SCOO School Specialty Inc (CE)

PROPOSAL ONE: AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SCHOOL SPECIALTY, INC., AS AMENDED, TO INCREASE THE TOTAL NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FOR THE PURPOSE OF, AMONG OTHER THINGS, EFFECTING A PROPOSED SEVEN-FOR-ONE STOCK SPLIT AS PART OF THE AMENDMENT

Description of Proposed Amendment and Vote Required

At present, the Company’s Amended and Restated Certificate of Incorporation, as amended (“Certificate of Incorporation”), authorizes the issuance of up to 2,000,000 shares of Common Stock, par value $0.001 per share.

The Board of Directors of the Company has approved, subject to stockholder approval, and declared it advisable to amend the Certificate of Incorporation to increase the number of authorized shares of Common Stock from 2,000,000 to 50,000,000 shares in order to effect a seven-for-one stock split as part of such amendment and to create financial flexibility for the Company, as described below (the “Amendment”). The additional shares of Common Stock would have rights identical to the currently outstanding Common Stock. The Board directed that the Amendment be submitted for approval by stockholders at a Special Meeting. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Company is required to approve the Amendment.

The full text of the Amendment, which includes the seven-for-one stock split, is set forth in Appendix A to this Proxy Statement. The Amendment will not affect the number of shares of Preferred Stock authorized, which is 500,000 shares.

Purposes and Effects of Increasing the Number of Authorized Shares of Common Stock

Our Certificate of Incorporation currently authorizes the issuance of up to 2,000,000 shares of our Common Stock, par value $0.001 per share. As of the Record Date, there were 1,000,004 shares of our Common Stock outstanding, 130,162 shares subject to outstanding stock options and restricted stock units granted under our 2014 Incentive Plan and 19,838 shares remaining available for future issuances under our 2014 Incentive Plan. Accordingly, 849,996 authorized shares of our Common Stock remain available for issuance or may be reserved for issuance.

One of the primary reasons for the Amendment is to effect a seven-for-one stock split. The Board also believes that the Company is at an important point in its plan for growth and that an increase in its authorized Common Stock will help enable and fortify continued growth over the long term. Currently, 57.5% of the Company’s authorized shares of Common Stock have been either issued, or are reserved for issuance under the Company’s 2014 Incentive Plan. As a result of this high percentage of either issued or reserved shares, the Company does not currently have sufficient shares authorized to (i) effectuate the desired seven-for-one stock split, (ii) to pursue opportunities described below using the Company’s Common Stock as significant consideration, or (iii) take certain other actions that the Board may determine are in the best interests of the Company and its stockholders.

In addition to enabling the Company to effect the stock split, the increase in our authorized Common Stock may be beneficial to the Company by making the price of the Common Stock more attractive to a broader range of investors and ensuring that the Company has sufficient shares available for general corporate purposes, including, without limitation, potential acquisitions, strategic partnerships, equity financings, equity incentives to executive officers and directors, payments of future stock dividends, additional stock splits and other forms of recapitalization. For example, the Company could issue additional shares of Common Stock in the future in connection with one or more of the following (subject to laws or regulations or exchange rules, as applicable, that might require stockholder approval of certain transactions):

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If the Company does not have enough authorized shares to undertake appealing financing transactions or debt or equity restructuring or refinancing transactions, the Company could run the risk of obtaining unfavorable financing terms, which also may involve use of the Company’s cash reserves at inopportune times, and incur additional expense that could be avoided if sufficient authorized shares were available for issuance. The increase in the number of authorized shares is intended to provide us with flexibility to undertake a variety of matters should the right opportunities arise without the delay and expense associated with convening a special meeting of our stockholders to increase authorized shares at a later time.

An increase in the number of authorized shares of our Common Stock may make it more difficult to, or discourage an attempt to, obtain control of our Company by means of a takeover bid that the Board determines is not in our best interest or that of our stockholders. However, the Board does not intend or view the proposed increase in the number of authorized shares of our Common Stock as an anti-takeover measure.

