S-4 1 a10-4901_1s4.htm S-4

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As filed with the Securities and Exchange Commission on March 5, 2010

Registration No. 333-            

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

FORM S-4

 

REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

 


 

Quad/Graphics, Inc.

(Exact name of registrant as specified in its charter)

 

Wisconsin
(State or other jurisdiction of incorporation
or organization)

 

2750
(Primary Standard Industrial
Classification Code Number)

 

39-1152983
(I.R.S. Employer
Identification No.)

 

N63 W23075 Highway 74

Sussex, Wisconsin 53089-2827
(414) 566-6000

(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)

 


 

J. Joel Quadracci
Chairman, President and Chief Executive Officer
Quad/Graphics, Inc.

N63 W23075 Highway 74

Sussex, Wisconsin 53089-2827
(414) 566-2200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 


 

Copies to:

 

Jay O. Rothman

Russell E. Ryba

Foley & Lardner LLP

777 East Wisconsin Avenue

Milwaukee, Wisconsin 53202-5306

(414) 271-2400

 

Joseph B. Frumkin

Melissa Sawyer

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004-2498

(212) 558-4000

 

and

 

Andrew R. Schiesl

Vice President and General Counsel

Quad/Graphics, Inc.

N63 W23075 Highway 74

Sussex, Wisconsin 53089-2827

(414) 566-2017

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this registration statement becomes effective and upon completion of the transaction described in this registration statement.

 


 

If the securities being registered on this Form are offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer o

Accelerated filer o

 

Non-accelerated filer x (Do not check if a smaller reporting company)

Smaller reporting company o

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)

o

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)

o

 


 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities
to be Registered

 

Amount to
be Registered(1)

 

Proposed Maximum
Offering Price
per Share

 

Proposed Maximum
Aggregate Offering
Price(2)

 

Amount of
Registration
Fee(3)

 

Class A Common Stock, par value $0.025 per share

 

21,300,000 shares

 

N/A

 

$

1,135,526,825

 

$

80,964

 

(1)          The registrant has determined that this represents the maximum number of shares of Quad/Graphics, Inc. class A common stock, par value $0.025 per share, estimated to be issuable upon consummation of the transaction described in this registration statement, based upon the share exchange ratio described herein (assuming, for these purposes only, to be the ratio that results in the largest number of shares of Quad/Graphics class A common stock being issued in the transaction).

 

(2)          Estimated solely for purposes of calculating the registration fee and computed pursuant to Rules 457(c), (f) and (o) promulgated under the Securities Act, based on $11.32, the average of the high and the low prices, trading in United States dollars, of common shares of World Color Press Inc. as reported on the Toronto Stock Exchange on March 3, 2010, and multiplied by the maximum number of common shares of World Color Press Inc. that may be converted into the right to receive shares of class A common stock of Quad/Graphics, Inc. in the transaction (estimated to be 108,556,551, as set forth in greater detail herein), less $93,333,333 (which represents the amount of cash that will be paid to the holders of various securities of World Color Press Inc. in the transaction).  Quad/Graphics, Inc. is a private company and no market exists for its equity securities.

 

(3)          Calculated in accordance with Section 6(b) of the Securities Act and Rule 457(f)(1) promulgated thereunder.

 


 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 



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The information in this proxy circular/prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This proxy circular/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROXY CIRCULAR/PROSPECTUS

SUBJECT TO COMPLETION, DATED MARCH 5, 2010

 

PROSPECTUS

 

 

GRAPHIC

GRAPHIC

 

 

 

PROXY CIRCULAR

 

, 2010

 

Dear World Color Press Inc. Shareholders:

 

On behalf of the board of directors and the management team of World Color Press Inc. (sometimes referred to as World Color Press), we are pleased to enclose the proxy circular/prospectus relating to the arrangement of World Color Press pursuant to which Quad/Graphics, Inc. (sometimes referred to as Quad/Graphics) will acquire World Color Press.  Upon completion of the arrangement, World Color Press will be a wholly-owned subsidiary of Quad/Graphics.  We believe this transaction will create a strong combined company that will deliver important benefits to our shareholders and to our customers.

 

In connection with the transaction, World Color Press shareholders are cordially invited to attend a special meeting of the shareholders of World Color Press to be held on                            , 2010 at        a.m., local time, at                                                       .

 

At the special meeting of the shareholders of World Color Press, holders of World Color Press common shares and class A convertible preferred shares, voting together as a single class, will be asked to approve a special resolution pursuant to which, among other things, the arrangement, the plan of arrangement and the arrangement agreement with Quad/Graphics are approved.

 

The World Color Press board of directors has reviewed and considered the terms of the arrangement and the arrangement agreement and has unanimously determined that the arrangement agreement and the transactions contemplated by the arrangement agreement, including the arrangement, are fair to the holders of World Color Press common shares and in the best interests of World Color Press and unanimously recommends that World Color Press shareholders vote FOR the arrangement resolution and thereby approve the arrangement.

 

If the arrangement is completed, each outstanding World Color Press common share will be converted after a multi-step transaction into the right to receive the number of shares of class A common stock, par value $0.025 per share, of Quad/Graphics equal to a Share Exchange Ratio, as determined at closing.  Upon completion of the transaction, Quad/Graphics’ shareholders immediately prior to the closing of the arrangement will own approximately 60% of Quad/Graphics’ outstanding stock and former World Color Press shareholders will own approximately 40% of Quad/Graphics’ outstanding stock.  Quad/Graphics class A common stock is not currently listed on a national securities exchange.  In connection with the consummation of the transaction, Quad/Graphics class A common stock is expected to be listed on a national securities exchange in the United States.  The shares of Quad/Graphics class A common stock have one vote per share.  The shares of Quad/Graphics class B common stock and class C common stock have 10 votes per share.

 

Each outstanding World Color Press common share will also be entitled to a cash payment equal to (i) the amount, if any, by which $93,333,333 exceeds the aggregate amount of cash paid or obligated to be paid to holders of World Color Press class A convertible preferred shares in connection with the redemption of all such shares, to holders of World Color Press warrants in connection with the cancellation of all of such warrants and to holders of World Color Press deferred share units and restricted share units and the aggregate amount of dividends, if any, that World Color Press pays or becomes obligated to pay on or after January 24, 2010 and prior to the completion of the arrangement, divided by (ii) the total number of World Color Press common shares outstanding immediately prior to the completion of the arrangement.

 

We urge you to read the accompanying proxy circular/prospectus, which includes important information about the arrangement and the special meeting of World Color Press shareholders.  In particular, see “Risk Factors” beginning on page 30 of the accompanying proxy circular/prospectus which contains a description of the risks that you should consider in evaluating the transaction.

 

It is expected that the conversion of the World Color Press common shares into Quad/Graphics class A common stock will be a fully taxable transaction for both United States federal income tax purposes and Canadian Federal income tax purposes.  For a discussion of the income tax consequences of the arrangement, see “Material United States Federal Income Tax Considerations” beginning on page 121 and “Material Canadian Federal Income Tax Considerations” beginning on page 126 of the accompanying proxy circular/prospectus.

 

Your vote is very important.  Whether or not you expect to attend the special meeting of World Color Press, the details of which are described in the accompanying proxy circular/prospectus, please vote immediately by submitting your proxy by telephone or the Internet or by completing, signing, dating and returning your signed proxy card(s) in the enclosed prepaid return envelope.

 

If World Color Press shareholders have any questions or require assistance in voting their shares, they should call                         , World Color Press’ proxy solicitor for the special meeting, toll free at                                           .

 

 

 

Sincerely,

 

 

 

 

 

                                         .

 

Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of the transaction described in the proxy circular/prospectus or the securities to be issued pursuant to the transaction described in the proxy circular/prospectus or determined if the proxy circular/prospectus is accurate or adequate.  Any representation to the contrary is a criminal offense.

 


 

The accompanying proxy circular/prospectus is dated                          , 2010 and is

first being mailed to shareholders on or about                                  , 2010.

 



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GRAPHIC

 

World Color Press Inc.

999 de Maisonneuve Boulevard West

Suite 1100

Montreal, Québec

Canada H3A 3L4

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD                                  , 2010

 

To the shareholders of World Color Press:

 

A special meeting of the holders of common shares and class A convertible preferred shares of World Color Press will be held at                                                 , at        a.m., local time, on                                      , 2010, for the following purposes:

 

1.             To consider, pursuant to an interim order of the Superior Court of Québec, District of Montréal, dated                    , 2010, as the same may be amended (sometimes referred to as the Interim Order) and, if deemed advisable, to pass, with or without variation, a special resolution, the full text of which is attached to the accompanying proxy circular/prospectus in Annex A (sometimes referred to as the arrangement resolution), to approve an arrangement under Section 192 of the Canada Business Corporations Act involving, among other things, the acquisition by Quad/Graphics of all of the issued and outstanding common shares of World Color Press and the redemption of all of the issued and outstanding class A convertible preferred shares of World Color Press; and

 

2.             To transact such other business as may properly come before the special meeting or any adjournment(s) or postponement(s) of the special meeting.

 

The arrangement is described in the accompanying proxy circular/prospectus, which serves as (i) World Color Press’ management proxy circular in connection with management’s solicitation of proxies, and (ii) a prospectus of Quad/Graphics relating to its issuance of class A common stock in connection with the arrangement.

 

The board of directors of World Color Press unanimously recommends that you vote FOR the resolution to approve the arrangement.   Shareholders of record as of 5:00 p.m. (Eastern Time) on                              , 2010, the record date for the special meeting, will be entitled to vote at the meeting and at any adjournment or postponement thereof.

 

All registered shareholders, whether or not they expect to be present at the meeting, are requested to sign, date, and mail the accompanying proxy in the envelope provided for this purpose or by following the procedures for either telephone or Internet voting provided in the accompanying proxy circular/prospectus.  Proxies must be received by our transfer agent, Computershare Investor Services Inc. (Attention: Proxy Department, 100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1, or by fax to World Color Press Inc., c/o Computershare Investor Services Inc. at (416) 263-9524 or 1-866-249-7775), before 5:00 p.m. (Eastern Time), on                      , 2010 (or the date that is two days, excluding Saturdays, Sundays and holidays, prior to the date set for any adjournment or postponement of the original meeting).

 

If you are a non-registered, beneficial shareholder, you must follow the instructions provided by your broker, investment dealer, bank, trust company or other intermediary to ensure that your vote is counted at the special meeting.

 

In accordance with the Interim Order, registered holders of common shares of World Color Press have a right to dissent from the arrangement and to be paid an amount equal to the fair value of their shares. This right is described in the accompanying proxy circular/prospectus.  Failure to comply strictly with the dissent procedures may result in the loss or unavailability of the right to dissent.  See “The Special Meeting of World Color Press Shareholders — Dissent Rights” in the accompanying proxy circular/prospectus.

 

If you have any questions or require more information regarding the procedures for voting or completing your proxy or transmittal documentation, please contact                   , our proxy solicitation agent, toll-free at                           .

 

 

 

By Order of the Board of Directors

 

 

 

 

 

[NAME]

 

 

[title]

 

 

 

Montreal, Québec, Canada

 

 

                             , 2010

 

 

 



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In this proxy circular/prospectus, references to “$” refer to United States dollars, unless otherwise noted.

 

REFERENCES TO ADDITIONAL INFORMATION

 

Quad/Graphics has filed a registration statement on Form S-4 to register with the United States Securities and Exchange Commission (sometimes referred to as the SEC) the Quad/Graphics class A common stock, par value $0.025 per share (sometimes referred to as class A stock), to be issued to World Color Press shareholders upon completion of the arrangement.  This proxy circular/prospectus is a part of that registration statement and constitutes a prospectus of Quad/Graphics in addition to being a proxy circular of World Color Press for World Color Press’ special meeting.  As allowed by SEC rules, this proxy circular/prospectus does not contain all the information you can find in the registration statement or the exhibits to the registration statement.

 

This proxy circular/prospectus incorporates important business and financial information about Quad/Graphics and World Color Press from other documents that are not included in or delivered with this proxy circular/prospectus.  This information is available to you without charge upon your written or oral request.  You can obtain copies of the documents incorporated by reference into this proxy circular/prospectus through the SEC website at www.sec.gov, through the website for the System for Electronic Document, Analysis and Retrieval (sometimes referred to as SEDAR) of the Canadian Securities Administrators at www.sedar.com for World Color Press’ documents, or by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

Quad/Graphics, Inc.

Attention:  Andrew R. Schiesl

N63 W23075 Highway 74

Sussex, Wisconsin 53089-2827

(414) 566-2017

World Color Press Inc.

Attention:                

999 de Maisonneuve Blvd. West, Suite 1100

Montreal, Quebec

Canada H3A 3L4

(514) 954-0101

 

If you would like to request documents, please do so by                                , 2010, in order to receive them before the World Color Press special meeting.

 

See “Where You Can Find More Information” beginning on page 245 of this proxy circular/prospectus.

 

SUBMITTING PROXIES BY MAIL, TELEPHONE OR INTERNET

 

World Color Press shareholders of record may submit their proxies:

 

·                                          by telephone, by calling the toll-free number                                    in the United States or Canada on a touch-tone phone and following the recorded instructions;

 

·                                          by accessing the Internet website at www.                       and following the instructions on the website; or

 

·                                          by mail, by indicating their voting preference on the proposals on each proxy card received, signing and dating each proxy card and returning each proxy card in the prepaid envelope that accompanied that proxy card.

 

Shareholders of World Color Press whose shares are held in “street name” must provide their brokers with instructions on how to vote their shares; otherwise, their brokers will not vote their shares on any resolution before the special meeting.  Shareholders should check the voting form provided by their brokers for instructions on how to vote their shares.

 


 

This proxy circular/prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, any securities, or the solicitation of a proxy, by any person in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making the offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such an offer or solicitation.

 



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TABLE OF CONTENTS

 

 

Page

 

 

QUESTIONS AND ANSWERS ABOUT THE TRANSACTION

1

SUMMARY

7

SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION

21

Quad/Graphics Selected Historical Financial Information

22

World Color Press Selected Historical Financial Information

23

Selected Unaudited Pro Forma Condensed Combined Financial Information

25

Historical and Unaudited Pro Forma Combined Per Share Information

27

Comparative Value of Securities

29

RISK FACTORS

30

Risks Relating to the Arrangement

30

Risks Relating to the Business of the Combined Company

37

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

46

QUAD/GRAPHICS BUSINESS

48

Overview

48

World Color Press Acquisition

48

Industry

49

Competitive Advantages

50

Strategy

53

Segment Description

54

Competition

55

Customers

56

Patents, Trademarks and Trade Names

56

Raw Materials

56

Environmental Stewardship

56

Employees

57

Business Acquisitions

57

Legal Proceedings

57

Properties

57

WORLD COLOR PRESS BUSINESS

59

Business Segments and Print Services

59

Manufacturing and Technology

60

Sales and Marketing

60

THE SPECIAL MEETING OF WORLD COLOR PRESS SHAREHOLDERS

61

Date, Time and Place of World Color Press Special Meeting

61

Matters to be Considered

61

Recommendation of the World Color Press Board of Directors

61

Record Date and Entitlement to Vote

61

Registered Holders of World Color Press Shares

62

Non-Registered Shareholders

62

Quorum

62

Required Vote

62

Voting Shares and Principal Holders of Voting Shares

63

Proxies

64

Voting of Proxies

64

Revocation of Proxies

64

Solicitation of Proxies

65

Dissent Rights

66

THE ARRANGEMENT

69

World Color Press Arrangement Proposal

69

Background of the Arrangement

69

World Color Press’ Reasons for the Arrangement; Recommendation of the Board of Directors

72

Opinion of World Color Press’ Financial Advisor

75

 

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Quad/Graphics’ Reasons for the Arrangement

86

Estimated Potential Synergies Attributable to the Arrangement

87

Projected Financial Information

88

Interests of World Color Press’ Directors and Executive Officers in the Arrangement

90

Accounting Treatment

92

Court Approval of the Arrangement and Completion of the Arrangement

92

Regulatory Approvals

93

Dissent Rights

94

Canadian Securities Law Considerations

94

Stock Exchange Listing; Delisting and Deregistration of World Color Press’ Common Shares

95

Business Relationships between Quad/Graphics and World Color Press

95

THE ARRANGEMENT AGREEMENT

96

General

96

Closing Matters

96

Consideration to be Received Pursuant to Arrangement

97

Amended and Restated Quad/Graphics’ Articles of Incorporation and Bylaws

102

Exchange of Certificates Pursuant to Arrangement

102

Lost Certificates

103

Cancellation of Rights after Three Years

103

Delivery Requirements

103

Delivery of the Quad/Graphics Class A Stock

104

World Color Press Preferred Share Redemption and Warrant Cancellation

104

Covenants

104

Representations and Warranties

111

Conditions

113

Termination of Arrangement Agreement

115

Amendments, Extensions and Waivers

119

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

120

U.S. Federal Income Tax Consequences of the Arrangement

121

U.S. Federal Income Tax Considerations Relevant to Ownership of Quad/Graphics Class A Stock by Non-U.S. Holders

122

MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

125

Taxation of Canadian Resident Shareholders

126

Taxation of Non-Canadian Shareholders

131

Eligibility for Investment

135

VOTING AND SUPPORT AGREEMENT

136

DIRECTORS AND EXECUTIVE OFFICERS OF QUAD/GRAPHICS AFTER THE ARRANGEMENT

137

Board of Directors of Quad/Graphics

137

Committees of the Board of Directors of Quad/Graphics

139

Corporate Governance

141

Compensation of Directors

142

Executive Officers of Quad/Graphics

143

Compensation of Executive Officers

145

Certain Relationships and Related Party Transactions

175

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

177

QUAD/GRAPHICS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

193

Business Overview

193

Results of Operations for the Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

194

Results of Operations for the Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

200

Liquidity and Capital Resources

205

Critical Accounting Policies and Estimates

209

New Accounting Pronouncements

211

 

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QUAD/GRAPHICS QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

213

Interest Rate Risk

213

Foreign Currency Risk and Translation Exposure

213

Credit Risk

213

Commodity Risk

213

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF QUAD/GRAPHICS

215

Quad/Graphics Voting Trust

219

DESCRIPTION OF QUAD/GRAPHICS CAPITAL STOCK

220

Authorized Capital Stock

220

Comparison of Quad/Graphics’ Class A Stock, Class B Stock and Class C Stock

220

Preferred Stock

224

Provisions of Wisconsin Law and Quad/Graphics’ Amended and Restated Articles of Incorporation and Amended Bylaws with Possible Anti-Takeover Effects

225

Preemptive Rights

227

Transfer Agent and Registrar

227

Listing

227

COMPARISON OF THE RIGHTS OF QUAD/GRAPHICS AND WORLD COLOR PRESS COMMON SHAREHOLDERS

228

EXPERTS

244

Quad/Graphics

244

World Color Press

244

LEGAL MATTERS

244

WHERE YOU CAN FIND MORE INFORMATION

245

FINANCIAL STATEMENTS OF QUAD/GRAPHICS

FS-1

 

ANNEX A — Arrangement Agreement, Arrangement Resolution and Plan of Arrangement

A-1

ANNEX B — Opinion of Morgan Stanley & Co. Incorporated

B-1

ANNEX C — Form of Amended and Restated Articles of Incorporation of Quad/Graphics

C-1

ANNEX D — Form of Amended Bylaws of Quad/Graphics

D-1

ANNEX E — Charters of the Audit, Finance and Compensation Committees of the Board of Directors of Quad/Graphics, Quad/Graphics Corporate Governance Guidelines and Quad/Graphics Code of Business Conduct and Ethics

E-1

ANNEX F — Section 190 of the Canada Business Corporation Act

F-1

ANNEX G — Interim Order

G-1

 

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QUESTIONS AND ANSWERS ABOUT THE TRANSACTION

 

Q1:  Why am I receiving this document?

