SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

School Specialty Inc – ‘PREM14A’ on 6/28/05

On:  Tuesday, 6/28/05, at 12:13pm ET   ·   Accession #:  1193125-5-132891   ·   File #:  0-24385

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/28/05  School Specialty Inc              PREM14A                1:1.1M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Preliminary Proxy Statement Relating to Merger or   HTML   1.08M 
                          Acquisition                                            

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

Filed by the Registrant  x

Filed by a Party other than the Registrant  ¨

Check the appropriate box:

SCHOOL SPECIALTY, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

Table of Contents

SCHOOL SPECIALTY, INC.

W6316 Design Drive

Greenville, Wisconsin 54942

(920) 734-5712

To the Shareholders of School Specialty, Inc.:

You are cordially invited to attend a special meeting of shareholders of School Specialty, Inc. (“School Specialty”) to be held on [·], 2005, at [·]:00 a.m., local time, at School Specialty’s headquarters located at W6316 Design Drive, Greenville, Wisconsin 54942.

On May 31, 2005, School Specialty entered into a merger agreement providing for the acquisition of School Specialty by LBW Holdings, Inc. (“LBW Holdings”), a newly-formed Delaware corporation whose current owner is a private equity fund sponsored by Bain Capital. If the merger contemplated by the merger agreement is completed, you will be entitled to receive $49.00 in cash, without interest, for each share of School Specialty common stock you own. At the special meeting, you will be asked to adopt and approve the merger agreement, attached to this proxy statement as Appendix A, and the transactions contemplated thereby.

The board of directors has approved and adopted the merger agreement and the transactions contemplated thereby, including the merger, and has determined that the merger agreement and such transactions are advisable to, fair to, and in the best interests of the holders of common stock of School Specialty. The board of directors recommends that School Specialty shareholders vote “FOR” the approval of the merger agreement. The recommendation of the board of directors is based, in part, upon the unanimous recommendation of a special committee of the board of directors consisting of four independent and disinterested directors of School Specialty. The special committee was established on March 14, 2005 to review, evaluate and, as appropriate, negotiate a possible transaction relating to the sale of School Specialty. The special committee unanimously recommends that School Specialty shareholders vote “FOR” the approval of the merger agreement. A failure to vote will have the same effect as a vote “against” the merger.

The accompanying proxy statement provides you with detailed information about the merger agreement and the proposed merger. We urge you to read the entire proxy statement carefully. The affirmative vote of a majority of the shares of School Specialty common stock outstanding on the record date is required to approve the merger agreement.

REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD OR SUBMIT YOUR PROXY BY TELEPHONE OR OVER THE INTERNET FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD. YOUR COOPERATION IN VOTING YOUR SHARES WILL BE GREATLY APPRECIATED.

Voting by proxy will not prevent you from voting your shares in person if you subsequently choose to attend the annual meeting.

Leo C. McKenna

Chairman of the Board of Directors

Greenville, Wisconsin

[·], 2005

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger, passed upon the merits or fairness of the merger agreement or the transactions contemplated thereby, including the merger, or passed upon the adequacy or accuracy of the enclosed proxy statement. Any representation to the contrary is a criminal offense.

The proxy statement, dated [·], 2005, is first being mailed to shareholders on or about [·], 2005.

Table of Contents

SCHOOL SPECIALTY, INC.

W6316 DESIGN DRIVE

GREENVILLE, WISCONSIN 54942

(920) 734-5712

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD [·], 2005

TO THE SHAREHOLDERS OF SCHOOL SPECIALTY, INC.:

Notice is hereby given that a special meeting of shareholders of School Specialty, Inc., a Wisconsin corporation (“School Specialty”), will be held on [·], 2005 at [·]:00 a.m., local time, at School Specialty’s headquarters located at W6316 Design Drive, Greenville, Wisconsin 54942, for the following purposes:

Only shareholders of record at the close of business on [·], 2005 are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements thereof.

The merger agreement and the merger are described in the accompanying proxy statement and a copy of the merger agreement is attached to the proxy statement as Appendix A. We urge you to read the entire proxy statement and the merger agreement carefully.

We hope you will be able to attend the meeting in person and you are cordially invited to attend. If you expect to attend the meeting, please check the appropriate box on the proxy card when you return your proxy.

The adoption of the merger agreement requires the approval of the holders of a majority of the outstanding shares of School Specialty common stock entitled to vote thereon. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND RETURN YOUR PROXY PROMPTLY. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy, or submit your proxy by telephone or the Internet prior to the special meeting and thus ensure that your shares will be represented at the special meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the adoption of the merger agreement. If you fail to return your proxy card or fail to submit your proxy by telephone or the Internet, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote against the adoption of the merger agreement. If you are a shareholder of record and do attend the special meeting and wish to vote in person, you may revoke your proxy and vote in person. It is important that all shareholders execute, date and return the proxy, using the enclosed envelope to which no postage need be affixed if mailed in the United States.

By Order of our Board of Directors,

Joseph F. Franzoi IV

Secretary

Greenville, Wisconsin

[·], 2005

PROPOSED MERGER—YOUR VOTE IS VERY IMPORTANT

Please do not send your School Specialty common stock certificates to us at this time. If the merger is completed, you will be sent instructions regarding surrender of your certificates.

Table of Contents

Proxy Statement

Table of Contents

i

Table of Contents

SUMMARY TERM SHEET

This summary term sheet highlights selected information contained in this proxy statement and might not contain all of the information that is important to you. You are urged to read carefully this proxy statement, including the appendices, and the documents referred to or incorporated by reference in this proxy statement. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where Shareholders Can Find More Information” beginning on page 76.

In this proxy statement, the terms “we,” “us,” “our,” “School Specialty” and the “Company” refer to School Specialty, Inc. and, where appropriate, its subsidiaries. In this proxy statement, we refer to Bain Capital Partners, LLC as “Bain Capital,” Bain Capital Fund VIII, L.P. as “Bain Investor,” Morgan Stanley & Co. Incorporated as “Morgan Stanley,” LBW Holdings, Inc. as “LBW Holdings” and LBW Acquisition, Inc. as “LBW Acquisition.” We refer to the holders of School Specialty common stock, other than LBW Holdings and its affiliates (including LBW Acquisition and the Bain Investor), as the “unaffiliated School Specialty shareholders.”

Parties Involved in the Proposed Transaction (Page 15)

School Specialty Will Hold a Special Meeting of Its Shareholders to Approve the Merger Agreement and the Meeting Adjournment Proposal (Page 16)

Time, Place and Date (Page 16)

The special meeting will be held on [·], 2005 at School Specialty’s headquarters located at W6316 Design Drive, Greenville, Wisconsin 54942 at [·]:00 a.m., local time.

Purpose (Page 16)

At the special meeting, you will be asked to consider and vote upon the proposal to approve the merger agreement, and if necessary and appropriate, the meeting adjournment proposal.

Record Date and Voting (Page 16)

Only shareholders who hold shares of School Specialty common stock at the close of business on [·], 2005, the record date for the special meeting, will be entitled to vote at the special meeting. Each share of School

1

Table of Contents

Specialty common stock outstanding on the record date will be entitled to one vote on each matter submitted to shareholders for approval at the special meeting. As of the record date, there were [·] shares of School Specialty common stock outstanding.

Vote Required (Page 17)

Approval of the merger agreement requires the affirmative vote of a majority of the shares of School Specialty common stock outstanding on the record date. Approval of the meeting adjournment proposal, if necessary and appropriate, requires the affirmative vote of shareholders holding a majority of the shares of School Specialty common stock present and entitled to vote at the special meeting.

Proxies and Revocation of Proxies (Page 17)

Any School Specialty shareholder of record entitled to vote may submit a proxy by telephone, the Internet or returning the enclosed proxy by mail or may vote in person by appearing at the special meeting. If your shares are held in “street name” by your broker, you should instruct your broker on how to vote your shares using the instructions provided by your broker. Any person giving a proxy has the power to revoke and change it at any time before it is voted. It may be revoked and changed by filing a written notice of revocation with the Secretary of School Specialty at School Specialty’s executive offices located at W6316 Design Drive, Greenville, Wisconsin 54942, by submitting in writing, by telephone or over the Internet a proxy bearing a later date, or by attending the special meeting and voting in person. Attendance at the special meeting will not, by itself, revoke a proxy. If you have given voting instructions to a broker or other nominee that holds your shares in “street name,” you may revoke those instructions by following the directions given by the broker or other nominee.

When the Merger will be Completed (Page 50)

We are working to complete the merger as soon as possible. We anticipate completing the merger by the end of October 2005, subject to adoption of the merger agreement by the School Specialty’s shareholders and the satisfaction of the other closing conditions.

Share Ownership of Directors and Executive Officers (Page 75)

As of [·], 2005, the record date, the directors and executive officers of School Specialty held and are entitled to vote, in the aggregate, [·] shares of School Specialty common stock, representing approximately [·]% of the outstanding shares of School Specialty common stock. The directors and executive officers have informed School Specialty that they intend to vote all of their shares of School Specialty common stock “FOR” the approval of the merger agreement and “FOR” the meeting adjournment proposal.

School Specialty Shareholders Will Receive $49.00 in Cash, Without Interest, For Each Share of School Specialty Common Stock They Own (Page 51)

Upon the completion of the merger, each issued and outstanding share of School Specialty common stock, other than shares held (i) as treasury shares or by any subsidiary of School Specialty or (ii) by LBW Holdings, LBW Acquisition or any subsidiary of LBW Acquisition, will be converted into the right to receive $49.00 in cash, without interest.

How Outstanding Options Will Be Treated (Page 51)

All options to acquire shares of School Specialty common stock outstanding immediately prior to the effective time of the merger, will become fully vested and exercisable (whether or not then vested or subject to any performance condition that has not been satisfied). At the effective time of the merger, any options not exercised (other than certain options that are converted as discussed below) will be canceled as of the effective

2

Table of Contents

time of the merger in exchange for a cash payment equal to $49.00 times the number of shares subject to the options, less the aggregate exercise prices of the options and less applicable taxes required to be withheld, except that any options with an exercise price greater than $49.00 per share will be canceled without any cash payment. Certain options held by those executive officers and other members of senior management that are not exercised prior to completion of the merger may be converted into options for equity securities of LBW Holdings and its wholly-owned subsidiaries, as agreed upon between such person and LBW Holdings.

Effect of Merger on Convertible Subordinated Notes (Page 43)

Under certain circumstances prior to the merger, holders of School Specialty’s 3.75% Convertible Subordinated Notes due 2023 may surrender such notes for a cash payment or a combination of cash and shares of School Specialty common stock. Holders of such notes also may surrender such notes in connection with the merger for a cash payment based on the merger consideration. Not more than 20 days after the effective time of the merger, School Specialty, as the surviving corporation in the merger, must make an offer to repurchase all of such notes then outstanding for an amount in cash equal to 100% of the accreted principal amount of the notes, plus accrued and unpaid interest to, but not including, the date the repurchase price is paid.

Recommendations of the Board of Directors and of the Special Committee; Fairness of the Merger (Page 28)

Board of Directors (Page 31)

The board of directors has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable to, fair to, and in the best interests of the holders of School Specialty common stock, has approved and adopted the merger agreement and the transactions contemplated thereby, including the merger, and recommends that you vote “FOR” the approval of the merger agreement and the meeting adjournment proposal. The foregoing actions were approved by the affirmative vote of five of the six directors of School Specialty. Mr. David J. Vander Zanden, one of our directors and our Chief Executive Officer, recused himself from the meeting at which the merger agreement was considered and approved in light of his potential interest in the transaction.

The board of directors reached this determination based on the unanimous recommendation of the special committee of the board of directors, the opinion of Morgan Stanley and such other factors, documentation and information deemed appropriate by the board of directors.

Special Committee (Page 28)

The special committee is a committee of our board of directors that was formed to review, evaluate and, as appropriate, negotiate on behalf of School Specialty the terms of a potential transaction relating to the sale of, or business combination with, School Specialty. The special committee consisted of four of our directors who are independent and disinterested, meaning that they are not employees of, or consultants to, School Specialty, LBW Holdings or LBW Acquisition or their respective affiliates and have no financial interest in the proposed merger different from our shareholders generally, other than as a result of their ownership of options to acquire School Specialty common stock received by all directors. The members of the special committee were Mr. Leo C. McKenna, who acts as chair, Ms. Rochelle Lamm, Mr. Terry L. Lay and Mr. Jerome M. Pool. As previously announced, Mr. Pool died on June 19, 2005.

The special committee unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable to, fair to, and in the best interests of holders of shares of the common stock of School Specialty entitled to receive the merger consideration and recommended to our board of directors that the merger agreement and the transactions contemplated thereby, including the merger, be approved and adopted. The special committee also unanimously recommends that you vote “FOR” the approval of the merger agreement.

3

Table of Contents

Fairness Opinion of Morgan Stanley (Page 32)

The special committee engaged Morgan Stanley to act as its financial advisor in connection with the proposed merger and to render an opinion as to whether the consideration to be received by holders of shares of School Specialty common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

The full text of the opinion, attached hereto as Appendix B, should be read for a description of the assumptions made, the matters considered and limitations on the review undertaken.

Morgan Stanley provided its opinion for the information and assistance of the special committee and the board of directors in connection with their consideration of the merger. Morgan Stanley’s opinion is not a recommendation as to how any School Specialty shareholder should vote with respect to the merger agreement. School Specialty agreed to pay Morgan Stanley a fee for these services, the principal portion of which is payable upon completion of the merger.

Our Directors and Executive Officers Have Interests in the Transaction that May Be Different From, or In Addition To, Interests of School Specialty Shareholders Generally (Page 43)

In considering the recommendations of the special committee and our board of directors, you should be aware that some executive officers and directors of School Specialty have interests in the merger that are different from your interests as a shareholder and that may present actual or potential conflicts of interest. These interests are described in more detail under “Special Factors—Interests of School Specialty Directors and Executive Officers in the Merger” beginning on page 43, and include the following:

The special committee and our board of directors were aware of these interests and considered them, among other matters, in approving and adopting the merger agreement and the transactions contemplated thereby, including the merger, and in determining to recommend that School Specialty shareholders vote “FOR” the approval of the merger agreement. You should consider these and other interests of our directors and executive officers that are described in this proxy statement.

Financing (Page 39)

School Specialty and LBW Holdings estimate that the total amount of funds necessary to complete the merger and related transactions and to pay related fees and expenses will be approximately $1.6 billion. These funds will come principally from debt financing arranged by LBW Holdings and LBW Acquisition. LBW Holdings’ obligation to close under the debt financing is subject to specific conditions relating to the condition of the debt financing markets. In addition, LBW Holdings has obtained a $460 million equity commitment from an affiliate of Bain Capital. See “Special Factors—Financing” beginning on page 39.

4

Table of Contents

A Number of Conditions Must Be Satisfied or Waived to Complete the Merger (Page 67)

The obligations of School Specialty, LBW Holdings and LBW Acquisition to complete the merger are subject to various conditions, including:

In addition, the obligations of LBW Holdings and LBW Acquisition to complete the merger are subject to various conditions, including:

See “Special Factors—Financing” beginning on page 39 and “Terms of the Merger Agreement—Conditions to the Merger” beginning on page 67.

5

Table of Contents

Limitations on Solicitation of Competing Proposals (Page 57)

We have agreed not to solicit from third parties, enter into discussions or negotiations regarding or accept or enter into any agreement relating to a proposal for an alternative transaction while the merger is pending, and neither the special committee nor our board of directors may withdraw, qualify or modify its recommendation of the merger in a manner adverse to LBW Holdings, approve or recommend an alternative transaction or enter into an agreement relating to a proposal for an alternative transaction, in each case, except in the circumstances specified in the merger agreement. See “Terms of the Merger Agreement—No Solicitation of Competing Proposals” beginning on page 57.

How the Merger Agreement May Be Terminated (Page 69)

LBW Holdings and School Specialty may mutually agree to terminate the merger agreement at any time upon the approval of their respective boards of directors. With certain exceptions, LBW Holdings or School Specialty may also terminate the merger agreement at any time if:

LBW Holdings may also terminate the merger agreement at any time if, with certain exceptions:

School Specialty may also terminate the merger agreement at any time if, with certain exceptions:

See “Terms of the Merger Agreement—Termination of the Merger Agreement” beginning on page 69.

