31
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)...................................................................... F-32
Consolidated Statement of Operations for the years ended December 31, 1995 and 1996
and the nine months ended September 30, 1996 (unaudited) and 1997 (unaudited).... F-33
Consolidated Statement of Changes in Shareholders' Equity for the years ended
December 31, 1995 and 1996 and the nine months ended September 30, 1997
(unaudited)...................................................................... F-34
Consolidated Statement of Cash Flows for the years ended December 31, 1995 and 1996
and the nine months ended September 30, 1996 (unaudited) and 1997 (unaudited).... F-35
Notes to the Consolidated Financial Statements..................................... F-36

SAX ARTS & CRAFTS, INC.
Report of Price Waterhouse LLP, Independent Accountants............................ F-41
Balance Sheets as of December 16, 1995, and December 25, 1996 and June 29, 1997
(unaudited)...................................................................... F-42
Statement of Operations for the years ended December 17, 1994, December 16, 1995
and December 25, 1996 and the six months ended June 30, 1996 (unaudited) and June
29, 1997 (unaudited)............................................................. F-43
Statement of Shareholders' Equity for the years ended December 17, 1994, December
16, 1995 and December 25, 1996 and the six months ended June 29, 1997
(unaudited)...................................................................... F-44
Statement of Cash Flows for the years ended December 17, 1994, December 16, 1995
and December 25, 1996 and the six months ended June 30, 1996 (unaudited) and June
29, 1997 (unaudited)............................................................. F-45
Notes to Financial Statements...................................................... F-46
</TABLE>

F-1
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED FINANCIAL STATEMENTS

(UNAUDITED)

The unaudited pro forma financial statements give effect to the spin-off of
School Specialty, Inc., a Delaware corporation (the "Company"), formerly the
Educational Supplies and Products Division (the "Education Division") of U.S.
Office Products Company ("U.S. Office Products"), through the distribution of
shares of the Company to U.S. Office Products shareholders (the "Distribution")
and acquisitions completed through March 5, 1998.

The pro forma combined balance sheet gives effect to the Distribution and
the acquisition of American Academic Suppliers Holding Corporation and
Subsidiary ("American Academic") by the Company after October 25, 1997, as if
both transactions had occurred as of the Company's most recent balance sheet
date, October 25, 1997.

The pro forma combined statement of income for the fiscal year ended April
26, 1997 gives effect to (i) the Distribution; (ii) the acquisitions of six
individually insignificant companies in business combinations accounted for
under the purchase method completed during the fiscal year ended April 26, 1997
(the "Fiscal 1997 Purchase Acquisitions"); and (iii) the acquisitions of
Childcraft Education Corp., Sax Arts & Crafts, Inc. ("Sax Arts & Crafts"),
American Academic and four other individually insignificant companies in
business combinations accounted for under the purchase method completed during
the fiscal year ending April 25, 1998 (the "Fiscal 1998 Purchase Acquisitions"),
as if all such transactions had occurred on May 1, 1996. The pro forma combined
statement of income for the year ended April 26, 1997 includes (i) the audited
financial information of the Company for the year ended April 26, 1997; (ii) the
unaudited financial information of the Fiscal 1997 Purchase Acquisitions for the
period from May 1, 1996 through their respective dates of acquisitions; and
(iii) the unaudited financial information of the Fiscal 1998 Purchase
Acquisitions for the period from May 1, 1996 through April 26, 1997.

The pro forma combined statement of income for the six months ended October
25, 1997 gives effect to the Distribution and the Fiscal 1998 Purchase
Acquisitions, as if all such transactions had occurred on April 27, 1997. The
pro forma combined statement of income for the six months ended October 25, 1997
includes the unaudited financial information of the Company for the six months
ended October 25, 1997 and the unaudited financial information of the Fiscal
1998 Purchase Acquisitions for the period from April 27, 1997 through the
earlier of their respective dates of acquisition or October 25, 1997.

The pro forma combined statement of income for the six months ended October
26, 1996 gives effect to (i) the Distribution; (ii) the Fiscal 1997 Purchase
Acquisitions; and (iii) the Fiscal 1998 Purchase Acquisitions, as if all such
transactions had occurred on May 1, 1996. The pro forma combined statement of
income for the six months ended October 26, 1996 includes (i) the unaudited
financial information of the Company for the six months ended October 26, 1996;
(ii) the unaudited financial information of the Fiscal 1997 Purchase
Acquisitions for the period from May 1, 1996 through the earlier of their
respective dates of acquisition or October 26, 1996; and (iii) the unaudited
financial information of the Fiscal 1998 Purchase Acquisitions for the period
from May 1, 1996 through October 26, 1996.

The historical financial statements of the Company give retroactive effect
to the results of School Specialty, Inc., a Wisconsin corporation, and The
Re-Print Corporation, which were acquired by the Education Division during the
fiscal year ended April 26, 1997 in business combinations accounted for under
the pooling-of-interests method of accounting.

The historical financial statements of the Company also reflect an allocated
portion of general and administrative costs incurred by U.S. Office Products.
The allocated costs include expenses such as: certain corporate executives'
salaries, accounting and legal fees, departmental costs for accounting,

F-2
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

finance, legal, purchasing, marketing and human resources, as well as other
general overhead costs. These corporate overheads have been allocated to the
Company using one of several factors, dependent on the nature of the costs being
allocated, including, revenues, number and size of acquisitions and number of
employees. Although the Company expects that it will incur some additional
corporate management and other costs in connection with being an independent
public company, management does not expect such costs to exceed the allocated
corporate overheads reflected in the historical financial statements.
Accordingly, neither the elimination of the allocated corporate overheads nor
the anticipated costs have been included in the pro forma combined financial
information of the Company.

The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport to
represent what the Company's financial position or results of operations that
would have been had the transactions which are the subject of pro forma
adjustments occurred on those dates, as assumed, and are not necessarily
representative of the Company's financial position or results of operations in
any future period. The pro forma combined financial statements should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus.

F-3
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED BALANCE SHEET

OCTOBER 25, 1997

(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
SCHOOL
SPECIALTY, AMERICAN PRO FORMA PRO FORMA
INC. ACADEMIC ADJUSTMENTS COMBINED
-------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ $ 10 $ (10)(b) $
Accounts receivable, net....... 71,410 9,037 80,447
Inventory...................... 29,118 1,985 31,103
Prepaid and other current
assets....................... 7,842 267 8,109
-------------- ----------- ------------- -----------
Total current assets....... 108,370 11,299 (10) 119,659

Property and equipment, net...... 19,377 2,830 22,207
Intangible assets, net........... 71,525 4,024 18,325(a) 93,874
Other assets..................... 2,032 2,032
-------------- ----------- ------------- -----------
Total assets............... $ 201,304 $ 18,153 $ 18,315 $ 237,772
-------------- ----------- ------------- -----------
-------------- ----------- ------------- -----------

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short term debt................ $ 273 $ 7,543 $ (7,553)(b) $ 263
Short-term Payable to U.S.
Office Products.............. 31,356 (31,356)(b)
Accounts payable............... 19,555 2,993 22,548
Accrued compensation........... 4,276 4,276
Other accrued liabilities...... 8,972 2,142 11,114
-------------- ----------- ------------- -----------
Total current
liabilities.............. 64,432 12,678 (38,909) 38,201

Long-term debt................... 457 79,280(b) 79,737
Long-term Payable to U.S. Office
Products....................... 103,306 23,800(a)
(127,106)(b)
-------------- ----------- ------------- -----------
Total liabilities.......... 168,195 12,678 (62,935) 117,938

Stockholder's equity:
Divisional equity.............. 23,551 86,725(b) 110,276
Retained earnings.............. 9,558 9,558
Equity in Purchased Company.... 5,475 (5,475)(a)
-------------- ----------- ------------- -----------
Total stockholder's
equity................... 33,109 5,475 81,250 119,834
-------------- ----------- ------------- -----------
Total liabilities and
stockholder's equity..... $ 201,304 $ 18,153 $ 18,315 $ 237,772
-------------- ----------- ------------- -----------
-------------- ----------- ------------- -----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-4
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED OCTOBER 25, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
INDIVIDUALLY
INSIGNIFICANT
SCHOOL SAX FISCAL 1998
SPECIALTY, ARTS & AMERICAN PURCHASE PRO FORMA PRO FORMA
INC. CRAFTS ACADEMIC ACQUISITIONS ADJUSTMENTS COMBINED
-------------- --------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 198,490 $ 7,764 $ 34,076 $ 10,789 $ $ 251,119
Cost of revenues.......... 138,781 4,494 24,610 7,489 175,374
-------------- --------- ----------- ------------- ------------- -----------
Gross profit.......... 59,709 3,270 9,466 3,300 75,745

Selling, general and
administrative
expenses................ 34,911 1,779 6,023 2,339 45,052
Amortization expense...... 771 446(d) 1,217
-------------- --------- ----------- ------------- ------------- -----------
Operating income...... 24,027 1,491 3,443 961 (446) 29,476

Other (income) expense:
Interest expense........ 1,570 100 400 38 1,772(f) 3,880
Interest income......... (104) (5) 109(f)
Other................... 3 (2) 58 59
-------------- --------- ----------- ------------- ------------- -----------
Income before provision
for income taxes........ 22,558 1,393 3,043 870 (2,327) 25,537
Provision for income
taxes................... 10,151 539 974 29 54(g) 11,747
-------------- --------- ----------- ------------- ------------- -----------
Net income................ $ 12,407 $ 854 $ 2,069 $ 841 $ (2,381) $ 13,790
-------------- --------- ----------- ------------- ------------- -----------
-------------- --------- ----------- ------------- ------------- -----------

Pro forma weighted average
shares outstanding...... 95,963(h)
Pro forma net income per
share................... $ 0.14
-----------
-----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-5
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE SIX MONTHS ENDED OCTOBER 26, 1996

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)
<TABLE>
<CAPTION>
INDIVIDUALLY INDIVIDUALLY
INSIGNIFICANT INSIGNIFICANT
SCHOOL SAX FISCAL 1998 FISCAL 1997
SPECIALTY, ARTS & AMERICAN PURCHASE PURCHASE PRO FORMA
INC. CRAFTS ACADEMIC ACQUISITIONS ACQUISITIONS ADJUSTMENTS
-------------- --------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................. $ 130,673 $ 23,293 $ 28,499 $ 37,536 $ 14,820 $
Cost of revenues.......................... 92,740 13,482 20,615 23,953 11,368
-------------- --------- ----------- ------------- ------------- -------------
Gross profit.............................. 37,933 9,811 7,884 13,583 3,452
Selling, general and administrative
expenses................................ 23,983 5,339 5,074 9,406 3,312 (124)(c)
Amortization expense...................... 229 975(d)
Non-recurring acquisition costs........... 1,792 (1,792)(e)
-------------- --------- ----------- ------------- ------------- -------------
Operating income.......................... 11,929 4,472 2,810 4,177 140 941
Other (income) expense:
Interest expense.......................... 1,725 300 400 69 176 1,210(f)
Interest income........................... (24) (27) 51(f)
Other..................................... 40 (8) 51 (10)
-------------- --------- ----------- ------------- ------------- -------------
Income before provision for income
taxes................................... 10,188 4,180 2,410 4,084 (26) (320)
Provision for income taxes................ (2,170) 1,618 87 111 9,791(g)
-------------- --------- ----------- ------------- ------------- -------------
Net income................................ $ 12,358 $ 2,562 $ 2,410 $ 3,997 $ (137) $ (10,111)
-------------- --------- ----------- ------------- ------------- -------------
-------------- --------- ----------- ------------- ------------- -------------
Pro forma weighted average shares
outstanding.............................
Pro forma net income per share............

PRO FORMA
COMBINED
-----------
<S> <C>
Revenues.................................. $ 234,821
Cost of revenues.......................... 162,158
-----------
Gross profit.............................. 72,663
Selling, general and administrative
expenses................................ 46,990
Amortization expense...................... 1,204
Non-recurring acquisition costs...........
-----------
Operating income.......................... 24,469
Other (income) expense:
Interest expense.......................... 3,880
Interest income...........................
Other..................................... 73
-----------
Income before provision for income
taxes................................... 20,516
Provision for income taxes................ 9,437
-----------
Net income................................ $ 11,079
-----------
-----------
Pro forma weighted average shares
outstanding............................. 95,963(h)
Pro forma net income per share............ $ 0.12
-----------
-----------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-6
<PAGE>
SCHOOL SPECIALTY, INC.

PRO FORMA COMBINED STATEMENT OF INCOME

FOR THE FISCAL YEAR ENDED APRIL 26, 1997

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Selling, general and administrative
expenses............................. 42,896 9,698 8,102 16,949 3,313 (124)(c)
Amortization expense................... 566 1,839(d)
Non-recurring acquisition costs........ 1,792 (1,792)(e)
Restructuring costs.................... 194
-------------- --------- ----------- ------------- ------------- -------------
Operating income................... 9,721 4,777 2,853 3,219 139 77

Other (income) expense:
Interest expense..................... 2,550 474 850 234 176 2,756(f)
Interest income...................... (45) 45(f)
Other................................ (196) (33) 81 (11)
-------------- --------- ----------- ------------- ------------- -------------
Income (Loss) before provision for
income taxes......................... 7,367 4,336 2,003 2,949 (26) (2,724)
Provision for income taxes............. (1,572) 1,664 681 140 111 5,372(g)
-------------- --------- ----------- ------------- ------------- -------------
Net (Loss) income...................... $ 8,939 $ 2,672 $ 1,322 $ 2,809 $ (137) $ (8,096)
-------------- --------- ----------- ------------- ------------- -------------
-------------- --------- ----------- ------------- ------------- -------------

Pro forma weighted average shares
outstanding..........................
Pro forma net income per share.........