 

A:  World Color Press and Quad/Graphics have agreed to a statutory arrangement under Canadian law pursuant to which World Color Press will become a wholly-owned subsidiary of Quad/Graphics (sometimes referred to as the arrangement or the transaction) and will no longer be a publicly held corporation.  In connection with the arrangement, Quad/Graphics will become a publicly held corporation and is expected to have its class A stock listed on a national securities exchange in the United States.  In order to complete the arrangement, World Color Press shareholders must vote to approve the arrangement resolution.  The arrangement agreement, dated as of January 25, 2010, between Quad/Graphics and World Color Press (sometimes referred to as the arrangement agreement), the arrangement resolution and the plan of arrangement are attached to this proxy circular/prospectus as Annex A.

 

In order to complete the arrangement, Quad/Graphics shareholders must also approve the transactions contemplated by the arrangement agreement, including approval of the amended and restated articles of incorporation of Quad/Graphics (sometimes referred to as the Quad/Graphics Charter).  Holders of Quad/Graphics common stock having more than 50% of the voting power have entered into a voting agreement in support of the transactions contemplated by the arrangement agreement.  See “Voting and Support Agreement” beginning on page 136.

 

We are delivering this document to you as both a proxy circular of World Color Press and a prospectus of Quad/Graphics.  It is a proxy circular because it is being used by the World Color Press board of directors to solicit proxies from its shareholders to vote in favor of the arrangement resolution at the World Color Press special meeting.  It is a prospectus because Quad/Graphics will issue shares of its class A stock in exchange for World Color Press common shares if the arrangement is completed.

 

Q2:  What do I need to do now?

 

A:  After you carefully read this proxy circular/prospectus, please respond by submitting your proxy by telephone or the Internet or by completing, signing, dating and returning your signed proxy card(s) in the enclosed prepaid return envelope(s), as soon as possible, so that your shares may be represented at the World Color Press special meeting.  In order to assure that your vote is recorded, please vote your proxy as instructed on your proxy card(s) even if you currently plan to attend the World Color Press special meeting in person.

 

Q3:  What will I receive in the arrangement?

 

A:  Each outstanding World Color Press common share will be converted after a multi-step transaction into the right to receive the number of shares of class A stock of Quad/Graphics equal to the Share Exchange Ratio (as defined below).  Upon completion of the arrangement, Quad/Graphics’ shareholders immediately prior to the closing of the arrangement will own approximately 60% of Quad/Graphics’ outstanding stock and former World Color Press shareholders will own approximately 40% of the Quad/Graphics’ outstanding stock.  The shares of Quad/Graphics class A stock have one vote per share.  The shares of Quad/Graphics class B common stock (sometimes referred to as class B stock) and class C common stock (sometimes referred to as class C stock) have 10 votes per share.

 

“Share Exchange Ratio” means a fraction (rounded to the nearest fourth decimal):

 

·                                          the numerator of which is equal to the Arrangement Amount (as defined below), and

 

·                                          the denominator of which is equal to the total number of World Color Press common shares outstanding immediately prior to the completion of the arrangement (other than shares owned directly or indirectly by World Color Press).

 

If the aggregate Equity Payment Amounts (as defined below) are equal to or less than $135.0 million, “Arrangement Amount” means the difference between:

 

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·                                          the total number of shares of Quad/Graphics class A stock, class B stock and class C stock outstanding immediately prior to the completion of the arrangement (other than shares owned directly or indirectly by Quad/Graphics) divided by 60%, less

 

·                                          the total number of shares of Quad/Graphics class A stock, class B stock and class C stock outstanding immediately prior to the completion of the arrangement (other than shares owned directly or indirectly by Quad/Graphics).

 

If the aggregate Equity Payment Amounts exceed $135.0 million, the Arrangement Amount is adjusted in such a manner that the Share Exchange Ratio is proportionately reduced by the dollar amount that the Equity Payment Amounts exceed $135.0 million.  In this circumstance, “Arrangement Amount” means an amount equal to the product of:

 

·                                          the number of World Color Press common shares equal to:

 

·                                          the total number of World Color Press common shares outstanding immediately prior to the completion of the arrangement (other than shares owned directly or indirectly by World Color Press), less

 

·                                          a number of World Color Press common shares equal to the excess of the Equity Payment Amounts over $135.0 million divided by the “effective price” of the World Color Press common shares determined under the World Color Press indenture, dated as of July 21, 2009, between World Color Press and Computershare Trust Company of Canada creating the World Color Press warrants (sometimes referred to as the World Color Press warrant indenture),

 

multiplied by

 

·                                          a fraction

 

·                                          the numerator of which is equal to the difference between (1) the total number of shares of Quad/Graphics class A stock, class B stock and class C stock outstanding immediately prior to the completion of the arrangement (other than shares owned directly or indirectly by Quad/Graphics) divided by 60%, less (2) the total number of shares of Quad/Graphics class A stock, class B stock and class C stock outstanding immediately prior to the completion of the arrangement (other than shares owned directly or indirectly by Quad/Graphics), and

 

·                                          the denominator of which is equal to the total number of World Color Press common shares outstanding immediately prior to the completion of the arrangement (other than shares owned directly or indirectly by World Color Press).

 

“Equity Payment Amounts” means:

 

·                                          the aggregate amount of cash paid or obligated to be paid to holders of World Color Press class A convertible preferred shares (sometimes referred to as World Color Press preferred shares) in connection with the redemption of all such shares, to holders of World Color Press warrants in connection with the cancellation of all of such warrants and to holders of World Color Press deferred share units and restricted share units, and

 

·                                          the aggregate amount of dividends, if any, that World Color Press pays or becomes obligated to pay on or after January 24, 2010 and prior to the completion of the arrangement.

 

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Based on the foregoing, holders of World Color Press common shares will receive 40% of the outstanding stock of Quad/Graphics if the Equity Payment Amounts are $135.0 million or less.  In the event that the aggregate Equity Payment Amounts exceed $135.0 million, the collective ownership percentage of the holders of World Color Press common shares will be reduced by the amount in which the aggregate Equity Payment Amounts exceed $135.0 million.

 

Each outstanding World Color Press common share will also be entitled to a cash payment equal to:

 

·                                          the amount, if any, by which $93,333,333 exceeds the Equity Payment Amounts, divided by

 

·                                          the total number of World Color Press common shares outstanding immediately prior to the completion of the arrangement (other than shares owned directly or indirectly by World Color Press).

 

This cash payment is sometimes referred to as the Common Cash Consideration.

 

For examples of the Share Exchange Ratio and the Common Cash Consideration that would be paid per World Color Press common share based on a range of shares outstanding immediately prior to the completion of the arrangement and certain other variables, see “The Arrangement Agreement — Consideration to be Received Pursuant to the Arrangement” beginning on page 97.

 

Quad/Graphics will not issue fractional shares pursuant to the arrangement.  As a result, the total number of shares of Quad/Graphics class A stock that each holder of World Color Press common shares would otherwise receive pursuant to the arrangement will be rounded down to the nearest whole number, and each holder of World Color Press common shares will receive such whole number of shares of Quad/Graphics class A stock and a cash payment for the remaining fraction of a share of Quad/Graphics class A stock that such shareholder would otherwise receive, based on the average of the daily high and low sales price per World Color Press common share on the Toronto Stock Exchange on the last trading day before the closing date of the arrangement.

 

Q4:  Why have Quad/Graphics and World Color Press agreed to the arrangement?

 

A:  World Color Press and Quad/Graphics believe that the arrangement will provide substantial strategic and financial benefits to their shareholders and customers.  See “Summary—World Color Press’ Reasons for the Arrangement” beginning on page 12 and “Summary—Quad/Graphics’ Reasons for the Arrangement” beginning on page 12.

 

Additional information on the reasons for the arrangement can be found beginning on page 72 for World Color Press and on page 86 for Quad/Graphics.

 

Q5:  When do you expect the arrangement to be completed?

 

A:  Subject to receipt of the approval of World Color Press shareholders at the World Color Press special meeting, receipt of the approval of the transactions contemplated by the arrangement agreement by the Quad/Graphics shareholders and the timely receipt of necessary regulatory approvals, and approval of the Québec Superior Court, we hope to complete the arrangement in the summer of 2010.  However, we cannot predict when regulatory approvals will be obtained or whether regulatory, shareholder or court approvals will be received.  In addition, other factors outside of our control could require us to complete the arrangement at a later time or not to complete it at all.  For a discussion of the conditions to the completion of the arrangement, see “The Arrangement Agreement — Conditions” beginning on page 113.

 

Q6:  How will my proxy be voted?

 

A:  If you vote by telephone or by the Internet or by completing, signing, dating and returning your signed proxy card(s), your proxy will be voted in accordance with your instructions.

 

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If you are a registered shareholder of World Color Press common shares or World Color Press preferred shares and submit your proxy but do not indicate how you want to vote, your shares will be voted FOR the arrangement resolution.  If other matters are properly brought before the World Color Press special meeting, or any adjourned meeting, your proxy provides for discretionary authority on the part of the individuals appointed to vote your shares to act on those matters according to their best judgment unless you direct that discretionary authority is not conferred on such individuals.

 

Q7:  May I vote in person?

 

A:  Yes.  If you are a registered shareholder of World Color Press common shares or World Color Press preferred shares as of                            , 2010, you may attend the World Color Press special meeting and vote your shares in person, instead of submitting your proxy by telephone or by the Internet or returning your signed proxy card(s).  However, we highly recommend that you vote in advance by submitting your proxy by telephone, via the Internet or by mail, even if you plan to attend the World Color Press special meeting.  If your shares are held in “street name” by your broker or other intermediary, and you wish to attend the meeting in person, follow the instructions provided to you by or on behalf of your broker or intermediary.

 

Q8:  What vote is required to approve the arrangement resolution at the World Color Press special meeting?

 

A:   The arrangement resolution will be approved if a quorum in respect of the World Color Press common shares and the World Color Press preferred shares is present and at least two-thirds of the votes cast by the holders of World Color Press common shares and the holders of World Color Press preferred shares, voting together as a single class, are cast in favor of the arrangement resolution.

 

Each World Color Press common share has one vote and each World Color Press preferred share has      vote[s] on the arrangement resolution.

 

Q9:  If I am a registered holder of my shares, what happens if I don’t submit a proxy (whether by returning my proxy card(s) or submitting my proxy by telephone or via the Internet) or attend the World Color Press special meeting to vote in person?

 

A:  If you do not return your proxy card(s) or submit your proxy by telephone or via the Internet or vote in person at World Color Press’ special meeting, your vote will not be counted.

 

Q10:  What if I am a non-registered shareholder?

 

A:  If some or all of your World Color Press common shares or preferred shares are not registered in your name, but rather are held in “street name” by your broker or other intermediary, you must provide your broker or other intermediary with instructions on how to vote your shares; otherwise, your broker or other intermediary will not be able to vote your shares on the arrangement resolution at the World Color Press special meeting.

 

As a result of the foregoing, please be sure to provide your broker or other intermediary with instructions on how to vote your shares.  Please check the voting form used by your broker or other intermediary to see if it offers telephone or Internet submission of proxies.  If you wish to attend the World Color Press special meeting in person, follow the instructions provided to you by or on behalf of your broker or intermediary.  See “The Special Meeting of World Color Press Shareholders — Non-Registered Shareholders” beginning on page 62, for more information.

 

Q11:  Who will count the votes?

 

A:  Representatives of Computershare Investor Services Inc. will serve as inspector of elections, count all the proxies or ballots submitted and report the votes at the World Color Press special meeting.  Computershare Investor Services Inc. will hold your vote in confidence.  Whether you vote your shares by Internet, telephone or mail, your vote will be received directly by Computershare Investor Services Inc.

 

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Q12:  Can I revoke my proxy and change my vote?

 

A:  Yes.  If you are a registered holder of World Color Press common shares or preferred shares, your proxy can be revoked in several ways:

 

·                                          by entering a new vote by telephone or the Internet prior to 5:00 p.m. (Eastern Time) on                  , 2010;

 

·                                          by executing, or having your attorney (who must be authorized in writing) execute, a written revocation of your proxy and delivering it to the World Color Press Corporate Secretary or the offices of Computershare Investor Services Inc. at the address referred to above, at any time up to and including 5:00 p.m. (Eastern Time) on the last business day preceding the date of the World Color Press special meeting, or any adjournment of the World Color Press special meeting, or to the chairman of the World Color Press special meeting at any time before the World Color Press special meeting or any adjournment of the World Color Press special meeting;

 

·                                          by completing and submitting, or having your attorney (who must be authorized in writing) complete and submit, a later-dated proxy card no later than 5:00 p.m. (Eastern Time) on                  , 2010; or

 

·                                          by attending the World Color Press special meeting and voting your shares in person.  Your attendance at the World Color Press special meeting alone will not revoke your proxy. You must also vote at the World Color Press special meeting in order to revoke a previously submitted proxy.

 

You may also revoke your proxy in any other manner permitted by law.

 

However, if your shares are not registered in your name, but rather they are held in “street name” through a bank, broker, custodian or other record holder or intermediary, you must check with your bank, broker, custodian or other record holder or intermediary to determine how to revoke your proxy.

 

Q13:  When and where is the special meeting?

 

A:  The World Color Press special meeting will take place on                                , 2010, at       a.m., local time, at                                   .

 

Q14:  What must I bring to attend the special meeting?

 

A:  Admittance to the World Color Press special meeting will be limited to World Color Press common and preferred shareholders or their respective proxy holders, the officers, directors, auditors and advisors of World Color Press, representatives and advisors of Quad/Graphics, Ernst & Young Inc., in its capacity as court-appointed monitor for World Color Press’ bankruptcy proceedings the “Director” appointed under the Canada Business Corporations Act (sometimes referred to as the CBCA) and other persons who may receive the permission of the Chair of the World Color Press special meeting.

 

Q15:  Should I send in my stock certificates now?

 

A:  You are not required to send your share certificates to validly cast your vote in respect of the arrangement resolution.  Accompanying this proxy circular/prospectus are letters of transmittal that contain instructions explaining the procedures for surrendering the World Color Press share certificates in exchange for the consideration payable in the arrangement. If you are a non-registered shareholder, you should carefully follow the instructions from the intermediary that holds World Color Press shares on your behalf in order to submit your World Color Press shares.

 

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Q16:  Are there risks I, as a World Color Press shareholder, should consider in deciding to vote on the approval of the arrangement resolution?

 

A:  Yes, in evaluating the arrangement resolution and the arrangement, you should carefully read this proxy circular/prospectus, including the factors discussed in the section titled “Risk Factors” beginning on page 30 of this proxy circular/prospectus.

 

Q17:  Who can answer any questions I may have about the World Color Press special meeting or the arrangement?

 

A:  World Color Press shareholders may call                               , World Color Press’ proxy solicitor for the special meeting, [toll free] at                           .

 

Q18:  Why will I receive both a proxy circular for World Color Press’ annual general meeting and this proxy circular/prospectus for the World Color Press special meeting?

 

A:  This proxy circular/prospectus is being used by World Color Press to solicit proxies from its shareholders to vote in favor of the arrangement resolution at the World Color Press special meeting. The proxy circular World Color Press shareholders will receive for the annual general meeting, scheduled for May 13, 2010, will be used by World Color Press to solicit proxies from its shareholders to vote on routine annual matters.

