AMERICAN PAD & PAPER CO, S-1/A, 1996-06-25

AMERICAN PAD & PAPER CO
S-1/A, 1996-06-25
CONVERTED PAPER & PAPERBOARD PRODS (NO CONTANERS/BOXES)

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1996

REGISTRATION NO. 333-4000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
AMERICAN PAD & PAPER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 2678 04-3164298
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)

17304 PRESTON ROAD, SUITE 700
DALLAS, TX 75252-5613
(214) 733-6200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CHARLES G. HANSON III
CHIEF EXECUTIVE OFFICER
AMERICAN PAD & PAPER COMPANY
17304 PRESTON ROAD, SUITE 700
DALLAS, TX 75252-5613
(214) 733-6200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO AGENT FOR
SERVICE, SHOULD BE SENT TO:

LANCE C. BALK FRANCIS J. MORISON
KIRKLAND & ELLIS DAVIS POLK & WARDWELL
153 E. 53RD STREET 450 LEXINGTON AVENUE
NEW YORK, NY 10022 NEW YORK, NY 10017
(212) 446-4800 (212) 450-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list of the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

----------------
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 THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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- -------------------------------------------------------------------------------
<PAGE>

AMERICAN PAD & PAPER COMPANY

CROSS REFERENCE SHEET

PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-1.

<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus..... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Page of Prospectus..... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus;
Additional Information
3. Summary Information and Risk
Factors...................... Prospectus Summary; Risk Factors
4. Use of Proceeds............... Prospectus Summary; Use of Proceeds;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
5. Determination of Offering Outside Front Cover Page of Prospectus;
Price........................ Underwriters
6. Dilution...................... Dilution
7. Selling Security Holders...... Principal and Selling Stockholders
8. Plan of Distribution.......... Outside Front Cover Page of Prospectus;
Underwriters
9. Description of Securities to Prospectus Summary; Dividend Policy;
Be Registered................ Capitalization; Description of Capital
Stock
10. Interests of Named Experts and
Counsel...................... Legal Matters
11. Information with Respect to Outside Front Cover Page of Prospectus;
the Registrant............... Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend Policy;
The Recapitalization; Capitalization;
Dilution; Selected Historical Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Industry; Business;
Management; Principal and Selling
Stockholders; Certain Relationships and
Related Transactions; Description of
Capital Stock; Legal Matters; Experts;
Index to Financial Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. Not Applicable
</TABLE>
<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus; one to be used
in connection with a United States offering (the "U.S. Prospectus") and one to
be used in a concurrent international offering (the "International
Prospectus"). The two prospectuses will be identical in all respects except for
the front cover pages.

The form of the U.S. Prospectus is included herein and the form of the front
cover page of the International Prospectus follows the front cover page of the
U.S. Prospectus.
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)

Issued June 24, 1996

15,625,000 Shares
American Pad & Paper Company
COMMON STOCK
----------
OF THE 15,625,000 SHARES OF COMMON STOCK OFFERED HEREBY, 12,500,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 3,125,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." OF THE 15,625,000 SHARES OF COMMON STOCK OFFERED HEREBY,
12,500,000 SHARES ARE BEING SOLD BY THE COMPANY AND 3,125,000 SHARES ARE
BEING SOLD BY THE SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING
STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM
THE SALE OF THE SHARES OF COMMON STOCK BY THE SELLING STOCKHOLDERS.
PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE
INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $15 AND
$17. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
----------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "AGP."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share........................................... $ $ $ $
Total(3)............................................ $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
(2) Before deducting expenses payable by the Company estimated at
$1,300,000.
(3) The Selling Stockholders have granted the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 2,343,750 additional shares at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Selling Stockholders will be $ , $ and $ ,
respectively. See "Underwriters."
----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to the approval of certain legal
matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected
that delivery of the Shares will be made on or about , 1996 at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
----------
MORGAN STANLEY & CO.
Incorporated
ALEX. BROWN & SONS
INCORPORATED
BT SECURITIES CORPORATION
CS FIRST BOSTON
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
WASSERSTEIN PERELLA SECURITIES, INC.

, 1996
<PAGE>

[Pictures of various
products sold by the company]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE ("NYSE"), IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

DURING THE OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR
THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.

2
<PAGE>

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
COMMON STOCK OFFERED HEREBY TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

No action has been or will be taken in any jurisdiction by the Company, any
Selling Stockholder or any Underwriter that would permit a public offering of
the Common Stock or possession or distribution of this Prospectus in any
jurisdiction where action for that purpose is required, other than in the
United States. Persons into whose possession this Prospectus comes are
required by the Company and the Underwriters to inform themselves about, and
to observe any restrictions as to, the offering of the Common Stock and the
distribution of this Prospectus.

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

Ampad(R), Century(TM), Embassy(R), Evidence(R), Gold Fibre(R), Huxley(TM),
Karolton(R), Kent(TM), Peel & Seel(R), SCM(TM), World Fibre(TM) and
Williamhouse(TM) are trademarks of the Company.

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

Until , 1996 (25 days after commencement of the Offering), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligations of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 11
The Company......................... 15
Use of Proceeds..................... 15
Dividend Policy..................... 16
The Recapitalization................ 17
Capitalization...................... 18
Dilution............................ 19
Selected Historical Consolidated
Financial Data..................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Industry............................ 30
Business............................ 32
Management.......................... 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Principal and Selling
Stockholders...................... 51
Certain Relationships and Related
Transactions...................... 53
Description of Certain
Indebtedness...................... 54
Description of Capital Stock....... 57
Shares Eligible for Future Sale.... 60
Certain Material Federal Income Tax
Consequences for Non-United
States Holders.................... 62
Underwriters....................... 65
Experts............................ 68
Legal Matters...................... 69
Additional Information............. 69
Unaudited Pro Forma Financial
Data.............................. 70
Index to Financial Statements...... F-1
</TABLE>

3
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by more detailed
information and financial statements and notes thereto included elsewhere in
this Prospectus. Unless otherwise stated, the information contained in this
Prospectus (i) assumes no exercise of the U.S. Underwriters' over-allotment
option, (ii) reflects a 8.1192-for-one stock split of the existing Common Stock
and Common Stock equivalents and (iii) reflects the conversion of all shares of
preferred stock and preferred stock equivalents into shares of Common Stock and
Common Stock equivalents, respectively. See "The Recapitalization." Unless
otherwise stated in this Prospectus, references to (a) the "Company" shall mean
American Pad & Paper Company, its consolidated subsidiaries and their
respective predecessors; (b) "Williamhouse" shall mean the operations of
Williamhouse--Regency of Delaware, Inc. prior to its acquisition by the Company
on October 31, 1995 (the "Acquisition"); and (c) "Ampad" shall mean Ampad
Corporation, the former operating subsidiary of the Company, prior to Ampad's
merger with and into Williamhouse immediately prior to the Acquisition. On May
29, 1996, the Company executed a definitive agreement to purchase the Niagara
Envelope Company, Inc. ("Niagara"). Financial data presented herein on a pro
forma basis for the year ended December 31, 1995 gives effect to the
Acquisition, the other transactions related thereto, the acquisition of Niagara
and the Offering as if such transactions occurred on January 1, 1995. See
"Unaudited Pro Forma Financial Data."

THE COMPANY

The Company is one of the largest manufacturers and marketers of paper-based
office products (excluding computer forms and copy paper) in the $60 billion to
$70 billion North American office products industry. The Company offers a broad
product line including nationally branded and private label writing pads, file
folders, envelopes and other office products. Through its Ampad division, the
Company is among the largest and most important suppliers of pads and other
paper-based writing products, filing supplies and envelopes to many of the
largest and fastest growing office products distributors. Acquired in October
1995, the Company's Williamhouse division is the leading supplier of mill
branded, specialty and commodity envelopes to paper merchants/distributors. The
Company's strategy is to grow by focusing on the largest and fastest growing
office product distribution channels, making acquisitions, introducing new
product lines, broadening product distribution across its channels and
maintaining its position among the lowest-cost manufacturers in the industry.
As a result of this strategy, the Company's sales have grown at a compound
annual rate of approximately 34% from 1992 to 1995. For the year ended December
31, 1995, the Company had net sales of $617.2 million and income from
operations of $57.3 million on the pro forma basis described herein. See
"Unaudited Pro Forma Financial Data."

Since the mid-1980s, the office products industry has experienced significant
changes in the channels through which office products are distributed such as
the emergence of new channels, including national office products superstores,
national contract stationers and mass merchandisers, and consolidation within
these and other channels. As a result of these changes, approximately 6,800
office product distributors existed in 1994 compared with approximately 13,300
in 1987. The channels through which office products are distributed from the
manufacturer to the end-user include retail channels such as national office
products superstores, mass merchandisers and warehouse clubs; commercial
channels such as national contract stationers; paper merchants/distributors;
and other channels such as regional distributors, school campuses and direct
mail. The Company believes that sales of office products through retail
channels are approximately $20 billion to $25 billion. The three dominant
national superstores (Office Depot, OfficeMax and Staples) have experienced
significant growth over the past three years and currently account for
approximately 17% of retail office products sales and approximately 6% of total
office products sales. The Company believes that sales of office products
through commercial channels are approximately $25 billion to $30 billion.
Principally through the acquisition of smaller, regional contract stationers,
national contract stationers (including Boise Cascade Office Products, BT
Office Products, Corporate Express, U.S. Office Products and the contract
stationer divisions of Office Depot and Staples) have grown more rapidly than
other commercial channels. These national contract stationers now account for
approximately 25% of commercial office products sales and approximately 11% of
total office products sales. Certain office products, particularly envelopes,
are sold predominantly through paper

4
<PAGE>

merchants/distributors or directly to end users. Paper merchants/distributors
currently account for approximately 30% of the envelope market. The three
largest paper merchants (ResourceNet, Unisource and Zellerbach) have
experienced significant growth primarily through consolidation.

The Company has targeted and will continue to target those customers driving
consolidation in the retail, commercial and paper merchant distribution
channels and believes that it is uniquely positioned to meet the special
requirements of these customers. These customers seek suppliers, such as the
Company, who are able to offer broad product lines, higher value-added
innovative products, national distribution capabilities, low costs and reliable
service. Furthermore, as these customers continue to grow and as they
consolidate their supplier bases, the Company's ability to meet their special
requirements becomes an increasingly important competitive advantage.
Recognizing Ampad's potential for growth through the changing distribution
channels, Bain Capital, Inc. ("Bain Capital") and management formed the Company
and purchased Ampad from Mead Corporation ("Mead") in 1992. Since that time,
management has enhanced the Company's scale, broadened its product line,
expanded upon its national presence and strengthened its distribution
capabilities through acquisition and innovation while simultaneously delivering
higher customer service levels. As a result, the Company's net sales through
the most rapidly growing retail and commercial channels increased from $8.8
million in 1992 to $134.8 million ($164.5 million on a pro forma basis) in
1995.

COMPETITIVE STRENGTHS

The combination of the Company's products, customers and national scale
distinguishes it as a leading manufacturer and marketer of paper-based office
products (excluding computer forms and copy paper) in North America. The
Company attributes this position and its continued opportunities for growth and
profitability to the following competitive strengths:

. Market Leader. The Company has achieved market leadership in core products
sold to customers in the largest and fastest growing office products channels
by offering one of the broadest assortments of high quality products in the
industry. Furthermore, the Company enjoys national brand awareness in many of
its product lines, including Ampad, Century, Embassy, Evidence, Gold Fibre,
Huxley, Karolton, Kent, Peel & Seel, SCM, Williamhouse and World Fibre.

. Well-Positioned and Diversified Customer Base. The Company has substantial
opportunities for growth within several distribution channels of the office
products industry. The Company has focused on the largest and fastest growing
office products channels. Several of the Company's largest customers, such as
Boise Cascade Office Products, BT Office Products, Corporate Express, Office
Depot, OfficeMax and Staples, are expected by industry analysts to experience
annual revenue growth of 15% to 35% over the next five years. The Company's
Williamhouse division maintains particularly strong relationships with the
largest and fastest growing paper merchants/distributors in the market,
including ResourceNet, Unisource and Zellerbach. The Company also maintains
strong customer relationships across all of the other office products
distribution channels, including mass merchandisers, warehouse clubs, office
products wholesalers and independent dealers.

. National Scale and Service Capability. The Company's extensive product line,
multiple brands and broad price point coverage provide significant advantages
and economies of scale in selling to and servicing its customers. The Company
has become an increasingly important strategic partner to its customers as
they seek higher value-added products, simplify their purchasing
organizations and consolidate their relationships among selected national
suppliers. The Company's national presence and network of 22 strategically
located facilities have enabled it to maintain rapid and efficient order
fulfillment standards. In addition, the Company's advanced electronic data
interchange ("EDI") capabilities enable it to meet its customers' EDI
requirements, executing automated transactions rapidly, efficiently and
accurately.

. Innovation/New Products. The Company has introduced several innovative
products as part of its marketing strategy to differentiate itself from other
suppliers and enhance profitability. Recent examples include Gold Fibre
classic and designer notebooks, Papers with a Purpose, World Fibre ground-
wood writing pads and Peel

5
<PAGE>

& Seel envelopes. Products introduced since 1992 accounted for over $70
million of the Company's 1995 net sales. The Company's brand recognition and
presence with its national customers allows it to more easily introduce new or
acquired product lines to those customers.

. Low-Cost Manufacturer. The Company believes it is among the lowest-cost
manufacturers of paper-based office products in the industry. The Company
ensures its low-cost manufacturing position through its paper purchasing and
distribution advantages as well as its maintenance of modern and efficient
manufacturing technology and a high quality workforce. The Company has been
successful in reducing costs with each of its acquisitions in the last three
years by continually streamlining its manufacturing processes and overhead
structure. From 1992 to 1995, the Company reduced its fixed manufacturing
costs from 7.4% to 5.2% of net sales and its selling, general and
administrative expenses from 10.5% to 7.2% of net sales. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."

. Purchasing Advantages. The Company has strong relationships with most of the
country's largest paper mills, many of which have been conducting business
with the Company for more than 30 years. The Company is one of the largest
purchasers of the principal paper grades used in its manufacturing
operations. In addition, the Company has the largest number of designated
mill relationships which involve some of the largest and most recognized
paper mill brands such as Hammermill, Hopper, Neenah and Strathmore. These
relationships afford the Company certain paper purchasing advantages,
including stable supply and favorable pricing arrangements.

. Proven Management Team With Successful Track Record. The Company's senior
operating management team averages over 25 years each in the paper products
industry. Management has succeeded in increasing sales and operating
profitability by recognizing and acting on the transition to the fastest
growing distribution channels, introducing higher value-added products,
acquiring complementary product lines (Karolton in December 1993, SCM Office
Supplies, Inc. ("SCM") in July 1994 and certain product lines of Huxley and
Globe-Weis in July 1994 and August 1995, respectively), improving
manufacturing processes and reducing overhead and administrative costs. Upon
completion of the Offering, the Company's senior management team (Messrs.
Hanson, Gard and Benson) will collectively own 865,516 shares of Common Stock
(438,427 shares if the U.S. Underwriters' over-allotment option is exercised
in full) and hold currently exercisable options to purchase an additional
2,156,000 shares of Common Stock. Assuming an initial public offering price
of $16.00 per share, these holdings represent on a fully-diluted basis
approximately 10.3% of the outstanding Common Stock (8.9% if the U.S.
Underwriters' over-allotment option is exercised in full). See "Principal and
Selling Stockholders."

GROWTH STRATEGY

The Company's strategy is to maintain and strengthen its leadership position
by focusing on the following:

. Focus on Rapidly Growing Customers. The Company serves many of the largest
and best positioned customers in the office products market segment including
national office products superstores, mass merchandisers and warehouse clubs,
national contract stationers and national paper merchants/distributors. For
1995 on a pro forma basis, approximately 15.3% of the Company's net sales
were to national office product superstores, 7.8% to mass merchandisers and
warehouse clubs, 9.1% to national contract stationers and 19.7% to the three
largest national paper merchants/distributors. Anticipating further
consolidation in the office products industry, the Company expects that its
national scope and broad product line will be increasingly important in
meeting the needs of its customers. The Company will continue to target those
customers driving consolidation in the office products industry.

. Continue to Introduce New Products. New, higher value-added products give
the Company a greater selection to offer its customers and improve product
line profitability for both the Company and its customers. The Company plans
to differentiate itself from other suppliers and improve profitability
through product innovation, differentiation and line extensions.

6
<PAGE>

among manufacturers of writing products, filing supplies and envelopes. The
SCM and Williamhouse acquisitions broadened the Company's product line to
include filing products and envelopes and enhanced its presence in the growing
distribution channels. The Globe-Weis acquisition and the Company's agreement
to acquire Niagara demonstrate its commitment to strengthening its competitive
and strategic position within its markets. The Company believes that there are
significant opportunities to acquire companies in both its existing and
complementary product lines. In addition, the Company intends to enter new
office products markets through acquisitions of established companies in those
markets.

. Broaden Product Distribution. The Company's market presence and distribution
strengths uniquely position it to sell new or acquired product lines across
its distribution channels, including national office products superstores,
national contract stationers, office product wholesalers and mass
merchandisers. As an important part of its growth strategy, for example, the
Company has successfully introduced the envelope product lines acquired in
the Acquisition, previously distributed primarily through paper
merchants/distributors, to the Ampad division's distribution channels under
the Ampad and private label names. The Company estimates that this market
opportunity is approximately $350 million in annual net sales.

. Continue to Reduce Costs. The Company has identified and is in the process of
implementing cost reductions in connection with the Acquisition that are
expected to result in approximately $7.4 million of annualized cost savings.
In addition, management plans to implement further identified cost reductions
beyond 1996.

RECENT TRANSACTIONS

On May 29, 1996, the Company executed a definitive agreement to acquire
Niagara for an aggregate purchase price of approximately $50 million, plus $5.0
million to be paid under a one-year consulting services agreement (the "Niagara
Acquisition"). Niagara supplies mill branded, specialty and commodity envelopes
to paper merchants/distributors through four manufacturing facilities located
near Buffalo, Chicago, Dallas and Denver. Niagara had 1995 net sales of
approximately $106 million and operating income of approximately $8.5 million.
The Company expects the Niagara Acquisition to be completed by the middle of
July 1996. The Company believes that the Niagara Acquisition will strengthen
the Company's distribution capabilities in the Midwest, provide additional
manufacturing capacity and provide opportunities to achieve operating
improvements through the consolidation of Niagara's operations with those of
the Company. The completion of the Niagara Acquisition is subject to certain
conditions.

In October 1995, the Company acquired Williamhouse for an aggregate purchase
price (including assumption of debt of approximately $152.9 million) of
approximately $300 million, plus reimbursement of certain expenses. In
connection with the Acquisition, the Company (i) refinanced an aggregate of
approximately $119.1 million of combined indebtedness of the Company and
Williamhouse, (ii) purchased for $109.0 million in cash all of the outstanding
11 1/2% Senior Subordinated Debentures due 2005 of Williamhouse (the "Old
Debentures"), together with accrued interest thereon of $5.3 million, (iii)
declared a stock dividend of $200 million in aggregate liquidation value of
preferred stock and preferred stock equivalents (collectively, the "Preferred
Stock") and subsequently redeemed approximately $70.6 million of such Preferred
Stock and declared a $4.5 million cash dividend on its Class P Common Stock,
(iv) paid approximately $34.2 million in related fees and expenses and (v) used
approximately $3.4 million for working capital purposes. To finance the
Acquisition and these related transactions, the Company's principal operating
subsidiary (i) incurred borrowings under a credit agreement (the "Bank Credit
Agreement") of approximately $245 million, (ii) issued $200 million in
aggregate principal amount of senior subordinated notes due 2005 (the "Notes"),
and (iii) received approximately $45 million from the establishment of a new
non-recourse, off-balance sheet accounts receivable securitization program (the
"Accounts Receivable Facility"). The Acquisition, the other transactions
entered into in connection therewith, and the financing thereof are
collectively referred to herein as the "Transactions."

The Company's management identified the personalizing business division of
Williamhouse (the "Personalizing Division") as a nonstrategic asset following
the Acquisition and has decided to pursue a sale of

7
<PAGE>

the Personalizing Division. As a result, the financial statements of the
Company included elsewhere in this Prospectus reflect the Personalizing
Division as "Assets held for Sale" as of December 31, 1995 and March 31, 1996.
On June 6, 1996, the Company signed a definitive agreement with a potential
buyer to sell the Personalizing Division. Under the terms of the agreement, the
Company will receive approximately $60 million in gross proceeds (subject to
certain closing adjustments) from the sale of the Personalizing Division, which
it expects to complete by the end of June 1996. The sales agreement is subject
to certain conditions, some of which are outside the control of the Company. As
a result, no assurance can be given that the proposed sale will be completed
or, if completed, will be on the terms outlined herein. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."

Although the Company regularly engages in discussions with companies
regarding potential acquisitions, it currently does not have any agreements or
understandings relating to acquisitions other than the Niagara Acquisition.

THE OFFERING(1)

<TABLE>
<S> <C>
Common Stock offered by
The Company........... 12,500,000 shares
The Selling 3,125,000 shares
Stockholders.........
Total............... 15,625,000 shares
Common Stock offered
U. S. Offering........ 12,500,000 shares
International 3,125,000 shares
Offering.............
Total............... 15,625,000 shares
Common Stock to be
outstanding after the
Offering............... 26,925,272 shares(2)
Use of proceeds......... The net proceeds to be received by the Company from the
Offering will be used to repay certain outstanding bank
indebtedness and to redeem a portion of the Notes
issued by the Company's principal operating subsidiary
and to pay certain fees. The Company will not receive
any proceeds from the sale of shares by the Selling
Stockholders. See "Use of Proceeds."
Proposed NYSE symbol.... AGP
</TABLE>
- --------
(1) Does not include the Underwriters' over-allotment option granted by the
Selling Stockholders for an aggregate of 2,343,750 shares of Common Stock.
(2) Does not include 2,156,000 shares of Common Stock reserved for issuance
upon the exercise of options outstanding as of June 5, 1996 and granted to
members of management pursuant to the Company's 1992 Key Employees Stock
Option Plan (the "1992 Stock Plan") or 2,100,000 shares of Common Stock
reserved for issuance under the Company's 1996 Key Employees Stock
Incentive Plan (the "1996 Stock Plan"), the Non-Employee Director Stock
Option Plan (the "Non-Employee Director Plan") and the Management Stock
Purchase Plan. See "Management--Stock Options."

8
<PAGE>

SUMMARY FINANCIAL DATA

The summary historical consolidated financial data set forth below for the
years ended December 31, 1993, 1994 and 1995 have been derived from, and are
qualified by reference to, the audited consolidated financial statements of the
Company included elsewhere in this Prospectus. The summary historical
consolidated financial data set forth below for the three months ended March
31, 1995 and 1996 have been derived from the unaudited consolidated financial
statements of the Company, which, in the opinion of the Company, reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation. Results for the three months ended March 31, 1996 are not
necessarily indicative of results for the full year. The summary historical
consolidated and unaudited pro forma financial data set forth below should be
read in conjunction with, and are qualified by reference to, "Selected
Historical Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Unaudited Pro Forma
Financial Data" and the audited consolidated financial statements and
accompanying notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------- -----------------------------------
HISTORICAL HISTORICAL
------------------------------ -----------------
PRO FORMA PRO FORMA
1993 1994 1995 1995(1) 1995 1996 1996(2)
-------- -------- -------- --------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA(3)(4)(5):
Net sales............... $104,277 $120,443 $259,341 $617,167 $47,691 $121,418 $149,735
Cost of sales(6)........ 88,491 113,394 211,814 481,804 42,394 97,889 121,245
-------- -------- -------- -------- ------- -------- --------
Gross profit............ 15,786 7,049(6) 47,527 135,363 5,297 23,529 28,490
Selling, general and
administrative
expenses............... 10,765 10,615 18,545 74,678(7) 2,749 11,026 14,493(7)
Non-recurring
compensation
charge(8).............. -- -- 27,632 3,367 -- --
-------- -------- -------- -------- ------- -------- --------
Income (loss) from
operations............. 5,021 (3,566) 1,350 57,318 2,548 12,503 13,997
Interest expense........ 3,320 4,560 13,657 30,953 1,656 12,542 7,738
Other (income) expense.. (167) (90) (735) (642) (65) (269) (265)
-------- -------- -------- -------- ------- -------- --------
Income (loss) before
income taxes........... 1,868 (8,036) (11,572) 27,007 957 230 6,524
Provision for (benefit
from) income taxes..... 64 (488) (6,538) 9,814 366 102 2,596
-------- -------- -------- -------- ------- -------- --------
Income (loss) before
extraordinary item..... 1,804 (7,548) (5,034) 17,193 591 128 3,928
Extraordinary loss from
extinguishment of debt,
net of income tax
benefit................ -- -- (9,652) -- -- -- --
-------- -------- -------- -------- ------- -------- --------
Net income (loss)....... $ 1,804 $ (7,548) $(14,686) $ 17,193 $ 591 $ 128 $ 3,928
======== ======== ======== ======== ======= ======== ========
Pro forma earnings
(loss) per share(9).... $ (.95) $ .59 $ .01 $ .14
======== ======== ======== ========
Pro forma weighted
average number of
common shares and
common share
equivalents
outstanding(9)......... 15,540 29,063 16,562 29,063
======== ======== ======== ========
OTHER DATA:
Depreciation and
amortization........... $ 159 $ 942 $ 4,248 $ 17,982 $ 528 $ 3,020 $ 3,803
Capital expenditures.... 1,656 942 5,640 13,688 2,530 2,321 3,087
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED(10)
-------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................... $109,238 $114,799
Total assets......................................... 500,794 541,933
Long-term debt, less current maturities(11).......... 440,453 319,295
Stockholders' equity (deficit)(12)................... (66,293) 100,650
</TABLE>
(footnotes on next page)

9
<PAGE>

(1) The summary unaudited pro forma income statement and other data for the
year ended December 31, 1995 give pro forma effect, in the manner
described under "Unaudited Pro Forma Financial Data" and the notes
thereto, to: (i) the Transactions, (ii) the Globe-Weis Acquisition (as
defined), (iii) the pending disposal of the Personalizing Division, (iv)
the transactions described under "The Recapitalization," (v) refinancing
of the Bank Credit Agreement, (vi) the Niagara Acquisition and (vii) the
Offering (assuming an initial public offering price of $16.00 per share)
and the application of the net proceeds therefrom as described under "Use
of Proceeds," as if each had occurred on January 1, 1995. The summary pro
forma income statement data and other data do not (i) purport to represent
what the Company's results of operations actually would have been if the
foregoing transactions had actually occurred as of such date or what such
results will be for any future periods or (ii) give effect to certain non-
recurring charges expected to result from items (i), (v) and (vii) above,
including certain non-cash compensation charges directly related to the
Acquisition and an extraordinary charge for the write-off of deferred
financing fees and direct expenses to retire and refinance existing
Company debt. The final allocation of purchase price and the resulting
amortization expense in the income statement data may differ somewhat from
the preliminary estimates for the reasons described in more detail in
"Unaudited Pro Forma Financial Data" and in Note 3 of the Notes to
Consolidated Financial Statements of the Company.
(2) The summary unaudited pro forma income statement and other data for the
three months ended March 31, 1996 give pro forma effect, in the manner
described under "Unaudited Pro Forma Financial Data" and the notes
thereto, to: (i) the pending disposal of the Personalizing Division, (ii)
the transactions described under "The Recapitalization," (iii) refinancing
of the Bank Credit Agreement, (iv) the Niagara Acquisition and (v) the
Offering (assuming an initial public offering price of $16.00 per share)
and the application of the net proceeds therefrom as described under "Use
of Proceeds," as if each had occurred on January 1, 1996.
(3) Effective July 5, 1994, the Company acquired the assets and assumed
certain liabilities of SCM Office Supplies, Inc. (the "SCM Acquisition").
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results have been included with
the Company's results since the date of acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 3 of the Notes to Consolidated Financial Statements of the
Company included herein.
(4) Effective August 16, 1995, the Company acquired the inventories and
certain equipment of the file folder and hanging file product lines of the
Globe-Weis office products division ("Globe-Weis") of Atapco (as defined)
(the "Globe-Weis Acquisition"). The acquisition has been accounted for
under the purchase method of accounting and, accordingly, the operating
results have been included in the Company's results since the date of
acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," Note 3 of the Notes to Consolidated
Financial Statements of the Company and the audited statements of Net
Sales and Cost of Sales of Globe-Weis included herein.
(5) Effective October 31, 1995, the Company acquired Williamhouse in the
Acquisition. The Acquisition has been accounted for under the purchase
method of accounting and accordingly, the operating results of
Williamhouse, except for the Personalizing Division, for the two-month
period ended December 31, 1995 have been included in the Company's results
for the year ended December 31, 1995. The Personalizing Division was held
for sale at December 31, 1995 and March 31, 1996. As such, the operating
results of the Personalizing Division are excluded from the results of
operations for the two-month period ended December 31, 1995 (period
subsequent to the Acquisition) and the three months ended March 31, 1996.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," Note 3 of the Notes of Consolidated Financial
Statements of the Company and the audited financial statements of
Williamhouse included herein.
(6) Inventory cost is determined using the last-in, first-out ("LIFO") method
of valuation. Gross profit in the fourth quarter of 1994 was adversely
impacted by a significant increase in paper prices, resulting in a $5.4
million charge for LIFO in advance of the Company's raising selling prices
in the first quarter of 1995. Beginning in January 1995, the Company
adopted new pricing policies enabling it to set product prices consistent
with the Company's cost of paper at the time of shipment. The Company
believes that it is now able to price its products so as to minimize the
impact of price volatility on dollar margins. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
(7) Includes charges under a one-year consulting services agreement to be
entered into in connection with the Niagara Acquisition of $5.0 million
and $1.25 million for the year ended December 31, 1995 and the three
months ended March 31, 1996, respectively.
(8) Includes non-cash stock option compensation charges of $24.3 million
directly related to the Acquisition as well as other non-recurring cash
and non-cash charges aggregating $3.3 million. See Note 9 of Notes to
Consolidated Financial Statements of the Company included herein.
(9) Pro forma earnings (loss) per common share and pro forma weighted average
number of shares and share equivalents outstanding have been adjusted to
give effect to (i) a 8.1192-for-one stock split of all existing Common
Stock and Common Stock equivalents and (ii) the conversion of all shares
of Preferred Stock and Preferred Stock equivalents into shares of Common
Stock and Common Stock equivalents at the assumed offering price per share
to the public. Common Stock equivalents were determined using the treasury
stock method.
(10) The unaudited "Pro Forma As Adjusted" balance sheet data at March 31,
1996 gives pro forma effect to (i) the transactions described under "The
Recapitalization," (ii) the refinancing of the Bank Credit Agreement,
(iii) the Niagara Acquisition and (iv) the sale by the Company of
12,500,000 shares of Common Stock pursuant to the Offering, assuming an
initial public offering price of $16.00 per share and the application of
the estimated net proceeds to the Company therefrom as described under
"Use of Proceeds," as if each had occurred on such date. See "Unaudited
Pro Forma Financial Data."
(11) Does not reflect the expected repayment of debt from the estimated
proceeds from the sale of the Personalizing Division.
(12) Includes $4.5 million to pay the liquidation preference, including the
return of original cost, of the Company's Class P Common Stock and $70.6
million to redeem a portion of its Preferred Stock. See "Dividend Policy."

10
<PAGE>

RISK FACTORS

Prospective investors should consider carefully the following factors, in
addition to the other information contained in this Prospectus, in evaluating
an investment in the shares of Common Stock offered hereby.

RISKS ASSOCIATED WITH SUBSTANTIAL INDEBTEDNESS

Following the Offering, the Company will continue to have substantial
indebtedness. Subject to the restrictions in the Bank Credit Agreement and the
indenture under which the Notes were issued (the "Indenture"), the Company may
incur additional indebtedness from time to time to finance acquisitions or
capital expenditures or for other purposes. The level of the Company's
indebtedness could have important consequences, given that (i) a substantial
portion of the Company's cash flow from operations must be dedicated to debt
service and will not be available for other purposes, (ii) the Company's
ability to obtain additional debt financing in the future for working capital,
capital expenditures or acquisitions may be limited and (iii) the Company's
level of indebtedness could limit its flexibility in reacting to changes in
the industry and conditions generally. Certain of the Company's competitors
currently operate on a less leveraged basis and have significantly greater
operating and financing flexibility than the Company.

The Company's ability to service its indebtedness will be dependent on its
future performance, which will be affected by prevailing economic conditions
and financial, business and other factors, certain of which are beyond the
Company's control. The Company believes that, based upon current levels of
operations, it should be able to meet its debt service obligations when due.
If, however, the Company were unable to service its indebtedness, it would be
forced to pursue one or more alternative strategies such as selling assets,
restructuring or refinancing its indebtedness or seeking additional equity
capital (which may substantially dilute the ownership interest of holders of
Common Stock). There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

The Bank Credit Agreement and the terms of the Indenture impose certain
operating and financial restrictions on the Company's ability to (i) incur
additional debt, (ii) pay dividends, (iii) transact business with its
affiliates, (iv) sell assets, merge or consolidate, (v) prepay other
indebtedness, (vi) create liens and encumbrances and (vii) other restrictions
customarily found in such agreements. Contemporaneously with the Offering, the
Company intends to refinance its existing indebtedness under the Bank Credit
Agreement with a new senior credit facility (the "New Bank Credit Agreement").
The Company anticipates that the New Bank Credit Agreement will impose
operating and financial restrictions on the Company similar to those contained
in the Bank Credit Agreement. A failure to comply with the obligations in the
Bank Credit Agreement, the New Bank Credit Agreement or the Indenture, as the
case may be, could result in an event of default under such agreements, which,
if not cured or waived, could permit acceleration of the indebtedness
thereunder and acceleration of indebtedness under other instruments that may
contain cross-acceleration or cross-default provisions which could have a
material adverse effect on the Company. See "Description of Certain
Indebtedness."

RISKS RELATING TO ACQUISITION STRATEGY

The Company expects to continue its strategy of identifying and acquiring
companies or assets that would enable the Company to offer complementary
product lines and that management considers likely to enhance the Company's
operations and profitability. In furtherance of this strategy, the Company
executed a definitive agreement to acquire Niagara on May 29, 1996. The
completion of the Niagara Acquisition is subject to certain conditions. While
the Company expects the Niagara Acquisition will be completed, no assurance
can be given that such conditions will be satisfied. In addition, there can be
no assurance that the Company will continue to acquire businesses or assets on
satisfactory terms or that any business or assets acquired by the Company will
be integrated successfully into the Company's operations or be able to operate
profitably.

11
<PAGE>

RISKS ASSOCIATED WITH FLUCTUATIONS IN PAPER COSTS

The Company's principal raw material is paper. While paper prices have
increased by an average of less than 1% annually since 1989, certain commodity
grades have shown considerable price volatility during that period. This
volatility negatively impacted the Company's earnings in 1994, particularly in
the fourth quarter, as a result of the Company's inability to implement price
changes in many of its product lines without giving its customers advance
notification. Beginning in January 1995, the Company adopted new pricing
policies enabling it to set product prices consistent with the Company's cost
of paper at the time of shipment. To date, such policies have been accepted by
customers; however, no assurance can be given that the Company will continue
to be successful in maintaining such pricing policies or that future price
fluctuations in the price of paper will not have a material adverse effect on
the Company. Fluctuation in paper prices can have an effect on quarterly
comparisons of the results of operations and financial condition of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Result of Operations--Overview."

SUPPLIER RELATIONSHIPS

The Company has strong relationships with most of the country's largest
paper mills, many of which have been doing business with the Company for more
than 30 years. The Company is one of the largest purchasers of the principal
paper grades used in its manufacturing operations. In addition, the Company
has the largest number of designated mill relationships which involve some of
the largest and most recognized paper mill brands such as Hammermill, Hopper,
Neenah and Strathmore. These relationships afford the Company certain paper
purchasing advantages, including stable supply and favorable pricing
arrangements. While these relationships are stable, all but one of the
designated manufacturer arrangements are oral and terminable at will at the
option of either party. There can be no assurance that any of the supplier or
designated manufacturer relationships will not be terminated in the future.
While the Company has been able to obtain sufficient paper supplies during
recent paper shortages and otherwise, the Company is subject to the risk that
it will be unable to purchase sufficient quantities of paper to meet its
production requirements during times of tight supply. An interruption in the
Company's supply of paper could have a material adverse effect on the
Company's business. See "Business--Products and Services" and "Industry--
Distribution."

DEPENDENCE UPON SIGNIFICANT CUSTOMERS

The Company's aggregate net sales to Sam's Warehouse Club/Wal-Mart and
Office Depot accounted for approximately 14.8% and 12.7% of the Company's net
sales for 1995, respectively. The Company's top five customers accounted for
approximately 50.3% of its net sales in 1995 (32.0% on a pro forma basis). A
significant decrease or interruption in business from Sam's Warehouse
Club/Wal-Mart or Office Depot or from any other of the Company's significant
customers could have a material adverse effect on the Company. See "Business--
Sales, Distribution and Marketing."

INFLUENCE OF CERTAIN STOCKHOLDERS

Upon completion of the Offering (assuming an initial public offering price
of $16.00 per share), certain members of senior management and Bain Capital
and its related investors will beneficially own approximately 41.1% of the
outstanding Common Stock (approximately 32.6% if the U.S. Underwriters' over-
allotment option is exercised in full). By virtue of such stock ownership,
these stockholders will continue to have significant influence over all
matters submitted to a vote of the holders of Common Stock, including the
election of directors, amendments to the Company's Restated Certificate of
Incorporation and By-laws and approval of significant corporate transactions,
following the Offering. See "Description of Capital Stock." Such concentration
of ownership could also have the effect of delaying, deterring or preventing a
change in control of the Company that might otherwise be beneficial to
stockholders. See "Principal and Selling Stockholders."

COMPETITION

The paper-based office products market is highly competitive. The Company
competes with other national and local manufacturers in many product segments.
Certain of the Company's principal competitors are less

12
<PAGE>

highly-leveraged than the Company and may be better able to withstand volatile
market conditions within the paper industry. There can be no assurance that
the Company will not encounter increased competition in the future, which
could have a material adverse effect on the Company's business. See
"Business--Competition."

DEPENDENCE ON KEY EXECUTIVES

The Company is dependent to a large degree on the services of its senior
management team and there can be no assurance that such individuals will
remain with the Company. The loss of any of these individuals could have a
material adverse effect on the Company. The Company has recently entered into
three-year employment agreements with its Chief Executive Officer and Chief
Operating Officer. Upon completion of the Offering (assuming an initial public
offering price of $16.00 per share), the Company's senior management team will
collectively own 865,516 shares of Common Stock (438,427 shares if the U.S.
Underwriters' over-allotment is exercised in full) and hold currently
exercisable options to purchase 2,156,000 shares of Common Stock, representing
on a fully-diluted basis approximately 10.3% of the outstanding Common Stock
(8.9% if the U.S. Underwriters' over-allotment is exercised in full). See
"Management."

IMPACT OF ENVIRONMENTAL REGULATION

The Company is subject to the requirements of federal, state, and local
environmental and occupational health and safety laws and regulations. There
can be no assurance that the Company is at all times in complete compliance
with all such requirements. The Company has made and will continue to make
capital and other expenditures to comply with environmental requirements. As
is the case with manufacturers in general, if a release of hazardous
substances occurs on or from the Company's properties or any associated
offsite disposal location, or if contamination from prior activities is
discovered at any of the Company's properties, the Company may be held liable
and the amount of such liability could be material. The Company's Ampad
division has been named a potentially responsible party for cleanup costs
under the federal Comprehensive Environmental Response, Compensation and
Liability Act at five waste disposal sites and is aware that Niagara has been
named as a potentially responsible party at one site. See "Business--
Environmental, Health and Safety Matters."

DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS

The Company currently intends to retain earnings to support its growth
strategy and reduce indebtedness and does not anticipate paying dividends in
the foreseeable future. As a holding company, the ability of the Company to
pay dividends in the future is dependent upon the receipt of dividends or
other payments from its principal operating subsidiary, American Pad & Paper
Company of Delaware, Inc. ("APPC"). The payment of dividends by APPC to the
Company for the purpose of paying dividends to holders of Common Stock is
prohibited by the Bank Credit Agreement and is restricted under the Indenture.
The Company expects that the New Bank Credit Agreement will likewise restrict
the payment of dividends by APPC to the Company for such purpose. See
"Dividend Policy."

ABSENCE OF PRIOR PUBLIC MARKET; SUBSTANTIAL DILUTION

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock will be determined by
negotiations among the Company, the Selling Stockholders and the
Representatives and may not be indicative of the market price for shares of
the Common Stock after the Offering. For a description of factors considered
in determining the initial public offering price, see "Underwriters." There
can be no assurance that an active trading market for the Common Stock will
develop or if developed, that such market will be sustained. The market price
for shares of the Common Stock may be significantly affected by such factors
as quarter-to-quarter variations in the Company's results of operations, news
announcements or changes in general market conditions. In addition, broad
market fluctuations and general economic and political conditions may
adversely affect the market price of the Common Stock, regardless of the
Company's actual performance. Purchasers of the Common Stock in the Offering
will be subject to immediate and substantial dilution. See "Dilution."

13
<PAGE>

POTENTIAL ADVERSE IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering (assuming an initial public offering price
of $16.00 per share), the Company expects to have 26,925,272 shares of Common
Stock outstanding. Of these shares, the 15,625,000 shares of Common Stock
(17,968,750 shares if the U.S. Underwriters' over-allotment option is
exercised in full) sold in the Offering will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the "Securities
Act"), except any such shares which may be acquired by an "affiliate" of the
Company. Subject to certain 180-day "lock up" agreements described herein,
approximately 11,300,272 shares of Common Stock will be eligible for sale in
the public market, subject to compliance with the resale volume limitations
and other restrictions of Rule 144 under the Securities Act, beginning 90 days
after the date of this Prospectus. Beginning 180 days after the completion of
the Offering, the holders of an aggregate of approximately 11,078,256 shares
of Common Stock will have certain rights to register their shares of Common
Stock under the Securities Act at the Company's expense. Future sales of the
shares of Common Stock held by existing stockholders could have an adverse
effect on the price of the Common Stock. See "Shares Eligible for Future
Sale."

CERTAIN ANTI-TAKEOVER EFFECTS

Certain provisions of the Company's Restated Certificate of Incorporation
and By-laws may inhibit changes in control of the Company not approved by the
Company's Board of Directors. These provisions include (i) a classified Board
of Directors, (ii) a prohibition on stockholder action through written
consents, (iii) a requirement that special meetings of stockholders be called
only by the Board or the Chief Executive Officer, (iv) advance notice
requirements for stockholder proposals and nominations, (v) limitations on the
ability of stockholders to amend, alter or repeal the Company's By-laws and
(vi) the authority of the Board to issue without stockholder approval
preferred stock with such terms as the Board may determine. The Company will
also be afforded the protections of Section 203 of the Delaware General
Corporation Law, which could have similar effects. See "Description of Capital
Stock."

In addition, the Indenture provides that upon a "change of control," each
Note holder will have the right to require the Company to purchase all or a
portion of such holder's Notes at a purchase price of 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of such redemption. Such obligation, if it arose, could have a material
adverse effect on the Company. Such provision could delay, deter or prevent a
takeover attempt. See "Description of Certain Indebtedness--Notes."

14
<PAGE>

THE COMPANY

Established in 1888, the Company's Ampad division has been a leading
supplier of pads and other paper-based writing products throughout its
history. The Company is one of the largest manufacturers and marketers of all
paper-based office products (excluding computer forms and copy paper) in the
$60 billion to $70 billion North American office products industry. The
Company offers a broad product line including writing pads, file folders,
envelopes and other office products. Through its Ampad division, the Company
is among the largest and most important suppliers of pads and other paper-
based writing products, filing supplies and envelopes to many of the largest
and fastest growing office products distributors. Acquired in October 1995,
the Company's Williamhouse division is the leading supplier of mill branded,
specialty and commodity envelopes to paper merchants/distributors. The Company
maintains several nationally-recognized brand names such as Ampad, Century,
Embassy, Evidence, Gold Fibre, Huxley, Karolton, Kent, Peel & Seel, SCM,
Williamhouse and World Fibre. The Company's strategy is to grow by focusing on
the largest and fastest growing office product distribution channels,
acquiring and introducing new product lines, broadening product distribution
across its channels and maintaining its position among the lowest-cost
manufacturers in the industry.

From 1986 to 1992, Ampad operated as a subsidiary of Mead. On July 31, 1992,
the Company acquired Ampad from Mead in an acquisition led by Bain Capital and
senior management. Since the acquisition, new management has enhanced the
Company's scale, broadened its product line, expanded upon its national
presence and strengthened its distribution capabilities through acquisition
and innovation while simultaneously delivering higher customer service levels.
In July 1994, the Company acquired the assets and assumed certain liabilities
of SCM, one of the industry leaders in hanging files and writing products. In
August 1995, the Company acquired the file folder and file product lines of
American Trading and Production Corporation's ("Atapco") Globe-Weis office
products division. Prior to the acquisition, Atapco was one of the leading
providers of file folders and hanging files to office product superstores. The
acquisitions of the SCM and Globe-Weis product lines further strengthened the
Company's position in the filing supplies and writing products categories.

In October 1995, the Company acquired Williamhouse for an aggregate purchase
price (including assumption of debt of approximately $152.9 million) of
approximately $300.0 million, plus reimbursement of certain expenses. In
connection with the Acquisition, the Company (i) refinanced an aggregate of
approximately $119.1 million of combined indebtedness of the Company and
Williamhouse, (ii) purchased for $109.0 million in cash all of the Old
Debentures, together with accrued interest thereon of $5.3 million, (iii)
declared a stock dividend of $200 million in aggregate liquidation value of
Preferred Stock and subsequently redeemed approximately $70.6 million of such
Preferred Stock and declared a $4.5 million cash dividend on its Class P
Common Stock, (iv) paid approximately $34.2 million in related fees and
expenses and (v) used approximately $3.4 million for working capital purposes.
To finance the Acquisition and these related transactions, the Company's
principal operating subsidiary (i) incurred borrowings under the Bank Credit
Agreement of approximately $245.0 million, (ii) issued Notes in the aggregate
principal amount of $200.0 million and (iii) received approximately $45.0
million from the establishment of the Accounts Receivable Facility.

The Company's principal executive offices are located at 17304 Preston Road,
Suite 700, Dallas, Texas 75252 and its telephone number is (214) 733-6200.

USE OF PROCEEDS

The net proceeds to the Company from the Offering (after deducting
applicable underwriting discounts and estimated expenses payable by the
Company) are estimated to be approximately $187 million (assuming an initial
public offering price of $16.00 per share). The Company intends to use such
net proceeds to (i) repay

15
<PAGE>

approximately $107 million of the indebtedness incurred under the Bank Credit
Agreement, (ii) allow APPC to redeem approximately $70 million aggregate
principal amount of Notes outstanding, (iii) allow APPC to pay approximately
$8 million in redemption premiums on the Notes and (iv) pay Bain Capital a fee
of approximately $2 million in connection with the Offering. See "Certain
Relationships and Related Transactions--Management Advisory Agreement." The
Company expects that the reduction in indebtedness from the application of
such net proceeds will enhance its ability to make future acquisitions.

The indebtedness to be repaid under the Bank Credit Agreement consists of
multi-tranche term loans (the "Term Loans") with principal payments scheduled
in varying amounts from 1996 through 2004. Such Term Loans bear interest at
varying rates based, at the Company's option, on either the Eurodollar Rate
(as defined in the Bank Credit Agreement) plus 275 to 400 basis points or the
bank base rate (as defined in the Bank Credit Agreement) plus 175 to 300 basis
points. The applicable basis points vary per tranche. The overall effective
interest rate for such indebtedness at March 31, 1996 was 9.0%. See
"Description of Certain Indebtedness--Bank Credit Agreement."

The Notes are scheduled to mature on November 15, 2005 and bear interest at
13.0% per annum, payable semi-annually in cash on May 15 and November 15 of
each year. The Company used borrowings under the Bank Credit Agreement to pay
the cash portion of the purchase price of Williamhouse and the net proceeds
from the sale of the Notes to (i) repurchase the Old Debentures of
Williamhouse, (ii) to redeem a portion of the Preferred Stock, (iii) to pay a
cash dividend on the Class P Common Stock, (iv) to pay related fees and
expenses and (v) to provide for working capital. See "Description of Certain
Indebtedness--Description of Notes."

In connection with the Offering, the Company expects to refinance its
remaining indebtedness under the Bank Credit Agreement after the application
of the net proceeds of the Offering as described above. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Certain Indebtedness--New
Bank Credit Agreement."

The Company will not receive any of the proceeds from the sale of 3,125,000
shares of Common Stock by the Selling Stockholders.

DIVIDEND POLICY

Except as described below, the Company has not declared or paid any cash or
other dividends on its Common Stock and does not expect to pay dividends for
the foreseeable future. Instead, the Company currently intends to retain
earnings to support its growth strategy and reduce indebtedness. As a holding
company, the ability of the Company to pay dividends in the future is
dependent upon the receipt of dividends or other payments from its principal
operating subsidiary, APPC. The payment of dividends by APPC to the Company
for purposes of paying dividends to holders of Common Stock is prohibited by
the Bank Credit Agreement and restricted by the Indenture. The Company
anticipates that the New Bank Credit Agreement will likewise prohibit the
payment of dividends by APPC to the Company for such purpose. Any future
determination to pay dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other factors, the Company's
results of operations, financial condition, capital requirements and
contractual restrictions. See "Risk Factors--Dividend Policy; Restrictions on
Payment of Dividends" and "Description of Certain Indebtedness."

In October 1995, the Company declared a stock dividend on its outstanding
capital stock of one share of Preferred Stock for each ten shares of Class P
Common Stock and Common Stock (the "Preferred Stock Dividend"). In December
1995, the Company paid a cash dividend on its then outstanding Class P Common
Stock equal to approximately $6.11 per share (after giving effect to the
Recapitalization). Immediately thereafter, all outstanding shares of Class P
Common Stock were converted on a share-for-share basis into shares of existing
Common Stock. Prior to such conversion, the Class P Common Stock was entitled
to a preferential payment upon any distribution by the Company to its holders
of capital stock (whether by dividend, liquidating distribution or otherwise)
equal to the original cost of such shares plus an amount which accrued on a
daily basis at a rate of 15.0% per annum on such cost and the amount so
accrued in prior quarters (the "Preference Amount"). The cash dividend
returned such Preference Amount to the holders of the Class P Common Stock.

16
<PAGE>

THE RECAPITALIZATION

Prior to the Offering, the Company had two classes of issued and outstanding
stock, the Preferred Stock and the Common Stock. See "Description of Capital
Stock." The Preferred Stock has a liquidation value of $1,948.50 per share and
was issued by the Company in October 1995 in the form of a dividend to the
then-existing stockholders of the Company. Prior to the completion of the
Offering, an 8.1192-for-one stock split will be effected as to all of the then
outstanding shares of Common Stock and Common Stock equivalents and all of the
outstanding Preferred Stock and Preferred Stock equivalents will be converted
into shares of Common Stock (collectively, the "Recapitalization"). Each share
of Preferred Stock will be converted into a number of shares of Common Stock
determined by dividing the per share liquidation value of the Preferred Stock
by the initial public offering price of the Common Stock in the Offering.
Based on an assumed initial public offering price of $16.00 per share, an
aggregate of 7,118,002 shares of Common Stock will be issued as a result of
the as a result of the conversion of the Preferred Stock in the
Recapitalization. After giving effect to the Recapitalization, the Company
will have an aggregate of 14,425,272 shares of outstanding Common Stock prior
to the Offering. In addition, all outstanding options for Preferred Stock and
Common Stock held by members of senior management will be converted into
options for Common Stock based upon the initial public offering price and the
exercise price thereof will be adjusted so as to maintain such holder's
economic value. See "Management--Stock Options." Fractional shares otherwise
issuable as a result of the Recapitalization will be rounded to the nearest
whole number. No consideration will be paid for in lieu of fractions that are
rounded down.

17
<PAGE>

CAPITALIZATION

The following table sets forth at March 31, 1996, (i) the actual
capitalization of the Company and (ii) the pro forma capitalization of the
Company after giving effect to (a) the Recapitalization, (b) the refinancing
of the Bank Credit Agreement and (c) the Niagara Acquisition, and as adjusted
to reflect the sale by the Company of 12,500,000 shares of Common Stock
pursuant to the Offering, assuming an initial public offering price of $16.00
per share, and the application of the net proceeds therefrom as described
under "Use of Proceeds." This table should be read in conjunction with
"Selected Historical Consolidated Financial Data" and "Unaudited Pro Forma
Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt......... $ 13,066 $ 2,116 (1)
=========== ===========
Long-term debt, net of current maturities:
Revolving credit facility................... -- 176,867 (1)(2)
Term loans.................................. 231,625 -- (1)
IRBs and other indebtedness................. 8,828 12,428 (3)
Notes....................................... 200,000 130,000 (4)
----------- -----------
Total long-term debt...................... 440,453 319,295
----------- -----------
Stockholders' equity (5):
Preferred Stock, $0.01 par value, 150,000
shares authorized; 58,449 shares issued on
an actual basis; and no shares issued on a
pro forma, as adjusted basis............... 113,887 --
Common Stock, $0.01 par value, 75,000,000
shares authorized; 900,000 shares issued on
an actual basis; 26,925,272 shares issued
on a pro forma, as adjusted basis.......... 9 269
Additional paid-in capital.................. 14,240 313,067
Retained earnings (deficit)................. (194,429) (212,686)(6)
----------- -----------
Total stockholders' equity (deficit)...... (66,293) 100,650
----------- -----------
Total capitalization.................... $ 374,160 $ 419,945
=========== ===========
</TABLE>
- --------
(1) Reflects (i) the use of approximately $107,500 of the net proceeds to the
Company to repay borrowings on the Term Loans under the Bank Credit
Agreement after reclassification of $11,250 of current maturities of Term
Loans to long-term debt and to pay certain expenses associated with, and
funded from, the bank refinancing, (ii) use of approximately $135,375 of
proceeds to the Company under the New Bank Credit Agreement to repay
borrowings on the Term Loans under the Bank Credit Agreement, (iii)
additional borrowings of $32,992 under the New Bank Credit Agreement to
partially fund the Niagara Acquisition and (iv) additional borrowings of
$8,500 to fund debt issuance costs and other expenses related thereto.
(2) Does not reflect the expected repayment of debt from the estimated
proceeds from the sale of the Personalizing Division.
(3) Reflects debt to be assumed in the Niagara Acquisition of $3,900, less the
current portion of $300.
(4) Reflects the use of $70,000 of the net proceeds to the Company to
partially redeem the Notes.
(5) Does not include 2,156,000 shares of Common Stock reserved for issuance
upon the exercise of options outstanding as of June 5, 1996 or 2,100,000
shares of Common Stock reserved for issuance under the 1996 Stock Plan,
the Non-Employee Director Plan and the Management Stock Purchase Plan. See
"Management--Stock Options."
(6) Includes an after-tax extraordinary loss of approximately $18.3 million
($30.4 million pretax) related to writeoff of deferred financing costs
from the repayment of debt and payment of the $7.7 million call premium on
the partial redemption of the Notes with the net proceeds to the Company.

18
<PAGE>

DILUTION

The following table presents certain information concerning the pro forma
net tangible book value per share of Common Stock as of March 31, 1996,
assuming the consummation of the Recapitalization and the Niagara Acquisition,
and as adjusted to reflect the sale of 12,500,000 shares of Common Stock by
the Company in the Offering, at an assumed initial public offering price of
$16.00 per share, after deducting the estimated offering expenses and
underwriting discounts and commissions:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $ 16.00
Pro forma net tangible book value per share before the
Offering(1)............................................. $(17.81)
Increase per share attributable to payments by new
investors............................................... $ 14.47
Adjusted pro forma net tangible book value per share
after the Offering...................................... $ (3.34)
-------
Dilution per share to new investors(2)................... $(19.34)
=======
</TABLE>
- --------
(1) Net tangible book value per share of Common Stock is determined by
dividing the Company's pro forma tangible net worth at March 31, 1996 of
$(256.8) million by the aggregate number of shares of Common Stock
outstanding.
(2) Dilution is determined by subtracting net tangible book value per share
after the Offering from the initial public offering price per share.

The following table summarizes, on a pro forma basis, as of March 31, 1996,
the difference between the existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased (or to be purchased)
from the Company, the total consideration paid (or to be paid) and the average
price per share paid (or to be paid) by the existing stockholders and new
investors, at an assumed initial public offering price of $16.00 per share,
before deducting the estimated offering expenses and underwriting discounts
and commissions:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..... 14,425,272 54% $ 3,130,000 2% $ .22
New investors(2)............. 12,500,000 46 200,000,000 98% 16.00
---------- --- ------------ ---
Total...................... 26,925,272 100% $203,130,000 100%
========== === ============ ===
</TABLE>
- --------
(1) Does not include 2,156,000 shares of Common Stock reserved for issuance
upon the exercise of options outstanding as of June 5, 1996 or 2,100,000
shares of Common Stock reserved for issuance under the 1996 Stock Plan,
the Non-Employee Director Plan and the Management Stock Purchase Plan. See
"Management--Stock Options."
(2) Sales of Common Stock by the Selling Stockholders in the Offering will
reduce the number of shares of Common Stock held by existing stockholders
to 11,300,272, or approximately 42% of the total shares of Common Stock
outstanding after the Offering (8,956,522 shares, or approximately 33% if
the U.S. Underwriters' over-allotment option is exercised in full), and
will increase the number of shares held by new investors to 15,625,000, or
approximately 58% of the total shares of Common Stock outstanding after
the Offering (17,968,750 shares, or approximately 67% if the U.S.
Underwriters' over-allotment option is exercised in full). See "Principal
and Selling Stockholders."