Termination Fees and Expenses May Be Payable By School Specialty in Some Circumstances (Page 70)

In specified circumstances, if the merger agreement is terminated before the effective time of the merger, we must reimburse LBW Holdings for its documented out-of-pocket expenses up to a maximum of $10 million and, when applicable, pay LBW Holdings a termination fee of $34 million. See “Terms of the Merger Agreement—Effects of Terminating the Merger Agreement” beginning on page 70.

6

Table of Contents

Procedures for Receiving Merger Consideration (Page 51)

As soon as practicable after the effective time of the merger, a paying agent will mail a letter of transmittal and instructions to you and the other School Specialty shareholders. The letter of transmittal and instructions will tell you how to surrender your stock certificates in exchange for the merger consideration. You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

Tax Considerations For School Specialty Shareholders (Page 46)

Generally, the merger will be a taxable transaction to our shareholders that are U.S. persons for U.S. federal income tax purposes. A holder of School Specialty common stock receiving cash in the merger in exchange for the holder’s shares of School Specialty common stock generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received in the merger and the holder’s adjusted tax basis in the School Specialty common stock surrendered. Under U.S. federal income tax law, a holder may be subject to information reporting on cash received in the merger unless an exemption applies. Backup withholding may also apply (currently at a rate of 28%) with respect to the amount of cash received in the merger, unless the holder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholding rules. Each holder should consult the holder’s own tax advisor for a full understanding of how the merger will affect the holder’s federal, state and local taxes. See “Special Factors—Material U.S. Federal Income Tax Consequences” beginning on page 46.

Certain Risks in the Event of Bankruptcy (Page 39)

If School Specialty is insolvent at the time of the merger or becomes insolvent because of the merger, the funds paid to shareholders upon completion of the merger may be deemed to be a “fraudulent conveyance” under applicable law and therefore may be subject to the claims of School Specialty’s creditors. If such claims are asserted by School Specialty’s creditors, there is a risk that persons who were shareholders at the effective time of the merger would be ordered by a court to return to School Specialty’s trustee in bankruptcy all or a portion of the funds received upon the completion of the merger. It is a condition to the merger that the School Specialty and LBW Holdings boards of directors, and if requested by them, the lenders providing the debt financing in connection with the proposed merger, receive a letter reasonably acceptable to the special committee from an appraisal firm of national reputation reasonably acceptable to LBW Holdings and School Specialty supporting the conclusion that immediately after the effective time of the merger, and after giving effect to the merger and the other transactions contemplated by the merger agreement, School Specialty will be solvent. See “Terms of the Merger Agreement—Other Agreements,” beginning on page 63.

Market Price of School Specialty Stock (Page 74)

Our common stock is listed on The Nasdaq National Market, which we refer to as “NASDAQ” in this proxy statement, under the trading symbol “SCHS.” On May 31, 2005, which was the last trading day before we announced the merger, School Specialty’s common stock closed at $39.22 per share. On [·], 2005, which was the last trading day before this proxy statement was printed, the School Specialty’s common stock closed at $[·] per share.

School Specialty Shareholders Will Not Have Dissenters’ Rights (Page 49)

Under Wisconsin law, shareholders of a corporation are not entitled to exercise dissenters’ rights if shares of the corporation are registered on a national securities exchange or quoted on the National Association of Securities Dealers, Inc. automated quotation system. Consequently, because shares of School Specialty’s common stock are quoted on NASDAQ, you will not have the right to exercise dissenters’ rights.

7

Table of Contents

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following discussion briefly addresses some questions you may have regarding the special meeting and the proposed merger. This discussion may not address all questions that may be important to you as a shareholder of School Specialty. Please refer to the more detailed information contained elsewhere in this proxy statement, the appendices to this proxy statement and the documents referred to or incorporated by reference in this proxy statement. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where Shareholders Can Find More Information.”

The Special Meeting

Q:  Why am I receiving these materials?

A:  You are receiving this proxy statement and proxy card because you own shares of common stock, par value $0.001 per share, of School Specialty (“common stock”). Our board of directors is providing these proxy materials to give you information for use in determining how to vote in connection with the special meeting of shareholders.

Q:  When and where is the special meeting?

A:  The special meeting of shareholders will be held at [·]:00 a.m., local time, on [·], 2005, at School Specialty’s headquarters located at W6316 Design Drive, Greenville, Wisconson 54942.

Q:  On what am I being asked to vote?

A:  You are being asked to consider and vote upon proposals:

Q:  Who is entitled to vote?

A:  Only shareholders who hold shares of School Specialty common stock at the close of business on [·], 2005, the record date for the special meeting, will be entitled to vote at the special meeting.

Q:  What vote is required to approve the merger agreement?

A:  For the merger agreement to be approved, shareholders holding a majority of the shares of School Specialty common stock outstanding on the record date must vote “FOR” the approval of the merger agreement.

Q:  What vote is required to approve the meeting adjournment proposal?

A:  Approval of the meeting adjournment proposal, if necessary or appropriate, requires the affirmative vote of shareholders holding a majority of the shares of School Specialty common stock present and entitled to vote at the special meeting.

Q:  How does the School Specialty board of directors recommend that I vote on the merger agreement?

A:  The School Specialty board of directors recommends that you vote “FOR” the approval of the merger agreement.

8

Table of Contents

Q:  How does the School Specialty board of directors recommend that I vote on the meeting adjournment proposal?

A:  The School Specialty board of directors recommends that you vote “FOR” the approval of the meeting adjournment proposal.

Q:  How do I vote my shares of School Specialty common stock?

A:  Before you vote, you should carefully read and consider the information contained in or incorporated by reference in this proxy statement, including the appendices. You should also determine whether you hold your shares of School Specialty common stock directly in your name as a registered shareholder or through a broker or other nominee because this will determine the procedure that you must follow in order to vote. If you are a registered holder of School Specialty common stock (that is, if you hold your School Specialty common stock in certificate form), you may vote in any of the following ways:

The telephone and Internet voting procedures are designed to allow shareholders to vote their shares and to confirm that their instructions have been properly recorded consistent with applicable law. Shareholders who wish to vote over the Internet should be aware that there may be costs associated with electronic access, such as usage charges from Internet service providers and telephone companies, and that there may be some risk that a shareholder’s vote might not be properly recorded or counted because of an unanticipated electronic malfunction.

If you are a non-registered holder of shares of common stock of School Specialty (which, for purposes of this proxy statement, means that your shares are held in “street name”), you should instruct your broker or other nominee to vote your shares by following the instructions provided by your broker or other nominee. You may vote in person at the special meeting if you obtain written authorization in your name from your broker or other nominee and bring evidence of your stock ownership from your broker or other nominee. Please contact your broker or other nominee to determine how to vote by mail and whether you will be able to vote by telephone or over the Internet.

Q:  What happens if I return my proxy card but I do not indicate how to vote?

A:  If you properly return your proxy card but do not include instructions on how to vote, your shares of School Specialty common stock will be voted “FOR” the approval of the merger agreement and “FOR” the approval of the meeting adjournment proposal.

Q:  What happens if I abstain from voting on a proposal?

A:  If you return your proxy card with instructions to abstain from voting on either proposal, your shares will be counted in determining whether a quorum is present at the special meeting. An abstention with respect to either proposal has the legal effect of a vote “AGAINST” the proposal.

Q:  What happens if I do not return a proxy card or otherwise do not vote?

A:  Your failure to return a proxy card or otherwise vote will mean that your shares will not be counted in determining whether a quorum is present at the special meeting and will have the legal effect of a vote “AGAINST” the proposal to approve the merger agreement. Such failure will have no legal effect with respect to the vote on the meeting adjournment proposal.

9

Table of Contents

Q:  May I revoke or change my vote after I have mailed my signed proxy card or otherwise submitted my vote?

A:  Yes.  You can change your vote at any time before your shares are voted at the special meeting. If you are a registered holder of School Specialty common stock, you can do this in any of the following ways:

You should send any notice of revocation or your completed new, later-dated proxy card, as the case may be, to School Specialty at the following address:  W6316 Design Drive, Greenville, Wisconsin 54942, Attn:  Joseph F. Franzoi IV.

If your shares are held in “street name,” you must contact your broker or other nominee and follow the directions provided to you in order to change your vote.

Q:  If my broker or other nominee holds my shares in “street name,” will my broker or other nominee vote my shares for me?

A:  Your broker or other nominee will not be able to vote your shares of School Specialty common stock unless you have properly instructed your broker or other nominee on how to vote. If you do not provide your broker or other nominee with voting instructions, your shares may be considered present at the special meeting for purposes of determining a quorum, but will have the legal effect of a vote “AGAINST” the proposal to approve the merger agreement and will not be considered to have been voted with respect to the meeting adjournment proposal.

Q:  What does it mean if I receive more than one set of materials?

A:  This means you own shares of School Specialty common stock that are registered under different names. For example, you may own some shares directly as a shareholder of record and other shares through a broker or you may own shares through more than one broker. In these situations, you will receive multiple sets of proxy materials. You must complete, sign, date and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards that you receive in order to vote all of the shares you own. Each proxy card you receive comes with its own prepaid return envelope; if you vote by mail, make sure you return each proxy card in the return envelope that accompanies that proxy card.

The Merger

Q:  What is the proposed transaction?

A:  The proposed transaction is an acquisition of School Specialty by LBW Holdings, a newly-formed Delaware corporation whose current owner is a private equity fund affiliated with Bain Capital. The acquisition will be effected by the merger of LBW Acquisition with and into School Specialty, with School Specialty continuing as the surviving corporation in the merger.

10

Table of Contents

Q:  What will I receive in the merger?

A:  If the merger is completed, you will be entitled to receive $49.00 in cash, without interest, for each share of School Specialty common stock owned by you at the effective time of the merger.

Q:  How will the merger affect options to acquire School Specialty common stock?

A:  All options to acquire shares of School Specialty common stock outstanding immediately prior to the effective time of the merger will become fully vested and exercisable (whether or not then vested or subject to any performance condition that has not been satisfied). At the effective time of the merger, any option not exercised (other than certain options that are converted as discussed below) will be canceled as of the effective time of the merger in exchange for a cash payment equal to $49.00 times the total number of shares subject to the options, less the aggregate exercise prices of the options and less applicable taxes required to be withheld, except that any options with an exercise price equal to or greater than $49.00 per share will be canceled without any cash payment. Certain options held by those executive officers and other members of senior management that are not exercised prior to completion of the merger may be converted into options for equity securities of LBW Holdings and its wholly-owned subsidiaries, as agreed upon between such person and LBW Holdings.

Q:  How will the merger affect School Specialty’s 3.75% Convertible Subordinated Notes, and the conversion of the notes into School Specialty common stock?

A:  Under certain circumstances prior to the merger, holders of School Specialty’s 3.75% Convertible Subordinated Notes due 2023 may surrender such notes for a cash payment or a combination of cash and shares of School Specialty common stock. Holders of such notes also may surrender such notes in connection with the merger for a cash payment based on the merger consideration. Not more than 20 days after the effective time of the merger, School Specialty, as the surviving corporation in the merger, must make an offer to repurchase all of such notes then outstanding for an amount in cash equal to 100% of the accreted principal amount of the notes, plus accrued and unpaid interest to, but not including, the date the repurchase price is paid.

Q:  Why is the School Specialty board of directors recommending the approval of the merger agreement?

A:  The School Specialty board of directors determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable to, fair to, and in the best interests of holders of shares of School Specialty’s common stock. The board of directors reached this determination based on the unanimous recommendation of the special committee of the board of directors, the opinion of Morgan Stanley and such other factors, documentation and information deemed appropriate by the board of directors.

Q:  Why was a special committee established?

A:  A special committee of the board of directors was established by the School Specialty board of directors for the purpose of reviewing, evaluating and, as appropriate, negotiating a possible transaction relating to the sale of, or business combination with, School Specialty. The special committee is comprised of independent and disinterested directors. A disinterested director was determined to be a director who would not participate in any sale transaction and would have no interest in any sale transaction different than the interests of the unaffiliated School Specialty shareholders (except with respect to the acceleration of vesting of options to acquire School Specialty common stock received by all directors).

Q:  What is the recommendation of the special committee?

A:  The special committee unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable to, fair to, and in the best interests of holders of shares of the common stock of School Specialty entitled to receive the merger consideration and recommended to our board of

11

Table of Contents

directors that the merger agreement and the transactions contemplated thereby, including the merger, be approved and adopted. The special committee also unanimously recommends that you vote “FOR” the approval of the merger agreement. You should read the section entitled “Special Factors—Reasons for the Merger; Recommendations of the Special Committee and of Our Board of Directors; Fairness of the Merger” for a description of the factors that the special committee considered in deciding to recommend approval of the merger agreement.

Q:  What are the consequences of the merger to our executive officers and our board of directors?

A:  Like all other shareholders, upon completion of the merger, our executive officers and members of our board of directors will be entitled to receive $49.00 per share in cash for each of their shares of School Specialty common stock. Except as described above, like options to acquire shares of School Specialty common stock held by other option holders, options to acquire shares of School Specialty common stock held by our executive officers and directors and outstanding immediately prior to the effective time of the merger will become fully vested and exercisable (whether or not then vested or subject to any performance condition that has not been satisfied). Any unexercised options (other than certain continuing options, as discussed above) will be canceled as of the effective time of the merger. The holders of such options will be entitled to receive a cash payment equal to $49.00 times the number of shares subject to the options, less the aggregate exercise prices of the options and less applicable taxes required to be withheld, except that any options with an exercise price equal to or greater than $49.00 per share will be canceled without any cash payment.

In addition, as discussed in more detail under “Special Factors—Interests of School Specialty Directors and Executive Officers in the Merger” beginning on page 43, change of control provisions in the employment agreements with certain of executive officers will become effective at the time of the merger. These agreements will entitle an executive officer to receive severance payments if such executive officer has a qualifying termination of employment within 60 days following the merger.

After the completion of the merger, certain executive officers may have an indirect equity ownership interest in School Specialty through the beneficial ownership of the equity securities of LBW Holdings and wholly-owned subsidiaries of LBW Holdings, which will directly or indirectly own all of the outstanding capital stock of School Specialty. Certain options held by those executive officers and other members of senior management that are not exercised prior to completion of the merger may be converted into options for equity securities of LBW Holdings and its wholly-owned subsidiaries, as agreed upon between such person and LBW Holdings.

In connection with the merger, LBW Holdings intends to adopt an equity incentive plan under which employees (including the executive officers) will be eligible to receive awards of options for equity securities of LBW Holdings and its wholly-owned subsidiaries or restricted stock awards.

In addition, the merger agreement provides for indemnification arrangements for each of our current and former directors and officers that will continue for six years following the effective time of the merger as well as insurance coverage covering his or her service to the Company as a director or officer.

Q:  Is the merger subject to the satisfaction of any conditions?

A:  Yes. Before the completion of the transactions contemplated by the merger agreement, a number of closing conditions must be satisfied or waived. These conditions are described in this proxy statement under “Terms of the Merger Agreement—Conditions to the Merger” beginning on page 67. These conditions include, among others, obtaining all necessary regulatory approvals to complete the merger, obtaining shareholder and other necessary consents and approvals and LBW Holdings’ receipt of financing to complete the merger. If these conditions are not satisfied or waived, the merger will not be completed even if shareholders vote to approve the merger agreement.

12

Table of Contents

Q:  When do you expect the merger to be completed?

A:  The parties to the merger agreement are working toward completing the merger as quickly as possible. If the merger agreement is approved and adopted by the shareholders and the other conditions to the merger are satisfied or waived, the parties expect to complete the merger during the second quarter of our fiscal 2006, although there can be no assurance that we will be able to do so.

Q:  What are the U.S. federal income tax consequences of the merger to shareholders?

A:  Generally, the merger will be a taxable transaction to our shareholders that are U.S. persons for U.S. federal income tax purposes. A holder of School Specialty common stock receiving cash in the merger in exchange for the holder’s shares of School Specialty common stock generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received in the merger and the holder’s adjusted tax basis in the School Specialty common stock surrendered.