 

Q19:  What are the income tax consequences of the arrangement?

 

A:  It is expected that the conversion of the World Color Press common shares into Quad/Graphics class A stock will be a fully taxable transaction to holders of World Color Press common shares for both United States federal income tax purposes and Canadian federal income tax purposes.  Additionally, there are other United States federal income tax and Canadian tax considerations that you should consider and discuss with your own tax advisor.  Please see “Risk Factors—Risks Relating to the Arrangement” beginning on page 30 and the discussion under “Material United States Federal Income Tax Considerations” beginning on page 120 and under “Material Canadian Federal Income Tax Considerations” beginning on page 125 for more information.

 

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SUMMARY

 

This summary highlights selected information from this proxy circular/prospectus and may not contain all of the information that is important to you.  To understand the arrangement fully and for a more complete description of the legal terms of the arrangement agreement, you should carefully read this entire proxy circular/prospectus and the documents to which we refer you.  See “Where You Can Find More Information” beginning on page 245.  A copy of the arrangement agreement, the arrangement resolution and the plan of arrangement are attached as Annex A to this proxy circular/prospectus and are incorporated by reference into this proxy circular/prospectus.   We have included references to other portions of this proxy circular/prospectus to direct you to a more complete description of the topics presented in this summary, which you should review carefully in their entirety.

 

The Companies

 

Quad/Graphics, Inc.

N63 W23075 Highway 74

Sussex, Wisconsin 53089-2827

(414) 566-6000

 

Quad/Graphics is a leading global provider of print and related services that are designed to provide customers complete solutions for communicating their message to target audiences.  Quad/Graphics’ print products primarily include catalogs, consumer magazines, special interest publications, direct marketing materials and retail inserts.  Quad/Graphics’ print-related services include digital photography (with nine studios nationwide), digital imaging, binding, mailing and distribution, and data optimization and analytics services.  Founded in Pewaukee, Wisconsin in 1971 by Harry V. Quadracci, Quad/Graphics has approximately 11,600 employees in the United States, South America and Europe, serving a diverse base of approximately 3,000 customers from 15 state-of-the-art printing plants (including a joint venture plant in Brazil) and 14 full-service imaging service centers (five of which are located within printing plants).

 

Quad/Graphics maintains relationships with leading magazine publishers, including Condé Nast, Hearst Magazines, Meredith Corporation, The National Geographic Society, Rodale, Inc. and Time Inc., and produces well-known consumer titles such as Allure, Architectural Digest, GQ, InStyle, The Journal of the National Geographic Society, Lucky, Men’s Fitness, People, Runner’s World, Self, Sports Illustrated, Time, Traditional Home, Veranda and Vogue.  Quad/Graphics produces retail newspaper inserts for J.C. Penney Company, Inc., Kohl’s Corporation, Shopko Stores Operating Co., LLC, Target Corporation, and The Bon-Ton Stores, Inc.; and produces catalogs for industry leading marketers such as Cabela’s Incorporated, Coldwater Creek Inc., J.Crew Group, Inc., L.L. Bean, The Orvis Company, Redcats USA, and Williams-Sonoma. Inc.

 

Quad/Graphics seeks to benefit its clients in two main ways—minimize their cost of print production and maximize the revenue derived from their print spending.  In order to minimize a customer’s cost of production, Quad/Graphics continually strives to increase its own productivity and reduce its customers’ mailing and distribution costs through its integrated data analysis, finishing technology and logistics operations.  Quad/Graphics also works to help its customers increase their revenue by decreasing manufacturing cycle time, which allows customers additional time to sell more advertising in their published products, and by utilizing technology to increase consumer response rates, maximizing a customer’s return on print spending.

 

Over the last 15 years, Quad/Graphics has made substantial, yet disciplined, investments in its manufacturing platform, creating what Quad/Graphics believes is the most efficient and modern manufacturing platform in the commercial printing industry.  Quad/Graphics also has made substantial investments in research and development and other technological innovations.  These investments have led to the development of various manufacturing process improvements, including innovative press and finishing control systems and material-handling equipment for use in Quad/Graphics’ own operations as well as for sale to other printers worldwide.  Quad/Graphics believes that this ongoing innovation focus positions it on the leading edge of technology in the industry.  Quad/Graphics believes that this continual investment and innovation and its modern manufacturing platform, together with its focus on customer service and its distribution capabilities, have resulted in Quad/Graphics

 

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being one of the most profitable commercial printing companies in the industry, as measured by EBITDA (net earnings attributable to common shareholders plus interest expense, income tax expense, depreciation and amortization) as a percentage of net sales.  This profitability, in turn, allows Quad/Graphics to continue to invest in equipment, research and development and other technological innovations to benefit its customers.

 

The manufacturing platform and technological advantages that Quad/Graphics enjoys are further reinforced by the qualities of its workforce.  Quad/Graphics believes that its distinct corporate culture encourages an organization-wide entrepreneurial spirit and an opportunistic mentality, where employees embrace responsibility, take ownership of projects and are encouraged to drive results.  Quad/Graphics further believes that the ownership and voting control by the Quadracci family has enabled the company to maintain consistent strategic goals and disciplined strategy deployment, ensure continuity in its management team and enable its distinct corporate culture.

 

For additional information about Quad/Graphics, see “Quad/Graphics Business” beginning on page 48.

 

World Color Press Inc.

999 de Maisonneuve Blvd. West

Suite 1100

Montreal, Quebec

Canada H3A 3L4

(514) 954-0101

 

World Color Press is a commercial printer that provides high-value, complete market solutions, including pre-print, print and post-print services to leading retailers, branded goods companies, catalogers and publishers of magazines, books, directories and other printed media.  With a presence in North American and Latin American countries (which, for the purpose of this proxy circular/prospectus, include Mexico), World Color Press is able to serve customers on a regional, national and international basis.

 

World Color Press operates in a dynamic, highly fragmented and competitive printing industry and has established market-leading positions in the segments that it serves through a combination of building long-term partnerships with the world’s leading print media customers, investing in key strategic technologies and expanding the scope of its product offerings and geographical presence through strategic acquisitions.  The customers of World Color Press include many of the largest publishers, retailers and catalogers in the geographic areas in which it operates.  With respect to retail inserts, World Color Press’ customers include CVS Caremark Corporation and Wal-Mart Stores Inc. World Color Press prints catalogues for customers such as Bass Pro Shops Canada, Inc. and Limited Brands Inc. (Victoria’s Secret).  World Color Press’ book publishing customers include Harlequin Enterprises Limited, The McGraw-Hill Companies, Inc., Pearson Education Inc., Simon & Schuster, Inc., The Reader’s Digest Association Ltd. and Thomas Nelson, Inc.  World Color Press prints magazines for publishers including Hachette Filipacchi Media U.S., Inc., Source Interlink Media, LLC, The Reader’s Digest Association Ltd. and Wenner Media LLC.  World Color Press’ directories customers include Dex One Corporation, Yellow Book USA, Inc. and Yellow Pages Group Limited.

 

As of February 19, 2010, World Color Press, together with its corporate office located in Montreal, Quebec, Canada, had 80 printing, distribution and office facilities located in North America and Latin America.  In the United States, World Color Press is the second largest commercial printer with 57 facilities in 26 states.  World Color Press is the second largest commercial printer in Canada with 15 premises in five provinces through which World Color Press offers a diversified mix of printed products and related value-added services to the Canadian market and internationally.  World Color Press is also a leading commercial printer in Latin America, with eight facilities in Argentina, Brazil, Chile, Colombia, Mexico and Peru.

 

For additional information about World Color Press, see “World Color Press Business” beginning on page 59 and see World Color Press’ annual report on Form 40-F filed with the SEC on March 1, 2010, which is incorporated by reference into this proxy circular/prospectus.

 

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The Arrangement (see page 69)

 

Under the terms of the arrangement, Quad/Graphics will acquire World Color Press and World Color Press will become a wholly-owned subsidiary of Quad/Graphics upon completion of the arrangement.

 

The arrangement will be completed only after the satisfaction or waiver of the conditions to the completion of the arrangement discussed below.

 

The arrangement agreement, the arrangement resolution and the plan of arrangement are attached as Annex A to this proxy circular/prospectus.  You are encouraged to read these documents carefully and fully, as they are the legal documents that govern the arrangement.

 

What World Color Press Shareholders Will Receive in the Arrangement (see page 97)

 

Subject to the terms and conditions of the arrangement agreement, upon completion of the arrangement, each outstanding World Color Press common share will be converted after a multi-step transaction into the right to receive the number of shares of Quad/Graphics class A stock equal to the Share Exchange Ratio, subject to adjustment in accordance with the arrangement agreement.  In addition, each outstanding World Color Press common share will be entitled to any Common Cash Consideration.

 

Upon consummation of the arrangement, Quad/Graphics’ shareholders immediately prior to the arrangement will own approximately 60% of Quad/Graphics’ outstanding stock and former World Color Press shareholders will own approximately 40% of Quad/Graphics’ outstanding stock.  The shares of Quad/Graphics class A stock have one vote per share.  The shares of Quad/Graphics class B stock and class C stock have 10 votes per share.

 

In connection with the arrangement, all of the shares of World Color Press preferred shares outstanding immediately prior to the consummation of the arrangement will be redeemed in accordance with the terms of World Color Press’ restated articles of incorporation (sometimes referred to as the World Color Press Charter).  In addition, all World Color Press warrants that are outstanding immediately prior to the consummation of the arrangement will be cancelled.

 

Quad/Graphics will not issue fractional shares pursuant to the arrangement.  As a result, the total number of shares of Quad/Graphics class A stock that each holder of World Color Press common shares would otherwise receive pursuant to the arrangement will be rounded down to the nearest whole number, and each holder of World Color Press common shares will receive such whole number of shares of Quad/Graphics class A stock and a cash payment for the remaining fraction of a share of Quad/Graphics class A stock that such shareholder would otherwise receive, based on the average of the daily high and low sales price per World Color Press common share on the Toronto Stock Exchange on the last trading day before the closing date of the arrangement.

 

Holders of World Color Press Common Shares Will Have Dissent Rights in Connection with the Arrangement (see page 94)

 

Under the Interim Order, holders of World Color Press common shares have rights of dissent in respect of the arrangement.  Therefore, a holder of World Color Press common shares may elect to be paid cash for such shareholder’s shares in accordance with the procedures set forth in the CBCA, as modified by the plan of arrangement and the Interim Order.  The plan of arrangement is included as part of Annex A attached hereto.  Copies of Section 190 of the CBCA and the Interim Order are attached hereto as Annex F and Annex G, respectively.  It is a condition to Quad/Graphics’ obligation to consummate the arrangement that not more than 7.5% of the outstanding World Color Press common shares as of the closing shall have validly exercised and not withdrawn dissent rights.

 

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Opinion of World Color Press’ Financial Advisor (see page 75)

 

World Color Press’ financial advisor, Morgan Stanley & Co. Incorporated (sometimes referred to as Morgan Stanley), rendered its oral opinion, subsequently confirmed in writing, that as of January 25, 2010, and based on and subject to the various assumptions, qualifications, considerations and limitations set forth in the opinion, the number of shares of Quad/Graphics class A stock equal to the Share Exchange Ratio and the Common Cash Consideration (sometimes referred to collectively as the transaction consideration) to be received by the holders of World Color Press common shares pursuant to the arrangement agreement was fair from a financial point of view to the holders of World Color Press common shares.

 

The full text of the written opinion of Morgan Stanley, dated as of January 25, 2010, is attached to this proxy circular/prospectus as Annex B.  The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion.  Morgan Stanley encourages you to read carefully the entire opinion.  The opinion, and the other views and analysis of Morgan Stanley referenced throughout this proxy circular/prospectus, do not constitute a recommendation to any holder of World Color Press common shares as to how to vote at any shareholders’ meeting to be held in connection with the arrangement.  In addition, the opinion does not in any manner address the price at which the Quad/Graphics class A stock will trade at any time following consummation of the arrangement.  Morgan Stanley provided its opinion for the information and assistance of the World Color Press board of directors in connection with the directors’ consideration of the arrangement and addresses only the fairness from a financial point of view of the transaction consideration pursuant to the arrangement agreement to holders of World Color Press common shares as of the date of the opinion.  It does not address any other aspect of the arrangement.  The summary of the opinion of Morgan Stanley set forth in this proxy circular/prospectus is qualified in its entirety by reference to the full text of the opinion.

 

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, January 25, 2010.  Events occurring after January 25, 2010 may affect the opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm the opinion.

 

Pursuant to a letter agreement, World Color Press engaged Morgan Stanley to act as its financial advisor in connection with the proposed arrangement and World Color Press agreed to pay Morgan Stanley a customary fee estimated by Morgan Stanley to be approximately $11.5 million, subject to change based on the final transaction consideration to be received by the holders of World Color Press common shares, all of which is payable upon the consummation of the arrangement.  World Color Press has also agreed to reimburse Morgan Stanley for its reasonable expenses, including attorneys’ fees and disbursements.

 

Income Tax Treatment of the Exchange of World Color Press Common Shares for Shares of Quad/Graphics Class A Stock (see pages 120 and 125)

 

United States

 

For U.S. federal income tax purposes, U.S. Holders (as defined in “Material United States Federal Income Tax Considerations” beginning on page 121) who own World Color Press common shares or preferred shares will recognize gain or loss on their disposition of such shares pursuant to the arrangement.  Any such gain or loss will constitute capital gain or loss.

 

Any gain that is recognized on a disposition by a Non-U.S. Holder (as defined in “Material United States Federal Income Tax Considerations”) of World Color Press common shares or preferred shares pursuant to the arrangement will not be subject to U.S. federal income tax unless:

 

·                                          the gain is effectively connected with the conduct of a trade or business (and, if an applicable United States income tax treaty applies, is attributable to a permanent establishment maintained) within the United States by the Non-U.S. Holder; or

 

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·                                          in the case of a Non-U.S. Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of the sale, and certain other conditions are met.

 

U.S. Holders and Non-U.S. Holders who own World Color Press common shares or preferred shares are urged to read “Material United States Federal Income Tax Considerations” beginning on page 120 and to consult their own tax advisors with respect to the United States federal income tax consequences of the arrangement.

 

Canada

 

Generally, a Canadian resident shareholder whose World Color Press common shares are disposed of pursuant to the arrangement will realize a capital gain (or capital loss) equal to the amount, if any, by which the amount of cash and the fair market value of Quad/Graphics class A stock received for such World Color Press common shares pursuant to the arrangement, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the World Color Press common shares to the shareholder immediately before the disposition.

 

Generally, a shareholder not resident in Canada will not be subject to tax under the Income Tax Act (Canada) (sometimes referred to as the Tax Act) on any capital gain realized on a disposition of World Color Press common shares pursuant to the arrangement, unless the World Color Press common shares are “taxable Canadian property” to the shareholder for purposes of the application of the Tax Act and the shareholder is not entitled to relief under an applicable income tax convention between Canada and the country in which the shareholder is resident.

 

Shareholders of World Color Press whose common shares constitute “taxable Canadian property” and shareholders of World Color Press preferred shares should consult their own tax advisors having regard to their particular circumstances.

 

The foregoing is a brief summary of the material Canadian federal income tax consequences only.  Shareholders are urged to read “Material Canadian Federal Income Tax Considerations” beginning on page 125 and consult their own tax advisors to determine the particular consequences to them of exchanging of their World Color Press common shares under the arrangement.

 

Approval Required by World Color Press Shareholders to Complete the Arrangement (see page 62)

 

The arrangement resolution will be approved if a quorum in respect of the World Color Press common shares and the World Color Press preferred shares is present and at least two-thirds of the votes cast by the holders of World Color Press common shares and the World Color Press preferred shares, voting together as a single class, are cast in favor of the arrangement resolution.  A failure to vote, a vote to abstain or a broker or other intermediary “non-vote” will have no effect on the outcome of the vote on the arrangement resolution if a quorum is present.

 

Each World Color Press common share has one vote and each World Color Press preferred share has      vote[s] on the arrangement resolution.

 

On                        , 2010, which is the record date for determining those World Color Press shareholders who are entitled to vote at the World Color Press special meeting, directors and executive officers of World Color Press and their affiliates beneficially owned and had the right to vote                  World Color Press common shares and            World Color Press preferred shares, representing         % of the total voting power of the World Color Press shares outstanding and entitled to vote on the record date.

 

Recommendations of World Color Press to Shareholders (see page 72)

 

The World Color Press board of directors has reviewed and considered the terms of the arrangement and the arrangement agreement and has unanimously determined that the arrangement agreement and the transactions contemplated by the arrangement agreement, including the arrangement, are fair to the holders of World Color Press common shares and in the best interests of World Color Press and unanimously recommends that World Color Press shareholders vote FOR the arrangement resolution.

 

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World Color Press’ Reasons for the Arrangement (see page 72)

 

At a special meeting held on January 25, 2010, World Color Press’ board of directors determined by unanimous vote that the arrangement is in the best interests of World Color Press and its shareholders.  In reaching its decision to approve the arrangement agreement and the arrangement, and its determination that the arrangement is in the best interests of World Color Press and its shareholders, World Color Press’ board of directors received advice from World Color Press management and legal, financial, tax and accounting advisors and considered a number of factors.

 

The arrangement is projected to increase the value of World Color Press’ equity interests by permitting the World Color Press shareholders to participate in the realization of the economic and operating synergies and other benefits anticipated to result from the combination of Quad/Graphics and World Color Press.  See “The Arrangement—World Color Press’ Reasons for the Arrangement; Recommendation of the Board of Directors” beginning on page 72 for additional information.