19
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The selected historical consolidated financial data set forth below for the
years ended December 31, 1993, 1994 and 1995 have been derived from, and are
qualified by reference to the audited consolidated financial statements of the
Company, included elsewhere in this Prospectus. The selected historical
consolidated financial data set forth for the period August 1, 1992 to
December 31, 1992 have been derived from the Company's audited financial
statements not included in this Prospectus. The selected historical
consolidated financial data set forth below for the three months ended March
31, 1995 and 1996 have been derived from the unaudited consolidated financial
statements of the Company which, in the opinion of the Company, reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation. Results for the three months ended March 31, 1996 are not
necessarily indicative of results for the full year. Effective July 31, 1992,
the Company acquired Ampad (the "Predecessor") from Mead. As such, the
selected historical consolidated financial data set forth below for the period
from January 1, 1992 through July 31, 1992 and the year ended December 31,
1991 have been derived from the Predecessor's unaudited financial statements,
not included herein, and include all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of the results of the Predecessor for such periods. The selected
historical consolidated financial data for the Predecessor are not comparable
in certain respects to the selected historical consolidated financial data of
the Company due to the effects of the acquisition of the assets of the
Predecessor described in the notes hereto. The selected historical
consolidated financial data set forth below should be read in conjunction
with, and is qualified by reference to, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the audited consolidated
financial statements and accompanying notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
-------------------- -----------------------------------------------------------
THREE MONTHS
PERIOD PERIOD YEAR ENDED ENDED
YEAR ENDED FROM FROM DECEMBER 31, MARCH 31,
DECEMBER 31, 1/1/92- 8/1/92- ------------------------------- -----------------
1991 7/31/92 12/31/92 1993 1994 1995 1995 1996
------------ ------- -------- -------- -------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA(1)(2)(3):
Net sales.............. $107,964 $63,238 $43,526 $104,277 $120,443 $ 259,341 $47,691 $121,418
Cost of sales(4)....... 96,959 55,737 37,610 88,491 113,394 211,814 42,394 97,889
-------- ------- ------- -------- -------- --------- ------- --------
Gross profit........... 11,005 7,501 5,916 15,786 7,049(4) 47,527 5,297 23,529
Selling, general and
administrative
expenses.............. 9,466 5,838 4,561 10,765 10,615 18,545 2,749 11,026
Nonrecurring
compensation
charge(5)............. -- -- -- -- -- 27,632 -- --
-------- ------- ------- -------- -------- --------- ------- --------
Income (loss) from
operations............ 1,539 1,663 1,355 5,021 (3,566) 1,350 2,548 12,503
Interest expense....... 2,204 1,337 1,311 3,320 4,560 13,657 1,656 12,542
Other (income)
expense............... (2,820) -- -- (167) (90) (735) (65) (269)
-------- ------- ------- -------- -------- --------- ------- --------
Income (loss) before
income taxes.......... 2,155 326 44 1,868 (8,036) (11,572) 957 230
Provision for (benefit
from) income taxes.... 862 130 33 64 (488) (6,538) 366 102
-------- ------- ------- -------- -------- --------- ------- --------
Income (loss) before
extraordinary item.... 1,293 196 11 1,804 (7,548) (5,034) 591 128
Extraordinary loss from
extinguishment of
debt, net of income
tax benefit........... -- -- -- -- -- (9,652) -- --
-------- ------- ------- -------- -------- --------- ------- --------
Net income (loss)...... $ 1,293 $ 196 $ 11 $ 1,804 $ (7,548) $ (14,686) $ 591 $ 128
======== ======= ======= ======== ======== ========= ======= ========
Pro forma income (loss)
per share(6).......... $ (.95) $ .01
========= ========
Pro forma weighted
average number of
common shares and
common share
equivalents
outstanding(6)........ 15,540 16,562
========= ========
OTHER DATA:
Depreciation and
amortization.......... $ 3,385 $ 1,936 $ 79 $ 159 $ 942 $ 4,248 528 $ 3,020
Capital expenditures... 1,243 647 948 1,656 942 5,640 2,530 2,321
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------ -----------------------------------------------
AS OF AS OF DECEMBER 31, AS OF MARCH 31,
DECEMBER 31, ------------------------------ ---------------
1991 1992 1993 1994 1995 1996
------------ ------ ------ ------ -------- ---------------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........ $22,720 $8,774 $8,248 $1,170 $108,924 $109,238
Total assets........... 65,659 42,305 47,893 68,233 504,356 500,794
Long-term debt, less
current
maturities(7)......... -- 11,301 10,806 19,889 443,794 440,453
Stockholders' equity
(deficit)(8).......... 54,769 3,011 4,815 (2,733) (66,421) (66,293)
</TABLE>
- --------
(1) Effective July 5, 1994, the Company acquired the assets and assumed
certain liabilities of SCM. The acquisition has been accounted for under
the purchase method of accounting and, accordingly, the operating results
have been included with the Company's results since the date of
acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 of the Notes to
Consolidated Financial Statements of the Company included herein.
(2) Effective August 16, 1995, the Company acquired the inventory and certain
equipment of the file folder and hanging file product lines of the Globe-
Weis office products division of Atapco. The acquisition has been
accounted for under the purchase method of accounting and, accordingly,
the operating results have been included in the Company's results since
the date of acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," Note 3 of the Notes to the
Consolidated Financial Statements of the Company and the audited
statements of Net Sales and Cost of Sales of Globe-Weis included herein.
(3) Effective October 31, 1995, the Company acquired Williamhouse in the
Acquisition. The Acquisition has been accounted for under the purchase
method and, accordingly, the operating results of Williamhouse, except for
the Personalizing Division, for the two-month period ended December 31,
1995 have been included in the Company's results for the year ended
December 31, 1995. The Personalizing Division was held for sale at
December 31, 1995. As such, the operating results of the Personalizing
Division are excluded from the results of operations for the two-month
period ended December 31, 1995 (period subsequent to the Acquisition). See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations," Note 3 of the Notes to Consolidated Financial Statements
of the Company and the audited financial statements of Williamhouse
included herein.
(4) Inventory cost is determined using the LIFO method of valuation. Gross
profit in the fourth quarter of 1994 was adversely impacted by a
significant increase in paper prices resulting in a $5.4 million charge
for LIFO in advance of the Company's raising selling prices in the first
quarter of 1995. Beginning in January 1995, the Company adopted new
pricing policies enabling it to set product prices consistent with the
Company's cost of paper at the time of shipment. The Company believes that
it is now able to price its products so as to minimize the impact of price
volatility on dollar margins. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
(5) Includes non-cash stock option compensation charges of $24.3 million
directly related to the Acquisition as well as other non-recurring cash
and non-cash charges aggregating $3.3 million. See Note 9 of the Notes to
Consolidated Financial Statements of the Company included herein.
(6) Pro forma earnings (loss) per share and pro forma weighted average number
of shares and share equivalents outstanding have been adjusted to give
effect to the Recapitalization. Common Stock equivalents have been
determined using the treasury stock method.
(7) Does not reflect the expected repayment of debt with the proceeds from the
sale of the Personalizing Division for the year ended December 31, 1995
and the three months ended March 31, 1996.
(8) For 1995, includes $4.5 million to pay the liquidation preference,
including the return of original cost, of the Company's Class P Common
Stock and $70.6 million to redeem a portion of its Preferred Stock.

21
<PAGE>

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

OVERVIEW

The Company is one of the largest manufacturers and marketers of nationally
branded and private label paper-based office products (excluding computer
forms and copy paper) in the $60 billion to $70 billion North American office
products industry. The Company offers a broad assortment of products including
writing pads, file folders, envelopes and other paper-based products. Through
its Ampad division, the Company is among the largest and most important
suppliers of pads and other paper-based writing products, filing supplies and
envelopes to many of the largest and fastest growing office products
distributors. Through its Williamhouse division, the Company is the leading
supplier of mill branded, specialty and commodity envelopes to paper
merchants/distributors. The Company believes that its future operating results
will not be directly comparable to its historical operating results because of
its strategic acquisitions and the expected cost savings from integration of
the Acquisition. The Company's business has not generally been seasonal in
nature. Certain factors which have affected, and may affect prospectively, the
operating results of the Company are discussed below.

Strategic Acquisitions. On October 31, 1995, the Company acquired
Williamhouse, a leading supplier of envelopes to many of the largest and
fastest growing distributors, for an aggregate purchase price (including
assumption of debt) of approximately $300 million plus reimbursement of
certain expenses to the sellers. On July 5, 1994, the Company acquired the
assets and assumed certain liabilities of SCM, one of the industry leaders in
hanging files and writing products. The aggregate acquisition consideration of
$14.4 million, including fees and expenses, was financed through the
incurrence of bank debt. On August 16, 1995, the Company acquired the file
folder and hanging file product lines of Atapco's Globe-Weis office products
division. Atapco was one of the leading providers of file folders and hanging
files to office products superstores. The aggregate acquisition consideration
of $19.7 million, including fees and expenses, was financed through the
incurrence of bank debt and seller notes. The SCM Acquisition and the Globe-
Weis Acquisition further strengthened the Company's position in the filing
supplies and writing products categories.

On December 20, 1993, Williamhouse acquired the principal assets of
Kimberly-Clark Corporation's Karolton envelope business. The Karolton envelope
business manufactures high quality envelopes made from fine and specialty
grades of paper and Tyvek (R) (a high density polyurethane-based product made
by Du Pont). The aggregate acquisition consideration of $9.6 million was
financed through the incurrence of bank debt. On July 29, 1994, Williamhouse
acquired the giant and X-ray envelope product lines from Huxley Envelope Corp.
The aggregate acquisition consideration of $4.2 million, including a seller
note, was principally financed through the incurrence of bank debt.

Purchase Accounting Effects. The Company's acquisitions have been accounted
for using the purchase accounting method. The Acquisition has currently
affected, and will prospectively affect, the Company's results of operations
in certain significant respects. The aggregate acquisition cost (including
assumption of debt) of approximately $300 million was allocated to the net
assets acquired based on the fair market value of such net assets. The
preliminary allocation of the purchase price resulted in an increase in the
historical book value of certain Williamhouse assets such as property, plant
and equipment and intangible assets, including goodwill, which results, on a
pro forma basis, in incremental annual depreciation and amortization expense
of $7.0 million as of December 31, 1995.

Potential Operating Improvements. The Company has identified and is in the
process of implementing cost reductions in connection with the Acquisition
that are expected to result in approximately $7.4 million of annual cost
savings following the adoption of such measures. In addition, management plans
to implement further identified cost reductions which are expected to improve
operations beyond 1996. The most significant cost reduction actions involve
closing Williamhouse's New York City headquarters, contractual changes in
employee benefit and other insurance plans and the consolidation of sales and
marketing and other administrative functions to eliminate duplicative
functions, sales programs and sales personnel. However, because these
improvements have not yet been fully implemented and Williamhouse's selling,
general and administrative ("SG&A") expenses have historically been a higher
percentage of net sales than those of the Company prior to the Acquisition,
the Company's aggregate SG&A expenses may rise as a percentage of net sales in
the near term.

22
<PAGE>

Sale of Personalizing Division. The Company's management identified the
Personalizing Division of Williamhouse as a nonstrategic asset following the
Acquisition and has decided to pursue its sale. As a result, the financial
statements of the Company included elsewhere in this Prospectus reflect the
Personalizing Division as "Assets held for Sale" as of December 31, 1995 and
March 31, 1996. On June 6, 1996, the Company signed a definitive agreement
with a potential buyer to sell the Personalizing Division. Under the terms of
the agreement, the Company will receive approximately $60 million in gross
proceeds (subject to certain closing adjustments) from the sale of the
Personalizing Division, which it expects to complete by the end of June 1996.
The sales agreement is subject to certain conditions, some of which are
outside the control of the Company. As a result, no assurance can be given
that the proposed sale will be completed or, if completed, will be on the
terms outlined herein.

SCM Work Stoppage. Prior to the consummation of the SCM Acquisition,
management was aware that work rules and associated costs at the SCM plant in
Indiana were less favorable than those at other plants of the Company. As a
result of management's efforts to bring the labor agreement at the Indiana
plant more in line with market labor agreements, a labor strike occurred on
September 1, 1994. Consequently, the Company closed the Indiana plant on
February 15, 1995, and moved the equipment to other facilities operated by the
Company. By July 1995, all machinery and equipment previously operated in
Indiana was available for production in other Company facilities. Accordingly,
the Company does not believe that such plant closure has had an ongoing
material impact on the Company's operations.

Paper Prices. Paper represents a majority of the Company's cost of goods
sold. While paper prices have increased by an average of less than 1% annually
since 1989, certain commodity grades have shown considerable price volatility
during that period. This volatility negatively impacted the Company's earnings
in 1994, particularly in the fourth quarter, as a result of the Company's
inability to implement price changes in many of its product lines without
giving its customers advance notification. Beginning in January 1995, the
Company adopted new pricing policies enabling it to set product prices
consistent with the Company's cost of paper at the time of shipment. The
Company believes that it is now able to price its products so as to minimize
the impact of price volatility on dollar margins. In addition, as a result of
acquisitions and new product introductions, the Company offers a broader and
more diverse product mix which is less susceptible to paper price
fluctuations. See "Risk Factors--Risks Associated with Fluctuations in Paper
Costs."

RESULTS OF OPERATIONS

The following table summarizes the Company's historical results of
operations as a percentage of net sales for the years ended December 31, 1993,
1994, and 1995 and the three month periods ended March 31, 1995 and 1996. The
results of operations for the year ended December 31, 1995 reflect the
historical annual results of the Company and the results of Williamhouse for
the two-month period ended December 31, 1995:

<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------
1993 1994 1995 1995 1996
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ===== =====
Gross profit.................... 15.1 5.9 18.3 11.1 19.4
Selling, general and administra-
tive expenses.................. 10.3 8.9 7.2 5.8 9.1
Non-recurring compensation
charge......................... -- -- 10.6 -- --
------- ------- ------- ----- -----
Income (loss) from operations... 4.8 (3.0) 0.5 5.3 10.3
Interest expense, net........... 3.2 3.8 5.2 3.4 10.3
Other (income) expense.......... (0.2) (0.1) (0.2) (0.1) (0.2)
------- ------- ------- ----- -----
Income (loss) before taxes...... 1.8 (6.7) (4.5) 2.0 0.2
Provision for (benefit from) in-
come taxes..................... 0.1 (0.4) (2.5) 0.8 --
------- ------- ------- ----- -----
Income from continuing opera-
tions before extraordinary
item........................... 1.7 (6.3) (2.0) 1.2 0.2
Extraordinary loss from extin-
guishment of debt, net of in-
come tax benefit............... -- -- (3.7) -- --
------- ------- ------- ----- -----
Net income (loss) from continu-
ing operations................. 1.7% (6.3)% (5.7)% 1.2 % 0.2 %
======= ======= ======= ===== =====
</TABLE>

23
<PAGE>

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995

Net sales for the three months ended March 31, 1996 increased by $73.7
million, or 155%, to $121.4 million from $47.7 million for the three months
ended March 31, 1995. Of this net sales increase, $64.3 million is related to
the Acquisition and $15.9 million is related to the Globe-Weis Acquisition.
Ampad division net sales, exclusive of Globe-Weis, decreased by $6.5 million
in the first quarter of 1996 compared to the unusually strong first quarter of
1995. The strong 1995 first quarter was due to certain of the Company's
customers increasing inventory levels in anticipation of price increases and
supply shortages.

Gross profit for the three months ended March 31, 1996 increased by $18.2
million, or 343%, to $23.5 million from $5.3 million for the three months
ended March 31, 1995. Approximately $15.5 million of the increase in gross
profit is attributable to the Acquisition and $2.0 million is attributable to
the Globe-Weis Acquisition. The gross profit from the Ampad division,
exclusive of Globe-Weis, increased by $.7 million, due to increased gross
margins. Gross profit margin increased to 19.4% for the three months ended
March 31, 1996 from 11.1% for the three months ended March 31, 1995. The
increase in gross profit margin is related to unfavorable inventory valuation
of $2.6 million in the first quarter of 1995 due to rising paper prices. In
addition, the Company's ability to maintain its dollar margins in the first
quarter of 1996 despite a falling price environment led to higher margin
percentages.

SG&A expenses for the three months ended March 31, 1996 increased $8.2
million, or 302%, to $11.0 from $2.8 million for the three months ended March
31, 1995. Approximately $7.3 million of the increase is attributable to the
Acquisition and includes $1.0 million of amortization of goodwill and
intangibles and $.3 million of costs related to the off balance sheet
financing of receivables. The remaining $.9 million of the increase is
attributable to the Ampad division, primarily related to shifting of corporate
activities from the Williamhouse division. As a percentage of net sales, SG&A
expenses increased to 9.1% for the first three months of 1996 from 5.8% in the
comparable period for the prior year as a result of higher SG&A expenses as a
percentage of net sales of the Williamhouse division (11.0% for the period)
compared to the Ampad division (5.6% for the period).

Interest expense for the three months ended March 31, 1996 increased $10.9
million to $12.5 million from $1.6 million for the three months ended March
31, 1995. The increase is attributable primarily to increased borrowings as a
result of the sale of the Notes in December 1995, the Acquisition in October
1995 and the Globe-Weis Acquisition in August 1995.

The income tax provision for the three month period ended March 31, 1996
reflects an effective tax rate of 44.4%, versus an effective tax rate of 38.3%
for the three month period ended March 31, 1995. The increase is attributable
primarily to the nondeductible goodwill amortization resulting from the
Acquisition.

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

Net sales for the year ended December 31, 1995 increased by $138.9 million,
or 115%, to $259.3 million from $120.4 million for the year ended December 31,
1994. Of this net sales increase, $46.6 million, or 33%, is related to the
Acquisition and $29.4 million, or 21%, is related to the Globe-Weis
Acquisition. The remaining increase of $62.9 million, or 46%, is related to
increased net sales in the base business, primarily as a result of price
increases and, to a lesser extent, a change in product mix, partially offset
by a decline in sales through non-strategic channels, particularly independent
dealers. Net sales to independent dealers declined to less than 2% of net
sales in the year ended December 31, 1995, compared to 8.5% in 1994. Net sales
in the emerging channels (national office products superstores, national
contract stationers and mass merchandisers) represented 52.0% of total net
sales (63.4% of Ampad division sales) in the year ended December 31, 1995 as
compared to 45.7% of total net sales (45.7% of Ampad division sales) in the
year ended December 31, 1994.

Gross profit for the year ended December 31, 1995 increased by $40.5
million, or 575%, to $47.5 million, from $7.0 million for the year ended
December 31, 1994. Approximately $13.6 million of the increase in gross

24
<PAGE>

profit is attributable to the Acquisition and an estimated $3.8 million
increase is due to the Globe-Weis Acquisition. The remainder of the increase
in gross profit is due to (i) higher variable margins associated with the
gains in unit sales, product mix and pricing; (ii) lower fixed manufacturing
costs primarily as a result of the SCM plant closure; and (iii) lower rate of
paper price increases in 1995 compared with 1994 and the timing of the
Acquisition, resulting in lower LIFO charges of approximately $2.5 million in
1995. Fixed manufacturing costs as a percentage of net sales declined as a
result of the successful integration of the Globe-Weis manufacturing
operations and the closing of the Indiana facility.

Gross profit margin increased in the year ended December 31, 1995 to 18.3%
from 5.9% in 1994. The increase is principally a result of higher variable
margins, lower fixed manufacturing costs and lower LIFO charges. Excluding
acquisitions, gross profit margin would have increased to 16.4% for the period
ended December 31, 1995.

SG&A expenses for the year ended December 31, 1995 increased by $7.9
million, or 74%, to $18.5 million, from $10.6 million for the year ended
December 31, 1994. Approximately $5.9 million of this increase related to the
Acquisition. The balance of such increase related to higher amortization costs
as a result of the Acquisition and the costs associated with the Accounts
Receivable Facility. SG&A as a percentage of net sales for the year ended
December 31, 1995 decreased to 7.2% from 8.9% in 1994, as a result of higher
revenues and cost efficiencies achieved from the successful integration of SCM
and Globe-Weis operations into the Company's existing sales and administrative
structure, combined with improved control of operating expenses.

The non-recurring compensation charge of $27.6 million for the year ended
December 31, 1995 was primarily the result of the issuance of options for
Preferred Stock granted to existing option holders in order to maintain such
holders' economic value in previously issued options for Common Stock as a
result of the Preferred Stock Dividend and the grant of additional options in
December 1995 at an exercise price below the fair market value at the date of
grant. See Note 9 of the Notes to Consolidated Financial Statements of the
Company included herein.

Income (loss) from operations for the year ended December 31, 1995 increased
by $4.9 million to $1.3 million from ($3.6) million in 1994, for the reasons
stated above. Income (loss) from operations as a percentage of net sales for
the year ended December 31, 1995 increased to .5% from (3.0)% for the year
ended December 31, 1994.

Interest expense for the year ended December 31, 1995 increased $9.1
million, or 198%, to $13.7 million from $4.6 million for the year ended
December 31, 1994. The increase is attributable primarily to increased
borrowings as a result of the Acquisition and the Globe-Weis Acquisition.

Income tax benefit for the year ended December 31, 1995 reflects an
effective tax rate of 46.9%, versus a 6.1% effective tax rate in 1994. The
difference between the effective rate and the statutory rate in 1995 is due to
a reduction in the SFAS No. 109 deferred tax valuation allowance resulting
from improved operating results.

Extraordinary item representing an after tax loss on extinguishment of debt
of $9.6 million ($16.1 million pretax) was recognized as a result of $10.8
million of redemption premiums and prepayment penalties associated with the
repurchase of the Old Debentures and the Company's bank debt and the write off
of $5.3 million of unamortized deferred financing costs in connection with the
redemption of the Old Debentures and the Company's debt refinancings.

Supplemental 1995 Williamhouse Data. Although only two months of
Williamhouse's post-Acquisition results are included in the Company's
consolidated financial statements for the year ended December 31, 1995, the
Company believes that the following combined twelve month unaudited
comparative information is useful in evaluating the expected future
contribution of the Williamhouse division to the Company's results of
operations. Net sales for the year ended December 31, 1995 increased 6.9% to
$265.2 million from $248.0 million for the year ended December 31, 1994. The
increased sales are a result of both increased selling prices on commodity

25
<PAGE>

and mill branded envelopes and increased sales volume of Christmas card
product lines due to product expansion and more aggressive sales efforts.
Gross profit for the year ended December 31, 1995 increased by $7.5 million,
or 10.1%, to $82.0 million from $74.5 million for the year ended December 31,
1994 as a result of higher pricing offset partially by higher costs. Gross
profit margin for the year ended December 31, 1995 increased slightly to 30.9%
from 30.0% for the year ended December 31, 1994, as a result of price
increases on selected products, partially offset by higher raw material costs
for mill branded and commodity paper. SG&A expenses for the year ended
December 31, 1995 increased to $48.0 million as compared to $45.2 million for
the year ended December 31, 1994. EBITDA for the year ended December 31, 1995
increased by $9.4 million, or 23.8%, to $48.9 million from $39.5 million for
the year ended December 31, 1994. EBITDA as a percentage of net sales for the
year ended December 31, 1995 increased to 18.4% from 15.9% for the year ended
December 31, 1994, as a result of the factors discussed above.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Net sales for the year ended December 31, 1994 increased by $16.2 million,
or 15.5%, to $120.4 million from $104.3 million for the year ended December
31, 1993. The net sales increase is related to the SCM Acquisition in July
1994, which contributed $21.0 million through the end of 1994. Excluding the
SCM Acquisition, net sales decreased by $4.8 million as a result of the
discontinuation of the copy paper brokerage business ($10 million), partially
offset by continued sales growth in the emerging distribution channels, which
contributed 45% of sales during 1994 compared to 30% in 1993. Net sales from
SCM operations were negatively affected as a result of the Indiana plant
strike that occurred in the third quarter of 1994. As a result of the work
stoppage at the Indiana plant, sales from that plant were $10.4 million for
the period between September 1, 1994 through December 31, 1994 as compared to
$22.8 million for the same period in 1993.

Gross profit for the year ended December 31, 1994 decreased by $8.8 million,
or 55.7%, to $7.0 million from $15.8 million for the year ended December 31,
1993. Gross profit margins decreased to 5.9% in 1994, from 15.1% in 1993.
Gross profit margin decreased primarily as a result of a $7.0 million
increase, or 5.8%, in the LIFO reserve and delayed implementation of price
changes subsequent to increased raw material paper costs. Management believes
that pricing delays negatively impacted gross profit margin by approximately
2.1%. In addition, as the Company began shifting its customer base to the
emerging channels, it incurred certain non-recurring expenses. Such expenses
were related to removing competitive products from customers' inventory,
revising the Company's packaging and increasing the breadth of products
offered by the Company in those channels. Furthermore, as a result of the work
stoppage at the Indiana plant, gross profit at that plant decreased from $2.4
million for the period between September 1, 1993 and December 31, 1993, to
$(.5) million for the same period in 1994.

SG&A expenses for the year ended December 31, 1994 decreased by $.2 million,
or 1.4%, to $10.6 million from $10.8 million for the year ended December 31,
1993. SG&A as a percentage of net sales in 1994 decreased to 8.9% from 10.3%
in 1993 as a result of management's efforts to successfully integrate SCM's
operations into the Company's existing sales and administrative structure.

Income (loss) from operations for the year ended December 31, 1994 decreased
by $8.6 million to $(3.6) million from $5.0 million for the year ended
December 31, 1993. Income (loss) from operations as a percentage of net sales
decreased to (3.0)% in 1994 from 4.8% in 1993 primarily as a result of the
factors discussed above.

Management believes that the Company's 1994 historical earnings are not
comparable to the ongoing level of operations of the business which now
reflect the full impact of the SCM, Globe-Weis and Williamhouse acquisitions.
A prolonged work stoppage at SCM's Indiana plant (see "--Overview--SCM Work
Stoppage") prevented the Company from operating the acquired assets at full
capacity until 1995. Furthermore, with respect to Globe-Weis, the previous
owner allocated to it corporate and other fixed overhead costs at levels
higher than those allocated to it by the Company. The Company has operated the
Globe-Weis assets profitably since their acquisition. Management believes
Globe-Weis can contribute to improved overall ongoing results as compared to
1994 levels of business. Finally, the Company's former pricing policies
delayed the aligning of the price the Company charged for its products with
the market price for paper.

26
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities for the three months ended March
31, 1996 was $7.6 million compared to a use of cash of $10.3 million for the
three months ended March 31, 1995. The $7.6 million of cash provided in the
first quarter of 1996 was primarily due to an income tax refund of $3.6
million, a decrease in accounts receivable of $7.5 million, partially offset
by a decrease in accounts payable ($.4 million) and accrued expenses ($1.5
million) and an increase in prepaid expenses ($1.1 million). The use of cash
of $10.3 million in the first quarter of 1995 was primarily due to an increase
in accounts receivable ($5.0 million) and inventories ($5.7 million) and a
decrease in accrued expenses ($2.2 million), partially offset by an increase
in accounts payable ($1.7 million).

Net cash provided by operating activities for the year ended December 31,
1995 was $8.3 million compared to $1.9 million used by operations for the year
ended December 31, 1994. The net cash provided for the year ended December 31,
1995 resulted primarily from an increase of $5.0 million in accounts payable,
an increase in accrued expenses of $4.9 million, a decrease in inventories and
increased margins on sales. The increase was partially offset by an increase
in accounts receivable due to increased sales. Cash used by operations for the
years ended December 31, 1994 and 1993 was $1.9 million and $1.7 million,
respectively. The use of cash for the year ended December 31, 1994 was
primarily due to an increase in inventories offset by an increased LIFO charge
due to rising paper prices, and a decrease in accrued expenses, offset by an
increase in accounts payable. The use of cash for the year ended December 31,
1993 resulted from increased inventories offset by an increase in accounts
payable.

Cash used in investing activities for the three months ended March 31, 1996
and 1995 and the years ended December 31, 1995, 1994 and 1993, was $3.0
million, $.7 million, $131.2 million, $14.6 million and $.5 million,
respectively. The use of cash for the three months ended March 31, 1996 and
1995 was primarily due to purchases of property and equipment. The use of cash
for the year ended December 31, 1995, was due to the Acquisition ($122.7
million), the Globe-Weis Acquisition ($7.0 million) and purchase of equipment
($3.9 million). The use of cash for the year ended December 31, 1994, was due
primarily to the SCM Acquisition ($14.4 million). The use of cash for the year
ended December 31, 1993, was due to purchases of equipment offset by proceeds
from the sale of the dated goods products line.

Cash provided by financing activities for the three months ended March 31,
1995 and for the years ended December 31, 1995, 1994 and 1993, was $11.1
million, $144.9 million, $16.5 million and $2.2 million, respectively,
primarily due to periodic financings incurred in connection with the various
acquisitions. Cash used in financing activities for the three months ended
March 31, 1996 was $2.9 million due to repayments of debt, partially offset by
proceeds from the issuance of long-term debt.

Capital expenditures, excluding acquisitions, in the three months ended
March 31, 1996 and the years ended December 31, 1995, 1994 and 1993 were $2.3
million, $3.9 million, $.9 million and $1.7 million, respectively. The Company
expects that combined capital expenditure requirements will be approximately
$12 million for 1996. The Company believes these capital expenditure levels
will be sufficient to maintain competitiveness and to provide sufficient
manufacturing capacity. The Company expects to fund capital expenditures
primarily from cash generated from operating activities.

As a result of the Transactions, the debt service costs associated with the
borrowings under the Bank Credit Agreement and the Notes significantly
increased the Company's liquidity requirements. The Company repurchased the
Old Debentures in connection with the Tender Offer and Consent Solicitation.
The Tender Offer and Consent Solicitation were effected in order to modify
certain terms of the indenture under which the Old Debentures were issued in
order to afford the Company greater operating flexibility following the
Acquisition. As compared to the Indenture, the indenture governing the Old
Debentures (the "Old Debenture Indenture") contained more restrictive
covenants that would have not permitted, among other things, the Company to
redeem a portion of its Preferred Stock or pay the cash dividend on its Class
P Common Stock. In any event, under the Old Debenture Indenture the Company
would have been required to offer to repurchase the Old Debentures as a

27
<PAGE>

result of the Acquisition being a "change of control triggering event."
Additional borrowings are available under the $45 million revolving credit
facility portion of the Bank Credit Agreement. As of March 31, 1996, the
Company did not have any borrowings under the revolving credit facility
portion of the Bank Credit Agreement. The Bank Credit Agreement and the
Indenture impose certain restrictions on the Company, including restrictions
on its ability to incur indebtedness, pay dividends, make investments, grant
liens, sell its assets and engage in certain other activities. In addition,
the indebtedness of the Company under the Bank Credit Agreement is secured by
substantially all of the assets of the Company, including the Company's real
and personal property, inventory, accounts receivable, intellectual property
and other intangibles. See "Description of Certain Indebtedness--Bank Credit
Agreement." The Company expects that cash flows from operating activities
together with borrowings available under the Bank Credit Agreement or the New
Bank Credit Agreement, as the case may be, will be sufficient to fund working
capital needs, capital spending requirements, restructuring costs incurred in
connection with the Acquisition and debt service requirements of the Company's
capital structure for the foreseeable future. Concurrently with the
Acquisition, the Company entered into the $45 million Accounts Receivable
Facility.

Management believes that based on current levels of operations and
anticipated internal growth, cash flow from operations, together with other
available sources of funds including borrowings under the Bank Credit
Agreement or the New Bank Credit Agreement, as the case may be, and available
cash on hand at March 31, 1996 of $20.1 million, will be adequate for the
foreseeable future to make required payments of principal and interest on the
Company's indebtedness, to fund anticipated capital expenditures and working
capital requirements, including the aforementioned restructuring costs, and to
enable the Company and its subsidiaries to comply with the terms of their debt
agreements. However, actual capital requirements may change, particularly as a
result of any acquisitions which the Company may make. The ability of the
Company to meet its debt service obligations and reduce its total debt will be
dependent, however, upon the future performance of the Company and its
subsidiaries which, in turn, will be subject to general economic conditions
and to financial, business and other factors, including factors beyond the
Company's control. A portion of the consolidated debt of the Company bears
interest at floating rates; therefore, its financial condition is and will
continue to be affected by changes in prevailing interest rates. The Company
has entered into an interest rate protection agreement to minimize the impact
from a rise in interest rates.

The proceeds received by the Company from the Offering will be used to
prepay certain of the Term Loans under the Bank Credit Agreement, to redeem
certain of the Notes and to pay certain expenses. See "Use of Proceeds."

Contemporaneously with the Offering, the Company intends to refinance and
retire all remaining indebtedness under the Bank Credit Agreement with the
proceeds of the loans under the New Bank Credit Agreement. Although the
Company has not finalized the terms of the definitive New Bank Credit
Agreement, Bankers Trust Company has, subject to certain conditions, committed
to provide the facility. Although there can be no assurances that the Company
will be successful in negotiating the New Bank Credit Agreement, or if
successful, the terms of such facility, the Company anticipates that the New
Bank Credit Agreement will provide a revolving credit facility of $300 million
subject to the following principal terms: Loans made under the New Bank Credit
Agreement will bear interest at a rate per annum equal to, at the Company's
option, (i) the Base Rate plus the Applicable Margin or (ii) the Eurodollar
Rate plus the Applicable Margin (as each term is defined in the New Bank
Credit Agreement). The Applicable Margin for Base Rate loans will vary from 0%
to .75% and the Applicable Margin for the Eurodollar Loans will vary from .75%
to 1.75%, each based on the Company's consolidated level of debt as compared
to consolidated EBITDA ("Leverage Ratio") and the type of loan. Availability
under the New Bank Credit Agreement will be subject to an unused commitment
fee which will be a percentage of the unutilized revolving loan commitment.
This percentage will vary from .3% to .5% based on the Company's Leverage
Ratio. Availability under the New Bank Credit Agreement will generally be
reduced to the extent of the net proceeds of a sale of assets by the Company,
the net proceeds of an issuance of debt by the Company or 50% of the net
proceeds of an issuance of equity by the Company. Availability will also be
reduced by $50 million in 1999 and $50 million in 2000. The New Bank Credit
Agreement is expected to terminate in

28
<PAGE>

2001. The Company will be permitted to make acquisitions under the New Bank
Credit Agreement up to $25 million per acquisition without consent of the
Required Banks (as defined in the New Bank Credit Agreement) and up to $50
million per acquisition if, on a pro forma basis giving effect to such
acquisition, the Company's Leverage Ratio is less than 3.0 to 1.0. If the New
Bank Credit Agreement had been in place on March 31, 1996, the initial interest
rate would have been 7.5%. As a result of the New Bank Credit Agreement, the
Company's effective interest rate under its senior credit facility is expected
to be reduced by 156 basis points contemporaneously with the Offering.

On May 29, 1996, the Company signed a definitive agreement to acquire Niagara
for a purchase price of approximately $50 million. In addition, the Company
will enter into a one-year consulting services agreement with the former chief
executive officer of Niagara pursuant to which the Company will make a $5.0
million payment at the closing of the Niagara Acquisition. The Company expects
the Niagara Acquisition to be completed by the middle of July 1996. The Company
expects to use existing cash balances as well as borrowings under New Bank
Credit Agreement to fund the Niagara Acquisition. In the event the sale of the
Personalizing Division is completed prior to the Offering, the Company has
obtained the consent of its lenders under the Bank Credit Agreement to use the
net proceeds from the sale to fund substantially all of the Niagara
Acquisition. Otherwise, the Company will use the proceeds from the sale of the
Personalizing Division to repay indebtedness.

INFLATION

The Company believes that inflation has not had a material impact on its
results of operations for the three years ended December 31, 1995.

CHANGES IN ACCOUNTING STANDARDS

The Company has elected not to early adopt the provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation." The Company will adopt the reporting provisions of SFAS 123 in
1996. The Company expects the adoption to have no effect on its financial
condition or results of operations.

29
<PAGE>

INDUSTRY

OFFICE PRODUCTS

The North American office products industry, excluding contract office
furniture and business machines, generates approximately $60 billion to $70
billion in annual sales at retail prices. The Company believes that the market
has grown at an approximate average annual rate of 4% from 1992 to 1995.
Office products include paper, envelopes, writing products, writing
instruments, mailroom supplies, filing supplies, organizers, desktop
accessories, business forms, binders, tape, printed products, staples and
fastening products and other consumable items. The Company believes that the
market for these products is approximately $30 billion to $35 billion at
wholesale prices.

The Company participates in the writing products, filing supplies and
envelope segments of the industry. The writing products segment includes
writing pads, notebooks, jotter pads, easels, flip charts, data pads, message
pads, wire notebooks, certain business forms, specialty computer forms,
business machine paper and other categories, including a wide range of stock
keeping units ("SKUs") based on size, quality, finish, thickness,
reusability/refillability and various customized features. The key raw
materials for writing products are tablet and form grades of paper. The
Company estimates that the writing products segment at wholesale prices is
approximately $2.87 billion in size.

The filing supplies segment includes suspension (hanging) files, expandable
folders, manila folders, index cards, labels and related products. Estimated
by the Company at approximately $1.5 billion at wholesale prices, the filing
supplies segment is characterized by manufacturers with national brand
coverage, large-scale production capabilities, wide-area distribution systems
and standardized products. The key raw materials for filing supplies are
paperboard, bristols, metal and plastics, all of which are available from a
large number of suppliers.

The envelope segment includes both standard size and specialty envelopes
such as catalog mailing envelopes, envelopes closable by metal clasp or
button-and-string, and giant, X-ray, remittance and overnight delivery
envelopes. Envelopes are made from mill branded and commodity grades of paper
or from Tyvek (R) (a high density polyurethane-based product made by Du Pont)
and other non-woven material. According to the Envelope Manufacturers
Association of America, the United States envelope market in 1995 was
estimated to be approximately $2.8 billion dollars in net sales or 168.6
billion units at the manufacturers' level. The historical growth rate for
envelopes has shown high correlation with that of Gross Domestic Product
("GDP").

The Company believes that demand for writing products, filing supplies and
envelopes has not been significantly affected by the growth in electronic
office tools such as e-mail and personal digital assistants and the Company
does not expect these tools to have a significant impact on such demand for
the foreseeable future.

DISTRIBUTION

Office products are distributed from the manufacturer to the end-user
through several different channels, including retail channels such as national
office product superstores, mass merchandisers and warehouse clubs; commercial
channels such as national contract stationers; paper merchants/distributors;
and other channels such as regional distributors, school campuses and direct
mail. Office products, including writing products, filing supplies and a
relatively small portion of envelopes, were traditionally distributed through
contract stationers, wholesalers and independent dealers. Envelopes have been
distributed primarily through paper merchants/distributors. Since the mid-
1980s, the office products industry has experienced significant changes in the
channels through which office products are distributed such as the emergence
of new channels, including national office product superstores, national
contract stationers and mass merchandisers, and consolidation within these and
other channels. As a result of these changes, approximately 6,800 office
product distributors existed in 1994 compared with approximately 13,300 in
1987.

Retail Channels. The Company estimates that total 1995 sales of office
products to end-users in North America through retail channels were
approximately $20 billion to $25 billion. Office products retailers typically
serve small and medium-sized businesses, home offices and individuals. The
national office products superstores

30
<PAGE>

have experienced significant consolidation in recent years, with today's three
dominant operators (Office Depot, OfficeMax and Staples) emerging from
approximately 17 different superstore operators in 1986. Over the past three
years, Office Depot, OfficeMax and Staples have each experienced average
annual growth rates in excess of 30%. In addition, mass merchandisers (such as
Wal-Mart) and warehouse clubs (such as Sam's Warehouse Club) are significant
and growing retailers of office products, although both carry a smaller
assortment than do the superstores. The three dominant national office
superstores currently account for approximately 17% of total retail office
products sales and approximately 6% of total office products sales. In
addition to the growth experienced by these operators within the retail
channel, the retail channel as a whole has also captured significant market
share from other distribution channels.

Commercial Channels. The Company estimates that total 1995 sales of office
products to end-users in North America through commercial channels were
approximately $25 billion to $30 billion. Commercial distributors typically
serve large and medium-sized business customers through product catalogs and
direct sales forces. Generally, commercial distributors stock products in
distribution centers and deliver them to customers on a next-day basis against
orders received electronically, by telephone or fax, or taken by a salesperson
on the customer's premises. A growing segment within commercial channels is
the contract stationer channel. Major contract stationers purchase in large
quantities directly from manufacturers, rely upon wholesaler intermediaries to
only a limited extent for inventory backup and product breadth, and offer
significant volume-related discounts and a high level of service to their
customers. Most contract stationers operate in only one or very few major
metropolitan areas. There has been significant consolidation of contract
stationers into national companies in recent years, and the Company expects
this consolidation trend to continue. Major national participants include
Boise Cascade Office Products, BT Office Products, Corporate Express, U.S.
Office Products and the contract stationer divisions of Office Depot and
Staples. These national contract stationers now account for approximately 25%
of commercial office products sales and approximately 11% of total office
products sales. Given this consolidation and opportunity for growth, suppliers
capable of distributing a broad and deep product line nationwide, such as the
Company, are best positioned to serve major contract stationers.

Paper Merchants/Distributors Channel. According to industry sources, the
paper merchant/distributor channel has been experiencing 6% to 7% growth over
the past three years. Paper merchants/distributors sell a wide range of
products including stationery, envelopes, and invitations and announcements to
printers, thermographers, office products companies and large end-users. Total
1995 net sales of envelopes by the paper merchant/distributor channel are
estimated to have been approximately $855 million. Envelopes, invitations and
announcements made from branded paper are purchased from manufacturers that
have been "designated" by paper mills to convert their proprietary paper into
such products. A paper mill generally "designates" two manufacturers for its
mill branded paper. A "designated" manufacturer has an advantage in purchasing
branded paper directly from the mills at more favorable prices than from paper
merchants/distributors and in accessing a dependable paper supply. Envelope
manufacturers which supply a complete product offering of mill branded,
specialty and commodity envelopes are best positioned to serve these paper
merchants/distributors. The paper merchant/distributor channel has also
experienced, and is continuing to experience, significant consolidation, with
ResourceNet, Unisource and Zellerbach emerging as the channel's leaders.

Other Channels. The Company estimates that total sales of office products to
end-users in North America through other channels, such as regional
distributors, school campuses and direct mail, are approximately $5 billion to
$10 billion.

The Company's strategy with respect to each of these distribution channels
is to focus on the most rapidly growing customers, particularly dominant
industry participants leading the trend towards consolidation such as Office
Depot, OfficeMax, Staples, Wal-Mart and Sam's Warehouse Club in the retail
channel; Boise Cascade Office Products, BT Office Products, Corporate Express,
U.S. Office Products and the contract stationer divisions of Office Depot and
Staples in the contract stationers channel; and ResourceNet, Unisource and
Zellerbach in the paper merchant/distributor channel. The Company also
believes there is significant opportunity to distribute envelope product lines
through the rapidly growing retail channel under the Ampad and private label
names. Prior to the Acquisition, Williamhouse sold envelopes primarily through
the paper merchant/distributor channel. See "Business--Growth Strategy."

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<PAGE>

BUSINESS

The Company is one of the largest manufacturers and marketers of nationally
branded and private label paper-based office products (excluding computer
forms and copy paper) in the $60 billion to $70 billion North American office
products industry. The Company offers a broad product line including writing
pads, file folders, envelopes and other office products. Through its Ampad
division, the Company is among the largest and most important suppliers of
pads and other paper-based writing products, filing supplies and envelopes to
many of the largest and fastest growing office products distributors. Acquired
in October 1995, the Company's Williamhouse division is the leading supplier
of mill branded, specialty and commodity envelopes to paper
merchants/distributors. The Company's strategy is to grow by focusing on the
largest and fastest growing office product distribution channels, making
acquisitions, introducing new product lines, broadening product distribution
across its channels and maintaining its position among the lowest-cost
manufacturers in the industry. As a result of this strategy, the Company's
sales have grown at a compound annual rate of approximately 34% from 1992 to
1995. For the year ended December 31, 1995, the Company had net sales of
$617.2 million and income from operations of $57.3 million on the pro forma
basis described herein. See "Unaudited Pro Forma Financial Data."

COMPETITIVE STRENGTHS

The combination of the Company's products and customers distinguishes it as
a leading manufacturer and marketer of paper-based office products (excluding
computer forms and copy paper) in North America. The Company attributes this
position and its continued opportunities for growth and profitability to the
following competitive strengths:

. Market Leader. The Company has achieved market leadership in core products
sold to customers in the largest and fastest growing office products
channels by offering one of the broadest assortments of high quality
products in the industry. Furthermore, the Company enjoys national brand
awareness in many of its product lines, including Ampad, Century, Embassy,
Evidence, Gold Fibre, Huxley, Karolton, Kent, Peel & Seel, SCM, Williamhouse
and World Fibre.

. Well-Positioned and Diversified Customer Base. The Company has substantial
opportunities for growth within several distribution channels of the office
products industry. The Company has focused on the largest and fastest
growing office products channels. Several of the Company's largest
customers, such as Boise Cascade Office Products, BT Office Products,
Corporate Express, Office Depot, OfficeMax and Staples, are expected by
industry analysts to experience annual revenue growth of 15% to 35% over the
next five years. The Company's Williamhouse division maintains particularly
strong relationships with the largest and fastest growing paper
merchants/distributors in the market, including ResourceNet, Unisource and
Zellerbach. The Company also maintains strong customer relationships across
all of the other office products distribution channels, including mass
merchandisers, warehouse clubs, office products wholesalers and independent
dealers.

. National Scale and Service Capability. The Company's extensive product line,
multiple brands and broad price point coverage provide significant
advantages and economies of scale in selling to and servicing its customers.
The Company has become an increasingly important strategic partner to its
customers as they seek higher value-added products, simplify their
purchasing organizations and consolidate their relationships among selected
national suppliers. The Company's national presence and network of 22
strategically located facilities have enabled it to maintain rapid and
efficient order fulfillment standards. In addition, the Company's advanced
EDI capabilities enable it to meet its customers' EDI requirements,
executing automated transactions rapidly, efficiently and accurately.

. Innovation/New Products. The Company has introduced several innovative
products as part of its marketing strategy to differentiate itself from
other suppliers and enhance profitability. Recent examples include Gold
Fibre classic and designer notebooks, Papers with a Purpose, World Fibre
ground-wood writing pads and Peel

32
<PAGE>

. Proven Management Team With Successful Track Record. The Company's senior
operating management team averages over 25 years each in the paper products
industry. Management has succeeded in increasing sales and operating
profitability by recognizing and acting on the transition to the fastest
growing distribution channels, introducing higher value-added products,
acquiring complementary product lines (Karolton in December 1993, SCM in July
1994 and certain product lines of Huxley and Globe-Weis in July 1994 and
August 1995, respectively), improving manufacturing processes and reducing
overhead and administrative costs. Upon completion of the Offering, the
Company's senior management team will collectively own 865,516 shares of
Common Stock (438,427 shares if the U.S. Underwriters' over-allotment is
exercised in full) and hold currently exercisable options to purchase an
additional 2,156,000 shares of Common Stock. Assuming an initial public
offering price of $16.00 per share, these holdings represent on a fully-
diluted basis approximately 10.3% of the outstanding Common Stock (8.9% if
the U.S. Underwriters' over-allotment is exercised in full).

GROWTH STRATEGY

The Company's strategy is to maintain and strengthen its leadership position
by focusing on the following:

. Continue to Introduce New Products. New, higher value-added products give the
Company a greater selection to offer its customers and improve product line
profitability for both the Company and its customers. The Company plans to
differentiate itself from other suppliers and improve profitability through
product innovation, differentiation and line extensions.

. Pursue Complementary Product Line and Strategic Acquisitions. The office
products industry is highly fragmented despite continuing consolidation among
its manufacturers. The Company is leading consolidation among manufacturers
of writing products, filing supplies and envelopes. The SCM and Williamhouse

33
<PAGE>

acquisitions broadened the Company's product line to include filing products
and envelopes and enhanced its presence in the growing distribution channels.
The Globe-Weis acquisition and the Company's agreement to acquire Niagara
demonstrate its commitment to strengthening its competitive and strategic
position within its markets. The Company believes that there are significant
opportunities to acquire companies in both its existing and complementary
product lines. In addition, the Company intends to enter new office products
markets through acquisitions of established companies in those markets.

. Broaden Product Distribution. The Company's market presence and
distribution strengths uniquely position it to sell new or acquired product
lines across its distribution channels, including national office products
superstores, national contract stationers, office product wholesalers and
mass merchandisers. As an important part of its growth strategy, for
example, the Company has successfully introduced the envelope product lines
acquired in the Acquisition, previously distributed primarily through paper
merchants/distributors, to the Ampad division's distribution channels under
the Ampad and private label names. The Company estimates that this market
opportunity is approximately $350 million in annual net sales.

. Continue to Reduce Costs. The Company has identified and is in the process
of implementing cost reductions in connection with the Acquisition that are
expected to result in approximately $7.4 million of annual cost savings
following the adoption of such measures. In addition, management plans to
implement further identified cost reductions beyond 1996.

PENDING ACQUISITION

On May 29, 1996, the Company executed a purchase agreement to acquire
Niagara for an aggregate purchase price of approximately $50 million, plus
$5.0 million to be paid under a one-year consulting services agreement.
Niagara supplies mill branded, specialty and commodity envelopes to paper
merchants/distributors through four manufacturing facilities located near
Buffalo, Chicago, Dallas and Denver. Niagara had 1995 net sales of
approximately $106 million and operating income of approximately $8.5 million.
The Company expects the Niagara Acquisition to be completed by the middle of
July 1996. The Company believes that the Niagara Acquisition will strengthen
the Company's distribution capabilities in the Midwest, provide additional
manufacturing capacity and provide opportunities to achieve operating
improvements through the consolidation of Niagara's operations with those of
the Company. The completion of the Niagara Acquisition is subject to certain
conditions. Although the Company regularly engages in discussions with
companies regarding potential acquisitions, it currently does not have any
agreements or understandings relating to acquisitions other than the Niagara
Acquisition.

SALE OF PERSONALIZING DIVISION

The Company's management identified the Personalizing Division of
Williamhouse as a nonstrategic asset following the Acquisition and has decided
to pursue a sale of the Personalizing Division. As a result, the financial
statements of the Company included elsewhere in this Prospectus reflect the
Personalizing Division as "Assets held for Sale" as of December 31, 1995 and
March 31, 1996. On June 6, 1996, the Company signed a definitive agreement
with a potential buyer to sell the Personalizing Division. Under the terms of
the agreement, the Company will receive approximately $60 million in gross
proceeds (subject to certain closing adjustments) from the sale of the
Personalizing Division, which it expects to complete by the end of June 1996.
The sales agreement is subject to certain conditions, some of which are
outside the control of the Company. As a result, no assurance can be given
that the proposed sale will be completed or, if completed, will be on the
terms outlined herein. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."

PRODUCTS AND SERVICES

Pads and Other Paper-Based Writing Products. The Company is one of the
largest manufacturers and marketers of paper-based writing products (excluding
computer forms and copy paper) in North America, offering more than 2,200 SKUs
of writing pads, notebooks and specialty papers. Many of the Company's writing
products are available in multiple sizes, grades of paper (including
recycled), and colors and with glued,

34
<PAGE>

perforated tops or wire binding. All writing products are offered under the
Ampad brand name or a retailer's private label. During the past three years,
the Company has focused on the introduction of new and innovative products
such as Gold Fibre classic and designer notebooks, Papers with a Purpose and
World Fibre ground-wood writing pads. The Company has also created innovative
packaging, especially for sale through warehouse clubs (bulk and crate
packaging), superstores and mass merchandisers.

Filing Supplies. The Company is one of the three largest manufacturers of
filing supplies in North America. The product line includes more than 800 SKUs
of filing supplies including file folders, hanging files, index cards and
expandable folders under the SCM and Globe-Weis brand names. The Company has
been expanding its market share in filing supplies by focusing its sales
efforts on large retail customers and contract stationers, where its writing
products enjoy the leading market share position.

Envelopes. The Company is the largest manufacturer of envelopes serving the
paper merchant/distributor channel and sold over 10 billion envelopes in 1995.
The Company's broad envelope product line includes products manufactured from
mill branded paper, which is paper unique in color and texture to a particular
mill, typically with an identifying watermark. The Company is the designated
envelope manufacturer for 33 mill brands, which is approximately twice as many
as its nearest competitor. These brands include the Hammermill, Strathmore and
Beckett divisions of International Paper Company, the Hopper division of
Georgia Pacific Corporation, the Neenah division of Kimberly-Clark Corporation
and the Gilbert division of Mead.

The Company also produces a wide variety of standard size and specialty
envelopes made from commodity paper and Tyvek (R) (a high density polyurethane
based product made by Du Pont), including booklet and catalog mailing
envelopes, envelopes closable by metal clasp or button-and-string, Peel & Seel
(pressure sensitive adhesion) envelopes, and giant, X-ray and remittance
envelopes. The Company offers in excess of 30,000 SKUs of envelopes (which the
Company believes is more than any of its competitors), providing its customers
with a wide choice of paper grades, colors and sizes.

Invitations and Announcements. The Company is among the largest
manufacturers of invitations and announcements, Christmas and holiday cards,
and presentation folders. These products are sold principally to paper
merchants/distributors, personalizing businesses (including the Personalizing
Division), and other wholesale outlets throughout the United States. The
Company offers a wide variety of such products, primarily made from the same
mill branded grades of paper used in manufacturing envelopes.

35
<PAGE>

The following chart illustrates the Company's principal products and
customers and selected brands in its primary business segments:

AMERICAN PAD & PAPER COMPANY

AMPAD DIVISION WILLIAMHOUSE DIVISION

Products
------------------------------------------------------
.Pads and Notebooks . Envelopes
. Invitations
.Filing Supplies
. Announcements
.Envelopes
. Christmas and Holiday
Cards

Customers
------------------------------------------------------
.Retailers . Paper
Merchants/Distributors
. Jobbers
.Contract Stationers
. Personalizing Businesses
.Wholesalers
.Buying Groups

Selected Brands
------------------------------------------------------
.Ampad(R) . Century(TM)
. Huxley(TM)
.Embassy(R)
. Karolton(R)
.Evidence(R)
. Kent(R)
.Globe-Weis(R)
. Peel & Seel(R)
.Gold Fibre(R)
. Williamhouse(TM)
.SCM(TM)
.World Fibre(TM)

SALES, DISTRIBUTION AND MARKETING

The Company markets its broad range of products to a wide variety of
customers. In 1995, only two customers accounted for more than ten percent of
the Company's net sales. The Company's aggregate net sales to Sam's Warehouse
Club/Wal-Mart and Office Depot accounted for approximately 14.8% and 12.7% of
the Company's net sales for 1995, respectively.

The Company markets its writing products and filing supplies through
virtually every channel of distribution for paper-based office products
including the largest mass merchant retailers, office product superstores,
warehouse clubs, major contract stationers, paper merchants/distributors and
other traditional outlets for office supplies such as office product
wholesalers, independent dealers, buying groups and mail order firms.

The Company sells its envelopes principally to paper merchants/distributors
and other wholesale outlets throughout the United States, primarily through an
in-house sales force. In addition, mill branded products are

36
<PAGE>

sold directly to personalizing businesses (including the Personalizing
Division). The Company currently employs sales representatives at 20 locations
throughout the United States and sells products to over 2,000 paper
merchants/distributors in the United States and Canada. As an important part
of its growth strategy, the Company has successfully introduced the envelope
product lines acquired in the Acquisition, previously distributed primarily
through paper merchants, to its existing office products distribution channels
under the Ampad and private label names. The Company estimates that this
market opportunity is approximately $350 million in net sales.

The following chart illustrates some of the Company's key customers:

KEY CUSTOMERS

Office Products Mass Merchandisers: Paper Merchants/Distributors:
Superstores: Wal-Mart ResourceNet
Office Depot Unisource
OfficeMax Zellerbach
Staples

Contract Stationers: Office Products Warehouse Clubs:
Boise Cascade Office Wholesalers: Sam's Warehouse Club
Products S.P. Richards
BT Office Products United Stationers
Corporate Express
Office Depot*
Staples*
- --------
* Contract stationers division

The Company has targeted and will continue to target those customers driving
consolidation in the office products industry and believes that it is uniquely
positioned to meet the special requirements of these customers in the growing
distribution channels of the office products industry. These customers seek
suppliers, such as the Company, who are able to offer broad product lines,
higher value-added innovative products, national distribution capabilities,
low costs and reliable service. Furthermore, as these customers continue to
grow and they consolidate their supplier bases, the Company's ability to meet
their special requirements will be an increasingly important competitive
advantage. Recognizing Ampad's potential for growth through the changing
distribution channels, Bain Capital and management purchased the Company from
Mead in 1992. Since that time, management has enhanced the Company's scale,
broadened its product line, expanded upon its national presence and
strengthened its distribution capabilities through acquisition and innovation
while simultaneously delivering higher customer service levels. As a result,
the Company's sales through the most rapidly growing retail and commercial
channels increased from $8.8 million in 1992 to $134.8 million ($164.5 million
on a pro forma basis) in 1995. For the same period, the Company's sales to the
three largest paper merchants/distributors increased from $75.6 million to
$100.6 million.

COMPETITION

The markets for the Company's products are highly competitive. Competition
is based largely on a company's ability to offer a broad range of products on
a regional or national scale at competitive prices and to deliver these
products on a timely basis. The Company has many local and regional
competitors. The markets in which the Company operates have become
increasingly characterized by a limited number of large companies selling
under recognized trade names. These larger companies, including the Company,
have the economies of scale, national presence, management information systems
and breadth of product line required by the major customers. In addition to
branded product lines, manufacturers also produce private-label products,
especially in the context of broader supply relationships with office product
superstores and contract stationers.

The writing products industry is fragmented, ranging from large national
manufacturers to localized jobbers and printers. A few manufacturers,
including the Company, have developed strong brand name recognition for a
limited number of product lines. Other national companies include Mead, the
Tops division of Wallace Computer Services, the Stuart Hall division of Newell
Co. and Pen-Tab Industries.

37
<PAGE>

In the filing supplies segment, the Company's key domestic competitors
include Smead Manufacturing and Esselte A.B.

Envelope manufacturers compete in three distinct channels. In the paper
merchant/distributor channel, where the Company competes, manufacturers sell a
wide variety of mill branded, specialty and commodity envelope products to
paper merchants/distributors. The Company's principal competitor in this
channel is New York/National Envelope Group of National Envelope Corporation,
a private company. Other competitors in this channel include Niagara (pending
acquisition by the Company) and Murray Envelope Corp. In the direct channel,
manufacturers sell customized envelopes directly to high volume corporate
users and mass mailers. Mail-Well is the leading company in this channel. In
the office products channel, manufacturers including Westvaco and Quality Park
produce commodity mailing envelopes for retail sale.

INTELLECTUAL PROPERTY

The Company registers some of its material trademarks, tradenames and
copyrights and has acquired patent protection for some of its proprietary
processes. In the opinion of management, the Company has current trademark
rights to conduct its business as now constituted. The Company has the right
to use the Globe-Weis(R) name on a non-exclusive basis through August 1998,
pursuant to the Company's purchase of certain file folder and hanging file
assets from Atapco. The Company does not expect that the loss of the right to
use the Globe-Weis name will have a material adverse effect on its results of
operations.

EMPLOYEES

As of March 31, 1996, the Company employed a total of 3,198 full-time
persons, including 3,170 manufacturing, sales and administrative personnel and
28 corporate staff members. In addition, the Personalizing Division (currently
held as "Assets Held for Sale") had 1,832 employees at March 31, 1996. The
Company expects to add approximately 650 employees as a result of the Niagara
Acquisition (including 140 employees covered by a collective bargaining
agreement). All the Company's operations are non-union except for the
operations at the facilities located in Fresno, California; Scottdale,
Pennsylvania; Miamisburg, Ohio; and Appleton, Wisconsin which have, in total,
approximately 900 union employees. The collective bargaining contracts
covering the Company's employees will expire as follows: the Miamisburg
contract expires December 31, 1996; the Appleton contract expires March 31,
1997; and the Scottdale contract expires April 30, 1998. The Company is
currently in the process of closing its Fresno facility, at which
approximately 74 unionized members are employed. With the exception of a
strike at the Company's Indiana plant, as described below, there have been no
work stoppages at any Company facility during the last five years. The Company
believes that its relations with its employees and unions are satisfactory.

In July 1994, the Company acquired the writing products and filing supplies
assets of SCM. Work rules and associated costs at SCM's plant in Indiana were
less favorable than those at other plants of the Company. As a result of
management's effort to bring the labor agreement at the Indiana plant more in
line with market labor agreements, a labor strike occurred on September 1,
1994. Consequently, the Company closed the Indiana plant on February 15, 1995
and moved the equipment to other facilities operated by the Company. By July
1995, all machinery and equipment previously operated in Indiana was available
for production in other facilities of the Company.

PROPERTIES AND FACILITIES

As of March 31, 1996, the Company operated manufacturing, distribution,
office and warehouse space in the United States with a total floor area of
approximately 3,499,716 square feet. Of this footage, approximately 989,500
square feet are leased and approximately 2,510,216 square feet are owned. The
Personalizing Division operates through 10 primary facilities with a total
floor space of approximately 736,500 square feet. As a result of the Niagara
Acquisition, the Company expects to acquire four manufacturing facilities and
two warehouses with a total floor area of approximately 470,000 square feet.
The manufacturing facilities are located near Buffalo, Chicago, Dallas and
Denver and the warehouses are located near Denver and Kent, Washington.