Under U.S. federal income tax law, a holder may be subject to information reporting on cash received in the merger unless an exemption applies. Backup withholding may also apply (currently at a rate of 28%) with respect to the amount of cash received in the merger, unless the holder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholding rules. Each holder should consult the holder’s own tax advisor for a full understanding of how the merger will affect the holder’s federal, state and local taxes. See “Special Factors—Material U.S. Federal Income Tax Consequences” beginning on page 46.

Q:  If the merger is completed, how will I receive the cash for my shares?

A:  If the merger is completed, you will receive a letter of transmittal with instructions on how to send your stock certificates to the bank or trust company designated by LBW Holdings to act as paying agent in connection with the merger. You will receive cash for your shares from the paying agent after you comply with these instructions. If your shares of School Specialty common stock are held for you in “street name” by your broker, you will receive instructions from your broker as to how to effect the surrender of your “street name” shares and receive cash for such shares.

Q:  Should I send in my stock certificates now?

A:  No. Soon after the merger is completed, you will receive the letter of transmittal instructing you to send your stock certificates to the paying agent in order to receive the cash payment of $49.00, without interest, for each share of School Specialty common stock represented by the stock certificates. You should use the letter of transmittal to exchange your stock certificates for the cash payment to which you are entitled upon completion of the merger.

Q:  Are dissenters’ rights available?

A:  No. Under Wisconsin law, shareholders of a corporation are not entitled to exercise dissenters’ rights if shares of the corporation are registered on a national securities exchange or quoted on the National Association of Securities Dealers, Inc. automated quotation system. Consequently, because shares of School Specialty’s common stock are quoted on NASDAQ, you will not be entitled to exercise dissenters’ rights.

Q:  Who can help answer my questions?

A:  If you would like additional copies, without charge, of this proxy statement or if you have questions about the merger agreement or the merger, including the procedures for voting your shares, you should contact Ms. Mary Kabacinski, our Chief Financial Officer, at (920) 734-5712. You may also contact [·], our proxy solicitor, toll-free at [·]with any questions.

13

Table of Contents

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

Any statements in this proxy statement about future results of operations, expectations, plans and prospects, including statements regarding completion of the proposed merger, constitute forward-looking statements. Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “should,” “plans,” “targets” and /or similar expressions. These forward-looking statements are based on School Specialty’s current estimates and assumptions and, as such, involve uncertainty and risk.

The forward-looking statements are not guarantees of future performance, and actual results may differ materially from those contemplated by these forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement, or, in the case of documents incorporated by reference or attached to this proxy statement, as of the respective dates of such documents. These and other factors are discussed in the documents that are incorporated by reference into this proxy statement, including School Specialty’s annual report on Form 10-K for the fiscal year ended April 24, 2004. In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

Except to the extent required under the federal securities laws, School Specialty does not intend to update or revise the forward-looking statements. In the event of any material change in any of the information previously disclosed, we will, where relevant and if required under applicable law, update such information through a supplement to this proxy statement.

All information contained in this proxy statement concerning Bain Capital, the Bain Investor, LBW Holdings, LBW Acquisition and their affiliates and designees has been supplied by LBW Holdings and has not been independently verified by School Specialty.

14

Table of Contents

PARTIES INVOLVED IN THE PROPOSED TRANSACTION

School Specialty

School Specialty, Inc.

W6316 Design Drive

Greenville, Wisconsin 54942

Telephone: (920) 734-5712

School Specialty is incorporated in the state of Wisconsin and is a leading education company that provides products, services and ideas that enhance student achievement and development. It primarily serves the pre-kindergarten through twelfth grade (“preK-12”) education market in the United States and Canada. As of April 30, 2005, it holds approximately a 14 percent market share of the $7.2 billion other instructional materials market. It offers more than 85,000 items, many of which are proprietary, mails over 51 million catalogs annually, operates a national distribution network and has developed e-commerce websites. Its broad product range enables it to provide customers with one source for their supplemental educational product needs. Its leading market position has been achieved by emphasizing high-quality products and services, superior order fulfillment and exceptional customer service. As a result, it has been able to establish relationships with virtually all of the preK-12 schools and reach nearly all of the teachers in the United States.

Detailed descriptions about School Specialty’s business and financial results are contained in its Annual Report on Form 10-K for the fiscal year ended April 24, 2004, which is incorporated in this proxy statement by reference. See “Where Shareholders Can Find More Information” beginning on page 76.

LBW Holdings and LBW Acquisition

LBW Holdings, Inc.

LBW Acquisition, Inc.

111 Huntington Avenue

Boston, MA 02199

Telephone: (617) 516-2000

LBW Holdings, Inc., a newly formed Delaware corporation, was formed by the Bain Investor solely for the purpose of acquiring School Specialty. LBW Holdings has not engaged in any business except in connection with the merger.

LBW Acquisition, Inc., a newly formed Delaware corporation, was formed by LBW Holdings solely for the purpose of entering into the merger agreement and completing the merger contemplated by the merger agreement. LBW Acquisition is wholly-owned by LBW Holdings and has not engaged in any business except in anticipation of the merger.

15

Table of Contents

THE SPECIAL MEETING

General

The enclosed proxy is solicited on behalf of our board of directors for use at a special meeting of shareholders to be held on [·], 2005, at [·]:00 a.m., local time, or at any adjournments or postponements of the special meeting, for the purposes set forth in this proxy statement and in the accompanying notice of special meeting. The special meeting will be held at School Specialty’s headquarters located at W6316 Design Drive, Greenville, Wisconsin 54942. School Specialty intends to mail this proxy statement and the accompanying proxy card on or about [·], 2005 to all shareholders entitled to vote at the special meeting.

At the special meeting, shareholders will be asked to consider and vote upon proposals to:

The proxy statement, dated [·], 2005, is first being mailed to shareholders on or about [·], 2005.

Record Date and Voting Information

Only holders of record of School Specialty common stock at the close of business on [·], 2005, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements thereof. At the close of business on the record date, [·] shares of School Specialty common stock were outstanding and entitled to vote. A list of shareholders will be available for review at School Specialty’s executive offices during regular business hours beginning two business days after notice of the special meeting is given and continuing to the date of the special meeting and will be available for review at the special meeting or any adjournment thereof. Each holder of record of School Specialty common stock on the record date will be entitled to one vote for each share held. If you sell or transfer your shares of School Specialty common stock after the record date but before the special meeting, you will transfer the right to receive the $49.00 in cash per share, without interest, if the merger is completed to the person to whom you sell or transfer your shares, but you will retain your right to vote at the special meeting.

All votes will be tabulated by the inspector of election appointed for the special meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Brokers who hold shares in “street name” for clients typically have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. Absent specific instructions from the beneficial owner of the shares, however, brokers are not allowed to exercise their voting discretion with respect to the approval of non-routine matters, such as the merger agreement. Proxies submitted without a vote by brokers on these matters are referred to as “broker non-votes.”

Quorum

Shares entitled to vote at the special meeting may take action on a matter at the special meeting only if a quorum of those shares exists with respect to that matter. Accordingly, the presence, in person or by proxy, of the holders of a majority of the outstanding shares of School Specialty common stock entitled to vote at the special meeting is necessary to constitute a quorum for the transaction of business at the special meeting. If a share is represented for any purpose at the special meeting, other than for the purpose of objecting to the special meeting or the transacting of business at the special meeting, it will be deemed present for purposes of determining whether a quorum exists.

16

Table of Contents

Any shares of School Specialty common stock held in treasury by School Specialty are not considered to be outstanding on the record date or otherwise entitled to vote at the special meeting for purposes of determining a quorum.

Shares represented by proxies reflecting abstentions and properly executed broker non-votes are counted for purposes of determining whether a quorum exists at the special meeting.

Required Vote

The affirmative vote of a majority of the outstanding shares of School Specialty common stock is required to approve the merger agreement and the transactions contemplated thereby, including the merger. Approval of the meeting adjournment proposal, if necessary or appropriate, requires the affirmative vote of a majority of the shares of School Specialty common stock present and entitled to vote at the special meeting.

Proxies that reflect abstentions and broker non-votes, as well as proxies that are not returned, will have the same effect as a vote against approval of the merger agreement. In the case of the meeting adjournment proposal, a failure to vote, a vote to abstain or a broker non-vote will have no effect on the outcome of the voting.

If the special meeting is adjourned or postponed for any reason, at any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the meeting, except for any proxies that have been revoked or withdrawn.

Proxies and Revocation of Proxies

Shareholders of record may submit proxies by mail, by telephone or over the Internet. After carefully reading and considering the information contained in this proxy statement, you should complete, date and sign your proxy card and mail the proxy card in the enclosed postage paid return envelope as soon as possible so that your shares of School Specialty common stock may be voted at the special meeting, even if you plan to attend the special meeting in person. You can also submit your proxy by telephone by calling the number on your proxy card or over the Internet by visiting the website designated on your proxy card. If voting by telephone, follow the instructions on your proxy card and use the telephone keypad to submit any required information and your vote after the appropriate voice prompts. If voting over the Internet, please follow the on-screen instructions and the instructions on your proxy card. Submitting a proxy now will not limit your right to vote at the special meeting if you decide to attend in person. If your shares are held of record in “street name” by a broker or other nominee and you wish to vote in person at the special meeting, you must obtain from the record holder a proxy issued in your name.

Proxies received at any time before the special meeting and not revoked or superseded before being voted will be voted at the special meeting. If the proxy indicates specific voting instructions, it will be voted in accordance with the voting instructions. If no voting instructions are indicated, the proxy will be voted “FOR” approval of the merger agreement and “FOR” the meeting adjournment proposal.

Please do not send in stock certificates at this time. If the merger is completed, you will receive instructions regarding the procedures for exchanging your existing School Specialty stock certificates for the $49.00 per share cash payment, without interest.

Any person giving a proxy pursuant to this solicitation has the power to revoke and change it at any time before it is voted. It may be revoked and changed by filing a written notice of revocation with the Secretary of School Specialty at School Specialty’s executive offices located at W6316 Design Drive, Greenville, Wisconsin 54942, by submitting in writing, by telephone or over the Internet a proxy bearing a later date, or by attending the special meeting and voting in person. Attendance at the special meeting will not, by itself, revoke a proxy. If you have given voting instructions to a broker or other nominee that holds your shares in “street name,” you may revoke those instructions by following the directions given by the broker or other nominee.

17

Table of Contents

Expenses of Proxy Solicitation

This proxy statement is being furnished in connection with the solicitation of proxies by our board of directors. School Specialty will bear the entire cost of solicitation of proxies, including costs relating to preparation, assembly, printing and mailing of this proxy statement, the notice of the special meeting of shareholders, the enclosed proxy and any additional information furnished to shareholders. School Specialty has engaged the services of [·] to solicit proxies and to assist in the distribution of proxy materials. In connection with its retention by School Specialty, [·] has agreed to provide consulting and analytic services and to assist in the solicitation of proxies, primarily from banks, brokers, institutional investors and individual shareholders. School Specialty has agreed to pay [·] a fee of [·] plus reasonable out-of-pocket expenses for its services. Copies of solicitation materials will also be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of School Specialty common stock beneficially owned by others to forward to these beneficial owners. School Specialty may, upon request, reimburse brokers, bankers and other nominees representing beneficial owners of School Specialty common stock for their costs of forwarding solicitation materials to the beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone or personal solicitation by directors, officers or other regular employees of School Specialty. No additional compensation will be paid to directors, officers or other regular employees for their services.

Adjournments and Postponements

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. If the special meeting is adjourned to a different place, date or time, School Specialty need not give notice of the new place, date or time if the new place, date or time is announced at the meeting before adjournment or postponement, unless a new record date is or must be set for the adjourned meeting. Our board of directors must fix a new record date if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow School Specialty’s shareholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

Attending the Special Meeting

In order to attend the special meeting in person, you must be a shareholder of record on the record date, hold a valid proxy from a record holder or be an invited guest of School Specialty. You will be asked to provide proper identification at the registration desk on the day of the meeting or any adjournment or postponement of the meeting.

18

Table of Contents

SPECIAL FACTORS

Background of the Merger

Over the past several years, School Specialty received a variety of inquiries from third parties who wished to explore the possibility of engaging in a business combination transaction with School Specialty. In response to several of those inquiries, School Specialty engaged financial advisers to assist it in reviewing and evaluating these potential transactions. In each case, School Specialty terminated the discussions due to inadequate purchase price and other considerations.

On November 18, 2004, Mr. Jonathan Ledecky, a member of the board of directors of School Specialty, called on Mr. Mark Nunnelly, a Managing Director of Bain Capital, at Bain Capital’s offices in Boston, Massachusetts. During the course of his visit, they discussed Bain Capital and School Specialty and were joined by several other employees of Bain Capital with whom they discussed the possibility of a transaction involving School Specialty.

On November 30, 2004, Mr. Ledecky and Mr. David J. Vander Zanden, a member of School Specialty’s board of directors and its chief executive officer, had a telephone conference with Mr. Nunnelly during which Mr. Nunnelly indicated Bain Capital’s interest in pursuing a transaction with School Specialty and requested to meet with Mr. Vander Zanden. Mr. Vander Zanden agreed to meet with representatives of Bain Capital subject to their entry into a confidentiality agreement.

On December 8, 2004, School Specialty entered into a confidentiality agreement with Bain Capital.

On December 10, 2004, Mr. Vander Zanden met with Mr. Nunnelly and other employees of Bain Capital at School Specialty’s headquarters in Greenville, Wisconsin. At this meeting, Mr. Vander Zanden provided Bain Capital with a general overview of School Specialty’s business and a summary of publicly available historical financial information. Subsequent to this meeting, Mr. Vander Zanden had additional conversations with Bain Capital during which he responded to questions arising from the December 10, 2004 meeting and was provided with a general overview of Bain Capital’s history and business.

On January 14, 2005, at a special meeting of the board of directors called to discuss corporate strategy, Mr. Vander Zanden reviewed his communications with Bain Capital, which included Bain Capital’s expression of interest in acquiring School Specialty. In connection with this review, the board of directors was provided with materials regarding its fiduciary duties, the background legal framework for change of control transactions and the role of special committees in such transactions. After an extensive discussion, the board of directors determined that any due diligence to be conducted by Bain Capital would be conditioned on receiving a written, non-binding letter of intent indicating a purchase price for all of School Specialty’s outstanding shares of $50.00 or more per share. The $50.00 per share price was a result of the board of directors’ ongoing discussions regarding corporate strategy and analysis of future financial performance and was not based on discussions with or advice received from a financial advisor.

On January 15, 2005 Mr. Vander Zanden informed Bain Capital of this determination. In several subsequent conversations between January 15, 2005 and February 2, 2005, Mr. Vander Zanden responded to questions from and provided information to Bain Capital in connection with its preliminary investigation of a possible transaction involving School Specialty. During the course of these conversations, Bain Capital verbally indicated that it was interested in acquiring all of School Specialty’s outstanding shares for a purchase price in a range of $45.00 to 47.00 per share in cash based upon information received to date, but that it would need access to additional information regarding School Specialty prior to submitting a letter of intent at this or any other price. Following a series of discussions among the members of the board of directors, Mr. Vander Zanden was authorized to allow Bain Capital to begin due diligence, and was instructed to inform Bain Capital that the board of directors would not consider a sale of School Specialty to Bain Capital unless the purchase price per share was $50.00 or more.

19

Table of Contents

Between February 3, 2005 and February 21, 2005, Bain Capital and its legal counsel, Ropes & Gray LLP (which we refer to in this proxy statement as Ropes & Gray) provided several due diligence request lists to School Specialty, reviewed the materials provided in response to such lists and had various conversations with Mr. Vander Zanden and several other employees of School Specialty on related topics.

On February 15, 2005, at a regular quarterly meeting of the board of directors, Mr. Nunnelly and two other representatives of Bain Capital, Mr. Ian Loring and Mr. Jonathan Goodman, made a presentation regarding the business of Bain Capital.

In a letter dated March 1, 2005 addressed to School Specialty’s board of directors, Bain Capital revised its earlier indication of interest and stated that it would be willing to acquire all of School Specialty’s equity interests for $47.00 per share in cash. On March 2, 2005, the board of directors held a special meeting by telephone during which the letter from Bain Capital dated March 1, 2005 and a potential response were discussed. The board of directors determined to inform Bain Capital that it would not pursue any sale or similar transaction at that price and a letter to that effect was sent to Bain Capital by Mr. Leo C. McKenna, the chairman of School Specialty, on March 2, 2005.