 

Quad/Graphics’ Reasons for the Arrangement (see page 86)

 

Quad/Graphics believes that the acquisition of World Color Press will, among other things:

 

·                                          enable the combined company to optimize plant and machine utilization, as well as mailing and logistics utilization and costs, thereby driving greater efficiency and economic benefits for the combined company and its clients;

 

·                                          enable Quad/Graphics to leverage its efficient, modern manufacturing platform for the benefit of the combined company and its clients;

 

·                                          result in an estimated $225 million of pre-tax annualized synergies within 24 months after the consummation of the arrangement, at an estimated one-time cost to achieve of approximately $195 to $240 million (based on an analysis developed by Quad/Graphics’ management);

 

·                                          create new opportunities for the combined company’s clients to realize distribution efficiencies;

 

·                                          enable Quad/Graphics to leverage the power of its research and development expertise across the combined company’s larger and more diverse product offerings and client base;

 

·                                          enable Quad/Graphics to increase the use of its data analysis and management capabilities and targeted value added production techniques across the combined company’s larger base of clients and products;

 

·                                          expand Quad/Graphics’ geographic reach and customer service presence and Quad/Graphics’ range of services and product offerings;

 

·                                          significantly improve Quad/Graphics’ supply chain management capabilities; and

 

·                                          provide enhanced liquidity and generate solid free cash flow to repay indebtedness and support investments in the future as a result of the combined company’s pro-forma credit profile and increased access to capital markets.

 

Approval Required by Quad/Graphics Shareholders to Complete the Arrangement

 

In order to complete the arrangement, Quad/Graphics shareholders must approve the transactions contemplated by the arrangement agreement, including the Quad/Graphics Charter.  That vote is assured since holders of Quad/Graphics common stock having more than 50% of the voting power have entered into a voting agreement in support of the transactions contemplated by the arrangement agreement.

 

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Completion of the Transaction is Subject to Regulatory Clearance (see page 93)

 

To complete the arrangement, we must receive approval from and/or make filings with various regulatory authorities.  The required regulatory and court approvals include, among others: (1) the filing of notification and report forms with the United States Department of Justice (sometimes referred to as the DOJ) and the United States Federal Trade Commission (sometimes referred to as the FTC) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (sometimes referred to as the HSR Act), and expiration or early termination of any applicable waiting periods under the HSR Act; (2) receipt of an advance ruling certificate or in the alternative a “no action letter” and waiver of the waiting period under the Competition Act (Canada); (3) approval of the arrangement under the Investment Canada Act; and (4) approval of the arrangement by the Québec Superior Court.  See “The Arrangement — Court Approval of the Arrangement and Completion of the Arrangement” and “The Arrangement — Regulatory Approvals” beginning on pages 90 and 93, respectively, of this proxy circular/prospectus for a discussion of the status of these approvals.

 

Quad/Graphics Articles and Bylaws Will Be Amended in Connection with Completion of the Arrangement

 

Quad/Graphics will amend and restate its restated articles of incorporation and will amend its bylaws in connection with the consummation of the arrangement.

 

You should read the complete text of the Quad/Graphics Charter and the amended bylaws of Quad/Graphics (sometimes referred to as the Quad/Graphics Bylaws), which are attached as Annex C and Annex D to this proxy circular/prospectus, respectively, in conjunction with this summary.  The Quad/Graphics Charter and the Quad/Graphics Bylaws that will become effective upon completion of the arrangement will be in substantially the same form as those attached as Annex C and Annex D.

 

World Color Press Directors and Executive Officers Have Interests in the Transaction that May Be Different from, or in Addition to, the Interests of the World Color Press Shareholders (see page 90)

 

World Color Press shareholders should be aware that World Color Press directors and executive officers may have interests in the arrangement that are different from, or in addition to, World Color Press shareholders’ interests when they consider the recommendation of the World Color Press board of directors that they vote to approve the arrangement resolution.  Those interests include, among other things, benefits that may become payable under change in control severance agreements, the accelerated vesting of certain deferred share units and restricted share units held by or issuable to the directors and executive officers, potential retention and transaction bonuses for certain employees and the appointment of two of the World Color Press directors to the Quad/Graphics board of directors, one of which will be Mark A. Angelson, the Chairman and Chief Executive Officer of World Color Press.

 

As a result, the directors and executive officers of World Color Press may be more likely to recommend the approval of the arrangement resolution than if they did not have these interests.

 

Completion of the Transaction is Subject to the Satisfaction of a Number of Conditions (see page 113)

 

The respective obligations of World Color Press and Quad/Graphics to complete the arrangement are subject to the satisfaction or waiver of the following conditions:

 

·                                          the receipt of the approval of the arrangement resolution by the World Color Press shareholders;

 

·                                          the receipt of the approval of the arrangement by the Québec Superior Court;

 

·                                          the receipt of the approval of the transactions contemplated by the arrangement agreement, including the Quad/Graphics Charter, by the Quad/Graphics shareholders;

 

·                                          the SEC having declared effective, without any stop order or proceedings seeking a stop order, the Quad/Graphics registration statement of which this proxy circular/prospectus forms a part;

 

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·                                          the receipt of the approval for listing of the Quad/Graphics class A stock to be issued pursuant to the arrangement by the national securities exchange in the United States that will list such stock, subject to official notice of issuance;

 

·                                          the amendment and restatement of the Quad/Graphics restated articles of incorporation;

 

·                                          all waiting periods applicable to the transactions contemplated by the arrangement agreement under certain applicable regulatory laws having expired or terminated or having been waived, and all approvals and rulings by, and filings with, governmental entities under certain applicable regulatory laws having been obtained, waived or made; and

 

·                                          no law or order having been enacted, entered, promulgated, adopted, issued or enforced by any governmental entity that has the effect of making illegal or otherwise prohibiting the consummation of the transactions contemplated by the arrangement agreement.

 

The obligation of Quad/Graphics to complete the transactions contemplated by the arrangement agreement is further subject to the satisfaction or waiver of the following conditions:

 

·                                          World Color Press’ representations and warranties regarding capitalization being true and correct (other than de minimis inaccuracies);

 

·                                          each of World Color Press’ other representations and warranties, when read without regard to materiality qualifications, being true and correct, except where all failures of such representations and warranties to be true and correct would not reasonably be expected to have a material adverse effect on World Color Press;

 

·                                          World Color Press having performed in all material respects all obligations and having materially complied with the covenants required by the arrangement agreement to be performed or complied with by it at or prior to the completion of the arrangement;

 

·                                          except as contemplated by the arrangement agreement, no development, effect or change having occurred after the date of the arrangement agreement that is reasonably expected to have a material adverse effect on World Color Press;

 

·                                          World Color Press having consummated the redemption of its outstanding preferred shares for a fixed cash purchase price determined in accordance with its restated articles of incorporation and the cancellation of all outstanding warrants, provided that, absent Quad/Graphics’ written consent, the effective price determined by the board of directors of World Color Press in connection with the cancellation of warrants shall not be greater than 115% of the volume weighted average trading price of World Color Press common shares on the Toronto Stock Exchange for the 30 trading days immediately preceding the date the board of directors of World Color Press determines the effective price;

 

·                                          World Color Press’ indenture dated as of July 21, 2009 with respect to the 10% senior guaranteed notes due July 15, 2013 (sometimes referred to as the Senior Notes Indenture) having been terminated or the covenants of World Color Press under the Senior Notes Indenture having been terminated or made inapplicable to World Color Press and its affiliates;

 

·                                          the total number of World Color Press common shares with respect to which dissent rights have been properly exercised and not withdrawn not exceeding 7.5% of the outstanding World Color Press common shares as of the closing date; and

 

·                                          no claim, action, suit, arbitration, proceeding, investigation or inquiry having been commenced by the FTC, the DOJ, the Commissioner of Competition (sometimes referred to as the Commissioner)

 

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or the Minister of Industry (sometimes referred to as the Minister) against Quad/Graphics, World Color Press,  any of their respective subsidiaries or any of the directors or officers of any of them, with respect to the transactions contemplated by the arrangement agreement.

 

The obligation of World Color Press to complete the transactions contemplated by the arrangement agreement is further subject to the satisfaction or waiver of the following conditions:

 

·                                          Quad/Graphics’ representations and warranties regarding capitalization being true and correct (other than de minimis inaccuracies);

 

·                                          each of Quad/Graphics’ other representations and warranties, when read without regard to materiality qualifications, being true and correct, except where all failures of such representations and warranties to be true and correct would not reasonably be expected to have a material adverse effect on Quad/Graphics;

 

·                                          Quad/Graphics having performed in all material respects all obligations and having materially complied with the covenants required by the arrangement agreement to be performed or complied with by it at or prior to the closing date; and

 

·                                          except as contemplated by the arrangement agreement, no development, effect or change having occurred after the date of the arrangement agreement that is reasonably expected to have a material adverse effect on Quad/Graphics.

 

How the Arrangement Agreement May Be Terminated by Quad/Graphics and World Color Press (see page 115)

 

The arrangement agreement may be terminated in any of the following ways:

 

·                                          by mutual written consent of Quad/Graphics and World Color Press;

 

·                                          by either Quad/Graphics or World Color Press if:

 

·                                          a law or order has been enacted, entered or issued prohibiting or permanently restraining the consummation of the transactions contemplated by the arrangement agreement;

 

·                                          the arrangement has not been completed within 210 days of the date of the arrangement agreement, unless the failure to complete the arrangement is the result of breach of the arrangement agreement in any material respect by the party seeking to terminate the arrangement agreement, provided that the termination date will automatically be extended for a period not to exceed 60 days to the extent necessary to obtain required regulatory approvals;

 

·                                          the other party has breached in any material respect any of its representations, warranties or covenants contained in the arrangement agreement, such breach would result in any condition precedent not being satisfied and the breach is incapable of being cured within 30 days after receiving written notice of such breach or has not been cured within such 30-day time period;

 

·                                          the approval of the arrangement resolution by the World Color Press shareholders is not obtained or the transactions contemplated by the arrangement agreement are not approved by the Quad/Graphics shareholders;

 

·                                          prior to the time that the other party’s shareholder approval is obtained, the other party has materially breached its non-solicitation obligations;

 

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·                                          prior to the time that the other party’s shareholder approval is obtained, the board of directors of the other party has failed to make its recommendation to approve the transaction or has changed its recommendation, whether or not permitted by the terms of the arrangement agreement;

 

·                                          prior to the time that the other party’s shareholder approval is obtained, the board of directors of the other party has failed to reconfirm its recommendation to shareholders to approve the arrangement within five business days after a written request to do so;

 

·                                          prior to the time that the other party’s shareholder approval is obtained, the other party has materially breached its obligations under the arrangement agreement by reason of a failure to call or conduct its-shareholders meeting;

 

·                                          prior to the time that the other party’s shareholder approval is obtained, the board of directors of the other party has recommended to its shareholders any acquisition proposal or superior proposal;

 

·                                          prior to the time that the other party’s shareholder approval is obtained, the other party has entered into any agreement (other than a confidentiality agreement), letter of intent, agreement-in-principle, acquisition agreement or other instrument contemplating or otherwise relating to any acquisition proposal or superior proposal or requiring such other party to abandon, terminate or fail to consummate any of the transactions contemplated by the arrangement agreement; or

 

·                                          if, prior to the time that a party’s shareholder approval is obtained, the board of directors of such party has approved or recommended, or such party has entered into a definitive agreement with respect to, a superior proposal in compliance with its non-solicitation obligations.

 

Termination Fees and Expenses May Be Payable Under Some Circumstances (see page 115)

 

Fees Payable by Quad/Graphics:

 

Quad/Graphics will be required to pay a termination fee of $40 million to World Color Press (provided that any termination fee payable will be reduced by the amount of any fees and expenses previously reimbursed) in the event that:

 

·                                          World Color Press terminates the arrangement agreement because:

 

·                                          Quad/Graphics materially breaches its non-solicitation covenants;

 

·                                          the board of directors of Quad/Graphics fails to recommend the approval of the transactions contemplated by the arrangement agreement to its shareholders or changes its recommendation;

 

·                                          the board of directors of Quad/Graphics fails to reconfirm its recommendation within five business days after a written request to do so;

 

·                                          Quad/Graphics materially breaches its obligations under the arrangement agreement by reason of a failure to call or conduct its meeting of shareholders;

 

·                                          the board of directors of Quad/Graphics recommends to its shareholders an acquisition proposal or a superior proposal; or

 

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·                                          Quad/Graphics enters into any agreement (other than a confidentiality agreement), letter of intent, agreement-in-principle, acquisition agreement or other instrument contemplating or otherwise relating to any acquisition proposal or superior proposal or requiring Quad/Graphics to abandon, terminate or fail to consummate any of the transactions contemplated by the arrangement agreement;

 

·                                          Quad/Graphics terminates because the Quad/Graphics board of directors approves or recommends, or Quad/Graphics enters into a definitive agreement with respect to, a superior proposal in compliance with its non-solicitation obligations; or

 

·                                          the arrangement agreement is terminated for one of the following reasons and (a) an acquisition proposal has been publicly announced or otherwise publicly communicated to the senior management, the board of directors or shareholders of Quad/Graphics and (b) prior to the date that is 15 months after the effective date of such termination, Quad/Graphics enters into a definitive agreement with respect to an acquisition proposal or an acquisition proposal is consummated (substituting in both instances “50%” for “15%” in the definition of acquisition proposal) provided that $25 million will be paid no later than the date of the execution of such definitive agreement and the balance of the $40 million will be paid no later than the date such acquisition proposal is consummated:

 

·                                          Quad/Graphics or World Color Press terminates the arrangement agreement because the termination date has passed and the Quad/Graphics registration statement of which this proxy circular/prospectus forms a part has been declared effective by the SEC and such effectiveness has not been suspended on the termination date without the meeting of the Quad/Graphics shareholders having been called;

 

·                                          World Color Press terminates the arrangement agreement because Quad/Graphics has breached in any material respect any of its representations, warranties or covenants contained in the arrangement agreement and such breach is incapable of being cured within 30 days after receiving written notice of such breach or has not been cured within such 30 day time period; or

 

·                                          Quad/Graphics or World Color Press terminates the arrangement agreement because Quad/Graphics does not obtain approval of the transactions contemplated by the arrangement by its shareholders at its shareholder meeting.

 

Quad/Graphics will be required to reimburse World Color Press for its fees and expenses up to a limit of $20 million in the event that:

 

·                                          Quad/Graphics or World Color Press terminates the arrangement agreement because Quad/Graphics does not obtain the approval of the transactions contemplated by the arrangement agreement by its shareholders;

 

·                                          Quad/Graphics or World Color Press terminates the arrangement agreement because the termination date has passed and the Quad/Graphics registration statement of which this proxy circular/prospectus forms a part has been declared effective by the SEC and such effectiveness has not been suspended on the termination date without the meeting of the Quad/Graphics shareholders having been called, and circumstances exist such that the condition that, except as contemplated by the arrangement agreement, no development, effect or change has occurred after the date of the arrangement agreement that is reasonably expected to have a material adverse effect on Quad/Graphics, would not have been satisfied at the time of such termination and such failure to satisfy such condition is not directly caused by World Color Press’ breach of its obligations under the arrangement agreement, and the termination fee provisions described above do not apply to such termination; or

 

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·                                          World Color Press terminates the arrangement agreement because Quad/Graphics has breached in any material respect any of its representations, warranties or covenants contained in the arrangement agreement and such breach is incapable of being cured within 30 days after receiving written notice of such breach or has not been cured within such 30-day time period, and the termination fee provisions described above do not apply to such termination.

 

Fees Payable by World Color Press:

 

World Color Press will be required to pay a termination fee of $40 million to Quad/Graphics (provided that any termination fee payable will be reduced by the amount of any fees and expenses previously reimbursed) in the event that:

 

·                                          Quad/Graphics terminates the arrangement agreement because:

 

·                                          World Color Press materially breaches its non-solicitation covenants;

 

·                                          the board of directors of World Color Press fails to recommend the approval of the arrangement resolution to its shareholders or changes its recommendation;

 

·                                          the board of directors of World Color Press fails to reconfirm its recommendation within five business days after a written request to do so;

 

·                                          World Color Press materially breaches its obligations under the arrangement agreement by reason of a failure to call or conduct its meeting of shareholders;

 

·                                          the board of directors of World Color Press recommends to its shareholders an acquisition proposal or a superior proposal; or

 

·                                          World Color Press enters into any agreement (other than a confidentiality agreement), letter of intent, agreement-in-principle, acquisition agreement or other instrument contemplating or otherwise relating to any acquisition proposal or superior proposal or requiring World Color Press to abandon, terminate or fail to consummate any of the transactions contemplated by the arrangement agreement; or

 

·                                          World Color Press terminates because the World Color Press board of directors approves or recommends, or World Color Press enters into a definitive agreement with respect to, a superior proposal; or

 

·                                          the arrangement agreement is terminated for one of the following reasons and (a) an acquisition proposal has been publicly announced or otherwise publicly communicated to the senior management, the board of directors or shareholders of World Color Press and (b) prior to the date that is 15 months after the effective date of such termination, World Color Press enters into a definitive agreement with respect to an acquisition proposal or an acquisition proposal is consummated (substituting in both instances “50%” for “15%” in the definition of acquisition proposal) provided that $25 million will be paid no later than the date of the execution of such definitive agreement and the balance of the $40 million will be paid no later than the date such acquisition proposal is consummated:

 

·                                          Quad/Graphics or World Color Press terminates the arrangement agreement because the termination date has passed and the Quad/Graphics registration statement of which this proxy circular/prospectus forms a part has been declared effective by the SEC and such effectiveness has not been suspended on the termination date without the meeting of the World Color Press shareholders having been called;

 

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·                                          Quad/Graphics terminates the arrangement agreement because World Color Press has breached in any material respect any of its representations, warranties or covenants contained in the arrangement agreement and such breach is incapable of being cured within 30 days after receiving written notice of such breach or has not been cured within such 30 day time period; or

 

·                                          Quad/Graphics or World Color Press terminates the arrangement agreement because World Color Press does not obtain approval of the arrangement resolution at its shareholder meeting.