38
<PAGE>

To provide a cost efficient supply of products to its customers, the Company
maintains centralized management of nationwide manufacturing and distribution
facilities. Since 1992, the Company has consolidated ten manufacturing and
distribution facilities into five facilities. The Company's management is
evaluating the potential closure of additional space acquired pursuant to the
Acquisition. All of the Company's owned facilities are pledged as collateral
under the Bank Credit Agreement and are expected to be similarly pledged under
the New Bank Credit Agreement.

The Company believes that substantially all of its property and equipment is
in good condition and that it has sufficient capacity to meet its current and
projected manufacturing and distribution needs in the foreseeable future. The
following table describes the principal properties of the Company (other than
sales service centers, sales office space, temporary warehouse space and
facilities associated with the Personalizing Division) as of March 31, 1996:

<TABLE>
<CAPTION>
BUSINESS OWNED OR EXPIRATION OF SQUARE
LOCATION DIVISION (1) LEASED LEASE (2) FEET
-------- ------------- -------- ----------------- -------
<S> <C> <C> <C> <C>
CALIFORNIA
Fresno................ A Leased 1997(a) 42,900
Fresno................ A Leased 1997(a) 84,200
City of Industry...... W Owned 85,000
City of Industry...... W Leased 2008(b)(c) 105,000
West Sacramento....... W Leased 2000(c) 37,000
Rancho Cucamonga...... W Leased 1996(c) 12,800
COLORADO
Denver................ W Leased 1998(c) 21,100
GEORGIA
Moultrie.............. W Owned 50,000
ILLINOIS
Mattoon............... A Leased month-to-month 29,200
Mattoon............... A Owned 261,800
Mattoon............... A Leased 3 month renewable 25,200
term
Mattoon............... A Leased 1996(c) 58,900
Chicago............... W Leased 1996(c) 33,000
Chicago............... W Owned (d) 200,000
MASSACHUSETTS
Westfield............. A Owned 128,000
Holyoke............... A Owned (d) 572,416
Millbury.............. W Leased 1996(c) 30,100
MISSISSIPPI
Kosciusko............. A Leased 1997(a)(c)(e) 70,600
NEW JERSEY
Bloomfield............ W Leased 2003 94,000
NEW YORK
New York City......... W Leased 2009 22,000
OHIO
Miamisburg............ W Leased 1998(c)(f) 177,000
PENNSYLVANIA
Scottdale............. W Owned 400,000
Mt. Pleasant.......... W Leased 1999(c) 11,000
TENNESSEE
Morristown............ W Owned 140,000
</TABLE>

39
<PAGE>

<TABLE>
<CAPTION>
BUSINESS OWNED OR EXPIRATION OF SQUARE
LOCATION DIVISION (1) LEASED LEASE (2) FEET
-------- ------------- -------- ------------- -------
<S> <C> <C> <C> <C>
TEXAS
Dallas........................ Corporate Leased 1998 14,500
Headquarters
Corsicana..................... W Owned 250,000
UTAH
North Salt Lake City.......... A Owned 110,000
North Salt Lake City.......... A Leased 2001(g) 97,000
WASHINGTON
Kent.......................... W Leased 1999 24,000
WISCONSIN
Appleton...................... W Owned 313,000
</TABLE>
- --------
(1) "A" indicates operations associated with the Company's Ampad division and
"W" indicates operations associated with the Company's Williamhouse
division.
(2) (a)Sublease.
(b)Lease contains option to purchase.
(c)Lease or sublease contains an extension or renewal option.
(d)Two properties owned at this location.
(e)Sublease contains option to assume prime lease.
(f)Lease contains a right of first refusal.
(g)Two leases at this location.

LEGAL PROCEEDINGS

The Company is a party to various litigation matters incidental to the
conduct of its business. Management does not believe that the outcome of any
of the matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company. See
"--Environmental, Health and Safety Matters."

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

The Company is subject to federal, state, and local environmental and
occupational health and safety laws and regulations. Such laws and regulations
impose limitations on the discharge of pollutants and establish standards for
management of waste. While there can be no assurance that the Company is at
all times in complete compliance with all such requirements, the Company has
made and will continue to make capital and other expenditures to comply with
such requirements. The Company spent approximately $7,200 in 1995 on
environmental capital projects. The Company estimates that its environmental
capital expenditures will be approximately $100,000 in each of 1996 and 1997.
In 1996, the Company expects to make capital expenditures to upgrade waste
water treatment equipment at one of its facilities. Thereafter, the Company
expects to incur moderate environmental capital expenditures, which will be
higher than historical levels as a result of the Company's increased size. As
is the case with manufacturers in general, if a release of hazardous
substances occurs on or from the Company's properties or any associated
offsite disposal location, or if contamination from prior activities is
discovered at any of the Company's properties, the Company may be held liable
and the amount of such liability could be material.

The City of Industry, California facility of the Company's Williamhouse
division is located within an area of regional groundwater contamination
designated as the San Gabriel Valley National Priority List Area. The Company
does not believe its operations have contributed to the contamination and to
date the Company has not received a notice of potential liability with respect
to that site.

The Company is aware that one of Niagara's facilities has been the subject
of certain soil and groundwater investigations and that the prior owner of
such facility has indemnified Niagara for certain environmental

40
<PAGE>

liabilities associated with historical use of the property. The Company
currently believes that any environmental liabilities associated with such
facility would not be material.

The Company's Ampad division has been named a potentially responsible party
("PRP") under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), at five waste disposal
sites. The Company settled its liability at four of these sites as a de
minimis party. At the Spectron site in Elkton, Maryland, the Company paid
approximately $1,300 in 1989 as a de minimis settlement for an initial removal
action at the site. In 1995, the Company received a notice of a remedial
action at the site, and based upon its allocation in 1989, expects to be
eligible for a de minimis or de micromis settlement. The Company is aware that
Niagara has been named a PRP at the Envirotek II site in Tonawanda, New York
with respect to which Niagara expects to be eligible for a de minimis
settlement. Although the Company endeavors to manage its wastes carefully,
because CERCLA liability is strict and retroactive, it is possible that in the
future the Company may be identified as a PRP with respect to other waste
disposal sites.

41
<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information with respect to the
Directors and executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles G. Hanson, III(1).............. 55 Chief Executive Officer and Director
Russell M. Gard(1)..................... 48 Chief Operating Officer and Director
Gregory M. Benson...................... 41 Executive Vice President, Chief
Financial Officer, Director of
Strategic Planning and Acquisitions,
Secretary and Director
Timothy E. Needham..................... 47 Executive Vice President
John J. Grymes......................... 38 President--Williamhouse Division
H. Craig Stoudt........................ 40 President--Ampad Division
Robert C. Gay(1)(2).................... 44 Director
Jonathan S. Lavine(3).................. 30 Director
Marc B. Wolpow(1)(2)(3)................ 37 Director
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.

The Company anticipates that at least two additional Directors will be
appointed by the Board of Directors following the completion of the Offering.
The Company expects that one or more of such Directors will also be appointed
to the Audit and Compensation Committees.

CHARLES G. HANSON, III has served as Chief Executive Officer and Director of
the Company since 1992. From 1992 to 1995, Mr. Hanson also served as Chairman
of the Board, Chief Executive Officer and Director of Ampad Corporation. Mr.
Hanson was formerly the President and Chief Operating Officer of Stuart Hall
Co. Inc. and Group Vice President of Pen-Tab Industries, Inc.

RUSSELL M. GARD has served as Chief Operating Officer and Director of the
Company since 1992. From 1992 to 1995, Mr. Gard also served as President,
Chief Operating Officer and Director of Ampad Corporation. From 1990 to 1992,
Mr. Gard was the Executive Vice President of Pen-Tab Industries, Inc. Mr. Gard
served as the Chief Executive Officer of Herlitz International from 1988 to
1990.

GREGORY M. BENSON has served as Executive Vice President and Director of
Strategic Planning and Acquisitions since May 1996 and as Chief Financial
Officer, Secretary and Director of the Company since 1992. From 1992 to 1995,
Mr. Benson served as Chief Financial Officer, Chief Administrative Officer and
Director of Ampad Corporation. Mr. Benson was at GE Capital Corporation from
1977 to 1992.

TIMOTHY E. NEEDHAM has served as Executive Vice President since 1995. Mr.
Needham served as Chairman of the Board of Williamhouse prior to the
Acquisition and as a director from 1993 to 1995. From 1987 to 1995, Mr.
Needham served as President of Williamhouse and from 1992 to 1995, as Chief
Operating Officer of Williamhouse.

JOHN J. GRYMES has served as President of the Company's Williamhouse
division since May 1996 and served as Vice President of Sales--Williamhouse
from November 1995 to May 1996. Mr. Grymes served as Vice President and
National Sales Manager of Williamhouse Sales prior to the Acquisition from
1991 to 1995. From 1987 to 1991, Mr. Grymes served as Eastern Regional Sales
Manager of Williamhouse Sales.

42
<PAGE>

H. CRAIG STOUDT has served as President of the Company's Ampad division
since May 1996 and served as Vice President, Sales and Marketing of the
Company since 1994. From 1990 to 1994, prior to the SCM Acquisition, Mr.
Stoudt served as Vice President, Sales of SCM Office Supplies, Inc. Mr. Stoudt
served as Director of Sales, Boorum Division of Esselte Pendaflex from 1989 to
1990.

ROBERT C. GAY has served as Director of the Company since 1992. Mr. Gay has
been a Managing Director of Bain Capital since 1993 and has been a General
Partner of Bain Venture Capital since 1989. From 1988 through 1989, Mr. Gay
was a principal of Bain Venture Capital. Mr. Gay is Vice Chairman of the Board
of Directors of IHF Capital, Inc., parent of ICON Health & Fitness Inc. In
addition, Mr. Gay is a director of Alliance Entertainment Corp., GT Bicycles,
Inc., GS Industries, Inc. and its subsidiary GS Technologies Operating Co.,
Inc., and Physio-Control International Corporation.

JONATHAN S. LAVINE has served as Director of the Company since 1995. Mr.
Lavine has been a Principal at Bain Capital since 1995 and was an associate at
Bain Capital from 1993 to 1995. In 1992, Mr. Lavine was a consultant at
McKinsey & Co. Mr. Lavine attended the Harvard Business School from 1990 to
1992. Previously, Mr. Lavine worked in the mergers and acquisitions department
of Drexel Burnham Lambert, Incorporated. Mr. Lavine is also a director of
Clarity Telecom, Inc.

MARC B. WOLPOW has served as Director of the Company since 1995. Mr. Wolpow
has been a Managing Director of Bain Capital since 1993 and was a Principal of
Bain Venture Capital from 1990 through 1992. From 1988 to 1990, Mr. Wolpow was
a Vice President in the corporate finance department of Drexel Burnham
Lambert, Incorporated. Mr. Wolpow is also a director of Waters Corporation and
FTD, Inc.

Directors of the Company are currently elected annually by its stockholders
to serve during the ensuing year or until a successor is duly elected and
qualified. Executive officers of the Company are duly elected by the Board of
Directors to serve until their respective successors are elected and
qualified. There are no family relationships between any of the Directors or
executive officers of the Company.

Prior to the completion of the Offering, the Board will be divided into
three classes, as nearly equal in number as possible, with each Director
serving a three year term and one class being elected at each year's annual
meeting of stockholders. Messrs. Lavine and Benson will be in the class of
directors whose term expires at the 1997 annual meeting of the Company's
stockholders. Messrs. Wolpow and Gard and one of the additional directors
anticipated to be appointed by the Board following the Offering will be in the
class of directors whose term expires at the 1998 annual meeting of the
Company's stockholders. Messrs. Gay and Hanson and one of the additional
directors anticipated to be appointed by the Board following the Offering will
be in the class of directors whose term expires at the 1999 annual meeting of
the Company's stockholders. At each annual meeting of the Company's
stockholders, successors to the class of Directors whose term expires at such
meeting will be elected to serve for three year terms and until their
successors are elected and qualified.

43
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation
earned for years ended December 31, 1993, 1994 and 1995 (as applicable) for
the Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company as of the end of the last fiscal year. The
amounts shown include compensation for services in all capacities that were
provided to the Company.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- ---------------------- ALL OTHER
SECURITIES UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(7)
- --------------------------- ---- ---------- --------- ---------------------- ------------
<S> <C> <C> <C> <C> <C>
Charles G. Hanson, III.... 1995 $250,000 $809,859(4) 55,801(5) $10,595
Chief Executive Officer
Russell M. Gard........... 1995 225,000 723,837(4) 55,409(5) 7,553
Chief Operating Officer
Gregory M. Benson......... 1995 175,000 400,000(4) 53,386(5) 6,683
Executive Vice President
and Chief
Financial Officer
Timothy E. Needham(1)(2).. 1995 300,000 75,000 62(6) 2,012
Executive Vice President 1994 280,000 105,000 0 1,912
1993 260,000 58,500 48(6) 2,169
Edward Norton(1)(3)....... 1995 300,000 75,000 152(6) 4,342
1994 192,500 39,375 0 4,973
1993 175,000 40,000 90(6) 3,869
</TABLE>
- --------
(1) For the first ten months of fiscal year 1995 (i.e., before the
Transactions), Williamhouse paid the compensation for Messrs. Needham and
Norton. After the Transactions, the Company paid such compensation. The
compensation stated in the table for these executive officers includes
amounts received from both the Company and Williamhouse for fiscal year
1995. Prior to its Acquisition, Williamhouse filed periodic reports under
the Exchange Act and in connection therewith was previously required to
disclose the compensation of Messrs. Needham and Norton for 1994 and 1993.
As a result, such information is included herein.

(2) Prior to November 1995, Mr. Needham was Chairman of the Board of
Williamhouse.

(3) Prior to November 1995, Mr. Norton was President of Williamhouse.
Effective May 1996, Mr. Norton resigned his position with the Company.

(4) Bonus levels were established by the Board based on the Company
substantially exceeding operating targets established at the beginning of
the year.

(5) Such options were granted prior to the Recapitalization. Number shown
incorporates the effects of the stock split and the Preferred Stock
conversion pursuant to the Recapitalization. See "The Recapitalization."

(6) Options were for common stock of WR Acquisition, Inc., the former parent
corporation of Williamhouse ("WR Acquisition").

(7) The amounts shown for "All Other Compensation" for Messrs. Hanson, Gard
and Benson include $4,595, $1,553 and $683, respectively, representing
life insurance premiums paid by the Company for such individuals, and
$6,000 representing a car allowance for each such individual. The amounts
shown for 1995 for Mr. Norton include $3,992, representing the taxable
portion of split dollar life insurance paid by Williamhouse; the amount
for Mr. Needham includes $1,662, representing the taxable portion of group
life insurance premiums paid by Williamhouse for Mr. Needham. All other
amounts shown for Messrs. Needham and Norton represent a $350 contribution
made by the Company on the behalf of each such individuals to
Williamhouse's 401(k) Plan.

The amounts shown for "All Other Compensation" for 1994 for Mr. Norton
include $4,723, representing the taxable portion of split dollar life
insurance premiums paid by Williamhouse; the amounts for

44
<PAGE>

Mr. Needham include $1,662, representing the taxable portion of group term
life insurance premiums paid by Williamhouse for Mr. Needham. All other
amounts shown ($250 for each of Messrs. Needham and Norton) represent
amounts contributed by Williamhouse on behalf of the named individuals to
Williamhouse's 401(k) Plan.

The amounts shown for "All Other Compensation" for 1993 for Mr. Norton
include $3,719, representing the taxable portion of split dollar life
insurance premiums paid by Williamhouse; the amounts for Mr. Needham
include $2,019 representing the taxable portion of group term life
insurance premiums paid by Williamhouse for Mr. Needham. All other amounts
shown ($150 for each of Messrs. Needham and Norton) represent amounts
contributed by Williamhouse on behalf of the named individuals to
Williamhouse's 401(k) Plan.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding stock options granted
by the Company or WR Acquisition, as the case may be, to Mr. Hanson and the
other named executives who received stock options during the last fiscal year.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(6)
----------------------------------------------------------------- ----------------------------
% OF TOTAL
NUMBER OF OPTIONS MARKET
SECURITIES GRANTED TO PRICE ON
UNDERLYING EMPLOYEES EXERCISE OR DATE OF
OPTIONS IN BASE PRICE GRANT EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) ($/SH)(5) DATE 0%($) 5%($) 10%($)
---- ----------- ----------- ----------- --------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles G. Hanson, III.. 55,801(1)(2) 33.9% $ 0.02(2) $9.08(2) (3) $505,557 $768,051 $1,241,918
Russell M. Gard......... 55,409(1)(2) 33.7 0.02(2) 9.08(2) (3) 502,006 762,655 1,233,193
Gregory M. Benson....... 53,386(1)(2) 32.4 0.02(2) 9.08(2) (3) 483,677 734,810 1,188,169
Timothy E. Needham...... 62.0(4) 11.2 1,312.50 2,625.00 2005 -- -- --
Edward Norton........... 152.0(4) 27.4 1,312.50 2,625.00 2005 -- -- --
</TABLE>
- --------
(1) Options for Common Stock of the Company.
(2) Such options were granted prior to the Recapitalization. Number shown
incorporates the effect of the stock split and the Preferred Stock
conversion pursuant to the Recapitalization. See "The Recapitalization."
(3) Options will expire 15 months after the date of the termination of the
executive officer's employment with the Company or any of its subsidiaries
for any reason.
(4) Options for common stock of WR Acquisition, the former parent corporation
of Williamhouse.
(5) Market price was determined in good faith by the Company's Board of
Directors on the date of grant.
(6) Amounts reflect certain assumed rates of appreciation set forth in the
executive compensation disclosure rules of the Securities and Exchange
Commission (the "Commission"). Actual gains, if any, on stock options
exercises depend on future performance of the Company's stock and overall
market conditions. For purposes of this calculation, the option terms were
assumed to be ten years. See Note (3). The potential realizable value at
assumed appreciation rates on options for common stock of WR Acquisition
held by Messrs. Needham and Norton were not calculated. All such options
were exercised immediately prior to the Acquisition.

45
<PAGE>

FISCAL YEAR-END OPTION VALUES

The following table sets forth information concerning options exercised
during or held outstanding at the end of the last fiscal year by Mr. Hanson
and the other named executives. All outstanding options are currently
exercisable. There were no options exercised in the last fiscal year for
securities of the Company. The options listed in the table under the heading
"Shares Acquired on Exercise" were sold to the Company in connection with the
Transactions and the amounts received as a result of such sales are listed in
the table under the heading "Value Realized." See "Stock Options--Option
Repurchases."

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY
NAME ON EXERCISE (#) VALUE REALIZED ($) AT FY-END (#)(3) OPTIONS AT FY-END ($)(1)(3)
---- --------------- ------------------ -------------------- ---------------------------
<S> <C> <C> <C> <C>
Charles G. Hanson, III.. 1,780.25(2) $3,406,400 813,937 $7,245,267
Russell M. Gard......... 1,690.95(2) 3,251,379 773,115 6,918,791
Gregory M. Benson....... 1,244.42(2) 2,401,584 568,947 5,112,134
Timothy E. Needham...... 372.00(4) 1,737,238 -- --
Edward Norton........... 302.00(4) 1,371,708 -- --
Martin R. Lewis......... 448.00(4) 2,045,895 -- --
</TABLE>
- --------
(1) Assumes a fair market value for the Common Stock at December 31, 1995
equal to $9.08 after giving effect to the Recapitalization.
(2) Number represents options for shares of Preferred Stock repurchased by the
Company in connection with the Transactions and does not take into effect
the Recapitalization.
(3) Such options were granted prior to the Recapitalization. Number shown
incorporates the effects of the stock split and the Preferred Stock
conversion pursuant to the Recapitalization. See "The Recapitalization."
(4) Options for common stock of WR Acquisition, the former parent corporation
of Williamhouse.

DIRECTOR COMPENSATION

Directors of the Company currently do not receive a salary or an annual
retainer for their services. The Company expects that following the Offering,
non-employee Directors will be paid an annual retainer of approximately
$20,000, plus reimbursement for expenses incurred in attending Board meetings.
In addition, such Directors will receive options to purchase Common Stock
under the Company's Non-Employee Director Plan. Directors who are also
employees of the Company will not receive any additional compensation for
serving on the Board.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors currently has three standing committees: (i) an Audit
Committee; (ii) a Compensation Committee; and (iii) an Executive Committee.

The Audit Committee will make recommendations to the Board of Directors
regarding the independent auditors to be nominated for election by the
stockholders and will review the independence of such auditors, approve the
scope of the annual audit activities of the independent auditors, approve the
audit fee payable to the independent auditors and review such audit results.
Price Waterhouse LLP presently serves as the independent auditors of the
Company. The Audit Committee is currently comprised of Messrs. Lavine and
Wolpow. The Company expects that one or more of the two additional Directors
will be appointed to the Audit Committee following the Offering.

The duties of the Compensation Committee will be to provide a general review
of the Company's compensation and benefit plans to ensure that they meet
corporate objectives. In addition, the Compensation Committee will review the
Chief Executive Officer's recommendations on (i) compensation of all officers
of the Company and (ii) adopting and changing major Company compensation
policies and practices, and report its recommendations to the whole Board of
Directors for approval and authorization. The Board may also establish

46
<PAGE>

other committees to assist in the discharge of its responsibilities. The
Compensation Committee is currently comprised of Messrs. Gay and Wolpow. The
Company expects that one or more of the two additional Directors will be
appointed to the Compensation Committee following the Offering.

The Executive Committee reviews the Company's strategic planning processes
and has the power to exercise the authority of the Board on specific matters
assigned to it by the Board from time to time. The Executive Committee is
currently comprised of Messrs. Hanson, Gard, Gay and Wolpow.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION

The Compensation Committee of the Board of Directors is currently comprised
of Messrs. Gay and Wolpow, each of which formerly served as an officer of the
Company. Messrs. Gay and Wolpow are both Managing Directors of Bain Capital,
which is a party to Management Advisory Agreement with the Company. See
"Certain Relationships and Related Transactions--Management Advisory
Agreement."

MANAGEMENT AGREEMENTS

Employment Agreements. In June 1996, the Company and Mr. Hanson entered into
an employment agreement (the "Employment Agreement"), pursuant to which Mr.
Hanson agreed to serve as the Chief Executive Officer of the Company for a
period of three years. Under the Employment Agreement, Mr. Hanson will receive
(i) an annual base salary equal to at least $450,000, (ii) an annual bonus up
to 100% of his annual base salary (upon the Company achieving certain
operating targets) and (iii) certain fringe benefits. Mr. Hanson will be
entitled to receive a payment of $2.5 million upon a "change of control" of
the Company (defined to include a person or group (other than Bain Capital)
becoming an owner of more than 50% of the outstanding Common Stock or
nominating a majority of the Directors who are then elected to the Board). If
Mr. Hanson's employment is terminated for any reason prior to the termination
of such agreement other than for Cause (as defined therein) or his
resignation, he will be entitled to receive his base salary and fringe
benefits for 24 months following such termination in addition to 50% of his
bonus for the year in which his employment was terminated if the termination
is during the first six months of the year or 100% if such termination was
during the last six months of the year. Mr. Hanson has agreed not to compete
with the Company for a period of two years following his termination of
employment with the Company and not to disclose any confidential information
at any time without the prior written consent of the Company.

Mr. Hanson will participate on a pro rata basis in the over-allotment option
granted to the U.S. Underwriters in the Offering. Except with respect to
foregoing, Mr. Hanson has agreed under the Employment Agreement not to
participate in any secondary offering of Common Stock or exercise any
registration rights granted to him under the Registration Agreement (as
defined) for a period ending on the earlier of (i) one year following the
Offering or (ii) upon completion of a secondary offering. During such period,
Mr. Hanson's estate may require the Company to purchase certain of his shares
of Common Stock in the event Mr. Hanson dies during such period.

Mr. Gard has entered into an employment agreement with the Company
containing substantially similar terms. Under such agreement, Mr. Gard has
agreed to serve as the Chief Operating Officer of the Company for (i) an
annual base salary equal to at least $400,000, (ii) an annual bonus up to 100%
of his annual base salary (upon the Company achieving certain operating
targets) and (iii) certain fringe benefits. In addition, Mr. Gard will
likewise participate on a pro rata basis in the over-allotment option granted
to the U.S. Underwriters in the Offering and has also agreed not to
participate in any secondary offering of Common Stock or exercise any
registration rights granted to him under the Registration Agreement.

1992 Management Agreements. The Company, Mr. Hanson, and Tyler Capital Fund,
L.P., Tyler Massachusetts, L.P., and Tyler International, L.P.-II
(collectively, the "Tyler Entities") entered into a Management Agreement,
dated as of December 31, 1992 (the "Management Agreement"), pursuant to which
Mr. Hanson purchased from the Tyler Entities (i) 1,800 shares of Class P
Common Stock, (ii) 16,200 shares of Common Stock, and (iii) 15% subordinated
Ampad promissory notes ("Ampad Notes") in the aggregate

47
<PAGE>

principal amount of $46,034.53, for an aggregate purchase price of
$106,034.53. The Management Agreement also contained certain provisions
relating to the terms of Mr. Hanson's employment, which have been superseded
by the terms of the Employment Agreement. In connection with Mr. Hanson's
relocation from New York to Dallas, Mr. Hanson received a $117,000 loan from
the Company. At December 31, 1995, an aggregate of $112,000 remained
outstanding under the loan (the largest amount during the last fiscal year).
Interest on the loan accrues at an annual rate of 6.19%. In June 1996, the
loan was forgiven in lieu of a bonus payment Mr. Hanson was otherwise entitled
to receive.

Messrs. Gard and Benson entered into similar management agreements with the
Company and the Tyler Entities. Pursuant to their agreements, Messrs. Gard and
Benson each purchased from the Tyler Entities (i) 1,800 shares of Class P
Common Stock, (ii) 16,200 shares of Common Stock, and (iii) Ampad Notes in the
aggregate principal amount of $40,000, for an aggregate purchase price of
$100,000. Mr. Gard's management agreement has been superseded by his
employment agreement. Mr. Benson's management agreement entitles him to
receive an annual base salary of at least $175,000, a bonus of up to 100% of
his average base salary and a severance payment if Mr. Benson's employment is
terminated either without cause or due to death or permanent disability. Mr.
Benson has agreed to certain restrictions on his ability to compete with the
Company following his termination of employment.

1992 IRA Note Purchases. The Company, Mr. Hanson, the Tyler Entities and Mr.
Hanson's Individual Retirement Account ("IRA") entered into a Note Purchase
Agreement dated as of December 31, 1992 (the "IRA Note Purchase Agreement")
pursuant to which Mr. Hanson's IRA purchased on his behalf from the Tyler
Entities Ampad Notes in the aggregate principal amount of $13,965.47.
Covenants contained in the IRA Note Purchase Agreement are similar to those in
the Management Agreement described above. Messrs. Gard and Benson entered into
similar IRA note purchase agreements with the Company, the Tyler Entities and
their respective IRAs. Pursuant to Messrs. Gard's and Benson's agreements, the
IRA of each purchased on their behalf from Tyler Entities Ampad Notes in the
aggregate principal amount of $20,000.00.

Change in Control Agreements. Prior to the Acquisition, WR Acquisition, the
former parent corporation of Williamhouse, entered into change in control
agreements (the "Change in Control Agreements") with Timothy E. Needham,
Edward Norton and certain other officers of Williamhouse. As a result of the
Acquisition, WR Acquisition became a wholly owned subsidiary of the Company.
The term of each Change in Control Agreement will continue until the
expiration of thirty-six (36) months after the Acquisition. Generally, each
officer or employee is entitled to receive, upon termination of employment
during the term of the Change in Control Agreements (unless such termination
is because of death or disability, by the Company for "Cause" (as defined in
the Change in Control Agreements), or by the officer or employee other than
for "Good Reason" (as defined in the Change in Control Agreements)), (i) a
lump sum severance payment equal to thirty-six (36) months of his or her
current annual base salary, as it may subsequently be increased, (ii) all
amounts accrued (but not paid) under any compensation plan of the Company plus
a lump sum payment equal to three times the average annual amount accrued
under any such plan for the three fiscal years preceding such termination,
(iii) continued coverage for three years under Company's medical and
disability plans and (iv) certain other specified payments. To date, the
Company has paid approximately $2.25 million under such Change in Control
Agreements and believes, based on current compensation levels, that the
maximum amount of the severance payments that could be paid under the Change
in Control Agreements will not exceed $11 million.

STOCK OPTIONS

1992 Key Employees Stock Option Plan. On July 31, 1992, the Board of
Directors of the Company adopted the Ampad Holding Corporation 1992 Key
Employees Stock Option Plan, which authorizes grants of stock options
(including options that are intended to qualify as "incentive stock options"
within the meaning of

48
<PAGE>

Section 422 of the Internal Revenue Code) and the sales of Common Stock to
current or future employees, directors, consultants or advisers of the Company
or its subsidiaries. The 1992 Stock Plan authorizes the granting of stock
options for up to an aggregate of 200,000 shares of Common Stock (without
giving effect to the Recapitalization). The number of shares issuable under
the 1992 Stock Plan is subject to adjustment upon the occurrence of certain
events (including, but not limited to, reorganizations, recapitalizations and
stock dividends) to prevent any dilution or expansion of the rights of
participants that might otherwise result from the occurrence of such events.
Under the 1992 Stock Plan, the Board is authorized to grant options for, or
sell any class or classes of Common Stock at any time prior to the termination
of the 1992 Stock Plan in such quantity, at such price, on such terms and
subject to such conditions as established by the Board. The Company has not
sold any shares of Common Stock under the 1992 Stock Plan.

Currently, all options granted pursuant to the 1992 Stock Plan are
exercisable and expire 15 months after the termination of the option holder's
employment with the Company or any of its subsidiaries. Furthermore, pursuant
to all existing agreements under which options have been granted under the
1992 Stock Plan, option holders are required to consent to a sale of all or
substantially all of the assets or outstanding capital stock of the Company to
any person or entity if such sale is approved by the Board or the holders of a
majority of the Common Stock then outstanding. After giving effect to the
Recapitalization, the following options issued under the 1992 Stock Plan will
be outstanding: Mr. Hanson--options to purchase 813,937 shares of Common Stock
at a weighted average purchase price of approximately $.18 per share; Mr.
Gard--options to purchase 773,115 shares of Common Stock at a weighted average
purchase price of approximately $.16 per share; and Mr. Benson--options to
purchase 568,947 shares of Common Stock at a weighted average purchase price
of approximately $.09 per share. See "Fiscal Year-End Option Values."

At the time of the issuance of the Preferred Stock, the Company granted
options to purchase Preferred Stock to its existing option holders pursuant to
the anti-dilution provisions of the 1992 Stock Plan. In December 1995, the
Company repurchased certain of these options in connection with the Company's
redemption of a portion of its Preferred Stock. Messrs. Hanson, Gard and
Benson received approximately $3.4 million, $3.3 million and $2.4 million,
respectively, as a result of such repurchases. All outstanding options to
purchase Preferred Stock will be converted into options to purchase shares of
Common Stock in connection with the Recapitalization.

1996 Stock Plan. Prior to the consummation of the Offering, the Company
plans to adopt the American Pad & Paper Company 1996 Key Employees Stock
Incentive Plan. The 1996 Stock Plan will provide for the granting to employees
and other key individuals who perform services for the Company the following
types of incentive awards: options to purchase Common Stock, stock
appreciation rights with respect to the Common Stock, restricted shares of
Common Stock, performance grants and other types of awards that the
Compensation Committee deems to be consistent with the purposes of the 1996
Stock Plan. The 1996 Stock Plan will afford the Company flexibility in
tailoring incentive compensation to support corporate and business objectives,
and to anticipate and respond to changing business environments and
competitive compensation practices.

An aggregate of 1,500,000 shares of Common Stock of the Company will be
reserved for issuance under the 1996 Stock Plan. Except for any other
adjustments made by the Board of Directors relating to a stock split or
certain other changes in the number of shares of Common Stock, or to reflect
extraordinary corporate transactions, further increases in the number of
shares authorized for issuance under the 1996 Stock Plan must be approved by
the stockholders of the Company.

Non-Employee Director Plan. Prior to the consummation of the Offering, the
Company plans to adopt the American Pad & Paper Company Non-Employee Director
Stock Option Plan. Pursuant to the Non-Employee Director Plan, each Director
(other than Directors who are employees of the Company) will receive a one-
time option grant to purchase 25,000 shares of Common Stock upon effectiveness
of the Non-Employee Director Plan or, for new Directors, upon being elected to
the Board. In addition, each Director will receive an annual grant of options
to purchase 2,000 shares of Common Stock beginning on such Director's fourth
anniversary of being elected to the Board. The initial one-time grants will
vest over three years with 50% vesting in the first year and 25% in the
remaining two years. The annual grants will vest in three equal installments.
The exercise price for

49
<PAGE>

all options granted under the Non-Employee Director Plan will be at fair
market value as of the time of such grant. Options granted under the Non-
Employee Director Plan will generally terminate ten years after the date of
the grant. An aggregate of 350,000 shares of Common Stock will be reserved for
issuance under the Non-Employee Director Plan.

STOCK PURCHASE PLAN

Prior to consummation of the Offering, the Company expects to adopt the
American Pad & Paper Company Management Stock Purchase Plan (the "Purchase
Plan"). The Purchase Plan is designed to provide equity incentives to selected
members of the Company's management, including employee Directors and
executive officers. The eligible participants will be selected by the
Compensation Committee upon the recommendation of the Company's Chief
Executive Officer. It is currently anticipated that approximately 35
management employees will initially be eligible to participate in the Purchase
Plan. Under the Purchase Plan, eligible participants will be able to elect to
purchase shares of Common Stock in lieu of up to 25% of their annual incentive
bonuses. The Common Stock will be sold under the Purchase Plan at a 25%
discount from the fair market value on the date of purchase. The aggregate
maximum number of shares of Common Stock that will be reserved and available
for issuance under the Purchase Plan will be 250,000 shares.

50
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The table below sets forth certain information regarding the equity
ownership of the Company as of June 1, 1996 and immediately following the
Offering, assuming in each case the effectiveness of the Recapitalization, by
(i) each person or entity who beneficially owns five percent or more of the
Common Stock, (ii) each Director and executive officer named in the Summary
Compensation Table, (iii) all Directors and current executive officers of the
Company as a group and (iv) each Selling Stockholder. Unless otherwise stated,
each of the persons named in the table has sole voting and investment power
with respect to the securities beneficially owned by it or him as set forth
opposite its or his name. Beneficial ownership of the Common Stock listed in
the table has been determined in accordance with the applicable rules and
regulations promulgated under the Exchange Act.

<TABLE>
<CAPTION>
COMMON STOCK OWNED COMMON STOCK OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING (1)
--------------------------- ------------------------
NUMBER OF PERCENTAGE OF SHARES BEING NUMBER OF PERCENTAGE OF
NAME AND ADDRESS SHARES SHARES OFFERED (1) SHARES SHARES
---------------- ---------- ------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Bain Capital Funds...... 13,151,040(2) 91.2% 3,030,807(3) 10,120,233 37.6%
c/o Bain Venture Capital
Two Copley Place
Boston, Massachusetts
02116
DIRECTORS AND EXECUTIVE OFFICERS:
Charles G. Hanson, III
(4)(5)................. 1,102,442 7.2 -- 1,102,442 4.0
Russell M. Gard (4)(6).. 1,061,621 7.0 -- 1,061,621 3.8
Gregory M. Benson
(4)(7)................. 857,453 5.7 -- 857,453 3.1
Robert C. Gay (8)(9).... 13,151,040 91.2 3,030,807 10,120,233 37.6
Jonathan S. Lavine
(8)(10)................ 986,309 6.8 227,306 759,003 2.8
Marc B. Wolpow (8)(11).. 986,309 6.8 227,306 759,003 2.8
Timothy E. Needham...... -- -- -- -- --
Edward Norton........... -- -- -- -- --
All Directors and
executive officers as a
group (9 persons)(12).. 16,172,556 97.5% 3,030,807 13,141,748 45.2
OTHER SELLING STOCKHOLD-
ERS:
Karl E. Lutz (13)....... 120,211 * 27,704 92,507 *
Frederick H. Potts...... 288,505 2.0% 66,489 222,016 *
</TABLE>
- --------
* Represents less than one percent.
(1) Assumes no exercise of the U.S. Underwriters' over-allotment option and
does not give effect to any purchases, if any, by such persons named in
the table in the Offering. The Selling Stockholders (including Messrs.
Hanson, Gard and Benson) have granted the U.S. Underwriters an option to
purchase up to an aggregate of 2,343,750 additional shares to cover over-
allotments, if any.
(2) Includes 9,617,552 shares held by Tyler Capital Fund, L.P.; 1,970,570
shares held by Tyler Massachusetts, L.P.; 576,609 shares held by Tyler
International, L.P.-II; 820,854 shares held by BCIP Associates ("BCIP
Associates"); and 165,455 shares held by BCIP Trust Associates, L.P.
("BCIP Trust" and, collectively with BCIP Associates and the Tyler
entities, the "Bain Capital Funds").
(3) Bain Capital Funds will sell their shares in the Offering on a pro rata
basis.
(4) The address of such person is c/o the Company, 17304 Preston Road,
Dallas, Texas 75252.
(5) Includes 813,937 shares of Common Stock that can be acquired through
currently exercisable options.
(6) Includes 773,115 shares of Common Stock that can be acquired through
currently exercisable options.
(7) Includes 568,947 shares of Common Stock that can be acquired through
currently exercisable options.
(8) The address of such person is c/o Bain Venture Capital, Two Copley Place,
Boston, Massachusetts 02116.
(9) Mr. Gay is a Director of the Company. Mr. Gay is also a general partner
of Bain Venture Capital, the general partner of the Tyler entities, and a
general partner of BCIP Associates and BCIP Trust. Accordingly, Mr. Gay
may be deemed to beneficially own shares owned by the Bain Capital Funds,
although Mr. Gay disclaims beneficial ownership of any such shares.
(10) Mr. Lavine is a Director of the Company. Mr. Lavine is also a general
partner of BCIP Associates and BCIP Trust. Accordingly, Mr. Lavine may be
deemed to beneficially own shares owned by BCIP Associates and BCIP
Trust, although Mr. Lavine disclaims beneficial ownership of any such
shares.

51
<PAGE>

(11) Mr. Wolpow is a Director of the Company. Mr. Wolpow is also a general
partner of BCIP Associates and BCIP Trust. Accordingly, Mr. Wolpow may be
deemed to beneficially own shares owned by BCIP Associates and BCIP
Trust, although Mr. Wolpow disclaims beneficial ownership of any such
shares.
(12) Includes shares which may be deemed to be beneficially owned by Messrs.
Gay, Lavine and Wolpow as a result of their relationships with the Bain
Capital Funds and shares that Messrs. Hanson, Gard and Benson can acquire
through currently exercisable options.
(13) Karl E. Lutz, P.C. is partner of Kirkland & Ellis. Kirkland & Ellis has
provided legal services to the Company over the past three years and
expects to continue to do so in the future. Certain of Mr. Lutz's shares
are held by an individual retirement account for his sole benefit.

The Selling Stockholders (including Messrs. Hanson, Gard and Benson) have
granted the U.S. Underwriters an option to purchase up to an aggregate of
2,343,750 additional shares to cover over-allotments, if any. The following
table sets forth certain information regarding the equity ownership of the
Company assuming the U.S. Underwriters' option is exercised in full:

<TABLE>
<CAPTION>
COMMON STOCK
NUMBER OF OWNED AFTER THE OFFERING(1)
SHARES OFFERED --------------------------------
IN OVER-ALLOTMENT NUMBER OF PERCENTAGE OF
NAME OPTION SHARES SHARES
---- ----------------- ---------------- ---------------
<S> <C> <C> <C>
Bain Capital Funds........ 1,858,889 8,261,344 30.7%
Charles G. Hanson, III.... 155,829 946,613 3.4
Russell M. Gard........... 150,059 911,561 3.3
Gregory M. Benson......... 121,201 736,252 2.7
Karl E. Lutz.............. 16,992 75,516 *
Fredrick H. Potts......... 40,780 181,236 *
</TABLE>
- --------
* Represents less than one percent.
(1) Assumes the U.S. Underwriters' over-allotment is exercised in full.

The Company has agreed to pay all of the expenses of the Selling
Stockholders in the Offering other than underwriting discounts and
commissions. In the event the Underwriters' over-allotment is not exercised in
full, the number of shares to be sold by the Selling Stockholders named above
will be reduced proportionally.

52
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ACQUISITION ARRANGEMENTS

In connection with the Acquisition, members of Williamhouse's management
received substantial payments for their equity interests in Williamhouse.
Messrs. Needham and Norton received approximately $1,737,238 and $1,371,708,
respectively, at the closing of the Acquisition for their shares of
Williamhouse and pursuant to other equity-based arrangements. Bain Capital was
paid a fee of $5 million by the Company for, among other things, its services
in analyzing, negotiating and arranging the financing for the Acquisition.
Prior to the Acquisition, the Company recapitalized its Common Stock and Class
P Common Stock into Common Stock, Class P Common Stock and approximately $200
million aggregate liquidation value of Preferred Stock. In connection with
such recapitalization, the Company declared a dividend on its Class P Common
Stock and Common Stock of one share of Preferred Stock for each ten shares of
Class P Common Stock and Common Stock. In December 1995, the Company redeemed
on a pro rata basis a portion of such Preferred Stock with an aggregate
liquidation value of approximately $70.6 million. At the same time, the
Company declared a cash dividend of approximately $4.5 million on its Class P
Common Stock and, thereafter, converted all outstanding Class P Common Stock
on a share-for-share basis into Common Stock. The executive officers of the
Company received an aggregate of 5,400 shares of Preferred Stock as a result
of the Preferred Stock Dividend and cash consideration of approximately
$267,819 as a result of the redemption of certain of their shares of Preferred
Stock. In addition, approximately $8,901,520 was used by the Company to
repurchase from the executive officers of the Company options to acquire
Preferred Stock. See "Management--Stock Options--1992 Key Employees Stock
Option Plan."

MANAGEMENT ADVISORY AGREEMENT

In October 1995, the Company entered into a ten-year Management Advisory
Agreement (the "Advisory Agreement") with Bain Capital to replace Bain
Capital's prior agreement with the Company. Pursuant to the Advisory
Agreement, Bain Capital provides management consulting, advisory services and
support, negotiation and analysis of financial alternatives, acquisitions and
dispositions and other services as agreed upon by the Company and Bain
Capital. Under the Advisory Agreement, the Company (i) paid Bain Capital in
connection with the offering of the Notes, in the aggregate, a cash financial
advisory fee of $2.0 million, plus its out-of-pocket expenses and (ii) agreed
to pay Bain Capital an aggregate annual fee of no less than $2.0 million, plus
its out-of-pocket expenses. For the years ended December 31, 1995, 1994 and
1993, the Company paid Bain Capital $937,000, $684,000 and $431,000,
respectively, in financial advisory fees pursuant to the Advisory Agreement or
the prior agreement. Prior to the completion of the Offering, the Company and
Bain Capital expect to amend and restate the Advisory Agreement to provide for
an initial term of four years, subject to automatic one-year extensions beyond
the initial term (not to exceed an aggregate of eight years) on each
anniversary of the effective date of such agreement so long as Bain Capital
continues to own at least 5% of the outstanding Common Stock. Under the
amended Advisory Agreement, the Company will pay Bain Capital (i) an annual
cash advisory fee of $2 million, plus out-of-pocket expenses, (ii) an
aggregate fee of approximately $2.0 million, plus its out-of-pocket expenses
in connection with the Proposed Equity Offering and (iii) a transaction fee in
connection with the consummation of each acquisition, divestiture or financing
by the Company or its subsidiaries in an amount equal to 1% of the aggregate
value of such transaction. In connection therewith, the Company expects to pay
Bain Capital transaction fees of approximately $3.0 million, plus its out-of-
pocket expenses, in connection with the entering into of the New Bank Credit
Agreement, approximately $300,000 for its services rendered in connection with
the sale of the Personalizing Division and $550,000 for its services rendered
in connection with the Niagara Acquisition. The Company believes that the fees
received for the professional services rendered are at least as favorable to
the Company as those which could be negotiated with a third party.

53
<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS

BANK CREDIT AGREEMENT

On October 31, 1995, the Company and APPC entered into a Bank Credit
Agreement with Bankers Trust Company, as agent for various lending
institutions thereto (the "Agent"), providing for Term Loans of $245.0 million
in the form of a multi-tranche facility, a revolving credit facility of $45.0
million and an IRB Letter of Credit facility of approximately $13.4 million.
The Company used borrowings under the Bank Credit Agreement to provide funding
necessary to consummate the Acquisition, with the revolving credit facility
being used for working capital needs. Indebtedness under the Bank Credit
Agreement is guaranteed by the Company and all current and future domestic
subsidiaries of the Company except for the SPC (as defined), and is secured by
(i) a perfected security interest in substantially all the assets and property
(other than certain equipment secured by purchase money security interests) of
the Company and its subsidiaries except for the SPC, and (ii) a first priority
perfected pledge of all capital stock of the immediate parent corporation of
APPC, the Company and its current subsidiaries except for the SPC.

The maturity and interest rates of the Term Loans under the Bank Credit
Agreement vary by tranche. The overall effective interest rate for borrowings
under the Term Loans as of March 31, 1996 was 9.0%. The revolving credit
facility is a five-year facility bearing interest at a floating rate based, at
the Company's option, on either the Eurodollar plus 275 basis points (subject
to an interest rate reduction of 25 to 50 basis points if the Company meets
certain financial ratios) or the bank base rate plus 175 basis points (subject
to an interest rate reduction of 25 to 50 basis points if the Company meets
certain financial ratios). The revolving credit facility includes a letter of
credit sublimit of $20 million. APPC is required to pay the lenders under the
Bank Credit Agreement in the aggregate a commitment fee equal to 0.5% per
annum, payable on a quarterly basis, on the daily average unused portion of
this facility. As of March 31, 1996, the Company did not have any outstanding
borrowings under the revolving credit facility.

The Bank Credit Agreement requires APPC to meet certain financial tests,
including minimum levels of consolidated EBITDA (as defined therein), minimum
interest coverage and maximum leverage ratio. The Bank Credit Agreement also
contains covenants which, among other things, limit the incurrence of
additional indebtedness, payment of dividends, transactions with affiliates,
asset sales, acquisitions, mergers, prepayments of other indebtedness, liens
and encumbrances and other matters customarily restricted in such agreements.

The Bank Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, ERISA, judgment defaults, failure of any guaranty or security
agreement supporting the Bank Credit Agreement to be in full force and effect
and change of control of the Company.

NEW BANK CREDIT AGREEMENT

Contemporaneously with the Offering, the Company intends to (i) refinance
and retire all remaining indebtedness under the Bank Credit Agreement with a
portion of the proceeds of the Offering, and (ii) enter into the New Bank
Credit Agreement. The New Bank Credit Agreement will be a revolving credit
facility with a maximum availability of $300 million with the following
principal terms: Loans will be made under the New Bank Credit Agreement
directly to APPC and will be guaranteed by the Company and each of its
subsidiaries (other than the SPC). Loans made under the New Bank Credit
Agreement will bear interest at a rate per annum equal to, at the Company's
option, (i) the Base Rate plus the Applicable Margin or (ii) the Eurodollar
Rate plus the Applicable Margin (as each term is defined in the New Bank
Credit Agreement). The Applicable Margin for the Base Rate loans will vary
from 0% to .75% and the Applicable Margin for Eurodollar Loans will vary from
.75% to 1.75%, each based on the Company's Leverage Ratio and the type of
loan. Availability under the New Bank Credit Agreement will be subject to an
unused commitment fee which will be a percentage of the unutilized revolving
loan commitment. This percentage will vary from .3% to .5% based on the
Company's Leverage Ratio.

Availability under the New Bank Credit Agreement will generally be reduced
to the extent of the net proceeds of a sale of assets by the Company, the net
proceeds of an issuance of debt by the Company or 50% of the net proceeds of
an issuance of equity by the Company. Availability will also be reduced by $50
million in 1999 and $50 million in 2000. The New Bank Credit Agreement is
expected to terminate in 2001. The Company

54
<PAGE>

will be permitted to make acquisitions under the New Bank Credit Agreement up
to $25 million per acquisition without the consent of the Required Banks and
up to $50 million per acquisition if, on a pro forma basis giving effect to
such acquisition, the Company's Leverage Ratio is less than 3.0 to 1.0. The
New Bank Credit Agreement will be secured to the same extent as the Bank
Credit Agreement and will contain similar restrictive covenants, financial
tests and events of default. The foregoing description of the material terms
of the New Bank Credit Agreement is qualified in its entirety by reference by
the executed term sheet relating to the New Bank Credit Agreement, which has
been filed as an exhibit to the registration statement to which this
Prospectus is a part.

NOTES

The Notes were issued pursuant to the Indenture, dated as of December 1,
1995, by and among APPC, certain subsidiary guarantors and IBJ Schroder Bank &
Trust Company, as Trustee (the "Trustee"). The net proceeds to APPC from the
sale of the Notes were approximately $194 million (after deducting the initial
purchasers' discount and certain fees and expenses). The net proceeds of such
sale were used to (i) repurchase the Old Debentures of Williamhouse, (ii) to
pay a cash dividend on the Class P Common Stock, (iii) to redeem a portion of
the Preferred Stock, (iv) to pay related fees and expenses and (v) to provide
for working capital. The Notes are limited in aggregate principal amount to
$200 million and mature on November 15, 2005. Interest on the Notes accrues at
the rate of 13% per annum and will be payable semi-annually in cash on each
May 15 and November 15 commencing on May 15, 1996.

The Notes are redeemable, at APPC's option, in whole at any time or in part
from time to time, on and after November 15, 2000, upon not less than 30 nor
more than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-
month period commencing on November 15 of the year set forth below, plus, in
each case, accrued interest to the date of redemption:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000..................... 106.500%
2001..................... 104.333
2002..................... 102.167
2003 and thereafter...... 100.000
</TABLE>

At any time, or from time to time, on or prior to November 15, 1998, APPC
may, at its option, use the net cash proceeds of one or more public equity
offerings (as defined in the Indenture) to redeem up to 35% of the aggregate
principal amount of Notes originally issued at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on November 15 of the year set forth below,
plus, in each case, accrued interest to the date of redemption:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1995..................... 111.0%
1996..................... 113.0
1997..................... 113.0
</TABLE>

provided that at least $100 million aggregate principal amount of Notes
remains outstanding immediately after any such redemption.

The Notes are unsecured obligations of APPC, ranking subordinate in right of
payment to all Senior Debt of APPC. As of March 31, 1996, APPC had
approximately $253.5 million of Senior Debt and the Subsidiary Guarantors (as
defined) had approximately $8.6 million of Senior Debt (excluding guarantees
of Senior Debt). As of March 31, 1996, the Company had approximately $45.7
million available to be drawn under the revolving credit portion and letter of
credit facility of the Bank Credit Agreement. Each subsidiary of APPC (other
than the SPC) (collectively, the "Subsidiary Guarantors") has fully and
unconditionally guaranteed, on a senior subordinated basis, jointly and
severally, the performance of APPC's obligations under the Indenture and the
Notes. The guarantees are subordinated to Senior Debt of the Subsidiary
Guarantors on the same basis as the Notes are subordinated to the Senior Debt
of APPC. Under the Indenture (without giving effect to the restrictions in the
Bank Credit Agreement), the Company could have incurred approximately $74
million of additional indebtedness, including indebtedness senior in right of
payment to the Notes, at March 31, 1996.

55
<PAGE>

The Indenture provides that upon the occurrence of a "change of control,"
each holder will have the right to require that APPC purchase all or a portion
of such holder's Notes at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase. "Change of
Control" is defined under the Indenture to mean: (i) any sale, lease, exchange
or other transfer of all or substantially all of the assets of the Company
(other than to Bain Capital and certain related parties); (ii) the liquidation
or dissolution of the Company; (iii) any person or group (other than Bain
Capital and certain related parties) becoming the owner of shares representing
more than 50% of the aggregate ordinary voting power represented by the issued
and outstanding capital stock of the Company; or (iv) the replacement of a
majority of the Board of Directors of the Company over a two-year period from
the directors who constituted such Board of Directors at the beginning of such
period without the approval of a majority of such Board of Directors then
still in office.

The Indenture governing the Notes contains certain covenants, including
limitations on the incurrence of indebtedness, the making of restricted
payments, transactions with affiliates, the existence of liens, disposition of
proceeds of asset sales, the making of guarantees by subsidiaries, transfer
and issuances of stock of subsidiaries, the imposition of dividend or other
payment restrictions on subsidiaries, certain mergers and sales of assets, the
application of proceeds from an initial public offering, and the ability of
APPC to pay dividends to the Company. See "Risk Factors--Dividend Policy;
Restrictions on Payment of Dividends." Such provisions of the Indenture may,
in certain circumstances, make it more difficult or discourage a takeover of
the Company, whether favored or opposed by management of the Company.

The foregoing description of the material terms of the Indenture is
qualified in its entirety by reference to the Indenture, which has been filed
on an exhibit to the registration statement to which this Prospectus is a
part.

ACCOUNTS RECEIVABLE FACILITY

The Accounts Receivable Facility was established simultaneously with the
consummation of the Acquisition. Pursuant to the Accounts Receivable Facility,
the Company and its subsidiaries are deemed to have sold to a wholly owned
special purpose corporation of the Company (the "SPC") all of the receivables
generated by the Company and its subsidiaries upon the creation of such
receivables. The SPC then transfers the receivables purchased from the Company
and its subsidiaries each day to a master trust (the "Trust"). The SPC is
operated in a fashion intended to ensure that its assets and liabilities are
distinct from those of the Company and its other affiliates, and that its
assets are not available to satisfy claims of creditors of the Company and its
subsidiaries.

At the time of the Acquisition, the Company sold all of its receivables to
the SPC. The SPC, in turn, transferred the receivables to the Trust in
exchange for a "Variable Funding Certificate" and a "Transferor Certificate,"
each representing an undivided interest in the securities and other assets of
the Trust. Immediately thereafter, the SPC sold the Variable Funding
Certificate to Bankers Trust Company.

The Trust has issued an aggregate principal amount of $60 million Class A
Variable Rate Trade Receivables Backed Certificates, Series 1996-1 (the "Class
A Certificates") and Class Board Variable Rate Trade Receivables Backed
Certificates, Series 1996-1 (the "Class B Certificates"). The Class A
Certificates are "revolving" certificates, the principal amount of which may
be increased or decreased by the SPC, subject to certain standard conditions
precedent. The Class B Certificates have a fixed principal amount and are
subordinated to the Class A Certificates. The Class A Certificates and the
Class B Certificates have a term of approximately 4 1/2 years until their
scheduled amortization dates. The interest rate of the Class A Certificates is
equal to a reserve-adjusted Eurodollar rate or an alternate base rate plus a
given spread. The interest rate of the Class B Certificates is equal to a
reserve-adjusted Eurodollar rate plus a given spread. The Company expects that
the Class A Certificates have been rated AAA and the Class B Certificates have
been rated BBB by Standard & Poor's Rating Group. The SPC used the proceeds of
the issuance of the Class A Certificates and Class B Certificates to repay the
Variable Funding Certificate described in the preceding paragraph.

56
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL MATTERS

At the time of the Offering the total amount of authorized capital stock of
the Company will consist of 75,000,000 shares of Common Stock, par value $0.01
per share, and 150,000 shares of preferred stock, par value $0.01 per share
(the "Serial Preferred Stock"). Upon completion of the Offering, 26,925,272
shares of Common Stock will be issued and outstanding and no shares of
Preferred Stock will be issued and outstanding. As of March 31, 1996, there
were 900,000 shares of Common Stock and 58,449 shares of Preferred Stock
outstanding (each before giving effect to the Recapitalization) and each were
held by 11 holders of record. The discussion herein describes the Company's
capital stock, the Restated Certificate of Incorporation and By-laws as
anticipated to be in effect upon consummation of the Offering. The following
summary of certain provisions of the Company's capital stock describes all
material provisions of, but does not purport to be complete and is subject to,
and qualified in its entirety by, the Restated Certificate of Incorporation
and the By-laws of the Company that are included as exhibits to the
Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.

The Restated Certificate of Incorporation and By-laws will contain certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and which may have the
effect of delaying, deferring or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved
by the Board of Directors.

COMMON STOCK

The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered by the Company will be upon payment therefor,
validly issued, fully paid and nonassessable. Subject to the prior rights of
the holders of any Serial Preferred Stock, the holders of outstanding shares
of Common Stock are entitled to receive dividends out of assets legally
available therefor at such time and in such amounts as the Board of Directors
may from time to time determine. See "Dividend Policy." The shares of Common
Stock are not convertible and the holders thereof have no preemptive or
subscription rights to purchase any securities of the Company. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive pro rata the assets of the Company which are
legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Serial Preferred
Stock then outstanding. Each outstanding share of Common Stock is entitled to
one vote on all matters submitted to a vote of stockholders. There is no
cumulative voting.

The Common Stock has been approved for listing on the NYSE, subject to
official notice of issuance, under the symbol "AGP."

SERIAL PREFERRED STOCK

The Company currently has an aggregate of 58,449 shares of Preferred Stock
outstanding. All of the outstanding Preferred Stock will be converted into
shares of Common Stock prior to the completion of the Offering contemplated
hereby. See "The Recapitalization."

The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time, direct the issuance of shares of
Serial Preferred Stock in series and may, at the time of issuance, determine
the rights, preferences and limitations of each series. Satisfaction of any
dividend preferences of outstanding shares of Serial Preferred Stock would
reduce the amount of funds available for the payment of dividends on shares of
Common Stock. Holders of shares of Serial Preferred Stock may be entitled to
receive a preference payment in the event of any liquidation, dissolution or
winding-up of the Company before any payment is made to the holders of shares
of Common Stock. Under certain circumstances, the issuance of shares of Serial
Preferred Stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a
large block of the Company's securities or the removal of incumbent

57
<PAGE>

management. Upon the affirmative vote of a majority of the total number of
directors then in office, the Board of Directors of the Company, without
stockholder approval, may issue shares of Serial Preferred Stock with voting
and conversion rights which could adversely affect the holders of shares of
Common Stock. Upon consummation of the Offering, there will be no shares of
Serial Preferred Stock outstanding, and the Company has no present intention
to issue any shares of Serial Preferred Stock.

CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS

The Restated Certificate of Incorporation provides for the Board to be
divided into three classes, as nearly equal in number as possible, serving
staggered terms. Approximately one-third of the Board will be elected each
year. See "Management." Under the Delaware General Corporation Law, directors
serving on a classified board can only be removed for cause. The provision for
a classified board could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of the Board until the
second annual stockholders meeting following the date the acquiror obtains the
controlling stock interest. The classified board provision could have the
effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company and could increase the
likelihood that incumbent directors will retain their positions.

The Restated Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and cannot
be taken by written consent in lieu of a meeting. The Restated Certificate of
Incorporation and the By-laws provides that, except as otherwise required by
law, special meetings of the stockholders can only be called pursuant to a
resolution adopted by a majority of the Board of Directors or by the chief
executive officer of the Company. Stockholders will not be permitted to call a
special meeting or to require the Board to call a special meeting.

The By-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company,
including proposed nominations of persons for election to the Board.

Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board or by a stockholder who was a stockholder of record on
the record date for the meeting, who is entitled to vote at the meeting and
who has given to the Company's Secretary timely written notice, in proper
form, of the stockholder's intention to bring that business before the
meeting. Although the By-laws do not give the Board the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting, the By-laws may have
the effect of precluding the conduct of certain business at a meeting if the
proper procedures are not followed or may discourage or defer a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.

The Restated Certificate of Incorporation and By-laws provide that the
affirmative vote of holders of at least 80% of the total votes eligible to be
cast in the election of directors is required to amend, alter, change or
repeal certain of their provisions. This requirement of a super-majority vote
to approve amendments to the Restated Certification of Incorporation and By-
laws could enable a minority of the Company's stockholders to exercise veto
power over any such amendments.