PRO
FORMA
COMBINED
-----------
<S> <C>
Revenues............................... $ 339,546
Cost of revenues....................... 235,327
-----------
Gross profit....................... 104,219
Selling, general and administrative
expenses............................. 80,834
Amortization expense................... 2,405
Non-recurring acquisition costs........
Restructuring costs.................... 194
-----------
Operating income................... 20,786
Other (income) expense:
Interest expense..................... 7,040
Interest income......................
Other................................ (159)
-----------
Income (Loss) before provision for
income taxes......................... 13,905
Provision for income taxes............. 6,396
-----------
Net (Loss) income...................... $ 7,509
-----------
-----------
Pro forma weighted average shares
outstanding.......................... 95,963(h)
Pro forma net income per share......... $ 0.08
-----------
-----------
</TABLE>

See accompanying notes for pro forma combined financial statements.

F-7
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

(UNAUDITED)

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)

1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS

(a) Adjustment to reflect purchase price adjustments associated with
acquisitions of American Academic. The portion of the consideration assigned
to goodwill ($18,325) in the transaction accounted for under the purchase
method represents the excess of the cost over the fair market value of the
net assets acquired. The Company amortizes goodwill over a period of 40
years. The recoverability of the unamortized goodwill will be assessed on an
ongoing basis by comparing anticipated undiscounted future cash flows from
operations to net book value.

(b) Represents payment of debt of $10 and forgiveness of $86,725 of debt due to
U.S. Office Products as U.S. Office Products agreed to allocate only $80,000
of debt to the Company at the date of the Distribution. The $86,725 of net
debt forgiven has been reflected as a contribution of capital to the Company
by U.S. Office Products.

2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS

(c) Adjustment to reflect reductions in executive compensation as a result of
the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions.

(d) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1997 and
Fiscal 1998 Purchase Acquisitions for the periods prior to the respective
dates of acquisition. The Company has recorded goodwill amortization in the
historical financial statements from the respective dates of acquisition
forward. The goodwill is being amortized over an estimated life of 40 years.

(e) Adjustment to reflect the reduction in non-recurring acquisition costs
related to pooling-of-interests business combinations of $1,792 for the
fiscal year ended April 26, 1997 and $1,792 for the six months ended October
26, 1996.

(f) Adjustment to reflect the increase in interest expense as a result of U.S.
Office Products allocating $80,000 of debt to the Company. Although U.S.
Office Products forgave $86,725 of debt due from the Company, U.S. Office
Products had not historically charged the Company interest on any portion of
the long-term debt payable to U.S. Office Products.

(g) Adjustment to calculate the provision for income taxes on the combined pro
forma results at an effective income tax rate of approximately 46%. The
difference between the effective tax rate of 46% and the statutory tax rate
of 35% relates primarily to state income taxes and non-deductible goodwill.

(h) The weighted average shares outstanding used to calculate pro forma earnings
per share is based upon 95,963 shares of common stock outstanding for the
periods. This is based upon the most current number of shares of common
stock of U.S. Office Products outstanding of 133,000 less 37,037 shares
expected to be repurchased by U.S. Office Products in the Tender Offer, and
assumes a distribution ratio of one share of School Specialty Common Stock
for each share of U.S. Office Products Common Stock. The actual distribution
ratio will be determined prior to effectiveness of the Distribution, and is
expected to be less than one share of School Specialty Common Stock for
every one share of U.S. Office Products Common Stock.

F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS
OF SCHOOL SPECIALTY, INC.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of School
Specialty, Inc. (the "Company") and its subsidiaries at April 30, 1996 and April
26, 1997, and the results of their operations and their cash flows for the four
months ended April 30, 1996 and the fiscal year ended April 26, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Minneapolis, Minnesota
January 13, 1998

F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS

BOARD OF DIRECTORS
SCHOOL SPECIALTY, INC.

We have audited the accompanying consolidated statements of operations and
cash flows of School Specialty, Inc. (the Company) for the years ended December
31, 1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Re-Print Corporation, a wholly owned subsidiary, which statements
reflect total revenues of $30,798,000 and $24,140,000 for the years ended
December 31, 1995 and 1994, respectively. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Re-Print Corporation, is based solely on the report
of the other auditors.

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, based on our audits and report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the results of the Company's operations and its cash flows for the years
December 31, 1995 and 1994, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP
Milwaukee, Wisconsin
February 2, 1996

F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors
The Re-Print Corporation
Birmingham, Alabama

We have audited the accompanying balance sheets of The Re-Print Corporation
as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for the years then ended (not presented
separately herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Re-Print Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.

BDO Seidman, LLP

Atlanta, Georgia
February 8, 1996

F-11
<PAGE>
SCHOOL SPECIALTY, INC.

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS)

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 46 $ $
Accounts receivable, less allowance for doubtful
accounts of $202, $471 and $732, respectively........ 13,129 17,232 71,410
Inventories............................................ 20,276 24,461 29,118
Prepaid expenses and other current assets.............. 5,556 10,331 7,842
----------- ----------- ------------
Total current assets............................... 39,007 52,024 108,370

Property and equipment, net.............................. 7,647 14,478 19,377
Intangible assets, net................................... 7,142 20,824 71,525
Other assets............................................. 777 359 2,032
----------- ----------- ------------
Total assets....................................... $ 54,573 $ 87,685 $ 201,304
----------- ----------- ------------
----------- ----------- ------------

LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Short-term debt........................................ $ 25,887 $ 262 $ 273
Short-term payable to U.S. Office Products............. 26,692 31,356
Accounts payable....................................... 11,933 9,091 19,555
Accrued compensation................................... 785 860 4,276
Other accrued liabilities.............................. 4,065 1,500 8,972
----------- ----------- ------------
Total current liabilities.......................... 42,670 38,405 64,432

Long-term debt........................................... 15,031 565 457
Long-term payable to U.S. Office Products................ 31,579 103,306
Deferred income taxes.................................... 1,139
----------- ----------- ------------
Total liabilities.................................. 58,840 70,549 168,195
----------- ----------- ------------
Commitments and contingencies

Stockholder's (deficit) equity:
Divisional equity...................................... 7,487 19,985 23,551
Retained (deficit) earnings............................ (11,754) (2,849) 9,558
----------- ----------- ------------
Total stockholder's (deficit) equity............... (4,267) 17,136 33,109
----------- ----------- ------------
Total liabilities and stockholder's (deficit)
equity............................................. $ 54,573 $ 87,685 $ 201,304
----------- ----------- ------------
----------- ----------- ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-12
<PAGE>
SCHOOL SPECIALTY, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE FOR THE FOUR FOR THE FISCAL FOR THE SIX
YEAR ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED
------------------------------ --------------- -------------- --------------------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1994 1995 1996 1997 1996 1997
-------------- -------------- --------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues...................... $ 119,510 $ 150,482 $ 28,616 $ 191,746 $ 130,673 $ 198,490
Cost of revenues.............. 87,750 105,757 20,201 136,577 92,740 138,781
-------------- -------------- --------------- -------------- ------------ ------------
Gross profit............ 31,760 44,725 8,415 55,169 37,933 59,709

Selling, general and
administrative expenses..... 27,281 39,869 10,307 43,462 24,212 35,682
Non-recurring acquisition
costs....................... 1,122 1,792 1,792
Restructuring costs........... 2,532 194
-------------- -------------- --------------- -------------- ------------ ------------
Operating income
(loss)................ 4,479 2,324 (3,014) 9,721 11,929 24,027

Other (income) expense:
Interest expense.......... 3,007 5,536 1,461 2,550 1,725 1,570
Interest income........... (6) (24) (104)
Other..................... (86) (18) 67 (196) 40 3
-------------- -------------- --------------- -------------- ------------ ------------
Income (loss) before provision
for (benefit from) income
taxes....................... 1,558 (3,194) (4,536) 7,367 10,188 22,558
Provision for (benefit from)
income taxes................ 218 173 139 (1,572) (2,170) 10,151
-------------- -------------- --------------- -------------- ------------ ------------
Net income (loss)............. $ 1,340 $ (3,367) $ (4,675) $ 8,939 $ 12,358 $ 12,407
-------------- -------------- --------------- -------------- ------------ ------------
-------------- -------------- --------------- -------------- ------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-13
<PAGE>
SCHOOL SPECIALTY, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
RETAINED STOCKHOLDER'S
DIVISIONAL (DEFICIT) (DEFICIT)
EQUITY EARNINGS EQUITY
----------- ----------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1993.......................... 5,247 $ (4,780) $ 467
Issuance of Pooled Company common stock for cash.... 80 80
Cash dividends declared at Pooled Companies......... (60) (60)
Net income.......................................... 1,340 1,340
----------- ----------- ---------------

Balance at December 31, 1994.......................... 5,327 (3,500) 1,827
Transactions of Pooled Companies:
Issuance of warrants.............................. 672 672
Issuance of Pooled Company common stock for cash.. 500 500
Repurchase of treasury stock...................... (92) (92)
Cash dividends declared and paid.................. (160) (160)
Net loss............................................ (3,367) (3,367)
----------- ----------- ---------------

Balance at December 31, 1995.......................... 6,407 (7,027) (620)
Transactions of Pooled Companies:
Exercise of warrants.............................. 1,080 1,080
Cash dividends declared and paid.................. (52) (52)
Net loss............................................ (4,675) (4,675)
----------- ----------- ---------------

Balance at April 30, 1996............................. 7,487 (11,754) (4,267)
Transactions of Pooled Companies:
Exercise of warrants and stock options............ 1,979 1,979
Retirement of treasury stock...................... 34 (34)
Issuances of U.S. Office Products Company common
stock in conjunction with acquisitions............ 10,485 10,485
Net income.......................................... 8,939 8,939
----------- ----------- ---------------

Balance at April 26, 1997............................. 19,985 (2,849) 17,136
Unaudited data:
Issuances of U.S. Office Products Company common
stock in conjunction with acquisitions............ 3,566 3,566
Net income.......................................... 12,407 12,407
----------- ----------- ---------------
Balance at October 25, 1997 (unaudited)............... $ 23,551 $ 9,558 $ 33,109
----------- ----------- ---------------
----------- ----------- ---------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-14
<PAGE>
SCHOOL SPECIALTY, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOUR
MONTHS FOR THE FISCAL FOR THE SIX
FOR THE YEAR ENDED ENDED YEAR ENDED MONTHS ENDED
-------------------------------- ------------- -------------- ------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26,
1994 1995 1996 1997 1996
--------------- --------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)......................... $ 1,340 $ (3,367) $ (4,675) $ 8,939 $ 12,358
Adjustment to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization
expense............................. 1,719 2,927 674 2,106 990
Non-recurring acquisition costs....... 1,122 1,792 1,792
Other................................. 231 277 118 115 86
Changes in current assets and
liabilities (net of assets acquired
and liabilities assumed in business
combinations accounted for under the
purchase method):
Accounts receivable............... (2,226) 2,666 3,727 1,277 (24,164)
Inventory......................... 4,365 (2,523) (4,376) 2,737 10,051
Prepaid expenses and other current
assets.......................... (989) (338) (443) (2,361) (384)
Accounts payable.................. (4,367) 2,642 3,459 (6,969) (6,891)
Accrued liabilities............... (341) 2,544 (784) (5,070) (1,535)
------- ------- ------------- -------------- ------------
Net cash provided by (used in)
operating activities........ (268) 4,828 (1,178) 2,566 (7,697)
------- ------- ------------- -------------- ------------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash
received................................ (2,106) (5,389) (7,734) (7,171)
Additions to property and equipment....... (630) (881) (120) (7,216) (5,743)
Payments of non-recurring acquisition
costs................................... (1,122) (1,792) (1,632)
Other..................................... (120) 178 414
------- ------- ------------- -------------- ------------
Net cash used in investing
activities.................. (2,856) (6,092) (828) (16,742) (14,546)
------- ------- ------------- -------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock.... 80 500 1,080 1,979 1,979
Proceeds from issuance of long-term
debt.................................... 1,850 1,715 750 750
Payments of long-term debt................ (2,023) (1,488) (194) (16,962) (16,788)
Proceeds from (payments of) short-term
debt, net............................... 3,295 655 1,263 (29,908) (28,778)
Advances from U.S. Office Products
Company................................. 58,271 65,034
Payments of dividends at Pooled
Companies............................... (134) (138)
Purchase of treasury stock at Pooled
Company................................. (92)
------- ------- ------------- -------------- ------------
Net cash provided by financing
activities.................. 3,202 1,156 2,011 14,130 22,197
------- ------- ------------- -------------- ------------
Net increase (decrease) in cash and cash
equivalents............................... 78 (108) 5 (46) (46)
Cash and cash equivalents at beginning of
period.................................... 71 149 41 46 46
------- ------- ------------- -------------- ------------
Cash and cash equivalents at end of
period.................................... $ 149 $ 41 $ 46 $ $
------- ------- ------------- -------------- ------------
------- ------- ------------- -------------- ------------
Supplemental disclosures of cash flow
information:
Interest paid......................... $ 2,850 $ 5,564 $ 1,461 $ 456 $ 420
Income taxes paid (refunded).......... $ 236 $ 9 $ (3) $ (132) $ (45)