 

World Color Press will be required to reimburse Quad/Graphics for its fees and expenses up to a limit of $20 million in the event that:

 

·                                          Quad/Graphics or World Color Press terminates the arrangement agreement because World Color Press does not obtain the approval of the arrangement resolution;

 

·                                          Quad/Graphics or World Color Press terminates the arrangement agreement because the termination date has passed and the Quad/Graphics registration statement of which this proxy circular/prospectus forms a part has been declared effective by the SEC and such effectiveness has not been suspended on the termination date without the meeting of the World Color Press shareholders having been called, and circumstances exist such that the condition that, except as contemplated by the arrangement agreement, no development, effect or change has occurred after the date of the arrangement agreement that is reasonably expected to have a material adverse effect on World Color Press, would not have been satisfied at the time of such termination and such failure to satisfy such condition is not directly caused by Quad/Graphics’ breach of its obligations under the arrangement agreement, and the termination fee provisions described above do not apply to such termination; or

 

·                                          Quad/Graphics terminates the arrangement agreement because World Color Press has breached in any material respect any of its representations, warranties or covenants contained in the arrangement agreement and such breach is incapable of being cured within 30 days after receiving written notice of such breach or has not been cured within such 30-day time period, and the termination fee provisions described above do not apply to such termination.

 

Quad/Graphics Class A Stock is Expected to be Listed on a National Securities Exchange in the United States (see page 95)

 

Quad/Graphics common stock currently is not publicly traded.  In connection with the consummation of the arrangement, Quad/Graphics’ class A stock is expected to be listed on a national securities exchange in the United States (which is expected to be a “designated stock exchange” for purposes of the Tax Act).

 

Voting and Support Agreement (see page 136)

 

Concurrently with the execution of the arrangement agreement, World Color Press, the trustees and certain beneficiaries under that certain amended and restated voting trust agreement, dated as of April 29, 2000, as amended, among certain members of the Quadracci family and the trustees (sometimes referred to as the voting trust agreement) (the voting trust created under the voting trust agreement is sometimes referred to as the Quad/Graphics voting trust) and the Quad/Graphics voting trust entered into a voting and support agreement. Pursuant to the voting and support agreement, each of the Quad/Graphics voting trust and the beneficiaries who executed the voting and support agreement agreed, among other things, to vote all trust certificates and/or Quad/Graphics shares held by them in favor of the approval of the transactions contemplated by the arrangement agreement, including the adoption of the Quad/Graphics Charter, and against any acquisition proposal or any other action, agreement or transaction that would reasonably be expected to materially impede, interfere or be inconsistent with, delay, postpone, discourage or materially and adversely affect the arrangement.

 

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Differences Exist Between the Rights of Quad/Graphics and World Color Press Common Shareholders (see page 228)

 

The rights of Quad/Graphics’ and World Color Press common shareholders under their respective business corporation laws are different.  There are additional differences in the rights of Quad/Graphics shareholders and World Color Press shareholders as a result of the provisions of the articles of incorporation, bylaws and other corporate documents of each company.  See “Comparison of the Rights of Quad/Graphics and World Color Press Common Shareholders” beginning on page 228 of this proxy circular/prospectus.

 

The Arrangement and the Performance of the Combined Company are Subject to a Number of Risks (see page 30)

 

There are a number of risks relating to the arrangement and to the businesses of Quad/Graphics, World Color Press and the combined company following the completion of the arrangement.  See “Risk Factors” beginning on page 30 of this proxy circular/prospectus for a discussion of these and other risks and see also the documents that World Color Press has filed with the SEC and which have been incorporated by reference into this proxy circular/prospectus.

 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

The following selected historical financial information is being provided to assist you in your analysis of the financial aspects of the arrangement.

 

Certain Quad/Graphics annual historical information is derived from the audited consolidated financial statements of Quad/Graphics as of December 31, 2009 and 2008 and for each of the years in the three-year period ended December 31, 2009, appearing elsewhere in this proxy circular/prospectus.  The Quad/Graphics annual historical information is also derived from the audited consolidated financial statements of Quad/Graphics as of December 31, 2007, 2006 and 2005 and for each of the years in the two year period ended December 31, 2006, which are not included in this proxy circular/prospectus.  Quad/Graphics historical financial statements have been prepared in accordance with United Stated generally accepted accounting principles (sometimes referred to as U.S. GAAP).

 

Certain World Color Press annual historical information is derived or extracted from the audited consolidated financial statements of World Color Press as of December 31, 2009 and 2008 and for the seven months ended July 31, 2009 (fresh start reporting date), the five months ended December 31, 2009 and for each of the years in the two-year period ended December 31, 2008, as incorporated by reference herein.  The World Color Press annual historical information is also derived or extracted from the audited consolidated financial statements of World Color Press as of December 31, 2007, 2006 and 2005 and for each of the years in the two-year period ended December 31, 2006, which are not incorporated herein.  World Color Press historical financial statements have been prepared in accordance with Canadian generally accepted accounting principles (sometimes referred to as Canadian GAAP).  For a discussion of the significant differences between Canadian GAAP and U.S. GAAP as they relate to the World Color Press financial statements, see Note 33 to the World Color Press consolidated financial statements for the year ended December 31, 2009.

 

The information is only a summary and should be read in conjunction with (i) the Quad/Graphics audited consolidated financial statements for the year ended December 31, 2009 and notes thereto included in “Financial Statements of Quad/Graphics” beginning on page FS-1 and (ii) the audited consolidated financial statements and notes thereto of World Color Press for the year ended December 31, 2009 included in the World Color Press annual report on Form 40-F filed with the SEC on March 1, 2010, which has been incorporated by reference into this proxy circular/prospectus, as well as other information that has been filed by World Color Press with the SEC.  See “Where You Can Find More Information” beginning on page 245 of this proxy circular/prospectus for information on where you can obtain copies of this World Color Press information.

 

The historical results included below and elsewhere in this proxy circular/prospectus are not necessarily indicative of the future performance of Quad/Graphics, World Color Press or the combined company.

 

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Quad/Graphics Selected Historical Financial Information

(amounts in millions, except per share data)

 

 

 

As of and for the year ended December 31,

 

 

 

2009

 

2008

 

2007

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

1,788.5

 

$

2,266.7

 

$

2,048.8

 

$

2,024.9

 

$

1,951.3

 

Operating income

 

112.4

 

174.3

 

246.7

 

234.0

 

226.0

 

Net earnings attributable to Quad/Graphics common shareholders

 

52.8

 

109.1

 

178.4

 

159.2

 

390.2

(1)

Total assets

 

2,109.2

 

2,326.4

 

2,396.9

 

2,144.9

 

2,104.2

 

Long-term debt and capital lease obligations (excluding current portion)

 

765.5

 

967.3

 

800.6

 

870.2

 

871.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

28.3

 

28.7

 

29.5

 

29.7

 

29.8

 

Diluted

 

29.2

 

29.7

 

30.6

 

30.9

 

30.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Quad/Graphics common shareholders

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.87

 

$

3.80

 

$

6.05

 

$

5.36

 

$

13.09

 

Diluted

 

1.81

 

3.67

 

5.83

 

5.15

 

12.63

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share of common stock (2)

 

0.50

 

0.50

 

1.00

 

1.00

 

2.00

 

 


(1)                                 Effective January 1, 2005, Quad/Graphics changed the tax status of certain entities within the Quad/Graphics legal structure to S corporation status under the provisions of the Internal Revenue Code of 1986, as amended (sometimes referred to as the Internal Revenue Code).  From that point, these entities within Quad/Graphics have generally not been subject to income taxes for United States federal and state income tax purposes.  The impact from the conversion to S corporation status resulted in $230.6 million of income, primarily related to the reversal of net deferred tax liabilities and has been included in the 2005 net earnings attributable to Quad/Graphics common shareholders.  Upon the consummation of the arrangement, Quad/Graphics will change its legal status from a S corporation to a C corporation.

 

(2)                                 Excludes aggregate tax distributions declared to S corporation shareholders of $18.0 million, $37.0 million, $77.0 million, $60.1 million and $66.8 million in 2009, 2008, 2007, 2006 and 2005, respectively.

 

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World Color Press Selected Historical Financial Information

(amounts in millions, except per share data)

 

Canadian GAAP Information

 

 

 

Successor

 

 

Predecessor

 

Predecessor as of and for the year ended December 31,

 

 

 

Five

 

 

 

 

 

 

 

 

 

 

 

 

 

 

months

 

 

Seven

 

 

 

 

 

 

 

 

 

 

 

ended

 

 

months

 

 

 

 

 

 

 

 

 

 

 

December

 

 

ended July

 

 

 

 

 

 

 

 

 

 

 

31, 2009

 

 

31, 2009

 

2008

 

2007

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

1,337

 

 

$

1,735

 

$

4,017

 

$

4,655

 

$

5,061

 

$

5,120

 

Operating income (loss)

 

78

 

 

(14

)

(462

)

(1,887

)

196

 

346

 

Net income (loss) from continuing operations

 

21

 

 

(175

)

(944

)

(1,837

)

119

 

180

 

Net income (loss)

 

21

 

 

(175

)

(1,659

)

(2,200

)

28

 

(163

)

Total assets

 

2,482

 

 

 

 

2,820

 

4,163

 

5,823

 

5,700

 

Long-term debt (excluding current portion) (6)

 

486

 

 

 

 

61

 

1,313

 

2,102

 

1,848

 

Redeemable preferred shares, liability

 

98

 

 

 

 

35

 

179

 

150

 

151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of equity shares outstanding (Basic and Diluted)

 

73.3

 

 

205.5

 

182.6

 

131.9

 

131.4

 

131.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share (Basic and Diluted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.29

 

 

$

(0.89

)

$

(5.26

)

$

(14.10

)

$

0.65

 

$

1.06

 

Net income (loss)

 

0.29

 

 

(0.89

)

(9.18

)

(16.85

)

(0.04

)

(1.53

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per equity share

 

 

 

 

 

 

0.30

 

0.56

 

 

U.S. GAAP Information

 

 

 

Successor

 

 

Predecessor

 

Predecessor as of and for the year ended December 31,

 

 

 

Five
months
ended
December

 

 

Seven
months
ended July

 

 

 

 

 

 

 

 

 

 

 

31, 2009

 

 

31, 2009

 

2008

 

2007

 

2006

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

 

$

1,337

 

 

$

1,735

 

$

4,017

 

$

4,655

 

$

5,060

 

$

5,105

 

Operating income (loss)

 

78

 

 

(22

)

(463

)

(1,888

)

195

 

331

 

Net income (loss) from continuing operations (5)

 

65

 

 

1,963

 

(936

)

(1,861

)

118

 

173

 

Net income (loss) (5)

 

65

 

 

1,963

 

(1,553

)

(2,224

)

30

 

(170

)

Total assets

 

2,720

 

 

 

 

2,733

 

4,136

 

5,744

 

5,689

 

Long-term debt (excluding current portion) (6)

 

552

 

 

 

 

102

 

1,374

 

2,103

 

1,843

 

Redeemable preferred shares, liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of equity shares outstanding - Basic

 

73.3

 

 

205.5

 

182.6

 

131.9

 

131.4

 

131.8

 

Weighted average number of equity shares outstanding - Diluted

 

86.2

 

 

220.5

 

182.6

 

131.9

 

131.4

 

131.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share - Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.75

 

 

$

9.50

 

$

(5.25

)

$

(14.36

)

$

0.64

 

$

1.01

 

Net income (loss)

 

0.75

 

 

9.50

 

(8.63

)

(17.11

)

(0.03

)

(1.59

)

Earnings (loss) per common share - Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.38

 

 

$

8.85

 

$

(5.25

)

$

(14.36

)

$

0.64

 

$

1.01

 

Net income (loss)

 

0.38

 

 

8.85

 

(8.63

)

(17.11

)

(0.03

)

(1.59

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per equity share

 

 

 

 

 

 

0.30

 

0.56

 

 


(1)                                 On July 21, 2009, upon emergence from bankruptcy protection under the Companies’ Creditors Arrangement Act (sometimes referred to as the CCAA) in Canada and Chapter 11 of the U.S. Bankruptcy Code (sometimes referred to as Chapter 11) in the United States, World Color Press was required to adopt “fresh start” financial accounting in accordance with The Canadian Institute of Chartered Accountants Handbook Section 1625,

 

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Comprehensive Revaluation of Assets and Liabilities, pursuant to Canadian GAAP, and Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, now codified as ASC 852, Reorganizations, pursuant to U.S. GAAP. Under fresh start accounting, World Color Press undertook a comprehensive re-evaluation of its assets and liabilities as established in the plan of compromise and reorganization and World Color Press became a new entity for financial reporting purposes (that new entity referred to as the “Successor”, and the periods prior to the fresh start date are referred to as the periods of the “Predecessor”). Fresh start accounting was adopted as of the nearest month-end date of July 31, 2009 (sometimes referred to as the Fresh-start Date), as the activity between July 22, 2009 and July 31, 2009 was deemed by World Color Press to be immaterial. Accordingly, the consolidated financial statements of the Successor on or after August 1, 2009 are not comparable to the consolidated financial statements of the Predecessor prior to that date.

 

(2)                                 World Color Press changed its functional currency at the Fresh-start Date to the U.S. dollar.  The Predecessor had a Canadian dollar functional currency for all periods prior to the Fresh-start Date.

 

(3)                                 World Color Press adopted new accounting policies under Canadian GAAP related to inventories in 2008 and financial instruments and hedging in 2007. These new accounting policies were adopted prospectively, which impacts comparisons to prior years.

 

(4)                                 The statement of income (loss) data for 2007, 2006 and 2005 presented have been retrospectively adjusted for the discontinued operations that occurred in 2008. The balance sheet data do not retrospectively exclude amounts related to such discontinued operations.

 

(5)                                 As a result of the fresh start accounting described in note (1) above, World Color Press recorded in net earnings fresh start adjustments of $449 million and an after-tax gain on settlement of compromised debt of $1,701 million under U.S. GAAP for the seven month period ended July 31, 2009.

 

(6)                                 Long-term debt includes unsecured notes to be issued and convertible notes, but excludes debt included in liabilities subject to compromise, debtor-in-possession financing and secured financing that were classified as current for the years ended December 31, 2007 and 2008 once World Color Press had filed for bankruptcy protection.

 

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Selected Unaudited Pro Forma Condensed Combined Financial Information

 

The arrangement will be accounted for under the acquisition method of accounting under U.S. GAAP, which means the assets and liabilities of World Color Press will be recorded, as of completion of the arrangement, at their respective estimated fair values and added to those of Quad/Graphics.  For a more detailed description of acquisition accounting, see “The Arrangement — Accounting Treatment” beginning on page 92 of this proxy circular/prospectus.

 

The selected unaudited pro forma condensed combined financial information is derived from, and should be read in conjunction with, the “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 177 of this proxy circular/prospectus.  The selected unaudited pro forma condensed combined financial information presented below:

 

·                                          reflects the acquisition method of accounting and gives effect to the arrangement, in the case of the consolidated statements of operations, as though the arrangement had occurred as of January 1, 2009 and, in the case of the consolidated balance sheet information, as though the arrangement had occurred as of December 31, 2009;

 

·                                          has been prepared giving effect to the issuance of such number of shares of Quad/Graphics class A stock equal to the Share Exchange Ratio in exchange for each outstanding World Color Press common share (assumed, for these purposes only, to be 0.2150 shares of Quad/Graphics class A stock for each World Color Press common share);

 

·                                          historical results for World Color Press for the year ended December 31, 2009 have been adjusted to assume emergence from bankruptcy protection and the fresh start accounting adjustments and exit financing structure as of January 1, 2009;

 

·                                          includes adjustments, which are preliminary and will be revised;

 

·                                          may have been different had the companies actually been combined as of January 1, 2009 and December 31, 2009; and

 

·                                          does not reflect the effect of synergies that may result from the arrangement.

 

You should not rely on the selected unaudited pro forma condensed combined financial information as being indicative of the historical results that would have occurred had the companies been combined or the future results that may be achieved after completion of the arrangement.