CERTAIN PROVISIONS OF DELAWARE LAW

Following the consummation of the Offering, the Company will be subject to
the "Business Combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction
which the person became an "interested stockholder," unless (i) the
transaction is approved by the Board of Directors prior to the date the
"interested stockholder" obtained such status, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder," owned at least 85% of the voting
stock of

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the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares
owned by (a) persons who are directors and also officers and (b) employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer, or (iii) on or subsequent to such date the "business
combination" is approved by the board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" is defined to include mergers, asset
sales and other transactions resulting in financial benefit to a stockholder.
In general, an "interested stockholder" is a Person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more
of a corporation's voting stock. The statute could prohibit or delay mergers
or other takeover or change in control attempts with respect to the Company
and, accordingly, may discourage attempts to acquire the Company.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Restated Certificate of Incorporation limits the liability of Directors
to the fullest extent permitted by the Delaware General Corporation Law. In
addition, the Restated Certificate of Incorporation will provide that the
Company shall indemnify Directors and officers of the Company to the fullest
extent permitted by such law. The Company anticipates entering into
indemnification agreements with its current Directors and executive officers
prior to the completion of the Offering.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is First National Bank
of Boston.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of significant amounts
of the Common Stock in the public market, or the perception that such sales
may occur, could adversely affect prevailing market prices. See "Risk
Factors--Potential Adverse Impact of Shares Eligible for Future Sale."

Upon completion of the Offering, the Company expects to have 26,925,272
shares of Common Stock outstanding. In addition, 2,156,000 shares of Common
Stock will be issuable upon the exercise of outstanding stock options. Of the
shares outstanding after the Offering, the 15,625,000 shares of Common Stock
(17,968,750 shares if the Underwriters' over-allotment is exercised in full)
sold in the Offering will be freely tradeable without restriction under the
Securities Act, except for any such shares which may be acquired by an
"affiliate" of the Company (an "Affiliate"), as that term is defined in Rule
144 under the Securities Act, which shares will be subject to the volume
limitations of Rule 144. An aggregate of 11,300,272 shares of Common Stock
held by existing stockholders upon completion of the Offering will be
"restricted securities" (as that phrase is defined in Rule 144) and may not be
resold in the absence of registration under the Securities Act or pursuant to
exemptions from such registration, including among others, the exemption
provided by Rule 144 under the Securities Act.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least two years has elapsed
since the later of the date the "restricted securities" were acquired from the
Company and the date they were acquired from an Affiliate, then the holder of
such restricted securities (including an Affiliate) is entitled to sell a
number of shares within any three-month period that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock
(approximately 269,253 shares immediately after the Offering) or the average
weekly reported volume of trading of the Common Stock on the NYSE during the
four calendar weeks preceding such sale. The holder may only sell such shares
through unsolicited brokers' transactions. Sales under Rule 144 are also
subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
shares in accordance with the foregoing volume limitations and other
requirements but without regard to the two-year holding period. Under Rule
144(k), if a period of at least three years has elapsed between the later of
the date restricted securities were acquired from the Company and the date
they were acquired from an Affiliate, as applicable, a holder of such
restricted securities who is not an Affiliate at the time of the sale and has
not been an Affiliate for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume
limitations and other restrictions described above. In June 1995, the
Commission proposed reducing the two and three year bidding periods under Rule
144 described above to one and two years respectively. Ninety days after the
date of this Prospectus, approximately 11,300,272 shares of Common Stock will
be eligible for sale in the public market pursuant to Rule 144, subject to the
volume limitations and other restrictions described above.

Any employee of the Company who purchased his or her shares of Common Stock
or received an option to purchase Common Stock pursuant to a written
compensation plan or contract while the Company was not subject to the
reporting requirements of the Exchange Act may be entitled to rely on the
resale provisions of Rule 701 under the Securities Act, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
current public information, holding period, volume limitation or notice
provisions of Rule 144 and permits Affiliates to sell their Rule 701 shares
without having to comply with the holding period provision of Rule 144, in
each case beginning 90 days after the Company became subject to the reporting
requirements of the Exchange Act. All of the outstanding options are currently
exercisable by the holders thereof. The shares of Common Stock issuable upon
the exercise of the outstanding options will be eligible for sale in the
public market 90 days after the date of this Prospectus pursuant to Rule 701
under the Securities Act, subject to the volume limitations and other
restrictions of Rule 144 described above.

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<PAGE>

Notwithstanding the foregoing, in connection with the Offering, the
Company's executive officers, Directors and certain existing stockholders of
the Company, who own in aggregate approximately 13,456,272 shares of Common
Stock (including 2,156,000 shares which can be acquired through currently
exercisable options), have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated ("Morgan Stanley") on behalf of the
Underwriters, they will not (a) offer, pledge, sell contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (whether such
shares or any such securities are then owned by such person or are thereafter
acquired directly from the Company), or (b) enter into any swap or similar
agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (a) or (b) of this paragraph is to be settled by delivery
of such Common Stock or such other securities, in cash or otherwise, for a
period of 180 days after the date of this Prospectus, other than (i) the sale
to the Underwriters of the shares of Common Stock under the Underwriting
Agreement (as defined), (ii) the issuance by the Company of shares of Common
Stock upon the exercise of an option sold or granted pursuant to an existing
benefit plan of the Company and outstanding on the date of this Prospectus or
(iii) transfer of shares of Common Stock in a bona fide charitable
distribution or any estate planning distribution.

REGISTRATION AGREEMENT

The Company and substantially all of its existing stockholders, including
the Bain Capital Funds and management, have entered into a registration
agreement (the "Registration Agreement"). Under the Registration Agreement,
the holders of a majority of the registrable securities owned by the Bain
Capital Funds and related investors have the right at any time, subject to
certain conditions, to require the Company to register any or all of their
shares of Common Stock under the Securities Act on Form S-1 (a "Long-Form
Registration") on three occasions at the Company's expense and on Form S-2 or
Form S-3 (a "Short-Form Registration") on an unlimited number of occasions at
the Company's expense. The Company is not required, however, to effect any
such Long-Form Registration or Short-Form Registration within six months after
the effective date of a prior demand registration and may postpone the filing
of such registration for up to six months if the holders of a majority of the
registrable securities agree that such a registration would likely have a
material adverse effect on the Company. In addition, all holders of
registrable securities are entitled to request the inclusion of any shares of
Common Stock subject to the Registration Agreement in any registration
statement at the Company's expense whenever the Company proposes to register
any of its securities under the Securities Act, subject to certain conditions.
In connection with all such registrations, the Company has agreed to indemnify
all holders of registrable securities against certain liabilities, including
liabilities under the Securities Act. Beginning 180 days after the date of the
Prospectus, the holders of an aggregate of 11,078,256 shares of Common Stock
will have demand registration rights pursuant to the Registration Agreement.

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<PAGE>

CERTAIN MATERIAL FEDERAL INCOME TAX
CONSEQUENCES TO NON-UNITED STATES HOLDERS

GENERAL

The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a Non-U.S. Holder. For this purpose, the term "Non-U.S. Holder" is
defined as any person or entity that is, for United States federal income tax
purposes, a foreign corporation, a non-resident alien individual, a foreign
partnership or a non-resident fiduciary of a foreign estate or trust. This
discussion does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state and local consequences that
may be relevant to such Non-U.S. Holders in light of their personal
circumstances. Furthermore, this discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change either retroactively or prospectively. EACH PROSPECTIVE PURCHASER OF
COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND
POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON
STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY
U.S. STATE, MUNICIPALITY OR OTHER TAXING JURISDICTION.

Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, would affect the United States
taxation of dividends paid to a Non-United States Holder on Common Stock. The
Proposed Regulations are generally proposed to be effective with respect to
dividends paid after December 31, 1997, subject to certain transition rules.
The discussion below is not intended to be a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged to
consult their tax advisors with respect to the effect the Proposed Regulations
would have if adopted.

An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a nonresident alien) by virtue of being present in the
United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during the current calendar year and the two preceding
calendar years (counting for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the second preceding year). Resident
aliens are subject to U.S. federal tax as if they were U.S. citizens.

DIVIDENDS

The Company currently does not intend to pay dividends on the Common Stock.
See "Dividend Policy." In the event that dividends are paid on shares of
Common Stock, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of United States federal income tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty, unless
the dividends are effectively connected with the conduct of a trade or
business of the Non-U.S. Holder within the United States and an Internal
Revenue Service Form 4224 (or, if and when the Proposed Regulations become
effective, an Internal Revenue Service Form W-8) is filed with the payor.
Dividends that are effectively connected with the conduct of a trade or
business within the United States are subject to United States federal income
tax on a net income basis at applicable graduated individual or corporate
rates. A foreign corporation receiving effectively connected dividends may,
under certain circumstances, be subject to an additional "branch profits tax"
at a rate of 30% (or such lower rate as may be specified by an applicable
income tax treaty) of the foreign corporation's effectively connected earnings
and profits, subject to certain adjustments.

Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country for purposes of the withholding discussed above, and, under the
current interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under the Proposed
Regulations, to obtain a reduced rate of withholding under a treaty, a Non-
United States Holder would generally be required to provide an Internal
Revenue Service Form W-8 certifying such Non-United States Holder's
entitlement to benefits under a treaty. The Proposed Regulations would also

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<PAGE>

provide special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-United States Holder
that is an entity should be treated as paid to the entity or those holding an
interest in that entity. Certain certification and disclosure requirements
must be complied with in order to be exempt from withholding under the
effectively connected income exemption.

A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder will generally not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States, (ii) in the case of a
Non-U.S. Holder who is an individual and holds the Common Stock as a capital
asset, such holder is present in United States for 183 or more days in the
taxable year of the sale or other disposition and certain other conditions are
met, or (iii) the Company is or has been a "U.S. real property holding
corporation" for United States federal income tax purposes within the shorter
of the five-year period preceding such disposition or such holder's holding
period. The Company is not and does not anticipate becoming a "U.S. real
property holding corporation" for United States federal income tax purposes.

If an individual Non-U.S. Holder falls under clause (i) above, he or she
will be taxed on his or her net gain derived from the sale at regular
graduated U.S. federal income tax rates. If an individual Non-U.S. Holder
falls under clause (ii) above, he or she will be subject to a flat 30% tax on
the gain derived from the sale which gain may be offset by U.S. capital
losses. If a Non-U.S. Holder that is a foreign corporation falls under clause
(i) above, it will be taxed on its gain at regular graduated U.S. federal
income tax rates and may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified in an applicable income tax treaty. If the Company is a "U.S. real
property holding corporation" at any time during the five-year period ending
on the date of the disposition, a Non-U.S. Holder who has held more than 5% of
the Common Stock at any time during the shorter of the five-year period ending
on the date of the disposition (taking into account certain attribution rules)
or such holder's holding period will be taxed on its gain at regular graduated
U.S. federal income tax rates or, if higher, the graduated rates used for
alternative minimum tax purposes.

FEDERAL ESTATE TAX

An individual Non-U.S. Holder who is treated as the owner of or has made
certain lifetime transfers of an interest in the Common Stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

Under Treasury regulations, the Company must report annually to the IRS and
to each Non-U.S. Holder the amount of dividends paid to such holder and the
tax withheld, if any, with respect to such dividends. These information
reporting requirements apply even if withholding was not required because the
dividends were effectively connected with a trade or business in the United
States of the Non-U.S. Holder or withholding was reduced or eliminated by an
applicable income tax treaty. Copies of the information returns reporting such
dividends and withholding may also be made available to the tax authorities in
the country in which the Non-U.S. Holder resides under the provisions of an
applicable income tax treaty.

Backup withholding (which generally is a withholding tax imposed at the rate
of 31% on certain payments to persons that fail to furnish certain information
under the United States information reporting requirements)

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<PAGE>

will generally not apply to dividends paid to Non-U.S. Holders outside the
United States that are either subject to the 30% withholding discussed above
or that are not so subject because a tax treaty applies that reduces or
eliminates such 30% withholding. In that regard, under temporary United States
Treasury regulations, backup withholding will not apply to dividends paid on
Common Stock to a Non-U.S. Holder at an address outside the United States
unless the payor has actual knowledge that the payee is a U.S. person. Backup
withholding and information reporting generally will apply to dividends paid
to addresses inside the United States on shares of Common Stock to beneficial
owners that are not "exempt recipients" or have failed to provide, in the
manner required, certain identifying information.

In general, backup withholding and information reporting will not apply to a
payment of the proceeds of a disposition of Common Stock by or through a
foreign office of a broker. If, however, such broker is, for United States
federal income tax purposes, a U.S. person, a controlled foreign corporation,
or a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, such
payments will not be subject to backup withholding but will be subject to
information reporting, unless (1) such broker has documentary evidence in its
records that the beneficial owner is a Non-U.S. Holder and certain other
conditions are met, or (2) the beneficial owner otherwise establishes an
exemption.

Payment by a United States office of a broker of the proceeds of a
disposition of Common Stock is subject to both backup withholding and
information reporting unless the beneficial owner certifies under penalties of
perjury that it is a Non-U.S. Holder, or otherwise establishes an exemption.

The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions under which a Non-United States Holder would be subject
to backup withholding in the absence of the required certification.

Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.

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<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement,
dated the date of this Prospectus (the "Underwriting Agreement"), the Company
and the Selling Stockholders have agreed to sell 12,500,000 and 3,125,000
shares, respectively, of the Company's Common Stock and the U.S. Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, Alex. Brown & Sons
Incorporated, BT Securities Corporation, CS First Boston Corporation, Goldman,
Sachs & Co., Salomon Brothers Inc and Wasserstein Perella Securities, Inc. are
serving as U.S. Representatives, have severally agreed to purchase, and the
International Underwriters named below, for whom Morgan Stanley & Co.
International Limited, Alex. Brown & Sons Incorporated, Bankers Trust
International PLC, CS First Boston Limited, Goldman Sachs International,
Salomon Brothers International Limited and Wasserstein Perella Securities,
Inc. are serving as International Representatives, have severally agreed to
purchase, the respective number of shares of Common Stock set forth opposite
their names below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated...........................
Alex. Brown & Sons Incorporated.............................
BT Securities Corporation...................................
CS First Boston Corporation.................................
Goldman, Sachs & Co. .......................................
Salomon Brothers Inc........................................
Wasserstein Perella Securities, Inc. .......................
----------
Subtotal.................................................. 12,500,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited..................
Alex. Brown & Sons Incorporated.............................
Bankers Trust International PLC.............................
CS First Boston Limited.....................................
Goldman Sachs International.................................
Salomon Brothers International Limited......................
Wasserstein Perella Securities, Inc. .......................
----------
Subtotal.................................................. 3,125,000
----------
Total..................................................... 15,625,000
==========
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters". The Underwriting Agreement provides that
the obligations of the several Underwriters to pay for and accept delivery of
the shares of Common Stock offered hereby are subject to the approval of
certain legal matters by counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all the shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (a)
it is not purchasing any U.S. Shares (as defined below) being sold by it for
the account of anyone other than a United States or Canadian Person (as
defined below) and (b) it has not offered or sold, and will not offer or sell,
directly or indirectly, any U.S. Shares or distribute any prospectus relating
to the U.S. Shares outside the United States or Canada or to anyone other than
a United States or Canadian Person. Pursuant to the Agreement Between U.S. and
International Underwriters, each International Underwriter has represented and
agreed that, with certain exceptions, (a) it is not purchasing any
International Shares (as defined below) being sold by it for the account of
any United States or Canadian Person and (b) it has

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<PAGE>

not offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the
International Shares within the United States or Canada or to any United
States or Canadian Person. With respect to any Underwriter that is a U.S.
Underwriter and an International Underwriter, the foregoing representations
and agreements (i) made by it in its capacity as a U.S. Underwriter shall
apply only to shares purchased by it in its capacity as a U.S. Underwriter,
(ii) made by it in its capacity as an International Underwriter shall apply
only to shares purchased by it in its capacity as an International
Underwriter, and (iii) do not restrict its ability to distribute any
prospectus relating to the shares of Common Stock to any person. The foregoing
limitations do not apply to stabilization actions or to certain other
transactions specified in the Agreement Between U.S. and International
Underwriters. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada or any corporation,
pension, profit-sharing or other trust or other entity organized under the
laws of the United States or Canada or of any political subdivision thereof
(other than a branch located outside the United States and Canada of any
United States or Canadian Person) and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person.
All shares of Common Stock to be purchased by the U.S. Underwriters and the
International Underwriters under the Underwriting Agreement are referred to
herein as the U.S. Shares and the International Shares, respectively.

Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the Price to Public set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of Common Stock, directly or
indirectly, in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of shares of
Common Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send to
any dealer who purchases from it any shares of Common Stock a notice stating
in substance that, by purchasing such shares of Common Stock, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such shares of Common Stock in Canada or
to, or for the benefit of, any resident of Canada in contravention of the
securities laws of Canada or any province or territory thereof and that any
offer of shares of Common Stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province of Canada
in which such offer is made, and that such dealer will deliver to any other
dealer to whom it sells any of such shares of Common Stock a notice to the
foregoing effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (a) it has not
offered or sold and will not, during the period of six months from the date of
the Offering, offer or sell any shares of Common Stock in the United Kingdom
except to persons whose ordinary activities involve them in acquiring,
holding, going or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations (1995) (the
"Regulations"); (b) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock offered
hereby in, from or otherwise involving the United Kingdom; and (c) it has only
issued or passed on and will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the issue of the shares
of Common Stock if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1988, or to any person to whom the document may lawfully be issued or passed
on.

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<PAGE>

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered
or sold, and agrees not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the shares of Common
Stock acquired in connection with the distribution contemplated hereby, except
for offers or sales to Japanese International Underwriters or dealers and
except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law of Japan. Each International Underwriter further
agrees to send to any dealer who purchases from it any of the shares of Common
Stock a notice stating in substance that, by purchasing such shares, such
dealer represents and agrees that it has not offered or sold and will not
offer or sell any of such shares, directly or indirectly in Japan or to or for
the account of any resident thereof except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law of Japan, and
that such dealer will send to any other dealer whom it sells any of such
shares of Common Stock a notice containing substantially the same statement as
contained in the foregoing.

The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the Price to Public set forth on the cover page
hereof and part to certain dealers at a price which represents a concession
not in excess of $ a share below the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Underwriters.

At the request of the Company, the U.S. Underwriters have reserved for sale,
at the initial public offering price, up to 781,250 shares to be issued by the
Company and offered hereby for Directors, officers, employees, business
associates and related persons of the Company. The number of shares of Common
Stock available for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares which are not
so purchased will be offered by the Underwriters to the general public on the
same basis as the other shares offered hereby.

Pursuant to the Underwriting Agreement, the Selling Stockholders have
granted the U.S. Underwriters an option, exercisable for 30 days from the date
of this Prospectus, to purchase up to 2,343,750 additional shares of Common
Stock at the Price to Public set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise
such option to purchase solely for the purpose of covering over-allotments, if
any, made in connection with the Offering of the shares of Common Stock
offered hereby. To the extent such option is exercised, each U.S. Underwriter
will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding
table bears to the total number of shares of Common Stock offered by the U.S.
Underwriters hereby.

The Company, all of the Company's executive officers and Directors and
certain other stockholders of the Company, who will own after the Offering in
the aggregate approximately 13,456,272 shares of Common Stock (including
2,156,000 shares which can be acquired through currently exercisable options)
have agreed that, without the prior written consent of Morgan Stanley, they
will not (a) offer, pledge, sell contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are then owned by such person or are thereafter acquired), or (b)
enter into any swap or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of the Common Stock, whether any
such transaction described in clause (a) or (b) of this paragraph is to be
settled by delivery of such Common Stock or such other securities, in cash or
otherwise, for a period of 180 days after the date of this Prospectus, other
than (i) the sale to the Underwriters of the shares of Common Stock under the
Underwriting Agreement; (ii) the issuance by the Company of shares of Common
Stock upon the exercise of an option sold or granted pursuant to an existing
employee benefit plan of the Company and outstanding on the date of this
Prospectus or (iii) transfer of shares of Common Stock in a bona fide
charitable distribution or any estate planning distribution.

67
<PAGE>

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

The Common Stock has been approved for listing on the NYSE, subject to
official notice of issuance, under the symbol "AGP." In order to meet the
requirements for listing of the Common Stock on that exchange, the U.S.
Underwriters have undertaken to sell lots of 100 or more shares to a minimum
of 2,000 beneficial owners.

The rules of the National Association of Securities Dealers, Inc. (the
"NASD") provide that no NASD member shall participate in a public offering of
an issuer's securities where more than 10% of the net offering proceeds are
intended to be paid to members participating in the distribution of the
offering or associated or affiliated persons of such members, unless a
"qualified independent underwriter" shall have been engaged on the terms
provided in such rules. BT Securities Corporation ("BT Securities") may be
deemed to be participating in such a transaction if greater than 10% of the
net proceeds from the sale of the Common Stock is used to repay outstanding
indebtedness of the Company to Bankers Trust Company, an affiliate of BT
Securities, under the Bank Credit Agreement.

In view of such potential use of proceeds, the Offering is being conducted
in accordance with the rules of the NASD and Morgan Stanley is acting as
"qualified independent underwriter" within the meaning of such rules. In
connection therewith, Morgan Stanley has participated in the preparation of
the Registration Statement of which this Prospectus forms a part. It has
exercised its usual standards of "due diligence" with respect thereto and has
recommended the maximum price at which the Common Stock may be offered hereby.
Morgan Stanley will receive no separate fee for its services as qualified
independent underwriter, although the Company has agreed to reimburse its
expenses incurred as a result of such engagement. Pursuant to the provisions
of Schedule E, NASD members may not execute transactions in Common Stock
offered hereby to any accounts over which they exercise discretionary
authority without the prior written approval of the customer, in accordance
with Section 12 of Schedule E of the NASD Bylaws.

BT Securities and its affiliates have from time to time in recent years
performed various investment banking, banking and other financial advisory
services for the Company for which it has received customary compensation.
Such services included BT Securities acting as placement agent for the private
placement of the Notes of APPC and for the private placement of Class A and
Class B Variable Funding Certificates of the SPC. Bankers Trust Company, an
affiliate of BT Securities, is the holder of the outstanding Variable Funding
Certificates of the SPC. Wasserstein Perella Securities, Inc. has also
received certain fees in connection with financial advisory services performed
in connection with the Acquisition and related financings and acted as
placement agent for the private placement of the Notes.

PRICING OF OFFERING

Prior to the Offering, there has been no public market for the shares of
Common Stock of the Company. Consequently, the initial public offering price
was determined by negotiation among the Company, the Selling Stockholders and
the Representatives. Among the factors considered in determining the initial
public offering price were the Company's record of operations, the Company's
current financial condition and future prospects, the experience of its
management, the economics of the industry in general, the general condition of
the equity securities market and the market prices of similar securities of
companies considered comparable to the Company. There can be no assurance that
a regular trading market for the shares of Common Stock will develop after the
Offering or, if developed, that a public trading market can be sustained.
There can also be no assurance that the prices at which the Common Stock will
sell in the public market after the Offering will not be lower than the price
at which it is issued by the Underwriters in the Offering.

EXPERTS

The Company's consolidated financial statements as of December 31, 1994 and
1995 and for each of the three years in the period ended December 31, 1995
included in this Prospectus have been so included in reliance upon the report
of Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

68
<PAGE>

The WR Acquisition, Inc. consolidated balance sheets as of October 31, 1995
and December 31, 1994, and the statements of operations, cash flows and
changes in stockholders' equity (deficiency) for the ten months ended October
31, 1995 and each of the two years ended December 31, 1993 and 1994 have been
included in this Prospectus in reliance upon the report of KPMG Peat Marwick
LLP, independent accountants, appearing elsewhere herein, on the authority of
said firm as experts in auditing and accounting.

The Globe-Weis statements of net sales and cost of sales for the nine months
ended July 31, 1994 and the twelve months ended July 31, 1995 included in this
Prospectus have been so included in reliance upon the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.

The consolidated financial statements of Niagara Envelope Company, Inc. at
December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, appearing in this Prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Kirkland & Ellis, New York, New York (a partnership which includes
professional corporations). Certain legal matters will be passed upon for the
Underwriters by Davis Polk & Wardwell, New York, New York. Karl E. Lutz, whose
professional corporation is a partner of Kirkland & Ellis, beneficially owns
120,211 shares of Common Stock and is a Selling Stockholder.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the Common
Stock being offered in the Offering. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are
not necessarily complete; with respect to any such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. For further information about the Company and the securities
offered hereby, reference is made to the Registration Statement and to the
financial statements, schedules and exhibits filed as a part thereof.

Upon completion of the Offering, the Company will be subject to the
information requirements of the Exchange Act, and, in accordance therewith,
will file reports and other information with the Commission. In addition, APPC
and certain of its wholly owned subsidiaries are expected to be subject to the
information requirements of the Exchange Act upon the effectiveness of their
Registration Statement on Form S-1 (Commission File No. 333-3006) ("Exchange
Offer Registration Statement") relating to the offering to exchange of the
Notes for Notes registered under the Securities Act. The Registration
Statement and the Exchange Offer Registration Statement, the exhibits and
schedules forming a part thereof and the reports and other information filed
by the Company or APPC with the Commission in accordance with the Exchange Act
may be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material or any part thereof may also be
obtained by mail from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such material
may also be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and to make available quarterly
reports containing unaudited summary financial information for the first three
fiscal quarters of each fiscal year.

69
<PAGE>

UNAUDITED PRO FORMA FINANCIAL DATA

The Unaudited Pro Forma Consolidated Statement of Income for the year ended
December 31, 1995 gives effect to (i) the Transactions, (ii) the Globe-Weis
Acquisition, (iii) the pending sale of the Personalizing Division, (iv) the
Recapitalization, (v) the refinancing of the Bank Credit Agreement, (vi) the
Niagara Acquisition and (vii) the Offering and the application of the net
proceeds therefrom as described under "Use of Proceeds," as if they had
occurred on January 1, 1995. The Unaudited Pro Forma Consolidated Statement of
Income for the three months ended March 31, 1996 gives effect to (i) the
Recapitalization, (ii) the refinancing of the Bank Credit Agreement, (iii) the
pending sale of the Personalizing Division, (iv) the Niagara Acquisition and
(v) the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds," as if they had occurred on January 1, 1996.
The unaudited pro forma financial data are based on the historical financial
statements of the Company, Williamhouse and Niagara and the assumptions and
adjustments described in the accompanying notes. The Unaudited Pro Forma
Consolidated Statements of Income do not (a) purport to represent what the
Company's results of operations actually would have been if the foregoing
transactions occurred as of the dates indicated or what such results will be
for any future periods, or (b) give effect to certain non-recurring charges
resulting from the Transactions, the refinancing of the Bank Credit Agreement
and the Offering, including certain non-cash compensation charges directly
related to the Acquisition and an extraordinary charge from the write-off of
deferred financing fees and direct expenses resulting from the refinancing of
the Bank Credit Agreement, a portion of the Notes and existing Ampad,
Williamhouse and Niagara debt.

The Unaudited Pro Forma Condensed Consolidated Balance Sheet at March 31,
1996 gives effect to (i) the Recapitalization, (ii) the refinancing of the
Bank Credit Agreement, (iii) the Niagara Acquisition and (iv) the Offering and
the application of the net proceeds therefrom to the Company as described
under "Use of Proceeds," as if such transactions had occurred as of March 31,
1996. The historical financial statements of the Company already reflect (i)
the Transactions, (ii) the Globe-Weis Acquisition and (iii) the pending
disposal of the Personalizing Business as of March 31, 1996. The historical
financial statements and the Unaudited Pro Forma Consolidated Statements of
Income reflect the preliminary allocation of purchase price to the Company's
tangible and intangible assets and liabilities. The final allocation of
purchase price, and the resulting amortization expense may differ somewhat
from the preliminary estimates primarily due to the final allocation being
based on the actual proceeds to be received from the disposal of the
Personalizing Division. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 of the Notes to Consolidated
Financial Statements of the Company included herein.

The unaudited pro forma financial data are based upon assumptions that the
Company believes are reasonable and should be read in conjunction with the
Consolidated Financial Statements of the Company, Williamhouse and Niagara and
the accompanying notes thereto included elsewhere in this Prospectus.

70
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL
WILLIAMHOUSE HISTORICAL
THE COMPANY FOR THE NIAGARA
FOR THE YEAR TEN-MONTH FOR THE
ENDED GLOBE-WEIS PERIOD ENDED YEAR ENDED TRANSACTIONS
DECEMBER 31, ACQUISITION OCTOBER 31, DECEMBER 31, AND OTHER COMPANY
1995 ADJUSTMENTS(1) 1995 1995 ADJUSTMENTS PRO FORMA
------------ -------------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $259,341 $32,600 $219,366 $105,860 $ -- $617,167
Cost of sales........... 211,814 32,860 152,781 82,193 (375)(4) 481,804
2,339 (6)
1,108 (6)
(916)(13)
-------- ------- -------- -------- ------- --------
Gross profit............ 47,527 (260) 66,585 23,667 (2,156) 135,363
Selling, general and
administrative
expenses............... 18,545 358 39,866 15,187 1,820 (2(b)) 74,678
1,000 (3)
2,862 (3)
(7,029)(5)
1,063 (10)
(1,828)(11)
(974)(11)
5,000 (12)
(192)(13)
(1,000)(14)
Non-recurring
compensation charge.... 27,632 -- 9,544 (33,809)(9) 3,367
-------- ------- -------- -------- ------- --------
Income (loss) from
operations............. 1,350 (618) 17,175 8,480 30,931 57,318
Interest expense........ 13,657 -- 11,615 922 4,759 (2(a)) 30,953
Other (income) expense.. (735) -- (124) 217 -- (642)
-------- ------- -------- -------- ------- --------
Income (loss) before
income taxes........... (11,572) (618) 5,684 7,341 26,172 27,007
Provision for (benefit
from) income taxes..... (6,538) (247)(7) 2,224 2,762 11,613 (8) 9,814
-------- ------- -------- -------- ------- --------
Net income (loss) from
continuing operations
and before
extraordinary items.... $ (5,034) $ (371) $ 3,460 $ 4,579 $14,559 $ 17,193
======== ======= ======== ======== ======= ========
Pro forma net earnings per common and common equivalent share from continuing operations
and before extraordinary items(15)........................................................ $.59
========
Pro forma weighted average number of common and common equivalent shares outstanding(15)... 29,063
========
</TABLE>

See accompanying notes.

71
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THE COMPANY NIAGARA
FOR THE THREE FOR THE
MONTHS THREE MONTHS
ENDED ENDED TRANSACTIONS
MARCH 31, MARCH 31, AND OTHER COMPANY
1996 1996 ADJUSTMENTS PRO FORMA
------------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Net sales............... $121,418 $28,317 $149,735
Cost of sales........... 97,889 23,314 $ 277 (6) 121,245
(235)(13)
-------- ------- ------ --------
Gross profit............ 23,529 5,003 (42) 28,490
Selling, general and
administrative
expenses............... 11,026 2,423 93 (3) 14,493
1,250 (12)
(49)(13)
(250)(14)
-------- ------- ------ --------
Income from operations.. 12,503 2,580 (1,086) 13,997
Interest expense........ 12,542 147 (4,951)(2(a)) 7,738
Other (income) expense.. (269) 4 (265)
-------- ------- ------ --------
Income before income
taxes.................. 230 2,429 3,865 6,524
Provision for income
taxes.................. 102 911 1,583 (8) 2,596
-------- ------- ------ --------
Net income from
continuing operations
and before
extraordinary items.... $ 128 $ 1,518 $2,282 $ 3,928
======== ======= ====== ========
Pro forma net earnings per common and common equivalent
share(15)...................................................... $.14
========
Pro forma weighted average number of common and common
equivalent shares outstanding(15).............................. 29,063
========
</TABLE>

See accompanying notes.

72
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 AND THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)

The Unaudited Pro Forma Consolidated Statements of Income give effect to the
following unaudited pro forma adjustments:

(1) Reflects the inclusion of Globe-Weis unaudited historical results of
operations for the seven and one-half months ended August 15, 1995.
Globe-Weis' results after August 15, 1995 are included in the Company's
historical results. Operating data for preacquisition periods for Globe-
Weis are set forth below:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Net sales.............................................. $32,600
Cost of sales(a)....................................... 32,860
-------
Gross profit (loss).................................... (260)
Selling, general and administrative expenses(a)........ 358
-------
Income (loss) from operations.......................... $ (618)
=======
</TABLE>
- --------
(a) Certain reclassifications were made to the unaudited historical results of
operations to conform to the Company's presentation.

(2(a)) Addition to pro forma interest expense is summarized below. The
adjustments set forth below adjust historical interest expense for the
year ended December 31, 1995 and the period ended March 31, 1996 to
reflect use of the proceeds from the Offering, the assumption and
contemporaneous refinancing of all but $3,900 of Niagara's
indebtedness, and the refinancing of the Bank Credit Agreement with the
proceeds from the New Bank Credit Agreement.

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
<S> <C> <C>
Elimination of Ampad, Williamhouse and
Niagara historical interest expense.... $(26,194) $(12,689)
-------- --------
Interest on the Notes after retirement
of $70,000 from proceeds of the Offer-
ing.................................... 16,900 4,225
Interest on $10,628 of existing IRB and
other debt (Avg. 5.175%)............... 550 137
Interest on net borrowings of $176,867
under New Bank Credit Agreement at
LIBOR (5.50%) plus 1.75% (including
additional borrowings of $32,992
related to the Niagara Acquisition).... 12,823 3,206
Interest on $3,900 of IRB debt assumed
in Niagara Acquisition................. 205 51
Bank fees on IRB letters of credit at
2.00% on $8,049 of outstanding debt.... 161 40
Interest on unused New Bank Credit
Agreement commitment of $115,084 at
0.50%.................................. 575 144
Annual administrative fee on New Bank
Credit Agreement....................... 200 50
Interest on amount of debt to be repaid
from the proceeds from the sale of the
Personalizing Division ($46,800 at an
interest rate of LIBOR (5.50%) plus
1.75%). (The Company has signed a
letter of intent to sell the
Personalizing Division and is required,
pursuant to the Bank Credit Agreement,
to use any proceeds from asset sales to
pay down debt.)........................ (3,393) (848)
-------- --------
Cash interest expense................... 28,021 7,005
Amortization of debt issuance costs on
New Bank Credit Agreement ($8,500 over
five years)............................ 1,700 425
Amortization of remaining debt issuance
costs from Notes after write-off of
debt issuance costs of Notes repaid
($6,135 over ten years)................ 614 153
Amortization of debt issuance costs from
Accounts Receivable Facility ($2,676
over five years)....................... 535 134
Amortization of other debt issuance
costs.................................. 83 21
-------- --------
Pro forma interest expense.............. 30,953 7,738
-------- --------
Adjustment for net increase (decrease).. $ 4,759 $ (4,951)
======== ========
</TABLE>

73
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME--(CONTINUED)
(2(b)) In conjunction with entering into the Bank Credit Agreement, the
Company also entered into a $45,000 off-balance sheet Accounts
Receivable Facility. The interest rate on this facility is LIBOR
(5.50%) plus 0.563% (6.063%) per annum. In accordance with SFAS No. 77,
this discount rate on $45,000 equates to an annual charge of $2,728 to
selling, general and administrative expenses as a "loss on sale" on
receivables. The pro forma adjustment reflects the incremental charge
above the historical discount recorded in 1995 by the Company ($423),
offset by a $485 decrease in the discount that will result from an
estimated $8,000 reduction in the Accounts Receivable Facility arising
from the sale of the Personalizing Division.

(3) Reflects the annual goodwill amortization ($2,988) and annual trade names
amortization ($1,200) resulting from the purchase of Williamhouse and the
annual goodwill amortization resulting from the Niagara Acquisition
($372). The Williamhouse acquisition resulted in an allocation of $37,900
to trade names and to goodwill of approximately $119,500. The Niagara
Acquisition is expected to result in additional goodwill of $14,887. Trade
names are being amortized over periods ranging from fifteen to forty
years. Goodwill is being amortized over a forty year period. The pro forma
adjustment for the year ended December 31, 1995 represents amortization
expense for the ten-month period prior to the Williamhouse acquisition
plus the annual amortization expense from the Niagara Acquisition. The
adjustment for the three months ended March 31, 1996 represents
amortization expense for the period resulting from the Niagara
Acquisition.

(4) Reflects the estimated recurring cost savings relating to manufacturing
operations from conforming health, welfare and other employee benefit
programs (assumed to be 50% allocated to cost of sales) related to the
Williamhouse acquisition. The Company capped the cost of the employee
benefit programs by increasing the use of managed care, obtaining a
contractually guaranteed premium and increasing employee contributions to
the plan.

(5) Reflects the estimated recurring cost savings relating to selling, general
and administrative ("SG&A") activities from management's consolidation
plans as described below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995
-----------------------
<S> <C>
Elimination of Williamhouse's New York City
headquarters facility, including the facility's
occupancy and maintenance costs as well as
workforce reductions, primarily executive,
legal, accounting and tax functions and
associated direct overhead costs (net of
increase in Ampad's Dallas, Texas headquarters
staff).......................................... $4,912
Consolidation of regional data processing centers
from three to one locations and elimination of
redundant regional administrative positions by
consolidating accounting, accounts payable,
credit and collections functions in either
Williamhouse's regional headquarters or Ampad's
Dallas headquarters............................. 729
Consolidation of sales and marketing
organizations, along with sales distribution and
promotional activity program changes(a)......... 1,013
Cost reductions arising from conforming health,
welfare and other employee benefit programs
(assumed to be 50% allocated to SG&A) (See (4)
above).......................................... 375
------
$7,029
======
</TABLE>
--------
(a) The staff reductions in the sales and marketing organization
principally represents excess sales force. The Williamhouse sales
force had not been reduced in recognition of the continuing
consolidation in the industry. Management does not expect to
experience any decline in sales volumes or revenues as a result of
these actions.

74
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME--(CONTINUED)

(6) Represents additional depreciation expense resulting from the write-up of
property, plant and equipment to fair market value for the Williamhouse
acquisition and the Niagara Acquisition as summarized below:

<TABLE>
<CAPTION>
ESTIMATED ADDITIONAL
USEFUL LIFE FAIR VALUE ANNUAL
IN YEARS WRITE-UP DEPRECIATION
----------- ---------- ------------
<S> <C> <C> <C>
Williamhouse:
Land............................... -- $ 1,443 $ --
Buildings.......................... 40 1,664 42
Machinery and Equipment............ 12 33,178 2,765
------- ------
$36,285 $2,807
======= ======
</TABLE>

The adjustment for the Niagara Acquisition represents the additional
depreciation on the write-up of Niagara's historical fixed assets and the
additional depreciation on assets Niagara will acquire from affiliated
parties prior to closing of the acquisition as follows:

<TABLE>
<CAPTION>
ESTIMATED ADJUSTMENT
USEFUL LIFE FAIR VALUE TO ANNUAL
IN YEARS ADJUSTMENT DEPRECIATION
----------- ---------- ------------
<S> <C> <C> <C>
Historical Niagara assets:
Buildings.......................... 40 $(2,204) $ (55)
Machinery and equipment............ 12 6,266 522
Furniture and fixtures............. 5 (170) (34)
Other.............................. 3 (90) (30)
Affiliated party assets:
Land............................... -- 1,501 --
Buildings.......................... 40 3,932 98
Machinery and equipment............ 12 7,269 607
------- ------
$16,504 $1,108
======= ======
</TABLE>

The adjustment for the year ended December 31, 1995 represents the
additional depreciation expense on the write-up of the Williamhouse assets
for the ten months prior to acquisition plus the annual additional
depreciation expense related to Niagara. The adjustment for the period
ended March 31, 1996 represents one quarter of the additional annual
depreciation expense resulting from the Niagara Acquisition.

(7) Reflects tax provision for pro forma adjustments to income before income
taxes using an estimated effective income tax rate of 40%, which
approximates the Company's combined statutory rate (35% federal plus 5%
state). The amount is calculated as a loss before income taxes of $618
multiplied by the statutory rate of 40%.

(8) Reflects the income tax adjustment required to result in a pro forma
provision (benefit) based on: (i) Ampad's, Williamhouse's and Niagara's
respective historical tax provisions (benefit) using historical amounts
and (ii) the direct tax effects of the pro forma adjustments described
herein. The primary reason for the difference between the historical rate
and the pro forma effective rate is that the goodwill resulting from the
Williamhouse acquisition and the Niagara Acquisition is not tax
deductible and, pursuant to SFAS No. 109, deferred taxes are not
recognized on non-tax deductible goodwill in purchase accounting.

(9) Represents the elimination of a portion of non-recurring stock option-
related compensation expense to certain members of the Company's
management directly related to the Williamhouse acquisition.

(10) Represents the additional annual management fee above the historical fee
paid by Ampad to equal an agreed upon prospective annual fee of $2,000 to
be charged by Bain Capital for consulting and financial services to be
provided to the Company.

(11) Represents the elimination of historical amortization of Williamhouse
deferred financing fees of $974 (which Williamhouse historically
classified in SG&A) and the elimination of the one-time charge of $1,828
to write-off the remaining balance relating to refinanced debt.

75
<PAGE>

(12) Represents the annual and one quarter amounts, respectively, of
amortization of the purchase price allocated to a one year management
services agreement resulting from the Niagara Acquisition. The Company
does not expect this charge to be recurring.

(13) Represents the elimination of historical rent expense related to property
and equipment leased by Niagara from affiliated parties. Such assets will
be acquired by Niagara contemporaneously with the Niagara Acquisition
(see note (6) above).

(14) Represents reductions to selling, general and administrative expenses
resulting from the elimination of certain Niagara executive compensation
and related benefits.

(15) Pro forma net earnings per share from continuing operations and before
extraordinary items has been computed using the weighted average number
of common shares and common share equivalents outstanding during the
period presented, adjusted for the Recapitalization and the Offering.
Common share equivalents result from outstanding options to purchase
Common Stock and have been determined using the treasury stock method.

76
<PAGE>

UNAUDITED PRO FORMA AS ADJUSTED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------
HISTORICAL
-------------------
AMERICAN
PAD & PAPER TRANSACTION COMPANY
COMPANY NIAGARA ADJUSTMENTS PRO FORMA
----------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash......................... $ 20,108 $ 606 $(20,108)(1) $ 606
Restricted cash.............. 10,759 10,759
Accounts receivable, net..... 18,407 11,202 29,609
Inventories.................. 93,166 11,028 2,668 (3) 106,862
Prepaid expenses and other
current assets.............. 2,026 372 2,398
Assets held for sale......... 43,572 43,572
Management services agree-
ment........................ 5,000 (4) 5,000
Deferred income taxes, net... 14,744 216 14,960
--------- ------- -------- --------
Total current assets....... 202,782 23,424 (12,440) 213,766
Property and equipment, net... 106,758 11,326 16,504 (5) 134,588
Intangible assets, net........ 37,392 316 37,708
Debt issuance costs, net...... 32,524 (14,228)(6) 18,296
Goodwill, net................. 119,655 14,887 (2) 134,542
Other......................... 1,683 1,350 3,033
--------- ------- -------- --------
Total...................... $ 500,794 $36,416 $ 4,723 $541,933
========= ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term
debt........................ $ 13,066 $ 650 $(11,600)(7) $ 2,116
Accounts payable............. 36,689 6,782 43,471
Accrued expenses............. 43,271 2,638 6,000 (2) 51,909
Income taxes payable......... 518 953 1,471
--------- ------- -------- --------
Total current liabilities.. 93,544 11,023 (5,600) 98,967
Long-term debt............... 440,453 6,725 (127,883)(7) 319,295
Deferred income taxes........ 29,911 439 (11,983)(8) 18,367
Other........................ 3,179 1,475 4,654
--------- ------- -------- --------
Total liabilities.......... 567,087 19,662 (145,466) 441,283
--------- ------- -------- --------
Commitments and contingen-
cies.........................
Stockholders' equity (defi-
cit):
Niagara stockholders'
equity...................... 16,754 (16,754)(9)
Preferred stock, 150,000
shares authorized, 58,449
shares issued and
outstanding and no shares
outstanding on a pro forma,
as adjusted basis........... 113,887 (113,887)(10) --
Common stock, voting, $.01
par value, 75,000,000
shares authorized, 900,000
shares issued and
outstanding and 26,925,272
outstanding on a pro forma,
as adjusted basis........... 9 260 (11) 269
Additional paid-in capital... 14,240 298,827 (11) 313,067
Accumulated (deficit)........ (194,429) (18,257)(12) (212,686)
--------- ------- -------- --------
Total stockholders' equity
(deficit)................. (66,293) 16,754 150,189 100,650
--------- ------- -------- --------
Total liabilities and
stockholders' equity (def-
icit)..................... $ 500,794 $36,416 $ 4,723 $541,933
========= ======= ======== ========
</TABLE>

See accompanying notes.

77
<PAGE>

NOTES TO UNAUDITED PRO FORMA AS ADJUSTED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)

The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to
the following unaudited pro forma adjustments:

(1) Represents Company cash-on-hand used in the Niagara Acquisition (see notes
(2) and (7) below).

(2) Reflects management's preliminary allocation of purchase price for the
Niagara Acquisition in accordance with the purchase method of accounting
as follows:

<TABLE>
<CAPTION>
Purchase price:
<S> <C>
Cash portion of purchase price (including $5,000 payment
for management services agreement)........................ $ 55,000
Estimated fees and expenses............................... 2,000
<CAPTION>
Less purchase price reduction for debt assumed:
<S> <C>
Niagara historical debt.................................. (7,375)
Incremental debt incurred to acquire assets of affiliated
parties (see note (7) below)............................. (12,702)(a)
--------
Total.................................................. $ 36,923
========
<CAPTION>
Allocated as follows:
<S> <C>
Existing book value of Niagara............................ $ 16,754
Increase in inventory to estimated fair market value (see
note (3) below).......................................... 2,668
Estimated increase in property and equipment to fair mar-
ket value (see note (5) below)........................... 3,802
Acquisition of property and equipment from Niagara affili-
ated parties contemporaneously with the acquisition (see
note (5) below).......................................... 12,702 (a)
Assumption of incremental debt issued by Niagara to ac-
quire property and equipment from affiliated parties con-
temporaneously with the acquisition (see note (7) be-
low)..................................................... (12,702)(a)
Management services agreement (see note (4) below)........ 5,000
Transaction related liabilities including severance and
change in control benefits............................... (6,000)
Increase in net deferred tax liabilities (see note (8) be-
low)..................................................... (188)
Increase in goodwill...................................... 14,887
--------
Total.................................................. $ 36,923
========
</TABLE>

--------
(a) Contemporaneously with the Niagara Acquisition, Niagara will
acquire certain assets currently used in operations that are
leased from affiliated parties. Niagara will incur debt, pre-
closing, under its existing credit facilities to acquire the
assets.

(3) Represents the estimated write-up of work-in-progress and finished goods
inventory in connection with the purchase price allocation. Since the
Company calculates inventory under the LIFO method, this write-up will not
result in a charge to cost of sales in any period following the Niagara
Acquisition unless base year inventory levels are reduced. In any event,
any resulting one-time charge would not be reflected in the accompanying
Unaudited Pro Forma Consolidated Statements of Income due to its unusual,
non-recurring nature.

(4) Represents the contractual payment at closing of $5,000 for a one-year
management services agreement in connection with the Niagara Acquisition.

(5) Represents the estimated write-up in value of property and equipment to
fair market value in connection with the purchase price allocation for the
Niagara Acquisition of $3,802. Also represents the value of property and
equipment to be acquired from affiliated parties of Niagara
contemporaneously with the Niagara Acquisition of $12,702.

78
<PAGE>

(6) Represents elimination of $22,728 of unamortized debt issuance costs
related to early extinguishment of Term Loans under the Bank Credit
Agreement and partial redemption of the Notes offset by incurrence of
$8,500 of new debt issuance costs related to, and funded by, borrowings
under the New Bank Credit Agreement.

(7) Represents the change in long-term debt (and reclassification of current
portion to long-term debt) as a result of the Refinancing, Offering and
Niagara Acquisition as follows:

<TABLE>
<S> <C>
Sources of funds:
Net cash proceeds from the Offering........................ $185,200
Net cash proceeds from the New Bank Credit Agreement
(including $32,992) of incremental borrowings to fund a
portion of the Niagara Acquisition........................ 176,867(a)
Borrowings under Niagara facilities, pre-closing, to fund
purchase of property and equipment from affiliated
parties................................................... 12,702(a)
Cash on hand used to fund Niagara Acquisition.............. 20,108
--------
Total sources of funds................................... $394,887
========
Uses of funds:
Repayment of Term Loans under Bank Credit Agreement as of
March 31, 1996............................................ $242,875(a)
Repayment of a portion of the Notes........................ 70,000(a)
Payment of redemption premium on the Notes................. 7,700
Repayment of Niagara debt assumed.......................... 16,177(a)
Debt issuance costs related to the New Bank Credit Agree-
ment...................................................... 8,500
Purchase of affiliated party property and equipment by Ni-
agara..................................................... 12,702
Niagara cash purchase price (see note (2) above)........... 36,923
--------
Total uses of funds...................................... $394,887
========
</TABLE>
- --------
(a) The sum of the net decrease of indebtedness amounts to $139,483.

(8) Represents the federal income tax benefit on the $22,728 extraordinary
loss for write-off of debt issuance costs and the $7,700 call premium on
the Notes of $12,171 (see note (6) above). Additionally reflects the net
amount of deferred tax liabilities resulting from the allocation of
purchase price for the Niagara Acquisition of $188 (see note (2) above).

(9) Represents elimination of Niagara's historical stockholders' equity
resulting from the application of purchase accounting in connection with
the Niagara Acquisition.

(10) Adjusted to give effect to the Recapitalization (see note (11) below).

(11) Represents the estimated net proceeds from the Offering to the Company of
$187,200 less $2,000 of fees (reduction in additional paid-in capital) to
be paid to Bain Capital in connection with the Offering. Also reflects
conversion of $113,887 of Preferred Stock to Common Stock to give effect
to the Recapitalization (see note (10) above).

(12) Represents the extraordinary loss of $22,728 of debt issuance costs
write-off (see note (6) above), and $7,700 call premium on the Notes, net
of $12,171 of related federal income tax benefit (at a 40% effective tax
rate).

79
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN PAD & PAPER COMPANY
AND SUBSIDIARIES

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and March 31,
1996 (unaudited)........................................................ F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995 and for the three months ended March 31, 1995 and
1996 (unaudited)........................................................ F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and for the three months ended March 31, 1995 and
1996 (unaudited)........................................................ F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1993, 1994 and 1995 and for the three
months ended March 31, 1996 (unaudited)................................. F-6
Notes to Consolidated Financial Statements............................... F-7

WR ACQUISITION, INC. AND SUBSIDIARIES

<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-29
Consolidated Balance Sheets at December 31, 1994 and October 31, 1995.... F-30
Consolidated Statements of Operations for the years ended December 31,
1993 and 1994 and for the ten months ended October 31, 1995............. F-32
Consolidated Statements of Stockholders' Equity (Deficiency) for the
years ended December 31, 1993 and 1994 and for the ten months ended Oc-
tober 31, 1995.......................................................... F-33
Consolidated Statements of Cash Flows for the years ended December 31,
1993 and 1994 and for the ten months ended October 31, 1995............. F-34
Notes to Consolidated Financial Statements............................... F-35

GLOBE-WEIS

<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-53
Statements of Net Sales and Cost of Sales for the nine months ended July
31, 1994 and twelve months ended July 31, 1995.......................... F-54
Notes to Statements of Net Sales and Cost of Sales....................... F-55

NIAGARA ENVELOPE COMPANY, INC.

<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-56
Consolidated Balance Sheets at December 31, 1994 and 1995................ F-57
Consolidated Statements of Income and Retained Earnings for the years
ended December 31, 1993, 1994 and 1995.................................. F-58
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995..................................................... F-59
Notes to Consolidated Financial Statements............................... F-60
Consolidated Balance Sheets at March 31, 1995 and 1996 (unaudited)....... F-67
Consolidated Statements of Income and Retained Earnings for the three
months ended March 31, 1995 and 1996 (unaudited)........................ F-68
Consolidated Statements of Cash Flows for the three months ended March
31, 1995 and 1996 (unaudited)........................................... F-69
Notes to Consolidated Financial Statements (unaudited)................... F-70
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
American Pad & Paper Company
(formerly Ampad Holding Corporation)

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows, and of changes in
stockholders' equity (deficit) present fairly, in all material respects, the
financial position of American Pad & Paper Company (formerly Ampad Holding
Corporation) and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, 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.

/s/ Price Waterhouse LLP

PRICE WATERHOUSE LLP

Dallas, Texas March 19, 1996, except as to Note 16

which is as of June 6, 1996 and the
pro forma equity presentation in Note 2 which is as of June 4, 1996.

F-2
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
EQUITY
MARCH 31,
DECEMBER 31, 1996
---------------------------------------------------- MARCH 31, (UNAUDITED)
A S S E T S 1994 1995 1996 (NOTE 2)
----------- ---------------------------------------------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash............................ $ 4 $ 18,341 $ 20,108
Restricted cash (Note 2)........ 60 3,619 10,759
Accounts receivable, net (Note
4)............................. 16,965 25,943 18,407
Refundable income taxes......... 3,657
Inventories (Note 5)............ 32,974 93,061 93,166
Prepaid expenses and other
current assets................. 831 927 2,026
Assets held for sale (Note 3)... 724 42,578 43,572
Deferred income taxes, net (Note
11)............................ 15,009 14,744
------------------------ -------------------------- ---------
Total current assets.......... 51,558 203,135 202,782
Property and equipment, net (Notes
3 and 6)......................... 8,889 106,768 106,758
Intangible assets, net of
accumulated amortization of $200
and $508, respectively (Note 3).. 37,700 37,392
Deferred income taxes, net (Note
11).............................. 4,312
Debt issuance costs, net of
accumulated amortization of
$1,430, $846 and $2,054,
respectively (Note 8)............ 958 32,929 32,524
Goodwill, net of accumulated
amortization of $114, $793 and
$1,521, respectively (Note 3).... 2,409 120,383 119,655
Other............................. 107 3,441 1,683
------------------------ -------------------------- ---------
Total......................... $68,233 $504,356 $ 500,794
======================== ========================== =========
<CAPTION>
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y (D E F I C I T)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Revolving line of credit (Note
8)............................. $22,767 $ $
Current portion of long-term
debt (Note 8).................. 2,772 11,834 13,066
Accounts payable................ 15,240 37,048 36,689
Accrued expenses (Note 7)....... 7,928 44,835 43,271
Income taxes payable............ 494 518
Deferred income taxes, net (Note
11)............................ 1,681
------------------------ -------------------------- ---------
Total current liabilities...... 50,388 94,211 93,544
Long-term debt (Note 8)........... 19,889 443,794 440,453
Deferred income taxes (Note 11)... 30,070 29,911
Other............................. 689 2,702 3,179
------------------------ -------------------------- ---------
Total liabilities.............. 70,966 570,777 567,087
------------------------ -------------------------- ---------
Commitments and contingencies
(Note 12)
Stockholders' equity (deficit)
(Note 9)
Preferred stock, 150,000 shares
authorized, 58,449 shares
issued and outstanding......... 113,887 113,887
Class P common stock, $.01 par
value; 100,000 shares
authorized, 90,000 shares
outstanding at December 31,
1994 and no shares outstanding
at December 31, 1995 and March
31, 1996....................... 1
Common stock, voting, $.01 par
value, 2,000,000 shares
authorized, 810,000, 900,000
and 900,000 shares,
respectively, issued and
outstanding on an actual basis
and 75,000,000 shares
authorized and 14,425,272
shares issued and outstanding
on a pro forma basis........... 8 9 9 144
Additional paid-in capital...... 2,991 14,240 14,240 127,992
Accumulated deficit............. (5,733) (194,557) (194,429) (194,429)
------------------------ -------------------------- --------- --------
Total stockholders' equity
(deficit)..................... (2,733) (66,421) (66,293) (66,293)
------------------------ -------------------------- --------- --------
Total liabilities and
stockholders' equity
(deficit)..................... $68,233 $ 504,356 $ 500,794
======================== ========================== =========
</TABLE>

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

F-3
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- ---------- ------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................. $104,277 $120,443 $259,341 $47,691 $121,418
Cost of sales............. 88,491 113,394 211,814 42,394 97,889
-------- -------- ---------- ------- ----------
Gross profit............ 15,786 7,049 47,527 5,297 23,529
Operating expenses:
Selling and marketing... 4,920 5,059 6,254 1,162 3,328
General and
administrative......... 5,845 5,556 12,291 1,587 7,698
Nonrecurring
compensation charge
(Note 9)............... 27,632
-------- -------- ---------- ------- ----------
Income (loss) from
operations............... 5,021 (3,566) 1,350 2,548 12,503
Other income (expense):
Interest................ (3,320) (4,560) (13,657) (1,656) (12,542)
Other income, net....... 167 90 735 65 269
-------- -------- ---------- ------- ----------
Income (loss) before
income taxes............. 1,868 (8,036) (11,572) 957 230
Provision (benefit) for
income taxes............. 64 (488) (6,538) 366 102
-------- -------- ---------- ------- ----------
Income (loss) before
extraordinary item....... 1,804 (7,548) (5,034) 591 128
Extraordinary loss from
extinguishment of debt
(net of income tax
benefit of $6,434)....... (9,652)
-------- -------- ---------- ------- ----------
Net income (loss)......... $ 1,804 $ (7,548) $ (14,686) $ 591 $ 128
======== ======== ========== ======= ==========
Pro forma income (loss)
per share (unaudited):
Income (loss) before
extraordinary item
(unaudited)............ $ (.33) $ .01
Extraordinary item
(unaudited)............ (.62)
---------- ----------
Net income (loss)
(unaudited)............ $ (.95) $ .01
========== ==========
Pro forma weighted average
shares outstanding
(unaudited).............. 15,539,989 16,562,493
========== ==========
</TABLE>

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

F-4
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1993 1994 1995 1995 1996
------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).......... $ 1,804 $ (7,548) $ (14,686) $ 591 $ 128
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation............... 159 828 3,369 490 1,984
Amortization of goodwill
and intangible assets..... 114 879 38 1,036
Noncash portion of
nonrecurring compensation
charge.................... 25,998
Extraordinary loss on
extinguishment of debt.... 9,652
Noncash interest expense
and accretion of
discount.................. 584 135 32
Amortization of debt
issuance costs............ 619 696 1,538 206 1,208
Gain on sale of assets..... (159) (83) (140) (68) (16)
Changes in assets and
liabilities, net of
effects of acquisitions:
Decrease (increase) in
restricted cash.......... (48) (12) (3,559) (19) (7,140)
Decrease (increase) in
accounts receivable...... (944) 2,457 (18,466) (5,038) 7,536
Decrease in refundable
income taxes............. 101 3,657
Decrease (increase) in
inventories.............. (5,006) 1,655 2,256 (5,728) (105)
Decrease (increase) in
prepaid expenses and
other.................... 1,173 (302) 905 (712) (1,099)
Decrease (increase) in
deferred tax asset,
net...................... 64 (488) (13,141) 347 106
Increase (decrease) in
accounts payable ........ 2,565 3,433 4,979 1,747 (359)
Increase (decrease) in
accrued expenses ........ (2,225) (2,782) 4,877 (2,174) (1,540)
Decrease (increase) in
other assets............. (250) 154 1,756
Increase (decrease) in
other liabilities ....... (92) 11 (7) (26) 477
------- -------- --------- -------- --------
Net cash provided by
(used in) operating
activities.............. (1,756) (1,886) 4,709 (10,314) 7,629
------- -------- --------- -------- --------
Cash flows from investing
activities:
Purchase of the stock of
WR, including acquisition
costs..................... (122,655)
Purchases of property and
equipment................. (1,656) (942) (3,919) (809) (2,321)
Purchase of net assets,
including acquisition
costs..................... (13,744) (7,046)
Proceeds from sale of
assets.................... 1,166 83 140 68 16
Net cash generated from
(used by) assets held for
sale...................... 2,213 (646)
------- -------- --------- -------- --------
Net cash used in
investing activities.... (490) (14,603) (131,267) (741) (2,951)
------- -------- --------- -------- --------
Cash flows from financing
activities:
Proceeds from sale of
accounts receivable....... 45,000
Net borrowings (repayments)
under line of credit...... 3,937 7,057 (22,767) 11,813
Proceeds from long-term
debt...................... 11,252 430,052 25,272
Repayment of long-term
debt...................... (1,725) (1,192) (186,546) (758) (27,380)
Redemption premiums and
penalties included in
extraordinary loss........ (10,812)
Debt issuance costs........ (628) (35,032) (803)
Redemption of preferred
stock..................... (61,478)
Redemption of Class P
common stock ............. (4,464)
Redemption of preferred
stock options............. (9,188)
Proceeds from exercise of
preferred stock options... 130
------- -------- --------- -------- --------
Net cash provided by
(used in) financing
activities.............. 2,212 16,489 144,895 11,055 (2,911)
------- -------- --------- -------- --------
Net increase (decrease)
in cash................. (34) -- 18,337 -- 1,767
Cash, beginning of period... 38 4 4 4 18,341
------- -------- --------- -------- --------
Cash, end of period......... $ 4 $ 4 $ 18,341 $ 4 $ 20,108
======= ======== ========= ======== ========
Supplemental disclosure of
cash flow information:
Cash paid during the period
for:
Interest................... $ 2,113 $ 3,575 $ 9,127 $ 203 $ 4,578
======= ======== ========= ======== ========
Income taxes............... $ -- $ 29 $ 99 $ 3 $ 23
======= ======== ========= ======== ========
Supplemental disclosure of
noncash investing and
financing activities:
Payment-in-kind interest
expense................... $ 482 $ -- $ -- $ -- $ --
======= ======== ========= ======== ========
Notes payable issued in
consideration of purchase
price..................... $ -- $ -- $ 36,115 $ -- $ --
======= ======== ========= ======== ========
Notes payable issued in
consideration for
equipment ................ $ -- $ 544 $ 1,721 $ 1,721 $ --
======= ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
CLASS P RETAINED
PREFERRED STOCK COMMON STOCK COMMON STOCK EARNINGS
----------------- --------------- -------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------- -------- ------- ------ ------- ------ ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... $ 90,000 $ 1 810,000 $ 8 $ 2,991 $ 11 $ 3,011
Net income.............. 1,804 1,804
------- -------- ------- --- ------- --- ------- --------- --------
Balance at December 31,
1993................... 90,000 1 810,000 8 2,991 1,815 4,815
Net loss................ (7,548) (7,548)
------- -------- ------- --- ------- --- ------- --------- --------
Balance at December 31,
1994................... 90,000 1 810,000 8 2,991 (5,733) (2,733)
Preferred stock dividend
(Note 9)............... 90,000 175,365 (2,991) (172,374)
Grant of stock options
(Note 9)............... 25,998 25,998
Redemption of preferred
stock (Note 9)......... (31,551) (61,478) (61,478)
Accrual of preferential
distribution on Class P
common stock........... 1,764 (1,764)
Redemption of Class P
common stock (Note 9).. (90,000) (1) 90,000 1 (4,464) (4,464)
Redemption of preferred
stock options (Note
9)..................... (9,188) (9,188)
Proceeds from exercise
of preferred stock
options (Note 9)....... 130 130
Net loss................ (14,686) (14,686)
------- -------- ------- --- ------- --- ------- --------- --------
Balance at December 31,
1995................... 58,449 113,887 900,000 9 14,240 (194,557) (66,421)
Net income (unaudited).. 128 128
------- -------- ------- --- ------- --- ------- --------- --------
Balance at March 31,
1996 (unaudited)....... 58,449 $113,887 -- -- 900,000 $9 $14,240 $(194,429) $(66,293)
======= ======== ======= === ======= === ======= ========= ========
</TABLE>

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

F-6
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS

Organization and Basis of Presentation

American Pad & Paper Company (formerly Ampad Holding Corporation and
referred to hereafter as "the Company") was incorporated on June 2, 1992 as a
holding company to acquire all of the outstanding stock of Ampad Corporation
("Ampad"), the surviving entity from the merger between Ampad Acquisition
Corporation and Ampad. The Company had no operations through July 31, 1992.