OCTOBER 25,
1997
------------
<S> <C>

Cash flows from operating activities:
Net income (loss)......................... $ 12,407
Adjustment to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization
expense............................. 1,968
Non-recurring acquisition costs.......
Other................................. 74
Changes in current assets and
liabilities (net of assets acquired
and liabilities assumed in business
combinations accounted for under the
purchase method):
Accounts receivable............... (42,271)
Inventory......................... 11,697
Prepaid expenses and other current
assets.......................... 4,929
Accounts payable.................. 2,458
Accrued liabilities............... 5,768
------------
Net cash provided by (used in)
operating activities........ (2,970)
------------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash
received................................ (68,099)
Additions to property and equipment....... (3,373)
Payments of non-recurring acquisition
costs...................................
Other.....................................
------------
Net cash used in investing
activities.................. (71,472)
------------
Cash flows from financing activities:
Proceeds from issuance of common stock....
Proceeds from issuance of long-term
debt....................................
Payments of long-term debt................ (108)
Proceeds from (payments of) short-term
debt, net............................... (1,840)
Advances from U.S. Office Products
Company................................. 76,390
Payments of dividends at Pooled
Companies...............................
Purchase of treasury stock at Pooled
Company.................................
------------
Net cash provided by financing
activities.................. 74,442
------------
Net increase (decrease) in cash and cash
equivalents...............................
Cash and cash equivalents at beginning of
period....................................
------------
Cash and cash equivalents at end of
period.................................... $
------------
------------
Supplemental disclosures of cash flow
information:
Interest paid......................... $ 18
Income taxes paid (refunded).......... $
</TABLE>

F-15
<PAGE>
SCHOOL SPECIALTY, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

The Company issued common stock and cash in connection with certain business
combinations accounted for under the purchase method in the years ended December
31, 1994 and 1995, the fiscal year ended April 26, 1997, and the six months
ended October 26, 1996 and October 25, 1997. The fair values of the assets and
liabilities of the acquired companies at the dates of the acquisitions are
presented as follows:
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR ENDED FOR THE FOUR FOR THE FISCAL MONTHS ENDED
-------------------------------- MONTHS ENDED YEAR ENDED -------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26,
1994 1995 1996 1997 1996
--------------- --------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Accounts receivable......................... $ 8,112 $ 1,589 $ $ 5,381 $ 3,958
Inventories................................. 9,743 1,823 6,922 6,513
Prepaid expenses and other current assets... 823 502 2,371 2,337
Property and equipment...................... 2,211 4,536 1,155 1,153
Intangible assets........................... 3,268 14,248 11,386
Other assets................................ 1,488 156 29 29
Short-term debt............................. (6,785) (191) (4,283) (3,383)
Accounts payable............................ (6,447) (274) (4,012) (3,525)
Accrued liabilities......................... (1,661) (225) (1,846) (1,466)
Long-term debt.............................. (5,378) (5,795) (1,746) (1,746)
------- ------- ------------- -------------- -------------
Net assets acquired........... $ 2,106 $ 5,389 $ $ 18,219 $ 15,256
------- ------- ------------- -------------- -------------
------- ------- ------------- -------------- -------------
The acquisitions were funded as follows:
U.S. Office Products common stock........... $ $ $ $ 10,485 $ 8,085
Cash paid, net of cash acquired............. 2,106 5,389 7,734 7,171
------- ------- ------------- -------------- -------------
Total......................... $ 2,106 $ 5,389 $ $ 18,219 $ 15,256
------- ------- ------------- -------------- -------------
------- ------- ------------- -------------- -------------

OCTOBER 25,
1997
-------------
<S> <C>

Accounts receivable......................... $ 11,907
Inventories................................. 16,354
Prepaid expenses and other current assets... 2,229
Property and equipment...................... 4,408
Intangible assets........................... 51,471
Other assets................................ 210
Short-term debt............................. (1,850)
Accounts payable............................ (7,933)
Accrued liabilities......................... (5,131)
Long-term debt..............................
-------------
Net assets acquired........... $ 71,665
-------------
-------------
The acquisitions were funded as follows:
U.S. Office Products common stock........... $ 3,566
Cash paid, net of cash acquired............. 68,099
-------------
Total......................... $ 71,665
-------------
-------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-16
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

NOTE 1--BACKGROUND

School Specialty, Inc. (the "Company") is a Delaware corporation which is a
wholly-owned subsidiary of U.S. Office Products Company ("U.S. Office
Products"). On January 13, 1998, U.S. Office Products announced its intention to
spin-off its Educational Supplies and Products Division (the "Education
Division") as an independent publicly owned company. This transaction is
expected to be effected through the distribution of shares of the Company to
U.S. Office Products' shareholders effective on or about April 25, 1998 (the
"Distribution"). Prior to the Distribution, U.S. Office Products plans to
contribute its equity interests in certain wholly-owned subsidiaries associated
with the Education Division to the Company. U.S. Office Products and the Company
will enter into a number of agreements to facilitate the Distribution and the
transition of the Company to an independent business enterprise.

The Education Division was created by U.S. Office Products in May 1996 in
connection with the acquisition of School Specialty, Inc., a Wisconsin
corporation ("Old School"). This business combination and the acquisition in
July 1996 of The Re-Print Corp. ("Re-Print") were accounted for under the
pooling-of-interests method (Old School and Re-Print are herein referred to as
the "Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities.

NOTE 2--BASIS OF PRESENTATION

The consolidated financial statements reflect the assets, liabilities,
divisional equity, revenues and expenses that were directly related to the
Company as it was operated within U.S. Office Products. In cases involving
assets and liabilities not specifically identifiable to any particular business
of U.S. Office Products, only those assets and liabilities expected to be
transferred to the Company prior to the Distribution were included in the
Company's separate consolidated balance sheet. With the exception of interest
expense, the Company's statement of income includes all of the related costs of
doing business including an allocation of certain general corporate expenses of
U.S. Office Products which were not directly related to these businesses
including certain corporate executives' salaries, accounting and legal fees,
departmental costs for accounting, finance, legal, purchasing, marketing, human
resources as well as other general overhead costs. These allocations were based
on a variety of factors, dependent upon the nature of the costs being allocated,
including revenues, number and size of acquisitions and number of employees.
Management believes these allocations were made on a reasonable basis.

U.S. Office Products uses a centralized approach to cash management and the
financing of its operations. As a result, minimal amounts of cash and cash
equivalents and an agreed upon amount of debt will be allocated to the Company
at the time of the Distribution. The consolidated statement of income does not
include an allocation of interest expense on all debt allocated to the Company.
See Note 9 for further discussion of interest expense.

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements

F-17
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

CHANGE IN FISCAL YEAR

Prior to their respective dates of acquisition by U.S. Office Products, the
Pooled Companies reported results on years ending on December 31. Upon
acquisition by U.S. Office Products and effective for the fiscal year ended
April 26, 1997 ("fiscal 1997"), the Pooled Companies changed their year-ends
from December 31 to conform to U.S. Office Products' fiscal year, which ends on
the last Saturday in April. A four month fiscal transition period from January
1, 1996 through April 30, 1996 has been presented for the Company to conform its
fiscal year-end.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.

CASH AND CASH EQUIVALENTS

The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss.

INVENTORIES

Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 3 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases is being amortized over the lesser of its useful life or its lease terms.

INTANGIBLE ASSETS

Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method, franchise

F-18
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
agreements and non-compete agreements. Substantially all goodwill is amortized
on a straight line basis over an estimated useful life of 40 years. Management
periodically evaluates the recoverability of goodwill, which would be adjusted
for a permanent decline in value, if any, by comparing anticipated undiscounted
future cash flows from operations to net book value. Intangible assets
associated with non-compete agreements are being amortized over their respective
terms.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value.

INCOME TAXES

As a division of U.S. Office Products, the Company does not file separate
federal income tax returns but rather is included in the federal income tax
returns filed by U.S. Office Products and its subsidiaries from the respective
dates that the entities within the Company were acquired by U.S. Office
Products. For purposes of the consolidated financial statements, the Company's
allocated share of U.S. Office Products' income tax provision was based on the
"separate return" method. Certain companies acquired in pooling-of-interests
transactions elected to be taxed as Subchapter S corporations, and accordingly,
no federal income taxes were recorded by those companies for periods prior to
their acquisition by U.S. Office Products.

REVENUE RECOGNITION

Revenue is recognized upon the delivery of products or upon the completion
of services provided to customers as no additional obligations to the customers
exist. Returns of the Company's product are considered immaterial.

COST OF REVENUES

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

NON-RECURRING ACQUISITION COSTS

Non-recurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include accounting, legal, and investment banking fees, real
estate and environmental assessments and appraisals, various regulatory fees and
recognition of transaction related obligations. Generally accepted accounting
principles require the Company to expense all acquisition costs (both those paid
by the Company and those paid by the sellers of the acquired companies) related
to business combinations accounted for under the pooling-of-interests method.

RESTRUCTURING COSTS

The Company records the costs of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance

F-19
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and relocation costs related to the Company's employees in accordance with EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in
Restructuring)."

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS"). SFAS 128 simplifies the standards for computing EPS
and makes the presentation comparable to international EPS standards by
replacing the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company intends to adopt SFAS 128
in the fiscal year ended April 25, 1998. The implementation of SFAS 128 is not
expected to have a material effect on the Company's earnings per share as
determined under current accounting rules. Historical earnings per share has not
been presented as such amounts are not deemed meaningful due to the significant
change in the Company's capital structure that will occur on the consummation of
the Distribution.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company intends to adopt SFAS No. 130 in
fiscal 1999.

UNAUDITED INTERIM FINANCIAL DATA

In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of October 25, 1997 and the results
of operations and of cash flows for the six months ended October 26, 1996 and
October 25, 1997, as presented in the accompanying unaudited consolidated
financial data.

NOTE 4--BUSINESS COMBINATIONS

POOLING-OF-INTERESTS METHOD

In fiscal 1997, U.S. Office Products issued common stock to acquire the
Pooled Companies. The Company's consolidated financial statements give
retroactive effect to the acquisitions of the Pooled Companies for all periods
presented. Prior to being acquired by U.S. Office Products, the Pooled Companies
reported on years ending on December 31. Upon completion of the acquisitions of
the

F-20
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
Pooled Companies, their year-ends were changed to U.S. Office Products' year-end
of the last Saturday in April.

The following presents the separate results, in each of the periods
presented, of the Company (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the dates
on which they were acquired:

<TABLE>
<CAPTION>
SCHOOL POOLED
SPECIALTY COMPANIES COMBINED
----------- ----------- -----------
<S> <C> <C> <C>
For the year ended December 31, 1994
Revenues............................................. $ $ 119,510 $ 119,510
Net income........................................... $ $ 1,340 $ 1,340
For the year ended December 31, 1995
Revenues............................................. $ $ 150,482 $ 150,482
Net income (loss).................................... $ $ (3,367) $ (3,367)
For the four months ended April 30, 1996
Revenues............................................. $ $ 28,616 $ 28,616
Net income (loss).................................... $ $ (4,675) $ (4,675)
For the year ended April 26, 1997
Revenues............................................. $ 181,420 $ 10,326 $ 191,746
Net income........................................... $ 8,598 $ 341 $ 8,939
For the six months ended October 26, 1996 (unaudited):
Revenues............................................. $ 120,347 $ 10,326 $ 130,673
Net income........................................... $ 12,177 $ 181 $ 12,358
For the six months ended October 25, 1997 (unaudited):
Revenues............................................. $ 198,490 $ $ 198,490
Net income........................................... $ 12,407 $ $ 12,407
</TABLE>

PURCHASE METHOD

In 1994, one of the Pooled Companies made one acquisition accounted for
under the purchase method for an aggregate cash purchase price of $2,106. The
total assets related to the acquisition were $22,377. The results of the
acquisition have been included in the Company's results from its date of
acquisition.

In 1995, one of the Pooled Companies made one acquisition accounted for
under the purchase method for an aggregate cash purchase price of $5,389. The
total assets related to the acquisition were $11,874, including goodwill of
$3,268. The results of the acquisition have been included in the Company's
results from its date of acquisition.

In fiscal 1997, the Company made six acquisitions accounted for under the
purchase method for an aggregate purchase price of $18,219 consisting of $7,734
of cash and U.S. Office Products common stock with a market value of $10,485.
The total assets related to these six acquisitions were $30,106, including
goodwill of $14,248. The results of these acquisitions have been included in the
Company's results from their respective dates of acquisition.

F-21
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The following presents the unaudited pro forma results of operations of the
Company for the year ended December 31, 1995 and the fiscal year ended April 26,
1997 and includes the Company's consolidated financial statements, which give
retroactive effect to the acquisitions of the Pooled Companies for all periods
presented, and the results of the companies acquired in purchase acquisitions as
if all such purchase acquisitions had been made at the beginning of 1995. The
results presented below include certain pro forma adjustments to reflect the
amortization of intangible assets, adjustments in executive compensation and the
inclusion of a federal income tax provision on all earnings:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------
<S> <C> <C>
DECEMBER 31, APRIL 26,
1995 1997
-------------- ---------
Revenues......................................................... $ 206,329 $ 206,566
Net income (loss)................................................ (1,199) 2,939
</TABLE>

The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of 1995 or the results
which may occur in the future.