On March 8, 2005, Mr. McKenna spoke with Mr. Nunnelly and indicated that the board of directors was not willing to pursue a transaction at a price less than $50.00 per share.

In a letter dated March 11, 2005, Bain Capital increased the price at which it would be willing to acquire all of School Specialty’s equity interests to $49.00 per share in cash, which represented a 31% premium over the per share closing price of School Specialty’s common stock on March 10, 2005. The letter stated that Bain Capital would like to explore whether Mr. Vander Zanden and other members of management would be interested in participating in the proposed transaction and, accordingly, for certain members of management to retain a substantial portion of their existing equity ownership of School Specialty. In addition, the letter included executed commitment letters from Bank of America, N.A., Deutsche Bank and J.P. Morgan providing for the financing necessary to consummate the proposed transaction and requested that School Specialty grant Bain Capital a 20 day exclusivity period during which a definitive agreement could be negotiated.

On March 14, 2005, at a meeting of the board of directors, Messrs. McKenna and Vander Zanden reviewed for the directors the March 11, 2005 letter received from Bain Capital. School Specialty’s board of directors then discussed the letter and the possibility of a transaction with Bain Capital. The board of directors discussed various strategic alternatives, including continuing to operate as a public company, a possible sale to a strategic buyer and a possible sale to another financial buyer involving a highly-leveraged transaction. Following that discussion, the board of directors decided to explore a possible sale transaction and to establish a special committee of directors to consider such a transaction.

The board of directors decided that the special committee should be comprised solely of independent and “disinterested” directors. A disinterested director was determined to be a director who would not participate in any sale transaction and would have no interest in any sale transaction different from the interests of our public shareholders, other than as a result of their ownership of options to acquire School Specialty common stock received by all directors. The board of directors had previously determined that Jerome M. Pool, Terry L. Lay, Rochelle Lamm and Leo C. McKenna were independent and found that such board members were also disinterested in Bain Capital’s proposed transaction. Accordingly, the entire board of directors adopted resolutions establishing a special committee comprised of Ms. Lamm and Messrs. Pool, Lay and McKenna.

The special committee was established for the purpose of reviewing, evaluating and, as appropriate, negotiating, on behalf of the Company, a possible transaction relating to the sale of, or business combination with, School Specialty, whether with Bain Capital or another third party. The special committee was given the power and authority by the board of directors to (i) review and evaluate the strategic and other alternatives available to School Specialty, including a transaction with Bain Capital and to determine whether any such alternative is in the best interests of School Specialty and its shareholders, (ii) conduct itself, or through its designees, negotiations of the terms and conditions of any possible transaction, (iii) determine whether the final terms of any possible transaction are advisable, fair to, and in the best interests of School Specialty and its

20

Table of Contents

shareholders, (iv) recommend to the full board of directors what action, if any, should be taken by School Specialty with respect to any possible transaction and (v) exercise all of the authority of the full board of directors, to the extent allowed by law. The special committee was also authorized to retain financial advisors, legal advisors and any other professional advisors as the special committee deemed necessary or appropriate. In addition, the board of directors authorized members of the special committee and the special committee’s advisors to have access to the officers and other members of management of School Specialty.

Immediately thereafter, the special committee held its initial meeting by telephone. The special committee discussed Bain Capital’s offer letter and the need to appoint a chairman and select legal and financial advisors. The special committee unanimously elected Mr. McKenna as its chair and determined that it should interview potential legal advisors as soon as possible.

On March 16, 2005, Mr. McKenna interviewed two potential legal advisors. Ms. Lamm participated in one of the interviews. The special committee held a telephonic meeting on March 17, 2005, during which Mr. McKenna discussed the interviews with the potential legal advisors. After extensive deliberations, the special committee unanimously determined to engage Sidley Austin Brown & Wood LLP (which we refer to in this proxy statement as Sidley) as its independent legal advisor based on Sidley’s reputation, experience and expertise in similar matters.

On March 23, 2005, Mr. McKenna and representatives of Sidley interviewed three potential independent financial advisors. At a telephonic meeting later that day, the special committee unanimously selected Morgan Stanley as its independent financial advisor based on Morgan Stanley’s reputation and experience as an investment banking firm. During the meeting, Sidley provided the special committee members with the first series of legal briefings about their fiduciary duties and the background legal framework for change of control and interested party transactions. During the discussion, each of the members of the special committee reaffirmed their independence and disinterestedness. The special committee and Sidley also discussed possible responses to Bain Capital’s offer letter. The special committee determined that Mr. McKenna should, on behalf of the special committee, send a letter to Bain Capital informing it that a special committee had been formed for the purpose of addressing the offer, a financial advisor had just been hired and that, until the committee had an opportunity to discuss the offer with its financial advisor, the special committee would not be in a position to make any decisions with respect to Bain Capital’s $49.00 offer price. Bain Capital was also advised that its request for exclusivity would not be agreed to. This letter was sent to Bain Capital later that day. In addition, the special committee extensively discussed prior efforts to solicit offers for School Specialty. The special committee authorized Sidley to contact Mr. Ledecky to inquire whether Mr. Ledecky was involved in Bain Capital’s proposal and to determine whether Mr. Ledecky had engaged in any soliciting activities.

Ropes & Gray contacted Sidley on March 24, 2005 to acknowledge receipt of the special committee’s letter dated March 23, 2005 and to inquire as to the time frame in which the special committee would respond to Bain Capital’s offer. Sidley informed Ropes & Gray that the special committee would need time to review and discuss Bain Capital’s offer with Morgan Stanley and that the special committee would contact Bain Capital once it had reached a determination whether to pursue a sale of School Specialty.

On March 25, 2005, Sidley contacted Mr. Ledecky and his legal counsel by telephone, as instructed by the special committee. During the conversation, Mr. Ledecky provided a summary of School Specialty’s previous strategic discussions with third parties and confirmed that he was not participating in Bain Capital’s offer and that, to the extent he were to become aware of any third party’s interest in acquiring School Specialty, he would report such facts to the special committee and not participate in any discussions involving a sale of School Specialty.

On March 30, 2005, Morgan Stanley toured the School Specialty’s facilities and met in person with Mr. Vander Zanden and Ms. Mary M. Kabacinski, School Specialty’s chief financial officer.

On March 31, 2005, the special committee met by telephone (Ms. Lamm and Mr. Pool were not present), together with representatives of Sidley and Morgan Stanley. Morgan Stanley provided the special committee

21

Table of Contents

with an update on the status of its valuation process and discussed the management meetings and site tour that took place on March 30, 2005. Sidley reported to the special committee regarding its March 25, 2005 conversation with Mr. Ledecky and its March 24, 2005 conversation with Ropes & Gray.

On April 1, 2005, Ropes & Gray contacted Sidley to further inquire as to the status and timing of the special committee’s deliberations and Sidley informed Ropes & Gray that the special committee had not received a preliminary valuation report and the special committee would contact Bain Capital as soon as it reached a decision as to whether to pursue a sale of School Specialty.

On April 11, 2005, the special committee met in person (with the exception of Ms. Lamm, who joined via video-teleconference, and Mr. Lay, who joined by teleconference) with representatives from Sidley and Morgan Stanley, at Sidley’s offices in Chicago. The special committee members were again informed by Sidley of their fiduciary duties and the background legal framework with respect to change of control and interested party transactions. Morgan Stanley led a discussion of certain valuation issues relating to School Specialty, Bain Capital’s proposal, other potential buyers for School Specialty and historical and projected financial information. After a thorough discussion regarding Morgan Stanley’s preliminary presentation, including extensive questions from the special committee, the special committee determined to adjourn the meeting until April 13, 2005, at which time Mr. Vander Zanden could join the meeting to answer the special committees’ and Morgan Stanley’s questions regarding School Specialty’s projected financial performance.

Also on April 11, 2005 Morgan Stanley, as directed by the special committee, called Bain Capital to inform Bain Capital that the special committee had not reached a decision as to whether to pursue a sale of School Specialty.

On April 13, 2005, the special committee resumed its April 11, 2005 meeting via teleconference, with Mr. Vander Zanden present at the special committee’s invitation. The special committee and Morgan Stanley engaged in extensive questioning of Mr. Vander Zanden regarding School Specialty’s projected financial performance, including the assumptions used by Morgan Stanley to extend School Specialty’s financial projections used in its ongoing valuation review. Mr. Vander Zanden provided guidance and commentary on the assumptions used in the extended financial projections and was then excused from the balance of the meeting. The special committee then instructed Morgan Stanley to continue its ongoing valuation review based on the guidance and feedback received from Mr. Vander Zanden.

The special committee adjourned the meeting until April 14, 2005, at which time Morgan Stanley provided an update of its ongoing valuation review. After hearing Morgan Stanley’s update, and after extensive discussion with respect to the special committee’s alternatives (including privately soliciting indications of interest from potential strategic and financial buyers or not pursuing a transaction at all), the special committee preliminarily determined that it would be in the best interests of School Specialty and its shareholders to pursue an all-cash transaction at or near $49.00 per share. In reaching its preliminary determination, the special committee considered: (1) the current financial projections of School Specialty, including the risks of achievement, in light of School Specialty’s prior history of achieving, its internal projections; (2) the relationship of the $49.00 per share cash merger consideration to the current and historical trading prices of School Specialty’s common stock; and (3) the special committee’s assessment, based on the discussions with Morgan Stanley, that it would be unlikely for any financial buyer to offer more than, at or near $49.00 per share under then current leveraged acquisition financing market conditions or a strategic buyer to pay substantially more than that level, if basing its decision on financial (i.e., accretion) considerations. The special committee instructed Morgan Stanley to communicate to Bain Capital the special committee’s willingness to pursue discussions with Bain Capital based upon a price in the range of $51.00 per share, provided that any definitive merger agreement would have to provide School Specialty with significant flexibility in responding to unsolicited inquiries from third parties and would not contain provisions that would preclude or meaningfully impede a superior proposal. In addition, the special committee further authorized Morgan Stanley to communicate to Bain Capital that at this time in the process it would be willing to commit not to solicit other possible bids for School Specialty, provided that School Specialty would still be able to enter into discussions with any third party that may approach it on an unsolicited basis.

22

Table of Contents

Later on April 14, 2005, Morgan Stanley, at the direction of the special committee, contacted Mr. Nunnelly and informed him of the terms on which the special committee was willing to proceed with Bain Capital. Mr. Nunnelly refused to raise the proposal above $49.00 per share and indicated that he was concerned about the state of the leveraged acquisition financing markets and its impact on Bain Capital’s ability to finance the $49.00 proposal.

On April 15, 2005, Morgan Stanley called Mr. McKenna to report on its conversation with Mr. Nunnelly from the previous day.

On April 16, 2005, Mr. Nunnelly called Mr. McKenna. Mr. McKenna informed Mr. Nunnelly that he was unsure whether the special committee would approve the transaction at $49.00 per share, but that he was confident it would approve a transaction at $50.00 per share. Mr. Nunnelly again refused to raise Bain Capital’s proposal above $49.00 per share, and again indicated that he was concerned about the state of the leveraged acquisition financing markets and its impact on Bain Capital’s ability to finance the $49.00 proposal.

On April 18, 2005, the special committee met by telephone, along with representatives of Morgan Stanley and Sidley, to discuss the conversations between Morgan Stanley and Mr. Nunnelly, and between Mr. McKenna and Mr. Nunnelly. After discussions with Morgan Stanley and Mr. McKenna about Bain Capital’s likelihood of increasing its offer price, and after hearing Morgan Stanley’s discussions of the then current state of the leveraged acquisition financing markets, the special committee unanimously resolved that it was in the best interests of School Specialty and its shareholders to move forward with negotiations with Bain Capital at $49.00 per share; provided, that any ultimate merger agreement must both allow School Specialty flexibility in responding to unsolicited inquiries from third parties and not contain provisions that would preclude or meaningfully impede a superior proposal. Later that day, Morgan Stanley contacted Bain Capital to inform them of the special committee’s determination.

On April 19, 2005, Ropes & Gray distributed an initial draft of the proposed merger agreement to Sidley, which Sidley forwarded to the special committee and Morgan Stanley. The special committee requested that Mr. Joseph F. Franzoi IV and Godfrey & Kahn, S.C., in their capacities as School Specialty’s outside legal counsel, review with School Specialty’s management certain sections of the draft merger agreement that related to School Specialty’s historical condition and ongoing operations (such as representations and warranties and pre-closing operating covenants) as well as to review disclosure schedules prepared by School Specialty.

On April 21, 2005, the special committee met by telephone, together with representatives of Sidley and Morgan Stanley, to receive a summary from Sidley on the terms of the draft merger agreement. Sidley presented a summary of the key provisions of the merger agreement, with particular focus on financing conditions and deal protections, including termination events and termination fees, non-solicitation provisions and the ability of the board of directors to change its recommendation of the Bain Capital transaction. The special committee provided Sidley with guidance on how to respond to the initial draft of the merger agreement. In addition, Sidley again reviewed with the special committee members their fiduciary duties with respect to change of control and interested party transactions.

On April 22, 2005, Sidley distributed its and School Specialty’s outside counsel’s initial comments on the draft merger agreement to Ropes & Gray.

On April 26, 2005, Sidley and Ropes & Gray discussed the major issues identified by Sidley’s comments. Also on that day, at the request of the special committee a representative from Morgan Stanley met in person with Mr. Ledecky in Palm Beach, Florida to discuss the special committee’s analysis to date. The special committee made the request because Mr. Ledecky was the only member of the board of directors who was expected to participate in any action taken by the board of directors with respect to the merger but who was not a member of the special committee, and the special committee believed that providing such information would facilitate any such action. Morgan Stanley reviewed the special committee’s discussions and negotiations with Bain Capital regarding the terms and conditions of the draft merger agreement, shared selected information relating to its ongoing valuation review with Mr. Ledecky and answered Mr. Ledecky’s questions regarding the

23

Table of Contents

special committee’s deliberations. Later on that day, the special committee met by telephone, together with representatives of Sidley and Morgan Stanley to receive an update on the status of negotiations of the merger agreement and timing. The special committee discussed with Sidley several issues in the draft merger agreement and instructed Sidley as to how to proceed.

On April 28, 2005, Mr. Nunnelly called Mr. McKenna to inform him that one of its financing sources had withdrawn its financing commitment, but that Bain Capital was actively seeking an alternative commitment to enable it to proceed with the proposed transaction. Mr. McKenna shared this news with the other members of the special committee and its advisors.

On April 29, 2005, the special committee met by telephone, along with representatives of Sidley and Morgan Stanley. The special committee discussed the withdrawal from Bain Capital’s financing group and its potential impact on the transaction. Morgan Stanley informed the special committee that the leveraged acquisition financing markets had continued to deteriorate since the most recent committee meeting. Mr. McKenna then reported to the committee that Mr. Vander Zanden had recently received an unsolicited inquiry from a third party which was interested in discussing a transaction with School Specialty. A discussion of this development ensued, including a briefing from Sidley on the special committee’s fiduciary duties in change of control and interested party transactions. The special committee determined that Sidley and Mr. McKenna should contact Mr. Vander Zanden to obtain additional details with respect to the inquiry.

Later that day, Mr. McKenna and a representative of Sidley contacted Mr. Vander Zanden to inquire into the call received from the potentially interested third party. Mr. Vander Zanden explained that the third party had called him earlier on April 29, 2005 stating that it had heard rumors that School Specialty was considering a possible transaction and that it was potentially interested in exploring a transaction with School Specialty. Mr. Vander Zanden reported that he informed the third party that he would not comment on rumors.

On May 2, 2005, the special committee met by telephone, along with representatives of Morgan Stanley and Sidley. At the invitation of the special committee, Sidley reported on its conversation with Mr. Vander Zanden regarding the call received from the third party. A lengthy discussion ensued regarding the alternative courses of action available to the special committee in light of the information about the third party’s potential interest. Sidley also briefed the special committee on its fiduciary duties in change of control and interested party transactions. After a thorough discussion, the special committee determined to reconvene in two days in order to assess any developments in Bain Capital’s efforts to secure financing commitments. The special committee based its decision on (i) the special committee’s assessment, based on discussions with Morgan Stanley, that it was unlikely another financial buyer could exceed Bain Capital’s offer, a fact supported by one of Bain Capital’s financing sources declining to participate in Bain Capital’s financing syndicate, (ii) the possibility that making a call to the third party would result in Bain Capital withdrawing or reducing its current offer and (iii) the possible delay in reaching an agreement with Bain Capital resulting from providing the third party with time to make a proposal and the possibility that further deterioration in the leveraged acquisition financing markets would occur during the delay, resulting in a lower offer from Bain Capital or a withdrawal of its offer.