On October 3, 1995, the Company agreed to acquire in a merger transaction
all of the outstanding stock of WR Acquisition, Inc. ("WR") (the
"Acquisition"). In a series of transactions, the Company exchanged 100% of the
stock of its wholly-owned subsidiary, Ampad, for newly-issued shares of WR. WR
then contributed Ampad to its wholly-owned subsidiary, Williamhouse-Regency of
Delaware, Inc., renamed American Pad & Paper Company of Delaware, Inc. (
referred to hereafter on a pre-October 31, 1995 basis as "Williamhouse-
Regency" and on a post-October 31, 1995 basis as "Delaware") in exchange for a
right to receive $140 million of merger consideration. The Company,
principally using bank borrowings by Delaware aggregating $245 million, funded
WR's right to receive the merger consideration and WR in turn repurchased 100%
of the WR shares not owned by the Company. The transaction was accounted for
as a purchase of the stock of WR by the Company. As a result of the
transactions, the Company now owns 100% of WR which in turn owns 100% of
Delaware.

The financial statements of the Company now present 100% of the historical
accounts and operations of the Company and Ampad as well as the newly-acquired
accounts of Williamhouse-Regency and its wholly-owned subsidiaries as of
October 31, 1995, along with Williamhouse-Regency's consolidated operating
results for the post-October 31, 1995 period (Note 3). Additionally, the
consolidated financial statements include the accounts of Notepad Funding
Corporation, a special purpose corporation utilized in the accounts receivable
facility (Note 4). All significant intercompany balances have been eliminated.
Certain prior year amounts have been reclassified for comparative purposes.

Bain Capital, Inc. (Bain Capital) and its related investors, along with
certain members of management, own all of the voting capital stock and
preferred stock of the Company.

Business

The Company is one of the largest manufacturers and marketers of paper-based
office products (excluding computer forms) in North America. It offers a broad
assortment of products through two complementary businesses: Ampad (writing
pads, file folders and other paper-based office products) and Williamhouse
(envelopes). The Regency business (personalized stationery and invitations and
greeting cards) was identified by the Company's management as of the
acquisition date as a nonstrategic business to be sold and is consequently
being held for sale as of December 31, 1995 and March 31, 1996 (unaudited)
(Note 3). The Company's products are distributed through large mass merchant
retailers, office product superstores, warehouse clubs, major contract
stationers, office products wholesalers and independent dealers. Substantially
all sales are to customers within the United States.

Interim Financial Information

The financial statements for the three months ended March 31, 1996 and 1995
are unaudited but include all adjustments (consisting of normal recurring
adjustments) that the Company considers necessary for a fair presentation.
Operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. Financial disclosures herein relating to matters subsequent
to March 19, 1996 are unaudited.

F-7
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies followed in the preparation of the
consolidated financial statements are as follows:

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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly-liquid, interest-bearing instruments with
an original maturity of three months or less to be cash equivalents.
Restricted cash of $3,619 as of December 31, 1995 and $10,759 as of March 31,
1996 (unaudited) represents funds the Company, as servicer, has made available
to the trustee of the trust that purchased the Company's trade accounts
receivable (Note 4), in the event of nonperformance, defaults or other losses
related to such receivables.

Revenue Recognition

The Company recognizes revenue upon shipment of the product. All risks and
rewards of ownership pass to the customer upon shipment. Damaged or defective
products may be returned to the Company for replacement or credit. The Company
also offers sales rebates to customers based on level of sales activity. The
effects of returns and discounts are estimated and recorded at the time of
shipment. Volume rebates are estimated and recorded based on sales activity.

Concentration of Credit Risk

The Company sells its products into various wholesale and retail channels,
primarily for the commercial office products marketplace. Management believes
its credit policies are prudent and reflect normal industry terms and business
risks. The Company performs credit evaluations of its customers and does not
require collateral. Historically, the Company has not experienced significant
losses related to individual customers or groups of customers in any
particular industry or geographic area. An allowance is maintained at a level
which management believes is sufficient to cover potential credit losses
including potential losses on receivables sold.

Inventories

Inventories, which consist primarily of paper and converted paper products,
are stated at the lower of cost or market. Cost is determined by the last-in,
first-out (LIFO) method.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the individual
assets. Repairs and maintenance costs are expensed as incurred.

Goodwill and Intangible Assets

Goodwill represents the cost in excess of fair value of the net assets of
companies acquired in purchase transactions. Goodwill is amortized using the
straight-line method over periods ranging from 20 to 40 years (Note 3).
Intangible assets represent trade names acquired in the WR acquisition (Note
3). Trade names are amortized

F-8
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
using the straight-line method. Trade names in the aggregate gross amount of
$31,700 are amortized over 40 years. Trade names in the aggregate gross amount
of $6,200 are amortized over 15 years. The Company periodically reviews
goodwill and other intangible assets to assess recoverability. Impairment is
measured based on the expected undiscounted cash flows of the operations
giving rise to the goodwill and other intangible assets compared to the
carrying cost of the related assets including goodwill and other intangible
assets. Based upon its most recent analysis, the Company believes that no
impairment of goodwill or intangible assets exists at December 31, 1995.
Amortization expense was $114 in 1994, $879 in 1995 and $38 and $1,036 for the
three months ended March 31, 1995 and 1996, respectively (unaudited). There
was no amortization expense in 1993.

Debt Issuance Costs

Costs associated with debt issuances are capitalized and amortized to
interest expense using the effective interest method over the terms of the
related debt agreements (Note 8).

Income Taxes

The Company accounts for income taxes following the liability method, as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (FAS 109). FAS 109 prescribes an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Deferred tax assets are recognized, net
of any valuation allowance, for deductible temporary differences and tax
operating loss and credit carryforwards. Deferred tax expense represents the
change in the deferred tax asset or liability balances.

Derivatives

Premiums paid for interest rate cap agreements are amortized as interest
expense over the term of the agreement. Amounts receivable under interest rate
cap agreements are recorded as a reduction of interest expense (Note 8).

Fair Value of Financial Instruments

Carrying values of cash, accounts receivable, accounts payable and accrued
expenses approximate fair value due to the short-term maturities of these
assets and liabilities. The carrying value of senior bank debt bearing
interest at floating rates approximates fair value. The carrying value at
December 31, 1995 of the 13% Senior Subordinated Notes approximates fair value
as the notes were issued in a private placement offering near the end of 1995.

Earnings per share (unaudited)

Given the changes in the Company's capital structure to be effected in
connection with the anticipated initial public offering of the Company's
common stock, historical earnings per common share amounts are not presented
in the consolidated financial statements as they are not considered to be
meaningful. Pro forma earnings per share (unaudited) is presented and reflects
conversion of the preferred stock into common stock for the same periods
outstanding as the underlying common stock on which the preferred stock was
issued (Note 9).

The pro forma weighted average shares outstanding (unaudited) gives effect
to the 8.1192-for-one stock split and has been adjusted to reflect as
outstanding, using the treasury stock method at the estimated initial public

F-9
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
offering price, all shares issuable upon the exercise of stock options granted
subsequent to April 25, 1995 (one year prior to the initial public offering
filing date pursuant to the Securities and Exchange Commission's rules). The
1992 and 1994 stock option grants were not included in the 1995 calculation
because they are antidilutive.

Pro Forma Equity Presentation (unaudited)

Pro forma stockholders' equity (unaudited) as of March 31, 1996 is presented
to reflect, upon the closing of the initial public offering of the Company's
common stock, the effect of the 8.1192-for-one stock split and the conversion
of the preferred stock into common stock at a conversion rate based on an
assumed initial public offering price of $16.00 per share. The pro forma
stockholders' equity (unaudited) does not reflect the estimated net offering
proceeds.

3. ACQUISITIONS

WR Acquisition, Inc./Williamhouse-Regency

The Company acquired WR and its wholly-owned subsidiary Williamhouse-Regency
through a merger transaction effective October 31, 1995 (Note 1). The
transaction was accounted for under the purchase method of accounting.
Accordingly, the aggregate acquisition cost was allocated to the net assets
acquired based on the fair market value of such net assets in accordance with
Accounting Principles Board Opinion (APB) No. 16. The aggregate acquisition
cost totaled $147,853 and consisted of cash of $140,000 and direct acquisition
costs of $7,853. The acquisition was entirely financed through the Bank Credit
Agreement (Note 8) and an off-balance sheet accounts receivable facility (Note
4). The aggregate acquisition cost has been preliminarily allocated to the
assets acquired and liabilities assumed as follows: accounts receivable of
$39,174; inventories of $49,496; prepaid expenses and other assets of $8,699;
net assets held for sale of $40,851; property and equipment of $88,688;
identifiable intangible assets of $37,900; deferred income tax liability of
$27,644; accounts payable of $17,518; accrued expenses of $36,482; noncurrent
liabilities of $2,019 and assumed debt of $152,905. The aggregate acquisition
costs exceeded fair market value of the net assets acquired by $119,613.
Accordingly, goodwill was recorded in accordance with APB No. 16 and is being
amortized over 40 years. The operating results of Delaware have been included
in the accompanying consolidated financial statements since the date of
acquisition. The businesses acquired include the Williamhouse division, a
manufacturer of a wide range of mill branded, specialty and commodity
envelopes; and the Regency division, which provides custom imprinting
services.

The Regency personalized stationery and invitations division (the
Personalizing Division) acquired in the Acquisition was held for sale at
December 31, 1995 and March 31, 1996 (unaudited). The purchase price allocated
to the net assets acquired includes the expected proceeds from sale plus the
net cash flows expected to be generated from the Personalizing Division from
date of acquisition through the expected date of sale (the holding period),
offset by interest expense incurred during the holding period on debt incurred
to finance the purchase of the Personalizing Division. During the period from
acquisition through December 31, 1995 and the three month period ended March
31, 1996 (unaudited), the Personalizing Division had an operating loss of $913
and operating income of $2,011, respectively, and interest carrying costs of
$556 and $942, respectively, which have been excluded from the statement of
operations and included as adjustments to the carrying amount of the net
assets held for sale in the consolidated balance sheet at December 31, 1995
and March 31, 1996 (unaudited).

F-10
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Certain costs are expected to be incurred in connection with integrating and
consolidating certain plant, administrative and sales functions of
Williamhouse-Regency with the Company, and the closure of Williamhouse-
Regency's corporate headquarters and the associated net reduction of
approximately 200 employees. Such costs, aggregating $17,500, include lease
termination expenses, severance and contractual change of control benefits,
the liability for which was included in the purchase price allocation within
accrued expenses. Substantially all such actions are expected to be completed
prior to October 31, 1996.

Globe-Weis

Effective August 16, 1995, the Company acquired the inventories and certain
equipment of the file folder and hanging file folder product lines of Globe-
Weis's ("Globe") office products division from Globe's parent. For financial
reporting purposes, this acquisition was accounted for under the purchase
method of accounting. Accordingly, the aggregate acquisition cost was
allocated to the net assets acquired based on the fair value of such net
assets in accordance with APB No. 16. The aggregate acquisition costs totaled
$19,669 and consisted of cash of $6,622, notes issued to the seller of $10,958
and direct acquisition and financing costs of $2,089. The Company principally
financed the acquisition through its financing arrangement with a commercial
lender as described in Note 8 and notes issued to the seller. The allocation
of the aggregate acquisition costs was as follows: inventories of $12,848,
equipment of $5,156, and debt issuance costs of $1,665. The purchase agreement
provides for a purchase price adjustment mechanism pending receipt of final
priced inventory listings from Globe. The purchase price has not yet been
finalized. The purchase price allocation was based on management's estimate of
the final purchase price. Management does not believe the actual purchase
price will vary significantly from their estimate. The operating results of
this acquisition have been included in the accompanying consolidated financial
statements since the date of acquisition.

SCM Office Supplies

Effective July 5, 1994, the Company acquired the assets and assumed certain
liabilities of SCM Office Supplies, Inc. For financial reporting purposes,
this acquisition was accounted for under the purchase method of accounting.
Accordingly, the aggregate acquisition cost was allocated among the net assets
acquired based on the fair market value of such net assets in accordance with
APB No. 16. The aggregate acquisition cost totaled $14,372 and consisted of
cash of $12,880 and direct acquisition and financing costs of $1,492. The
Company principally financed the acquisition through its financing arrangement
with a commercial lender as described in Note 8. The allocation of the
aggregate acquisition cost to the assets acquired and liabilities assumed was
as follows: accounts receivable of $7,922, inventories of $6,857, prepaid
expenses and other assets of $16, debt issuance costs of $628, property and
equipment of $5,441, net deferred income tax assets of $1,553, accounts
payable of $4,235, and accrued liabilities of $6,333. The aggregate
acquisition cost exceeded fair market value of the net assets acquired by
approximately $2,523. Accordingly, goodwill was recorded in accordance with
APB No. 16. The goodwill is being amortized over 20 years. The operating
results of this acquisition have been included in the accompanying
consolidated financial statements since the date of acquisition.

The following summary presents the results of operations for the years ended
December 31, 1994 and 1995, on an unaudited pro forma basis, as if the WR,
Globe and SCM acquisitions had occurred as of January 1, 1994 (with
appropriate adjustments for amortization of intangible assets, interest
expense, elimination of duplicate selling and administrative expenses and the
related income tax effects). The pro forma operating results are for
illustrative purposes only and do not purport to be indicative of the actual
results which would have occurred had the transactions been consummated as of
those earlier dates, nor are they indicative of results of operations which
may occur in the future.

F-11
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1994 1995
--------- --------
(UNAUDITED)
<S> <C> <C>
Net sales............................................. $454,667 $511,307
========= ========
Income (loss) before income taxes and extraordinary
item................................................. $ (25,700) $ 4,108
========= ========
Net income (loss) before extraordinary item........... $ (18,300) $ 3,428
========= ========
Net income (loss) from continuing operations after
extraordinary item................................... $ (18,300) $ (6,224)
========= ========
</TABLE>

4. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable--trade.................. $17,376 $25,539 $17,263
Accounts receivable--other.................. 64 2,013 2,795
Less allowance for doubtful accounts and
reserves for customer deductions and cash
discounts.................................. (475) (1,609) (1,651)
-------- -------- -------
$ 16,965 $ 25,943 $18,407
======== ======== =======
</TABLE>

The Company sold an undivided ownership interest in a revolving pool of
trade accounts receivable for $45,000 in October 1995. The sold accounts
receivable are excluded from receivables in the accompanying balance sheets.
The full amount of the allowance for doubtful accounts has been retained
because the Company has retained substantially the same risk of credit loss as
if the receivables had not been sold through the recourse provision of the
receivable sale agreement. Under the agreement, the maximum amount of the
purchaser's investment is subject to change based on the level of eligible
receivables and restrictions on concentrations of receivables.

The total cost of the program was $423 in 1995 and $323 for the three months
ended March 31, 1996 (unaudited) and is included in general and administrative
expenses in the consolidated statement of operations. The agreement expires in
2000.

Bad debt expense for 1993, 1994, 1995 and for the three months ended March
31, 1995 and 1996 (unaudited) was immaterial.

5. INVENTORIES

Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and semi-finished goods ..... $15,784 $36,129 $33,368
Work in process............................ 2,689 7,114 9,203
Finished goods............................. 20,467 60,266 59,409
-------- -------- -------
38,940 103,509 101,980
LIFO reserve............................... (5,966) (10,448) (8,814)
-------- -------- -------
$ 32,974 $ 93,061 $93,166
======== ======== =======
</TABLE>

F-12
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In connection with the Acquisition (Note 3), Williamhouse-Regency's total
inventories for financial accounting purposes were written up by $13,948 to
fair market value at October 31, 1995, including reversal of $6,695 related to
Williamhouse-Regency's historical LIFO reserves. Since the Company is on the
LIFO method of accounting, such write-up will form the historical base year
cost for the acquired inventories and will not impact the statement of
operations unless a decrement of base inventory quantities occurs. During the
two months subsequent to October 31, 1995, certain acquired inventory
quantities were liquidated and $453 of the fair value write-up was charged to
cost of sales.

Inventory quantities of Ampad were reduced during 1995 which resulted in
liquidation of LIFO inventory layers carried at lower costs which prevailed in
prior years. The effect of the liquidation of Ampad inventory in 1995 was to
decrease cost of sales by $557 and to increase net income by $334. There were
no liquidations of LIFO inventories in 1994 or 1993.

6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES IN ----------------- MARCH 31,
YEARS 1994 1995 1996
--------------- ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land........................ $ 31 $ 4,949 $ 4,961
Buildings................... 40 642 22,997 22,866
Machinery and equipment..... 10-12 6,274 71,094 70,302
Office furniture and fix-
tures...................... 3-5 2,891 5,747 6,432
Construction in progress.... 261 6,560 8,760
------- -------- --------
10,099 111,347 113,321
Less accumulated deprecia-
tion and amortization...... (1,210) (4,579) (6,563)
------- -------- --------
$ 8,889 $106,768 $106,758
======= ======== ========
</TABLE>

In connection with the Acquisition (Note 3), acquired property, plant and
equipment was appraised at $36,285 in excess of historical book value as of
October 31, 1995, including $1,443, $1,664 and $33,178 allocated to land,
buildings and machinery and equipment, respectively.

Depreciation expense was $159 in 1993, $828 in 1994, $3,369 in 1995 and $490
and $1,984 for the three months ended March 31, 1995 and 1996, respectively
(unaudited).

F-13
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. ACCRUED EXPENSES

Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1994 1995 1996
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Acquisition integration costs........................ $2,003 $17,567 $15,534
Sales volume discounts............................... 2,436 11,414 5,211
Salaries and wages................................... 1,148 6,682 5,395
Interest............................................. 472 3,748 10,651
Other................................................ 1,869 5,424 6,480
------ ------- -------
$7,928 $44,835 $43,271
====== ======= =======
</TABLE>

8. BORROWINGS

Long-term debt of the Company, which was incurred entirely by Delaware and is
subject to mandatory repayments under certain conditions (as described below),
consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Senior bank debt:
Term Loan A due 1996-2000.................... $ $ 69,843 $ 92,875
Term Loan B due 1996-2002.................... 65,000 65,000
Term Loan C due 1996-2003.................... 45,000 45,000
Term Loan D due 1996-2004.................... 40,000 40,000
13% Senior Subordinated Notes due 2005......... 200,000 200,000
WR seller notes payable due January 1996....... 25,157
Industrial revenue bonds....................... 8,049 8,049
Capitalized lease obligations.................. 2,579 2,480
Floating rate bank debt........................ 16,458
15% subordinated notes payable to stockholders
and management................................ 3,563
8.5% to 15% Ampad seller notes................. 2,485
Other.......................................... 155 115
------- -------- --------
22,661 455,628 453,519
Less: current portion.......................... (2,772) (11,834) (13,066)
------- -------- --------
$19,889 $443,794 $440,453
======= ======== ========
</TABLE>

Future maturities of long-term debt at December 31, 1995 are as follows:

<TABLE>
<S> <C>
1996................................................................ $ 11,834
1997................................................................ 16,787
1998................................................................ 21,179
1999................................................................ 27,654
2000................................................................ 31,162
Thereafter.......................................................... 347,012
--------
$455,628
========
</TABLE>

F-14
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Senior Bank Debt

The Company entered into a bank credit agreement effective October 31, 1995
consisting of $245,000 of term loans in the form of a multitranche facility, a
$45,000 revolving credit facility and an IRB Letter of Credit Facility of
$13,400 (the "Bank Credit Agreement"). Interest rates on the term loans are
floating and based, at the Company's option, on either the Eurodollar rate (as
defined in the agreement) plus 275 to 400 basis points or the bank base rate
(as defined in the agreement) plus 175 to 300 basis points. The basis point
additions vary by tranche. Interest is payable quarterly under the bank base
rate option and on the last day of the selected interest period under the
Eurodollar rate option. If the interest period on Eurodollar loans exceeds
three months, then interest payments are due every three months (at December
31, 1995, the Company selected the Eurodollar rate option). The effective
interest rates by tranche at December 31, 1995 and March 31, 1996 (unaudited)
are as follows:

<TABLE>
<CAPTION>
MARCH 31, 1996
DECEMBER 31, 1995 (UNAUDITED)
---------------------- ----------------------
EURODOLLAR BANK BASE EURODOLLAR BANK BASE
OPTION RATE OPTION OPTION RATE OPTION
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Term Loan A.................... 8.66% 10.25% 8.22% 10.07%
Term Loan B.................... 9.28% 10.88% 8.72% 10.75%
Term Loan C.................... 9.66% 11.25% 9.10% 11.13%
Term Loan D.................... 9.91% 11.75% 9.34% 11.38%
</TABLE>

The revolving credit facility is a five-year facility bearing interest at a
floating rate based, at the Company's option, on either the Eurodollar rate
plus 275 basis points or the bank base rate plus 175 basis points, or an
effective rate of 8.66% at December 31, 1995 and 8.13% at March 31, 1996
(unaudited) under the Eurodollar rate option and 10.25% at December 31, 1995
and 10.00% at March 31, 1996 (unaudited) under the bank base rate option,
respectively. A commitment fee of 0.5% is payable quarterly on the unused
portion of the facility. The revolving credit facility includes a letter of
credit sublimit of $20,000. There were no borrowings outstanding under this
facility at December 31, 1995 or March 31, 1996 (unaudited).

The Bank Credit Agreement requires the Company to meet certain financial
tests, including minimum levels of EBITDA (as defined in the agreement),
minimum interest coverage and maximum leverage ratio. The agreement also
contains covenants which, among other things, limit the incurrence of
additional indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers, and other matters customarily restricted in such
agreements. The Bank Credit Agreement contains customary events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-defaults to certain other indebtedness, certain events of
bankruptcy and insolvency, ERISA, judgment defaults, failure of any guaranty
or security agreement supporting the bank credit agreement to be in full force
and effect and change of control.

The Bank Credit Agreement required the Company to purchase an interest rate
cap covering a portion of the outstanding balance under the agreement. In
January 1996, the Company entered into a four-year agreement that entitles the
Company to receive from the counterparty on a quarterly basis the amount, if
any, by which LIBOR exceeds 6.5% for the first two years of the agreement and
7.5% for the last two years on a notional principal amount of $100,000. The
counterparty to this agreement is a large financial institution.

The Bank Credit Agreement provides for mandatory prepayment, subject to
certain exceptions, upon the occurrence of certain events including, but not
limited to, asset sales (including the net assets held for sale as described
in Note 3), certain debt and equity issuances, insurance recovery events and
the accumulation of Excess Cash Flows, as defined (with a requirement to pay
50% of Excess Cash Flow for the period ended December 31, 1995 and 75% of
Excess Cash Flow per annum thereafter).

F-15
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Bank Credit Agreement is guaranteed by the Company and all its
subsidiaries, except for Notepad Funding Corporation, and is secured by
substantially all assets of Delaware and a pledge of all capital stock of
Delaware and its subsidiaries.

Senior Subordinated Notes

Delaware issued $200,000 of 13% Senior Subordinated Notes through a private
placement in December 1995. The notes are unsecured and subordinated to all
senior bank debt. Interest is payable semi-annually on May 15 and November 15.
The notes are redeemable after November 15, 2000, at Delaware's option, at
redemption prices ranging from 106.5% of the face value of the notes in 2000
to 100% of the face value of the notes in 2003 or thereafter. Additionally, at
any time on or prior to November 15, 1998, Delaware may, at its option, use
the proceeds of public equity offerings of the Company or Delaware to redeem
up to 35% of the notes at redemption prices ranging from 111% to 113% of the
face value of the notes.

The notes require Delaware to file a registration statement with the
Securities Exchange Commission within 120 days of issuance to exchange the
notes for new notes (the Exchange Notes) of Delaware having terms
substantially identical to the notes. Delaware must use its best efforts to
cause such registration statement to be declared effective within 180 days
after issuance of the notes and consummate the exchange within 225 days after
issuance of the notes.

The notes are fully and unconditionally guaranteed by all subsidiaries of
Delaware, except for Notepad Funding Corporation, on a joint and several and
senior subordinated basis (Note 14), however, no guarantee from the Company
exists. The notes contain restrictive covenants which, among other things,
limit dividends, repurchase of capital stock and investments, incurrence of
additional indebtedness, transactions with affiliates and other matters
customarily restricted in such agreements.

Other

WR seller notes in the amount of $25,157 outstanding at December 31, 1995,
were repaid in January 1996 from the proceeds of the remaining borrowings
issuable under Term Loan A of the Bank Credit Agreement. The WR seller notes
bore interest at 1% and are classified as long-term in the consolidated
balance sheet at December 31, 1995 since such debt was refinanced with long-
term debt.

At December 31, 1995, the Company's subsidiaries had outstanding various
industrial revenue bonds in the aggregate amount of $8,049. The industrial
revenue bonds bear interest at rates ranging from 5.10% to 5.25%. Aggregate
annual principal payments ranging from $350 to $2,970 are due through 2010.
Payment of principal and interest on the industrial revenue bonds are
guaranteed by the Company or various wholly-owned subsidiaries. The industrial
revenue bonds are secured by letters of credit. At December 31, 1995 and March
31, 1996 (unaudited), letters of credit in the aggregate amount of $15,800 and
$12,677, respectively, were outstanding.

At December 31, 1994, the Company had outstanding notes payable to various
lenders in the aggregate amount of approximately $22,700 with effective
interest rates ranging from 8% to 15%. All of the notes payable outstanding at
December 31, 1994, were either refinanced with the proceeds of the Bank Credit
Agreement or repaid in accordance with their terms.

At December 31, 1994, the Company had a revolving line of credit with a
commercial lender with an outstanding balance of $22,767. The revolving line
of credit carried an interest rate of 1.5% above the bank's prime rate (an
effective rate of 10% at December 31, 1994). The facility was repaid and
terminated in 1995 and replaced by the Bank Credit Agreement.

F-16
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The proceeds from the Bank Credit Agreement were used to consummate the
Acquisition (Note 3), and refinance existing indebtedness of the Company and
Williamhouse-Regency.

On December 1, 1995, $200,000 of proceeds were received from the 13% Senior
Subordinated Notes which were used to repurchase $100,000 of publicly-held
notes of Williamhouse-Regency assumed in the Acquisition and redeem preferred
stock, preferred stock equivalents, and Class P common stock in the aggregate
amount of $75,000 (Note 9).

The Company incurred fees related to the transactions of approximately
$33,200, which have been deferred and are being amortized using the effective
interest method over the respective lives of the agreements.

An extraordinary after-tax loss on extinguishment of debt of $9,652 ($16,086
pretax) is reflected in the statement of operations for the year ended
December 31, 1995 as a result of $10,812 of prepayment penalties associated
with the repurchase of Williamhouse-Regency's $100,000 of notes and Ampad's
bank debt and the write-off of $5,274 of unamortized deferred financing costs
in connection with Williamhouse-Regency's notes redemption and Ampad's debt
refinancings.

9. STOCKHOLDERS' EQUITY, STOCK OPTIONS AND NONRECURRING COMPENSATION CHARGE

At January 1, 1995, options for 126,405 shares of common stock had been
issued to certain members of the Company's management under the 1992 Key
Employee Stock Option Plan (the "1992 Plan") in two separate tranches--"Core"
stock options for 93,428 shares and "Performance" stock options for 32,977
shares. The exercise price of all options equaled or exceeded the fair market
value at date of grant and the vesting date for both "Core" and "Performance"
stock options is ten years from grant date, unless an Acceleration Event, as
defined, occurs. In connection with the Acquisition of WR effective October
31, 1995 (Note 3), the Company's equity was recapitalized via a stock dividend
of one share of preferred stock for every ten shares of common stock and Class
P common and options to purchase common stock. Concurrently, preferred stock
options were granted to holders of common stock options and the respective
exercise prices were adjusted to maintain option holders' pro rata economic
interests pursuant to antidilution provisions included in the existing stock
option plans.

The preferred stock has a liquidation and fair value of $1,948.50 per share,
has no dividend rights and, except as required by law, is nonvoting. As of
December 31, 1995, after giving effect to satisfaction of its preferred
redemption values, the Company's Class P common stock was converted on a
share-for-share basis into common stock.

The issuance of the preferred stock options was considered additional
consideration to restore the option holders' economic position as a result of
the recapitalization, which was directly related to the Acquisition. Receipt
of such consideration resulted in a nonrecurring, noncash compensation charge
equal to the excess of fair market value over the exercise price of the
preferred stock options of $24,265 with a corresponding credit being recorded
to additional paid-in capital. The adjustment to the underlying common stock
option's prices did not result in additional compensation expense in
accordance with generally accepted accounting principles.

Additionally, options for 8,109 shares of common stock and 810.9 shares of
preferred stock were granted to certain members of management in December
1995. The exercise prices of $0.06 per common share and $3.60 per preferred
share were below the fair market value of the respective classes of stock at
date of grant, resulting in a noncash compensation charge equal to the
aggregate excess of fair market value over the exercise price, or $1,733, with
a corresponding credit being recorded to additional paid-in capital.

F-17
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table summarizes the option activity for the years ended
December 31, 1993, 1994 and 1995 and for the three months ended March 31,
1996:

<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
---------------------- ------------------------
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
--------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1992
and 1993..................... 111,236 $ 0.42
Granted in 1994............... 15,169 $ 25.00
-------
Outstanding, December 31,
1994......................... 126,405 $0.42-$25.00
Granted in 1995............... 8,109 $ .06 13,451.4 $3.60-$214.29
Redeemed in 1995.............. (4,715.4)
------- --------
Outstanding, December 31, 1995
and March 31, 1996 (unau-
dited)....................... 134,514 $ .06-$3.57 8,736.0 $3.60-$214.29
======= ========
</TABLE>

All options are exercisable at December 31, 1995 and March 31, 1996
(unaudited).

The Company has elected not to early adopt the provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock
Based Compensation." The Company will adopt the reporting provisions of SFAS
123 in 1996. The Company expects the adoption to have no effect on its
financial condition or results of operations.

The Company awarded additional compensation to executives and nonexecutives
of $1,634 in 1995 in recognition of the significant transactions consummated
during the year. The Company does not expect this additional compensation to
be awarded in future years.

10. PENSION PLAN AND 401(K) PLAN

The Company is liable for a supplemental, nonqualified, noncontributory,
defined benefit pension plan covering certain former Ampad executives, which
was assumed in the initial acquisition of Ampad in June 1992. Benefits are
based on a percentage of prior compensation less expected social security
benefits. The present value of the liability associated with this plan is
$678, $636 and $611 at December 31, 1994, 1995, and March 31, 1996
(unaudited), respectively, and is included in other liabilities in the
consolidated balance sheet.

The Company maintains a retirement plan (401(k) plan) for the benefit of all
employees who meet minimum age and service requirements. Company contributions
to the plan may be made at the discretion of the board of directors.
Contributions to the plan were approximately $515, $557, $568, $51 and $78 for
the years ended December 31, 1993, 1994, 1995, and the three months ended
March 31, 1995 and 1996 (unaudited), respectively.

11. INCOME TAXES

The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------- ---------------
1993 1994 1995 1995 1996
---- ----- -------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal............................ $ $ $ $ $ 21
State.............................. 169 3
--- ----- -------- ----- -----
169 24
Deferred provision (benefit) for in-
come taxes.......................... 64 (488) (13,141) 366 78
--- ----- -------- ----- -----
$64 $(488) $(12,972) $ 366 $ 102
=== ===== ======== ===== =====
</TABLE>

F-18
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the statutory U.S. federal income tax rate and the
Company's effective tax rate is as follows:

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------- ---------------------
1993 1994 1995 1995 1996
----- ----- ----- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income tax rate..... 35.0 % (35.0)% (35.0)% 35.0 % 35.0%
Adjustment to valuation al-
lowance ................... (31.9)% 14.7 % (6.4)%
Effect of acquisition....... 19.3 % 2.8%
Change in enacted rates..... (7.8)% .4 %
Miscellaneous permanent dif-
ferences................... .9 % .4%
State taxes, net............ 6.2 % (5.2)% (5.0)% 5.0 % 5.0%
Other, net.................. 1.9 % (.3)% (1.4)% (1.7)% 1.2%
----- ----- ----- --------- ---------
Effective tax rate.......... 3.4 % (6.1)% (46.9)% 38.3 % 44.4%
===== ===== ===== ========= =========
</TABLE>

Temporary tax differences affected and categorized by financial statement
line item are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred tax assets (liabilities):
Accrued expenses............................ $ 1,102 $10,523 $10,503
Accounts receivable and allowances.......... 191 900 900
LIFO reserve................................ (2,478) (7,608) (7,608)
NOL/credits................................. (496) 11,194 10,949
------- -------- --------
Current deferred tax asset (liability),
net........................................ $(1,681) $15,009 $14,744
======= ======== ========
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Noncurrent deferred tax assets (liabili-
ties):
Trademarks and intangibles.................. $ $(15,009) $(15,009)
Property and equipment, net................. 2,709 (21,291) (21,291)
NOL carryforwards........................... 4,073
Noncash compensation expense credited to
paid-in-capital............................ 6,776 6,776
Other accrued liabilities................... 235 254 254
Deferred financing costs.................... (15)
Seller note discount........................ (117)
State taxes effect and other, net........... (804) (800) (641)
------- -------- --------
Noncurrent deferred tax asset (liability),
net........................................ 6,081 (30,070) (29,911)
Deferred tax asset valuation allowance...... (1,769)
------- -------- --------
Noncurrent deferred tax asset (liability),
net........................................ $ 4,312 $(30,070) $(29,911)
======= ======== ========
</TABLE>

The valuation allowance represents the amount of the deferred tax assets
which may not be realized through taxable income from future operations. The
Company's provision for income taxes may be impacted by adjustments to the
valuation allowance which may be required if circumstances change regarding
the realizability of the deferred tax assets in future periods.

F-19
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The effect on the income tax provision related to the valuation allowance
was a benefit of $1,769 for the year ended December 31, 1995. Deferred tax
assets valuation allowances recorded in prior years were reversed in 1995 as a
result of management's assessment of future realizability of deferred tax
assets. For the year ended December 31, 1994, the effect on the income tax
provision related to the valuation allowance was a charge of $1,180. The
charge primarily related to an increase in the NOL carryforwards for which no
benefit was recognized during 1994.

At December 31, 1995, the Company has net operating losses available to
reduce future taxable income of approximately $25,007. These net operating
loss carryforwards expire in the years 2007 through 2010. If certain
substantial changes in the Company's ownership should occur, there would be an
annual limitation on the amount of the carryforwards which can be utilized. In
addition, the Company has approximately $1,200 of alternative minimum tax
credit carryforwards. The acquisition of WR (See Note 3) resulted in a change
in control of WR. Consequently the utilization of these credits in future
periods are subject to limitation.

12. COMMITMENTS AND CONTINGENCIES

Commitments

The Company is obligated under noncancelable operating leases for office
space and machinery and equipment which expire at various times through 1997.
Future minimum lease commitments under these leases are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1996............................................................ $ 2,110
1997............................................................ 2,026
1998............................................................ 1,894
1999............................................................ 1,430
2000............................................................ 1,214
Thereafter...................................................... 6,503
--------
Total minimum lease payments.................................. $ 15,177
========
</TABLE>

Total rent expense under noncancelable operating leases was approximately
$775, $853, $1,888 and $148 and $1,122 for 1993, 1994 and 1995 and for the
three months ended March 31, 1995 and 1996 (unaudited) respectively.

In October 1995, the Company entered into a ten-year management services
agreement with Bain Capital, pursuant to which the Company will pay Bain
Capital an aggregate annual fee of no less than $2.0 million.

Litigation

There are various outstanding claims against the Company arising in the
normal course of business. Management, on the advise of counsel, believes that
the claims are without merit and that any losses which might ultimately be
sustained by the Company would not be material to the financial position or
results of operations of the Company.

Environmental Matters

F-20
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
standards for management of waste. While there can be no assurance that the
Company is at all times in complete compliance with all such requirements, the
Company has made and will continue to make capital and other expenditures to
comply with such requirements.

The Company's Ampad division had been named a potentially responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, at five waste disposal sites. The Company
settled its liability at four of these sites as a de minimis party. The
Company expects to be eligible for a de minimis settlement at the remaining
site.

13. RELATED PARTY TRANSACTIONS

For the years ended December 31, 1993, 1994 and 1995, the Company paid $431,
$684 and $937, respectively, for management and directors' fees to the
principal shareholders (Bain Capital). No fees were paid for the three month
periods ended March 31, 1995 and 1996 (unaudited). Unpaid fees of $128 and
$500 are included in accrued expenses in the consolidated balance sheets at
December 31, 1994 and March 31, 1996 (unaudited). There were no unpaid fees at
December 31, 1995.

Included in other assets in the consolidated balance sheet at December 31,
1994, 1995 and March 31, 1996 (unaudited) is a note receivable of $106, $112
and $114, respectively, due from an officer and shareholder of the Company.
Interest expense is accrued monthly at an annual rate of 6.19% and the note is
due in 1998.

The Company paid $7,000 to Bain Capital for services relating to the
Acquisition of WR and the related financing of the transaction. Of this
amount, $4,300 was included in deferred financing fees and $2,700 was a direct
acquisition expense allocated to the net assets acquired as discussed in Note
3. The Company also paid $450 to Bain Capital relating to the Globe-Weis
acquisition (Note 3) which was included in deferred financing fees and
subsequently included as a component of the extraordinary loss from
extinguishment of debt. The Company paid Bain Capital $225 in 1994 for
services related to the SCM acquisition and the related financing of the
transaction.

F-21
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES

The 13% Senior Subordinated Notes of Delaware are guaranteed by
substantially all of the subsidiaries of Delaware. The subsidiary guarantees
are full, unconditional and joint and several. Each of the guarantor
subsidiaries are wholly-owned. The Company is not a guarantor of this debt.
Separate financial statements of the guarantor subsidiaries are not presented
because management has determined that they would not be material to
investors. However, condensed consolidating financial information as of
December 31, 1995 and for the year then ended, and as of March 31, 1996 and
for the three months then ended (unaudited) are presented. The condensed
consolidating financial information of Delaware is as follows:

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
DELAWARE SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................... $ 18,295 $ 33 $ 13 $ $ 18,341
Restricted cash.......... 3,619 3,619
Accounts receivable...... (13,490) (154) 39,587 25,943
Intercompany receivable
(payable)............... 75,423 (72,255) (3,168) --
Refundable income
taxes................... 3,657 3,657
Inventories.............. 74,112 18,949 93,061
Assets held for sale..... 864 41,714 42,578
Deferred income taxes.... 17,395 (2,386) 15,009
Other current assets..... 879 48 927
-------- -------- ------- -------- --------
Total current assets... 180,754 (14,051) 36,432 203,135
-------- -------- ------- -------- --------
Property and equipment.... 73,097 37,357 110,454
Less: accumulated
depreciation............. (3,438) (248) (3,686)
-------- -------- ------- -------- --------
Net property and
equipment............. 69,659 37,109 106,768
-------- -------- ------- -------- --------
Investment in
subsidiaries............. 41,575 (41,575)
Intangible assets, net.... 34,196 3,504 37,700
Debt issuance costs, net.. 30,160 182 2,587 32,929
Goodwill, net............. 107,076 13,307 120,383
Other..................... 3,311 130 3,441
-------- -------- ------- -------- --------
Total assets........... $466,731 $ 40,181 $39,019 $(41,575) $504,356
======== ======== ======= ======== ========
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
DELAWARE SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-
term debt............... $ 10,652 $ 1,182 $ $ $ 11,834
Accounts payable and
accrued expenses........ 62,869 19,014 81,883
Income taxes payable..... 494 494
-------- -------- ------- -------- --------
Total current
liabilities........... 74,015 20,196 94,211
-------- -------- ------- -------- --------
Long-term debt............ 442,134 1,660 443,794
Other liabilities......... 2,702 2,702
Deferred income taxes..... 14,301 15,769 30,070
-------- -------- ------- -------- --------
Total liabilities...... 533,152 37,625 570,777
-------- -------- ------- -------- --------
Commitments and
contingencies............
Stockholder's equity:
Common stock............. 1 10 (11)
Additional paid-in
capital................. 28,998 37,370 (37,370) 28,998
Retained earnings........ (95,419) 2,555 1,639 (4,194) (95,419)
-------- -------- ------- -------- --------
Total stockholder's
equity................ (66,421) 2,556 39,019 (41,575) (66,421)
-------- -------- ------- -------- --------
Total liabilities and
stockholder's equity.. $466,731 $ 40,181 $39,019 $(41,575) $504,356
======== ======== ======= ======== ========
</TABLE>

F-22
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
MARCH 31, 1996 (UNAUDITED)
-------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
DELAWARE SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................... $ 20,026 $ 69 $ 13 $ $ 20,108
Restricted cash.......... 10,759 10,759
Accounts receivable...... (8,862) (77) 27,346 18,407
Intercompany receivable
(payable)............... 83,157 (79,132) (4,025) --
Inventories.............. 75,731 17,435 93,166
Assets held for sale..... 764 42,808 43,572
Deferred income taxes.... 17,302 (2,260) (298) 14,744
Other current assets..... 2,009 17 2,026
-------- -------- ------- -------- --------
Total current assets... 200,886 (21,140) 23,036 202,782
-------- -------- ------- -------- --------
Property and equipment.... 75,061 38,260 113,321
Less: accumulated
depreciation............. (5,892) (671) (6,563)
-------- -------- ------- -------- --------
Net property and
equipment............. 69,169 37,589 106,758
-------- -------- ------- -------- --------
Investment in
subsidiaries............. 29,447 (29,447)
Intangible assets, net.... 33,924 3,468 37,392
Debt issuance costs, net.. 29,911 160 2,453 32,524
Goodwill, net............. 107,672 11,983 119,655
Other..................... 1,556 127 1,683
-------- -------- ------- -------- --------
Total assets........... $472,565 $ 32,187 $25,489 $(29,447) $500,794
======== ======== ======= ======== ========
<CAPTION>
MARCH 31, 1996 (UNAUDITED)
-------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
DELAWARE SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-
term debt............... $ 11,886 $ 1,180 $ $ $ 13,066
Accounts payable and
accrued expenses........ 75,036 4,924 79,960
Income taxes payable..... (1,841) 2,359 518
-------- -------- ------- -------- --------
Total current
liabilities........... 85,081 8,463 93,544
-------- -------- ------- -------- --------
Long-term debt............ 438,793 1,660 440,453
Other liabilities......... 3,179 3,179
Deferred income taxes..... 11,805 18,106 29,911
-------- -------- ------- -------- --------
Total liabilities...... 538,858 28,229 567,087
-------- -------- ------- -------- --------
Commitments and
contingencies............
Stockholder's equity:
Common stock............. 1 10 (11)
Additional paid-in
capital................. 28,998 23,392 (23,392) 28,998
Retained earnings........ (95,291) 3,957 2,087 (6,044) (95,291)
-------- -------- ------- -------- --------
Total stockholder's
equity................ (66,293) 3,958 25,489 (29,447) (66,293)
-------- -------- ------- -------- --------
Total liabilities and
stockholder's equity.. $472,565 $ 32,187 $25,489 $(29,447) $500,794
======== ======== ======= ======== ========
</TABLE>

F-23
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
The following condensed consolidating statement of operations includes the
results of operations of Delaware for the year ended December 31, 1995,
including the results of Williamhouse-Regency and Notepad Funding Corporation
for the post-October 31, 1995 period.

<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
DELAWARE SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $238,989 $20,352 $ $ $259,341
Cost of sales........... 197,033 14,781 211,814
-------- ------- ------ ------- --------
Gross profit ........... 41,956 5,571 47,527
-------- ------- ------ ------- --------
Operating expenses:
Selling and
marketing............ 5,730 524 6,254
General and
administrative....... 13,278 741 (1,728) 12,291
Nonrecurring
compensation charge.. 27,632 27,632
-------- ------- ------ ------- --------
Income (loss) from
operations .......... (4,684) 4,306 1,728 1,350
-------- ------- ------ ------- --------
Other income (expense):
Interest.............. (13,531) (37) (89) (13,657)
Other income, net..... 735 1,728 (1,728) 735
-------- ------- ------ ------- --------
Income (loss) before
income taxes........... (17,480) 4,269 1,639 (11,572)
Provision (benefit) for
income taxes........... (8,252) 1,714 (6,538)
-------- ------- ------ ------- --------
Income (loss) before
equity in net earnings
of subsidiaries and
extraordinary item..... (9,228) 2,555 1,639 (5,034)
Equity in net earnings
of subsidiaries........ 4,194 (4,194)
-------- ------- ------ ------- --------
Income (loss) before
extraordinary item..... (5,034) 2,555 1,639 (4,194) (5,034)
Extraordinary loss from
extinguishment of debt,
net.................... (9,652) (9,652)
-------- ------- ------ ------- --------
Net income (loss)....... $(14,686) $ 2,555 $1,639 $(4,194) $(14,686)
======== ======= ====== ======= ========
</TABLE>

F-24
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 (UNAUDITED)
-------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
DELAWARE SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $87,586 $36,989 $ $(3,157) $121,418
Cost of sales........... 72,009 29,037 (3,157) 97,889
------- ------- ---- ------- --------
Gross profit ........... 15,577 7,952 23,529
------- ------- ---- ------- --------
Operating expenses:
Selling and
marketing............ 2,488 840 3,328
General and
administrative....... 7,412 1,130 8 (852) 7,698
------- ------- ---- ------- --------
Income (loss) from
operations .......... 5,677 5,982 (8) 852 12,503
------- ------- ---- ------- --------
Other income (expense):
Interest.............. (12,388) (56) (98) (12,542)
Other income, net..... 653 (384) 852 (852) 269
------- ------- ---- ------- --------
Income (loss) before
income taxes........... (6,058) 5,542 746 230
Provision (benefit) for
income taxes........... (4,335) 4,139 298 102
------- ------- ---- ------- --------
Income (loss) before
equity in net earnings
of subsidiaries........ (1,723) 1,403 448 128
Equity in net earnings
of subsidiaries........ 1,851 (1,851)
------- ------- ---- ------- --------
Net income (loss)....... $ 128 $ 1,403 $448 $(1,851) $ 128
======= ======= ==== ======= ========
</TABLE>

F-25
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CONDENSED CONSOLIDATING CASH FLOW INFORMATION

The following condensed consolidating cash flow information includes the
cash flows of Delaware for the year ended December 31, 1995, including the
results of Williamhouse-Regency and Notepad Funding Corporation for the post-
October 31, 1995 period.

<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
DELAWARE SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ 44,346 $ 2,674 $(42,311) $ $ 4,709
Investing activities
Purchase of the stock of
WR, including
acquisition costs...... (122,655) (122,655)
Purchase of net assets,
including acquisition
costs.................. (7,046) (7,046)
Other................... 1,075 (2,641) (1,566)
--------- ------- -------- ------- ---------
Net cash used in
investing activities... (128,626) (2,641) (131,267)
--------- ------- -------- ------- ---------
Financing activities
Proceeds from sale of
accounts receivable.... 45,000 45,000
Net repayment under line
of credit.............. (22,767) (22,767)
Proceeds from issuance
of debt................ 430,052 430,052
Repayment of long-term
debt................... (186,546) (186,546)
Redemption premiums and
penalties included in
extraordinary loss..... (10,812) (10,812)
Debt issuance costs..... (32,356) (2,676) (35,032)
Dividends paid.......... (75,000) (75,000)
--------- ------- -------- ------- ---------
Net cash provided by
financing activities... 102,571 42,324 144,895
--------- ------- -------- ------- ---------
Net increase in cash.... 18,291 33 13 18,337
Cash, beginning of
year................... 4 4
--------- ------- -------- ------- ---------
Cash, end of year....... $ 18,295 $ 33 $ 13 $ $ 18,341
========= ======= ======== ======= =========
</TABLE>

F-26
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CONDENSED CONSOLIDATING CASH FLOW INFORMATION

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 (UNAUDITED)
-------------------------------------------------------------
GUARANTOR NONGUARANTOR CONSOLIDATED
DELAWARE SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ 7,255 $374 $ $ $ 7,629
Investing activities:
Other.................. (2,613) (338) (2,951)
-------- ---- ---- ------- --------
Net cash used in
investing activities... (2,613) (338) (2,951)
-------- ---- ---- ------- --------
Financing activities:
Proceeds from issuance
of debt.............. 25,272 25,272
Repayment of long-term
debt................. (27,380) (27,380)
Debt issuance costs... (803) (803)
-------- ---- ---- ------- --------
Net cash provided by
financing activities... (2,911) (2,911)
-------- ---- ---- ------- --------
Net increase in cash.... 1,731 36 1,767
Cash, beginning of
period................. 18,295 33 13 18,341
-------- ---- ---- ------- --------
Cash, end of period..... $ 20,026 $ 69 $ 13 $ $ 20,108
======== ==== ==== ======= ========
</TABLE>

15. INDUSTRY SEGMENTS

The Company conducts its business operations in two industry segments: the
Ampad Division, which primarily manufactures and markets a broad line of
office supplies including writing products, filing supplies, and commodity and
speciality envelopes and the Williamhouse Division, which primarily designs
and manufactures a wide range of mill branded, specialty and commodity
envelope products, invitations and announcements and greeting cards. There
were no intersegment sales in 1995. For the three month period ended March 31,
1996 (unaudited), the Williamhouse division had sales of $644 to the Ampad
division. Prior to the acquisition of WR, the Company operated in one segment
consisting of the Ampad Division.

Substantially all of the Company's operations are conducted within the
United States.

Two customers accounted for 27%, and one customer accounted for 11%, of the
Company's total net sales for the year ended December 31, 1995 and the three
month period ended March 31, 1996 (unaudited), respectively.

The following table represents industry segment information. Intersegment
sales are transferred at competitive prices. Operating profit by segment
consists of total sales less operating expenses, and exclude general corporate
expenses, net interest expense or income taxes. Corporate assets are
principally cash, cash equivalents, residual interests in a portfolio of
accounts receivable sold, debt issuance costs and net assets held for sale.

F-27
<PAGE>

AMERICAN PAD & PAPER COMPANY
(FORMERLY AMPAD HOLDING CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR THREE MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
Net sales:
Unaffiliated customers
Ampad Division................................. $212,687 $ 57,023
Williamhouse Division.......................... 46,654 64,395
--------- --------
Total net sales to unaffiliated customers.... $259,341 $121,418
========= ========
Operating profit:
Ampad Division................................... $ 21,997 4,540
Williamhouse Division............................ 8,478 8,793
--------- --------
Total operating profit....................... 30,475 13,333
General corporate expense........................ (29,125)(1) (830)
Interest expense................................. (13,657) (12,542)
Other income, net................................ 735 269
--------- --------
Income (loss) before income taxes............ $ (11,572) $ 230
========= ========
Capital expenditures:
Ampad Division................................... $ 2,551 $ 538
Williamhouse Division............................ 3,089 1,783
--------- --------
Total capital expenditures................... $ 5,640 $ 2,321
========= ========
Depreciation and amortization of plant and
equipment:
Ampad Division................................... 2,333 $ 445
Williamhouse Division............................ 1,036 1,539
--------- --------
Total depreciation and amortization of plant
and equipment............................... $ 3,369 $ 1,984
========= ========
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Identifiable assets:
Ampad Division................................... $ 76,928 $ 75,539
Williamhouse Division............................ 327,743 316,018
Corporate assets................................. 137,055 132,639
Eliminations..................................... (37,370) (23,402)
--------- --------
Total assets................................. $504,356 $500,794
========= ========
</TABLE>
- --------
(1) Includes $27,632 nonrecurring compensation charge (Note 9).

16. SUBSEQUENT EVENT (UNAUDITED)

On May 29, 1996, the Company signed a definitive agreement to acquire the
stock of the Niagara Envelope Company, Inc. The purchase price will approximate
$50 million, plus a $5 million management services agreement with the Seller to
be paid at closing. The Company expects the acquisition to be consummated by
mid-July 1996.

The Company signed a definitive agreement to sell the Personalizing Division
on June 6, 1996 (Note 3). The sales price will be the net book value of the
assets sold as of March 29, 1996 plus $11,056 plus all direct album and catalog
costs incurred from December 31, 1995 through March 31, 1996 which are not
included in the closing net book value. The Company expects the sale to be
consummated by the end of June 1996.