NOTE 5--RESTRUCTURING COSTS

The Company records the costs of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs related to the
Company's employees. The following table sets forth the Company's accrued
restructuring costs:

<TABLE>
<CAPTION>
FACILITY SEVERANCE OTHER ASSET
CLOSURE AND AND WRITE-DOWNS
CONSOLIDATION TERMINATIONS AND COSTS TOTAL
----------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
Balance at April 30 1996.............. $ 641 $ 469 $ 1422 $ 2,532
Additions........................... 194 194
Utilizations........................ (641) (469) (1,465) (2,575)
------ ------ ------------- ---------
Balance at April 26, 1997............. 151 151
Utilizations........................
------ ------ ------------- ---------
Balance at October 25, 1997
(unaudited)......................... $ $ $ 151 $ 151
------ ------ ------------- ---------
------ ------ ------------- ---------
</TABLE>

F-22
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 6--PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Prepaid catalog fees................................................... $ 4,387 $ 5,740
Deferred income taxes.................................................. 1,184
Other.................................................................. 1,169 3,407
----------- -----------
Total prepaid expenses and other current assets...................... $ 5,556 $ 10,331
----------- -----------
----------- -----------
</TABLE>

Prepaid catalog fees represent costs which have been paid to produce Company
catalogs which will be used in future periods. These prepaid catalog fees will
be expensed in the periods the catalogs are used.

NOTE 7--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Land................................................................... $ 58 $ 729
Buildings.............................................................. 2,042 6,488
Furniture and fixtures................................................. 882 6,502
Warehouse Equipment.................................................... 8,767 3,163
Leasehold improvements................................................. 631 2,185
----------- -----------
12,380 19,067
Less: Accumulated depreciation......................................... (4,733) (4,589)
----------- -----------
Net property and equipment............................................. $ 7,647 $ 14,478
----------- -----------
----------- -----------
</TABLE>

Depreciation expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996 and the fiscal year ended April 26, 1997 was
$888, $1,645, $470 and $1,540, respectively.

NOTE 8--INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
----------- ----------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill................................................. $ 4,510 $ 18,456 $ 69,398
Other.................................................... 6,000 5,692 6,159
----------- ----------- -------------
10,510 24,148 75,557
Less: Accumulated amortization........................... (3,368) (3,324) (4,032)
----------- ----------- -------------
Net intangible assets.............................. $ 7,142 $ 20,824 $ 71,525
----------- ----------- -------------
----------- ----------- -------------
</TABLE>

F-23
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 8--INTANGIBLE ASSETS (CONTINUED)
Amortization expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, the fiscal year ended April 26, 1997 and the
six months ended October 25, 1997 was $757, $1,098, $204, $566 and $771,
respectively.

NOTE 9--CREDIT FACILITIES

SHORT-TERM DEBT

Short-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Credit facilities with banks, average interest rates ranging from 10%
to 10.75% at April 30, 1996.......................................... $ 21,898 $
Subordinated debt, interest at 8% at April 30, 1996.................... 1,000
Other.................................................................. 441 30
Current maturities of long-term debt................................... 2,548 232
----------- -----------
Total short-term debt.................................................. $ 25,887 $ 262
----------- -----------
----------- -----------
</TABLE>

LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Subordinated notes, at 12.5% at April 30, 1996......................... $ 13,325 $
Note payable to former shareholder, interest at 10% at April 30,
1996................................................................. 2,717
Other.................................................................. 953 483
Capital lease obligations.............................................. 584 314
----------- -----------
17,579 797
Less: Current maturities of long-term debt............................. (2,548) (232)
----------- -----------
Total long-term debt............................................... $ 15,031 $ 565
----------- -----------
----------- -----------
</TABLE>

The agreement related to the subordinated notes provided for the bank and
its agents to receive 12,551 and 14,941 detachable warrants for Pooled Company
common stock in June 1994 and January 1995, respectively. The warrants were
valued at $45 per share with such amount deducted from the face value of the
subordinated notes. In conjunction with the acquisition of the Pooled Company by
U.S. Office Products, the outstanding subordinated debt balance was paid in full
and all of the outstanding warrants were exercised and subsequently converted to
U.S. Office Products common stock.

F-24
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 9--CREDIT FACILITIES (CONTINUED)
MATURITIES OF LONG-TERM DEBT

Maturities on long-term debt, including capital lease obligations, are as
follows:

<TABLE>
<S> <C>
1998.............................................................................. $ 232
1999.............................................................................. 216
2000.............................................................................. 204
2001.............................................................................. 41
2002.............................................................................. 36
Thereafter........................................................................ 68
---------
Total maturities of long-term debt.............................................. $ 797
---------
---------
</TABLE>

PAYABLE TO U.S. OFFICE PRODUCTS

The long-term payable to U.S. Office Products primarily represents payments
made by U.S. Office Products on behalf of the Company and a reasonable
allocation by U.S. Office Products of certain general corporate expenses. No
interest has been allocated to the Company on the outstanding payable. An
analysis of the activity in this account is as follows:

<TABLE>
<S> <C>
Balance at April 30, 1996......................................................... $
Payments of long-term debt of acquired companies.................................. 21,379
Funding of acquisitions and payment of acquisition costs.......................... 8,203
Allocated corporate expenses...................................................... 574
Normal operating costs paid by U.S. Office Products............................... 1,423
---------
Balance at April 26, 1997......................................................... $ 31,579
---------
---------
</TABLE>

The average outstanding long-term payable to U.S. Office Products during the
fiscal year ended April 26, 1997 was $27,269.

U.S. Office Products has charged the Company interest on the short-term
payable to U.S. Office Products at the prime rate in effect at the time. The
short-term payable to U.S. Office Products was incurred by the Company primarily
as a result of U.S. Office Products repaying short-term debt outstanding at the
businesses acquired by U.S. Office Products at or soon after the respective
dates of acquisition and through the centralized cash management system, which
involves daily advances or sweeps of cash to keep the cash balance at or near
zero on a daily basis. U.S Office Products has not charged the Company interest
on the long-term payable to U.S. Office Products. The Company's financial
statements include allocations of interest expense from U.S. Office Products
totaling $2,232 during the year ended April 26, 1997. If the Company had been
charged interest on all debt allocated by U.S. Office Products during fiscal
1997, interest expense would have totaled $4,554.

F-25
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 9--CREDIT FACILITIES (CONTINUED)
and ratios, limitations on capital expenditures and restrictions on the
incurrence of debt or liens, the sale of assets, the payment of dividends,
transactions with affiliates and other transactions.

NOTE 10--INCOME TAXES

The provision for income taxes consists of:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOUR FOR THE FISCAL
-------------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income taxes currently
payable:
Federal.................... $ (165) $ (66) $ $ 71
State...................... 149 99
------- ------- ------- -------
(16) (66) 170
------- ------- ------- -------
Deferred income tax expense
(benefit).................. 234 239 139 (1,742)
------- ------- ------- -------
Total provision for
income taxes........... $ 218 $ 173 $ 139 $ (1,572)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>

Deferred taxes are comprised of the following:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
----------- -----------
<S> <C> <C>
Current deferred tax assets:
Inventory............................................................ $ (349) $ 265
Allowance for doubtful accounts...................................... 106 193
Net operating loss carryforward...................................... 3,536 2,229
Accrued liabilities.................................................. 332 421
Prepaid catalog advertising/restructuring............................ (205) (1,893)
----------- -----------
Total current deferred tax assets.................................. 3,420 1,215
----------- -----------
Long-term deferred tax liabilities:
Property and equipment............................................... (126) (289)
Intangible assets.................................................... 622 258
----------- -----------
Total long-term deferred tax asset (liabilities)................... 496 (31)
----------- -----------
Subtotal........................................................... 3,916 1,184
----------- -----------
Valuation allowance.................................................. (5,055)
----------- -----------
Net deferred tax asset (liability)................................. $ (1,139) $ 1,184
----------- -----------
----------- -----------
</TABLE>

At April 30, 1996, a valuation allowance had been recorded, related to
deferred tax assets of a Pooled Company, including net operating loss
carryforwards. Based upon the improved profitability of this Pooled Company
during fiscal 1997, the valuation allowance was reversed resulting in a benefit
from income taxes.

F-26
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 10--INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOUR FOR THE FISCAL
------------------------------------ MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
U.S. federal statutory
rate....................... 34.0% 34.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit
for fiscal 1997............ 9.6 1.0
Net operating loss
utilized................... (33.0)
No benefit for current year
net operating loss......... (34.0) (32.8)
Reversal of valuation
allowance.................. (63.9)
Nondeductible goodwill....... (2.2) 1.6
Nondeductible acquisition
costs...................... 5.0
Tax on separate company
income not offset against
other company's loss....... (5.4) (3.0)
Other........................ 3.4
----- ----- ----- -----
Effective income tax rate.... 14.0% (5.4)% (3.0 )% (21.3 )%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>

NOTE 11--LEASE COMMITMENTS

The Company leases various types of retail, warehouse and office facilities
and equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1998................................................................... $ 232 $ 871
1999................................................................... 118 806
2000................................................................... 6 599
2001................................................................... 517
2002................................................................... 496
Thereafter............................................................. 1,057
----- -----------
Total minimum lease payments........................................... 356 $ 4,346
-----------
-----------
Less: Amounts representing interest (42)
-----
Present value of net minimum lease payments............................ $ 314
-----
-----
</TABLE>

Rent expense for the years ended December 31, 1994 and 1995, the four months
ended April 30, 1996 and the fiscal year ended April 26, 1997 was $1,486,
$1,947, $600 and $1,817, respectively.

F-27
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 12--COMMITMENTS AND CONTINGENCIES

LITIGATION

The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.

POSTEMPLOYMENT BENEFITS

The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at April 30, 1996 or April
26, 1997 related to these agreements, as no change of control has occurred.

DISTRIBUTION

On or immediately after the Distribution, the Company expects to have a
credit facility in place. The terms of the credit facility are expected to
contain customary covenants including financial covenants. The Company plans to
use a portion of the proceeds from the credit facility to repay certain amounts
payable to U.S. Office Products.

On or before the date of the Distribution, School Specialty, U.S. Office
Products and the other Spin-Off Companies will enter into the Distribution
Agreement, the Tax Allocation Agreement, and the Employee Benefits Agreement and
the Spin-Off Companies will enter into the Tax Indemnification Agreement and may
enter into other agreements, including agreements relating to referral of
customers to one another. These agreements are expected to provide, among other
things, for U.S. Office Products and School Specialty to indemnify each other
from tax and other liabilities relating to their respective businesses prior to
and following the Distribution. Certain of the obligations of School Specialty
and the other Spin-Off Companies to indemnify U.S. Office Products are joint and
several. Therefore, if one of the other spin-off companies fails to satisfy its
indemnification obligations to U.S. Office Products when such a loss occurs,
School Specialty may be required to reimburse U.S. Office Products for all or a
portion of the losses that otherwise would have been allocated to other spin-off
companies. In addition, the agreements will allocate liabilities, including
general corporate and securities liabilities of U.S. Office Products not
specifically related to the school supplies business, between U.S. Office
Products and the Company and the other Spin-Off Companies. The terms of the
agreements that will govern the relationship between School Specialty and U.S.
Office Products will be established by U.S. Office Products in consultation with
School Specialty's management prior to the Distribution while School Specialty
is a wholly-owned subsidiary of U.S. Office Products.

NOTE 13--EMPLOYEE BENEFIT PLANS

Effective September 1, 1996, the Company implemented the U.S. Office
Products 401(k) Retirement Plan (the "401(k) Plan") which allows employee
contributions in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after one year of
service.

Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the

F-28
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 13--EMPLOYEE BENEFIT PLANS (CONTINUED)
employees. The subsidiaries paid all general and administrative expenses of the
plans and in some cases made matching contributions on behalf of the employees.
For the years ended December 31, 1994 and 1995 and the four months ended April
30, 1996, the subsidiaries incurred expenses totaling $175, $105 and $6,
respectively, related to these plans.

NOTE 14--STOCKHOLDER'S EQUITY

EMPLOYEE STOCK PLANS

Prior to the Distribution, certain employees of the Company participated in
the U.S. Office Products 1994 Long-Term Incentive Plan covering employees of
U.S. Office Products. The Company expects to adopt an employee stock option plan
at approximately the time of the Distribution. The Company expects to replace
the options to purchase shares of common stock of U.S. Office Products held by
employees with options to purchase shares of common stock of the Company. At
April 26, 1997, there were approximately 249,600 options to purchase shares of
U.S. Office Products common stock held by Company employees.

Under a services agreement entered into with Jonathan J. Ledecky, the Board
of Directors of U.S. Office Products has agreed that Jonathan J. Ledecky will
receive a stock option for School Specialty Common Stock from School Specialty
as of the date of the Distribution. The U.S. Office Products Board intends the
option to be compensation for Mr. Ledecky's services as a director of the
Company, and certain services as an employee of the Company. The option will
cover up to 7.5% of the outstanding Company common stock determined as of the
date of the Distribution, with no anti-dilution provisions in the event of
issuance of additional shares of common stock (other than with respect to stock
splits or reverse stock splits). The option will have a per share exercise price
equal to the price of the first trade on the day the Company's common stock is
first publicly traded.