On May 3, 2005, Mr. McKenna received a call from Mr. Nunnelly. During the conversation, Mr. Nunnelly reaffirmed the offer at $49.00 per share and informed Mr. McKenna that Bain Capital had secured the necessary financing commitments and was prepared to proceed with the proposed transaction, subject to the condition that there would be no further deterioration in the leveraged acquisition financing markets.

On May 4, 2005, the special committee met by telephone, along with representatives of Morgan Stanley and Sidley. At that meeting, Mr. McKenna reviewed with the special committee his discussions with Bain Capital from the previous day, including the new condition regarding Bain Capital’s financing commitments. The special committee discussed the financing condition and determined that it should obtain and review Bain Capital’s proposed language prior to making any determination with respect to the financing condition.

24

Table of Contents

On May 6, 2005, Ropes & Gray provided proposed financing condition language to the special committee and its advisors. Over the course of the following days, representatives of Sidley and Ropes & Gray held several discussions regarding the proposed language. The special committee and its advisors reviewed the proposed language and provided comments to Ropes & Gray on May 10, 2005.

On May 11, 2005, the special committee met by telephone, along with representatives of Morgan Stanley and Sidley. At the invitation of the special committee, Sidley described the proposed financing condition, including the specific metrics (based upon the Citigroup High Yield Market Index) included therein, in detail. After discussion with its advisors regarding the financing condition and the likelihood of deterioration in the leveraged acquisition financing markets, the special committee determined to move forward with Bain Capital and accept the financing condition, but instructed Sidley to seek a reduction in the termination fee and other modifications to the draft merger agreement.

On the morning of May 12, 2005, Sidley contacted Ropes & Gray to discuss the financing condition and the special committee’s desire to have the termination fee and other contract provisions modified. Ropes & Gray, on behalf of Bain Capital, rejected all of the special committee’s requests to reduce the termination fee and to make other contract modifications.

On the evening of May 13, 2005, Ropes & Gray distributed a revised draft of the merger agreement.

On May 16, 2005, the special committee met by telephone, along with representatives of Sidley and Morgan Stanley, to discuss the revised draft of the merger agreement. Sidley briefed the special committee on the revised agreement and discussed the key provisions of the draft. Morgan Stanley also noted that the Citigroup High Yield Market Index “spread to worst” was, as of the current time, 12 basis points above the highest point at which Bain Capital would be required to consummate the transaction, meaning that if the markets were at their current levels for any three days between September 15 and October 31, Bain Capital could terminate the transaction. After extensive discussion, the special committee determined that Mr. McKenna should contact Bain Capital to convey the special committee’s determination that it would terminate discussions with Bain Capital unless numerous provisions in the proposed draft were substantially modified.

In the morning of May 17, 2005, Mr. McKenna contacted Mr. Nunnelly and informed him of the special committee’s determination. Mr. Nunnelly expressed his desire to proceed with the transaction and suggested an in-person meeting for May 18, 2005 to negotiate the key open issues in the merger agreement.

Later that day, the special committee met by telephone, along with representatives of Sidley and Morgan Stanley, to discuss Mr. McKenna’s conversation with Bain Capital. After Mr. McKenna summarized his conversation, Sidley and the special committee discussed the major issues that would be discussed at the May 18 meeting and the special committee provided guidance on the terms it wanted to be reflected in the merger agreement.

On the morning of May 18, 2005, Ropes & Gray distributed a draft of the financing commitment letters to Sidley. That afternoon and evening, Mr. McKenna and representatives of Sidley met with Bain Capital and Ropes & Gray at Bain Capital’s Boston office to negotiate the terms of the merger agreement.

On the morning of May 19, 2005, Sidley distributed to the committee a written summary of the results of the meeting with Bain Capital. The special committee met by telephone later that afternoon to discuss Sidley’s summary as well to continue its discussion regarding the terms of the financing condition set forth in the draft merger agreement. That evening, Ropes & Gray distributed a revised draft of the merger agreement.

On May 21, 2005, representatives of Sidley received email correspondence from Mr. Vander Zanden stating that he was scheduled to meet with the third party that had previously expressed interest in a transaction with School Specialty on May 27, 2005. He indicated that his purpose for the meeting would be to discuss the

25

Table of Contents

acquisition by School Specialty of a portfolio business owned by the third party, but that he expected the third party to discuss the acquisition of School Specialty by the third party.

On the morning of May 22, 2005, Sidley provided Ropes & Gray with comments on the draft merger agreement. Later that day, School Specialty’s outside counsel and Ropes & Gray discussed the representations and warranties and covenants regarding interim operations of School Specialty and Sidley discussed its comments with Ropes & Gray.

On the morning of May 23, 2005, the special committee met by teleconference to discuss the status of the merger agreement and the correspondence received from Mr. Vander Zanden regarding the third party. After discussion, the special committee determined that Morgan Stanley should contact the third party and inquire as to its interest in a transaction involving School Specialty.

Immediately after the special committee meeting, Morgan Stanley placed a call to the third party and inquired as to the third party’s purpose for meeting with Mr. Vander Zanden. The third party indicated that it had discussed with Mr. Vander Zanden in the past the sale of one of its portfolio businesses to School Specialty, but that due to certain tax considerations, it was not interested in pursuing an outright sale of that business to School Specialty for cash. Instead, the third party had been considering a complex transaction with School Specialty whereby the third party would sell the portfolio business to School Specialty in return for common stock and potentially follow that sale with a transaction by which the third party would acquire majority (even 100%) control of School Specialty, although the specifics had yet to be determined or discussed. The third party indicated that its work with respect to a potential transaction with School Specialty was preliminary and that if School Specialty was pursuing a transaction in the near term, it should proceed with that transaction rather than engage in any discussions with it.

The special committee met again on the afternoon of May 23, 2005 to receive Morgan Stanley’s report of its conversation with the third party. After discussion, the special committee determined to proceed with the proposed transaction with Bain Capital in light of a number of factors, including the third party’s own statements that its indications of interest were preliminary and the special committee’s lack of confidence that such third party would eventually propose a transaction superior to the proposed transaction with Bain Capital or that any such transaction would ever be consummated.

On May 23, 2005, Bain Capital forwarded preliminary information regarding the proposed equity compensation arrangements with management following the merger.

On the evening of May 24, 2005, Ropes & Gray distributed a revised draft of the merger agreement.

On May 25, 2005, the special committee met in person in Chicago, Illinois. In addition to representatives of Morgan Stanley and Sidley, Mr. Ledecky was present at the invitation of the special committee. In advance of the meeting, the members of the special committee had received written materials, including the most recent draft of the merger agreement. At the meeting, Sidley reported on the status of the merger agreement negotiations, summarized and discussed with the special committee the material terms of the merger agreement, including those terms that were still being negotiated and discussed the directors’ fiduciary duties. Sidley noted that it did not have any information regarding Mr. Vander Zanden’s participation in the Bain Capital transaction, but that it understood that Mr. Vander Zanden was in discussions with Bain Capital. Morgan Stanley provided an update of its valuation review of the $49.00 per share offer to the special committee. Mr. Ledecky and the special committee then discussed the financing condition contained in the draft merger agreement, which provided, in addition to other things, that Bain Capital would not be required to obtain the financing necessary to consummate the merger if the Citibank High Yield Market Index “spread to worst” exceeds 430 basis points for any three days between September 15, 2005 and October 31, 2005. Morgan Stanley reported that at the most recent available date, the Citibank High Yield Market Index “spread to worst” was 444 basis points. After discussion, the special committee determined that Mr. McKenna should contact Bain Capital and seek to have the reference to the Citibank High Yield Market Index spread contained in the financing condition revised to reflect the most recent spread that could be obtained prior to signing.

26

Table of Contents

On May 26, 2005, Mr. McKenna communicated the special committee’s request to Mr. Nunnelly and Mr. Nunnelly declined to revise the reference to the Citibank High Yield Market Index. Mr. McKenna then asked Mr. Nunnelly at what price Bain Capital would be willing to revise the financing condition in the draft merger agreement to reflect a more customary condition. Mr. Nunnelly indicated that he would be willing to do so at a price of $46.50 per share, and could talk to his partners about whether he could do so at a price of $47.00 per share.

Mr. McKenna then called Morgan Stanley to report on his conversation with Mr. Nunnelly.

On the morning of May 27, 2005, the special committee met telephonically, along with representatives of Sidley and Morgan Stanley and Mr. Ledecky, who was present at the invitation of the special committee. After much discussion, the special committee unanimously determined that it would be in the best interest of the shareholders to pursue a transaction at $49.00 per share, including the current financing condition set forth in the most recent draft of the merger agreement. The special committee further instructed Sidley to complete its negotiations of the merger agreement with Ropes & Gray.

From May 27 through May 31, Sidley, Ropes & Gray and School Specialty’s outside counsel continued to negotiate the final terms of the merger agreement and exchanged several drafts of the merger agreement and related disclosure schedules.

On May 31, 2005, the special committee met telephonically, along with representatives of Sidley and Morgan Stanley and Mr. Ledecky, who was present at the invitation of the special committee. Sidley briefed the committee on the status of the merger agreement. Morgan Stanley reported that the Citibank High Yield Index “spread to worst” had declined to a level of 421 basis points as of May 27, the most recent date for which data was available. Morgan Stanley then orally rendered its opinion (which was subsequently confirmed in writing) as to the fairness, from a financial point of the $49.00 per share consideration to School Specialty’s shareholders who will receive the merger consideration pursuant to the merger agreement. Following a discussion of the many factors considered by the special committee since its formation in March 2005, the special committee, by unanimous vote, adopted resolutions determining that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable to, fair to, and in the best interests of School Specialty’s shareholders, and recommended that School Specialty’s board of directors adopt and approve the merger agreement and recommended that School Specialty’s shareholders vote for approval of the merger agreement and the transactions contemplated by the merger agreement, including the merger.

The special committee meeting was then adjourned, at which time a meeting of the board of directors was called to order. All members of the board of directors were present, along with Mr. Franzoi, and waived notice for this meeting in accordance with School Specialty’s bylaws. Mr. Vander Zanden then recused himself from the meeting. Based on the recommendation of the special committee, the opinion of Morgan Stanley and other factors considered by the board, the board of directors adopted resolutions approving and adopting the merger agreement and the transactions contemplated by the merger agreement, including the merger, determining that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable to, fair to, and in the best interests of holders of School Specialty common stock and recommending that the holders of School Specialty common stock vote for the approval of the merger agreement and the transactions contemplated by the merger agreement, including the merger.

Following the meetings of the special committee and the board of directors, the parties finalized and thereafter executed the merger agreement. On the evening of May 31, 2005, School Specialty issued a press release announcing the execution of the merger agreement.

Discussions regarding the proposed equity compensation arrangements between Bain Capital and certain employees, including executive officers of School Specialty, are ongoing as of the date of this proxy statement.

27

Table of Contents

Reasons for the Merger; Recommendations of the Special Committee and of Our Board of Directors; Fairness of the Merger

The Special Committee

The special committee, by unanimous vote at a meeting on May 31, 2005, determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable to, fair to, and in the best interests of the shareholders of School Specialty entitled to receive the merger consideration, recommended that our board of directors adopt and approve the merger agreement and the transactions contemplated by the merger agreement and determined to recommend that the shareholders of School Specialty vote for approval of the merger agreement and the transactions contemplated by the merger agreement, including the merger.

In reaching its determinations, the special committee consulted with management, as well as the special committee’s outside financial and legal advisors, and considered the short-term and long-term interests and prospects of School Specialty and the interests of its shareholders. The special committee also considered the fairness opinion presented to the special committee by Morgan Stanley. See “—Opinion of Morgan Stanley & Co. Incorporated” below for a description of Morgan Stanley’s fairness opinion. In reaching the foregoing determinations, the special committee considered the following material factors that it believed supported its determinations:

28

Table of Contents

The special committee also considered a variety of risks and other potentially negative factors concerning the merger. These factors included the following:

29

Table of Contents

The special committee believes that sufficient procedural safeguards were and are present to ensure the substantive and procedural fairness of the merger to the shareholders of School Specialty and to permit the special committee to represent effectively the interests of the shareholders of School Specialty. These procedural safeguards include the following:

30

Table of Contents

The School Specialty Board of Directors

On May 31, 2005, the special committee, by unanimous vote, determined to recommend that our board of directors adopt and approve the merger agreement. At a meeting that occurred immediately after the special committee meeting, our board of directors adopted resolutions:

The resolutions were approved by five of the six members of the board of directors. Following the waiver of notice by all directors, Mr. Vander Zanden recused himself from the balance of the meeting on May 31, 2005 to approve the merger agreement in light of his potential interest in the transaction.

In reaching these conclusions, our board of directors considered the unanimous recommendation and analysis of the special committee, as described above, including the opinion of Morgan Stanley with respect to the fairness, from a financial point of view, of the consideration to be received by holders of School Specialty common stock pursuant to the merger agreement, and adopted such recommendation and analysis in reaching the determination as to the fairness of the transactions contemplated by the merger agreement.

The foregoing discussion of the information and factors considered by the special committee and our board of directors is not intended to be exhaustive but, we believe, includes all material factors considered by the special committee and our board of directors. In view of the wide variety of factors considered by them in evaluating the merger and the complexity of these matters, the special committee and our board of directors did not find it practicable, and did not attempt, to quantify or otherwise assign relative weight to the specific factors each considered in reaching its determinations. Rather, the special committee and our board of directors each made its judgment based on the total mix of information available to it of the overall effect of the merger on the unaffiliated School Specialty shareholders compared to any alternative transaction or remaining an independent company. Furthermore, individual members of the special committee or our board of directors may have given different weight to different factors. The special committee and our board of directors did not attempt to distinguish between factors that support a determination that the merger is “fair” and factors that support a determination that the merger is in the “best interests” of the unaffiliated School Specialty shareholders.

Based on the factors outlined above, the special committee and our board of directors determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable to, fair to, and in the best interests of the School Specialty shareholders entitled to receive the merger consideration.

31

Table of Contents

Our board of directors believes that the merger is advisable to, fair to and in the best interests of the School Specialty shareholders entitled to receive the merger consideration. Our board of directors recommends that you vote “FOR” approval of the merger agreement.

Opinion of Morgan Stanley & Co. Incorporated

The special committee of the board of directors of School Specialty engaged Morgan Stanley to provide it with financial advisory services and a financial fairness opinion in connection with the transaction. The special committee selected Morgan Stanley based on Morgan Stanley’s qualifications, experience and reputation. At the meeting of the School Specialty board of directors on May 31, 2005, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that as of May 31, 2005, and based on and subject to the qualifications, assumptions and limitations set forth in its opinion, the consideration to be received by holders of shares of School Specialty common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of Morgan Stanley’s opinion, dated May 31, 2005, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Morgan Stanley in rendering its opinion, is attached as Appendix B to this proxy statement and incorporated in this proxy statement by reference. Morgan Stanley urges you to read this opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to the board of directors of School Specialty and addresses only the fairness of the consideration to be received by holders of shares of School Specialty common stock pursuant to the merger agreement from a financial point of view as of the date of the opinion. The opinion does not address any other aspect of the transaction or constitute a recommendation as to how holders of School Specialty common shares should vote at any shareholders’ meeting held in connection with the transaction. This summary is qualified in its entirety by reference to the full text of the opinion.