 

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Unaudited Pro Forma Condensed Combined Financial Information (amounts in millions, except per share data)

 

 

 

Year Ended
December 31, 2009

 

Statement of operations information

 

 

 

 

 

 

 

Total net sales

 

$

4,872.5

 

Operating income

 

206.2

 

Net earnings attributable to common shareholders

 

49.3

 

Net earnings per share attributable to common shareholders

 

 

 

Basic

 

$

1.05

 

Diluted

 

$

1.03

 

Weighted average number of common shares outstanding

 

 

 

Basic

 

47.0

 

Diluted

 

47.9

 

 

 

 

As of December 31, 2009

 

Balance sheet information

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44.9

 

Total assets

 

5,070.8

 

Long-term debt and unsecured notes to be issued

 

1,583.2

 

Total liabilities

 

3,593.6

 

 

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Historical and Unaudited Pro Forma Combined Per Share Information

 

The following table sets forth selected unaudited pro forma combined per share information reflecting the arrangement between Quad/Graphics and World Color Press under the acquisition method of accounting and historical per share information of Quad/Graphics and World Color Press, respectively, and unaudited pro forma combined World Color Press equivalent per share information.  You should read this information in conjunction with (a) the selected historical financial information included elsewhere in this proxy circular/prospectus; (b) the consolidated financial statements and notes included in “Financial Statements of Quad/Graphics” beginning on page FS-1; and (c) the consolidated financial statements and notes included in the World Color Press annual report on Form 40-F filed with the SEC on March 1, 2010, which has been incorporated by reference into this proxy circular/prospectus.  The unaudited pro forma combined per share information is derived from, and should be read in conjunction with, the “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 177 of this proxy circular/prospectus.  The historical per share information is derived from the historical audited consolidated financial statements of Quad/Graphics prepared pursuant to U.S. GAAP for the year ended December 31, 2009 and the historical audited consolidated financial statements of World Color Press for the seven months ended July 31, 2009 (fresh start reporting date) and for the five months ended December 31, 2009.  World Color Press’ historical consolidated audited financial statements have been prepared in accordance with Canadian GAAP and include a discussion of the significant differences between Canadian GAAP and U.S. GAAP in Note 33 to the historical consolidated audited financial statements.  The information for World Color Press presented below is prepared pursuant to U.S. GAAP.

 

The unaudited pro forma combined per share information does not purport to represent what the actual results of operations of Quad/Graphics and World Color Press would have been had the companies been combined during the periods presented or to project Quad/Graphics’ and World Color Press’ results of operations that may be achieved after completion of the arrangement.

 

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Year Ended
December 31, 2009

 

Unaudited pro forma combined

 

 

 

Net earnings per share attributable to common shareholders

 

 

 

Basic

 

$

1.05

 

Diluted

 

1.03

 

Dividends declared per common share (1)

 

0.50

 

Book value per common share

 

31.42

 

 

 

 

 

Quad/Graphics — historical

 

 

 

Earnings per share attributable to Quad/Graphics common shareholders

 

 

 

Basic

 

$

1.87

 

Diluted

 

1.81

 

Dividends declared per common share (2)

 

0.50

 

Book value per common share

 

32.85

 

 

 

 

Successor

 

 

Predecessor

 

 

 

Five months ended
December 31, 2009

 

 

Seven months ended
July 31, 2009

 

World Color Press — historical

 

 

 

 

 

 

Net income per share attributable to World Color Press common shareholders

 

 

 

 

 

 

Basic

 

$

0.75

 

 

$

9.50

 

Diluted

 

0.38

 

 

8.85

 

Dividends declared per common share

 

 

 

 

Book value per common share

 

10.94

 

 

 

 

 

 

 

Year Ended
December 31, 2009

 

Unaudited World Color Press equivalents based on combination of Quad/Graphics and World Color Press (3)

 

 

 

Earnings per common share

 

 

 

Basic

 

$

0.23

 

Diluted

 

0.22

 

Dividends declared per common share

 

0.11

 

Book value per common share

 

6.76

 

 


(1)

The pro forma cash dividends declared per share of common stock are equal to the dividend declared by Quad/Graphics during the periods presented, excluding aggregate tax distributions declared to S corporation shareholders of $18.0 million in 2009.

 

 

(2)

Excluding aggregate tax distributions declared to S corporation shareholders of $18.0 million in 2009.

 

 

(3)

The unaudited World Color Press equivalents based on combination of Quad/Graphics and World Color Press are calculated by multiplying the unaudited pro forma combined amounts by the Share Exchange Ratio (assumed, for these purposes only, to be 0.2150 shares of Quad/Graphics class A stock for each World Color Press common share).

 

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Comparative Value of Securities

 

There is no public trading market for shares of Quad/Graphics class A stock, and no public trading market will be established for shares of Quad/Graphics class A stock until the consummation of the arrangement.  In connection with the consummation of the arrangement, Quad/Graphics class A stock is expected to be listed on a national securities exchange in the United States.

 

World Color Press common shares were listed on the Toronto Stock Exchange on August 26, 2009 under the symbols “WC” (trading in Canadian dollars) and “WC.U” (trading in U.S. dollars), respectively.  The following tables set forth the monthly range of high and low prices, the closing prices on the last trading day of the applicable month and the total monthly volumes of the World Color Press common shares traded on the Toronto Stock Exchange for each month from August 26, 2009 to February 28, 2010.

 

Common Shares in Canadian Dollars (Symbol: WC)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

High Price

 

Low Price

 

Closing
Price

 

Total Monthly
Volume

 

August 26, 2009 to August 31, 2009

 

CAD$

10.10

 

CAD$

8.80

 

CAD$

9.20

 

9,560

 

September 2009

 

CAD$

12.00

 

CAD$

9.40

 

CAD$

10.90

 

614,027

 

October 2009

 

CAD$

10.90

 

CAD$

9.50

 

CAD$

9.50

 

139,214

 

November 2009

 

CAD$

10.50

 

CAD$

9.30

 

CAD$

9.80

 

77,507

 

December 2009

 

CAD$

10.20

 

CAD$

9.30

 

CAD$

9.70

 

29,267

 

January 2010

 

CAD$

13.08

 

CAD$

9.30

 

CAD$

12.48

 

173,820

 

February 2010

 

CAD$

12.37

 

CAD$

11.40

 

CAD$

11.80

 

715,570

 

 

Common Shares in U.S. Dollars (Symbol: WC.U)

 

 

 

High Price

 

Low Price

 

Closing
Price

 

Total Monthly
Volume

 

August 26, 2009 to August 31, 2009

 

$

8.70

 

$

8.00

 

$

8.70

 

140,400

 

September 2009

 

$

10.00

 

$

8.70

 

$

9.50

 

4,034,586

 

October 2009

 

$

9.70

 

$

9.00

 

$

9.10

 

1,310,391

 

November 2009

 

$

10.00

 

$

9.30

 

$

9.50

 

158,714

 

December 2009

 

$

9.30

 

$

9.10

 

$

9.30

 

124,380

 

January 2010

 

$

11.95

 

$

9.15

 

$

11.51

 

2,393,997

 

February 2010

 

$

11.52

 

$

11.00

 

$

11.00

 

3,553,795

 

 

On January 25, 2010, the last day before the public announcement of the execution of the arrangement agreement, the closing price of World Color Press common shares was CAD$10.02 and $9.50, respectively, on the Toronto Stock Exchange.

 

Quad/Graphics Dividends

 

Quad/Graphics’ board of directors declared and paid a cash dividend of $0.50 per share of class A stock, class B stock and class C stock in January 2010 and in each of 2009 and 2008.  Such amounts do not include aggregate tax distributions declared to Quad/Graphics’ S corporation shareholders of $18.0 million and $37.0 million in 2009 and 2008, respectively.  Quad/Graphics has not yet determined its dividend policy following the consummation of the arrangement.  Any determination to pay dividends in the future will be at the discretion of Quad/Graphics’ board of directors and will depend upon its results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law, rule or regulation, business and investment strategy, and other factors that the board of directors deems relevant.  See “Quad/Graphics’ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Description of Debt Obligations,” beginning on page 206, for a discussion of the covenants under Quad/Graphics’ existing and expected future debt agreements that may limit Quad/Graphics’ ability to pay dividends.

 

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RISK FACTORS

 

World Color Press shareholders should carefully consider the following factors, in addition to those factors discussed elsewhere herein and in the documents that World Color Press has filed with the SEC and which are incorporated by reference into this proxy circular/prospectus and the other information in this proxy circular/prospectus, before voting at the World Color Press special meeting.

 

Risks Relating to the Arrangement

 

Because the Share Exchange Ratio will be determined only at closing, World Color Press shareholders cannot be sure of the precise value of the transaction consideration they will receive.

 

Under the terms of the arrangement agreement, the Share Exchange Ratio, which is the amount of Quad/Graphics class A stock that will be received by World Color Press shareholders for each World Color Press common share, is determined by a number of factors, including the number of World Color Press common shares and Quad/Graphics stock outstanding immediately prior to the consummation of the arrangement.  There are currently warrants and preferred shares outstanding that could be exercised or converted to acquire World Color Press common shares prior to the consummation of the arrangement that would result in an increase to the number of World Color Press common shares outstanding immediately prior to the consummation of the arrangement.  In addition, Quad/Graphics agreed to provide at least $93,333,333 to World Color Press to purchase any warrants not converted into World Color Press common shares and to fund redemptions of or payments due on other equity-based securities not converted into or settled with World Color Press common shares.  If less than $93,333,333 is needed to make such purchases, redemptions and payments, the remainder will be distributed to World Color Press common shareholders as the aggregate Common Cash Consideration; alternatively, if more than $93,333,333 is needed to make such purchases, redemptions and payments, there will be no Common Cash Consideration.  If more than $135.0 million is needed to make such purchases, redemptions and payments, however, the amount of Quad/Graphics class A stock to be received by World Color Press common shareholders for each World Color Press common share will be reduced.  The amount needed to make such purchases, redemptions and payments depends on the value of the World Color Press common shares as determined at the effective time of the arrangement.  In light of these uncertainties, World Color Press common shareholders will not be able to calculate the precise value of the consideration that they will receive upon completion of the arrangement.  These factors, moreover, are largely beyond the parties’ control and could negatively impact the value of the consideration World Color Press common shareholders will receive.

 

The synergies expected to be produced may not be realized or may require Quad/Graphics after the consummation of the arrangement (sometimes referred to as the “combined company”) to incur additional costs that may adversely affect the value of Quad/Graphics’ common stock.

 

The success of the transaction will depend, in part, on Quad/Graphics’ ability to realize the synergies expected to be produced from integrating World Color Press’ businesses with Quad/Graphics’ existing business due to capacity consolidation (primarily in the United States), purchasing and supply chain efficiencies, logistic and distribution savings, and consolidation of corporate headquarters, among other areas.  Quad/Graphics has identified approximately $225 million of pre-tax annualized synergies that could be realized within 24 months after the consummation of the arrangement.

 

Quad/Graphics’ management estimates that the total cost to Quad/Graphics (and ultimately the combined company) of achieving the synergies will be approximately $195 to $240 million in integration costs, most of which Quad/Graphics believes will be incurred in the first 24 months after the consummation of the arrangement.  Quad/Graphics’ estimates are based on a number of assumptions, including, but not limited to, assumptions relating to plant rationalization, plant and equipment utilization, selling, general and administrative expense savings, logistic and distribution savings, and purchasing and supply chain efficiencies, which may prove incorrect.  Management of World Color Press believes that the expected synergies to be realized as a result of the arrangement will be higher than the estimates of Quad/Graphics’ management noted above.  See “The Arrangement—Estimated Potential Synergies Attributable to the Arrangement” beginning on page 87 for additional information.

 

The combined company also may incur additional and/or unexpected costs in order to realize the anticipated synergies.  While Quad/Graphics’ management believes that the synergies are achievable, the combined

 

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company may be unable to realize all of the synergies within the time frame expected or at all.  The integration process will be complex, costly and time-consuming. The difficulties of integrating World Color Press’ businesses may include, among others:

 

·                                          unanticipated issues in integrating manufacturing, logistics, information, communications, and other systems;

 

·                                          unanticipated changes in applicable laws and regulations;

 

·                                          failure to retain key employees, which might adversely affect operations and the ability to retain other employees;

 

·                                          failure to retain customers; and

 

·                                          other unanticipated issues, expenses and liabilities.

 

The combined company may not accomplish the integration of World Color Press’ businesses smoothly, successfully or within the anticipated cost range or timeframe.  The diversion of the attention of the combined company’s management from the combined company’s current operations to the integration effort and any difficulties encountered in combining operations could prevent the combined company from realizing the full benefits anticipated to result from the arrangement and could adversely affect its business.

 

The arrangement agreement limits World Color Press’ ability to pursue alternatives to the transaction.

 

The arrangement agreement contains provisions that make it more difficult for World Color Press to sell its business to a party other than Quad/Graphics. These provisions include the general prohibition on World Color Press taking certain actions that might lead to or otherwise facilitate an acquisition proposal (as defined in the section titled “The Arrangement Agreement — Covenants — No Solicitation” beginning on page 104 of this proxy circular/prospectus) and the requirement that World Color Press pay Quad/Graphics a termination fee of $40 million or reimburse Quad/Graphics for up to $20 million of its costs incurred in connection with the transaction if the arrangement agreement is terminated in specified circumstances. See, “The Arrangement Agreement — Termination of Arrangement Agreement” beginning on page 115 of this proxy circular/prospectus.

 

These provisions might discourage a third party that might have an interest in acquiring all or a significant part of stock, properties or assets of World Color Press from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher per share value than the current proposed transaction consideration.

 

Directors and executive officers of World Color Press may have potential conflicts of interest in connection with the transaction.

 

Some of the directors and executive officers of World Color Press have interests in the arrangement that are different from, or are in addition to, the interests of World Color Press’ shareholders generally. These interests may create potential conflicts of interest.  These interests may include positions as directors or executive officers of the combined company, potential benefits under employment or benefit arrangements that may be available as a result of the arrangement and in conjunction with other events, potential payment or accelerated vesting of or distribution of rights or benefits under certain of their respective compensation and benefit plans or arrangements as a result of the arrangement, potential severance and other benefit payments in the event of termination of employment in connection with the arrangement, and the right to continued indemnification and insurance coverage by the combined company for acts or omissions occurring prior to the closing of the arrangement. See “The Arrangement—Interests of World Color Press’ Directors and Executive Officers in the Arrangement” beginning on page 90 of this proxy circular/prospectus.

 

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The announcement and pendency of the transaction could have an adverse effect on Quad/Graphics’ and World Color Press’ respective businesses, financial conditions, results of operations or business prospects and on World Color Press’ stock price.

 

The announcement and pendency of the transaction could disrupt Quad/Graphics’ and World Color Press’ businesses in the following ways, among others:

 

·                                          Quad/Graphics and World Color Press employees may experience uncertainty regarding their future roles with the combined company, which might adversely affect Quad/Graphics’ and World Color Press’ ability to retain, recruit and motivate key personnel;

 

·                                          the attention of Quad/Graphics and World Color Press management may be directed towards the completion of the transaction and transaction-related considerations and may be diverted from the day-to-day business operations of Quad/Graphics and World Color Press, respectively, and matters related to the transaction may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to Quad/Graphics or World Color Press; and

 

·                                          customers, suppliers and other third parties who have business relationships with Quad/Graphics or World Color Press may decide not to renew such relationships or seek to terminate, change and/or renegotiate their relationships with Quad/Graphics or World Color Press as a result of the transaction, whether pursuant to the terms of their existing agreements with Quad/Graphics or World Color Press or otherwise.

 

Any of these matters could adversely affect the respective businesses, financial condition, results of operations or business prospects of Quad/Graphics and World Color Press and World Color Press’ stock price.

 

Failure to complete the transaction could negatively impact the stock price and the future business and financial results of World Color Press.

 

If the arrangement is not completed, the ongoing business of World Color Press may be adversely affected and, without realizing any of the benefits of having completed the arrangement, World Color Press will be subject to a number of risks, including the following:

 

·                                          World Color Press may be required to pay Quad/Graphics a termination fee of $40 million if the arrangement is terminated under certain circumstances, as described in the arrangement agreement and summarized in this proxy circular/prospectus;

 

·                                          World Color Press may be required to reimburse Quad/Graphics for its expenses up to $20 million if the arrangement agreement is terminated under certain circumstances, including, among others, due to World Color Press’ failure to obtain the approval of the arrangement resolution, as described in the arrangement agreement and summarized in this proxy circular/prospectus;

 

·                                          World Color Press may be required to pay certain costs relating to the arrangement, even if the arrangement is completed;

 

·                                          under the arrangement agreement, World Color Press is subject to certain restrictions on the conduct of its business prior to completing the arrangement, which may affect its ability to execute certain of its business strategies; and

 

·                                          matters relating to the arrangement (including integration planning) may require substantial commitments of time and resources by World Color Press management, which could otherwise have been devoted to other opportunities that may have been beneficial to World Color Press as an independent company.

 

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There is no existing market for Quad/Graphics’ class A stock, and Quad/Graphics does not know if one will develop to provide World Color Press shareholders with adequate liquidity. Quad/Graphics’ stock price will fluctuate after the completion of the arrangement, and as a result, World Color Press shareholders could lose a significant part or all of their investment.

 

There has not been a public market for Quad/Graphics class A stock and none will exist prior to the consummation of the arrangement.  Quad/Graphics intends to apply to list its class A stock on a national securities exchange in the United States but cannot predict the extent to which investor interest in Quad/Graphics will lead to the development of an active trading market for its class A stock on a national securities exchange in the United States or otherwise or how liquid that market might become. If an active trading market does not develop, shareholders of the combined company may have difficulty selling any Quad/Graphics class A stock. Consequently, shareholders of the combined company may not be able to sell shares of Quad/Graphics class A stock at prices equal to or greater than the price as of the consummation of the arrangement.