F-29
<PAGE>
SCHOOL SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 15--QUARTERLY FINANCIAL DATA (UNAUDITED)

The following presents certain unaudited quarterly financial data for the
year ended December 31, 1995 and the fiscal year ended April 26, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
Revenues.................................. $ 18,760 $ 36,702 $ 69,192 $ 25,828 $ 150,482
Gross profit.............................. 4,960 11,130 20,795 7,840 44,725
Operating income (loss)................... (3,014) 1,196 8,934 (4,792) 2,324
Net income (loss)......................... (3,711) (252) 4,309 (3,713) (3,367)

NOTE 16--SUBSEQUENT EVENTS

On January 13, 1998, U.S. Office Products announced its intention to
complete the Distribution described in Note 1. In addition, subsequent to April
26, 1997, the Company has completed six business combinations accounted for
under the purchase method for an aggregate purchase price of $71,665 consisting
of $68,099 of cash and U.S. Office Products Common Stock with a market value of
$3,566. The results of operations for the six months ended October 25, 1997
include the results of the acquired company's from their respective dates of
acquisition.

The following presents the unaudited pro forma results of operations of the
Company for fiscal 1997 as if the acquisitions described above had been
consummated as of the beginning of fiscal 1997. The results presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, adjustments in executive compensation and the inclusion of a federal
income tax provision on all earnings:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
APRIL 26, 1997
------------------
<S> <C>
Revenues................................................................ $ 339,546
Net income.............................................................. 7,509
</TABLE>

F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
American Academic Suppliers Holding Corporation

We have audited the accompanying consolidated balance sheets of AMERICAN
ACADEMIC SUPPLIERS HOLDING CORPORATION AND SUBSIDIARY as of December 31, 1995
and 1996, and the related consolidated statements of operations, changes in
shareholders' equity and of cash flows for the years then ended. 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 consolidated financial position of American
Academic Suppliers Holding Corporation and Subsidiary as of December 31, 1995
and 1996, and the consolidated results of their operations and their cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois
February 24, 1997

F-31
<PAGE>
AMERICAN ACADEMIC SUPPLIERS HOLDING CORPORATION

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ --------------
1995 1996 1997
----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>

<CAPTION>
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash........................................... $ 7,228 $ 21,507 $ 9,841
Trade accounts receivable (net of allowance for
doubtful accounts of $25,000)................ 4,525,451 3,656,546 13,476,228
Inventories (Note 1)........................... 1,805,731 1,599,140 2,398,435
Other current assets and prepaid expenses...... 127,673 173,549 269,234
----------- ----------- --------------
6,466,083 5,450,742 16,153,738
----------- ----------- --------------
Property, Plant and Equipment (less accumulated
depreciation--
Notes 1 and 2)................................. 3,081,784 2,949,000 2,845,858
----------- ----------- --------------
Other Assets:
Excess of cost over the fair value of net
assets acquired (less accumulated
amortization of $320,322 $433,022, $509,311,
respectively-- Note 1)....................... 4,187,938 4,075,238 4,030,878
Deferred financing costs (less accumulated
amortization of $21,729, $42,729, and $50,965
respectively--Note 1)........................ 40,544 19,544 0
Deposits....................................... 37,581 64,211 0
----------- ----------- --------------
4,266,063 4,158,993 4,030,878
----------- ----------- --------------
$13,813,930 $12,558,735 $ 23,030,474
----------- ----------- --------------
----------- ----------- --------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................... $ 1,476,312 $ 1,636,969 $ 4,281,450
Current portion of long-term debt (Note 4)..... 168,673 3,135 10,772,516
Other current liabilities and accrued expenses
(Notes 3 and 9).............................. 1,968,780 736,374 2,391,544
----------- ----------- --------------
3,613,765 2,376,478 17,445,510
----------- ----------- --------------
Long-term Liabilities:
Long-term debt (Note 4)........................ 7,712,187 6,407,152 0
----------- ----------- --------------
Shareholders' Equity:
Common stock, (10,000 shares of $.01 par value
authorized; 1,209, 1,232 and 1,232 shares
issued and outstanding at December 31, 1995,
1996, and September 30, 1997, respectively--
Note 8)...................................... 12 12 12
Additional paid-in capital..................... 5,528,073 5,648,073 5,648,073
Retained earnings (Accumulated deficit)........ (1,463,356) (296,229) 1,513,630
----------- ----------- --------------
4,064,729 5,351,856 7,161,715
Excess of Purchase Price over Predecessor Basis
(Note 1)..................................... (1,576,751) (1,576,751) (1,576,751)
----------- ----------- --------------
2,487,978 3,775,105 5,584,964
----------- ----------- --------------
$13,813,930 $12,558,735 $ 23,030,474
----------- ----------- --------------
----------- ----------- --------------
</TABLE>

The accompanying notes are an integral part of this statement.

F-32
<PAGE>
AMERICAN ACADEMIC SUPPLIERS HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
SEPTEMBER 30,
------------------------ ------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales............................. $38,596,316 $39,290,879 $32,578,366 $38,497,843
Cost of Goods Sold.................... 27,050,924 26,667,961 21,985,703 25,916,417
----------- ----------- ----------- -----------
Gross Profit.......................... 11,545,392 12,622,918 10,592,663 12,581,426
Selling, General and Administrative
Expenses............................ 9,522,851 9,995,206 7,229,895 8,932,382
----------- ----------- ----------- -----------
Income from Operations................ 2,022,541 2,627,712 3,362,768 3,649,044
----------- ----------- ----------- -----------
Other Expense:
Interest............................ 1,002,199 856,223 660,753 543,089
Guarantee fees (Note 4)............. 305,384 148,996 148,996 0
Executive severance (Note 9)........ 168,750 0 0 0
Amortization of intangibles (Note
1)................................ 133,700 133,700 100,275 120,516
Management fee (Note 8)............. 112,000 182,000 121,500 198,000
Other............................... 104,574 128,908 81,115 126,523
----------- ----------- ----------- -----------
1,826,607 1,449,827 1,112,639 988,128
----------- ----------- ----------- -----------
Income before Income Taxes............ 195,934 1,177,885 2,250,129 2,660,916
Income Tax Provision--Current......... 26,000 10,758 8,069 851,057
----------- ----------- ----------- -----------
Net Income............................ $ 169,934 $ 1,167,127 $ 2,242,060 $ 1,809,859
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of this statement.

F-33
<PAGE>
AMERICAN ACADEMIC SUPPLIERS HOLDING CORPORATION
AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995 AND 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
EXCESS OF
RETAINED PURCHASE
SHARES ADDITIONAL EARNINGS PRICE OVER TOTAL
ISSUED AND PAID-IN (ACCUMULATED PREDECESSOR SHAREHOLDERS'
OUTSTANDING PAR VALUE CAPITAL DEFICIT) BASIS EQUITY
--------------- ------------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994......... 1,209 $ 12 $5,528,073 $ (1,633,290) $(1,576,751) $ 2,318,044
Net Income, Year Ended December 31,
1995.............................. 169,934 169,934
----- --- ---------- -------------- ------------- --------------
Balances, December 31, 1995......... 1,209 12 5,528,073 (1,463,356) (1,576,751) 2,487,978
Issuance of Common Stock (Note 8)... 23 120,000 120,000
Net Income, Year Ended December 31,
1996.............................. 1,167,127 1,167,127
----- --- ---------- -------------- ------------- --------------
Balances, December 31, 1996......... 1,232 12 5,648,073 (296,229) (1,576,751) 3,775,105
Unaudited data:
Net Income, Nine Months Ended
September 30, 1997................ 1,809,859 1,809,859
----- --- ---------- -------------- ------------- --------------
Balances, September 30, 1997
(unaudited)....................... 1,232 $ 12 $5,648,073 $ 1,513,630 $(1,576,751) $ 5,584,964
----- --- ---------- -------------- ------------- --------------
----- --- ---------- -------------- ------------- --------------
</TABLE>

See accompanying notes to pro forma combined financial statements.

F-34
<PAGE>
AMERICAN ACADEMIC SUPPLIERS HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
SEPTEMBER 30,
------------------------ ------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income............................ $ 169,934 $ 1,167,127 $ 2,242,060 $ 1,809,859
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 404,222 381,791 281,842 292,031
Change in assets and liabilities:
Accounts receivable (net)......... 643,826 868,905 (6,575,016) (9,819,682)
Inventories....................... 172,680 206,591 (523,208) (799,296)
Other assets...................... (56,950) (72,506) (95,646) (89,177)
Accounts payable.................. (140,915) 160,657 2,010,499 2,643,464
Other liabilities and accrued
expenses........................ 968,782 (1,232,406) (1,530,288) 1,652,036
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities............................ 2,161,579 1,480,159 (4,189,757) (4,310,765)
----------- ----------- ----------- -----------
Cash Flows Used in Investing Activities:
Purchases of property and equipment... (197,298) (115,307) (108,329) (67,282)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Repayment of revolving line of credit
(net)............................... (1,929,681) (1,305,935) 4,227,957 5,766,671
Repayment of term loans and mortgage.. (96,046) (107,306) (81,277) (1,400,290)
Principal payment on capital lease
obligation.......................... (1,305) (3,496)
Repayment of promissory note payable
to shareholder...................... 0 (53,836)
Proceeds from sale of common stock.... 0 120,000 120,000
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities................ (2,027,032) (1,350,573) 4,266,680 4,366,381
----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash......... (62,751) 14,279 (31,406) (11,666)
Cash, Beginning of Year................. 69,979 7,228 7,228 21,507
----------- ----------- ----------- -----------
Cash, End of Year....................... $ 7,228 $ 21,507 (24,178) 9,841
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for:
Interest............................ $ 977,000 $ 864,134 $ 660,753 $ 543,089
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income taxes........................ $ 4,900 $ 11,046 $ 0 $ 85,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental Schedule of Noncash
Operating, Investing and Financing
Activities: Acquisition of equipment
financed through capital lease
obligation............................ $ 8,953 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Conversion of portion of accrued
guaranteed fees to a note payable
(Note 4).............................. $ 53,836 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of this statement.

F-35
<PAGE>
AMERICAN ACADEMIC SUPPLIERS HOLDING CORPORATION

AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES:

American Academic Suppliers Holding Corporation ("AASHC") and its wholly
owned subsidiary, American Academic Suppliers, Inc. ("AASI") (collectively
referred to as the "Company"), is a direct distributor of school supplies,
supplementary educational materials, furniture, and equipment to educational
institutions, school systems and administrative offices located throughout the
United States. Operations are conducted from owned and leased premises located
in Cary, Illinois and from leased premises located in Mt. Laurel, New Jersey
(Note 7).

On February 28, 1993, AASHC acquired all of the outstanding common stock of
AASI for $8,000,000. The acquisition was accounted for using the purchase method
of accounting. Since the former shareholders of AASI acquired an equity interest
in AASHC, the purchase price allocation has been adjusted by $1,576,751 to
reflect the excess of the purchase price over the predecessor basis in the net
assets acquired which, under generally accepted accounting principles, may not
be recognized as an asset. Such excess of purchase price over predecessor basis
was recorded as a reduction of the excess of cost over the fair value of net
assets acquired and as a decrease in shareholders' equity as of the date of
acquisition.

The Company primarily sells its products to separate schools or school
systems. As such, the majority of trade accounts receivable relate primarily to
these customers. Management believes that the recorded allowance for doubtful
accounts is adequate to cover potential losses associated with these customers.

In the opinion of management, the Company has made all adjustments
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of September 30, 1997 and the
results of its operations and its cash flows for the nine months ended September
30, 1996 and 1997, as presented in the accompanying unaudited interim financial
statements.

In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

A summary of significant accounting policies is as follows:

PRINCIPLES OF CONSOLIDATION--The consolidated financial statements
include the accounts of AASHC and its wholly owned subsidiary, AASI. All
intercompany accounts and balances have been eliminated in the
consolidation.

INVENTORIES--Inventories are valued at the lower of cost or market, with
cost determined under the first-in, first-out ("FIFO") basis.

DEPRECIATION AND AMORTIZATION--Depreciation of property, plant and
equipment is computed under both accelerated and straight-line methods
for financial reporting purposes, based on the estimated useful lives of
the assets. For income tax reporting purposes, provisions for
depreciation are computed principally under accelerated methods, as
permitted by the Internal Revenue Code.

The excess of cost over fair value of net assets acquired is being
amortized under the straight-line method over a period of 40 years.

F-36
<PAGE>
AMERICAN ACADEMIC SUPPLIERS HOLDING CORPORATION

AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Costs incurred in connection with obtaining long-term financing are
amortized, on a straight-line basis, over the term of the financing
commitment.

INCOME TAXES--The Company accounts for income taxes under the provisions
of Financial Accounting Standard No. 109. Under this standard, deferred
tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.

NOTE 2--PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment, at December 31, 1995 and 1996, stated at
acquisition cost, consisted of the following:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Land............................................... $ 415,000 $ 415,000
Buildings.......................................... 2,333,828 2,335,258
Warehouse equipment................................ 603,590 638,976
Office furniture and equipment..................... 249,060 255,613
Computer equipment................................. 173,285 245,223
---------- ----------
Total owned assets............................. 3,774,763 3,890,070
Equipment capitalized under lease obligation....... 8,953 8,953
---------- ----------
3,783,716 3,899,023
Less accumulated depreciation...................... (701,932) (950,023)
---------- ----------
$3,081,784 $2,949,000
---------- ----------
---------- ----------
</TABLE>

Depreciation of property, plant, and equipment, for the years ended December
31, 1995 and 1996, amounted to approximately $270,500 and $248,000,
respectively.