In connection with rendering its opinion, Morgan Stanley, among other things:

32

Table of Contents

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information supplied or otherwise made available to it by School Specialty for the purposes of its opinion. With respect to the financial forecasts and other financial and operating data, Morgan Stanley assumed that they were reasonably prepared on bases reflecting the then best currently available estimates and judgments of the future financial performance of School Specialty as of the time such forecasts were developed. Morgan Stanley also discussed certain adjustments and extensions to the financial forecasts with the management of School Specialty and the special committee, and Morgan Stanley had been instructed to rely upon such adjusted and extended financial forecasts, identified as the Most Likely Case, as the best currently available estimates and judgments of School Specialty as to its future financial performance. In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions. Morgan Stanley noted that (i) the merger agreement included a financing condition that provided that LBW Holdings is not obligated to use the financing contemplated by the commitment letters unless certain conditions relating to the leveraged acquisition financing markets are satisfied and (ii) the commitment letters required that the merger be completed in accordance with the merger agreement without waiver of any condition. Accordingly, Morgan Stanley was instructed to assume, and Morgan Stanley assumed, that the LBW Holdings’ financing necessary to consummate the merger would be obtained prior to the Outside Date (as defined in the merger agreement). Morgan Stanley’s opinion did not address whether LBW Holdings could obtain financing in accordance with the terms of the debt commitment letter prior to the Outside Date, or in either event, whether LBW Holdings would be required to obtain such financing pursuant to the terms of the merger agreement. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of School Specialty, nor was Morgan Stanley furnished with any such appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of May 31, 2005. Events occurring after May 31, 2005, may affect the opinion and the assumptions used in preparing it, and Morgan Stanley does not assume any obligation to update, revise or reaffirm the opinion.

In arriving at its opinion, Morgan Stanley was not authorized to solicit, and did not solicit, interest from any party, except for one specified party, with respect to the acquisition of School Specialty, nor did Morgan Stanley or School Specialty negotiate with any parties, other than LBW Holdings, which from time to time in the past may have expressed interest in the possible acquisition of, or business combination with, School Specialty. In connection with its engagement, Morgan Stanley’s participation in the negotiations between the special committee and LBW Holdings with respect to the terms of the merger agreement was limited. Morgan Stanley did not negotiate the terms of the debt commitment letter with LBW Holdings or the lenders.

The following is a summary of the material financial analyses performed by Morgan Stanley in connection with the preparation of its opinion dated May 31, 2005. Although each financial analysis was provided to the special committee in connection with arriving at its opinion, Morgan Stanley considered all of its analyses as whole and did not attribute any particular weight to any analysis described below. These summaries of financial analyses include information presented in tabular format. To fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

33

Table of Contents

Historical Share Price Performance

Morgan Stanley compared the historical trading performance of School Specialty common stock with that of a group of selected comparable companies and the S&P 500. Although no company is directly “comparable” to School Specialty, selected companies were segregated into the following four sectors:

These groups and companies were selected because they participate in similar or adjacent markets and maintain financial and operating characteristics that have similarities to those of School Specialty. However, none of the companies utilized in this analysis as a comparison is identical to School Specialty.

This analysis showed that the closing market prices during the period from May 23, 2000 through May 23, 2005, a five-year period, changed as follows:

Closing market prices during the period from May 21, 2004 to May 23, 2005, a one-year period, changed as follows:

Comparable Company Analysis

Morgan Stanley also compared certain financial and operating information of publicly traded companies considered comparable to School Specialty to derive a valuation range for School Specialty. For this analysis, Morgan Stanley used the companies and categories used in the historical share price performance analysis and used publicly available information for such companies.

Morgan Stanley evaluated the aggregate value to projected 2005 and 2006 earnings before interest, taxes, depreciation and amortization (referred to as “EBITDA”) ratios of the comparable companies as of May 23,

34

Table of Contents

2005, and observed the following median aggregate value to projected EBITDA multiples per comparable company group:

Based on this analysis, Morgan Stanley selected a multiple range of 8.0–10.0x 2005 estimated calendar year EBITDA for School Specialty. Applying this multiple to the forecast of calendar year 2005E EBITDA in School Specialty’s Most Likely Case (as described below) implied a range of School Specialty equity value per share between approximately $33 and $43. Morgan Stanley noted that the consideration in the merger agreement was $49 per share of School Specialty common stock.

Morgan Stanley selected a multiple range of 7.0-9.0x 2006 estimated calendar year EBITDA for School Specialty. Applying this multiple to the forecast of calendar year 2006E EBITDA in School Specialty’s Most Likely Case implied a range of School Specialty equity value per share between approximately $31 and $43. Morgan Stanley noted that the consideration in the merger agreement was $49 per share of School Specialty common stock.

Although the “comparable” companies were compared to School Specialty for purposes of this analysis, Morgan Stanley noted that no company utilized in this analysis is identical to School Specialty because of differences between the business mix, regulatory environment, operations and other characteristics of School Specialty and the comparable companies. In evaluating the comparable companies and in selecting the multiple ranges it used in its analysis, Morgan Stanley necessarily made judgments and assumptions with regard to industry performance, general business, economic, regulatory, market and financial conditions and other matters, many of which are beyond the control of School Specialty, such as the impact of competition on the business of School Specialty and on the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of School Specialty or the industry or in markets generally. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using comparable company data.

Discounted Cash Flow Analysis

Morgan Stanley examined five cases in its discounted cash flow analysis. The cases are defined as: (i) Stretch Case with Acquisitions, (ii) Stretch Case—Organic, (iii) Most Likely Case, (iv) Alternative Case with Acquisitions, and (v) Alternative Case—Organic. For purposes of its analysis, Morgan Stanley assumed all of the cases were achievable; however, Morgan Stanley was instructed to rely upon the Most Likely Case as the best then available estimates and judgments of School Specialty as to its future financial performance.

Projections for each case were based on management’s views as of that time for that case. Morgan Stanley discussed certain adjustments and extensions to the School Specialty forecasts and received input from senior management of School Specialty with respect to such adjustments and extensions in the development of the cases.

Morgan Stanley performed a discounted cash flow analysis for each of the various cases. Morgan Stanley discounted the unlevered free cash flows of School Specialty at different ranges of discount rates, depending on the case, and these rates represented an estimated weighted average cost of capital range. The analysis assumed terminal values based on a range of multiples of 7.0–9.0x estimated fiscal 2016 EBITDA to arrive at a range of present values for School Specialty. The present values were adjusted for School Specialty’s estimated debt as of April 2005 (net of cash) and proceeds from the exercise of outstanding options to arrive at an implied equity

35

Table of Contents

value per share. Based on this analysis, Morgan Stanley calculated values representing an implied equity value per share of School Specialty common share. These ranges of value per case are represented below:

Notes

Morgan Stanley noted that the consideration in the merger agreement was $49.00 per share of School Specialty common stock.

Precedent Transactions Analysis

Morgan Stanley also analyzed the merger as compared to other publicly announced transactions. In connection with this analysis, Morgan Stanley evaluated the range of premia paid for U.S. public companies in M&A transactions during the 15 year period ending December 31, 2004, excluding bids with under $100 million in aggregate value. Morgan Stanley observed an approximately 30-40% acquisition premium to unaffected share price during the four year period ending December 31, 2004 (with unaffected share price defined as stock price four weeks prior to the earliest of the deal announcement, announcement of a competing bid or market rumors). Morgan Stanley applied this premium to School Specialty’s May 23, 2005 closing stock price per share of common stock of $38.82. This implied an equity value per share range of $50-54 for School Specialty common stock. Morgan Stanley noted that the consideration in the merger agreement was $49.00 per share of School Specialty common stock.

No transaction utilized in the selected precedent transactions analysis is identical to the merger. In evaluating the transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of School Specialty, such as the impact of competition on School Specialty and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of School Specialty or in the financial markets in general. Mathematical analysis, such as determining the mean or median, or the high or the low, is not in itself a meaningful method of using comparable transaction data.

Discounted Stock Price

Morgan Stanley also evaluated the discounted future stock price of School Specialty based on projected net income. Morgan Stanley applied a 15.0-17.0x price / earnings range to School Specialty’s fiscal year 2009 estimated net income to arrive at a range of projected School Specialty equity values per share. This range was

36

Table of Contents

discounted to present value using a cost of equity of 9%. Morgan Stanley performed this analysis using three cases, with the results detailed below:

Leveraged Buyout Analysis

Morgan Stanley also analyzed School Specialty from the perspective of a potential purchaser that was primarily a financial buyer that would effect a leveraged buyout of School Specialty using a debt capital structure consistent with the proposed transaction. Morgan Stanley observed the 5-year internal rates of return on potential equity investment assuming multiples of 8.0-10.0x exit value to fiscal 2010E EBITDA and an assumed internal rate of return on equity investment of approximately 15-25%. These ranges are detailed below:

Morgan Stanley noted that the consideration in the merger agreement was $49.00 per share of School Specialty common stock.

In connection with the review of the transaction by School Specialty’s board of directors, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered by it. Morgan Stanley believes that the summary provided and the analyses described above must be considered as a whole and that selecting portions of these analyses, without considering all of them, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses or factors, and may have deemed various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described above should therefore not be taken to be Morgan Stanley’s view of the actual value of School Specialty.

In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of School Specialty. Any estimates contained in Morgan Stanley’s analysis are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by these estimates. The analyses performed were prepared solely as a part of Morgan Stanley’s analysis of the fairness of the consideration pursuant to the merger agreement from a financial point of view to School Specialty and were conducted in connection with the delivery of its opinion delivered May 31, 2005 and confirmed in writing May 31, 2005, to the board of directors of School Specialty. Morgan Stanley’s analyses do not purport to be appraisals or to reflect the prices at which shares of School Specialty common shares might actually trade. The merger consideration in the merger was determined through arm’s-length negotiations between LBW Holdings and School Specialty. Morgan Stanley did not recommend the consideration to be paid by LBW Holdings or that any consideration to be paid by LBW Holdings constituted the only appropriate consideration for the transaction.

In addition, Morgan Stanley’s opinion and presentation to the School Specialty board of directors was one of the many factors taken into consideration by the board in making its determination to recommend the

37

Table of Contents

transaction. Consequently, the analyses described above should not be viewed as determinative of the opinion of the School Specialty board with respect to the equity value per share or of whether School Specialty’s board would have been willing to agree to a different acquisition price.

Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes.

In the ordinary course of business, Morgan Stanley may from time to time trade in the securities of or indebtedness of School Specialty and affiliates of Bain Capital for its own account, the accounts of investment funds and other clients under the management of Morgan Stanley and for the accounts of its customers and, accordingly, may at any time hold a long or short position in these securities or indebtedness. Morgan Stanley has, from time to time, provided investment banking and other financial services to School Specialty and affiliates of Bain Capital for which it received customary fees.

Pursuant to the engagement letter, Morgan Stanley received $2 million upon its rendering of a financial opinion. Upon the consummation of the transaction, Morgan Stanley will receive a fee of approximately $4.5 million (if such fee were calculated on the date of the announcement of the merger, June 1, 2005), less the previously described fee. If Morgan Stanley is engaged to advise on an alternative transaction and certain conditions are met, such fee may be increased. School Specialty has also agreed to reimburse Morgan Stanley for its expenses incurred in performing its services. In addition, School Specialty has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents, and employees and each person, if any, controlling Morgan Stanley, or any of its affiliates against specified liabilities and expenses, including liabilities under federal securities laws, related to or arising out of Morgan Stanley’s engagement.

Considerations Relating to the Proposed Merger

Set forth below are various risks relating to the proposed merger. The following is not intended to be an exhaustive list of the risks relating to the merger and should be read in conjunction with the other information in this proxy statement. In addition, you should refer to the section entitled “Forward-Looking Statements and Risk Factors” in School Specialty’s Annual Report on Form 10-K for the fiscal year ended April 24, 2004, which is incorporated into this proxy statement by reference, for risks relating to School Specialty’s business.

Failure to complete the merger could negatively impact the market price of School Specialty common stock.

If the merger is not completed for any reason, School Specialty will be subject to a number of material risks, including:

The market price of School Specialty’s common stock may decline to the extent that the current market price of its shares reflects a market assumption that the merger will be completed;

Costs relating to the merger, such as legal, accounting and financial advisory fees, and, in specified circumstances, termination and expense reimbursement fees, must be paid even if the merger is not completed and will be expensed in the fiscal period in which termination occurs; and

The diversion of management’s attention from the day-to-day business of School Specialty and the potential disruption to its employees and its relationships with suppliers during the period before the completion of the merger, may make it difficult for School Specialty to regain its financial and market positions if the merger does not occur.

If the merger is not approved by School Specialty’s shareholders at the special meeting, School Specialty, LBW Holdings and LBW Acquisition will not be permitted under Wisconsin law to complete the merger and

38

Table of Contents

each of School Specialty, LBW Holdings and LBW Acquisition will have the right to terminate the merger agreement. Following such termination, depending on the circumstances, School Specialty might be required to reimburse certain expenses of LBW Holdings and pay LBW Holdings a termination fee. See “Terms of the Merger Agreement—Effects of Terminating the Merger Agreement.”

Further, if the merger is terminated and our board of directors seeks another merger or business combination, shareholders cannot be certain that we will be able to find a party willing to pay an equivalent or better price than the price to be paid in the proposed merger.

Until the merger is completed or the merger agreement is terminated, School Specialty may not be able to enter into a merger or business combination with another party at a favorable price because of restrictions in the merger agreement.

Unless or until the merger agreement is terminated, subject to specified exceptions, School Specialty is restricted from entering into or soliciting, initiating, proposing, encouraging or facilitating any inquiries or proposals that may lead to a proposal or offer for an alternative transaction with any person or entity other than LBW Holdings. As a result of these restrictions, School Specialty may not be able to enter into an alternative transaction at a more favorable price, if at all, without incurring potentially significant liability to LBW Holdings. See “Terms of the Merger Agreement—No Solicitation of Competing Proposals and—Effects of Terminating the Merger Agreement.”

Uncertainties associated with the merger may cause School Specialty to lose key personnel.

Our current and prospective employees may be uncertain about their future roles and relationships with School Specialty following the completion of the merger. This uncertainty may adversely affect our ability to attract and retain key management and marketing and technical personnel.

Certain Risks in the Event of Bankruptcy

If School Specialty is insolvent at the effective time of the merger or becomes insolvent as a result of the merger, the transfer of funds representing the $49.00 per share price, without interest, payable to shareholders upon completion of the merger may be deemed to be a “fraudulent conveyance” under applicable law and therefore may be subject to claims of creditors of School Specialty. If such a claim is asserted by the creditors of School Specialty following the merger, there is a risk that persons who were shareholders at the effective time of the merger will be ordered by a court to return to School Specialty’s trustee in bankruptcy all or a portion of the $49.00 per share in cash they received upon the completion of the merger.

There can be no assurance as to what standards a court would use to determine whether School Specialty was solvent at the effective time of the merger. None of the legal counsel to School Specialty, LBW Holdings or LBW Acquisition or the lenders providing the debt financing will express an opinion as to the applicability of federal or state fraudulent transfer and conveyance laws.

It is a condition to the merger that our board of directors and the board of directors of LBW Holdings and, if requested by them, the lenders providing the debt financing receive a solvency letter reasonably acceptable to the special committee from an appraisal firm of national reputation reasonably acceptable to LBW Holdings and School Specialty supporting the conclusion that immediately after the effective time of the merger, and after giving effect to the merger and the other transactions contemplated by the merger agreement, School Specialty will be solvent. See “Terms of the Merger Agreement—Other Agreements.”

Financing

The total amount of funds necessary to complete the merger and the related transactions is anticipated to be approximately $1.6 billion, consisting of (i) approximately $1.4 billion to pay School Specialty’s stockholders,

39

Table of Contents

holders of options to purchase common stock of School Specialty and holders of School Specialty’s 3.75% Convertible Subordinated Notes due 2023, (ii) approximately $134 million to refinance existing indebtedness of School Specialty, (iii) approximately $17 million related to the assumption of certain capital leases and (iv) approximately $73 million to pay related fees and expenses in connection with the merger, the financing arrangements and the transactions described in this paragraph.

The above expenditure for payment of the merger consideration estimated by School Specialty and Bain Capital will be reduced by an amount equal to the value of options to purchase common stock of School Specialty held by certain management employees prior to the merger that will be converted into options to purchase equity securities of LBW Holdings and its wholly-owned subsidiaries at the effective time of the merger.

The following arrangements are intended to provide all of the necessary financing for the merger.