 

The stock price of the Quad/Graphics class A stock may be volatile and subject to wide fluctuations. In addition, the trading volume of Quad/Graphics class A stock may fluctuate and cause significant price variations to occur.  The factors that could cause fluctuations in the stock price or trading volume of the Quad/Graphics class A stock include:

 

·                                          General market and economic conditions, including market conditions in the commercial printing industry;

 

·                                          Actual or expected variations in quarterly results of operations;

 

·                                          Differences between actual results of operations and those expected by investors and securities analysts;

 

·                                          Changes in recommendations by securities analysts;

 

·                                          Operations and stock performance of industry participants;

 

·                                          Accounting charges, including charges relating to the impairment of long-lived assets, including goodwill;

 

·                                          Significant acquisitions or strategic alliances by the combined company or by competitors;

 

·                                          Sales of Quad/Graphics’ common stock, including sales by Quad/Graphics’ directors and officers or significant investors;

 

·                                          Historical light trading volume with respect to World Color Press common shares;

 

·                                          The number of shares of Quad/Graphics class A stock held in escrow as a result of World Color Press common shares held in escrow as of the closing date of the arrangement;

 

·                                          Recruitment or departure of key personnel; and

 

·                                          Loss of key customers.

 

There can be no assurance that the stock price of the Quad/Graphics class A stock will not fluctuate or decline significantly in the future. In addition, the stock market in general can experience considerable price and volume fluctuations that may be unrelated to the combined company’s operating performance.

 

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Quad/Graphics will incur additional indebtedness in connection with the arrangement.

 

As of December 31, 2009, Quad/Graphics and World Color Press had a combined unaudited debt balance of approximately $1.4 billion (including, with respect to Quad/Graphics, $823.3 million aggregate amount of senior notes and other debt outstanding that is expected to remain outstanding after the consummation of the arrangement).  Quad/Graphics has obtained $1.2 billion of committed financing in connection with the arrangement, which Quad/Graphics may draw on to fund transaction-related cash payments, refinance Quad/Graphics’ existing revolving credit facility, refinance World Color Press’ existing debt, fund expenses incurred in connection with the arrangement and fund repayment of certain other World Color Press obligations.  The combined company may also incur additional indebtedness in the future for corporate purposes. Any borrowings will require the combined company to use a portion of its cash flow to service principal and interest payments and thus will limit the free cash flow available for other desirable business opportunities.

 

Quad/Graphics will incur significant transaction costs in connection with the arrangement.

 

Quad/Graphics expects to incur significant transaction costs, which it currently estimates to be approximately $110 million, including World Color Press’ transaction costs up to the consummation of the arrangement, in connection with the arrangement.  The substantial majority of these costs will be non-recurring expenses related to the arrangement, including professional fees and other non-recurring expenses.  As these transaction costs are non-recurring, these costs and expenses are not reflected in the pro forma statement of operations included in this proxy circular/prospectus.  An estimate of these costs is reflected in the pro forma balance sheet.

 

The regulatory approvals required for the completion of the arrangement may not be obtained, or may contain materially burdensome conditions that could have an adverse effect on the combined company.

 

Completion of the arrangement is conditional upon the receipt of certain regulatory approvals, including, without limitation, the expiration or termination of the applicable waiting period under the HSR Act in the United States, approval by the Minister under the Investment Canada Act in Canada and the approval of the Québec Superior Court.  Although Quad/Graphics and World Color Press have agreed to use their commercially reasonable efforts to obtain the requisite governmental and court approvals, there can be no assurance that these approvals will be obtained.  In addition, the governmental authorities from which these approvals are required may impose conditions on the completion of the arrangement or require changes to the terms of the arrangement. If, although it is not required under the arrangement agreement to do so, Quad/Graphics agrees to such conditions in order to obtain any approvals required to complete the arrangement, then the business and results of operations of the combined company may be adversely affected.

 

Holders of class A stock will not be able to control any of the combined company’s management policies or business decisions because the holders of class A stock will have substantially less voting power than the holders of class B stock, all of which is owned by certain members of the Quadracci family, trusts for their benefit or other affiliates of Quad/Graphics, whose interests may be different from the holders of class A stock.

 

Quad/Graphics’ stock is divided into three classes of common stock:  class A stock, class B stock and class C stock.  Upon consummation of the arrangement, the class B stock and the class C stock each will have 10 votes per share on all matters and the class A stock will be entitled to one vote per share.  Based on currently available information (including the number of World Color Press common shares and Quad/Graphics shares outstanding) and assuming that all outstanding World Color Press preferred shares are converted to World Color Press common shares, no World Color Press warrants are exercised for World Color Press common shares and that the adjustment amount under the arrangement agreement is zero, the class B stock will constitute about 81% of the combined company’s total voting power.  As a result, holders of class B stock will be able to exercise a controlling influence over the combined company’s business and will have the power to elect its directors.

 

Approximately 80% of the outstanding class B stock is held of record by the Quad/Graphics voting trust.  Under the assumptions described in the preceding paragraph, the class B stock held pursuant to the Quad/Graphics voting trust will constitute about 65% of the combined company’s total voting power.  This ownership position may increase if other members of the Quadracci family enter into the voting trust agreement, and the voting power relating to this ownership position may increase if shares of the class B stock held by shareholders who are not parties to the voting trust agreement are converted into shares of class A stock.  The trustees of the Quad/Graphics

 

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voting trust have the authority to vote the stock held by the Quad/Graphics voting trust.  Accordingly, the trustees of the Quad/Graphics voting trust and, indirectly, the Quadracci family members who are beneficiaries of the Quad/Graphics voting trust will be able to exercise a controlling influence over the combined company’s business and will have the power to elect its directors.

 

Quad/Graphics may be a controlled company within the meaning of the rules of a national securities exchange in the United States on which the class A stock is expected to be listed, and, as a result, it will rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

 

Upon consummation of the arrangement, the Quad/Graphics voting trust will own more than 50% of the total voting power of Quad/Graphics stock, and, as a result, Quad/Graphics may be a controlled company under the corporate governance listing standards of a national securities exchange in the United States on which the class A stock is expected to be listed. As a controlled company, an exception under the listing standards would exempt Quad/Graphics from the obligation to comply with certain of the exchange’s corporate governance requirements, including the requirements:

 

·                                          that a majority of Quad/Graphics’ board of directors consist of independent directors, as defined under the rules of the exchange;

 

·                                          that Quad/Graphics have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

·                                          that Quad/Graphics have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

 

Accordingly, for so long as Quad/Graphics is a controlled company, holders of class A stock may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the national securities exchange in the United States on which the class A stock is expected to be listed.

 

Quad/Graphics has not yet determined its dividend policy following the consummation of the arrangement and may not pay dividends.

 

Quad/Graphics has not yet determined its dividend policy following the consummation of the arrangement. Any determination to pay dividends in the future will be at the discretion of the combined company’s board of directors and will depend upon the combined company’s results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law, rule or regulation, business and investment strategy, and other factors that the combined company’s board of directors deems relevant.  If the combined company does not pay dividends, then the return on an investment in its common stock will depend entirely upon any future appreciation in its stock price. There is no guarantee that the combined company’s common stock will appreciate in value or maintain its value.

 

Sales of shares of Quad/Graphics’ class A stock eligible for public sale after completion of the transaction could adversely affect the stock price.

 

A substantial number of shares of Quad/Graphics class A stock will be held by a small number of shareholders.  A decision by one or more of these shareholders to sell or potentially sell a substantial number of shares of Quad/Graphics’ class A stock in the public market could depress the market price of Quad/Graphics’ class A stock at such time and could then impair the ability of the combined company to raise capital through the sale of additional securities.

 

The measurement of World Color Press’ assets and liabilities at fair value reflected in the unaudited pro forma condensed combined financial data contained elsewhere in this proxy circular/prospectus is preliminary, and the adjustment upon the completion of the final valuation of World Color Press after the transaction may be materially different from what is reflected therein.

 

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The measurement of World Color Press’ assets and liabilities at fair value reflected in the unaudited pro forma condensed combined financial data contained elsewhere in this proxy circular/prospectus is preliminary. For the purposes of the unaudited pro forma condensed combined financial data prepared using U.S. GAAP and based on U.S. GAAP historical financial information, Quad/Graphics has made a preliminary estimate of the purchase price compared to a preliminary estimate of the fair value of World Color Press’ net assets expected to be acquired in the arrangement, as if the arrangement had been consummated on December 31, 2009.  When the actual calculation of the purchase price and the fair value of the net assets acquired is performed, it will be based on the actual purchase price, actual net assets assumed at the effective date of the arrangement and other information at that date to support the fair values of World Color Press’ assets and liabilities.  Accordingly, the actual amounts of net assets will vary from the pro forma amounts, and the final valuation of World Color Press may be materially different from what is reflected in the unaudited pro forma condensed combined financial data contained in this proxy circular/prospectus. See “Selected Historical and Unaudited Pro Forma Financial Information — Selected Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 25 of this proxy circular/prospectus.

 

Shareholders of the combined company may experience dilution of their ownership interests due to the future issuance of additional shares of stock of the combined company which could have an adverse effect on the price of the combined company’s stock.

 

The combined company may in the future issue additional shares of its stock which could result in the dilution of the ownership interests of its shareholders. Upon consummation of the arrangement, the combined company will be authorized to issue 80 million shares of class A stock, 80 million shares of class B stock, 20 million shares of class C stock and 500,000 shares of preferred stock.  Upon consummation of the arrangement, based on currently available information (including the number of World Color Press common shares and shares of Quad/Graphics stock outstanding as of February 19, 2010) and assuming that the Equity Payment Amounts are $135.0 million or less, the combined company is expected to have outstanding approximately 31.6 million shares of class A stock, 15.0 million shares of class B stock, 250,000 shares of class C stock and no shares of preferred stock.  The shares of class B stock and class C stock may be converted at any time into shares of class A stock on a one-for-one basis.  The potential issuance of additional shares of stock may create downward pressure on the trading price of the combined company’s stock.  The combined company may also issue additional shares of its stock in connection with the hiring or compensation of personnel or directors, future acquisitions, future issuance of its securities for capital raising purposes or for other business purposes.

 

Certain financial projections considered by World Color Press, Morgan Stanley and Quad/Graphics may not be realized, which may adversely affect the market price of Quad/Graphics class A stock following the consummation of the arrangement.

 

In arriving at its opinion regarding the fairness from a financial point of view of the transaction consideration to be received by the holders of World Color Press common shares pursuant to the arrangement agreement, Morgan Stanley relied upon, without independent verification, the accuracy and completeness of the information that was made available to Morgan Stanley by Quad/Graphics and World Color Press.  See “The Arrangement—Projected Financial Information” beginning on page 88 of this proxy circular/prospectus. These financial projections were prepared by, or as directed by, the managements of Quad/Graphics and World Color Press and were also considered by World Color Press’ and Quad/Graphics’ boards of directors.  None of these financial projections was prepared with a view towards public disclosure or compliance with the published guidelines of the SEC, the American Institute of Certified Public Accountants regarding projections and forecasts, rules of the Canadian securities regulatory authorities with respect to forward-looking information and future-oriented financial information or the recommendations or guidelines established by the Canadian Institute of Chartered Accountants with respect to future-oriented financial information.  The financial projections are inherently based on various estimates and assumptions that are subject to the judgment of those preparing them and are also subject to significant economic, competitive, industry and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of Quad/Graphics and World Color Press. Accordingly, there can be no assurance that Quad/Graphics’ or World Color Press’ financial condition or results of operations will not be significantly worse than those set forth in such projections.  Significantly worse financial results could have a material adverse effect on the market price of Quad/Graphics class A stock following the

 

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consummation of the arrangement.

 

Certain Canadian income tax considerations relating to the proposed “foreign investment entity” rules may apply to Quad/Graphics shareholders.

 

The following summary does not take into consideration the March 4, 2010 Canadian Federal Budget.  Quad/Graphics may be a foreign investment entity (sometimes referred to as a FIE) for the purposes of the FIE Proposals (defined below).  If Quad/Graphics is currently, or later becomes, a FIE within the meaning of the FIE Proposals, there may be certain adverse Canadian income tax consequences for Canadian residents who hold Quad/Graphics class A stock unless such class A stock qualifies as an “exempt interest”.  See “Material Canadian Federal Income Tax Considerations — Proposals Regarding Foreign Investment Entities” beginning on page 130.

 

Risks Relating to the Business of the Combined Company

 

The combined company is expected to operate in a highly competitive industry.

 

The industry in which Quad/Graphics and World Color Press operate, and in which the combined company will operate, is highly competitive.  The printing industry, with nearly 30,000 companies in the United States, is highly fragmented.  Although there has been industry consolidation, particularly in the past decade, the largest 400 printers still represent only 35% of the market, according to the Printing Impressions PI400 and the Printing Industries of America/Graphic Arts Technical Foundation (sometimes referred to as PIA/GATF) 2008 Print Market Atlas.  Quad/Graphics and World Color Press compete for commercial business not only with large and mid-sized printers, but also with smaller regional printers.  In certain circumstances, due primarily to factors such as freight rates and customer preference for local services, printers with better access to certain regions of a given country may be preferred by customers in such regions.  The combined company is also expected to face competition from alternative sources of communication, including email, the internet, electronic readers, interactive television and electronic retailing.

 

In recent years, the printing industry has experienced a reduction in demand for printed materials and excess capacity.  Printing industry revenues may continue to decrease in the future.  Some of the industries that Quad/Graphics and World Color Press service have been subject to consolidation efforts, leading to a smaller number of potential customers.  Furthermore, if the smaller customers of the combined company are consolidated with larger companies using other printing companies, the combined company could lose its customers to competing printing companies.

 

The printing industry is highly competitive and expected to remain so.  Any failure on the part of the combined company to compete effectively in the markets it serves could have a material adverse effect on its results of operations, financial condition or cash flows and could require changes to the way it conducts its business or require it to reassess strategic alternatives involving its operations.

 

The combined company may not be able to improve its operating efficiency rapidly enough to meet market conditions.

 

Because the markets in which the combined company is expected to compete are highly competitive, the combined company will need to continue to improve its operating efficiency in order to maintain or improve its profitability. There is no assurance that the combined company will be able to do so in the future.  In addition, the need to reduce ongoing operating costs may result in significant up-front costs to reduce workforce, close or consolidate facilities, or upgrade equipment and technology.

 

A significant portion of the combined company’s revenues are expected to be derived from long-term contracts with customers, which may not be renewed on similar terms and conditions or may not be renewed at all. The failure to renew or be awarded such contracts could materially adversely affect the combined company’s results of operations, financial condition and cash flows.

 

Quad/Graphics and World Color Press have derived a significant portion of their respective revenues from long-term contracts with important customers.  It is possible that the completion of the arrangement could result in the combined company’s loss of important customers or in the nonrenewal of such contracts.  If the combined

 

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company loses important customers, is unable to renew such contracts on similar terms and conditions, or at all, or is not awarded new long-term contracts with important customers in the future, its results of operations, financial condition and cash flows may be adversely affected.

 

Changes in postal rates, postal regulations and postal services may adversely impact demand for the combined company’s products and services.

 

Postal costs are a significant component of the cost structures of many of the anticipated customers of the combined company and postal rate changes can influence the number of pieces that these customers will be willing to mail. Any resulting decline in print volumes mailed could have an adverse effect on the business of the combined company.  In addition, integrated distribution with the postal service is expected to be an important component of the business of the combined company.  Any change in the current service levels provided by the postal service could impact the demand that customers have for print services.  The United States Postal Service has reported net losses in the last three fiscal years and has estimated a net loss for its current fiscal year and, as a result, may come under increased pressure to adjust its postal rates and service levels.

 

The current recessionary global market and economic conditions and the effects of these conditions on the combined company’s customers may adversely affect the combined company’s results of operations.

 

The challenges posed by the economy throughout 2009 are expected to remain in 2010, impacting the combined company’s results of operations in 2010.  The general economic difficulties continue to impact all of the customers in all of the geographies the combined company is expected to serve.  Economic difficulties may also result in restructuring actions and associated expenses and impairment of long-lived assets, including goodwill and other intangibles.  Uncertainty about future economic conditions makes it difficult to forecast results of operations and to make decisions about future investments.  Delays or reductions in customers’ spending are expected to have an adverse effect on demand for the combined company’s products and services, and consequently its results of operations, financial position and cash flow, and those adverse affects could be material.  Economic downturns may affect the combined company’s credit ratings, which, if downgraded, could impact its ability to borrow and cause its borrowing costs to increase.

 

Pricing and demand for the combined company’s printing services may fluctuate significantly based on factors outside of its control.

 

Pricing and demand for printing services have fluctuated significantly in the past, have declined significantly in recent years and may continue to decline from current levels.  Any increases in the supply of printing services or decreases in demand could cause prices to continue to decline, and prolonged periods of low prices, weak demand and/or excess supply could have a material adverse effect on the combined company’s business growth, results of operations and liquidity.

 

The combined company’s revenue is expected to be subject to cyclical and seasonal variations and may fluctuate significantly based on factors outside of its control.

 

The business in which the combined company will operate is sensitive to general economic cycles and may be adversely affected by the cyclical nature of the markets it serves, as well as by local, regional, national and global economic conditions. The combined company’s business operations are expected to be seasonal, as has been the case for Quad/Graphics’ and World Color Press’ independent businesses.  Quad/Graphics and World Color Press have recognized the majority of their respective historical operating income during the past five years in the third and fourth quarters of the financial year, primarily as a result of the higher number of magazine pages and back-to-school, retail and holiday catalog promotions occurring during these periods. Within any year, this seasonality could adversely affect the combined company’s cash flows and results of operations.

 

Technological changes may adversely affect the combined company’s products and services and may require the combined company to make capital expenditures to maintain its platforms and processes and to remain technologically and economically competitive, which may increase its costs or disrupt its operations.