NOTE 3--OTHER CURRENT LIABILITIES AND ACCRUED EXPENSES:

Other current liabilities and accrued expenses, at December 31, 1995 and
1996, consisted of the following:

<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Compensation and commissions......................... $1,037,714 $ 390,037
Guarantor's fee (Note 4)............................. 305,383 0
Severance pay (Note 9)............................... 170,442 0
Real estate taxes.................................... 77,253 80,385
Interest............................................. 67,971 60,060
Other................................................ 310,017 205,892
---------- ---------
$1,968,780 $ 736,374
---------- ---------
---------- ---------
</TABLE>

F-37
<PAGE>
AMERICAN ACADEMIC SUPPLIERS HOLDING CORPORATION

AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--LONG-TERM DEBT:

Long-term debt, at December 31, 1995 and 1996, consisted of the following:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Borrowings from Harris Trust and Savings Bank ("Harris") pursuant
to a Credit Agreement ("Agreement") (see below):
Revolving credit loan borrowings............................... $5,787,922 $4,481,987
Term loan borrowings........................................... 521,422 467,231
Mortgage note payable to Harris Bank Barrington, N.A. (secured by
real estate occupied by the Company; payable in monthly
installments, inclusive of interest at prime plus 1 1/2%, of
$16,600; final maturity on December 16, 1999. Fully paid
subsequent to year-end).......................................... 1,510,032 1,456,917
Promissory note payable to Pfingsten Executive Fund, L.P. (bearing
interest at 10% per annum; paid in full during 1996)............. 53,836 0
Capitalized lease obligation (payable in monthly installments of
$291, inclusive of interest at 10%; final maturity June 7,
1998)............................................................ 7,648 4,152
---------- ----------
7,880,860 6,410,287
Less current portion............................................... 168,673 3,135
---------- ----------
Long-term portion, due in 1998..................................... $7,712,187 $6,407,152
---------- ----------
---------- ----------
</TABLE>

At December 31, 1996, the Harris Agreement provided maximum aggregate
borrowings of $12,077,500. Interest on outstanding borrowings was payable
monthly, at the prime rate (8.25% at December 31, 1996) plus 1%. The Company had
availability under the Agreement of $1,100,000 at December 31, 1996. Pfingsten
Executive Fund, L.P. (the Company's majority shareholder) had guaranteed
$1,500,000 of the borrowings (reduced from $3,000,000 effective December 31,
1995) under the Agreement. Guarantee fees are charged to the Company at 10% per
annum, which amounted to $305,384 and $148,996 for the years ended December 31,
1995 and 1996. The guarantees were released by Harris on October 31, 1996.

On February 4, 1997, the Agreement with Harris was amended ("Amended
Agreement") to provide maximum aggregate borrowings of $16,800,000 from June 1
through October 31, and $11,800,000 at all other times. Revolving credit loan
borrowings, under the Amended Agreement which expires March 31, 1998, are
limited to a computed "Borrowing Base" amount and bear interest at the Company's
option at the prime rate or LIBOR plus 1.75%. The Amended Agreement requires the
Company to pay .25% per annum on the average daily unused portion of the
Revolving Credit Commitment and to pay a prepayment penalty in certain
situations.

The Amended Agreement contains covenants restricting certain corporate acts,
such as restricting dividend and management fee payments, and requiring the
maintenance of net worth levels and a financial ratio.

Borrowings under the agreement with Harris are secured by all of the
Company's assets.

On February 4, 1997, the Company repaid the mortgage note and term loan from
borrowings under the revolving credit loan.

F-38
<PAGE>
AMERICAN ACADEMIC SUPPLIERS HOLDING CORPORATION

AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--LONG-TERM DEBT: (CONTINUED)
Borrowings under the revolving credit, term loan and mortgage note at
December 31, 1996 have been reported as long-term liabilities at December 31,
1996 as a result of the Amended Agreement and repayment of the mortgage note and
term loan.

NOTE 5--INCOME TAXES:

AASHC and its wholly owned subsidiary file a consolidated federal income tax
return.

The primary differences between the statutory and effective tax rates for
1995 and 1996 relate to the use of net operating loss carryforwards not
previously recognized.

Gross deferred income tax assets consist primarily of (a) net operating loss
carryforwards, (b) accrued expenses not paid within two and one-half months
after the end of the Company's year which are deductible for tax reporting
purposes when paid, and (c) uniform capitalization rules (for additional
inventory costs) reflected for tax reporting purposes only. The gross deferred
income tax liability consists of the variation in the book and tax bases of
property, plant and equipment.

At December 31, 1995 and 1996, the Company's net deferred income tax asset
and related valuation allowance consisted of:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Gross deferred tax asset.............................. $ 828,000 $ 262,000
Less valuation allowance.............................. 517,000 84,000
--------- ---------
Deferred tax asset, net of valuation allowance........ 311,000 178,000
Less deferred tax liability........................... 311,000 178,000
--------- ---------
$ 0 $ 0
--------- ---------
--------- ---------
</TABLE>

The valuation allowance decreased by $112,799 and $433,000 during 1995 and
1996, respectively.

At December 31, 1996, the Company has available, as a carryforward to future
years, a federal net operating loss carryforward of approximately $560,000,
expiring in 2008 and 2009.

NOTE 6--EMPLOYEE BENEFIT PLAN:

The Company is a participant in a Pfingsten Partners, L.P. master employee
benefit plan. The plan, established under the provisions of Section 401(k) of
the Internal Revenue Code provides, among other things, for the Company to make
discretionary contributions. Such employer contributions to the plan, for the
years ended December 31, 1995 and 1996, amounted to $43,427 and $24,534,
respectively.

Certain professionals of Pfingsten Partners, L.P. (Note 8) serve as the
trustees of the plan.

NOTE 7--LEASES:

The Company leases an office building and a warehouse under various
operating agreements which expire in 1998. The office building lease is
renewable at the Company's option for 36 additional months with an escalated
monthly payment. Rent expense incurred under these leases, for the years ended
December 31, 1995 and 1996, totalled approximately $253,000 and $251,000,
respectively.

F-39
<PAGE>
AMERICAN ACADEMIC SUPPLIERS HOLDING CORPORATION

AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--LEASES: (CONTINUED)
Future minimum lease payments under the aforementioned operating leases, at
December 31, 1996, are as follows:

NOTE 8--SHAREHOLDERS' EQUITY AND RELATED-PARTY TRANSACTIONS:

During the year ended December 31, 1996, the Company issued 23 shares of
common stock to certain officers for $120,000 in cash.

For the years ended December 31, 1995 and 1996, the Company incurred
$112,000 and 182,000, respectively, in fees pursuant to a management agreement
with Pfingsten Partners, L.P., which entity is an affiliate of the Company's
majority shareholder, Pfingsten Executive Fund, L.P.

During the years ended December 31, 1995 and 1996, approximately $15,300 and
$6,900, respectively, in consulting services were paid by Pfingsten Partners,
L.P., on behalf of the Company, and charged to the Company. Additionally, at
December 31, 1995, $12,000 was owed to a shareholder of the Company for services
rendered during 1995.

See Notes 3 and 4 for additional related-party transactions.

NOTE 9--SEVERANCE AGREEMENTS:

During December 1995, the Company terminated its employment agreement with
its president and recognized a $168,750 charge to operations to cover the cost
associated with this termination. The related amount owed pertaining to the
aforementioned charge, as well as a 1993 termination, at December 31, 1995, was
$170,442. There were no outstanding amounts at December 31, 1996.

NOTE 10--SUBSEQUENT EVENT (UNAUDITED):

Effective December 15, 1997, the Company and its stockholders entered into a
definitive agreement with U.S. Office Products Company ("U.S. Office Products")
pursuant to which U.S. Office Products acquired all outstanding shares of the
Company's common stock in exchange for cash.

F-40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors

of Sax Arts and Crafts, Inc.

In our opinion, the accompanying balance sheets and related statements of
operations, of shareholder's equity and of cash flows present fairly, in all
material respects, the financial position of Sax Arts and Crafts, Inc. at
December 16, 1995 and December 25, 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 25, 1996
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the accounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP
Minneapolis, Minnesota

February 3, 1998

F-41
<PAGE>
SAX ARTS AND CRAFTS, INC.

BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 16, DECEMBER 25, JUNE 29,
1995 1996 1997
-------------- -------------- ------------
<S> <C> <C> <C>
(UNAUDITED)

<CAPTION>
ASSETS
<S> <C> <C> <C>
Current assets:
Cash......................................... $ 102,900 $ 114,492 $ 109,544
Accounts receivable--trade, less allowance
for doubtful accounts of $31,860, $49,860
and $37,448, respectively.................. 4,656,651 4,383,464 4,114,798
Inventories.................................. 5,591,557 5,441,664 7,145,216
Prepaid expenses and other current assets.... 856,943 429,741 747,466
-------------- -------------- ------------
Total current assets....................... 11,208,051 10,369,361 12,117,024

Net property, plant and equipment.............. 1,034,648 820,827 658,356
Other assets................................... 42,477 26,506 26,506
-------------- -------------- ------------
Total assets............................... $ 12,285,176 $ 11,216,694 $12,801,886
-------------- -------------- ------------
-------------- -------------- ------------
<CAPTION>

LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable--trade...................... $ 4,210,593 $ 1,947,833 $3,403,006
Affiliate payable, net....................... 3,212,473 1,806,645 3,130,496
Accrued income taxes......................... 1,802,399 1,814,139 401,063
Other accrued expenses....................... 684,089 806,241 856,057
-------------- -------------- ------------

Total current liabilities.................. 9,909,554 6,374,858 7,790,622
Deferred income taxes.......................... 42,256 16,202 16,202
Other liabilities.............................. 69,195 69,197 92,000
-------------- -------------- ------------
Total liabilities.......................... 10,021,005 6,460,257 7,898,824

Shareholder's equity:
Common stock, $1.00 par value, 1,000 shares
authorized, issued and outstanding........... 1,000 1,000 1,000
Capital surplus--additional paid-in
capital.................................... 1,507,597 1,507,597 1,507,597
Retained earnings............................ 755,574 3,247,840 3,394,465
-------------- -------------- ------------
Total shareholder's equity................. 2,264,171 4,756,437 4,903,062
-------------- -------------- ------------
Total liabilities and shareholder's
equity................................... $ 12,285,176 $ 11,216,694 $12,801,886
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>

See accompanying notes to financial statements.

F-42
<PAGE>
SAX ARTS AND CRAFTS, INC.

STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 17, DECEMBER 16, DECEMBER 25, JUNE 30, JUNE 29,
1994 1995 1996 1996 1997
-------------- -------------- -------------- ----------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>

Net sales............... $ 29,169,879 $ 33,239,883 $ 34,350,947 $11,125,967 $13,009,456
Cost of sales........... 16,369,453 19,029,918 20,078,806 6,562,838 8,286,522
-------------- -------------- -------------- ----------- -----------
Gross profit........ 12,800,426 14,209,965 14,272,141 4,563,129 4,722,934
Selling, administrative
and other expenses.... 8,401,463 9,169,667 9,734,256 4,379,178 4,427,608
-------------- -------------- -------------- ----------- -----------
Operating earnings.. 4,398,963 5,040,298 4,537,885 183,951 295,326
Other income (expense),
net................... (510,508) (545,302) (476,886) (222,759) (52,971)
-------------- -------------- -------------- ----------- -----------
Earnings before income
taxes................. 3,888,455 4,494,996 4,060,999 (38,808) 242,355
Income taxes............ 1,502,315 1,738,191 1,568,733 (14,351) 95,730
-------------- -------------- -------------- ----------- -----------
Net earnings (loss)..... $ 2,386,140 $ 2,756,805 $ 2,492,266 $ (24,457) $ 146,625
-------------- -------------- -------------- ----------- -----------
-------------- -------------- -------------- ----------- -----------
</TABLE>

See accompanying notes to financial statements.

F-43
<PAGE>
SAX ARTS AND CRAFTS, INC.

STATEMENTS OF SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ----------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 18, 1993... 1,000 $ 1,000 $1,507,597 $ 512,629 $ 2,021,226
Dividends.................. (2,400,000) (2,400,000)
Net income................. 2,386,140 2,386,140
--------- ----------- ---------- ----------- ---------------
Balance, December 17, 1994... 1,000 1,000 1,507,597 498,769 2,007,366
Dividends.................. (2,500,000) (2,500,000)
Net income................. 2,756,805 2,756,805
--------- ----------- ---------- ----------- ---------------
Balance, December 16, 1995... 1,000 1,000 1,507,597 755,574 2,264,171
Net income................. 2,492,266 2,492,266
--------- ----------- ---------- ----------- ---------------
Balance, December 25, 1996... 1,000 1,000 1,507,597 3,247,840 4,756,437
Net income (unaudited)..... 146,625 146,625
--------- ----------- ---------- ----------- ---------------
Balance, June 29, 1997
(unaudited)................ 1,000 $ 1,000 $1,507,597 $ 3,394,465 $ 4,903,062
--------- ----------- ---------- ----------- ---------------
--------- ----------- ---------- ----------- ---------------
</TABLE>

See accompanying notes to financial statements.