F-28
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholder
WR Acquisition, Inc.:

We have audited the accompanying consolidated balance sheets of WR
Acquisition, Inc. and subsidiaries as of December 31, 1994 and October 31,
1995, and the related consolidated statements of operations, stockholders'
equity (deficiency), and cash flows for each of the years in the two-year
period ended December 31, 1994 and the ten months ended October 31, 1995.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of WR
Acquisition, Inc. and subsidiaries as of December 31, 1994 and October 31,
1995 and the results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 1994 and the ten months ended
October 31, 1995, in conformity with generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP

January 10, 1996

F-29
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................... $ 170,000 $ --
Accounts receivable, less allowances of $837,000 at
December 31, 1994 and $636,000 at October 31,
1995.............................................. 30,772,000 39,174,000
Inventories........................................ 34,141,000 35,548,000
Current assets of discontinued operations.......... 23,581,000 14,603,000
Prepaid expenses................................... 511,000 1,054,000
------------ ------------
Total current assets............................. 89,175,000 90,379,000
------------ ------------
DUE FROM AMPAD....................................... -- 54,306,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings................................. 23,070,000 30,258,000
Machinery, equipment, leasehold improvements and
construction in progress.......................... 81,787,000 75,279,000
------------ ------------
104,857,000 105,537,000
Less accumulated depreciation and amortization..... 54,225,000 53,134,000
------------ ------------
Net property, plant and equipment.................. 50,632,000 52,403,000
------------ ------------
OTHER ASSETS:
Deferred financing costs, less accumulated amorti-
zation............................................ 6,248,000 23,125,000
Funds held for construction........................ -- 2,633,000
Cash surrender value of officers' life insurance
policies, net of loans of $1,236,000 at December
31, 1994 and $1,769,000 at October 31, 1995....... 646,000 260,000
Intangibles, less accumulated amortization......... 378,000 350,000
Other assets....................................... 533,000 644,000
------------ ------------
Total other assets............................... 7,805,000 27,012,000
------------ ------------
PURCHASE PRICE FOR THE COMMON STOCK OF WR
ACQUISITION, INC. AND CERTAIN RELATED COSTS......... -- 147,854,000
------------ ------------
NON CURRENT ASSETS OF DISCONTINUED OPERATIONS........ 29,145,000 27,439,000
------------ ------------
TOTAL ASSETS..................................... $176,757,000 $399,393,000
============ ============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-30
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1994 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable................................. $ 16,499,000 $ 17,518,000
Accrued expenses................................. 14,536,000 18,982,000
Taxes payable.................................... 354,000 --
Current installments of long-term debt........... 8,558,000 11,844,000
Current liabilities of discontinued operations... 9,380,000 9,100,000
------------ ------------
Total current liabilities...................... 49,327,000 57,444,000
------------ ------------
Non-current liabilities............................ 2,179,000 2,019,000
Deferred tax liabilities--net...................... 3,610,000 3,740,000
Long-term debt (less current installments)......... 144,750,000 319,380,000
Notes payable to selling stockholders.............. -- 25,157,000
Non-current liabilities of discontinued opera-
tions............................................. 8,375,000 5,689,000
STOCKHOLDERS' EQUITY (DEFICIENCY):
Class A common stock, par value $.01 per share,
11,619 shares authorized, issued and
outstanding..................................... 1,000 1,000
Common stock, par value $.01 per share, 50,000
shares authorized; 10,478 issued at December 31,
1994 and 13,243 at October 31, 1995; 10,405
outstanding at December 31, 1994 and 13,243 at
October 31, 1995................................ 1,000 1,000
Additional paid-in capital....................... 42,007,000 56,135,000
Retained earnings................................ 21,841,000 25,080,000
Distribution to stockholders of the excess of
purchase price over book value of net assets of
W.R. Holdings, Inc. arising from the December
29, 1986 Recapitalization....................... (95,253,000) (95,253,000)
Common stock held in treasury, at cost, 73 shares
at
December 31, 1994............................... (81,000) --
------------ ------------
Total stockholders' equity (deficiency)........ (31,484,000) (14,036,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY).................................. $176,757,000 $399,393,000
============ ============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-31
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED TEN MONTHS
-------------------------- ENDED
DECEMBER DECEMBER OCTOBER
31, 1993 31, 1994 31, 1995
------------ ------------ -----------------
<S> <C> <C> <C> <C>
Net sales........................ $176,934,000 $248,008,000 $219,366,000
Cost of sales.................. 118,626,000 173,536,000 152,781,000
------------ ------------ ------------
Gross profit..................... 58,308,000 74,472,000 66,585,000
Selling, general and adminis-
trative expenses.............. 39,765,000 44,906,000 39,866,000
Compensation expense relating
to stock options.............. -- 294,000 9,544,000
------------ ------------ ------------
Operating income................. 18,543,000 29,272,000 17,175,000
Interest expense............... 13,621,000 11,750,000 11,615,000
Interest income................ (626,000) (284,000) (124,000)
------------ ------------ ------------
Earnings from continuing
operations before taxes on
income.......................... 5,548,000 17,806,000 5,684,000
Provision for taxes on income.. 1,988,000 6,080,000 2,224,000
------------ ------------ ------------
Earnings from continuing opera-
tions........................... 3,560,000 11,726,000 3,460,000
Discontinued operations:
Loss from operations, net of
tax benefits of $280,000,
$380,000 and $110,000 in 1993,
1994 and 1995, respectively... (432,000) (1,328,000) (221,000)
------------ ------------ ------------
Net earnings..................... $ 3,128,000 $ 10,398,000 $ 3,239,000
============ ============ ============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-32
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994
AND THE TEN MONTHS ENDED OCTOBER 31, 1995

<TABLE>
<CAPTION>
CLASS A ADDITIONAL DISTRIBUTION TREASURY
COMMON COMMON PAID-IN RETAINED TO STOCK,
STOCK STOCK CAPITAL EARNINGS STOCKHOLDERS AT COST TOTAL
------- ------- ----------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... $ -- $ 1,000 $10,477,000 $ 8,315,000 $(95,253,000) $(81,000) $(76,541,000)
Net earnings........... -- -- -- 3,128,000 -- -- 3,128,000
Issuance of Class A
common stock for
cash.................. 100 -- 1,999,900 -- -- -- 2,000,000
Issuance of Class A
common stock for
redemption of debt.... 900 -- 29,236,100 -- -- -- 29,237,000
------- ------- ----------- ----------- ------------ -------- ------------
Balance at December 31,
1993................... 1,000 1,000 41,713,000 11,443,000 (95,253,000) (81,000) (42,176,000)
Net earnings........... -- -- -- 10,398,000 -- -- 10,398,000
Compensation relating
to stock options...... -- -- 294,000 -- -- -- 294,000
------- ------- ----------- ----------- ------------ -------- ------------
Balance at December 31,
1994................... 1,000 1,000 42,007,000 21,841,000 (95,253,000) (81,000) (31,484,000)
Net earnings........... -- -- -- 3,239,000 -- -- 3,239,000
Proceeds and
compensation relating
to exercise of stock
options............... -- -- 13,424,000 -- -- -- 13,424,000
Reissuance of treasury
stock................. -- -- (81,000) -- -- 81,000 --
Issuance of common
stock for cash........ -- -- 785,000 -- -- -- 785,000
------- ------- ----------- ----------- ------------ -------- ------------
Balance at October 31,
1995................... $ 1,000 $ 1,000 $56,135,000 $25,080,000 $(95,253,000) $ -- $(14,036,000)
======= ======= =========== =========== ============ ======== ============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-33
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED
---------------------------
TEN MONTHS
ENDED
DECEMBER DECEMBER OCTOBER
31, 1993 31, 1994 31, 1995
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings...................... $ 3,128,000 $ 10,398,000 $ 3,239,000
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization.... 7,237,000 8,860,000 5,598,000
Provision for (benefit from)
losses on accounts receivable... 121,000 372,000 (132,000)
Compensation expense relating to
stock options................... -- 294,000 10,723,000
Deferred tax liabilities--net.... 2,194,000 (158,000) 130,000
Write-off of deferred financing
costs........................... 2,712,000 108,000 1,828,000
Change in assets and liabilities:
Increase in accounts
receivable..................... (6,274,000) (7,624,000) (8,838,000)
Increase in inventories......... (1,951,000) (1,350,000) (1,407,000)
Decrease (increase) in prepaid
expenses....................... 156,000 (188,000) (543,000)
Increase in accounts payable.... 2,328,000 7,894,000 1,019,000
Increase in accrued expenses.... 1,707,000 3,983,000 4,446,000
Increase (decrease) in taxes
payable........................ 1,404,000 (1,050,000) (354,000)
(Decrease) increase in other--
net............................ (1,424,000) 196,000 152,000
Discontinued operations--net.... (8,116,000) 366,000 7,718,000
------------- ------------ -------------
Cash provided by operating
activities.................... 3,222,000 22,101,000 23,579,000
------------- ------------ -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property, plant and
equipment--net................... (2,869,000) (4,348,000) (6,363,000)
Acquisitions of inventory and
machinery and equipment.......... (9,728,000) (4,124,000) --
Funds held for construction....... -- -- (2,633,000)
------------- ------------ -------------
Cash used for investing
activities.................... (12,597,000) (8,472,000) (8,996,000)
------------- ------------ -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayments of long-term debt...... (155,820,000) (34,961,000) (47,168,000)
Proceeds from Recapitalization.... 152,500,000 -- --
Proceeds from long-term debt...... 9,597,000 17,600,000 5,200,000
Issuance of Class A common stock.. 2,000,000 -- --
Additions to deferred financing
costs............................ (7,374,000) (442,000) (19,679,000)
Proceeds from exercise of stock
options.......................... -- -- 2,701,000
Proceeds from issuance of debt to
effect Merger.................... -- -- 219,843,000
Issuance of common stock.......... -- -- 785,000
Purchase price for the common
stock of WR Acquisition, Inc. and
certain related costs............ -- -- (147,854,000)
Notes payable to selling
stockholders..................... -- -- 25,157,000
Advances to Ampad................. -- -- (54,306,000)
Investment in trust............... -- -- (34,518,000)
Proceeds from sale of accounts
receivable....................... -- -- 35,086,000
------------- ------------ -------------
Cash provided by (used for)
financing activities.......... 903,000 (17,803,000) (14,753,000)
------------- ------------ -------------
DECREASE IN CASH AND CASH
EQUIVALENTS....................... (8,472,000) (4,174,000) (170,000)
Cash and cash equivalents at
beginning of period.............. 12,816,000 4,344,000 170,000
------------- ------------ -------------
Cash and cash equivalents at end
of period........................ $ 4,344,000 $ 170,000 $ --
============= ============ =============
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-34
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION OF THE COMPANY

WR Acquisition, Inc. ("Acquisition") was incorporated under Delaware law on
November 17, 1986 for the purpose of acquiring W.R. Holdings, Inc.
("Holdings") and its wholly-owned subsidiary Williamhouse-Regency of Delaware,
Inc. (the "Company"). On December 29, 1986, Acquisition acquired all of the
capital stock of Holdings through a recapitalization. On May 13, 1993,
Acquisition completed a recapitalization (the "Recapitalization") and Holdings
was merged into Acquisition, whereupon the Company became a direct, wholly-
owned subsidiary of Acquisition. (See Notes 8 and 10.)

On October 31, 1995, all of Acquisition's outstanding capital stock was
acquired by American Pad & Paper Company ("Ampad") through a new wholly-owned
subsidiary, WHR Acquisition, Inc. The consolidated financial statements are
presented on a historical basis, prior to giving effect to a new basis of
accounting for the merger (the "Merger") described below. The financial
statements reflect the following transactions relating to Ampad's acquisition
of Acquisition's capital stock and the related financing executed by
Williamhouse-Regency of Delaware, Inc., a wholly-owned subsidiary of
Acquisition, on October 31, 1995:

<TABLE>
<S> <C>
Borrowings under bank credit agreement...................... $219,843,000
Sale of accounts receivable*................................ 46,988,000
Purchase of shares from former shareholders of Acquisition:
Cash...................................................... 117,544,000
Installment notes given to former shareholders of
Acquisition.............................................. 25,157,000
Certain related costs of the selling shareholders......... 5,153,000
Repayment of debt*.......................................... 41,525,000
Proceeds advanced to Ampad.................................. 54,306,000
Investment in trust......................................... 34,518,000
Costs of financing*......................................... 19,663,000
</TABLE>

* Includes components relating to both continuing and discontinued operations.

The purchase price for the common stock of WR Acquisition, Inc. and certain
related costs amounted to $147,854,000 and has been reflected as an asset on
the balance sheet prior to allocation. The $266,831,000 of borrowings were
used to purchase shares from the stockholders, pay expenses of the Merger, and
repay debt of both the Company and Ampad.

Pursuant to an agreement and plan of merger dated October 3, 1995, on
October 31, 1995 Acquisition acquired Ampad Corporation, a wholly-owned
subsidiary of Ampad, in exchange for newly issued shares of Acquisition's
common stock. Ampad Corporation was then merged into the Company, a wholly-
owned subsidiary of Acquisition, and WHR Acquisition, Inc. was merged into
Acquisition simultaneously with Ampad's purchase of Acquisition. Consequently,
Acquisition became a wholly-owned subsidiary of Ampad and the Company became
an indirect, wholly-owned subsidiary of Ampad.

Acquisition does not have any properties and does not engage in any
business, other than through the operations of the Company and its wholly-
owned subsidiaries.

(2) ACCOUNTING POLICIES

A summary of the significant accounting policies which affect the Company's
consolidated financial statements is listed below:

F-35
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Principles of Consolidation and Basis of Presentation:

The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
are eliminated in consolidation. Prior years figures have been restated to
reflect discontinued operations (See Note 16).

Inventories:

Inventories are stated at the lower of cost or market (net realizable
value). The Company values its inventories on the last-in, first-out (LIFO)
method.

Depreciation and Amortization:

Property, plant and equipment are stated at cost. These assets, including
assets recorded under capitalized leases, are depreciated on the straight-line
method at rates which vary based upon their estimated useful lives. Leasehold
improvements are amortized on the straight-line method over the shorter of the
terms of the related leases or their useful lives. Depreciation and
amortization of property, plant and equipment from continuing operations was
$6,374,000 and $7,683,000 for the years ended December 31, 1993 and 1994,
respectively and $4,592,000 for the ten months ended October 31, 1995 .

Expenditures for maintenance and repairs are charged, as incurred, to
operations. The costs of acquisitions, additions and betterments are
capitalized. When property, plant and equipment is sold or otherwise disposed
of, the cost and the accumulated depreciation are eliminated from the
accounts.

Deferred financing costs primarily relate to the issuance of debt to fund
the Merger (See Note 1). Deferred financing costs are amortized on the
straight-line method over the term of the related obligations. Amortization of
deferred financing costs from continuing operations was $838,000 and
$1,138,000 for the years ended December 31, 1993 and 1994, respectively and
$974,000 for the ten months ended October 31, 1995.

Intangibles:

Intangibles are amortized, primarily on the straight-line method, over the
period of the expected benefits. Amortization of intangibles from continuing
operations was $18,000 for the year ended December 31, 1994 and $21,000 for
the ten months ended October 31, 1995.

(3) ACQUISITIONS

On December 20, 1993, KECA Corporation, a newly formed, wholly-owned
subsidiary of the Company, acquired the principal assets of Kimberly-Clark
Corporation's Karolton Envelope business for a purchase price of $9,597,000.
Karolton Envelope is a full-line envelope convertor based in Miamisburg, Ohio
and West Sacramento, California. The Company financed the transaction under
its senior secured financing facility. The acquisition has been accounted for
under the purchase method and, accordingly, the operating results of this
acquisition have been included in the accompanying financial statements since
the date of acquisition.

The following pro forma information has been prepared assuming the
acquisition of Karolton Envelope had occurred on January 1, 1993. This pro
forma information has been prepared for comparative purposes only and does not
purport to be indicative of what would have occurred had the acquisition been
made at the beginning of 1993, or of the results which may occur in the
future. Furthermore, no effect has been given in the pro forma

F-36
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

information for operating and synergistic benefits that are expected to be
realized as a result of the acquisition because precise estimates of such
benefits cannot be quantified. Management implemented certain cost saving
measures as of the date of consummation of the acquisition. This pro forma
information does not reflect the impact of such measures.

<TABLE>
<CAPTION>
1993
------------
(UNAUDITED)
<S> <C>
Net sales.................................................... $220,609,000
Earnings from continuing operations.......................... $ 3,233,000
</TABLE>

On July 29, 1994, two wholly-owned subsidiaries of the Company acquired from
Huxley Envelope Corporation its Giant, Filing and X-Ray envelope business
segments for a purchase price of $4,249,000. The Company financed the
transaction under its senior secured financing facility, a note payable to the
seller and cash. The acquisition has been accounted for under the purchase
method and, accordingly, the operating results of this acquisition have been
included in the accompanying financial statements since the date of
acquisition. This acquisition did not have a material impact on the financial
position or results of operations of the Company.

During the year ended December 31, 1993 and the ten months ended October 31,
1995, the Company completed certain other acquisitions whose aggregate
purchase price did not have a material impact on the financial position or
results of operations of the Company.

(4) ACCOUNTS RECEIVABLE

The Company entered into an agreement to sell, on a revolving basis, an
undivided interest in a designated pool of trade accounts receivable to a
trust on October 31, 1995. Accordingly, the Company transferred $46,988,000
and Ampad transferred $33,412,000 of accounts receivable to the trust. The
trust sold investor certificates representing an interest in $45,000,000 of
trust assets for which the Company received cash of $45,000,000 and credited
due from Ampad for $33,044,000. The Company holds seller certificates
representing an interest in the remaining assets of the trust of $34,518,000
which is included in accounts receivable in the Company's balance sheet at
October 31, 1995. The Company has retained substantially the same risks for
all losses, credits or other adjustments on receivables owned by the trust as
if the receivables had not been sold. Accordingly, the full amount of the
allowance for doubtful accounts has been retained.

(5) INVENTORIES

The major components of inventories of continuing operations are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1994 1995
------------ -----------
<S> <C> <C>
Finished goods and work in progress................ $19,521,000 $20,902,000
Raw materials...................................... 14,620,000 14,646,000
----------- -----------
Total inventories.................................. $34,141,000 $35,548,000
=========== ===========
</TABLE>

The Company values its inventories on the LIFO method. Had the first-in,
first-out (FIFO) method been used, inventories would have been $1,869,000 and
$6,695,000 higher than reported at December 31, 1994 and October 31, 1995
respectively.

(6) INCOME TAXES

Acquisition, the Company and its subsidiaries file a consolidated federal
income tax return.

F-37
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The provision for taxes on income from continuing operations is as follows:

<TABLE>
<CAPTION>
YEARS ENDED TEN MONTHS
------------------------- ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Current:
Federal income taxes................. $1,902,000 $5,317,000 $1,938,000
State and local income taxes......... 301,000 786,000 156,000
Deferred:
Federal income taxes................. (148,000) 152,000 125,000
State and local income taxes......... (67,000) (175,000) 5,000
---------- ---------- ----------
Provision for taxes on income.......... $1,988,000 $6,080,000 $2,224,000
========== ========== ==========
</TABLE>

The difference between the provision computed at the statutory rate and the
actual provision on consolidated earnings from continuing operations is as
follows:

<TABLE>
<CAPTION>
YEARS ENDED TEN MONTHS
------------------------- ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Federal income taxes at statutory
rate................................ 35.0% 35.0% 35.0%
Tax on permanent differences, net of
federal jobs tax credit............. .6 (1.6) 0.1
State and local income taxes, net of
related federal income tax benefit.. 2.8 .4 1.8
Other--net........................... (2.6) .3 2.2
---- ---- ----
Effective tax rate................... 35.8% 34.1% 39.1%
==== ==== ====
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities of continuing
operations are presented below:

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1994 1995
------------ -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts..................... $ 378,000 $ 211,000
Inventory--uniform capitalization................... 495,000 364,000
Vacation pay accruals............................... 754,000 573,000
Other............................................... 850,000 560,000
---------- ----------
Total gross deferred tax assets..................... 2,477,000 1,708,000
---------- ----------
Deferred tax liabilities:
Depreciation........................................ 6,029,000 5,382,000
Other............................................... 58,000 66,000
---------- ----------
Total gross deferred tax liabilities................ 6,087,000 5,448,000
---------- ----------
Net deferred tax liabilities........................ $3,610,000 $3,740,000
========== ==========
</TABLE>

The ultimate realization of deferred tax assets is dependant upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities and projected future taxable income in
making this assessment. As of October 31, 1995, management considers all
deferred tax assets to be realizable.

F-38
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company adopted, effective January 1, 1993, the Financial Accounting
Standards Board's ("FASB") Statement 109, "Accounting for Income Taxes." The
adoption of FASB 109 did not have a material impact on the Company's
consolidated financial position or results of operations for the year ended
December 31, 1993.

(7) ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1994 1995
------------ -----------
<S> <C> <C>
Salaries and wages................................. $ 4,344,000 $ 4,438,000
Taxes, other than taxes on income.................. 402,000 4,293,000
Interest........................................... 1,014,000 4,455,000
Sales volume discounts............................. 5,179,000 3,638,000
Other.............................................. 3,597,000 2,158,000
----------- -----------
Total accrued expenses............................. $14,536,000 $18,982,000
=========== ===========
</TABLE>

F-39
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(8) DEBT ARRANGEMENTS

Long-term debt is comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1994 OCTOBER 31, 1995
----------------------- ------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Senior secured financing facil-
ity:
Senior bank financing term
loans and revolving credit
facility due in varying
amounts from 1996 through
2004........................ $ -- $ -- $10,000,000 $209,843,000
Term loans due through 1998
payable to banks with
quarterly principal payments
of $1,461,250 except for the
final payment of
$2,392,000.................. 5,845,000 14,082,000 -- --
Revolving credit line due
1998 payable to banks....... -- 20,000,000 -- --
Senior subordinated debentures
due 2005 payable to institu-
tions with interest at 11
1/2%.......................... -- 100,000,000 -- 100,000,000
Industrial revenue bond,
interest at 7 3/4%; with
monthly principal payments
varying from $11,000 to
$16,300 due through 2000 (less
unamortized discount of
$41,000 in 1994)................. 132,000 720,000 -- --
Industrial revenue bonds, in-
terest at 89.2% of prime; with
quarterly principal payments
varying from $85,000 to
$57,000 due through 2002...... 341,000 2,102,000 -- --
Industrial revenue bonds,
interest at 3.99%; with annual
principal payments of $700,000
due through 1998.............. 700,000 1,400,000 700,000 1,400,000
Industrial revenue bonds,
interest ranging from 4.24% to
4.28% in 1994 and 4.28% in
1995; with annual principal
payments of $480,000 due
through 1998.................. 800,000 2,475,000 480,000 960,000
Industrial revenue bonds,
interest at 5.11%; with
quarterly principal payments
varying from $320,000 to
$395,000 due through 2010..... -- -- 320,000 4,880,000
Note payable, interest at prime
plus 1.75%; with quarterly
principal payments of $62,500
due through 1998.............. 250,000 688,000 -- --
Other, interest ranging from
2.0% to 3.0%; due through
2004.......................... 490,000 3,283,000 344,000 2,297,000
---------- ------------ ----------- ------------
Total long-term debt........... $8,558,000 $144,750,000 $11,844,000 $319,380,000
========== ============ =========== ============
</TABLE>

In connection with the Recapitalization in 1993, $100,000,000 in aggregate
principal amount of senior subordinated debentures were issued in a private
placement. The senior subordinated debentures bore interest at the rate of 11
1/2% per annum, payable June 15 and December 15, and matured on June 15, 2005,
unless redeemed prior to such date. The senior subordinated debentures were
unsecured, general obligations of the Company, and were subordinated to all
senior debt of the Company and its subsidiaries, including the senior secured
financing

F-40
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
facility. Payment of the principal and interest on the senior subordinated
debentures was guaranteed by Acquisition. On December 1, 1995, $99,990,000 of
the senior subordinated debentures were redeemed at a price of 109% of the
aggregate principal amount, plus accrued interest, excluding $10,000 in
principal amount which was not tendered in response to the offer. Payment of
this outstanding debenture was made on February 22, 1996.

In connection with the Recapitalization, the Company repaid, at par, all
$27,500,000 in aggregate principal amount of the senior variable rate notes;
repaid, at par, all $50,000,000 in aggregate principal amount of the 12 3/4%
senior notes; repaid, at par, all $45,000,000 in aggregate principal amount of
the 13 1/2% senior subordinated notes; and repaid, at par, $25,000,000 in
aggregate principal amount (of the $40,000,000 in aggregate principal amount
outstanding) of the 14% subordinated debentures. The remaining $15,000,000 in
aggregate principal amount of the 14% subordinated debentures were exchanged,
at par, for 5,715 shares of Acquisition's Class A common stock; and all
$15,000,000 in aggregate principal amount of Acquisition's 14 1/2% junior
subordinated debentures were exchanged, at 90% of par, for 5,142 shares of
Acquisition's Class A common stock. (See Note 10.)

In connection with the Merger on October 31, 1995, new debt in the amount of
$219,843,000 was issued. The existing term and revolving credit loans, in the
amounts of $15,544,000 and $20,000,000, respectively, were redeemed. The
Company wrote-off unamortized deferred financing costs, in the amount of
$1,762,000, related to the redemption of these loans. In addition, the Company
retired, ahead of scheduled maturities, certain industrial revenue bonds and
other indebtedness totaling $5,981,000.

Ampad, Acquisition and the Company entered into a Bank Credit Agreement with
Bankers Trust Company as agent (the "Agent"), providing for term loans of
$245.0 million and a revolving credit facility of $45.0 million. Loans under
the Bank Credit Agreement are comprised of a multi-tranche facility with
principal payments scheduled from 1996 through 2004 in the form of (i) a term
loan facility (the "Tranche A Term Loan Facility") in the amount of $95.0
million ($25.2 million of which will be borrowed in January 1996), (ii) a
second term loan facility (the "Tranche B Term Loan Facility") in the amount
of $65.0 million, (iii) a third term loan facility (the "Tranche C Term Loan
Facility") in the amount of $45 million, (iv) a fourth term loan facility (the
"Tranche D Term Loan Facility", and together with the Tranche A Term Loan
Facility, the Tranche B Term Loan Facility and the Tranche C Term Loan
Facility, the "Term Loan Facilities") in the amount of $40.0 million, (v) a
revolving credit facility (the "Revolving Credit Facility", and together with
the Term Loan Facilities, the "Senior Bank Financing") in the amount of $45
million which includes a letter of credit sub-limit of $20.0 million and (vi)
an IRB letter of credit facility in the amount of $13.4 million. Ampad and the
Company used the Senior Bank Financing to provide funding necessary to
consummate the acquisition and merger described in Note 1, with the Revolving
Credit Facility being used for working capital needs.

Indebtedness under the Bank Credit Agreement is guaranteed by Ampad,
Acquisition and the Company and all current and future domestic subsidiaries
of the Company and is secured by (i) a perfected security interest in
substantially all the assets and property of the Company and its subsidiaries,
and (ii) a first priority perfected pledge of all capital stock of the Company
and its current subsidiaries.

Indebtedness under the Bank Credit Agreement varies by tranche. The Tranche
A Term Loan Facility is a five-year facility with quarterly principal payments
scheduled from 1996 through 2000 and bears interest at a rate (at the
Company's option) of (a) the Eurodollar Rate (as defined in the Bank Credit
Agreement) plus 275.0 basis points less an interest reduction discount of 25
basis or 50 basis points if the Company meets certain targets for its coverage
and leverage ratios (the "Interest Reduction Discount") or (b) the applicable
base rate of Bankers Trust Company, which is the higher of 1/2 of 1% in excess
of the Adjusted Certificate of Deposit Rate (as defined in the Bank Credit
Agreement) and the prime lending rate announced from time to time by Bankers
Trust Company (the "Base Rate") plus 175.0 basis points less the Interest
Reduction Discount, if applicable.

F-41
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Tranche B Term Loan Facility is a seven-year facility with quarterly
principal payments scheduled in 2001 and 2002, with nominal quarterly payments
prior to that time, and bears interest at a rate (at the Company's option) of
(a) the Eurodollar Rate plus 337.5 basis points or (b) the Base Rate plus
237.5 basis points. The Tranche C Term Loan Facility is an eight-year facility
with quarterly principal payments scheduled in 2003, with nominal annual
principal payments prior to that time, and bears interest at a rate (at the
Company's option) of (a) the Eurodollar Rate plus 375.0 basis points or (b)
the Base Rate plus 275.0 basis points. The Tranche D Term Loan Facility is an
eight and one-half year facility with quarterly principal payments scheduled
for 2004, with nominal annual principal payments prior to that time and bears
interest at a rate (at the Company's option) of (a) the Eurodollar Rate plus
400.0 basis points or (b) the Base Rate plus 300.0 basis points. The Revolving
Credit Facility is a five-year facility bearing interest at a rate (at the
Company's option) of (a) the Eurodollar Rate plus 275.0 basis points less the
Interest Reduction Discount, if applicable. In addition, the Bank Credit
Agreement provides for mandatory repayment, subject to certain expectations,
of the Senior Bank Financing upon the occurrence of certain events including,
but not limited to, asset sales, certain equity and debt issuances, insurance
recovery events and the accumulation of excess cash (with a requirement to pay
50% of Excess Cash Flow (as defined therein) for the period ending on December
31, 1995 and 75% of Excess Cash Flow per annum thereafter), each subject to
certain exceptions.

The Revolving Credit Facility may be repaid and reborrowed. The Company is
required to pay the lenders under the Bank Credit Agreement in the aggregate a
commitment fee equal to 1/2 of 1% per annum, payable on a quarterly basis, on
the daily average unused portion of the Aggregate Unutilized Commitment (as
defined in the Bank Credit Agreement). The Company also is required to pay to
the lenders participating in the Revolving Credit Facility letter of credit
fees equal to the Applicable Eurodollar Margin (as defined in the Bank Credit
Agreement) in effect as of such time for loans under the Revolving Credit
Facility and to the lender issuing a letter of credit a facing fee of 0.25% on
the average daily stated amount of each outstanding letter of credit issued by
such lender and its customary administrative charges in connection with such
letters of credit.

The Bank Credit Agreement requires the Company to meet certain financial
tests, including minimum levels of consolidated EBITDA (as defined therein),
minimum interest coverage and maximum leverage ratio. The Bank Credit
Agreement also contains covenants which, among other things, limit the
incurrence of additional indebtedness, dividends, transactions with
affiliates, asset sales, acquisitions, mergers, prepayment of other
indebtedness, liens and encumbrances and other matters customarily restricted
in such agreements.

The Bank Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, ERISA, judgement defaults, failure of any guaranty or security
agreement supporting the Bank Credit Agreement to be in full force and effect
and change of control of Ampad.

The Company and certain of its subsidiaries had letters of credit issued to
guaranty the payment obligation due, as required, for industrial revenue bond
financings. At December 31, 1994 and October 31, 1995, the amounts were
$5,375,000 and $8,740,000, respectively. In addition, the Company had letters
of credit issued for other than industrial revenue bond financings. As of
December 31, 1994 and October 31, 1995, the amounts were $2,102,000 and
$2,602,000, respectively.

Certain manufacturing facilities of the Company were financed from the
proceeds of industrial revenue bonds. Lease purchase and other financing
arrangements, directly or indirectly, with the respective industrial
development authorities provide that the Company may purchase the
manufacturing facilities at any time during the lease or financing term. At
December 31, 1994 and October 31, 1995, the net book value of manufacturing
facilities acquired pursuant to these lease purchase and other financing
arrangements was approximately $16,122,000 and $12,162,000, respectively. Such
assets are included within property, plant and equipment.

F-42
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Payments of the principal and interest on the industrial revenue bonds are
guaranteed by one or more of the following: Acquisition, the Company or a
wholly-owned subsidiary.

The aggregate amount of long-term debt, including industrial revenue bonds,
maturing during each of the years in the five-year period subsequent to
October 31, 1995 is as follows: 1996, $11,844,000; 1997, $16,785,000; 1998,
$21,793,000; 1999, $27,697,000; 2000, $6,003,000 and $247,102,000 thereafter.

(9) NOTES PAYABLE TO SELLING STOCKHOLDERS

On October 31, 1995, in conjunction with the Merger, Acquisition issued
notes payable, due January 3, 1996, bearing interest at 1%, to certain selling
stockholders who elected to defer payment, for an aggregate of 4,383 shares of
common stock, until 1996 rather than on the Merger date. Acquisition issued
letters of credit to guaranty the payment obligation due. Subsequent to
October 31, 1995, the notes were refinanced on a long term basis; and
therefore, the notes have been reflected as a non-current liability on the
October 31, 1995 financial statements.

(10) STOCKHOLDERS' EQUITY (DEFICIENCY)

Class A Common Stock:

In 1993, in connection with the Recapitalization, Acquisition's Certificate
of Incorporation was amended to authorize the issuance of 11,619 shares, par
value $.01 per share, of Acquisition's Class A common stock. The Class A
common stock is identical to Acquisition's common stock, except for a
preference on liquidation equal to $2,625 per share, the initial purchase
price thereof, and is convertible on a share-for-share basis into common
stock.

On May 13, 1993, in connection with the Recapitalization, 762 shares were
issued to the Chief Executive Officer of Acquisition and the Company, for
$2,000,000; 5,715 shares were exchanged for $15,000,000 in aggregate principal
amount of the 14% subordinated debentures due 1998, at par; and 5,142 shares
were exchanged for $15,000,000 in aggregate principal amount of the 14 1/2%
junior subordinated debentures due 1998, at 90% of par. (See Note 8).

Common Stock:

On December 29, 1986, in connection with the 1986 recapitalization, holders
of the common stock of Holdings received an aggregate of $100,000,000, or
$100,000 per share, resulting in an excess of cost over book value of the net
assets acquired in the amount of $95,253,000. This was treated as a
distribution to stockholders resulting in a reduction of stockholders' equity.

Stock Option Plan:

In March, 1987, the Board of Directors adopted a Stock Option Plan which
provides for the granting of stock options for shares of Acquisition's common
stock to key employees of the Company and its subsidiaries who are responsible
for managing the operations of the Company and its subsidiaries. The Stock
Option Plan provided for an aggregate of 1,722 shares of common stock to be
available for stock grants. The exercise price for the options was $1,000 per
share, which was the fair value of the stock on the date of grant.

In May, 1993, in connection with the Recapitalization, the Stock Option Plan
was amended, making 1,243 shares of Acquisition's common stock available for
grant. Of these shares, 688 were granted to key employees of the Company and
its subsidiaries in 1993 and the remaining 555 shares were granted in 1995.
The exercise price of these options was $1,312.50 per share, which represented
one half of the negotiated per share price for

F-43
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the Class A common stock issued pursuant to the Recapitalization. The
aggregate compensation expense related to the 1,243 shares granted of
$1,631,000 was being amortized over the period January, 1994 through May,
1998. As a result of the change in control of Acquisition resulting from the
Merger, the stock options, which were vesting over a period of five years,
became 100% vested. As a result, in accordance with the Emerging Issues Task
Force 85-45 "Business Combinations: Settlement of Stock Options and Awards,"
Acquisition recorded compensation expense of $9,544,000 from continuing
operations for the ten month period ended October 31, 1995.

A summary of transactions under the plan is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------- OCTOBER 31,
1993 1994 1995
------ ------ -----------
<S> <C> <C> <C>
Outstanding and exercisable, January 1............. 1,317 2,283 2,283
Granted at $1,000 per share........................ 278 -- --
Granted at $1,312.50 per share..................... 688 -- 555
Exercised at $1,000 per share...................... -- -- (1,595)
Exercised at $1,312.50 per share................... -- -- (1,243)
------ ------ ------
Outstanding and exercisable........................ 2,283 2,283 --
====== ====== ======
Available for grant................................ 555 555 --
====== ====== ======
</TABLE>

(11) COMMITMENTS AND CONTINGENCIES

The Company is involved in various litigation incidental to the conduct of
its business, the outcome of which is not expected to be material to the
Company's financial position or results of operations.

Change in Control Severance Compensation Agreements:

Prior to the Merger, the Company entered into change in control severance
compensation agreements with certain of its executives. These agreements are
effective for thirty six months after the Merger and provide for income and
benefit protection upon termination of employment (as defined). The Company
believes that the maximum amount of the severance payments that could be paid
will not exceed $11 million based upon current compensation. This liability
has been assumed by Ampad.

Leases:

Future minimum payments under operating leases, primarily for buildings and
equipment relating to continuing operations, consisted of the following at
October 31, 1995:

<TABLE>
<CAPTION>
AMOUNTS
-----------
<S> <C>
1996.......................................................... $ 2,001,000
1997.......................................................... 1,872,000
1998.......................................................... 1,711,000
1999.......................................................... 1,172,000
2000.......................................................... 956,000
Later years................................................... 6,474,000
-----------
Total minimum lease payments.................................. $14,186,000
===========
</TABLE>

Rent expense from continuing operations was $1,565,000 and $2,358,000 for
the years ended December 31, 1993 and 1994, respectively and $1,552,000 for
the ten months ended October 31, 1995.

F-44
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(12) EMPLOYEE BENEFIT PLANS

On March 11, 1992, the Board of Directors authorized the termination of the
Company's defined benefit plan covering certain salaried and non-union
employees. The termination was effective June 30, 1992, and all participants
in the plan became fully vested as of that date.

As of October 31, 1995, the initial payout for the account of each
participant, using current U.S. Government approved discount rates, has been
made. Excess assets are to be distributed based upon a formula adopted by the
plan and approved by the Internal Revenue Service. These payments will
commence in early 1996 and will consist of lump-sum payments. It is
anticipated that this distribution will be substantially completed by June 30,
1996.

The Company established a voluntary 401(k) savings plan covering certain
salaried and non-union employees effective July 1, 1992. The Company's
matching contribution, based on employee contributions, is vested after five
years of participation. The Company's matching contribution from continuing
operations amounted to $79,000 and $146,000 for the years ended December 31,
1993 and 1994, respectively, and $171,000 for the ten months ended October 31,
1995.

(13) EXECUTIVE INCENTIVE COMPENSATION PLAN

The Company's executive incentive compensation plan, which commenced in
1983, provides for incentive awards to certain key executives of the Company
and its subsidiaries. The plan is administered by the Board of Directors. At
the end of each year during the life of the plan, the Board will make cash
awards based upon the attainment of annual predefined operating profit
objectives.

Awards under the plan are charged to operations in the year earned. For the
ten months ended October 31, 1995, $600,000 was charged to continuing
operations. Attainment of the annual predefined objective will be based on
results of operations for the twelve months ended December 31, 1995. In 1993
and 1994, awards of $650,000 and $1,010,000 were charged to continuing
operations, respectively.

(14) STATEMENTS OF CASH FLOWS

Supplemental disclosure of cash flow information from continuing operations
is as follows:

<TABLE>
<CAPTION>
YEARS ENDED
-------------------------
TEN MONTHS
ENDED
DECEMBER 31, DECEMBER 31, OCTOBER 31,
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash paid for:
Interest............................. $ 18,883,000 $ 16,298,000 $10,372,000
Income taxes......................... $ 2,332,000 $ 6,725,000 $ 5,906,000
</TABLE>

The Consolidated Statement of Cash Flows for 1993 excludes the effect of
certain non-cash financing activities related to the Recapitalization. (See
Notes 8 and 10.) The following is a summary of the non-cash effects of this
transaction.

<TABLE>
<S> <C>
Decrease in long-term debt.................................... $(30,000,000)
Increase in Class A common stock.............................. 1,000
Increase in additional paid-in capital........................ 29,999,000
------------
$ --
============
</TABLE>

F-45
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Consolidated Statement of Cash Flows for 1995 excludes the effect of
certain non-cash financing activities related to the Merger. The following is
a summary of the non-cash effects of this transaction.

<TABLE>
<S> <C>
Increase in treasury stock.......................................... $81,000
Decrease in additional paid-in capital.............................. (81,000)
-------
$ --
=======
</TABLE>

(15) FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash, Trade Accounts Receivable, Trade Accounts Payable:

The carrying amount of cash, trade accounts receivable and trade accounts
payable approximates fair value because of the short maturity of these
instruments. As is customary for the industry, the Company performs ongoing
credit evaluations of its customers financial condition and generally requires
no collateral.

Long-term Debt:

At October 31, 1995, the estimated fair value of the Company's term loans
was $219,843,000, which was the carrying amount of these long-term debt
instruments. The estimated fair value of the Company's term loans was based on
the quoted market prices for the same or similar issues or on the current
rates offered to the Company for debt of the same remaining maturities. The
estimated fair value of the Company's senior subordinated debentures was
$109,000,000, which was the redemption price, (See Note 8), while the carrying
value of these long-term debt instruments was $100,000,000.

It was not practical to estimate the fair value of the Company's industrial
revenue bonds which are not publicly traded, or considered comparable to any
financial instruments currently in the market. As of October 31, 1995, these
industrial revenue bonds have a carrying amount of $8,740,000, including
$1,500,000 which is currently due. The bonds have interest rates ranging from
3.99% to 5.11%. The bonds are due on varying dates through the year 2010.

Limitations:

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

(16) DISCONTINUED OPERATIONS

In December, 1995, the management of Ampad made a decision to sell the
Personalizing segment of the business. The Company expects to sell the
discontinued operations at a gain within one year. Accordingly, the
consolidated financial statements have been restated to report separately the
net assets and operating results of this segment. The Company's prior years
operating results have been restated to reflect continuing operations.

The Company allocated interest to the discontinued operations in the amounts
of $5,837,000, $4,823,000 and $2,130,000 for the years ended December 31, 1993
and 1994 and the ten months ended October 31, 1995, respectively. Consolidated
interest that is not attributable to specific operations of the Company was
allocated based on the ratio of net assets of the discontinued operations to
the sum of total net assets of the consolidated company plus consolidated debt
that is not attributable to specific operations of the Company or debt of the
discontinued operations that will be assumed by a buyer.

F-46
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(17) GUARANTOR SUBSIDIARIES OF 13% SENIOR SUBORDINATED NOTES DUE NOVEMBER 15,
2005

On December 1, 1995, the Company sold, at par, $200 million of 13% Senior
Subordinated Notes due November 15, 2005 (the "13% Notes"). The 13% Notes are
guaranteed by all of the Company's principal subsidiaries. The following
financial information presents condensed consolidating financial statements
for (i) the Company only ("Parent"); (ii) the guaranteeing subsidiaries on a
combined basis ("Guarantor Subsidiaries") and (iii) the Company on a
consolidated basis. The following statements do not include WR Acquisition,
Inc., which is not a party to the 13% Senior Subordinated Notes agreement.

The guarantor subsidiaries include the discontinued operations prior to
allocation of interest and elimination of management fee.

F-47
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS
($000'S OMITTED)

<TABLE>
<CAPTION>
WILLIAMHOUSE- WILLIAMHOUSE
REGENCY OF REGENCY OF
DELAWARE, INC. GUARANTOR INTERCOMPANY DELAWARE, INC.
(PARENT) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
CURRENT ASSETS
Cash.................... $ 138 $ 887 $ -- $ 1,025
Accounts receivable,
net.................... 15,639 27,582 -- 43,221
Inventories............. 21,497 24,177 (1,716) 43,958
Prepaid expenses........ 478 493 -- 971
-------- -------- -------- --------
Total current assets.. 37,752 53,139 (1,716) 89,175
-------- -------- -------- --------
Property, plant and
equipment.............. 55,467 110,018 -- 165,485
Less accumulated depre-
ciation and amortiza-
tion................... 25,956 60,264 -- 86,220
-------- -------- -------- --------
Net property, plant and
equipment.............. 29,511 49,754 -- 79,265
-------- -------- -------- --------
Advances to and
receivable from
Acquisition............ 184,329 -- -- 184,329
Advances to and
investment in
subsidiaries........... 16,533 -- (16,533) --
Advances to Parent...... -- 38,057 (38,057) --
Deferred financing
costs, less accumulated
amortization........... 5,978 604 -- 6,582
Other assets............ (876) 336 2,275 1,735
-------- -------- -------- --------
Total assets.......... $273,227 $141,890 $(54,031) $361,086
======== ======== ======== ========
CURRENT LIABILITIES
Accounts payable and
other current
liabilities............ $ 14,207 $ 24,867 $ (103) $ 38,971
Current installments of
long-term debt......... 6,726 3,630 -- 10,356
-------- -------- -------- --------
Total current
liabilities.......... 20,933 28,497 (103) 49,327
-------- -------- -------- --------
Non-current
liabilities............ 2,179 -- -- 2,179
Deferred tax
liabilities--net....... 3,202 1,942 (428) 4,716
Long-term debt (less
current installments).. 139,120 12,899 -- 152,019
Advances from Parent.... -- 10,399 (10,399) --
Advances from
subsidiaries........... 38,057 -- (38,057) --
Stockholders' equity
(deficiency)
Common stock............ 845 659 (1,004) 500
Additional paid-in
capital................ 67,931 56,523 (1,936) 122,518
Retained earnings....... 960 30,971 (2,104) 29,827
-------- -------- -------- --------
Total stockholders'
equity (deficiency).. 69,736 88,153 (5,044) 152,845
-------- -------- -------- --------
Total liabilities and
stockholders' equity
(deficiency)......... $273,227 $141,890 $(54,031) $361,086
======== ======== ======== ========
</TABLE>

F-48
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS
($000'S OMITTED)

<TABLE>
<CAPTION>
WILLIAMHOUSE- WILLIAMHOUSE
REGENCY OF REGENCY OF
DELAWARE, INC. GUARANTOR INTERCOMPANY DELAWARE, INC.
(PARENT) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
OCTOBER 31, 1995
CURRENT ASSETS
Cash.................... $ (719) $ 758 $ -- $ 39
Accounts receivable,
net.................... 21,920 17,397 103 39,420
Inventories............. 23,755 24,218 (2,742) 45,231
Prepaid expenses........ 951 3,995 -- 4,946
-------- -------- -------- --------
Total current assets.. 45,907 46,368 (2,639) 89,636
-------- -------- -------- --------
Property, plant and
equipment.............. 61,127 102,932 -- 164,059
Less accumulated depre-
ciation and amortiza-
tion................... 28,871 55,880 -- 84,751
-------- -------- -------- --------
Net property, plant and
equipment.............. 32,256 47,052 -- 79,308
-------- -------- -------- --------
Due from Ampad.......... 54,306 -- -- 54,306
Advances to and
receivable from
Acquisition............ 158,751 -- -- 158,751
Advances to and
investment in
subsidiaries........... 16,050 -- (16,050) --
Advances to Parent...... -- 48,662 (48,662) --
Deferred financing
costs, less accumulated
amortization........... 22,928 445 -- 23,373
Other assets............ 1,475 423 2,275 4,173
Purchase price for the
common stock of
WR Acquisition, Inc.
and certain related
costs.................. 147,854 -- -- 147,854
-------- -------- -------- --------
Total assets.......... $479,527 $142,950 $(65,076) $557,401
======== ======== ======== ========
CURRENT LIABILITIES
Accounts payable and
other current liabili-
ties................... $ 25,812 $ 17,463 $ -- $ 43,275
Current installments of
long-term debt......... 10,662 2,767 -- 13,429
-------- -------- -------- --------
Total current liabili-
ties................. 36,474 20,230 -- 56,704
-------- -------- -------- --------
Non-current liabili-
ties................... 2,019 -- -- 2,019
Deferred tax
liabilities--net....... (2,444) 8,409 (786) 5,179
Long-term debt (less
current installments).. 317,020 6,611 -- 323,631
Advances from Parent.... -- 3,416 (3,416) --
Advances from subsidiar-
ies.................... 48,662 -- (48,662) --
Stockholders'
equity(deficiency)
Common stock............ 845 662 (1,007) 500
Additional paid-in capi-
tal.................... 83,529 61,398 (8,434) 136,493
Retained earnings....... (6,578) 42,224 (2,771) 32,875
-------- -------- -------- --------
Total stockholders'
equity (deficiency).. 77,796 104,284 (12,212) 169,868
-------- -------- -------- --------
Total liabilities and
stockholders' equity
(deficiency)......... $479,527 $142,950 $(65,076) $557,401
======== ======== ======== ========
</TABLE>

F-49
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF OPERATIONS
($000'S OMITTED)

<TABLE>
<CAPTION>
WILLIAMHOUSE- WILLIAMHOUSE-
REGENCY OF REGENCY OF
DELAWARE, INC. GUARANTOR INTERCOMPANY DELAWARE, INC.
(PARENT) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1993
Net sales............... $ 79,301 $215,048 $ -- $294,349
Cost of sales......... 50,114 140,095 144 190,353
-------- -------- ------- --------
Gross profit............ 29,187 74,953 (144) 103,996
Selling, general and
administrative ex-
penses............... 24,553 53,241 -- 77,794
-------- -------- ------- --------
Operating income........ 4,634 21,712 (144) 26,202
Management fee charged
by Parent............ (8,491) 8,491 -- --
Interest expense...... 18,718 1,622 -- 20,340
Interest income....... (319) (311) -- (630)
-------- -------- ------- --------
Earnings before taxes on
income................. (5,274) 11,910 (144) 6,492
Provision for taxes on
income............... (1,689) 3,910 50 2,271
-------- -------- ------- --------
Net earnings............ $ (3,585) $ 8,000 $ (194) $ 4,221
======== ======== ======= ========
YEAR ENDED DECEMBER 31,
1994
Net sales............... $135,073 $232,979 $ -- $368,052
Cost of sales......... 94,372 154,079 154 248,605
-------- -------- ------- --------
Gross profit............ 40,701 78,900 (154) 119,447
Selling, general and
administrative ex-
penses............... 29,229 56,893 -- 86,122
-------- -------- ------- --------
Operating income........ 11,472 22,007 (154) 33,325
Management fee charged
by Parent............ (5,486) 5,486 -- --
Interest expense...... 15,946 1,311 -- 17,257
Interest income....... (253) (71) -- (324)
-------- -------- ------- --------
Earnings before taxes on
income................. 1,265 15,281 (154) 16,392
Provision for taxes on
income............... 103 5,754 (54) 5,803
-------- -------- ------- --------
Net earnings............ $ 1,162 $ 9,527 $ (100) $ 10,589
======== ======== ======= ========
TEN MONTHS ENDED OCTOBER
31, 1995
Net sales............... $109,849 $201,986 $ -- $311,835
Cost of sales......... 77,442 130,496 1,026 208,964
-------- -------- ------- --------
Gross profit............ 32,407 71,490 (1,026) 102,871
Selling, general and
administrative ex-
penses............... 27,243 45,890 -- 73,133
Compensation expense
relating to stock op-
tions... 8,837 1,886 -- 10,723
-------- -------- ------- --------
Operating income........ (3,673) 23,714 (1,026) 19,015
Management fee charged
by Parent............ (4,444) 4,444 -- --
Interest expense...... 13,360 720 -- 14,080
Interest income....... (117) (8) -- (125)
-------- -------- ------- --------
Earnings before taxes on
income................. (12,472) 18,558 (1,026) 5,060
Provision for taxes on
income............... (3,868) 6,239 (359) 2,012
-------- -------- ------- --------
Net earnings............ $ (8,604) $ 12,319 $ (667) $ 3,048
======== ======== ======= ========
</TABLE>

F-50
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS ($000'S OMITTED)

<TABLE>
<CAPTION>
WILLIAMHOUSE- WILLIAMHOUSE-
REGENCY OF REGENCY OF
DELAWARE, INC. GUARANTOR DELAWARE, INC.
(PARENT) SUBSIDIARIES CONSOLIDATED
-------------- ------------ --------------
<S> <C> <C> <C>
DECEMBER 31, 1993
Net cash provided by operating
activities........................ $ 1,062 $ 9,065 $ 10,127
--------- -------- ---------
Cash flows from investing
activities
Additions to property, plant and
equipment--net.................... (2,344) (2,377) (4,721)
Acquisitions of inventory and
machinery and equipment........... (9,728) (693) (10,421)
--------- -------- ---------
Cash used for investing
activities...................... (12,072) (3,070) (15,142)
--------- -------- ---------
Cash flows from financing
activities
Repayments of long-term debt....... (169,666) (3,977) (173,643)
Proceeds from Recapitalization..... 152,500 -- 152,500
Proceeds from long-term debt....... 9,597 -- 9,597
Additions to deferred financing
costs............................. (7,374) -- (7,374)
Advances from Parent............... 2,387 14,413 16,800
Advances from (to) subsidiaries.... 15,131 (15,131) --
--------- -------- ---------
Cash provided by (used for)
financing activities............ 2,575 (4,695) (2,120)
--------- -------- ---------
(Decrease) increase in cash and
cash equivalents.................. (8,435) 1,300 (7,135)
Cash and cash equivalents at
beginning of period............... 12,672 23 12,695
--------- -------- ---------
Cash and cash equivalents at end of
period............................ $ 4,237 $ 1,323 $ 5,560
========= ======== =========
DECEMBER 31, 1994
Net cash provided by operating ac-
tivities.......................... $ 9,140 $ 16,829 $ 25,969
--------- -------- ---------
Cash flows from investing activi-
ties
Additions to property, plant and
equipment--net.................... (3,404) (2,829) (6,233)
Acquisitions of inventory and ma-
chinery and equipment............. (1,293) (2,831) (4,124)
--------- -------- ---------
Cash used for investing activi-
ties............................ (4,697) (5,660) (10,357)
--------- -------- ---------
Cash flows from financing activi-
ties
Repayments of long-term debt....... (33,098) (3,953) (37,051)
Proceeds from long-term debt....... 16,600 1,000 17,600
Additions to deferred financing
costs............................. (177) (622) (799)
Advances from (to) Parent.......... 7,701 (7,598) 103
Advances from (to) subsidiaries.... 432 (432) --
--------- -------- ---------
Cash used for financing activi-
ties............................ (8,542) (11,605) (20,147)
--------- -------- ---------
Decrease in cash and cash equiva-
lents............................. (4,099) (436) (4,535)
Cash and cash equivalents at begin-
ning of period.................... 4,237 1,323 5,560
--------- -------- ---------
Cash and cash equivalents at end of
period............................ $ 138 $ 887 $ 1,025
========= ======== =========
</TABLE>

F-51
<PAGE>

WR ACQUISITION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
($000'S OMITTED)

F-52
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder of
American Pad & Paper Company of Delaware, Inc.
(successor to Ampad Corporation)

We have audited the accompanying statements of net sales and cost of sales of
the Globe-Weis Office Products Group product lines purchased by American Pad &
Paper Company of Delaware, Inc. (successor to Ampad Corporation) from American
Trading and Production Corporation for the twelve months ended July 31, 1995
and the nine months ended July 31, 1994. These statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these statements based on our audits.

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

The accompanying historical statements were prepared for the purposes of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form S-1 of
American Pad & Paper Company) as described in Note 3 and are not intended to
be a complete presentation of the results of operations of the product lines
purchased from American Trading and Production Corporation.

In our opinion, the historical statements referred to above present fairly, in
all material respects, the net sales and cost of sales of the product lines
acquired, as described in Note 2, for the twelve months ended July 31, 1995
and the nine months ended July 31, 1994, in conformity with generally accepted
accounting principles.

/s/ Price Waterhouse LLP

PRICE WATERHOUSE LLP

Dallas, Texas
March 22, 1996

F-53
<PAGE>

GLOBE-WEIS
(OFFICE PRODUCTS GROUP PRODUCT LINES ACQUIRED FROM
AMERICAN TRADING AND PRODUCTION CORPORATION)

STATEMENTS OF NET SALES AND COST OF SALES

<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
JULY 31, 1994 JULY 31, 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Net sales........................................... $43,762 $60,047
Cost of sales....................................... 37,754 54,706
------- -------
Gross profit........................................ $ 6,008 $ 5,341
======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-54
<PAGE>

GLOBE-WEIS
(OFFICE PRODUCTS GROUP PRODUCT LINES ACQUIRED FROM AMERICAN TRADING AND
PRODUCTION CORPORATION)

NOTES TO STATEMENTS OF NET SALES AND COST OF SALES

1. DESCRIPTION OF BUSINESS

Globe-Weis is one of five brand names marketed by the Office Products Group
of American Trading and Production Corporation (ATAPCO). The Globe-Weis brand
comprises file folders, hanging file folders, expandables, file guides,
storage cases and trays. The products are distributed through the large mass
merchant retailers, office products superstores, office products wholesalers
and contract stationers.

2. ACQUISITION

On August 16, 1995, the inventory and certain equipment of the file folder
and hanging file folder product lines of Globe-Weis were acquired by Ampad
Corporation ("Ampad") in a transaction accounted for as a purchase by Ampad.
Ampad is the predecessor to American Pad & Paper Company of Delaware, Inc.
(hereafter referred to as the "Company") as a result of Ampad's merger with
and into the Company effective October 31, 1995. The Company also entered into
a license agreement with ATAPCO for use of the Globe-Weis name and other trade
names. The acquired product lines are hereafter referred to as the Globe-Weis
assets. Sales of the acquired product lines represented approximately 59% of
the sales of the Globe-Weis brand. The Globe-Weis product lines not acquired
remain an ongoing business of ATAPCO.

3. BASIS OF PRESENTATION

The accompanying statements of net sales and cost of sales were prepared for
the purpose of complying with the rules and regulations of the Securities
Exchange Commission ( SEC) (for the inclusion in the registration statement on
Form S-1 of the Company's parent American Pad & Paper Company).

The acquisition of the Globe-Weis assets constituted a significant
acquisition to the Company and its parent pursuant to regulations of the SEC.
ATAPCO did not maintain separate, complete accounting records for each of the
product lines within the Office Products Group, nor did ATAPCO allocate
general and administrative expenses or selling and marketing expenses to
individual product lines. Accordingly, complete financial statements of the
acquired Globe-Weis assets are not presented. However, in accordance with
approval from the SEC staff, audited net sales and cost of sales information
is presented for the twelve months ended July 31, 1995 (month-end closest to
acquisition date) and the nine months ended July 31, 1994. The statements of
net sales and cost of sales include only those net sales and cost of sales
directly related to the production and distribution of the acquired product
lines.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Globe-Weis recognized revenue from the sale of products upon shipment to the
customer. Costs of sales are recorded when the related revenue is recognized.

Concentration of Customers

During the twelve months ended July 31, 1995, three customers accounted for
79% of net sales. Three customers accounted for 81% of net sales during the
nine months ended July 31, 1994.

Cost of Sales

Cost of sales were determined at standard cost, which approximates actual
first-in, first-out cost in accordance with generally accepted accounting
principles. Standard cost for raw material inventory includes material,
freight, duties and brokerage fees. Standard cost for work in process and
finished goods inventories include material, direct labor and overhead with
costs allocated by identifiable activity. Revaluations of standard costs were
amortized to cost of sales based on inventory turnover. Obsolescence and other
variances to standard cost were charged to cost of sales in the period
incurred.

F-55
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Niagara Envelope Company, Inc.

We have audited the accompanying balance sheets of Niagara Envelope Company,
Inc. as of December 31, 1995 and 1994 and the related statements of income and
retained earnings, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Niagara Envelope Company,
Inc. at December 31, 1995 and 1994 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Ernst & Young LLP

Buffalo, New York
February 16, 1996

F-56
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31
----------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................ $ 126 $ 50
Accounts receivable:
Trade..................................................... 10,676 10,936
Other..................................................... 84 48
------- -------
10,760 10,984
Inventory (Note 2).......................................... 11,519 10,710
Note receivable--shareholder (Note 3)....................... 120 131
Prepaid income taxes........................................ 32 75
Prepaid expenses and other assets........................... 150 132
Deferred taxes.............................................. 278 216
------- -------
Total current assets.................................... 22,985 22,298
Note receivable--shareholder (Note 3)........................ 441 312
Property, plant and equipment (Note 4):
Land........................................................ 34 34
Buildings................................................... 5,600 5,649
Leasehold improvements...................................... 1,078 1,052
Machinery and equipment..................................... 13,116 13,749
Office furniture and equipment.............................. 4,189 3,948
Construction in progress.................................... 15 490
------- -------
24,032 24,922
Less accumulated depreciation and amortization.............. 13,259 13,951
------- -------
Net property, plant and equipment............................ 10,773 10,971
Intangible pension asset..................................... 494 316
Restricted temporary cash investments (Note 7)............... 74 6
Investment in joint venture (Note 5)......................... 161 347
Other assets.............................................. 588 628
------- -------
Total assets............................................ $35,516 $34,878
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade..................................... $ 5,902 $ 6,093
Accrued expenses (Note 8)................................... 2,338 2,044
Accrued expenses for plant closure and relocation costs
(Note 14).................................................. 137 210
Current portion--long-term debt (Note 7).................... 410 618
------- -------
Total current liabilities................................. 8,787 8,965
Long-term debt (Note 7)...................................... 14,304 8,747
Accrued pension liability (Note 10).......................... 50 562
Deferred compensation........................................ 811 917
Deferred taxes............................................... 354 439
------- -------
Total liabilities....................................... 24,306 19,630
Shareholders' equity (Note 12):
Capital stock:
Preferred, no par value:
Class A, authorized 20,000 shares, issued and outstanding
500 shares.............................................. 500 500
Common, no par value:
Class A, voting, authorized 12,000 shares, issued and
outstanding 5,163 shares................................ 52 52
Class B, non-voting, authorized 12,000 shares, issued and
outstanding 5,780 shares................................ 58 58
Additional paid-in capital.................................. 361 361
Retained earnings........................................... 10,249 14,780
Accumulated pension adjustment.............................. (10) (503)
------- -------
Total shareholders' equity.............................. 11,210 15,248
------- -------
Total liabilities and shareholders' equity.............. $35,516 $34,878
======= =======
</TABLE>

See accompanying notes.

F-57
<PAGE>

NIAGARA ENVELOPE COMPANY, INC

STATEMENTS OF INCOME AND RETAINED EARNINGS

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Sales............................................... $82,901 $84,005 $105,859
Cost of goods sold.................................. 66,817 65,910 82,192
------- ------- --------
Gross profit........................................ 16,084 18,095 23,667
Distribution expenses............................... 5,975 6,055 6,001
Selling and marketing expenses...................... 4,084 3,614 3,934
General and administrative expenses................. 5,210 5,218 5,251
------- ------- --------
Income from operations.............................. 815 3,208 8,481
Other income (expense):
Interest income................................... 55 125 58
Interest expense.................................. (693) (953) (922)
Management fees................................... -- -- 80
(Loss) gain on sale of equipment.................. (1) (37) 164
Equity in earnings of joint venture............... -- 61 186
Plant closure and relocation costs................ (1,097) (682) (336)
Pension curtailment............................... -- -- (157)
Other............................................. (167) (373) (213)
------- ------- --------
(1,903) (1,859) (1,140)
------- ------- --------
Income before income taxes.......................... (1,088) 1,349 7,341
Income tax provision:
Current--Federal.................................. 17 154 2,287
-- State................................... 5 48 328
Deferred.......................................... (335) 343 147
------- ------- --------
(313) 545 2,762
------- ------- --------
Net (loss) income................................... (775) 804 4,579
Retained earnings at beginning of year.............. 10,316 9,493 10,249
------- ------- --------
9,541 10,297 14,828
Dividends declared on preferred stock
($95 per share).................................... 48 48 48
------- ------- --------
Retained earnings at end of year.................... $ 9,493 $10,249 $ 14,780
======= ======= ========
</TABLE>

See accompanying notes.