Equity Financing

Pursuant to an equity commitment letter with the Bain Investor, the proceeds of which would constitute the equity portion of the merger financing, the Bain Investor has agreed to contribute up to $460 million in cash to LBW Holdings for the purpose of funding in part the merger. The commitment of the Bain Investor is subject to the consummation of the merger, and the Bain Investor’s equity commitment will terminate upon the termination of the merger agreement. Under the terms of the equity commitment letter, the Bain Investor has the right to transfer a portion of its prospective interest in LBW Holdings in certain circumstances. As a result, the investor group may ultimately include additional equity participants.

Debt Financing

LBW Holdings and LBW Acquisition have received a debt commitment letter, dated as of May 31, 2005, from Bank of America, N.A. (“Bank of America”), Banc of America Securities LLC (“BAS”), Banc of America Bridge LLC, J.P. Morgan Securities, Inc. (“JPMorgan”), JPMorgan Chase Bank, N.A. (“JPMCB”), Deutsche Bank Trust Company Americas (“DBTCA”), Deutsche Bank AG, Cayman Islands Branch, Deutsche Bank AG New York Branch and Deutsche Bank Securities Inc. (“DBSI”), collectively referred to herein as the “lenders,” to provide the following financing, subject to the conditions set forth therein:

40

Table of Contents

The debt financing commitments expire on October 31, 2005. The documentation governing the senior secured facility, the bridge facilities and the receivables facility has not been finalized and, accordingly, the actual terms of such facilities may differ from those described in this proxy statement. LBW Holdings and LBW Acquisition expect to use these facilities, but may use alternative financing to finance all or any portion of the merger, possibly including a private offering of notes.

Conditions Precedent to the Debt Commitments

The availability of the senior secured credit facility, the bridge facilities and the receivables facility are subject, among other things, to satisfaction of conditions corresponding to the “company material adverse effect” condition in the merger agreement; consummation of the merger in accordance with applicable law and the merger agreement (and no provision thereof being waived or modified in a manner materially adverse to the interest of the lenders without their consent); payment of required fees and expenses; the negotiation, execution and delivery of definitive documentation; receipt by LBW Holdings of the equity financing described above; receipt of material consents to the transaction; delivery of required financial information and forecasts; and, delivery of evidence that School Specialty has maintained satisfactory leverage ratios and achieved certain EBITDA levels.

Condition to LBW Holdings’ Obligation to Use the Debt Commitments

Notwithstanding any other provision of the merger agreement or the debt commitment letter, LBW Holdings will not be obligated to (i) waive any condition to its obligation to close the merger agreement; (ii) provide any consent to any changes to the debt financing set forth in the debt commitment letter; (iii) accept any substitute financing on terms (taken in the aggregate) less favorable to LBW Holdings than the debt financing set forth in the debt commitment letter would have been; (iv) draw down on the bridge facilities or otherwise close under the debt financing set forth in the debt commitment letter before October 31, 2005; (v) issue any notes in a private placement, or (vi) draw down on the bridge facilities or otherwise close under the debt financing set forth in the debt commitment letter if, (A) on any three days on or between September 15, 2005 and October 31, 2005 the Citigroup High Yield Market Index spread to worst is above 430 bps, or (B) on any three days on or between September 15, 2005 and October 31, 2005, 1-year LIBOR (London interbank offer rate) is above 4.5% or (C) on any three days on or between September 15, 2005 and October 31, 2005 there is in effect any moratorium on commercial banking activities by the United States or the State of New York, or (D) since May 31, 2005, there has been the commencement (or material escalation) of war or armed hostilities (including acts of terrorism), either within or outside the United States, or a declaration of a national emergency by the United States that has caused, on any three days on or between September 15, 2005 and October 31, 2005, a material disruption of commercial credit or debt capital market conditions or market conditions for leveraged loans or high yield debt securities. In the event any substitute financing is accepted by LBW Holdings, the provisions of the new debt commitment letter must be subject to these terms and conditions.

The Citigroup High Yield Market Index is a rules-based index composed of fixed-coupon debt securities issued by U.S. and Canadian corporations, with more than a year to maturity and at least $100 million principal amount outstanding. The debt securities included in the index are rated below Baa3 by Moody’s and below BBB- by S&P. The index is re-balanced at the end of each calendar month. The Citigroup High Yield Market Index measures “spread to worst” as the market weighted average of the “spread to worst” for each series of debt securities included in the index, calculated for each series of debt securities as the difference between (i) the lower of the yield to first call date or yield to maturity of the debt security and (ii) the interpolated yield on U.S. treasury bonds through the first call date or maturity date, whichever was used to determine the lower yield for that debt security.

The Citigroup High Yield Market Index spread to worst was 410 basis points as of May 31, 2005 and 396 basis points as of June 22, 2005. The table below contains information regarding the Citigroup High Yield Market Index spread to worst for January 2003 through June 2005. For each month, the spread to worst is calculated using the debt securities included in the index and pricing and settlement dates as of the end of the

41

Table of Contents

prior month. The historical performance of the index as reflected in the table below does not represent how the index will perform in the future and is not reflective of the daily changes in the index, which may significantly vary from the spread to worst calculated as of any particular month.

Senior Secured Credit Facility

The borrower under the senior secured credit facility will be LBW Acquisition initially, and School Specialty, as the surviving corporation in the merger, upon consummation of the merger. The senior secured credit facility will be comprised of (i) a $175 million revolving credit facility with a term of six years (a portion of which may be drawn at closing), (ii) a $240 million term loan facility (decreased by the amount of School Specialty’s 3.75% Convertible Subordinated Notes due 2023 not converted and exchanged as part of the merger) and (iii) a $250 million delayed-draw term loan facility (for the purpose of funding certain permitted acquisitions after closing and to repurchase any School Specialty’s 3.75% Convertible Subordinated Notes due 2023 tendered and exchanged in accordance with their terms after closing). The revolving credit facility will include sublimits for the issuance of letters of credit and swingline loans. The aggregate amount available under the revolving credit facility and term loan facility may be increased upon the satisfaction of certain conditions.

JPMorgan and BAS have been appointed as co-lead arrangers for the senior secured credit facility and each of JPMorgan, BAS and DBSI have been appointed joint book running managers for the senior secured credit facility. JPMCB will be the exclusive administrative agent, Bank of America will be the exclusive syndication agent and DBSI will be the exclusive documentation agent for the senior secured credit facility.

All obligations under the senior secured credit facilities will be guaranteed by LBW Holdings and each of the existing and future direct and indirect domestic subsidiaries of School Specialty, as the surviving corporation in the merger (subject to certain exceptions) and will be secured by substantially all present and future assets of LBW Holdings, School Specialty, as the surviving corporation in the merger, and each other guarantor to the extent it would not result in adverse tax consequences to the surviving corporation.

Bridge Facilities

The lenders have committed to provide up to $525 million in loans under senior unsecured and senior unsecured subordinated bridge facilities to LBW Acquisition or School Specialty, as the surviving corporation in the merger. After consummation of the merger, School Specialty, as the surviving corporation in the merger, will be the borrower under these bridge facilities. The lenders have committed to provide up to $150 million pay-in-kind loans under a senior unsecured subordinated bridge facility to LBW Holdings.

BAS and JPMorgan have been appointed as joint lead arrangers and each of BAS, JPMorgan and DBSI have been appointed joint book running managers for all of the bridge facilities.

Receivables Facility

Under the receivables facility, a wholly-owned, bankruptcy-remote, special purpose subsidiary (“receivables subsidiary”) of School Specialty, as the surviving corporation in the merger, will purchase trade receivables

42

Table of Contents

generated by School Specialty, as the surviving corporation in the merger, and certain of its wholly-owned domestic subsidiaries, using funding provided through the sale of undivided interests in such receivables on an uncommitted basis to commercial paper conduits sponsored by JPMCB, Bank of America and DBTCA. The receivables facility is expected to provide for funding of up to $175 million at the closing of the merger based on available receivables and other customary factors. The lenders have committed to provide a bridge facility in the event that the receivables facility is not available on or prior to the closing of the merger.

Effect of Merger on Convertible Subordinated Notes

Holders of School Specialty’s 3.75% Convertible Subordinated Notes due 2023 may surrender such notes for conversion at any time starting with the first day of any calendar quarter if the closing sale price of School Specialty’s common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the calendar quarter prior to such calendar quarter is greater than $48.00 per share. For example, if the closing price of School Specialty’s common stock for 20 trading days during the period from August 19, 2005 through September 20, 2005 is greater than $48.00 per share, then holders of the notes may surrender their notes for conversion beginning on October 1, 2005. Each holder who surrenders such holder’s notes under these circumstances will be entitled, for each $1,000 principal amount of notes surrendered by such holder, to a cash payment of $1,000 plus a number of shares of School Specialty common stock equal to the excess of (A) 25, over (B) the number of shares equal to the sum, for each day of the ten trading day period described in the indenture relating to the notes, of (x) 100, divided by (y) the closing sale price of School Specialty common stock on such day. School Specialty may elect to pay an amount in cash calculated in accordance with the terms of the indenture in lieu of issuing some or all of these shares.

Holders of such notes also may surrender such notes for conversion at any time from and after the date that is 15 days prior to the date announced by School Specialty as the anticipated effective time of the merger until 15 days after the actual effective time of the merger. At the effective time of the merger, the right to convert such notes into School Specialty common stock will be deemed to change into a right to convert the notes into an amount of cash the holder would have received if the holder had converted its notes into School Specialty common stock immediately prior to the effective time of the merger, which is equal to $1,225 per $1,000 principal amount of notes surrendered, or $162.9 million in the aggregate.

Not more than 20 days after the effective time of the merger, School Specialty, as the surviving corporation, must make an offer to repurchase all of such notes then outstanding for an amount in cash equal to 100% of the accreted principal amount of the notes, plus accrued and unpaid interest to, but not including, the date the repurchase price is paid.

Interests of School Specialty Directors and Executive Officers in the Merger

In considering the recommendations of the special committee and our board of directors, you should be aware that certain executive officers and directors of School Specialty have interests in the transaction that are different from, or are in addition to, your interests as a shareholder.

Ownership Interest in School Specialty After the Merger

After the completion of the merger, certain executive officers may have an indirect equity ownership interest in School Specialty through the beneficial ownership of equity securities of LBW Holdings and certain wholly-owned subsidiaries, which will directly or indirectly own all of the outstanding capital stock of School Specialty. Certain options held by those executive officers and other members of senior management that are not exercised prior to completion of the merger may be converted into options for equity securities of LBW Holdings and its wholly-owned subsidiaries, as agreed upon between such person and LBW Holdings.

It is expected that any amount invested by such executive officers in LBW Holdings will be made on a tax deferred basis (for example, by rolling over stock options). The terms and conditions of such rollover options are to be agreed upon between LBW Holdings and each such executive officer.

43

Table of Contents

Option Awards in the Surviving Corporation

In connection with the merger, LBW Holdings intends to adopt an equity incentive plan under which certain employees (including the executive officers) will be eligible to receive awards of stock options for common stock of LBW Holdings or restricted stock awards. The aggregate shares issuable pursuant to grants under that plan are expected to be between 5% and 10% of the fully diluted common stock of the surviving corporation upon consummation of the merger. Of the contemplated issuances, approximately one third will be equity incentive awards that will vest solely upon the employee’s continued employment over time, and approximately two-thirds will be equity incentive awards that will vest upon the achievement of predetermined performance targets over time, subject to the employee’s continued employment.

Time-based equity awards vest solely on the basis of a person’s continued employment over a five-year period. Such incentive awards will be awarded by the board of directors of LBW Holdings, in its sole discretion.

Performance-based equity awards vest on the basis of a person’s continued employment and performance targets to be set by the board of directors of LBW Holdings. Such incentive awards will be awarded by the board of directors of LBW Holdings, in its sole discretion.

Deferred Compensation Arrangements

LBW Holdings plans to offer certain executive officers the opportunity to exchange their rights to certain payments under existing employment agreements for equity in LBW Holdings pursuant to a deferred compensation plan.

Interests Relating to Employment and Service as a Director After the Merger

Following the merger, the directors of LBW Acquisition immediately prior to the effective time of the merger will be the initial directors of School Specialty, as the surviving corporation in the merger, until their successors are duly elected and qualified or until their earlier resignation or removal. It is expected that the current executive officers of School Specialty immediately prior to the effective time of the merger will remain the executive officers of the surviving corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified.

Employment Agreements

Upon the completion of the merger, the change in control provisions in the employment agreements with certain of School Specialty’s executive officers will become effective. For 60 days following the completion of the merger, these provisions will permit an executive officer to terminate his or her employment for any reason.

Upon a termination of an executive officer’s employment with School Specialty by the executive officer for any reason within 60 days following the completion of the merger, the executive officer will be entitled to be paid through the term of his or her agreement and the currently effective extension thereof.

The following table shows the amount of potential cash severance payable to School Specialty’s current executive officers, based on an assumed merger date of October 15, 2005 and an assumed termination date of October 31, 2005, pursuant to the employment agreements.

44

Table of Contents

School Specialty Stock Options Prior to the Merger

Except for options selected by LBW Holdings to be converted into options to acquire equity securities of LBW Holdings and/or its wholly-owned subsidiaries, immediately prior to the effective time of the merger, all outstanding options to acquire School Specialty common stock, including the options held by the directors and executive officers of School Specialty, will become fully vested and immediately exercisable (whether or not then vested or subject to any performance condition that has not been satisfied). At the effective time of the merger, any option not exercised (other than certain continuing options) will be canceled in exchange for a cash payment equal to $49.00, without interest, times the number of shares subject to the options, less the aggregate exercise prices of the options and less applicable taxes required to be withheld, except that any options with an exercise price equal to or greater than $49.00 per share will be canceled without any cash payment.

The table below sets forth, as of June 15, 2005, for each of School Specialty’s directors and executive officers, (a) the number of shares subject to vested options for School Specialty common stock, (b) the value of such vested options, calculated by multiplying (i) the excess of $49.00 over the per share exercise price of the option by (ii) the number of shares subject to the option, and without regard to deductions for income taxes and other withholding, (c) the number of additional options that will vest upon the effectiveness of the merger, (d) the value of such additional options, calculated by multiplying (i) the excess of $49.00 over the per share exercise price of the option by (ii) the number of shares subject to the option, and without regard to deductions for income taxes and other withholding, (e) the aggregate number of shares subject to vested options and options that will vest as a result of the merger for such person and (f) the aggregate value of all such vested options and options that will vest as a result of the merger, calculated by multiplying (i) the excess of $49.00 over the per share exercise price of the option by (ii) the number of shares subject to the option, and without regard to deductions for income taxes and other withholding. Certain executives may roll all or some of their options as agreed to between such person and LBW Holdings, as described above.

Indemnification and Insurance

The merger agreement provides that LBW Holdings will, or will cause the surviving corporation to, (i) for six years after the completion of the merger, indemnify our current and former officers and directors for acts and omissions occurring before the completion of the merger (other than willful breach of the merger agreement, willful misconduct, self-dealing or fraud) and (ii) for six years after completion of the merger, continue the existing provisions relating to indemnification or exculpation of directors and officers in the surviving corporation’s organizational documents with respect to actions or failures to act occurring prior to the completion

45

Table of Contents

of the merger. It also provides that prior to the completion of the merger, School Specialty will obtain a six-year “run-off” insurance policy that will provide coverage similar to its current directors and officers insurance policy for its current or former directors and officers for events occurring prior to the completion of the merger. See “Terms of the Merger Agreement—Indemnification and Insurance of School Specialty Directors and Officers.”

Compensation of Special Committee

Since March 14, 2005, each member of the special committee received a fee in the amount of $1,000 per meeting or for any day (other than a day on which a meeting of the special committee was held) on which he or she devoted a meaningful portion of his or her day to the affairs of the special committee as consideration for his or her service on the special committee. Receipt of this compensation was not contingent on the special committee’s approval of the merger agreement. Each member’s out-of-pocket expenses were also reimbursed.

Federal Regulatory Matters

The HSR Act, and the rules and regulations promulgated thereunder require that LBW Holdings, or its ultimate parent entity or entities, and School Specialty file notification and report forms with respect to the merger and related transactions with the Antitrust Division of the United States Department of Justice and the Federal Trade Commission. The parties thereafter are required to observe a waiting period before completing the merger. The required notification and report forms were filed with the Antitrust Division of the United States Department of Justice and the Federal Trade Commission on June 24, 2005.