F-44
<PAGE>
SAX ARTS AND CRAFTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 17, DECEMBER 16, DECEMBER 25, JUNE 30, JUNE 29,
1994 1995 1996 1996 1997
-------------- -------------- -------------- ----------- -----------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................ $ 2,386,140 $ 2,756,805 $ 2,492,266 $ (24,457) $ 146,625
Adjustments to reconcile net earnings
(loss) to cash provided by operating
activities:
Depreciation and amortization.......... 327,489 340,556 371,516 178,529 153,891
Deferred income taxes.................. 599 (30,302) (26,054) -- --
Gain on disposal of fixed assets....... (5,350) (21,505) (6,578) (6,205) (23,234)
Impact on cash flow from changes in
working capital:
Accounts receivable................ (185,934) (734,239) 273,187 1,403,353 268,666
Inventory.......................... (659,936) 144 149,893 (2,287,194) (1,703,552)
Other current assets............... (632,521) (56,442) 427,202 (109,614) (317,726)
Accounts payable................... 155,519 2,590,011 (2,262,760) (2,172,326) 1,455,174
Affiliates payable................. 942,481 (2,521,286) (1,405,828) 2,927,060 1,323,851
Accrued expenses................... (212,673) 656,493 133,894 27,125 (1,340,457)
-------------- -------------- -------------- ----------- -----------
Net cash provided by (used in)
operating activities......... 2,115,814 2,980,235 146,738 (63,729) (36,762)
-------------- -------------- -------------- ----------- -----------
Cash flows from investing activities:
Purchased property, plant and equipment.... (196,752) (473,305) (157,695) (9,789) (27,006)
Proceeds from sales of assets.............. 5,350 21,505 6,578 11,450 58,820
Increase in other assets................... -- -- 15,971 15,971 --
-------------- -------------- -------------- ----------- -----------
Net cash provided by (used in)
investing activities......... (191,402) (451,800) (135,146) 17,632 31,814
-------------- -------------- -------------- ----------- -----------
Cash flows from financing activities:
Dividend payment........................... (2,400,000) (2,500,000) -- -- --
-------------- -------------- -------------- ----------- -----------
Net cash provided by (used in)
financing activities......... (2,400,000) (2,500,000) -- -- --
-------------- -------------- -------------- ----------- -----------
Net increase (decrease) in cash.............. (475,588) 28,435 11,592 (46,097) (4,948)
Cash at beginning of period.................. 550,053 74,465 102,900 102,900 114,492
-------------- -------------- -------------- ----------- -----------
Cash at end of period........................ $ 74,465 $ 102,900 $ 114,492 $ 56,803 $ 109,544
-------------- -------------- -------------- ----------- -----------
-------------- -------------- -------------- ----------- -----------
Supplemental disclosures of cash flow
information:
Cash paid for interest................... $ 91,585 $ 390 $ -- $ -- $ 23
Cash paid for taxes...................... $ 1,540,000 $ 1,480,000 $ 1,780,000 $ 141,000 $ 95,000
</TABLE>

See accompanying notes to financial statements.

F-45
<PAGE>
SAX ARTS AND CRAFTS, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND OPERATIONS

Sax Arts and Crafts, Inc. (the "Company") is a national mail order
distributor of art and craft supplies to schools and educational institutions.
Sax Arts and Crafts, Inc. is a wholly-owned subsidiary of Day-Timers, Inc. (the
"Parent"). The Parent is owned by ACCO World Corporation ("ACCO"), which is a
wholly-owned subsidiary of Fortune Brands International ("Fortune Brands"). On
June 30, 1997, the Company and its shareholder entered into a definitive
agreement with U.S. Office Products Company ("U.S. Office Products") pursuant to
which the Company was acquired by U.S. Office Products. All outstanding shares
of the Company were exchanged for cash.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR

The Company's fiscal year ends on the third Saturday in December. Fiscal
year 1994 ended on December 17, 1994 and fiscal year 1995 ended on December 16,
1995. In 1996, the Company's fiscal year end was changed to December 25, 1996 in
order to comply with the closing date of the Parent. As a result, fiscal 1996
has 53 weeks.

UNAUDITED INTERIM FINANCIAL STATEMENTS

In the opinion of management, the Company has made all adjustments
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of June 29, 1997 and the results of
its operations and its cash flows for the six months ended June 30, 1996 and
June 29, 1997, as presented in the accompanying unaudited interim financial
statements.

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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

REVENUE RECOGNITION

The Company recognizes revenue upon shipment of the product as obligations
subsequent to delivery are not significant.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. The
Company provides products to a wide range of customers who primarily operate in
the education sector. The Company does not believe it is exposed to any undue
concentration of credit risk based on the strong credit history of the Company's
customer base.

F-46
<PAGE>
SAX ARTS AND CRAFTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES

The Company is part of a consolidated tax group with its Parent. For
purposes of these financial statements, income taxes have been provided as if
the Company filed a separate tax return. Income taxes are calculated in
accordance with the liability method of accounting for income taxes as provided
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred taxes are provided on temporary differences between book and
tax basis of assets and liabilities which will have a future impact on taxable
income.

3. INVENTORIES

Inventories are recorded at cost (not in excess of market value) as
determined by the weighted average cost method. Inventories are comprised as
follows:

<TABLE>
<CAPTION>
DECEMBER 16, DECEMBER 25,
1995 1996
-------------- --------------
<S> <C> <C>
Finished goods.............................................. $ 5,647,290 $ 5,493,859
Less--Reserves.............................................. 55,733 52,195
-------------- --------------
Total inventory......................................... $ 5,591,557 $ 5,441,664
-------------- --------------
-------------- --------------
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

The major classes are:

<TABLE>
<CAPTION>
DECEMBER 16, DECEMBER 25,
1995 1996
-------------- --------------
<S> <C> <C>
Buildings and improvements.................................. $ 129,302 $ 120,045
Automobiles................................................. 251,382 245,403
Machinery and equipment..................................... 1,463,156 1,482,480
Computer hardware and software.............................. 806,755 982,415
Construction in progress.................................... 157,534 58,544
-------------- --------------
Total cost.............................................. 2,808,129 2,888,887
Less--Accumulated depreciation.............................. (1,773,481) (2,068,060)
-------------- --------------
Net property, plant and equipment........................... $ 1,034,648 $ 820,827
-------------- --------------
-------------- --------------
</TABLE>

Depreciation is generally computed on a straight-line method over the
estimated useful lives of the assets including assets acquired by capital
leases. Accelerated depreciation is used for income tax purposes where
permitted. Depreciation expense recorded for the years ended December 17, 1994,
December 16, 1995 and December 25, 1996 was $327,489, $340,556 and $371,516,
respectively.

F-47
<PAGE>
SAX ARTS AND CRAFTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAXES

The income tax provision consists of the following components:

<TABLE>
<CAPTION>
DECEMBER 17, DECEMBER 16, DECEMBER 25,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Current portion:
Federal.................................... $ 1,292,616 $ 1,522,247 $ 1,372,728
State...................................... 209,100 246,246 222,059
-------------- -------------- --------------
1,501,716 1,768,493 1,594,787
-------------- -------------- --------------
Deferred portion:
Federal.................................... 516 (26,083) (22,426)
State...................................... 83 (4,219) (3,628)
-------------- -------------- --------------
599 (30,302) (26,054)
-------------- -------------- --------------
Income tax provision......................... $ 1,502,315 $ 1,738,191 $ 1,568,733
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

Deferred tax assets (liabilities) consist of the following:

<TABLE>
<CAPTION>
DECEMBER 16, DECEMBER 25,
1995 1996
-------------- --------------
<S> <C> <C>
Accruals.................................................... $ 58,944 $ 64,186
Asset reserves.............................................. 12,585 19,693
Inventories................................................. 17,370 15,610
Pension..................................................... 41,828 39,066
-------------- --------------
Gross deferred tax assets............................... 130,727 138,555
Depreciation................................................ (172,983) (154,757)
-------------- --------------
Gross deferred tax liabilities.......................... (172,983) (154,757)
-------------- --------------
Net deferred tax liability.............................. $ (42,256) $ (16,202)
-------------- --------------
-------------- --------------
</TABLE>

The effective rate for income taxes differs from the statutory rate as
follows:

<TABLE>
<CAPTION>
DECEMBER 17, DECEMBER 16, DECEMBER 25,
1994 1995 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
U.S. federal statutory tax rate.............. 34.0% 34.0% 34.0%
Non-deductible expenses...................... 0.1 0.2 0.1
State income taxes, net of federal benefit... 5.5 5.5 5.5
Other........................................ (1.0) (1.0) (1.0)
--- --- ---
38.6% 38.7% 38.6%
--- --- ---
--- --- ---
</TABLE>

F-48
<PAGE>
SAX ARTS AND CRAFTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. RELATED PARTY TRANSACTIONS

The affiliates payable component on the balance sheet represents the net
balance payable to the Parent and its affiliates. Interest is charged to the
Company on the outstanding balance. An analysis of the activity in this account
is as follows:

<TABLE>
<CAPTION>
DECEMBER 17, DECEMBER 16, DECEMBER 25,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of period............... $ (4,791,279) $ (5,733,759) $ (3,212,473)
Cost allocations and direct charges from
Parent..................................... (59,981) (24,414) (73,569)
Interest charged by Parent................... (421,370) (602,674) (528,324)
Intercompany sales........................... -- 273,106 471,794
Cash transfers............................... (461,129) 2,875,268 1,535,927
-------------- -------------- --------------
Balance at end of period..................... $ (5,733,759) $ (3,212,473) $ (1,806,645)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

The Company has the following affiliated receivables and payables:

<TABLE>
<CAPTION>
DECEMBER 16, DECEMBER 25,
1995 1996
-------------- --------------
<S> <C> <C>
Receivable from:
Day-Timers Canada......................................... $ 11,054 $ 186,581
Fortune Brands............................................ -- 648,932
-------------- --------------
Total................................................... $ 11,054 $ 835,513
-------------- --------------
-------------- --------------
Payable to:
ACCO...................................................... $ (2,089,941) $ (2,618,265)
Parent.................................................... (21,202) (23,893)
Fortune Brands............................................ (1,112,384) --
-------------- --------------
Total................................................... $ (3,223,527) $ (2,642,158)
-------------- --------------
-------------- --------------
</TABLE>

Services provided to the Company by the Parent and its affiliates include
expenses incurred and paid by the Parent on the Company's behalf and charges for
accounting and payroll functions provided by the Parent. The primary components
of cost allocations and direct charges from the Parent and affiliates are as
follows:

<TABLE>
<CAPTION>
DECEMBER 17, DECEMBER 16, DECEMBER 25,
1994 1995 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Payroll and accounting function.............. $ 38,950
Employee benefits............................ $ 34,922
Insurance.................................... 21,009 $ 21,202 29,222
Bank charges................................. 4,050 3,212 5,397
-------------- --------------- ---------------
$ 59,981 $ 24,414 $ 73,569
-------------- --------------- ---------------
-------------- --------------- ---------------
</TABLE>

F-49
<PAGE>
SAX ARTS AND CRAFTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. LEASE COMMITMENTS

<TABLE>
<CAPTION>
DECEMBER 25,
FISCAL YEAR 1996
- --------------------------------------------------------- --------------
<S> <C>
1997..................................................... $ 506,847
1998..................................................... 417,091
1999..................................................... 334,447
2000..................................................... 319,545
2001 and thereafter...................................... 399,431
--------------
Total minimum lease payments........................... $ 1,977,361
--------------
--------------
</TABLE>

Rental expense for all operating leases charged against earnings amounted to
$553,198, $546,603 and $559,830 for the years ended December 17, 1994, December
16, 1995 and December 25, 1996, respectively.

8. RETIREMENT PLAN

Nonunion employees of the Company participate in a noncontributory defined
benefit plan established by the Parent. Benefits for the plan are based
primarily on years of service and employees' average monthly earnings. The
Parent's funding policy is consistent with the funding requirements of federal
law and regulations. Plan assets consist principally of listed equity
securities. Participants are fully vested in the plan after completing five
years of service.

As of the most recent actuarial valuation, the total pension costs for the
Parent for the year ended December 25, 1996 consisted of the following:

<TABLE>
<CAPTION>
TOTAL
PARENT'S
PLAN
----------
<S> <C>
Service cost--benefits earned during the period............. $1,479,787
Interest cost on projected benefit obligation............... 1,640,620
Expected return on plan assets.............................. (1,783,635)
Amortization of unrecognized prior service cost............. (6,752)
All other cost components................................... 40,302
----------
Net pension costs........................................... $1,370,322
----------
----------
</TABLE>

The net pension costs of the plan for the years ended December 17, 1994,
December 16, 1995 and December 25, 1996 allocated to the Company by the Parent
were $86,000, $94,000 and $108,000, respectively.