F-58
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
----------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income........................................... $ (775) $ 804 $4,579
Adjustments to reconcile net income to net cash pro-
vided by operating activities:
Depreciation and amortization...................... 1,374 1,328 1,486
Deferred taxes..................................... (335) 343 147
(Gain) loss on sale of equipment................... 1 37 (164)
Equity in earnings of joint venture................ -- (61) (186)
Changes in:
Accounts receivable.............................. (164) (1,392) (223)
Inventory........................................ 801 (746) 809
Prepaid expenses and other assets................ 230 83 18
Other assets..................................... (13) (120) (40)
Prepaid income taxes............................. (446) 415 (44)
Accounts payable, trade.......................... 916 1,053 191
Accrued expenses................................. 392 107 (221)
Accrued pension liability net of non-cash
changes......................................... 22 (204) 197
Deferred compensation............................ (27) (46) 106
------ ------ ------
TOTAL ADJUSTMENTS...................................... 2,751 797 2,076
------ ------ ------
NOT CASH PROVIDED BY OPERATING ACTIVITIES.............. 1,976 1,601 6,655
INVENTING ACTIVITIES
(Purchase) sale of temporary cash investments........ (2,003) 1,929 68
Net proceeds from notes receivable--shareholder...... 86 118 119
Purchase of property and equipment................... (4,126) (2,979) (1,685)
Proceeds from sale of equipment...................... 2 8 164
Investment in joint venture.......................... -- (100) --
------ ------ ------
Net cash used in investing activities................ (6,041) (1,024) (1,334)
FINANCING ACTIVITIES
Proceeds from term loan agreements................... -- 3,000 --
Repayment under term loan agreements................. (95) (9,102) (109)
(Repayment) net proceeds from revolving credit facil-
ity................................................. -- 7,160 (4,940)
(Repayment) of demand note payable................... 156 (1,576) --
Proceeds from industrial revenue bond................ 4,500 -- --
Repayment under industrial revenue bond ............. -- (300) (300)
Bond issuance costs.................................. (295) -- --
Dividends............................................ (48) (48) (48)
------ ------ ------
Net cash provided by (used in) financing activities.. 4,218 (866) (5,397)
------ ------ ------
Net increase (decrease) in cash...................... 153 (289) (76)
Cash at beginning of year............................ 262 415 126
------ ------ ------
Cash at end of year.................................. $ 415 $ 126 $ 50
====== ====== ======
Cash paid (received) during the period for:
Income taxes....................................... $ 698 $ (213) $2,734
====== ====== ======
Interest........................................... $ 687 $ 886 $1,005
====== ====== ======
Non-cash activities:
(Decrease) increase in intangible pension asset.... $ (53) $ 22 $ (178)
====== ====== ======
Increase (decrease) in accumulated pension adjust-
ment.............................................. $ 73 $ (242) $ 493
====== ====== ======
</TABLE>
See accompanying notes.

F-59
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1994 AND 1995
(DOLLARS IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Niagara Envelope Company, Inc. (the Company) manufactures and distributes
envelopes. The Company sells its products primarily to paper wholesalers
located in the United States.

The Company has operating divisions in Buffalo, New York; Chicago, Illinois;
Dallas, Texas and Denver, Colorado, and a warehouse in Seattle, Washington.
The Company also has a joint venture located in Hattiesburg, Mississippi.

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. Estimates also affect the reported amount of revenues and expenses
during the year. Actual results could differ from those estimates.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for paper raw material, work in process,
and finished goods inventory, and the first-in, first-out (FIFO) method for
non-paper raw material inventory which comprises 12% and 14% of inventory at
December 31, 1994 and 1995, respectively.

Property, Equipment and Depreciation

Property and equipment are stated at cost. Depreciation is provided on both
the straight-line and declining balance methods over the estimated useful
lives of the assets or the lease term for leasehold improvements as follows:

<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings....................................................... 31.5 - 39
Leasehold improvements.......................................... 5 - 16
Automotive equipment............................................ 3 - 4
Machinery and equipment......................................... 5 - 12
Office furniture and equipment.................................. 5 - 10
</TABLE>

Maintenance and repairs are charged against income; significant renewals and
improvements are capitalized.

Financing Fees

Deferred financing fees, which are included in other assets, are being
amortized over the life of the related debt.

Revenue Recognition

The company recognizes revenue from the sale of products upon shipment to
the customer.

Statement of Cash Flows

For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity date of three months or
less to be cash equivalents.

F-60
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVENTORY

Inventory consisted of the following at December 31, 1994 and 1995:

<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Raw material............................................ $ 5,854 $ 4,953
Work in process......................................... 212 696
Finished goods.......................................... 6,383 6,911
------- -------
12,449 12,560
Less: LIFO reserve.................................... (930) (1,850)
------- -------
$11,519 $10,710
======= =======
</TABLE>

3. NOTE RECEIVABLE--SHAREHOLDER

Note receivable--shareholder represents an amount due from a shareholder of
the Company with an interest rate of prime plus 1/4% (8.75% at December 31,
1994 and 1995) due in monthly installments of $14 including interest.

4. PROPERTY, PLANT AND EQUIPMENT

Buildings include $1,009 and $949 at December 31, 1994 and 1995,
respectively, which represents the net book value of building, building
additions, etc., located on land owned by an affiliate. The land is leased by
the Company under a long-term lease. The lease has two renewal options which,
if exercised, would enable the Company to lease the property through January
31, 2000.

5. INVESTMENT IN JOINT VENTURE

In March 1994, the Company acquired a 50% interest in the common stock of a
joint venture, Niagara-Murray Envelope Company, Inc., for $100. The joint
venture is a Mississippi manufacturer of paper envelopes with exclusive rights
to sell envelopes in a five-state area in the Southeastern section of the
United States. This investment is recorded on the equity method.

The following summarizes the related transactions:

<TABLE>
<CAPTION>
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Purchase from................................................ $-- $ 107 $ 251
Sales to..................................................... -- 2,000 2,589
Payables to.................................................. -- 30 --
Receivable from.............................................. -- 170 353
</TABLE>

6. LETTERS OF CREDIT

At December 31, 1995, the Company had one letter of credit totaling $796
which accrued a fee of 1% per annum and supported the Company's workers
compensation reserves and one letter of credit in the amount of $4,108 which
accrued a fee of 1% per annum and supported the Industrial Development Revenue
Bonds.

F-61
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

7. LONG-TERM DEBT

Long-term debt at December 31, 1994 and 1995 consisted of the following:

<TABLE>
<CAPTION>
1994 1995
------- ------
<S> <C> <C>
Term not payable in monthly principal installments of $50, be-
ginning in September 1996 through August 2001, with interest at
prime plus 1/2% or LIBOR rate plus 2% (7.9375% (LIBOR option)
at December 31, 1995), secured by virtually all assets of the
Company, excluding those securing the Industrial Development
Revenue Bonds.................................................. $ 3,000 $3,000
Term note payable in yearly installments through 1997 of $136
including interest at 7%, secured by computer software and
hardware with a net book value of approximately $190 at Decem-
ber 31, 1995................................................... $ 354 $ 245
Revolving credit facility totaling $12,000, due August 3, 1997,
secured by virtually all assets of the Company excluding those
securing the Industrial Development Revenue Bonds. Interest
payable at prime or LIBOR rate plus 1 1/2% (7.4375% (LIBOR op-
tion) on first $1,600 and 8.5% (prime rate) on balance at De-
cember 31, 1994 and 1995)...................................... 7,160 2,220
Industrial Development Revenue Bonds secured by land, building,
and equipment with an original cost of approximately $5,136
payable in quarterly installments of $75 plus interest that
fluctuates with the weekly average yield on United States Trea-
sury obligations (5.25% at December 31, 1995), through 2008.... 4,200 3,900
------- ------
14,714 9,365
Less: current portion.......................................... 410 618
------- ------
Long-term debt................................................. $14,304 $8,747
======= ======
</TABLE>

Payments due for the five years subsequent to December 31, 1995 are as
follows:

<TABLE>
<S> <C>
1996.................................. $ 618
1997.................................. 3,247
1998.................................. 900
1999.................................. 900
2000.................................. 900
Thereafter............................ 2,800
</TABLE>

The restricted temporary cash investments represent unexpended bond proceeds
restricted to certain capital expenditures.

8. ACCRUED EXPENSES

Accrued expenses included the following:

<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Payroll.................................................... $ 649 $ 766
Workers' compensation and medical insurance................ 664 615
Dividend................................................... 12 12
Interest................................................... 140 56
Pension.................................................... 507 266
Other...................................................... 170 93
Property taxes............................................. 196 236
------ ------
$2,338 $2,044
====== ======
</TABLE>

F-62
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

9. DEFERRED COMPENSATION PLANS

The Company entered into a deferred compensation agreement with the former
Chairman of the Board who is now deceased. The agreement provides for annual
payments to his surviving spouse for her lifetime. The present value of
required future payment, determined using an 8.9% discount factor, is $811 and
$789 at December 31, 1994 and 1995, respectively.

10. RETIREMENT PLANS

Defined Benefit Plans

The Company has two pension plans covering substantially all employees. The
Company's funding policy has been to contribute annually at least the minimum
required by ERISA. The Plans provide monthly benefits under a flat benefit
formula.

The Company's pension plan expense for the years ended December 31, 1993,
1994 and 1995 is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the year.... $ 261 $ 278 $ 147
Interest cost on projected benefit obligation.... 306 341 275
Actual return on assets.......................... (323) 80 (578)
Net amortization and deferral.................... 77 (359) 369
------ ------ ------
Net periodic pension cost........................ $ 321 $ 340 $ 213
====== ====== ======

The funded status of the plans, based on actuarial computations at September
30, 1994 and 1995 is presented below. Plan assets are stated at fair value and
composed of fixed rate securities and equity investments. The average assumed
discount rate is 7.25% and 6.25% in 1994 and 1995, respectively. The average
expected long-term rate of return of plan assets is 7.75% in 1994 and 1995.

<CAPTION>
1994 1995
------ ------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation vested........... $3,454 $4,604
====== ======
Accumulated benefit obligation.................. $3,764 $4,920
====== ======
Projected benefit
obligation for service rendered to date......... $3,764 $4,920
Plan assets at fair value........................ 3,207 4,092
------ ------
Projected benefit obligation
in excess of plan assets........................ (557) (828)
Unrecognized transition amount................... 157 90
Unrecognized net loss............................ 2 503
Unrecognized prior service cost.................. 345 226
Adjustment required to
recognize minimum liability..................... (504) (819)
------ ------
Accrued pension liability........................ $ (557) $ (828)
====== ======
</TABLE>

F-63
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Such amount is included in the accompanying balance sheets under the
following captions:

<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Accrued expenses............................................ $(507) $(266)
Accrued pension liability................................... (50) (562)
----- -----
$(557) $(828)
===== =====
</TABLE>

Defined Contribution Plans

During 1995, the Company froze the benefits accrued under its defined
benefit pension plan for certain union employees and initiated a defined
contribution plan for the participants under Section 401(k) of the Internal
Revenue Code. As a result of freezing the defined benefit plan, the Company
has recognized a loss of $157 representing previously unrecognized prior
service cost associated with this plan. The 401(k) plan requires the Company
to contribute 2% of each participants compensation to the plan and also
permits participants to contribute up to 15% of their defined compensation.
The Company's contribution to the plan in 1995 was $99.

The Company also has a deferred compensation plan for non-union employees
under Section 401(k) of the Internal Revenue Code. Under terms of the plan,
participants may elect to contribute up to 15% of their defined compensation.
In addition, the Company will contribute 50% of each of the participant's
contribution up to a maximum of 4% of defined compensation. Total
contributions to the plans in 1993, 1994 and 1995 approximated $184, $193, and
$226, respectively.

11. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at December 31, 1994 and
1995 are as follows (in thousands):

<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Employee compensation....................................... $ 312 $ 348
Accrued expenses............................................ 128 107
Discontinued operations..................................... 47 71
Other....................................................... 78 19
----- -----
Total deferred tax assets................................. 565 545
Pension benefits............................................ $ (59) $ (77)
Property, plant and equipment............................... (573) (584)
Gain on joint venture....................................... -- (84)
Other....................................................... (9) (23)
----- -----
Total deferred tax liabilities............................ (641) (768)
----- -----
Net deferred tax liabilities................................ $ (76) $(223)
===== =====
</TABLE>

The deferred tax assets results primarily from worker's compensation
accruals, medical expense accruals, deferred compensation and the accrual for
closure and relocation of plants. Deferred liabilities resulted primarily from
depreciation differences.

F-64
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

A reconciliation of the expected tax expense to actual tax expense for the
years ended December 31, 1993, 1994 and 1995 is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----- ---- ------
<S> <C> <C> <C>
Federal income tax (benefit) expense computed at
statutory rate.................................... $(370) $458 $2,496
State taxes--net of federal effect................. 3 32 217
Meals and entertainment expense.................... 14 34 36
Premiums on officers life insurance................ 50 43 29
Other.............................................. (10) (22) (16)
----- ---- ------
$(313) $545 $2,762
===== ==== ======
</TABLE>
12. CAPITAL STOCK

Holders of the Company's Class A preferred stock are entitled to cumulative
dividends at the annual rate of 9.5% of the stated value but only if, when and
as declared by the Board of Directors. Dividends are not permitted on any
common stock unless all dividends to which the holders of Class A preferred
stock are entitled, have been declared and paid or are to be paid.

Each share of Class A preferred stock is entitled to one vote with the
voting common stock, not as a separate class, on any proposal for the
corporation to merge or consolidate with another corporation or for the
corporation to liquidate. Whenever the total amount of unpaid dividends on the
outstanding Class A preferred stock is equal to or greater than 40% of the
stated value of such shares, each is entitled to one vote with the voting
common stock of the Company, not as a separate class, on all matters with
respect to which the voting common stock has a right to vote. When all
dividends are paid on Class A preferred stock, the special voting right
terminates; and other than the preceding, the Class A preferred stock has no
voting rights.

The Company has the right to redeem the preferred stock, in whole or in
part, at any time at $1,000 per share. In the event of any liquidation,
dissolution or winding up of the corporation and the distribution of its
assets, the holders of shares of the Class A preferred stock shall be entitled
to receive $1,000 per share before any amount is distributed to the holders of
any common stock.

13. OPERATING LEASES

Real Property Leases

The Company is obligated on noncancelable real property leases expiring on
various dates through 2000. Certain of the leases require additional rentals
based on real estate taxes and include options to renew at an increased
amount. Future minimum annual lease payments for the next five years are as
follows:

<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Year Ending December 31,
1996................................ $844
1997................................ 778
1998................................ 603
1999................................ 165
2000................................ 11
</TABLE>

Approximately $490 of the 1996 future minimum lease payments is due to
related parties under agreements that expire at various dates from 1996
through 2000.

F-65
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Rental expense for real property amounted to $1,330, $1,008, and $873 in
1993, 1994 and 1995, respectively, including rental expense to related parties
of $627, $448 and $462 in 1993, 1994 and 1995, respectively.

EQUIPMENT LEASES

The Company is also a lessee under noncancelable equipment lease agreements.
Certain of the agreements are with related party lessors. Future minimum
annual lease payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- ------
<S> <C>
1996............................... $1,318
1997............................... 1,020
1998............................... 491
1999............................... 154
2000............................... 71
Thereafter......................... 5
</TABLE>

Approximately $604 of the 1996 future minimum lease payments is due to
related parties under agreements that expire at various dates through 1999.

Equipment rent expense amounted to $1,567, $1,642 and $1,601 in 1993, 1994
and 1995, respectively, including rent expense to related parties of $710,
$684 and $664 in 1993, 1994 and 1995, respectively.

14. PROVISION FOR PLANT CLOSURE AND RELOCATION COSTS

The provision for plant closure and relocation costs at December 31, 1995
represents the estimated additional costs associated with the closure of
Niagara Envelope's Jacksonville facility.

F-66
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

BALANCE SHEETS

MARCH 31, 1995 AND 1996
(UNAUDITED--IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 3 $ 606
Accounts receivable:
Trade.................................................... 12,926 11,067
Other.................................................... 58 --
Inventory.................................................. 11,807 11,028
Note receivable--shareholder............................... 120 135
Prepaid expenses and other current assets.................. 103 372
Deferred taxes............................................. 278 216
------- -------
Total current assets................................... 25,295 23,424
Note receivable--shareholder............................... 413 276
Property, plant and equipment, net......................... 10,830 11,326
Intangible pension asset................................... 494 316
Investment in joint venture................................ 193 397
Other assets............................................... 622 677
------- -------
$37,847 $36,416
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft............................................. $ 1,252 $ 1,711
Accounts payable........................................... 5,024 5,071
Accrued expenses........................................... 3,899 3,591
Current portion--long-term debt............................ 410 650
------- -------
Total current liabilities.................................... 10,585 11,023
Long-term debt............................................... 13,379 6,725
Deferred compensation........................................ 806 913
Deferred income taxes........................................ 354 439
Accrued pension.............................................. 50 562
------- -------
14,589 8,639
Total liabilities...................................... 25,174 19,662
======= =======
Shareholders' equity:
Capital stock:
Preferred, no par value:
Class A, authorized 20,000 shares, issued and outstand-
ing 500 shares......................................... 500 500
Common, no par value:
Class A, voting, authorized 12,000 shares, issued and
outstanding 5,163 shares................................ 52 52
Class B, non-voting, authorized 12,000 shares, issued and
outstanding 5,780 shares................................ 58 58
Additional paid-in capital................................. 361 361
Retained earnings.......................................... 11,712 16,286
Accumulated pension adjustment............................. (10) (503)
------- -------
Total shareholders' equity............................. 12,673 16,754
------- -------
$37,847 $36,416
======= =======
</TABLE>

See accompanying notes.

F-67
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(UNAUDITED--IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net sales.................................................... $26,628 $28,317
Cost of goods sold........................................... 20,163 21,760
Distribution expenses........................................ 1,584 1,554
Selling and marketing expenses............................... 936 982
General and administrative expenses.......................... 1,320 1,441
------- -------
24,003 25,737
------- -------
Income from operations....................................... 2,625 2,580
Interest income.............................................. 13 11
Interest expense............................................. (253) (147)
Other expense................................................ (36) (15)
------- -------
(276) (151)
------- -------
Income before income taxes................................... 2,349 2,429
Provision for income taxes................................... 874 911
------- -------
Net income................................................... 1,475 1,518
Retained earnings at beginning of period..................... 10,249 14,780
------- -------
11,724 16,298
Dividends declared on preferred stock ($23.75 per share)..... (12) (12)
------- -------
Retained earnings at end of period........................... $11,712 $16,286
======= =======
</TABLE>

See accompanying notes.

F-68
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(UNAUDITED--IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,475 $ 1,518
Adjustments to reconcile net income to cash provided by op-
erating activities:
Depreciation and amortization............................. 361 411
Changes in operating assets and liabilities:
Accounts receivable..................................... (2,224) (83)
Inventories............................................. (288) (318)
Prepaid expenses and other current assets............... 79 (165)
Bank overdraft.......................................... 1,252 1,711
Accounts payable........................................ (878) (1,022)
Accrued expenses........................................ 1,419 1,333
------- -------
Cash provided by operating activities....................... 1,196 3,385
INVESTING ACTIVITIES
Purchase of property and equipment.......................... (418) (766)
Investment in joint venture................................. (32) (50)
Increase in other assets.................................... 40 (43)
Proceeds from note receivable--shareholder.................. 28 32
------- -------
Cash used by investing activities........................... (382) (827)
FINANCING ACTIVITIES
Dividends paid.............................................. (12) (12)
Repayment of long-term borrowings........................... (925) (1,990)
------- -------
Cash used by financing activities........................... (937) (2,002)
------- -------
Net (decrease) increase in cash............................. (123) 556
Cash--beginning of period................................... 126 50
------- -------
Cash--end of period......................................... $ 3 $ 606
======= =======
</TABLE>

See accompanying notes.

F-69
<PAGE>

NIAGARA ENVELOPE COMPANY, INC.

NOTES TO INTERIM FINANCIAL STATEMENTS

MARCH 31, 1995 AND 1996
(UNAUDITED)

1. GENERAL

The unaudited financial information furnished herein reflects all
adjustments, which in the opinion of management are of a normal recurring
nature, to fairly state the Company's financial position and results from
operations for the periods presented. This information should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1995.

The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the entire year
ending December 31, 1996.

2. INVENTORY

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31
----------------
1995 1996
------- -------
<S> <C> <C>
Raw material.................................................. $ 4,922 $ 4,660
Work in-process............................................... 212 528
Finished goods................................................ 8,765 7,125
------- -------
13,899 12,313
Less: LIFO reserve.......................................... (2,092) (1,285)
------- -------
$11,807 $11,028
======= =======
</TABLE>

F-70
<PAGE>

[LOGO]

[Picture of United States with
various manufacturing and
distribution facilities of the
company marked]

<PAGE>

Issued June 24, 1996

15,625,000 Shares
American Pad & Paper Company
COMMON STOCK
----------

OF THE 15,625,000 SHARES OF COMMON STOCK OFFERED HEREBY, 3,125,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 12,500,000 SHARES ARE BEING OFFERED INITIALLY
IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." OF THE 15,625,000 SHARES OF COMMON STOCK OFFERED HEREBY,
12,500,000 SHARES ARE BEING SOLD BY THE COMPANY AND 3,125,000 SHARES ARE
BEING SOLD BY THE SELLING STOCKHOLDERS. SEE "PRINCIPAL AND SELLING
STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE
SALE OF THE SHARES OF COMMON STOCK BY THE SELLING STOCKHOLDERS. PRIOR
TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE PER SHARE WILL BE BETWEEN $15 AND $17. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.

----------

THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "AGP."

----------

SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

----------
PRICE $ A SHARE
----------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total(3)....................... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities act of 1933, as amended.
(2) Before deducting expenses payable by the Company estimated at
$1,300,000.
(3) The Selling Stockholders have granted the U.S. Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 2,343,750 additional shares at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Selling Stockholders will be $ , $ and $
respectively. See "Underwriters."
----------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to the approval of certain legal
matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected
that delivery of the Shares will be made on or about , 1996 at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
----------

MORGAN STANLEY & CO.
International
ALEX. BROWN & SONS
International
BANKERS TRUST INTERNATIONAL PLC
CS FIRST BOSTON
GOLDMAN SACHS INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
WASSERSTEIN PERELLA SECURITIES, INC.

, 1996
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is a statement of estimated expenses, to be paid solely by the
Company, of the issuance and distribution of the securities being registered:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 99,138
NASD filing fee............................................. 29,250
NYSE original listing fee................................... 179,100
Blue Sky fees and expenses (including attorneys' fees and
expenses).................................................. 25,000
Printing expenses........................................... 225,000
Accounting fees and expenses................................ 325,000
Transfer agent's fees and expenses.......................... 15,000
Legal fees and expenses..................................... 375,000
Miscellaneous expenses...................................... 27,512
----------
Total................................................... $1,300,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.

The Company's Restated Certificate of Incorporation will provide for the
indemnification of Directors and officers of the Company to the fullest extent
permitted by Section 145.

In that regard, each person who was or is made a party or is threatened to
be made a party to or is otherwise involved (including involvement as a
witness) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that
he or she is or was a Director or officer of the Company or, while a Director
or officer of the Company, is or was serving at the request of the Company as
a Director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust

II-1
<PAGE>

or other enterprise, including service with respect to an employee benefit plan
(an "indemnitee"), whether the basis of such proceeding is alleged action is an
official capacity as a Director or officer or in any other capacity while
serving as a Director or officer, will be indemnified and held harmless by the
Company to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Company to
provide broader indemnification rights than permitted prior thereto), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
excise exercise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnity in connection therewith and such
indemnification will continue as to an indemnitee who has ceased to be a
Director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators under the Restated Certificate
of Incorporation. This right of indemnification is a contractual right and
includes the obligation of the Company to pay the expenses incurred in
defending any such proceeding in advance of its final disposition (an "advance
of expenses"); provided, however, that, if and to the extent that the Delaware
General Corporation law requires, an advance of expenses incurred by an
indemnitee in his or her capacity as a Director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) will be
made only upon delivery to the Company of an undertaking (an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it will
ultimately be determined by final judicial decision from which there is no
further right to appeal (a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses. The Company may, by action of its
Board of Directors, provide indemnification to employees and agents of the
Corporation with the same or lesser scope and effect as the foregoing
indemnification of Directors and officers.

Under its Restated Certificate of Incorporation, the Company may purchase and
maintain insurance on its own behalf and on behalf of any person who is or was
a Director, officer, employee or agent of the Company or was serving at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss asserted against him or her and incurred by him or
her in any such capacity, whether or not the Company would have the power to
indemnify such person against such expenses, liability or loss under the
Delaware General Corporation Law.

The Company expects to obtain Directors and officers insurance prior to the
completion of the Offering.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The Company has not sold any securities within the last three years.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement, dated May 29, 1996, by and among American
Pad & Paper Company of Delaware, Inc., Niagara Envelope Company, Inc.
and the person named therein.(2)+
2.2 Asset Purchase Agreement, dated June 6, 1996, by and among APPC and
the purchaser named therein.(1)+
3.1(i) Form of Restated Certificate of Incorporation of the Company.
3.1(ii) Form of Amended and Restated By-laws of the Company.
4.1 Indenture, dated as of December 1, 1995, among American Pad & Paper
Company of Delaware, Inc., the Subsidiary Guarantors and the Trustee
(including Form of Note).(2)+
4.2 Purchase Agreement, dated as of November 17, 1994, among American Pad
& Paper Company of Delaware, Inc., the Subsidiary Guarantors and the
Initial Purchasers.(1)+
4.3 Registration Rights Agreement, dated as of December 1, 1995, among
American Pad & Paper Company of Delaware, Inc., the Subsidiary
Guarantors and the Initial Purchasers named therein.(1)
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
4.4 Credit Agreement, dated as of October 31, 1995, among the Company, WR
Acquisition, Inc., American Pad & Paper Company of Delaware, Inc.,
various Lending Institutions and Bankers Trust Company, as Agent.(1)+
4.5 Security Agreement, dated as of October 31, 1995, among the Company, WR
Acquisition, Inc., American Pad & Paper Company of Delaware, Inc.,
certain other subsidiaries of American Pad & Paper Company of
Delaware, Inc. and Bankers Trust Company, as Collateral Agent.(1)+
4.6 Pledge Agreement, dated as of October 31, 1995, by American Pad & Paper
Company of Delaware, Inc. and the Subsidiary Guarantors in favor of
Bankers Trust Company, as Collateral Agent.(1)+
4.7 Notepad funding Receivables Master Trust Pooling and Servicing
Agreement, dated October 31, 1995, among APPC, Notepad Funding
Corporation and Manufacturers and Traders Trust Company (the "Pooling
and Service Agreement").(1)+
4.8 Series 1995-1 Supplement to the Pooling and Service Agreement, dated
October 31, 1995.(1)+
4.9 Revolving Certificate Purchase Agreement, dated October 31, 1995 among
APPC, Notepad Funding Corporation, Bankers Trust Company and the
Purchasers described therein.(1)+
4.10 Receivables Purchase Agreement, dated October 31, 1995, among APPC,
Notepad Funding Corporation and certain subsidiaries.(1)+
4.11 Term Sheet relating to New Bank Credit Agreement.
5.1 Opinion and consent of Kirkland & Ellis.(2)
10.1 Agreement and Plan of Merger, dated as of October 3, 1995, among the
Company, WHR Acquisition, Inc. and WR Acquisition, Inc.(1)+
10.2 Amendment No. 1 to WHR Merger Agreement, dated as of October 31, 1995,
among the Company, WHR Acquisition, Inc. and WR Acquisition, Inc.(1)
10.3 Stock Purchase Agreement, dated as of October 30, 1995, among WR
Acquisition, Inc. and the Company.(1)+
10.4 Tax Sharing Agreement, dated as of October 30, 1995, among American Pad
& Paper Company of Delaware, Inc. and the Subsidiary Guarantors.(1)
10.5 Agreement and Plan of Merger, dated as of October 31, 1995, among
Williamhouse Regency of Delaware, Inc. and Ampad Corporation.(1)
10.6 Advisory Agreement, dated as of October 31, 1995, among American Pad &
Paper Company of Delaware, Inc. and Bain Capital, Inc.(1)
10.7 Ampad Holding Corporation 1992 Key Employees Stock Option Plan.(1)
10.8 Amended and Restated Management Agreement between the Company and
Charles G. Hanson.(1)
10.9 Amended and Restated Management Agreement between the Company and
Russell M. Gard.(1)
10.10 Amended and Restated Management Agreement between the Company and
Gregory M. Benson.(1)
10.11 Preferred Stock Redemption Agreement between the Company and the
stockholders named therein.(1)
10.12 Asset Purchase Agreement, dated as of June 29, 1994, by and between
Huxley Envelope Corp., The Kent Paper Co., Inc. and Williamhouse of
California, Inc.(2)+
10.13 Lease Agreement for City of Industry, California.(1)
10.14 Lease Agreement for Dubuque, Iowa.(1)
10.15 Lease Agreement for Miamisburg, Ohio.(1)
10.16 Lease Agreement for North Salt Lake City, Utah.(1)
10.17 Lease Agreement for Tacoma, Washington.(1)
10.18 Change of Control Agreement between WR Acquisition, Inc. and certain
officers of American Pad & Paper Company of Delaware, Inc.(1)
10.19 Registration Rights Agreement, dated as of July 31, 1992, between the
Company and the stockholders named therein.(2)
10.20 Form of 1996 Key Employee Stock Incentive Plan.(1)
10.21 Form of Non-Employee Director Stock Option Plan.(1)
10.22 Employment Agreement between the Company and Charles Hanson, III.(1)
10.23 Employment Agreement between the Company and Russell Gard.(1)
10.24 Form of Amended and Restated Advisory Agreement between APPC and Bain
Capital, Inc.(1)
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.25 Form of Management Stock Purchase Plan.(1)
21.1 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
23.4 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (included in signature page).(2)
27.1 Financial Data Schedule.(2)
</TABLE>
- --------

+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by Commission.
(1) Incorporated by reference to the same-numbered exhibit to the Registration
Statement on Form S-1 of American Pad & Paper of Delaware, Inc. (File No.
333-3006).
(2) Previously Filed.

(b) Financial Statement Schedules.

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the underwriter at
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as requested by the Underwriter to
permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes:

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

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

II-4
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
DALLAS, STATE OF TEXAS, ON JUNE 24, 1996.

American Pad & Paper Company

/s/ Gregory M. Benson
By: _________________________________
GREGORY M. BENSON CHIEF
FINANCIAL OFFICER

* * * *

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:

SIGNATURE CAPACITY DATE

* Chief Executive
- ------------------------------------- Officer and June 24, 1996
CHARLES G. HANSON, III Director (principal
executive officer)

* Director
- ------------------------------------- June 24, 1996
RUSSELL M. GARD

/s/ Gregory M. Benson Chief Financial
- ------------------------------------- Officer and June 24, 1996
GREGORY M. BENSON Director (principal
financial and
accounting officer)

* Director
- ------------------------------------- June 24, 1996
JONATHAN S. LAVINE

* Director
- ------------------------------------- June 24, 1996
MARC B. WOLPOW

* Director
- ------------------------------------- June 24, 1996
ROBERT C. GAY

* Pursuant to Power of Attorney
previously filed with the
Commission.

/s/ Gregory M. Benson Attorney-in-Fact
- ------------------------------------- June 24, 1996
GREGORY M. BENSON

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreements.
2.1 Stock Purchase Agreement, dated May 29, 1996, by and among
American Pad & Paper Company of Delaware, Inc., Niagara
Envelope Company, Inc. and the person named therein.(2)+
2.2 Asset Purchase Agreement, date June 6, 1996, by and among APPC and
the purchaser named therein.(1)+
3.1(i) Restated Certificate of Incorporation of the Company.
3.1(ii) By-laws of the Company.
4.1 Indenture, dated as of December 1, 1995, among American Pad &
Paper Company of Delaware, Inc., the Subsidiary Guarantors
and the Trustee (including Form of Note).(2)
4.2 Purchase Agreement, dated as of November 17, 1994, among
American Pad & Paper Company of Delaware, Inc., the
Subsidiary Guarantors and the Initial Purchasers.(1)
4.3 Registration Rights Agreement, dated as of December 1, 1995,
among American Pad & Paper Company of Delaware, Inc., the
Subsidiary Guarantors and the Initial Purchasers named
therein.(1)
4.4 Credit Agreement, dated as of October 31, 1995, among the
Company, WR Acquisition, Inc., American Pad & Paper Company
of Delaware, Inc., various Lending Institutions and Bankers
Trust Company, as Agent.(1)+
4.5 Security Agreement, dated as of October 31, 1995, among the
Company, WR Acquisition, Inc., American Pad & Paper Company
of Delaware, Inc., certain other subsidiaries of American
Pad & Paper Company of Delaware, Inc. and Bankers Trust
Company, as Collateral Agent.(1)+
4.6 Pledge Agreement, dated as of October 31, 1995, by American
Pad & Paper Company of Delaware, Inc. and the Subsidiary
Guarantors in favor of Bankers Trust Company, as Collateral
Agent.(1)+
4.7 Notepad funding Receivables Master Trust Pooling and
Servicing Agreement, dated October 31, 1995, among APPC,
Notepad Funding Corporation and Manufacturers and Traders
Trust Company (the "Pooling and Service Agreement"). (1)+
4.8 Series 1995-1 Supplement to the Pooling and Service
Agreement, dated October 31, 1995. (1)+
4.9 Revolving Certificate Purchase Agreement, dated October 31,
1995 among APPC, Notepad Funding Corporation, Bankers Trust
Company and the Purchasers described therein. (1)+
4.10 Receivables Purchase Agreement, dated October 31, 1995, among
APPC, Notepad Funding Corporation and certain subsidiaries.
(1)+
4.11 Term Sheet relating to New Bank Credit Agreement.
5.1 Opinion and consent of Kirkland & Ellis.(2)
10.1 Agreement and Plan of Merger, dated as of October 3, 1995,
among the Company, WHR Acquisition, Inc. and WR Acquisition,
Inc.(1)+
10.2 Amendment No. 1 to WHR Merger Agreement, dated as of October
31, 1995, among the Company, WHR Acquisition, Inc. and WR
Acquisition, Inc.(1)
10.3 Stock Purchase Agreement, dated as of October 30, 1995, among
WR Acquisition, Inc. and the Company.(1)
10.4 Tax Sharing Agreement, dated as of October 30, 1995, among
American Pad & Paper Company of Delaware, Inc. and the
Subsidiary Guarantors.(1)
10.5 Agreement and Plan of Merger, dated as of October 31, 1995,
among Williamhouse Regency of Delaware, Inc. and Ampad
Corporation.(1)
10.6 Advisory Agreement, dated as of October 31, 1995, among
American Pad & Paper Company of Delaware, Inc. and Bain
Capital, Inc.(1)
10.7 Ampad Holding Corporation 1992 Key Employees Stock Option
Plan.(1)
10.8 Amended and Restated Management Agreement between the Company
and Charles G. Hanson.(1)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
10.9 Amended and Restated Management Agreement between the Company
and Russell M. Gard.(1)
10.10 Amended and Restated Management Agreement between the Company
and Gregory M. Benson.(1)
10.11 Preferred Stock Redemption Agreement between the Company and
the stockholders named therein.(1)
10.12 Asset Purchase Agreement, dated as of June 29, 1994, by and
between Huxley Envelope Corp., The Kent Paper Co., Inc. and
Williamhouse of California, Inc.(2)+
10.13 Lease Agreement for City of Industry, California.(1)
10.14 Lease Agreement for Dubuque, Iowa.(1)
10.15 Lease Agreement for Miamisburg, Ohio.(1)
10.16 Lease Agreement for North Salt Lake City, Utah.(1)
10.17 Lease Agreement for Tacoma, Washington.(1)
10.18 Change of Control Agreement between WR Acquisition, Inc. and
certain officers of American Pad & Paper Company of Delaware,
Inc.(1)
10.19 Registration Rights Agreement, dated as of July 31, 1992,
between the Company and the stockholders named therein. (2)
10.20* Form of 1996 Key Employee Stock Incentive Plan.
10.21* Form of Non-Employee Director Stock Option Plan.
10.22* Employment Agreement between the Company and Charles Hanson,
III.
10.23* Employment Agreement between the Company and Russel Gard.
10.24* Amended and Restated Advisory Agreement between APPC and Bain
Capital, Inc.
10.25* Form of Management Stock Purchase Plan.
21.1 Subsidiaries of the Company. (2)
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
23.4 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (included in signature page). (2)
27.1 Financial Data Schedule.
</TABLE>
- --------

+ The Company agrees to furnish supplementally to the Commission a copy of
any omitted schedule or exhibit to such agreement upon request by
Commission.
(1) Incorporated by reference to the same-numbered exhibit to the Registration
Statement on Form S-1 of American Pad & Paper of Delaware, Inc. (File No.
333-3006).
(2) Previously Filed.

<PAGE>

June __, 1996

Morgan Stanley & Co.
Incorporated
Alex. Brown & Sons Incorporated
BT Securities Corporation
CS First Boston Corporation
Goldman, Sachs & Co.
Salomon Brothers Inc
Wasserstein Perella Securities, Inc.
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036

Morgan Stanley & Co.
International Limited
Alex. Brown & Sons Incorporated
Bankers Trust International PLC
CS First Boston Limited
Goldman Sachs International
Salomon Brothers International Limited
Wasserstein Perella Securities, Inc.
c/o Morgan Stanley & Co.
International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England

Dear Sirs:

American Pad & Paper Company, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below), and
certain shareholders of the Company (the "Selling Shareholders") named in
Schedule I hereto severally propose to sell to the several Underwriters (as
defined below), an aggregate of 15,625,000 shares (the "Firm Shares") of the
Common Stock of the Company, $.01 par value (the "Common Stock"), of which
12,500,000 shares are to be issued and sold by the Company and 3,125,000 shares
are to be sold by the Selling Shareholders, each Selling Shareholder selling the
amount set forth opposite such Selling Shareholder's name in Schedule I hereto.
<PAGE>

It is understood that, subject to the conditions hereinafter stated,
12,500,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule II hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 3,125,000 Firm Shares (the "International Shares") will be sold to the
several International Underwriters named in Schedule III hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Alex.
Brown & Sons Incorporated, BT Securities Corporation, CS First Boston
Corporation, Goldman, Sachs & Co., Salomon Brothers Inc and Wasserstein, Perella
Securities, Inc., shall act as representatives (the "U.S. Representatives") of
the several U.S. Underwriters, and Morgan Stanley & Co. International Limited,
Bear, Alex. Brown & Sons Incorporated, Bankers Trust International PLC, CS First
Boston Limited, Goldman Sachs International, Salomon Brothers International
Limited and Wasserstein Perella Securities, Inc. shall act as representatives
(the "International Representatives") of the several International Underwriters.
The U.S. Underwriters and the International Underwriters are hereinafter
collectively referred to as the Underwriters.

The Selling Shareholders also severally propose to sell to the several
U.S. Underwriters, not more than an aggregate of 2,343,750 additional shares of
the Common Stock (the "Additional Shares"), each Selling Shareholder selling up
to the amount set forth opposite such Selling Shareholder's name in Part B of
Schedule I hereto, if and to the extent that the U.S. Representatives shall have
determined to exercise, on behalf of the U.S. Underwriters, the right to
purchase such shares of common stock granted to the U.S. Underwriters in Section
3 hereof. The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares". The Company and the Selling
Shareholders are hereinafter sometimes collectively referred to as the
"Sellers".

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and

2
<PAGE>

sale of Shares in the United States and Canada to United States and Canadian
Persons, and the international prospectus, to be used in connection with the
offering and sale of Shares outside the United States and Canada to persons
other than United States and Canadian Persons. The international prospectus is
identical to the U.S. prospectus except for the outside front cover page. The
registration statement as amended at the time it becomes effective, including
the information (if any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as
amended (the "Securities Act"), is hereinafter referred to as the Registration
Statement; the U.S. prospectus and the international prospectus in the
respective forms first used to confirm sales of Shares are hereinafter
collectively referred to as the Prospectus. If the Company has filed an
abbreviated registration statement to register additional shares of Common Stock
pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462 Registration Statement.

1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
---------------------------------------------
warrants to and agrees with each of the Underwriters and each of the Selling
Shareholders that:

(a) The Registration Statement has become effective under the
Securities Act; to the best of the Company's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.

(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations

3
<PAGE>

and warranties set forth in this paragraph 1(b) do not apply to statements
or omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.

(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the state of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole.

(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.

(e) This Agreement has been duly authorized, executed and delivered
by the Company.

(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.

(g) The shares of Common Stock (including the Shares to be sold by
the Selling Shareholders) outstanding prior to the issuance of the Shares
to be sold by the Company have been duly authorized and are validly issued,
fully paid and non-assessable.

(h) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the

4
<PAGE>

issuance of such Shares will not be subject to any preemptive or similar
rights.

(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or By-
laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.

(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).

(k) There are no legal or governmental proceedings pending or, to the
best of the Company's knowledge, threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.

(l) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for; and neither the Company nor
any such subsidiary has any reason to

5
<PAGE>

believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, except as described in or contemplated by
the Prospectus.

(m) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local
or foreign regulatory authorities necessary to conduct their respective
businesses as described in the Prospectus, except where failure to possess
such certificates, authorizations or permits would not, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the
revocation or any other modification of any such certificate, authorization
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole, except as described in or contemplated by the Prospectus.

(n) Except as described in or contemplated by the Prospectus, the
Company and its subsidiaries own, possess, have an enforceable right to use
or can acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade
names currently employed by them in connection with the business now
operated by them, and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole.

6
<PAGE>

(o) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder except that the preliminary
prospectus filed as part of the Registration Statement filed with the
Commission on April 25, 1996 did not contain the proposed offering range or
information relating to dilution.

(p) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.

(q) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.

(r) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or
in the aggregate, have a material adverse

7
<PAGE>

effect on the Company and its subsidiaries, taken as a whole.

(s) There are no contracts, agreements or understandings between the
Company and any person granting such person the right (i) to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company, except as disclosed in the
Registration Statement or (ii) to require the Company to include securities
in the securities registered pursuant to the Registration Statement, except
any such right that has been effectively waived or satisfied by the
inclusion of securities therein.

(t) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.

[(u) The Company has complied with all applicable law in connection
with the sale of Shares to certain of its employees outside of the United
States as part of the Company's Directed Share Program.]

2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each of the
----------------------------------------------------------
Selling Shareholders represents and warrants to and agrees with each of the
Underwriters that:

(a) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Shareholder.

(b) The execution and delivery by such Selling Shareholder of, and
the performance by such Selling Shareholder of its obligations under, this
Agreement, the Power of Attorney and Custody Agreement signed by the
Selling Shareholders named in Part C of Schedule I hereto and The Bank of
Boston as Custodian, relating to the deposit of the Shares to be sold by
such Selling Shareholder and appointing certain individuals as such Selling
Shareholder's attorneys-in-fact to the extent set forth therein, relating
to the transactions contemplated hereby and by the Registration Statement
(the "Power of Attorney and Custody Agreement") will not contravene any
provision of applicable law, or the certificate of incorporation or by-laws
of such Selling Shareholder (if such Selling Shareholder is a corporation),
the partnership agreement of such Selling Shareholder (if such Selling
Shareholder is a

8
<PAGE>

partnership) or any agreement or other instrument binding upon such Selling
Shareholder or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over such Selling Shareholder, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by such Selling
Shareholder of its obligations under this Agreement or the Power of
Attorney and Custody Agreement of such Selling Shareholder, except such as
may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.

(c) Such Selling Shareholder has, and on the Closing Date will have,
valid title to the Shares to be sold by such Selling Shareholder and the
legal right and power, and all authorization and approval required by law,
to enter into this Agreement and the Power of Attorney and Custody
Agreement and to sell, transfer and deliver the Shares to be sold by such
Selling Shareholder.

(d) The Power of Attorney and Custody Agreement have been duly
authorized, executed and delivered by each Selling Shareholder named in
Part C of Schedule I hereto and is a valid and binding agreement of such
Selling Shareholder.

(e) Delivery of the Shares to be sold by such Selling Shareholder
pursuant to this Agreement will pass title to such Shares free and clear of
any security interests, claims, liens, equities and other encumbrances.

(f) The information which relates specifically to such Selling
Shareholder, as set forth under the caption "Principal and Selling
Stockholders" (including the notes thereto), does not contain and, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.

3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and not jointly,
-------------------------------
hereby agrees to sell to the several Underwriters, and each Underwriter, upon
the basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agrees, severally and not jointly, to
purchase from such Seller at $______ a share

9
<PAGE>

(the "Purchase Price") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the number of Firm Shares to be sold by such Seller as the number of Firm
Shares set forth in Schedule II hereto opposite the name of such Underwriter
bears to the total number of Firm Shares.

On the basis of the representations and warranties contained in this Agreement,
and subject to its terms and conditions, the Selling Shareholders named in Part
B of Schedule I hereto agree to sell to the U.S. Underwriters, and the U.S.
Underwriters shall have a one-time right to purchase, severally and not jointly,
up to 2,343,750 Additional Shares at the Purchase Price. If you, on behalf of
the U.S. Underwriters, elect to exercise such option, you shall so notify the
Selling Shareholders named in Part B of Schedule I hereto in writing not later
than 30 days after the date of this Agreement, which notice shall specify the
number of Additional Shares to be purchased by the U.S. Underwriters and the
date on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Selling Shareholder named in Part B
of Schedule I hereto agrees, severally and not jointly, to sell the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) that bears the same proportion to the maximum number of
Additional Shares to be sold by such Selling Shareholder as the total number of
Additional Shares to be purchased bears to 2,343,750, and each U.S. Underwriter
agrees, severally and not jointly, to purchase from each Selling Shareholder
named in Part B of Schedule I hereto the number of Additional Shares (subject to
such adjustments to eliminate fractional shares as you may determine) that bears
the same proportion to the total number of Additional Shares to be sold by such
Selling Shareholder as the number of U.S. Firm Shares set forth in Schedule II
hereto opposite the name of such U.S. Underwriter bears to the total number of
U.S. Firm Shares. The Additional Shares to be purchased by the U.S.
Underwriters hereunder and the U.S. Firm Shares are hereinafter collectively
referred to as the U.S. Shares.

Each Seller hereby agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 180 days after the date of the Prospectus, (i) offer, pledge,

10
<PAGE>

sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (whether such shares or any such securities are now owned by such
Seller or are hereafter acquired) or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (A) the sale by the Sellers of the Shares under this
Agreement, (B) the issuance by the Company of shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof of which the Underwriters have been advised in writing, (C)
shares of Common Stock that are transferred by a Seller in a bona fide
charitable donation or in any estate planning disposition provided that the
transferee in any such transaction agrees to be bound by the terms of this
Agreement, or (D) shares of Common Stock that are transferred due to the death
or disability of a Seller provided that such transferee agrees to be bound by
the terms of this Agreement. In addition, each Selling Shareholder agrees that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not make any demand for, or exercise any right with
respect to, the registration of any shares of Common Stock or any security
convertible into or exercisable or exchangeable for Common Stock to the extent
that doing so would cause a registration statement relating thereto to be filed
with the Commission during the period ending 180 days after the date of the
Prospectus.

4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that the
------------------------
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
$______ a share (the "Public Offering Price") and to certain dealers selected by
you at a price that represents a concession not in excess of $______ a share
under the Public Offering Price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of $______ a share, to any
Underwriter or to certain other dealers.

11
<PAGE>

Each U.S. Underwriter hereby makes to and with each Seller the representations
and agreements of such U.S. Underwriter contained in the fifth and sixth
paragraphs of Article III of the Agreement Between U.S. and International
Underwriters of even date herewith. Each International Underwriter hereby makes
to and with each Seller the representations and agreements of such International
Underwriter contained in the seventh, eighth, ninth and tenth paragraphs of
Article III of such Agreement.

5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by certain of
--------------------
the Selling Shareholders (as denoted on Part A of Schedule I hereto) shall be
made by certified or official bank check or checks payable to the order of such
Selling Shareholders in New York Clearing House funds at the office of Davis
Polk & Wardwell, 450 Lexington Avenue, New York, New York at 10:00 A.M., New
York City time, on __________ __, 1996/*/, or at such other time on the same or
such other date, not later than __________ __, 1996,/**/ as shall be designated
in writing by you. The time and date of such payment are hereinafter referred
to as the "Closing Date."

Payment for the Firm Shares to be sold by the Company and by the Selling
Shareholders not included in the first paragraph of this Section 5 shall be made
to such Sellers in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters on the Closing Date. Payment for any Additional Shares to be sold
by the Selling Shareholders named in Part B of Schedule I hereto shall be made
to the Selling Shareholders in Federal or other funds immediately available in
New York City against delivery of such Additional Shares for the respective
accounts of the several Underwriters at 10:00 A.M., New York City local time, on
the date specified in the notice described in Section 3 or on such other date,
in any event not later than __________ __, 1996,/***/ as shall be designated in
writing by

_________________________

/*/ Insert date 3 business days or, in the event the offering is priced
after 4:30 PM Eastern Time, 4 business days after the date of the Underwriting
Agreement.

/**/ Insert date 5 business days after the date inserted in accordance
with note 1 above.

/***/ Insert date 10 business days after the expiration of the greenshoe
option.

12
<PAGE>

you. The time and date of such payment are hereinafter referred to as the
"Option Closing Date."

Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor. Notwithstanding the foregoing,
if so specified by the Representatives, the shares may be represented by a
global certificate registered in the name of Cede & Company, as nominee of The
Depository Trust Company ("Cede").

6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the Sellers
-------------------------------------------
to sell the Shares to the Underwriters and the several obligations of the
Underwriters to purchase and pay for the Shares on the Closing Date are subject
to the condition that the Registration Statement shall have become effective not
later than 4:00 p.m. (New York time) on the date hereof.

The several obligations of the Underwriters are subject to the following further
conditions:

(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:

(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and

(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive

13
<PAGE>

of any amendments or supplements thereto subsequent to the date of
this Agreement) that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus.

(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in clause (a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.

(c) The Underwriters shall have received on the Closing Date an
opinion of Kirkland & Ellis, outside counsel for the Company, dated the
Closing Date, to the effect that:

(i) the Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of
Delaware and has the corporate power and authority required to carry
on its business as, to our knowledge, it is currently being conducted
and to own, lease and operate its properties as described in the
Prospectus;

(ii) each Significant Subsidiary (as such term is defined under
Rule 1-02 of Regulation S-X) of the Company is a validly existing
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority required to carry
on its business as, to our knowledge, it is currently being conducted
and to own, lease and operate its properties as described in the
Prospectus and is duly qualified to transact business and is in good
standing as a foreign corporation in each jurisdiction in which to our
knowledge, such corporation owns or leases real property used in
manufacturing and sales; each Significant Subsidiary is duly qualified
as a foreign corporation and in good standing in the jurisdictions set
forth on Schedule A hereto;
----------

14
<PAGE>

(iii) this Agreement has been duly authorized, executed and
delivered by the Company;

(iv) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Registration
Statement and the Prospectus;

(v) all of the outstanding shares of Common Stock prior to the
issuance of the Shares to be sold by the Company (including the Shares
to be sold by the Selling Shareholders) have been duly authorized and
validly issued and are fully paid and non-assessable;

(vi) the Shares to be issued and sold by the Company pursuant to
this Agreement have been duly authorized, and when issued and
delivered to the Underwriters against payment therefor as provided by
this Agreement, will be validly issued and will be fully paid and non-
assessable and, to our knowledge, the issuance of such Shares will not
be subject to any pre-emptive or similar rights;

(vii) the execution, delivery and performance of this Agreement by
the Company, compliance by the Company with all the provisions hereof
and the issuance and sale of the Shares to be sold by the Company to
the Underwriters hereby will not require any consent, approval,
authorization or other order of any federal court, regulatory body,
administrative agency or other federal governmental body, except such
as may be required under the Securities Act, the Securities Exchange
Act or 1934, as amended (the "Exchange Act"), other state securities
or Blue Sky laws or foreign securities laws (as to which we express no
opinion), and will not conflict with or constitute a breach of any of
the terms or provisions of, or constitute a default under, the
Restated Certificate of Incorporation or By-laws of the Company or the
agreements or forms of agreements set forth as Exhibits 2.1, 4.1
through 4.10, 10.2 through 10.25 to the Registration Statement, or
violate or conflict with any federal laws, administrative regulations
or rulings or court decrees applicable to the Company or its property
(other than federal securities laws); provided, that the foregoing
--------
opinion covers only such consents, approvals, authorizations, orders,
laws, administrative regulations and rulings that we

15
<PAGE>

reasonably recognize in the exercise of our customary professional
diligence to be directly applicable to the transactions contemplated
by this Agreement;

(viii) the statements under the captions "The Recapitalization,"
"Management -- Management Agreements," "-- Stock Options," "Certain
Relationships and Related Transactions," "Description of Certain
Indebtedness," "Shares Eligible For Future Sale - Registration
Agreement" and "Certain Material Federal Income Tax Consequences to
Non-United States Holders" in the Prospectus and in Items 14 of Part
II of the Registration Statement, insofar as such statements
constitute a summary of legal matters, documents or proceedings
referred to therein, fairly present, in all material respects, the
information called for with respect to such legal matters, documents
and proceedings;

(ix) such counsel does not have knowledge of any legal or
governmental proceedings which is pending or overtly threatened
against the Company or any of its subsidiaries which is required to be
described in the Registration Statement or the Prospectus and is not
so described, or any agreement, contract or other document which is
required to be described in the Registration Statement or the
Prospectus and is not so described, or any agreement, contract or
other document which is required to be filed as an exhibit to the
Registration Statement and is not so filed;

(x) the Company is not and, after giving effect to the offering
and sale of the shares and the application of the proceeds thereof as
described in the Prospectus, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;

[(xi) the Company and its subsidiaries (A) are in compliance with
any and all applicable Environmental Laws, (B) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (C) are
in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with
Environmental Laws, failure to

16
<PAGE>

receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or
approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole;]
and

(xii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and the
notes thereto and the supporting schedules and other financial and
statistical data included therein as to which such counsel need not
express any opinion), as to the effective date of the Registration
Statement, appeared on their face to be appropriately responsive in
all material respects with the Securities Act and the applicable rules
and regulations of the Commission thereunder, (B) has no reason to
believe at the time the Registration Statement became effective or on
the date of this Agreement that (except for financial statements and
notes thereto and the supporting schedules and other financial and
statistical data as to which such counsel need not express any belief)
the Registration Statement and the prospectus included therein
contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and (C) has no reason to believe
that (except for financial statements and notes thereto and the
supporting schedules and other financial and statistical data as to
which such counsel need not express any belief) the Prospectus
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.

(d) The Underwriters shall have received on the Closing Date an
opinion of Kirkland & Ellis, counsel for the Selling Shareholders, dated
the Closing Date, to the effect that:

(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Shareholders;

(ii) the execution and delivery by each Selling Shareholder of,
and the performance by

17
<PAGE>

such Selling Shareholder of its obligations under, this Agreement and
the Power of Attorney and Custody Agreement of such Selling
Shareholder will not contravene any provision of applicable law, or
the certificates of incorporation or by-laws of such Selling
Shareholder (if such Selling Shareholder is a corporation), or the
partnership agreement of such Selling Shareholder (if such Selling
Shareholder is a partnership) or, to the best of such counsel's
knowledge, any agreement or other instrument binding upon such Selling
Shareholder or, to the best of such counsel's knowledge, any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over such Selling Shareholder, and no consent, approval,
authorization or order of, or qualification with, any governmental
body or agency is required for the performance by such Selling
Shareholder of its obligations under this Agreement or the Power of
Attorney and Custody Agreement of such Selling Shareholder, except
such as may be required by the securities or Blue Sky laws of the
various states in connection with offer and sale of the Shares;

(iii) each of the Selling Shareholders has valid title to the
Shares to be sold by such Selling Shareholder and has the legal right
and power, and all authorization and approval required by law, to
enter into this Agreement and the Power of Attorney and Custody
Agreement of such Selling Shareholder and to sell, transfer and
deliver the Shares to be sold by such Selling Shareholder;

(iv) the Power of Attorney and Custody Agreement of each Selling
Shareholder has been duly authorized, executed and delivered by such
Selling Shareholder and is a valid and binding agreement of such
Selling Shareholder; and

(v) delivery of the Shares to be sold by each Selling
Shareholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances.

(e) The Underwriters shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in subparagraphs (iii),
(vi), (viii) (but only as to the statements in

18
<PAGE>

the Prospectus under "Underwriters") and (xii) of paragraph (c) above.

With respect to subparagraph (xii) of paragraph (c) above, Kirkland &
Ellis and Davis Polk & Wardwell may state that their opinion and belief are
based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but are without independent
check or verification, except as specified. With respect to paragraph (d)
above, Kirkland & Ellis may rely, to the extent such counsel deems
appropriate, as to matters of fact upon the representations of each Selling
Shareholder contained herein and in the Custody Agreement and Power of
Attorney of such Selling Shareholder and in other documents and
instruments; provided that copies of such Custody Agreements and Powers of
--------
Attorney and of any such other documents and instruments shall be delivered
to you and shall be in form and substance satisfactory to your counsel.

The opinions of Kirkland & Ellis described in paragraph (c) and the
opinions of Kirkland & Ellis described in paragraph (d) above shall be
rendered to the Underwriters at the request of the Company or one or more
of the Selling Shareholders, as the case may be, and shall so state
therein.

(f) The Underwriters shall have received, on each of the date hereof
and the Closing Date, letters dated the date hereof or the Closing Date, as
the case may be, in form and substance satisfactory to the Underwriters,
from each of Price Waterhouse LLP, Ernst & Young LLP and KPMG Peat Marwick
LLP, independent public accountants, containing statements and information
of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letters delivered on the Closing Date shall use a "cut-
--------
off date" not earlier than the date hereof.

(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date

19
<PAGE>

hereof, shall be in full force and effect on the Closing Date.

(h) The Shares shall have been approved for inclusion on the New York
Stock Exchange, subject to official notice of issuance.

The several obligations of the U.S. Underwriters to purchase Additional Shares
hereunder are subject to the delivery to the U.S. Representatives on the Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company and the due authorization and issuance of the
Additional Shares.

7. COVENANTS OF THE COMPANY. In further consideration of the agreements of the
------------------------
Underwriters herein contained, the Company covenants with each Underwriter as
follows:

(a) To furnish to you, without charge, fifteen signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
paragraph (c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.

(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to use its best efforts to file with the
Commission within the applicable period specified in Rule 424(b) under the
Securities Act any prospectus required to be filed pursuant to such Rule.

(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the reasonable

20
<PAGE>

opinion of counsel for the Underwriters after consultation with counsel to
the Company, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission
and furnish, at its own expense, to the Underwriters and to the dealers
(whose names and addresses you will furnish to the Company) to which Shares
may have been sold by you on behalf of the Underwriters and to any other
dealers upon request, either amendments or supplements to the Prospectus so
that the statements in the Prospectus as so amended or supplemented will
not, in the light of the circumstances when the Prospectus is delivered to
a purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with applicable law.