Purposes and Effects of Proposed Seven-For-One Stock Split

The Board anticipates that the increase in the number of outstanding shares of Common Stock of the Company resulting from the proposed stock split will place the market price of the Common Stock in a range more attractive to investors, including retail investors, which may result in a broader market for our Common Stock. We carefully evaluated the effect of the trading price of our Common Stock on the liquidity and marketability of our Common Stock. The closing market price of our Common Stock on the Record Date was $119.00 as reported on the OTCQB. Further, School Specialty’s Common Stock is not listed on a national securities exchange, and the seven-for-one stock split may enable an increase in the number of round lot holders, which is necessary to obtain a listing on a national securities exchange, such as The NASDAQ Stock Market LLC. The Board believes that effecting the stock split could support liquidity in the trading of our Common Stock, enable the Company to list its Common Stock on a national securities exchange and make it more attractive to a broader range of investors.

If stockholders dispose of their shares subsequent to the stock split, they could pay higher brokerage commissions on the same relative interest in the Company because that interest is represented by a greater number of shares. Stockholders should consult their respective brokers to ascertain the brokerage commission that would be charged for disposing of the greater number of shares.

The stock split would also increase the number of shares of Common Stock available for issuance under our 2014 Incentive Plan. With respect to outstanding stock options to purchase shares of our Common Stock, the stock split would effect an increase in the number of shares subject to such outstanding stock options proportional to the seven-for-one ratio of the stock split and would effect a proportionate decrease in the exercise price of such outstanding stock options (rounded up to the nearest whole cent). With respect to other outstanding awards to acquire shares of Common Stock, the stock split would effect an increase in the number of shares subject to such outstanding awards proportional to the seven-for-one ratio of the stock split.

Material U.S. Federal Income Tax Consequences of the Stock Split

The following discussion is a summary of certain material U.S. federal income tax consequences to a U.S. stockholder who exchanges shares of Common Stock pursuant to the stock split, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax

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laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a stockholder. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below.

This discussion is limited to U.S. stockholders that hold our Common Stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a stockholder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to a stockholder subject to special rules, including, without limitation:

If an entity treated as a partnership or S corporation for U.S. federal income tax purposes holds our Common Stock, the tax treatment of a partner or shareholder in such partnership or S corporation, as applicable, will depend on the status of the partner or shareholder, the activities of the partnership or S corporation, and certain determinations made at the partner or shareholder level, in each case as applicable. Accordingly, partnerships and S corporations holding our Common Stock and the partners or shareholders, as applicable, in such partnerships and S corporations should consult their own tax advisors regarding the U.S. federal income tax consequences to them.

The Company will not recognize any gain or loss for U.S. federal income tax purposes as a result of the stock split. Furthermore, the stock split will not result in the recognition of gain or loss to holders of our Common Stock for U.S. federal income tax purposes. The holding period for the shares of Common Stock each stockholder receives will include the holding period of the shares exchanged in the stock split. The aggregate adjusted basis of the new shares of Common Stock will be equal to the aggregate adjusted basis of the old shares exchanged in the stock split.

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THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE EXCHANGE OF OUR COMMON STOCK PURSUANT TO THE STOCK SPLIT ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

Effective Date of Amendment and Issuance of Shares for Stock Split

If the Amendment is adopted by the required vote of stockholders, it will become effective on the date the Amendment is filed with the Secretary of State of the State of Delaware, which will also be the date for the determination of the holders of Common Stock entitled to additional shares as a result of the stock split. Holders of record of our common stock as of the effective time of the Amendment will be entitled to additional shares. If the Amendment is approved, the Company currently anticipates filing the Amendment with the Delaware Secretary of State on August 15, 2017 and the distribution of such additional shares occurring on August 23, 2017.

Reservation of Right to Delay or Abandon Amendment and Stock Split

The Board reserves the right, notwithstanding stockholder approval of the Amendment, and without further action by the stockholders, to delay, elect not to proceed with the Amendment and abandon the Amendment, including the stock split, if, at any time prior to filing the Amendment, the Board determines that it is no longer in the best interests of the Company and its stockholders to proceed with Amendment, including the stock split. If the Board elects to abandon the Amendment, the number of authorized shares of Common Stock will remain 2,000,000 and the seven-for-one stock split will not be effected. By approving Proposal One, you grant the Board discretionary authority to determine whether to delay or abandon the proposed Amendment, including the stock split.

Accordingly, the Board has unanimously approved, declared advisable and recommended that our stockholders approve the Amendment.

Approval of the Amendment requires the affirmative vote of holders of a majority of the issued and outstanding shares of Common Stock. Abstentions and broker non-votes will have the effect of a negative vote on this proposal.

The Board of Directors recommends that you vote FOR approval of the Amendment and your proxy will be so voted unless you specify otherwise.