At any time before or after the completion of the merger, the Antitrust Division of the United States Department of Justice or the Federal Trade Commission or any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, to rescind the merger or to seek divestiture of particular assets. Private parties also may seek to take legal action under the antitrust laws under certain circumstances.

The parties may also be required to comply with premerger notification antitrust or competition laws of certain foreign jurisdictions.

Material U.S. Federal Income Tax Consequences

The following is a summary of the material U.S. federal income tax consequences of the merger to holders of School Specialty common stock whose shares of School Specialty common stock are converted into the right to receive cash in the merger, as well as the material U.S. federal income tax consequences in the merger to School Specialty, LBW Acquisition and the management participants who hold (actually or constructively) an equity interest in the surviving corporation following the merger. Non-U.S. holders of School Specialty common stock may have different tax consequences than those described below and are urged to consult their tax advisors regarding the tax treatment to them under U.S. and non-U.S. tax laws. This summary is based on the Internal Revenue Code of 1986, as amended, referred to as the “Code” in this proxy statement, applicable proposed and current regulations promulgated under the Code, administrative rulings and practice and judicial authority. All of these authorities are subject to change, possibly with retroactive effect so as to result in tax consequences different from those described below.

For purposes of this summary, the term “holder” means a beneficial owners of School Specialty common stock that is:

46

Table of Contents

The U.S. federal income taxes of a partner in a partnership holding School Specialty common stock will depend on the status of the partner and the activities of the partnership. Partners in a partnership holding shares of School Specialty common stock should consult their own tax advisors.

This summary does not address all of the U.S. federal income tax consequences that may be applicable to a particular holder of School Specialty common stock. In addition, this summary does not address the U.S. federal income tax consequences of the merger to holders of School Specialty common stock who are subject to special treatment under U.S. federal income tax law, including, for example, banks and other financial institutions, insurance companies, tax-exempt investors, S corporations, mutual funds, holders that are properly classified as “partnerships” or other pass-through entities under the Code, dealers in securities or foreign currencies, holders who hold their common stock as part of a hedge, straddle or conversion transaction, holders who acquired common stock through the exercise of employee stock options or other compensatory arrangements or shareholders who hold (actually or constructively) an equity interest in the surviving corporation after the merger, holders whose shares of common stock constitute qualified small business stock within the meaning of Section 1202 of the Code, holders who are subject to the alternative minimum tax provisions of the Code and holders who do not hold their shares of School Specialty common stock as “capital assets” within the meaning of Section 1221 (generally, property held for investment) of the Code. This summary does not address the U.S. federal income tax consequences to any holder of School Specialty common stock who, for U.S. federal income tax purposes, is a nonresident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust and this summary does not address the tax consequences of the merger under state, local or foreign tax laws.

This summary is provided for general information purposes only and is not intended as a substitute for individual tax advice. Each holder of School Specialty common stock should consult the holder’s individual tax advisors as to the particular tax consequences of the merger to such holder, including the application and effect of any state, local, foreign or other tax laws and the possible effect of changes to such laws.

Exchange of Common Stock for Cash

Generally, the merger will be a taxable transaction to holders of School Specialty common stock for U.S. federal income tax purposes. A holder of School Specialty common stock receiving cash in the merger will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received in exchange for such common stock and the holder’s adjusted tax basis in the School Specialty common stock surrendered. Any such gain or loss generally will be capital gain or loss if the School Specialty common stock is held as a capital asset at the effective time of the merger. Any capital gain or loss will be taxed as long-term capital gain or loss if the holder has held the School Specialty common stock for more than one year as of the effective time of the merger. If the holder has held the School Specialty common stock for one year or less as of the effective time of the merger, any capital gain or loss will be taxed as short-term capital gain or loss. The deductibility of a capital loss recognized on the exchange is subject to certain limitations under the Code. Certain holders, including individuals, are eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. If you acquired different blocks of our common stock at different times and different prices, you must calculate your gain or loss and determine your adjusted tax basis and holding period separately with respect to each block of our common stock.

Backup Withholding

Under the Code, a holder of School Specialty common stock may be subject to information reporting on the cash received in the merger unless an exemption applies. Also, under the U.S. federal backup withholding tax rules, unless an exemption applies, the paying agent designated pursuant to the terms of the merger agreement will be required to withhold, and will withhold, 28% of all cash payments to which a holder of School Specialty common stock is entitled pursuant to the merger agreement unless the holder provides proof of an applicable exemption, or a tax identification number (social security number in the case of an individual or employer identification number in the case of other holders), certifies that such number is correct and that no backup

47

Table of Contents

withholding is otherwise required and otherwise complies with such backup withholding rules. Each holder of School Specialty common stock should complete, sign and return to the paying agent the Substitute Form W-9 in order to provide the information and certification necessary to avoid backup withholding, unless an exemption otherwise applies and is satisfied in a manner satisfactory to the paying agent. The Substitute Form W-9 will be included as part of the letter of transmittal mailed to each record holder of School Specialty common stock (see “Terms of the Merger Agreement—Payment for School Specialty Common Stock in the Merger” beginning on page 51). Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against your U.S. federal income tax liability, if any, provided that you furnish the required information to the Internal Revenue Service in a timely manner. Each holder should consult its own tax advisor as to the qualifications for exemption from backup withholding and the procedures for obtaining such exemption.

School Specialty, LBW Acquisition and Management Participants

Under general U.S. federal income tax principles, the merger should not be a taxable event in which gain is recognized to School Specialty, LBW Acquisition or the surviving corporation for U.S. federal income tax purposes.

As described above in “Special Factors—Interests of School Specialty Directors and Executive Officers in the Merger,” the management participants may acquire equity interests in LBW Holdings as agreed by the individual executive officers and LBW Holdings, by not exercising existing School Specialty stock options, which will be converted into options for stock in LBW Holdings and its wholly-owned subsidiaries and by waiving potential severance benefits under employment agreements in exchange for equity-based interests in LBW Holdings and its wholly owned subsidiaries. Management participants who exercise their existing School Specialty stock options and receive cash for those shares in the merger, or who exchange their existing School Specialty stock options for cash in the merger, will have income taxable currently at ordinary income rates. It is expected that management participants who elect to have their existing School Specialty stock options converted into options for stock in LBW Holdings and its wholly-owned subsidiaries and/or waive potential severance benefits in exchange for equity-based interests in LBW Holdings and its wholly-owned subsidiaries will not have currently taxable income by reason of the conversion or exchange but will have income taxable at ordinary income rates upon a later exercise or disposition of the options or a later payment with respect to the equity-based interests. Since the U.S. federal tax treatment will be particular to each management participant, they are urged to discuss their treatment with their own tax advisors.

Shareholder Litigation

Following the School Specialty’s announcement on May 31, 2005 that it had signed a definitive merger agreement to be acquired by an affiliate of Bain Capital, School Specialty was named as a defendant in three putative shareholder class actions filed in the Circuit Court for Outagamie County, Wisconsin: (i) Neal Auman v. School Specialty, Inc., et al., Case No. 05-CV-765; (ii) Adams Family Trust v. School Specialty, Inc., et al., Case No. 05-CV-771; and (iii) Alaska Hotel & Restaurant Employees Pension Trust Fund v. School Specialty, Inc., et al., Case No. 05-CV-797.

The complaint in each action purports to have been filed by a shareholder of School Specialty who seeks to maintain the suit as a class action on behalf of all holders of School Specialty common stock, excluding those related to or affiliated with any of the defendants. In addition to School Specialty, each of its directors and Bain Capital are named in the complaints as defendants, except that Bain Capital is not named as a defendant in the Alaska Hotel & Restaurant Employees Pension Trust Fund case. The complaints assert claims arising out of School Specialty’s May 31, 2005 announcement and allege that School Specialty and its directors breached fiduciary duties to School Specialty’s shareholders by negotiating and agreeing to the transaction with Bain Capital at a price that the plaintiffs claim to be inadequate. Among all three actions the plaintiffs seek, among other things, to enjoin or to rescind the transaction with Bain Capital, other injunctive relief and/or damages and other monetary relief.

School Specialty does not believe that the actions are meritorious and intends to vigorously contest them.

48

Table of Contents

No Dissenters’ Rights

Under Wisconsin law, shareholders of a corporation are not entitled to exercise dissenters’ rights if shares of the corporation are registered on a national securities exchange or quoted on the National Association of Securities Dealers, Inc. automated quotation system. Consequently, because shares of School Specialty’s common stock are quoted on NASDAQ, you will not have the right to exercise dissenters’ rights. If the merger agreement is approved and the merger is completed, shareholders who voted against the approval of the merger agreement will be treated the same as shareholders who voted for the approval of the merger agreement and their shares will automatically be converted into the right to receive the merger consideration.

49

Table of Contents

TERMS OF THE MERGER AGREEMENT

The following is a summary of the material terms of the merger agreement. This summary does not purport to describe all the terms of the merger agreement and is qualified by reference to the complete merger agreement which is attached as Appendix A to this proxy statement. We urge you to read the merger agreement carefully and in its entirety because it, and not this proxy statement, is the legal document that governs the merger.

The text of the merger agreement has been included to provide you with information regarding its terms. The terms of the merger agreement (such as the representations and warranties) are intended to govern the contractual rights and relationships, and allocate risks, between the parties in relation to the merger. The merger agreement contains representations and warranties School Specialty, LBW Holdings and LBW Acquisition made to each other as of specific dates. The representations and warranties were negotiated between the parties with the principal purpose of setting forth their respective rights with respect to their obligations to complete the merger and may be subject to important limitations and qualifications as set forth therein, including a contractual standard of materiality different from that generally applicable under federal securities laws.

General: The Merger

At the effective time of the merger, upon the terms and subject to the conditions of the merger agreement and in accordance with the General Corporation Law of the State of Delaware and the Wisconsin Business Corporation Law, LBW Acquisition will merge with and into School Specialty and the separate corporate existence of LBW Acquisition will end. School Specialty will be the surviving corporation in the merger and will continue to be a Wisconsin corporation after the merger, wholly-owned by LBW Holdings. The articles of incorporation of School Specialty, as the surviving corporation in the merger, will be amended and restated in their entirety at the effective time of the merger to read as set forth in the merger agreement and the bylaws of School Specialty, as the surviving corporation in the merger, will be amended and restated in their entirety at the effective time of the merger to read as the bylaws of LBW Acquisition, except that the name of the surviving corporation will be School Specialty, Inc.

The directors and officers of LBW Acquisition immediately prior to the effective time of the merger will be the initial directors and officers of School Specialty, as the surviving corporation in the merger, until the earlier of their resignation, death or removal or until their respective successors are duly elected or appointed and qualified.

When the Merger Becomes Effective

School Specialty and LBW Acquisition will file articles of merger with the Department of Financial Institutions of the State of Wisconsin and a certificate of merger with the Secretary of State of the State of Delaware on the closing date of the merger, which will be the day following the satisfaction or waiver of all the closing conditions to the merger (other than those conditions that by their nature are to be satisfied at the closing), or such later date that is not less than 30 days (or such shorter period as LBW Holdings may determine) after School Specialty has delivered to LBW Holdings its audited financial statements for the fiscal year ended April 30, 2005 and the SAS 100 review by independent registered public accounting firm of its financial statements for the fiscal quarter ended July 30, 2005, unless School Specialty and LBW Holdings agree to another date in writing. The merger will become effective on the date when the articles of merger are filed with the Department of Financial Institutions of the State of Wisconsin and a certificate of merger is filed with the Secretary of State of the State of Delaware or at such subsequent date and time as School Specialty and LBW Holdings agree upon and specify in the articles of merger and a certificate of merger.

If shareholders approve the merger agreement, the parties intend to complete the merger as soon as practicable after delivery of financial statements as described above. The parties to the merger agreement expect to complete the merger during School Specialty’s second fiscal quarter of 2005. Because the merger is subject to certain conditions, the exact timing of the merger cannot be determined.

50

Table of Contents

Consideration to be Received Pursuant to the Merger; Treatment of Stock Options

The merger agreement provides that, at the effective time of the merger:

Each option granted to any current employee, consultant, advisor, independent contractor, officer or director of School Specialty to acquire School Specialty common stock, which is outstanding immediately prior to the effective time of the merger, will become fully vested and exercisable (whether or not then vested or subject to any performance condition that has not been satisfied). At that time, any option not exercised (other than certain options held by certain executive officers and other members of senior management that may be converted into options for equity securities of LBW Holdings and its wholly-owned subsidiaries, as described below) will be canceled in exchange for a single lump sum cash payment (less any applicable income or employment taxes required to be withheld) equal to the product of:

Prior to the effective time of the merger, LBW Holdings and certain employees may agree that certain unexercised options to purchase common stock of School Specialty, including options held by some of our executive officers, will be exchanged for options covering equity securities of LBW Holdings and/or its wholly-owned subsidiaries that will have terms and conditions as such employee and LBW Holdings agree. After the effective time of the merger, the School Specialty options will no longer be exercisable and LBW Holdings options will become exercisable in accordance with their terms.

Payment for School Specialty Common Stock in the Merger

At the effective time of the merger, LBW Holdings will deposit or will cause School Specialty, as the surviving corporation in the merger, to deposit with a bank or trust company reasonably acceptable to School Specialty, as paying agent, for the benefit of the holders of School Specialty common stock, sufficient cash to pay those holders the amounts they are entitled to receive under the merger agreement. Pending the exchange procedures, as described below, the paying agent will invest the cash so deposited as directed by LBW Holdings, and any net profit resulting from, or interest or income produced by, such investments will be payable to School Specialty, as the surviving corporation in the merger. After the effective time of the merger, there will be no

51

Table of Contents

further transfers in the records of School Specialty of certificates representing School Specialty common stock and, if any certificates are presented to School Specialty for transfer, they will be canceled against payment of the merger consideration. After the effective time of the merger, subject to the right to surrender your certificate in exchange for payment of the merger consideration, you will cease to have any rights as a shareholder of School Specialty.

As promptly as practicable after the effective time of the merger, the paying agent will mail to each record holder of School Specialty common stock a letter of transmittal and instructions for use in effecting the surrender of their School Specialty common stock certificates in exchange for $49.00 per share in cash, without interest. You should not send in your School Specialty common stock certificates until you receive the letter of transmittal. If you have lost a certificate, or if it has been stolen or destroyed, you will have to provide an affidavit to that fact and, if required by School Specialty, as the surviving corporation in the merger, post a bond in a reasonable amount as School Specialty directs as indemnity against any claim that may be made against School Specialty with respect to such certificate before the paying agent makes the payment in connection with such certificate.

The paying agent will promptly pay you your merger consideration after you have surrendered your certificates to the paying agent and provided to the paying agent any other items specified by the letter of transmittal and instructions. The surrendered certificates will be canceled upon delivery of the merger consideration. Interest will not be paid or accrued in respect of cash payments of merger consideration. School Specialty, LBW Holdings or the paying agent may reduce the amount of any merger consideration paid to you by any applicable taxes that it is required to withhold.

If payment is to be made to a person other than the person in whose name the School Specialty common stock certificate surrendered is registered, it will be a condition of payment that the certificate so surrendered be properly endorsed or otherwise be in proper form for transfer and that the person requesting such payment pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the certificate surrendered of the amount due under the merger agreement, or that such person establish, to the reasonable satisfaction of LBW Holdings, that such tax has been paid or is not applicable.

Any portion of the payment fund held by the paying agent that remains undistributed to our shareholders for nine months after the effective time of the merger will be delivered to School Specialty, as the surviving corporation in the merger, and any shareholders who have not properly surrendered their stock certificates will thereafter look only to School Specialty, as the surviving corporation in the merger, for payment of the merger consideration in the amount due to them under the merger agreement. Any portion of the payment fund remaining unclaimed by shareholders as of a date immediately preceding the time such amounts would otherwise escheat to or become property of any governmental authority will, to the extent permitted by applicable law, become property of School Specialty, as the surviving corporation in the merger, free and clear of any claims or interest of any person previously entitled to it. None of School Specialty, the paying agent, LBW Holdings or LBW Acquisition will be liable to any shareholder for any merger consideration delivered to a public official pursuant to applicable abandoned property, escheat and similar laws.

Representations and Warranties

School Specialty has made certain customary representations and warranties in the merger agreement to LBW Holdings and LBW Acquisition, including as to:

52

Table of Contents