(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request; provided that in connection therewith the Company shall not be
--------
required to qualify as a foreign corporation or to file a general consent
to service of process in any jurisdiction.

(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending _______________/*/ that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.

8. Expenses. Whether or not the transactions contemplated in this
--------
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the

_______________________

/*/ Insert date one year after the end of the Company's fiscal quarter
in which the closing will occur.

21
<PAGE>

quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state and foreign securities laws and all expenses in connection
with the qualification of the Shares for offer and sale under state and foreign
securities laws as provided in Section 7(d) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or Legal
Investment memorandum; provided that in no event shall the Company be
--------
responsible for any amounts over $20,000, (iv) all filing fees incurred in
connection with the review and qualification of the offering by the National
Association of Securities Dealers, Inc., including, without limitation, any
[fees and disbursements of counsel acting on behalf] of Morgan Stanley & Co.
Incorporated in its capacity as a "qualified independent underwriter," (v) all
fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all costs
and expenses incident to listing the Shares on the New York Stock Exchange, (vi)
the cost of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Shares,
including, without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expense of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show and (ix) all other costs and expenses incident to
the performance of the obligations of the Company hereunder for which provision
is not otherwise made in this Section. It is understood, however, that except
as provided in this Section, Section 9 entitled "Indemnity and Contribution",
and the last paragraph of Section 11 below, the Underwriters will pay all of
their costs and expenses, including fees and disbursements of their counsel,
stock transfer taxes payable on resale of any of the Shares by them, and any
advertising expenses connected with any offers they may make.

The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers may

22
<PAGE>

otherwise have for the allocation of such expenses among themselves.

9. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify and hold
--------------------------
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein and as described in
Section 1(b) hereof; provided, however, that the foregoing indemnity agreement
-------- -------
with respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting such losses, claims, damages or
liabilities purchased Shares, or any person controlling such Underwriter, if it
is established that a copy of the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if required by
law so to have been delivered, at or prior to the written confirmation of the
sale of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities.

The Company also agrees to indemnify and hold harmless Morgan Stanley
& Co. Incorporated ("Morgan Stanley") and each person, if any, who controls
Morgan Stanley within the meaning of either Section 15 of the Act, or Section 20
of the Exchange Act, from and against any and all losses, claims, damages,
liabilities and judgments incurred as a result of Morgan Stanley's participation
as a "qualified independent underwriter" within the meaning of Section 1 of
Article III of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. in

23
<PAGE>

connection with the offering of the Shares, except for any losses, claims,
damages, liabilities and judgments resulting from Morgan Stanley's, or such
controlling person's, willful misconduct.

(b) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, each Underwriter and each person, if any, who
controls the Company or any Underwriter within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to information
relating specifically to such Selling Shareholder, as set forth under the
caption "Principal and Selling Stockholders" (including the notes thereto);
provided, however, that the foregoing indemnity agreement with respect to any
- -------- -------
preliminary prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if it is established that a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such losses, claims, damages or
liabilities; provided, further, that with respect to any amount due an
-------- -------
indemnified person under this paragraph (b), each Selling Shareholder shall be
liable only to the extent of the net proceeds received by such Selling
Shareholder from the sale of such Selling Shareholder's Shares.

(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Selling Shareholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any

24
<PAGE>

Selling Shareholder within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.

(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to paragraph (a), (b) or (c) of this Section 9, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (b) the fees and expenses of

25
<PAGE>

more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(c) the fees and expenses of more than one separate firm (in addition to any
local counsel) for all Selling Shareholders and all persons, if any, who control
any Selling Shareholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of
Underwriters, such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. In the case of any such separate firm for
the Selling Shareholders and such controlling persons of Selling Shareholders,
such firm shall be designated in writing by the persons named as attorneys-in-
fact for the Selling Shareholders under the Powers of Attorney. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.

Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to paragraph (a) or (b) of this Section 9 in
respect of such action or

26
<PAGE>

proceeding, then in addition to such separate firm for the indemnified parties
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for Morgan
Stanley in its capacity as a "qualified independent underwriter" and all
persons, if any, who control Morgan Stanley within the meaning of either Section
15 of the Act or Section 20 of the Exchange Act.

(e) To the extent the indemnification provided for in paragraph (a), (b)
or (c) of this Section 9 is unavailable to an indemnified party or insufficient
in respect of any losses, claims, damages or liabilities referred to therein,
then each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by each Seller and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate Public Offering
Price of the Shares. The relative fault of the Sellers on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Sellers or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 9 are several in proportion to the respective number of
Shares they have purchased hereunder, and not joint. In no event shall the
liability of a Selling

27
<PAGE>

Shareholder under this Section 9(e) exceed the amount that such Selling
Shareholder would have been required to pay under Section 9(b) had such
indemnification been held to be available thereunder.

(f) The Sellers and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 9 were determined by pro rata
--- ----
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in paragraph (e) of this Section 9. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 9 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.

(g) The indemnity and contribution provisions contained in this Section 9
and the representations, warranties and other statements of the Company and the
Selling Shareholders contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, any Selling Shareholder or any person controlling
any Selling Shareholder, or the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Shares.

10. TERMINATION. This Agreement shall be subject to termination by notice
-----------
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been

28
<PAGE>

suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.

11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become
--------------------------------------
effective upon the execution and delivery hereof by the parties hereto.

If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedules II and III bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
--------
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 11 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you, the Company and
the Selling Shareholders for the purchase of such Firm Shares are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of

29
<PAGE>

any non-defaulting Underwriter, the Company or the Selling Shareholders. In any
such case either you or the relevant Sellers shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. If, on the Option
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.

If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of any Seller to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.

12. COUNTERPARTS. This Agreement may be signed in two or more counterparts,
------------
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.

13. APPLICABLE LAW. This Agreement shall be governed by and construed in
--------------
accordance with the internal laws of the State of New York.

14. HEADINGS. The headings of the sections of this Agreement have been
--------
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.

30
<PAGE>

Very truly yours,

AMERICAN PAD & PAPER COMPANY

By______________________________
Name:
Title:

The Selling Shareholders
named in Schedule I Part C hereto,
acting severally

By______________________________
Attorney-in-Fact

31
<PAGE>

Accepted, __________ __, 1996

MORGAN STANLEY & CO. INCORPORATED
ALEX. BROWN & SONS INCORPORATED
BT SECURITIES CORPORATION
CS FIRST BOSTON CORPORATION
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC.
WASSERSTEIN PERELLA SECURITIES, INC.

Acting severally on behalf
of themselves and the
several U.S. Underwriters named
in Schedule II hereto.

By MORGAN STANLEY & CO.
INCORPORATED

By_____________________________
Name:
Title:

32
<PAGE>

MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
ALEX. BROWN & SONS INCORPORATED
BANKERS TRUST INTERNATIONAL PLC
CS FIRST BOSTON LIMITED
GOLDMAN SACHS INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
WASSERSTEIN PERELLA SECURITIES, INC.

Acting severally on behalf
of themselves and the
several International Underwriters
named in Schedule III hereto.

By MORGAN STANLEY & CO.
INTERNATIONAL LIMITED

By __________________________
Name:
Title:

<PAGE>

EXHIBIT 3.1(i)

Draft of June 21, 1996
----------------------

RESTATED CERTIFICATE OF INCORPORATION

AMERICAN PAD & PAPER COMPANY

ARTICLE I - Name
----------------

The name of the corporation is American Pad & Paper Company
(hereinafter referred to as the "Corporation").
-----------

ARTICLE II - Registered Office
------------------------------

The address of the registered office of the Corporation in the State
of Delaware is 32 Loockerman Square, Suite L-100, Dover, Delaware 19901. The
name of the registered agent of the Corporation at that address is The Prentice-
Hall Corporation System, Inc.

ARTICLE III - Purpose
---------------------

The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law").
--------------------------------

ARTICLE IV - Capital Stock
--------------------------

Part A. General. The maximum number of shares of capital stock that
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the Corporation is authorized to have outstanding at any one time is 75,150,000
shares, consisting of: (i) 150,000 shares of Preferred Stock, par value $0.01
per share (the "Preferred Stock"); and (ii) 75,000,000 shares of Common Stock,
---------------
par value $0.01 per share (the "Common Stock").
------------

Part B. Preferred Stock. Authority is hereby expressly vested in the
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Board of Directors of the Corporation, subject to the provisions of this ARTICLE
-------
IV and to the limitations prescribed by law, to authorize the issuance from time
- --
to time of one or more series of Preferred Stock. The authority of the Board of
Directors with respect to each series shall include, but not be limited to, the
determination or fixing of the following by resolution or resolutions adopted by
the affirmative vote of a majority of the total number of the Directors then in
office:

(1) The designation of such series;
<PAGE>

(2) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends shall
bear to the dividends payable on any other class or classes or series of the
Corporation's capital stock and whether such dividends shall be cumulative or
non-cumulative;

(3) Whether the shares of such series shall be subject to redemption
for cash, property or rights, including securities of any other corporation, by
the Corporation or upon the happening of a specified event and, if made subject
to any such redemption, the times or events, prices, rates, adjustments and
other terms and conditions of such redemptions;

(4) The terms and amount of any sinking fund provided for the purchase
or redemption of the shares of such series;

(5) Whether or not the shares of such series shall be convertible
into, or exchangeable for, at the option of either the holder or the Corporation
or upon the happening of a specified event, shares of any other class or classes
or of any other series of the same class of the Corporation's capital stock and,
if provision be made for conversion or exchange, the times or events, prices,
rates, adjustments and other terms and conditions of such conversions or
exchanges;

(6) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock;

(7) The rights of the holders of the shares of such series upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and

(8) The provisions as to voting, optional and/or other special rights
and preferences, if any, including, without limitation, the right to elect one
or more Directors.

Part C. Common Stock. Except as otherwise provided by the Delaware
------- ------------
General Corporation Law, by this Restated Certificate of Incorporation (the
"Restated Certificate") and subject to the rights of holders of any series of
- ---------------------
Preferred Stock, the holders of record of Common Stock shall share ratably in
all dividends payable in cash, stock or otherwise and other distributions,
whether in respect of liquidation or dissolution (voluntary or involuntary) or
otherwise and, are subject to all the powers, rights, privileges, preferences
and priorities of any series of Preferred Stock as provided herein or in any
resolution or resolutions adopted by the Board of Directors pursuant to
authority expressly vested in it by the provisions of Section B of this ARTICLE
-------
IV.
- --

(1) The Common Stock shall not be convertible into, or exchangeable
for, shares of any other class or classes or of any other series of the same of
the Corporation's capital stock.

(2) No holder of Common Stock shall have any preemptive, subscription,
redemption, conversion or sinking fund rights with respect to the Common Stock,
or to any obligations convertible (directly or indirectly) into stock of the
Corporation whether now or hereafter authorized.

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<PAGE>

(3) Except as otherwise provided by the Delaware General Corporation
Law, by the Restated Certificate and subject to the rights of holders of any
series of Preferred Stock, all of the voting power of the stockholders of the
Corporation shall be vested in the holders of the Common Stock, and each holder
of Common Stock shall have one vote for each share held by such holder on all
matters voted upon by the stockholders of the Corporation.

Part D. Recapitalization.
------- ----------------

(1) Stock Split. Immediately upon the filing of this Restated
-----------
Certificate with the Secretary of State of the State of Delaware (the "Effective
---------
Time"), each share of Common Stock outstanding at the Effective Time shall be,
- ----
without further action by the Corporation or the holder thereof, changed and
converted into a number of shares of Common Stock equal to that number
determined by multiplying each outstanding share of Common Stock by 8.11918983
(the "Stock Split Factor"). Each certificate then outstanding representing
------------------
shares of Common Stock shall automatically represent from and after the
Effective Time that number of shares of Common Stock equal to the number of
shares shown on the face of the certificate multiplied by the Stock Split Factor
(8.11918983).

(2) Conversion of Old Preferred Stock. At the Effective Time and
---------------------------------
immediately following the stock split as set forth above, each share of
Preferred Stock, par value $.01 per share, of the Corporation (the "Old
---
Preferred Stock"), outstanding immediately prior to the Effective Time shall be,
- ---------------
without further action by the Corporation or the holder thereof, reclassified
into that number of shares of Common Stock determined by dividing the per share
liquidation value of the Old Preferred Stock ($1,948.50) by the Public Offering
Price (the "Old Preferred Conversion Factor" and together with the Stock Split
-------------------------------
Factor, the "Conversion Factors"). Each certificate representing shares of Old
------------------
Preferred Stock shall automatically represent from and after the Effective Time
that number of shares of Common Stock equal to the number of shares shown on the
face of the certificate multiplied by the Old Preferred Conversion Factor. For
purpose of this Part D of this ARTICLE IV, "Public Offering Price" shall mean
---------- ---------------------
the initial public offering price per share of Common Stock set forth on the
cover page of the Company's Prospectus included in the Registration Statement on
Form S-1 (Registration No. 333-4000) relating to the initial public offering of
the Company's Common Stock and in the form first used to confirm sales of the
Common Stock, without deduction for any underwriting discounts or commissions or
any expenses incurred by the Corporation in connection with the initial public
offering.

(3) Fractional Shares. Notwithstanding the foregoing, in the event
-----------------
that the conversions or reclassifications of the Common Stock or Old Preferred
Stock described above would result in any holder of shares of Common Stock or
Old Preferred Stock holding a share of Common Stock that is not an integral
multiple of one, the effect of the conversion or reclassification shall be such
that the shares of Common Stock issued as a result of the conversion or
reclassification shall be the integral multiple of one closest to the product of
the applicable Conversion Factor and the number of shares of Common Stock or Old
Preferred Stock held by such holder, with fractions of 0.50 and greater being
rounded up to the next higher integral multiple of one and fractions less than
0.50 being rounded down to the next lower integral multiple of one. No
consideration will be paid in lieu of fractions that are rounded down.

-3-
<PAGE>

ARTICLE V - Existence
---------------------

The Corporation is to have perpetual existence.

ARTICLE VI - By-laws
--------------------

In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors of the Corporation is
expressly authorized to make, alter, amend, change, add to or repeal the By-laws
of the Corporation by the affirmative vote of a majority of the total number of
Directors then in office. Any alteration or repeal of the By-laws of the
Corporation by the stockholders of the Corporation shall require the affirmative
vote of at least a majority of the voting power of the then outstanding shares
of capital stock of the Corporation entitled to vote on such alteration or
repeal, subject to ARTICLE IX hereof and ARTICLE VII of the Corporation's By-
---------- -----------
laws.

ARTICLE VII - Stockholders and Directors
----------------------------------------

Part A. Stockholder Action. Election of Directors need not be by
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written ballot unless the By-laws of the Corporation so provide. Subject to any
rights of holders of any series of Preferred Stock, from and after the date on
which the Common Stock of the Corporation is registered pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (i) any action
------------
required or permitted to be taken by the stockholders of the Corporation must be
effected at an annual or special meeting of stockholders of the Corporation and
may not be effected in lieu thereof by any consent in writing by such
stockholders, (ii) special meetings of stockholders of the Corporation may be
called only by either the Board of Directors pursuant to a resolution adopted by
the affirmative vote of the majority of the total number of Directors then in
office or by the chief executive officer of the Corporation and (iii) advance
notice of stockholder nominations of persons for election to the Board of
Directors of the Corporation and of business to be brought before any annual
meeting of the stockholders by the stockholders of the Corporation shall be
given in the manner provided in the By-laws of the Corporation.

Part B. Number of Directors and Term of Office. Subject to any rights
------- --------------------------------------
of holders of any series of Preferred Stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors of the Corporation shall be fixed from time to time in the
manner set forth in the By-laws of the Corporation. The Directors of the
Corporation shall be divided into three classes: Class I, Class II and Class
III. Membership in such class shall be as nearly equal in number as possible.
The term of office of the initial Class I Directors shall expire at the annual
election of Directors by the stockholders of the Corporation in 1997, the term
of office of the initial Class II Directors shall expire at the annual election
of Directors by the stockholders of the Corporation in 1998 and the term of
office of the initial Class III Directors shall expire at the annual election of
Directors by the stockholders of the Corporation in 1999, or thereafter when
their respective successors in each case are elected by the stockholders and
qualified, subject however, to prior death, resignation, retirement,
disqualification or removal from office for cause. At each succeeding annual
election of Directors by the stockholders of the

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<PAGE>

Corporation beginning in 1997, the Directors chosen to succeed those whose terms
then expire shall be identified as being of the same class as the Directors they
succeed and shall be elected for a term expiring at the third succeeding annual
election of Directors by the stockholders of the Corporation, or thereafter when
their respective successors in each case are elected by the stockholders and
qualified. If the number of Directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of Directors
in each class as nearly equal as possible, and any additional Director of any
class elected to fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining term of that
class, but in no case shall a decrease in the number of Directors shorten the
term of any incumbent Director.

Part C. Removal and Resignation. No Director may be removed from
------- -----------------------
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of Directors voting
together as a single class; provided, however, that if the holders of any class
-------- -------
or series of capital stock are entitled by the provisions of this Restated
Certificate (it being understood that any references to this Restated
Certificate shall include any duly authorized certificate of designation) to
elect one or more Directors, such Director or Directors so elected may be
removed without cause only by the vote of the holders of a majority of the
outstanding shares of that class or series entitled to vote. Any Director may
resign at any time upon written notice to the Corporation.

Part D. Vacancies and Newly Created Directorships. Subject to any
------- -----------------------------------------
rights of holders of any series of Preferred Stock to fill such newly created
Directorships or vacancies, any newly created Directorships resulting from any
increase in the authorized number of Directors and any vacancies in the Board of
Directors resulting from death, resignation, disqualification or removal from
office for cause shall, unless otherwise provided by law or by resolution
approved by the affirmative vote of a majority of the total number of Directors
then in office, be filled only by resolution approved by the affirmative vote of
a majority of the total number of Directors then in office. Any Director so
chosen shall hold office until the next election of the class for which such
Director shall have been chosen, and until his successor shall have been duly
elected and qualified, unless he shall resign, die, become disqualified or be
removed for cause.

ARTICLE VIII - General Provisions
---------------------------------

Part A. Dividends. The Board of Directors shall have authority from
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time to time to set apart out of any assets of the Corporation otherwise
available for dividends a reserve or reserves as working capital or for any
other purpose or purposes, and to abolish or add to any such reserve or reserves
from time to time as said board may deem to be in the interest of the
Corporation; and said Board shall likewise have power to determine in its
discretion, except as herein otherwise provided, what part of the assets of the
Corporation available for dividends in excess of such reserve or reserves shall
be declared in dividends and paid to the stockholders of the Corporation.

Part B. Issuance of Stock. The shares of all classes of stock of the
------- -----------------
Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the Board of Directors of the
Corporation, provided that shares of stock

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<PAGE>

having a par value shall not be issued for a consideration less than such par
value, as determined by the Board. At any time, or from time to time, the
Corporation may grant rights or options to purchase from the Corporation any
shares of its stock of any class or classes to run for such period of time, for
such consideration, upon such terms and conditions, and in such form as the
Board of Directors may determine. The Board of Directors shall have authority,
as provided by law, to determine that only a part of the consideration which
shall be received by the Corporation for the shares of its stock which it shall
issue from time to time, shall be capital; provided, however, that, if all the
-------- -------
shares issued shall be shares having a par value, the amount of the part of such
consideration so determined to be capital shall be equal to the aggregate par
value of such shares. The excess, if any, at any time, of the total net assets
of the Corporation over the amount so determined to be capital, as aforesaid,
shall be surplus. All classes of stock of the Corporation shall be and remain
at all times nonassessable.

The Board of Directors is hereby expressly authorized, in its
discretion, in connection with the issuance of any obligations or stock of the
Corporation (but without intending hereby to limit its general power so to do in
other cases), to grant rights or options to purchase stock of the Corporation of
any class upon such terms and during such period as the Board of Directors shall
determine, and to cause such rights to be evidenced by such warrants or other
instruments as it may deem advisable.

Part C. Inspection of Books and Records. The Board of Directors
------- -------------------------------
shall have power from time to time to determine to what extent and at what times
and places and under what conditions and regulations the accounts and books of
the Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.

Part D. Location of Meetings, Books and Records. Except as otherwise
------- ---------------------------------------
provided in the By-laws, the stockholders of the Corporation and the Board of
Directors may hold their meetings and have an office or offices outside of the
State of Delaware and, subject to the provisions of the laws of said State, may
keep the books of the Corporation outside of said State at such places as may,
from time to time, be designated by the Board of Directors.

ARTICLE IX - Amendments
-----------------------

The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate in the manner now or
hereinafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding anything contained in this Restated Certificate to
the contrary, Parts A, B and C of ARTICLE IV, ARTICLE VII, ARTICLE X, and this
---------- ----------- ---------
ARTICLE IX of this Restated Certificate shall not be altered, amended or
- ----------
repealed and no provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of at least 66 2/3% of the voting power of the
then outstanding shares of capital stock of the Corporation entitled to vote on
such alteration, amendment or repeal, voting together as a single class (other
than any alteration or

-6-
<PAGE>

amendment to Part A of ARTICLE IV that increases the authorized number of shares
----------
of Preferred Stock or Common Stock).

ARTICLE X - Liability
---------------------

Part A. Limitation of Liability.
------- -----------------------

(1) To the fullest extent permitted by the Delaware General
Corporation Law as it now exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), and except as otherwise provided in the Corporation's By-laws, no
Director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages arising from a breach of fiduciary duty owed
to the Corporation or its stockholders.

(2) Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.

Part B. Right to Indemnification. Each person who was or is made a
------- ------------------------
party or is threatened to be made a party to or is otherwise involved (including
involvement as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of the
----------
fact that he or she is or was a Director or officer of the Corporation or, while
a Director or officer of the Corporation, is or was serving at the request of
the Corporation as a Director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (an "indemnitee"), whether the basis of
----------
such proceeding is alleged action in an official capacity as a Director or
officer or in any other capacity while serving as a Director or officer, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability and loss (including attorneys' fees, judgments, fines, excise exercise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; provided, however, that, except as provided in
Part C of this ARTICLE X with respect to proceedings to enforce rights to
---------
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Part B of this
ARTICLE X shall be a contract right and shall include the obligation of the
- ---------
Corporation to pay the expenses incurred in defending any such proceeding in
advance of its final disposition (an "advance of expenses"); provided, however,
-------------------
that, if and to the extent that the Delaware General Corporation Law requires,
an advance of expenses incurred by an indemnitee in his or her capacity as a
Director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation,

-7-
<PAGE>

service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (an "undertaking"), by or on behalf of such
-----------
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (a "final adjudication") that such indemnitee is not entitled to be
------------------
indemnified for such expenses under this Part B or otherwise. The Corporation
may, by action of its Board of Directors, provide indemnification to employees
and agents of the Corporation with the same or lesser scope and effect as the
foregoing indemnification of Directors and officers.

Part C. Procedure for Indemnification. Any indemnification of a
------- -----------------------------
Director or officer of the Corporation or advance of expenses under Part B of
this ARTICLE X shall be made promptly, and in any event within forty-five days
---------
(or, in the case of an advance of expenses, twenty days), upon the written
request of the Director or officer. If a determination by the Corporation that
the Director or officer is entitled to indemnification pursuant to this ARTICLE
-------
X is required, and the Corporation fails to respond within sixty days to a
- -
written request for indemnity, the Corporation shall be deemed to have approved
the request. If the Corporation denies a written request for indemnification or
advance of expenses, in whole or in part, or if payment in full pursuant to such
request is not made within forty-five days (or, in the case of an advance of
expenses, twenty days), the right to indemnification or advances as granted by
this ARTICLE X shall be enforceable by the Director or officer in any court of
---------
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of expenses where the undertaking required pursuant to
Part B of this ARTICLE X, if any, has been tendered to the Corporation) that the
---------
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct. The procedure for indemnification of other employees and agents for
whom indemnification is provided pursuant to Part B of this ARTICLE X shall be
---------
the same procedure set forth in this Part C for Directors or officers, unless
otherwise set forth in the action of the Board of Directors providing
indemnification for such employee or agent.

Part D. Insurance. The Corporation may purchase and maintain
------- ---------
insurance on its own behalf and on behalf of any person who is or was a
Director, officer, employee or agent of the Corporation or was serving at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss asserted against him or her and incurred by him or
her in any such capacity, whether or not the Corporation would have the power to
indemnify such person against such expenses, liability or loss under the
Delaware General Corporation Law.

-8-
<PAGE>

Part E. Service for Subsidiaries. Any person serving as a
------- ------------------------
Director, officer, employee or agent of another corporation, partnership,
limited liability company, joint venture or other enterprise, at least 50% of
whose equity interests are owned by the Corporation (a "subsidiary" for this
----------
ARTICLE X) shall be conclusively presumed to be serving in such capacity at the
- ---------
request of the Corporation.

Part F. Reliance. Persons who after the date of the adoption of
------- --------
this provision become or remain Directors or officers of the Corporation or who,
while a Director or officer of the Corporation, become or remain a Director,
officer, employee or agent of a subsidiary, shall be conclusively presumed to
have relied on the rights to indemnity, advance of expenses and other rights
contained in this ARTICLE X in entering into or continuing such service. The
---------
rights to indemnification and to the advance of expenses conferred in this

ARTICLE X shall apply to claims made against an indemnitee arising out of acts
- ---------
or omissions which occurred or occur both prior and subsequent to the adoption
hereof.

Part G. Non-Exclusivity of Rights. The rights to indemnification and
------- -------------------------
to the advance of expenses conferred in this ARTICLE X shall not be exclusive of
---------
any other right which any person may have or hereafter acquire under this
Restated Certificate or under any statute, by-law, agreement, vote of
stockholders or disinterested Directors or otherwise.

Part H. Merger or Consolidation. For purposes of this ARTICLE X,
------- ----------------------- ---------
references to the "Corporation" shall include, in addition to the resulting
Corporation, any constituent Corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
Directors, officers and employees or agents, so that any person who is or was a
Director, officer, employee or agent of such constituent Corporation, or is or
was serving at the request of such constituent Corporation as a Director,
officer, employee or agent of another Corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this ARTICLE X
---------
with respect to the resulting or surviving Corporation as he or she would have
with respect to such constituent Corporation if its separate existence had
continued.

ARTICLE XI - Business Combinations
----------------------------------

The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law.

* * * * *

-9-

<PAGE>

EXHIBIT 3.1(ii)

Draft of June 21, 1996
----------------------

AMENDED AND RESTATED BY-LAWS

AMERICAN PAD & PAPER COMPANY

A Delaware Corporation

ARTICLE I
---------

OFFICES
-------

Section 1. Registered Office. The registered office of the Corporation in
---------- -----------------
the State of Delaware shall be located at 32 Loockerman Square, Suite L-100, in
the City of Dover, County of Kent 19001. The name of the Corporation's
registered agent at such address shall be The Prentice-Hall Corporation System,
Inc. The registered office and/or registered agent of the Corporation may be
changed from time to time by action of the Board of Directors.

Section 2. Other Offices. The Corporation may also have offices at such
---------- -------------
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.

ARTICLE II
----------

MEETINGS OF STOCKHOLDERS
------------------------

Section 1. Annual Meeting. An annual meeting of the stockholders shall
---------- --------------
be held each year within 120 days after the close of the immediately preceding
fiscal year of the Corporation or at such other time specified by the Board of
Directors for the purpose of electing Directors and conducting such other proper
business as may come before the meeting. At the annual meeting, stockholders
shall elect Directors and transact such other business as properly may be
brought before the meeting pursuant to ARTICLE II, Section 11 hereof.
----------

Section 2. Special Meetings. Special Meetings of the stockholders may
---------- ----------------
only be called in the manner provided in the Restated Certificate of
Incorporation.

Section 3. Place of Meetings. The Board of Directors may designate any
---------- -----------------
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting. If no designation is made,
or if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the Corporation. If for any reason any annual
meeting shall not be held during any year, the business thereof may be
transacted at any special meeting of the stockholders.
<PAGE>

Section 4. Notice. Whenever stockholders are required or permitted to
---------- ------
take action at a meeting, written or printed notice stating the place, date,
time and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the Board of Directors, the chairman of the board, the president or the
secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.

Section 5. Stockholders List. The officer having charge of the stock
---------- -----------------
ledger of the Corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

Section 6. Quorum. The holders of a majority of the outstanding shares of
---------- ------
capital stock entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders, except as otherwise
provided by the General Corporation Law of the State of Delaware or by the
Restated Certificate of Incorporation. If a quorum is not present, the holders
of a majority of the shares present in person or represented by proxy at the
meeting, and entitled to vote at the meeting, may adjourn the meeting to another
time and/or place. When a specified item of business requires a vote by a class
or series (if the Corporation shall then have outstanding shares of more than
one class or series) voting as a class, the holders of a majority of the shares
of such class or series shall constitute a quorum (as to such class or series)
for the transaction of such item of business.

Section 7. Adjourned Meetings. When a meeting is adjourned to another
---------- ------------------
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

Section 8. Vote Required. When a quorum is present, the affirmative vote
---------- -------------
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or

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<PAGE>

of the Restated Certificate of Incorporation a different vote is required, in
which case such express provision shall govern and control the decision of such
question, or (ii) the subject matter is the election of Directors, in which case
Section 2 of ARTICLE III hereof shall govern and control the approval of such
-----------
subject matter.

Section 9. Voting Rights. Except as otherwise provided by the General
---------- -------------
Corporation Law of the State of Delaware, by the Restated Certificate of
Incorporation of the Corporation or any amendments thereto or these By-laws,
every stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of common stock held by such
stockholder.

Section 10. Proxies. Each stockholder entitled to vote at a meeting of
----------- -------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the
stockholders, and before any voting commences, all proxies filed at or before
the meeting shall be submitted to and examined by the secretary or a person
designated by the secretary, and no shares may be represented or voted under a
proxy that has been found to be invalid or irregular.

Section 11. Business Brought Before an Annual Meeting. At an annual
----------- -----------------------------------------
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
brought before the meeting by or at the direction of the Board of Directors or
(iii) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
-------- -------
that in the event that less than 70 days' notice or prior public announcement of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the annual meeting was mailed or such public announcement was made. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting, (ii) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder and (iv) any material

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<PAGE>

interest of the stockholder in such business. Notwithstanding anything in these
By-laws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this section. The
presiding officer of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this section; if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. For purposes of this
section, "public announcement" shall mean disclosure in a press release reported
by Dow Jones News Service, Associated Press or a comparable national news
service. Nothing in this section shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").

ARTICLE III
-----------

Directors
---------

Section 1. General Powers. The business and affairs of the Corporation
---------- --------------
shall be managed by or under the direction of the Board of Directors. In
addition to such powers as are herein and in the Restated Certificate of
Incorporation expressly conferred upon it, the Board of Directors shall have
and may exercise all the powers of the Corporation, subject to the provisions of
the laws of Delaware, the Restated Certificate of Incorporation and these By-
laws.

Section 2. Number, Election and Term of Office. Subject to any rights of
---------- -----------------------------------
the holders of any series of Preferred Stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors shall be fixed from time to time by resolution adopted by the
affirmative vote of a majority of the total number of Directors then in office.
The Directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote in the
election of Directors; provided that, whenever the holders of any class or
series of capital stock of the Corporation are entitled to elect one or more
Directors pursuant to the provisions of the Restated Certificate of
Incorporation of the Corporation (including, but not limited to, for purposes of
these By-laws, pursuant to any duly authorized certificate of designation), such
Directors shall be elected by a plurality of the votes of such class or series
present in person or represented by proxy at the meeting and entitled to vote in
the election of such Directors. The Directors shall be elected and shall hold
office only in the manner provided in the Restated Certificate of Incorporation.

Section 3. Removal and Resignation. No Director may be removed from
---------- -----------------------
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock
entitled to vote generally in the election of Directors voting together as a
single class; provided, however, that if the holders of any class or series of
capital stock are entitled by the provisions of the Restated Certificate of
Incorporation (it being understood that any references to the Restated
Certificate of Incorporation shall include any duly authorized certificate of
designation) to elect one or more Directors, such Director or Directors so
elected may be removed without cause only by the vote of the holders of a
majority of the outstanding shares of

-4-
<PAGE>

that class or series entitled to vote. Any Director may resign at any time upon
written notice to the Corporation.

Section 4. Vacancies. Vacancies and newly created directorships resulting
---------- ---------
from any increase in the total number of Directors may be filled only in the
manner provided in the Restated Certificate of Incorporation.

Section 5. Nominations.
---------- -----------

(a) Only persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible to serve as Directors. Nominations
of persons for election to the Board of Directors of the Corporation may be made
at a meeting of stockholders (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this By-law, who is
entitled to vote generally in the election of Directors at the meeting and who
shall have complied with the notice procedures set forth below in Section 5(b).

(b) In order for a stockholder to nominate a person for election to
the Board of Directors of the Corporation at a meeting of stockholders, such
stockholder shall have delivered timely notice of such stockholder's intent to
make such nomination in writing to the secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than 60 nor more than 90 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed or public disclosure
of the meeting was made, and (ii) in the case of a special meeting at which
Directors are to be elected, not later than the close of business on the 10th
day following the earlier of the day on which notice of the date of the meeting
was mailed or public announcement of the meeting was made. Such stockholder's
notice shall set forth (i) as to each person whom the stockholder proposes to
nominate for election as a Director at such meeting all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a Director
if elected); (ii) as to the stockholder giving the notice (A) the name and
address, as they appear on the Corporation's books, of such stockholder and (B)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder and also which are owned of record by such stockholder; and
(iii) as to the beneficial owner, if any, on whose behalf the nomination is
made, (A) the name and address of such person and (B) the class and number of
shares of the Corporation which are beneficially owned by such person. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee.

-5-
<PAGE>

(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
section. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this section, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded. A
stockholder seeking to nominate a person to serve as a Director must also comply
with all applicable requirements of the Exchange Act, and the rules and
regulations thereunder with respect to the matters set forth in this section.

Section 6. Annual Meetings. The annual meeting of the Board of Directors
---------- ---------------
shall be held without other notice than this By-law immediately after, and at
the same place as, the annual meeting of stockholders.

Section 7. Other Meetings and Notice. Regular meetings, other than the
---------- -------------------------
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the Board of Directors may be called by the
chairman of the board, the president (if the president is a Director) or, upon
the written request of at least a majority of the Directors then in office, the
secretary of the Corporation on at least 24 hours notice to each Director,
either personally, by telephone, by mail or by telecopy.

Section 8. Chairman of the Board, Quorum, Required Vote and Adjournment.
---------- ------------------------------------------------------------
The Board of Directors shall elect, by the affirmative vote of a majority of the
total number of Directors then in office, a chairman of the board, who shall
preside at all meetings of the stockholders and Board of Directors at which he
or she is present. If the chairman of the board is not present at a meeting of
the stockholders or the Board of Directors, the president (if the president is a
Director and is not also the chairman of the board) shall preside at such
meeting, and, if the president is not present at such meeting, a majority of the
Directors present at such meeting shall elect one of their members to so
preside. A majority of the total number of Directors then in office shall
constitute a quorum for the transaction of business. Unless by express
provision of an applicable law, the Restated Certificate of Incorporation or
these By-laws a different vote is required, the vote of a majority of Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.

Section 9. Committees. The Board of Directors may, by resolution passed
---------- ----------
by a majority of the total number of Directors then in office, designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation, which to the extent provided in such resolution or these By-
laws shall have, and may exercise, the powers of the Board of Directors in the
management and affairs of the Corporation, except as otherwise limited by law.
The Board of Directors may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.

-6-
<PAGE>

Section 10. Committee Rules. Each committee of the Board of Directors may
----------- ---------------
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the Board of Directors, of such committee is or are
absent or disqualified, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.

Section 11. Communications Equipment. Members of the Board of Directors
----------- ------------------------
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.

Section 12. Waiver of Notice and Presumption of Assent. Any member of the
----------- ------------------------------------------
Board of Directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.

Section 13. Action by Written Consent. Unless otherwise restricted by the
----------- -------------------------
Restated Certificate of Incorporation, any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.

ARTICLE IV
----------

OFFICERS
--------

Section 1. Number. The officers of the Corporation shall be elected by
---------- ------
the Board of Directors and shall consist of a chief executive officer, a
president, one or more vice-presidents, a secretary, a chief financial officer
and such other officers and assistant officers as may be deemed

-7-
<PAGE>

necessary or desirable by the Board of Directors. Any number of offices may be
held by the same person, except that neither the chief executive officer nor the
president shall also hold the office of secretary. In its discretion, the Board
of Directors may choose not to fill any office for any period as it may deem
advisable, except that the offices of president and secretary shall be filled as
expedi tiously as possible.

Section 2. Election and Term of Office. The officers of the Corporation
---------- ---------------------------
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.

Section 3. Removal. Any officer or agent elected by the Board of
---------- -------
Directors may be removed by the Board of Directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.

Section 4. Vacancies. Any vacancy occurring in any office because of
---------- ---------
death, resignation, removal, disqualification or otherwise may be filled by the
Board of Directors.

Section 5. Compensation. Compensation of all executive officers shall be
---------- ------------
approved by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a Director of the
Corporation.

Section 6. Chief Executive Officer. The chief executive officer shall
---------- -----------------------
have the powers and perform the duties incident to that position. Subject to
the powers of the Board of Directors, he shall be in the general and active
charge of the entire business and affairs of the Corporation, and shall be its
chief policy making officer. He shall preside at all meetings of the Board of
Directors and stockholders and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or provided in these
By-laws. The chief executive officer is authorized to execute bonds, mortgages
and other contracts requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the Corporation.
Whenever the president is unable to serve, by reason of sickness, absence or
otherwise, the chief executive officer shall perform all the duties and
responsibilities and exercise all the powers of the president.

Section 7. The President. The president of the Corporation shall, subject
---------- -------------
to the powers of the Board of Directors and the chairman of the board, have
general charge of the business, affairs and property of the Corporation, and
control over its officers, agents and employees. The president shall see that
all orders and resolutions of the Board of Directors are carried into effect.
The president is authorized to execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation. The president
shall have such

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<PAGE>

other powers and perform such other duties as may be prescribed by the chief
executive officer, the Board of Directors or as may be provided in these By-
laws.

Section 8. Vice-Presidents. The vice-president, or if there shall be more
---------- ---------------
than one, the vice-presidents in the order determined by the Board of Directors
or the chairman of the board, shall, in the absence or disability of the
president, act with all of the powers and be subject to all the restrictions of
the president. The vice-presidents shall also perform such other duties and
have such other powers as the Board of Directors, the chief executive officer,
the president or these By-laws may, from time to time, prescribe. The vice-
presidents may also be designated as executive vice-presidents or senior vice-
presidents, as the Board of Directors may from time to time prescribe.

Section 9. The Secretary and Assistant Secretaries. The secretary shall
---------- ---------------------------------------
attend all meetings of the Board of Directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such capacity. Under the
chairman of the board's supervision, the secretary shall give, or cause to be
given, all notices required to be given by these By-laws or by law; shall have
such powers and perform such duties as the Board of Directors, the chief
executive officer, the president or these By-laws may, from time to time,
prescribe; and shall have custody of the corporate seal of the Corporation. The
secretary, or an assistant secretary, shall have authority to affix the
corporate seal to any instrument requiring it and when so affixed, it may be
attested by his or her signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, any of
the assistant secretaries, shall in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors, the
chief executive officer, the president, or secretary may, from time to time,
prescribe.

Section 10. The Chief Financial Officer. The chief financial officer
----------- ---------------------------
shall have the custody of the corporate funds and securities; shall keep full
and accurate all books and accounts of the Corporation as shall be necessary or
desirable in accordance with applicable law or generally accepted accounting
principles; shall deposit all monies and other valuable effects in the name and
to the credit of the Corporation as may be ordered by the chairman of the board
or the Board of Directors; shall cause the funds of the Corporation to be
disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements; and shall render to the Board of Directors, at
its regular meeting or when the Board of Directors so requires, an account of
the Corporation; shall have such powers and perform such duties as the Board of
Directors, the chief executive officer, the president or these By-laws may, from
time to time, prescribe. If required by the Board of Directors, the chief
financial officer shall give the Corporation a bond (which shall be rendered
every six years) in such sums and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of the office of chief financial officer and for the restoration to the
Corporation, in case of death, resignation, retirement or removal from office of
all books, papers, vouchers, money and other property of whatever kind in the
possession or under the control of the chief financial officer belonging to the
Corporation.

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<PAGE>

Section 11. Other Officers, Assistant Officers and Agents. Officers,
----------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.

Section 12. Absence or Disability of Officers. In the case of the absence
----------- ---------------------------------
or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any Director, or to any other
person selected by it.

ARTICLE V
---------

CERTIFICATES OF STOCK
---------------------

Section 1. Form. Every holder of stock in the Corporation shall be
---------- ----
entitled to have a certificate, signed by, or in the name of the Corporation by
the chairman of the board, the chief executive officer or the president and the
secretary or an assistant secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation. If such a certificate is
countersigned (i) by a transfer agent or an assistant transfer agent other than
the Corporation or its employee or (ii) by a registrar, other than the
Corporation or its employee, the signature of any such chairman of the board,
chief executive officer, president, secretary or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the Corporation, such certificate or certificates may neverthe
less be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the Corporation.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the Corporation. Shares of stock of the Corporation shall only be
transferred on the books of the Corporation by the holder of record thereof or
by such holder's attorney duly authorized in writing, upon surrender to the
Corporation of the certificate or certificates for such shares endorsed by the
appropriate person or persons, with such evidence of the authenticity of such
endorsement, transfer, authorization and other matters as the Corporation may
reasonably require, and accompanied by all necessary stock transfer stamps. In
that event, it shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate or certificates and
record the transaction on its books. The Board of Directors may appoint a bank
or trust company organized under the laws of the United States or any state
thereof to act as its transfer agent or registrar, or both in connection with
the transfer of any class or series of securities of the Corporation.

Section 2. Lost Certificates. The Board of Directors may direct a new
---------- -----------------
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the

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<PAGE>

Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Corporation may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his or her legal representative, to
give the Corporation a bond sufficient to indemnify the Corporation against any
claim that may be made against the Corporation on account of the loss, theft or
destruction of any such certificate or the issuance of such new certificate.

Section 3. Fixing a Record Date for Stockholder Meetings. In order that
---------- ---------------------------------------------
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is first given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.

Section 4. Fixing a Record Date for Other Purposes. In order that the
---------- ---------------------------------------
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than 60 days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.

Section 5. Registered Stockholders. Prior to the surrender to the
---------- -----------------------
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.

Section 6. Subscriptions for Stock. Unless otherwise provided for in the
---------- -----------------------
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
Board of Directors. Any call made by the Board of Directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.

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<PAGE>

ARTICLE VI
----------

GENERAL PROVISIONS
------------------

Section 1. Dividends. Dividends upon the capital stock of the
---------- ---------
Corporation, subject to the provisions of the certificate of , if any, may be
declared by the Board of Directors at any regular or special meeting, in
accordance with applicable law. Dividends may be paid in cash, in property or
in shares of the capital stock, subject to the provisions of the Restated
Certificate of Incorporation. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
any other purpose and the Directors may modify or abolish any such reserve in
the manner in which it was created.

Section 2. Checks, Drafts or Orders. All checks, drafts or other orders
---------- ------------------------
for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the Board of Directors or a duly
authorized committee thereof.

Section 3. Contracts. In addition to the powers otherwise granted to
---------- ---------
officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any
----------
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.

Section 4. Loans. The Corporation may lend money to, or guarantee any
---------- -----
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
Director of the Corporation or its subsidiaries, whenever, in the judgment of
the Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.

Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed
---------- -----------
by resolution of the Board of Directors.

Section 6. Corporate Seal. The Board of Directors may provide a corporate
---------- --------------
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.

-12-
<PAGE>

Section 7. Voting Securities Owned By Corporation. Voting securities in
---------- --------------------------------------
any other Corporation held by the Corporation shall be voted by the chief
executive officer, the president or a vice-president, unless the Board of
Directors specifically confers authority to vote with respect thereto, which
authority may be general or confined to specific instances, upon some other
person or officer. Any person authorized to vote securities shall have the
power to appoint proxies, with general power of substitution.

Section 8. Inspection of Books and Records. The Board of Directors shall
---------- -------------------------------
have power from time to time to determine to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.

Section 9. Section Headings. Section headings in these By-laws are for
---------- ----------------
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.

Section 10. Inconsistent Provisions. In the event that any provision of
----------- -----------------------
these By-laws is or becomes inconsistent with any provision of the Restated
Certificate of Incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.

ARTICLE VII
-----------

AMENDMENTS
----------

In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend, change, add to or repeal these By-laws by the affirmative vote of
a majority of the total number of Directors then in office. Any alteration or
repeal of these By-laws by the stockholders of the Corporation shall require the
affirma tive vote of a majority of the outstanding shares of the Corporation
entitled to vote on such alteration or repeal; provided, however, that Section
-------- -------
11 of ARTICLE II and Sections 2, 3, 4 and 5 of ARTICLE III and this ARTICLE VII
---------- ----------- -----------
of these By-laws shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of the Corporation
entitled to vote on such alteration or repeal.

-13-

<PAGE>

III. SUMMARY OF TERMS

BORROWER: American Pad & Paper Company of Delaware, Inc.,
(the "Borrower").

AGENT: Bankers Trust Company ("BTCo").

LENDERS: BTCo and a syndicate of lenders formed by BTCo
(the "Lenders").

REVOLVING CREDIT FACILITY: $300,000,000 Revolving Credit Facility, including
a letter of credit sub-limit [to be agreed upon].

MATURITY: The fifth anniversary of the closing date of the
Transaction (the "Closing Date"). Loans made
pursuant to the Senior Bank Financing (the
"Revolving Loans") shall be repaid in full on such
date.

USE OF PROCEEDS: The proceeds of all Revolving Loans shall be
utilized to consummate the Recapitalization, to
pay related fees and expenses and for the
Borrower's working capital requirements and other
general corporate purposes (which may include
acquisitions and repurchases of Senior
Subordinated Notes as described in the Credit
Agreement) provided that no more than $200 million
of Revolving Loans may be used to consummate the
Refinancing.

AVAILABILITY: Revolving Loans may be borrowed, repaid and
reborrowed on or after the Closing Date.

GUARANTY: All obligations under the Senior Bank Financing
shall be unconditionally guaranteed by American
Pad & Paper Company ("Holdings") and by each of
Holdings' subsidiaries (other than the Borrower)
(each such subsidiary, together with Holdings, the
"Guarantors"), subject to customary exceptions for
transactions of this type.

SECURITY: The obligations of the Borrower and the Guarantors
in respect of the Senior Bank Financing shall be
secured by a first priority perfected security
interest in (x) all stock of each of their direct
and indirect subsidiaries and (y) all other
tangible and intangible assets of Holdings and
each of its direct and indirect subsidiaries
(other than those accounts receivable and related
property that have been transferred pursuant to
the Borrower's existing

- 20 -
<PAGE>

accounts receivable facility (the "Accounts
Receivable Facility")), subject to customary
exceptions for transactions of this type.

INTEREST RATES AND LEVERAGE EURODOLLAR BASE RATE COMMITMENT
COMMITMENT FEES: RATIO MARGIN PLUS MARGIN PLUS FEE
-------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
LEVEL I less than 2.0:1 75 bps 0 bps 30 bps

LEVEL II 2.5:1 less than 2.0:1 100 bps 0 bps 35 bps

LEVEL III 3.0:1 less than 2.5:1 125 bps 25 bps 40 bps

LEVEL IV 3.5:1 less than 3.0:1 150 bps 50 bps 45 bps

LEVEL V less than 3.5:1 175 bps 75 bps 50 bps
</TABLE>

VOLUNTARY PREPAYMENTS: Voluntary prepayments may be made at any time
without premium or penalty, provided that
voluntary prepayments of Reserve Adjusted
Eurodollar Loans made on a day other than the last
day of an interest period applicable thereto shall
be subject to breakage costs.

MANDATORY PREPAYMENTS: Revolving Loans shall be required to be prepaid if
at any time the aggregate principal amount thereof
exceeds the total commitments under the Senior
Bank Financing.

OPTIONAL COMMITMENT The unutilized portion of the total commitment
REDUCTIONS: under the Senior Bank Financing may be reduced or
terminated by the Borrower at any time without
penalty.

MANDATORY COMMITMENT The total commitments under the Senior Bank
REDUCTIONS: Financing shall be reduced by the amounts set
forth below on each of the third, fourth and fifth
anniversaries of the Closing Date:

YEAR AMOUNT
---- -------------
1999 $50.0 million
2000 $50.0 million
2001 $200.0 million

Mandatory commitment reductions of the Senior Bank
Financing also to be required from (i) 100% of the
net proceeds from asset sales and insurance
recovery events, with customary exceptions
provided that the foregoing percentage as it
relates to asset sales shall be reduced to 75% if
at the time of any such asset sale, no default or
event of default exists under the Senior Bank
Financing and the ratio of Total Debt to EBITDA
(calculated on a pro forma basis after giving
effect to such asset sale and the application of
proceeds therefrom) is less than 3.00:1.00, (ii)
100% of the net proceeds from issuance of debt,
with customary exceptions, and (iii) 50% of the
net proceeds from

- 21 -
<PAGE>

equity issuance or capital contributions, with
customary exceptions.

AGENT/LENDER FEES: The Agent and the Lenders shall receive such fees
as have been separately agreed upon with the Agent
and the Lenders.

LETTER OF CREDIT FEES: Applicable Margin for Reserve Adjusted Eurodollar
Loans as in effect from time to time on the
aggregate outstanding stated amounts of letters of
credit plus an additional 1/4 of 1% on the
aggregate outstanding stated amounts of letters of
credit to be paid as a fronting fee to the issuing
Lender.

CONDITIONS PRECEDENT: In addition to conditions precedent typical for
these types of facilities and any other conditions
appropriate in the context of the proposed
transaction, the following conditions shall apply:

A. TO THE INITIAL REVOLVING LOANS

(i) The structure and all terms of, and the
documentation for, the Transaction shall be
satisfactory to the Agent and the Required
Lenders (as hereinafter defined). All
conditions precedent to the consummation of
the Transaction as set forth in the
documentation relating thereto shall have
been satisfied, and not waived except with
the consent of the Agent and the Required
Lenders, to the satisfaction of the Agent and
the Required Lenders. The Transaction shall
have been consummated in accordance with all
documentation therefor and all applicable
laws, Holdings shall have received gross cash
proceeds of at least $150 million from the
IPO (before underwriting discounts and
commissions and expenses) and Holdings shall
have contributed the net cash proceeds from
the IPO to the Borrower.

(ii) Concurrently with the consummation of the
Transaction, the Borrower shall have
delivered a notice to the trustee for the
Senior Subordinated Notes in accordance with
the terms thereof providing that the Borrower
will repurchase $70 million in aggregate
principal amount of Senior Subordinated Notes
with a portion of the proceeds of the IPO.

(iii) All obligations of the Borrower under the
Senior Bank Financing shall constitute
"Designated Senior Debt" and "Senior Debt",
as the case may be, under (and as defined in)
the Senior Subordinated Notes and the Senior
Bank Financing shall constitute the "Bank
Credit Agreement" under (and as defined

- 22 -
<PAGE>

in) the Senior Subordinated Notes.

(iv) All necessary governmental and third party
approvals in connection with the Transaction
and the other transactions contemplated by
the Senior Bank Financing and otherwise
referred to herein shall have been obtained
and remain in effect, and all applicable
waiting periods shall have expired without
any action being taken by any competent
authority which restrains, prevents, or
imposes materially adverse conditions upon,
the consummation of the Transaction or the
other transactions contemplated by the Senior
Bank Financing and otherwise referred to
herein.

(v) Since December 31, 1995, nothing shall have
occurred (and the Lenders shall have become
aware of no facts or conditions not
previously known) which the Agent or the
Required Lenders shall reasonably determine
could have a material adverse effect on the
rights or remedies of the Lenders or the
Agent, or on the ability of Holdings and its
subsidiaries to perform their obligations to
the Lenders or which could have a materially
adverse effect on the business, property,
assets, nature of assets, liabilities,
condition (financial or otherwise) or
prospects of Holdings, the Borrower or
Holdings and its subsidiaries taken as a
whole after giving effect to the Transaction.

(vi) No litigation by any entity (private or
governmental) shall be pending or threatened
with respect to the Transaction, the Senior
Bank Financing or any documentation executed
in connection therewith or which the Agent or
the Required Lenders shall reasonably
determine could have a materially adverse
effect on the business, property, assets,
nature of assets, liabilities, condition
(financial or otherwise) of Holdings, the
Borrower or Holdings and its subsidiaries
taken as a whole.

(vii) The Lenders shall have received legal
opinions from counsel, and covering matters,
reasonably acceptable to the Agent and the
Required Lenders.

(viii) All organizational documents of Holdings
and its subsidiaries shall be reasonably
satisfactory to the Agent

- 23 -
<PAGE>

and the Required Lenders.

(ix) All Revolving Loans and other financing to
the Borrower shall be in full compliance with
all applicable requirements of the margin
regulations.

(x) All costs, fees, expenses (including, without
limitation, legal fees and expenses) and
other compensation contemplated hereby
payable to the Lenders or the Agent shall
have been paid to the extent due.

(xi) The Lenders shall have a perfected first
priority security interest in the assets of
Holdings and its subsidiaries as required
above.

(xii) Holdings and its subsidiaries shall have no
indebtedness except the Senior Bank
Financing, the Senior Subordinated Notes, the
Accounts Receivable Facility and other
indebtedness to be mutually agreed upon.

(xiii) The Agent and the Lenders shall have
received, and shall be reasonably satisfied
with, an opening pro forma balance sheet of
Holdings and its subsidiaries after giving
effect to the Transac tion, and a related
funds flow statement.

B. CONDITIONS TO ALL REVOLVING LOANS

Absence of material adverse change, absence of
material litigation, absence of default or
unmatured default under the Senior Bank Financing,
continued accuracy of representations and
warranties and receipt of such documentation as
shall be required by the Agent.

REPRESENTATIONS The Senior Bank Financing and related
AND WARRANTIES: documentation shall contain representations and
warranties typical for these types of facilities,
as well as any additional ones appropriate in the
context of the proposed transaction.

COVENANTS: Those typical for these types of facilities and
any additional covenants appropriate in the
context of the proposed transaction (with such
covenants having such exceptions or baskets as may
be mutually agreed upon). "Special Purpose
Corporation" covenants shall be applicable at all
times to Holdings. Although the covenants have
not yet been specifically determined, we

- 24 -
<PAGE>

anticipate that the covenants shall in any event
include:

(i) Restrictions on other indebtedness.

(ii) Restrictions on mergers, acquisitions, joint
ventures, partnerships and acquisitions and
dispositions of assets, it being understood
that the Borrower shall be permitted to make
acquisitions so long as any acquisition in
excess of $25 million and less than or equal
to $50 million shall not be consummated
without the prior written consent of the
Required Lenders unless the Pro Forma
Leverage Ratio on the date of such
acquisition is less than 3.00:1.00 and any
acquisition in excess of $50 million shall
not be consummated without the prior written
consent of the Required Lenders, and with all
acquisitions to be on such other terms and
conditions to be determined.

(iii) Restrictions on sale-leaseback transactions
subject to certain permitted exceptions.

(iv) Restrictions on dividends and amendments of
organizational, corporate and other
documents.

(v) Restrictions on voluntary prepayments of
other indebtedness and amendments thereto, it
being understood that the Borrower may
repurchase additional Senior Subordinated
Notes so long as no default or event of
default then exists (or would result there
from) under the Senior Bank Financing and the
ratio of Total Bank Debt to EBITDA after
giving effect to such repurchase is less than
2.50:1.00.

(vi) Restrictions on transactions with affiliates
and formation of subsidiaries.

(vii) Restrictions on investments.

(viii) Maintenance of existence and properties.

(ix) No liens, with exceptions to be negotiated.

(x) Various financial covenants customary for a
transaction of this type (including, without
limitation, minimum interest coverage to be
determined, minimum consolidated EBITDA to
be determined and maximum

- 25 -
<PAGE>

leverage of 4.0:1.0).

(xi) Adequate insurance coverage.

(xii) ERISA covenants.

(xiii) The obtaining of interest rate protection in
amounts and for periods to be determined.

(xiv) Restrictions on capital expenditures.

(xv) Financial reporting.

(xvi) Compliance with laws.

EVENTS OF DEFAULT: Those typical for these types of facilities and
any additional ones appropriate in the context of
the proposed transaction including, without
limitation, a change of control of the Holdings.

ASSIGNMENTS AND The Borrower may not assign its rights or
PARTICIPATIONS: obligations under the Senior Bank Financing
without the prior written consent of the Lenders.
Any Lender may assign, and may sell participations
in, its rights and obligations under the Senior
Bank Financing, subject (x) in the case of
participations, to customary restrictions on the
voting rights of the participants and (y) in the
case of assignments, to such limitations as may be
established by the Agent. The Senior Bank
Financing shall provide for a mechanism which will
allow for each assignee to become a direct
signatory to the Senior Bank Financing and will
relieve the assigning Lender of its obligations
with respect to the assigned portion of its
commitment.

REQUIRED LENDERS: Majority.

GOVERNING LAW: State of New York.

- 26 -

<PAGE>

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION NAMES UNDER WHICH
OF INCORPORATION OR SUCH SUBSIDIARY
NAME OF SUBSIDIARY ORGANIZATION DOES BUSINESS
------------------ --------------------------- -----------------
<S> <C> <C>
WR Acquisition, Inc.(2)......... Delaware (1)
American Pad & Paper Company of Delaware (1)
Delaware, Inc.(3)..............
Stationery House Inc. VIP Delaware (1)
Division(4)....................
Williamhouse of California, Colorado (1)
Inc.(4)........................
The Precious Collection, Texas (1)
Inc.(4)........................
Regency Sonnell Greetings, California (1)
Inc.(4)........................
Regency Thermographers, Delaware (1)
Inc.(4)........................
Regency Thermographers of California (1)
California, Inc.(4)............
Regency Thermographers of Illinois (1)
Illinois, Inc.(4)..............
Regency Thermographers of Washington (1)
Washington, Inc.(4)............
Notepad Funding Corporation(4).. Delaware (1)
American Office Products, Michigan (1)
Inc.(4)........................
</TABLE>
- --------
(1) In addition to their actual names, the subsidiaries do business under the
following names: Ampad; Regency; Williamhouse; and Williamhouse-Regency.
(2) A wholly owned subsidiary of the Company.
(3) A wholly owned subsidiary of WR Acquisition, Inc.
(4) A wholly owned subsidiary of American Pad & Paper Company of Delaware, Inc.

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 2 to Form S-1 of our report dated March
19, 1996, except as to Note 16 which is as of June 6, 1996 and the pro forma
equity presentation in Note 2 which is as of June 4, 1996 relating to the
consolidated financial statements of American Pad & Paper Company (formerly
Ampad Holding Corporation) and our report dated March 22, 1996, relating to the
statements of net sales and cost of sales of Globe-Weis, which appear on page
F-2 and page F-53, respectively, in such Prospectus. We also consent to the
references to us under the heading "Experts" in such Prospectus.

/s/ Price Waterhouse

PRICE WATERHOUSE LLP

Dallas, Texas
June 24, 1996

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
WR Acquisition, Inc.

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.

/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP

New York, New York
June 20, 1996

<PAGE>

EXHIBIT 23.4

Consent of Ernst & Young LLP

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 16, 1996, with respect to the financial
statements of Niagara Envelope Company, Inc. included in the Registration
Statement (Form S-1 No. 333-4000) and related Prospectus of American Pad and
Paper Company for the registration of 15,625,000 shares of its common stock.

/s/ Ernst & Young LLP

Buffalo, New York
June 21, 1996