F-50
<PAGE>
SAX ARTS AND CRAFTS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. RETIREMENT PLAN (CONTINUED)
As of the most recent actuarial valuation, the funded status of the plan for
the Parent as of December 25, 1996 is as follows:

<TABLE>
<CAPTION>
TOTAL
PARENT'S
PLAN
-----------
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits.......................................... $17,629,613
Non-vested benefit....................................... 1,458,142
-----------
Accumulated benefit obligation............................. 19,087,755
Effect of projected future compensation increases.......... 5,300,546
-----------
Projected benefit obligation............................... 24,388,301
Plan assets at fair value.................................. 22,052,322
-----------
Projected benefit obligation in excess of plan assets...... (2,335,979)
Unrecognized prior service cost............................ (32,672)
Unrecognized net gain...................................... (60,338)
-----------
Accrued pension costs...................................... $(2,428,989)
-----------
-----------
</TABLE>

The accrued pension costs at December 16, 1995 and December 31, 1996
attributed to the Company were $183,000 and $177,000, respectively.

Upon being acquired by U.S. Office Products, the plan was terminated for the
Company's plan participants and the net assets will be distributed for their
benefit.

9. OTHER POSTRETIREMENT PLAN

The Parent provides health care and life insurance benefits for eligible
retired employees and their eligible dependents. The cost of these benefits was
determined by application of actuarial assumptions and healthcare trend rates.
Based on the actuarial valuations performed for the years ended December 17,
1994, December 16, 1995 and December 25, 1996, the total net periodic
postretirement costs (benefit) allocated by the Parent to the Company were
$10,000, $2,000 and $(1,000), respectively.

The accrued other postretirement costs as of the years ended December 16,
1995 and December 25, 1996 attributed to the Company were $141,000 and $129,000,
respectively.

Upon being acquired by U.S. Office Products, the plan was terminated for the
Company's plan participants and the net assets will be distributed for their
benefit.

F-51
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters has severally agreed to purchase from the Company the
respective number of shares of Common Stock set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITERS STOCK
- ----------------------------------------------------------------------- -----------
<S> <C>
Goldman, Sachs & Co....................................................
NationsBanc Montgomery Securities LLC..................................
Smith Barney Inc.......................................................
Piper Jaffray Inc......................................................
-----------
Total..............................................................
-----------
-----------
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Underwriters.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of
additional shares of Common Stock solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the shares of Common
Stock offered.

The Company and certain of its directors and executive officers have agreed
that, during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of this Prospectus,
it will not offer, sell, contract to sell or otherwise dispose of any securities
of the Company (other than pursuant to employee stock option plans existing, or
on the conversion or exchange of convertible or exchangeable securities
outstanding, on the date of this Prospectus) which are substantially similar to
the shares of Common Stock of which are convertible into or exchangeable for
securities which are substantially similar to the shares of Common Stock without
the prior written consent of the Underwriters, except for the shares of Common
Stock offered in connection with the offering.

The Underwriters have informed the Company that they do not expect sales to
accounts over which the Underwriters exercise discretionary authority to exceed
five percent of the total number of shares of Common Stock offered by them.

In connection with the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover short positions created by
the Underwriters in connection with the offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the Common Stock; and short positions created
by the Underwriters involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from the Company in
the Offering. The Underwriters also may impose a penalty bid, whereby selling

U-1
<PAGE>
concessions allowed to broker-dealers in respect of the securities sold in the
Offering may be reclaimed by the Underwriters if such securities are repurchased
by the Underwriters 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; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.

Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company and the
Underwriters. Among the factors to be considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, will be the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.

The Common Stock will be quoted on the Nasdaq National Market under the
symbol ABCZ.

The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

U-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
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 ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary........................................ 1

Risk Factors................................... 5

The Spin-Off From U.S. Office Products......... 11

Use of Proceeds................................ 13

Dividend Policy................................ 13

Dilution....................................... 13

Capitalization................................. 15

Selected Financial Data........................ 16

Management's Discussion and Analysis of
Financial Condition and Results of Operation
of School Specialty.......................... 18

Industry Overview.............................. 26

Business....................................... 27

Management of School Specialty................. 33

Related Party Transactions..................... 40

Principal Stockholders of School Specialty..... 41

Description of School Specialty Capital
Stock........................................ 42

Experts........................................ 57

Validity of Shares............................. 57

Additional Information......................... 44

Index to Financial Statements.................. F-1

Underwriting................................... U-1
</TABLE>

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

THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING 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.

SCHOOL SPECIALTY, INC.

COMMON STOCK

(PAR VALUE $.001 PER SHARE)

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

PROSPECTUS

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

GOLDMAN, SACHS & CO.

NATIONSBANC MONTGOMERY SECURITIES LLC

SALOMON SMITH BARNEY

PIPER JAFFRAY INC.

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the fees and expenses payable by School
Specialty in connection with the issuance and distribution of the securities.
All of such expenses except the Securities and Exchange Commission registration
fee are estimated:

<TABLE>
<S> <C>
SEC Registration.......................................................... $ 14,750
National Association of Securities Dealers, Inc. Filing Fee............... $ 5,500
Nasdaq Listing Fee........................................................ $ *
Transfer Agents Fees and Expenses......................................... $ *
Legal Fees and Expenses................................................... $ *
Accounting Fees and Expenses.............................................. $ *
Printing Fees and Expenses................................................ $ *
Blue Sky Fees and Expenses................................................ $ *
Miscellaneous............................................................. $ *
---------
Total................................................................. $ *
</TABLE>

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

* To be supplied by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article Nine of School Specialty's Certificate of Incorporation provides
that School Specialty shall indemnify its directors and officers to the fullest
extent permitted by the General Corporation Law of the State of Delaware.

Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.

Article Eight of School Specialty's Certificate of Incorporation states that
directors of School Specialty will not be liable to School Specialty or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to School Specialty or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, which makes directors liable for unlawful dividends or unlawful stock
repurchases or redemptions or (iv) for any transaction from which the director
derived an improper personal benefit.

II-1
<PAGE>
Article IV of School Specialty's Bylaws provides that School Specialty shall
indemnify its officers and directors (and those serving at the request of School
Specialty as an officer or director of another corporation, partnership, joint
venture, trust or other enterprise), and may indemnify its employees and agents
(and those serving at the request of School Specialty as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise),
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred, if such officer, director,
employee or agent acted in good faith and in a manner reasonably believed to be
in or not opposed to the best interests of School Specialty, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. In a derivative action, indemnification shall be limited
to expenses (including attorneys' fees) actually and reasonably incurred by such
officer, director, employee or agent in the defense or settlement of such action
or suit, and no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to School
Specialty unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.

Unless the Board of Directors of School Specialty otherwise determines in a
specific case, expenses incurred by an officer or director in defending a civil
or criminal action, suit or proceeding shall be paid by School Specialty in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the officer or director to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by School Specialty.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

None.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

See index to exhibits.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing or closings 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.

The undersigned Registrant hereby further undertakes that:

(1) For purposes of 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(b) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(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.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, 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 Act
and is, therefore,

II-2
<PAGE>
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 Act and will be governed by the final adjudication of
such issue.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Appleton,
State of Wisconsin, on March 6, 1998.

SCHOOL SPECIALTY, INC.

By: /s/ DANIEL P. SPALDING
-----------------------------------------
Name: Daniel P. Spalding
Title: Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE CAPACITY DATE
- ------------------------------ --------------------------- -------------------

/s/ DANIEL P. SPALDING Chief Executive Officer 3/6/98
- ------------------------------ (Principal Executive
Daniel P. Spalding Officer); Director

/s/ DONALD J. NOSKOWIAK Chief Financial Officer 3/6/98
- ------------------------------ (Principal Financial and
Donald J. Noskowiak Accounting Officer)

II-4
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------------------------------------------------------------------------------
<C> <S>

1.1* Form of Underwriting Agreement

3.1* Certificate of Incorporation

3.2* Bylaws

4.1* Form of certificate representing shares of Common Stock

5* Opinion of Wilmer, Cutler & Pickering as to legality of securities being offered

8* Tax opinion of Wilmer, Cutler & Pickering

10.1* Form of Distribution Agreement among U.S. Office Products Company, Workflow
Graphics, Inc., Paradigm Concepts, Inc., TDOP, Inc., and School Specialty, Inc.

10.2* Form of Tax Allocation Agreement among U.S. Office Products Company, Workflow
Graphics, Inc., Paradigm Concepts, Inc., TDOP, Inc., and School Specialty, Inc.

10.3* Tax Indemnification Agreement among Workflow Graphics, Inc., Paradigm Concepts,
Inc., TDOP, Inc., and School Specialty, Inc.

10.4* Employee Benefits Agreement among Workflow Graphics, Inc., Paradigm Concepts, Inc.,
TDOP, Inc., and School Specialty, Inc.

10.5* Employment Agreement dated April 29, 1996, between Daniel P. Spalding and School
Specialty, Inc.

10.6* Employment Agreement dated July 26, 1996, between Donald Ray Pate, Jr. and The Re-
Print Corp.

10.7* Employment Agreement dated June 27, 1997, between Richard H. Nagel and Sax Arts &
Crafts, Inc.

21* Subsidiaries of Registrant

23.1* Consent of Wilmer, Cutler & Pickering contained in Exhibits 5 and 8 hereto

23.2 Consent of Price Waterhouse, LLP

23.3 Consent of Ernst & Young, LLP

23.4 Consent of BDO Seidman, LLP

23.5 Consent of Altschuler, Melvoin and Glasser LLP

23.6 Consent of David J. Vander Zanden to be named as director

23.7 Consent of Jonathan J. Ledecky to be named as director

23.8 Consent of Leo C. McKenna to be named as director

23.9 Consent of Rochelle Lamm Wallach to be named as director

27 Financial data schedule
</TABLE>

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

* To be filed by amendment.

II-5

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 13, 1998,
relating to the financial statements of School Specialty, Inc., as of April 30,
1996 and April 26, 1997 and for the four months ended April 30, 1996 and for the
fiscal year ended April 26, 1997, which appears in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.

PRICE WATERHOUSE LLP

Minneapolis, MN

March 6, 1998

<PAGE>
EXHIBIT 23.3

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 2, 1996, with respect to the financial
statements of School Specialty, Inc. for the years ended December 31, 1995 and
1994 included in the Registration Statement on Form S-1 and related Prospectus
of School Specialty, Inc. for the registration of shares of its common stock.

ERNST & YOUNG LLP

Milwaukee, Wisconsin

March 5, 1998

<PAGE>
EXHIBIT 23.4

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement of School Specialty, Inc. on Form S-1 of our report dated
February 8, 1996, relating to the financial statements of The Re-Print
Corporation, which report appears in such Prospectus. We also consent to the
references to us under the heading "Experts" in such Prospectus.

BDO SEIDMAN, LLP

Atlanta, Georgia

March 6, 1998

<PAGE>
EXHIBIT 23.5

INDEPENDENT AUDITORS' CONSENT

We hereby consent to the use in this Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 24, 1997,
relating to the consolidated financial statements of American Academic Suppliers
Holding Corporation and Subsidiary, which appears in such Prospectus. We also
consent to the references to us under the heading "Experts".

ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois

March 6, 1998

<PAGE>
EXHIBIT 23.6

CONSENT TO BE NAMED AS A DIRECTOR

I hereby consent to be named as a person who will become a director of
School Specialty, Inc. (the "Company") in the registration statement on Form S-1
to be filed by the Company with the Securities and Exchange Commission relating
to the initial public offering by the Company of shares of common stock, par
value $.001, of the Company.

<TABLE>
<CAPTION>
/s/ DAVID J. VANDER ZANDEN
--------------------------------------------
David J. Vander Zanden
<S> <C>
Dated: March 6, 1998
</TABLE>

<PAGE>
EXHIBIT 23.7

CONSENT TO BE NAMED AS A DIRECTOR

<TABLE>
<CAPTION>
/s/ JONATHAN J. LEDECKY
--------------------------------------------
Jonathan J. Ledecky
<S> <C>
Dated: March 5, 1998
</TABLE>

<PAGE>
EXHIBIT 23.8

CONSENT TO BE NAMED AS A DIRECTOR

<TABLE>
<CAPTION>
/s/ LEO C. MCKENNA
--------------------------------------------
Leo C. McKenna
<S> <C>
Dated: March 3, 1998
</TABLE>

<PAGE>
EXHIBIT 23.9

CONSENT TO BE NAMED AS A DIRECTOR

<TABLE>
<CAPTION>
/s/ ROCHELLE LAMM WALLACH
--------------------------------------------
Rochelle Lamm Wallach
<S> <C>
Dated: March 4, 1998
</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated financial statements of the Company included in the Registration
Statment on Form S-1 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-26-1997
<PERIOD-START> MAY-1-1996
<PERIOD-END> APR-26-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 17,703
<ALLOWANCES> (471)
<INVENTORY> 24,461
<CURRENT-ASSETS> 52,024
<PP&E> 14,478
<DEPRECIATION> 0
<TOTAL-ASSETS> 87,685
<CURRENT-LIABILITIES> 38,405
<BONDS> 32,144
0
0
<COMMON> 0
<OTHER-SE> 17,136
<TOTAL-LIABILITY-AND-EQUITY> 87,685
<SALES> 191,746
<TOTAL-REVENUES> 191,746
<CGS> 136,577
<TOTAL-COSTS> 136,577
<OTHER-EXPENSES> 45,448
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,550
<INCOME-PRETAX> 7,367
<INCOME-TAX> (1,572)
<INCOME-CONTINUING> 8,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,939
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
<F1>EPS has not been presented as such amounts are not deemed meaningful due to the
significant change in the Company's capital structure that will occur upon the
consummation of the Distribution.
</FN>

</TABLE>