 

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Technological changes continue to increase the accessibility and quality of electronic alternatives to traditional delivery of printed documents through the online distribution and hosting of media content and the electronic distribution of documents and data.  The acceleration of consumer acceptance of such electronic media, as an alternative to print materials, may decrease the demand for the combined company’s printed products or result in reduced pricing for the its printing services.

 

Because production technologies continue to evolve, Quad/Graphics and World Color Press have had to make significant capital expenditures to develop and maintain their respective platforms and processes, and the combined company is expected to be required to make capital expenditures to maintain its platforms in the future.  The combined company also may be required to make capital expenditures and successfully develop and integrate new technologies to remain technologically and economically competitive.  If the combined company cannot obtain adequate capital or does not respond adequately to the need to develop and integrate changing technologies in a timely manner, its results of operations, financial condition or cash flows may be adversely affected.

 

The combined company may be adversely affected by increases in its operating costs, including the cost and availability of raw materials, labor-related costs, fuel and other energy costs and freight rates.

 

Quad/Graphics and World Color Press have used, and the combined company is expected to use, paper, ink and energy as their primary raw materials.  The price of such raw materials has fluctuated over time and has caused fluctuations in Quad/Graphics’ and World Color Press’ respective net sales and cost of sales.  This volatility may continue and may cause fluctuations in the combined company’s net sales and cost of sales, and the combined company may experience increases in the costs of its raw materials in the future as prices in the overall paper, ink and energy markets are expected to remain beyond its control.

 

In general, Quad/Graphics and World Color Press have been able to pass along increases in the cost of paper to many of their respective customers.  If the combined company is unable to continue to pass along increases in the cost of paper to its customers, future increases in these items would adversely affect its margins and profits.  If the combined company passes along increases in the cost of paper and the price of the combined company’s services increases as a result, customer demand could be adversely affected and thereby negatively impact the combined company’s financial performance.

 

Quad/Graphics and World Color Press have less frequently been able to pass along increases in the cost of ink and energy to their respective customers.  If the combined company is unable to pass along increases in the cost of ink and energy, future increases in these items would adversely affect its margins and profits.  If the combined company is able to pass along increases in the costs of ink and energy and the price of the combined company’s services increases as a result, customer demand could be adversely affected and thereby negatively impact the combined company’s financial performance.

 

Due to the significance of paper in the combined company’s business, it is expected to be dependent on the availability of paper.  In periods of high demand, certain paper grades have been in short supply, including grades used in the businesses of Quad/Graphics and World Color Press. In addition, during periods of tight supply, many paper producers allocate shipments of paper based upon historical purchase levels of customers.  Although Quad/Graphics and World Color Press generally have not experienced significant difficulty in obtaining adequate quantities of paper, unforeseen developments in the overall paper markets could result in a decrease in the supply of paper and could adversely affect the combined company’s revenues or profits.

 

In addition, the combined company may not be able to resell waste paper and other by-products or the prices received for their sale may decline substantially.

 

Labor represents a significant component of the respective cost structures of Quad/Graphics and World Color Press and is expected to represent a significant component of the cost structure of the combined company.  Increases in wages, salaries and benefits, such as medical, dental, pension and other post-retirement benefits, may impact the combined company’s financial performance. Changes in interest rates, investment returns or the regulatory environment may impact the amounts the combined company will be required to contribute to the pension plans that it will sponsor and may affect the solvency of its pension plans.

 

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Freight rates and fuel costs represent a significant component of the respective cost structures of Quad/Graphics and World Color Press and are expected to represent a significant component of the cost structure of the combined company.   If the combined company is not able to pass along a substantial portion of increases in freight rates or in the price of fuel, these increases could adversely affect operating costs or customer demand and thereby negatively impact the combined company’s financial performance.

 

Quad/Graphics’ existing debt facilities include, and the debt facilities Quad/Graphics expects to enter into in connection with the consummation of the arrangement will include, various covenants imposing restrictions that may affect the combined company’s ability to operate its business.

 

On September 1, 1995, as last amended on January 26, 2006, Quad/Graphics entered into a Senior Secured Note Agreement (sometimes referred to as the Master Note and Security Agreement) pursuant to which, Quad/Graphics has issued over time senior notes in an aggregate principal amount of $1.13 billion in various tranches.  As of December 31, 2009, the borrowings outstanding under the Master Note and Security Agreement were $725.9 million.  The Master Note and Security Agreement will remain outstanding after the consummation of the arrangement, and includes certain financial covenants, with all of the following terms as defined in such agreement.  Among these covenants, Quad/Graphics must maintain the following:

 

·                                          Consolidated net worth of at least $745.8 million as of December 31, 2009, with minimum requirements increasing by 40% of net income after tax distributions for each year (as of December 31, 2009, Quad/Graphics’ consolidated net worth was $877.2 million);

 

·                                          An initial ratio of total liabilities to consolidated net worth of not more than 2.50 to 1.00, subject to interim step ups of .50 to account for seasonal peaks (as of December 31, 2009, Quad/Graphics’ ratio was 1.35 to 1.00);

 

·                                          An interest coverage ratio on a rolling 12 month basis of not less than 2.25 to 1.00 (for the year ended December 31, 2009, Quad/Graphics’ interest coverage ratio was 4.28 to 1.00); and

 

·                                          A fixed charge coverage ratio of not less than 1.50 to 1.00 (for the year ended December 31, 2009, Quad/Graphics’ fixed charge coverage ratio was 2.47 to 1.00).

 

As of and for the year ended December 31, 2009, Quad/Graphics was in compliance with all of these, and all other, covenants under the Master Note and Security Agreement.  While Quad/Graphics currently expects to be in compliance in future periods, there can be no assurance that financial covenants under the Master Note and Security Agreement will continue to be met.  Quad/Graphics’ failure to comply with these financial covenants could prevent Quad/Graphics from borrowing additional amounts and could result in a default under any of the other debt agreements of Quad/Graphics.  Such default could cause the indebtedness outstanding under the Master Note and Security Agreement and other credit facilities, by virtue of cross-acceleration or cross-default provisions, to become immediately due and payable.

 

Quad/Graphics also has executed a $1.2 billion debt financing commitment letter with certain lenders pursuant to which it expects to borrow up to $800 million in the form of a term loan and enter into a $400 million revolving credit facility in connection with the completion of the arrangement.  These senior secured credit facilities will be subject to quarterly financial covenants, with all of the following terms as defined in the documents to be executed.  Among those covenants, Quad/Graphics will be required to maintain the following:

 

·                                          A maximum leverage ratio, defined as total debt to consolidated EBITDA (EBITDA defined not to include restructuring charges or transaction expenses), not in excess of 3.75 to 1.00, with a step down to 3.50 to 1.00 at December 31, 2012 and a further step down to 3.25 to 1.00 at December 31, 2013;

 

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·                                          A minimum interest coverage ratio, defined as consolidated EBITDA to consolidated cash interest expense, of not less than 3.00 to 1.00, with a step up to 3.25 to 1.00 at December 31, 2011 and a further step up to 3.50 to 1.00 at December 31, 2012; and

 

·                                          Consolidated net worth of at least $745.8 million plus 40% of consolidated net income cumulatively.

 

The covenants are also expected to include certain limitations on acquisitions, indebtedness, liens, dividends and repurchases of capital stock.  While Quad/Graphics currently expects to be in compliance with these expected covenants in future periods, there can be no assurance that they will be met.

 

World Color Press has significant liabilities with respect to its defined benefit pension plans and other postretirement benefits that could grow in the future and cause the combined company to incur additional costs.

 

World Color Press sponsors defined benefit pension plans for employees in the United States and Canada.  The majority of the plans’ assets are held in North American and global equities and fixed income or debt securities.  The asset allocation as of December 31, 2009 was approximately 62% equities, 35% debt securities and 3% other.  World Color Press also maintains postretirement benefits for its employees.

 

Following the recent declines in global equity markets, World Color Press had, as of December 31, 2009, underfunded pension and other postretirement benefit liabilities of approximately $310 million for its United States defined benefit plans and other postretirement benefits.  Under current United States pension law, pension funding deficits are generally required to be funded over a seven-year period. Over the next two financial years, under current United States pension law, the contributions required to the United States plans are expected to total approximately $102 million.

 

Following the recent declines in global equity markets, World Color Press had, as of December 31, 2009, an unfunded liability for pension and other postretirement benefits of approximately CAD$76 million in its Canadian defined benefit pension plans and other postretirement benefits.  Under current Canadian legislation, pension solvency deficits are required to be funded over a ten-year period.  Under the current funding rules in Canada, contribution requirements for the Canadian plans are expected to be approximately CAD$32 million over the next two financial years.

 

World Color Press’ pension deficits may increase or decrease depending on changes in the levels of interest rates, pension plan investment performance, pension legislation and other factors. Additional significant declines in global, and in particular North American, equity markets would increase, and possibly significantly increase, World Color Press’ potential pension funding obligations.  Any significant increase in World Color Press’ required contributions could have a material adverse impact on the business, financial condition, results of operations and cash flows of the combined company.

 

In addition to its single employer defined benefit plans, World Color Press also participates in multi-employer pension plans in the United States and Canada.  Following the recent declines in the global equity markets, the financial condition of these plans has been negatively affected.  World Color Press has received notice that certain plans in which it participates are in critical status, as defined in Section 432 of the Internal Revenue Code.  As a result, World Color Press may be subject to increased contribution rates associated with these plans or other multi-employer pension plans suffering from declines in their funding levels.

 

Furthermore, due to the fact that these multiemployer plans have unfunded vested benefits, World Color Press would be subject to a withdrawal liability under applicable law if it were to incur a complete or partial withdrawal from the plans in connection, for example, with a restructuring.  In 2009, the plans provided estimates to World Color Press of its exposure, assuming a hypothetical immediate and complete withdrawal from the plans at the time of such estimates.  Based on those plan estimates, the pre-tax withdrawal liability in that scenario could have been greater than $100 million in the aggregate.  However, World Color Press is not able to determine the exact amount of its potential exposure with respect to multiemployer plans because the amount of that exposure could be higher or lower than the estimate, depending on, among other things, the nature and timing of any

 

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triggering events and the funded status of the plans at that time.  If, in the future, World Color Press withdraws from any of these plans, additional liabilities would need to be recorded.  While it is possible that this would occur in the future, World Color Press has not made any decision to incur a partial or complete withdrawal from these plans.

 

The combined company may be adversely affected by strikes and other labor protests.

 

As of February 10, 2010, World Color Press had a total of approximately 16,000 employees in the United States and Canada, of which approximately 34% were represented by a labor organization.  None of Quad/Graphics’ employees in North America were unionized.

 

As of February 10, 2010, World Color Press had 36 collective bargaining agreements in Canada and the United States.  As of December 31, 2009, Quad/Graphics had none in the United States or Canada.  On May 5, 2009, various United States subsidiaries of World Color Press entered into a memorandum of understanding with the labor organizations representing certain of its employees in the United States.  The memorandum of understanding memorialized wage and benefit concessions from such employees and is due to expire on December 31, 2010.  Quad/Graphics’ current intent is to negotiate with the appropriate labor organizations so that the expiration of the memorandum of understanding does not have a negative impact on the combined company’s labor costs.  Depending on the results of such negotiations, the wage and benefit concessions may expire and, in such event, would have a negative effect on the labor costs of the combined company.

 

As of December 31, 2009, Quad/Graphics and World Color Press had approximately 4,600 employees outside of the United States and Canada, the majority of which are either governed by agreements that apply industry-wide, by a collective agreement or through works councils or similar arrangements.

 

While Quad/Graphics’ and World Color Press’ relations with their respective employees are stable and there has not been any material disruption in operations resulting from labor disputes, the companies cannot be certain that they will be able to maintain a productive and efficient labor environment. The companies cannot predict the outcome of any future negotiations relating to the renewal of the collective bargaining agreements, nor can there be any assurance with certainty that work stoppages, strikes or other forms of labor protests pending the outcome of any future negotiations will not occur. A strike or other forms of labor protest affecting a series of major plants in the future could materially disrupt the combined company’s operations and result in a material adverse impact on its financial condition, results of operations and cash flows, which could force the combined company to reassess its strategic alternatives involving certain of its operations.

 

The combined company may be adversely affected by interest rates, foreign exchange rates and credit risk.

 

Following the completion of the arrangement, a significant portion of Quad/Graphics’ borrowings under a credit agreement will be subject to variable interest rates.  As a result, the combined company is expected to be exposed to market risks associated with fluctuations in interest rates, and increases in interest rates could adversely affect the combined company.

 

Because a portion of the combined company’s operations are expected to be outside the United States, significant revenues and expenses will be denominated in local currencies. Although operating in local currencies may limit the impact of currency rate fluctuations on the results of operations of the combined company’s non-U.S. subsidiaries and business units, fluctuations in such rates may affect the translation of these results into the combined company’s financial statements.  To the extent revenues and expenses are not in the applicable local currency, the combined company may enter into foreign currency forward contracts to hedge the currency risk. There can be no assurance, however, that the combined company’s efforts at hedging will be successful. There is always a possibility that attempts to hedge currency risks will lead to greater losses than predicted.

 

The combined company will be exposed to risks of loss in the event of nonperformance by the combined company’s customers.  Some of the combined company’s customers may be highly leveraged or otherwise subject to their own operating and regulatory risks.  Even if the combined company’s credit review and analysis mechanisms work properly, the combined company may experience financial losses in its dealings with customers and other parties.  Any increase in the nonpayment or nonperformance by the combined company’s customers could adversely affect the combined company’s results of operations and financial condition.

 

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The combined company and its facilities will be subject to various laws and regulations, including environmental and privacy laws and regulations, and will become subject to additional laws and regulations in the future, which may subject the combined company to material liability, require it to incur material costs or otherwise adversely affect its results of operations.

 

The combined company is expected to use various materials in its operations that contain constituents considered hazardous or toxic under environmental laws and regulations. In addition, the combined company’s operations will be subject to a variety of environmental laws and regulations relating to, among other things, air emissions, wastewater discharges and the generation, handling, storage, transportation and disposal of solid waste. Further, the combined company is expected to be subject to laws and regulations designed to reduce the probability of spills and leaks and requiring, in the event of a release, requiring an appropriate response to such an event.  Permits are required for the operation of certain businesses of Quad/Graphics and World Color Press, and these permits are subject to renewal, modification and, in some circumstances, revocation.

 

The combined company’s operations are expected to generate wastes that are disposed of off-site.  Under certain environmental laws, the combined company may be liable for cleanup costs and damages relating to contamination at these off-site disposal locations, or at the existing or former facilities of Quad/Graphics or World Color Press, whether or not the combined company, Quad/Graphics or World Color Press know of, or were responsible for, the presence of such contamination.  The remediation costs and other costs required to clean up or treat contaminated sites can be substantial.  Contamination on and from such current or former locations may subject the combined company to liability to third parties or governmental authorities for injuries to persons, property or natural resources and may adversely affect its ability to sell or rent its properties or to borrow money using such properties as collateral.

 

The production of paper, which is a significant raw material for Quad/Graphics and World Color Press and will be a significant raw material for the combined company, results in greenhouse gas emissions, as do Quad/Graphics processes.  Various laws and regulations addressing climate change are being considered at the federal and state levels.  Proposals under consideration include limitations on the amount of greenhouse gas that can be emitted (so-called “caps”) together with systems of trading allowed emissions capacities.  The impacts of such proposals could have a material adverse impact on the combined company’s financial condition and results of operations.

 

It is expected that the combined company will incur ongoing capital and operating costs to maintain compliance with environmental laws, including monitoring its facilities for environmental conditions.  Quad/Graphics and World Color Press have taken, and the combined company is expected to take, reserves on their respective financial statements to cover potential environmental remediation and compliance costs as they consider appropriate.  There can be no assurance, however, that the liabilities for which reserves have been taken are the only environmental liabilities relating to the current or former locations of Quad/Graphics or World Color Press, that material environmental conditions not known to Quad/Graphics or World Color Press do not exist, that future laws or regulations will not impose material environmental liability on them or the combined company, or cause them or the combined company to incur significant capital and operating expenditures, or that the actual environmental liabilities will not exceed reserves taken. In addition, failure to comply with any environmental regulations or an increase in regulations could adversely affect the combined company’s results of operations and financial condition.

 

The combined company and its customers may be subject to various Canadian, United States and other foreign consumer protection, data privacy and “do not mail” requirements at the federal, state, provincial and local levels.  To the extent that the combined company or its customers become subject to additional or more stringent consumer protection and data privacy and similar requirements, their demand for the combined company’s services may decrease, which could adversely affect the combined company’s results of operations.

 

In addition, the combined company will be subject to requirements of Canadian, United States and other foreign occupational health and safety laws and regulations at the federal, state, provincial and local levels.  These requirements are complex, constantly changing and have tended to become more stringent over time. It is possible that these requirements may change or liabilities may arise in the future in a manner that could have a material adverse effect on the financial condition or results of operations of the combined company.  There can be no

 

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assurance that Quad/Graphics and World Color Press have been, or that the combined company will be, at all times in complete compliance with all such requirements or that the combined company will not incur material costs or liabilities in connection with those requirements in the future.

 

There will be risks associated with the operations of the combined company outside of the United States and Canada.

 

The combined company is expected to have operations outside of the United States and Canada. Revenues from the operations of Quad/Graphics and World Color Press outside of the United States and Canada accounted for approximately 15% and 8% of their respective revenues for the year ended December 31, 2009.  As a result, the combined company is expected to have operations outside of the United States and Canada and to be subject to the risks inherent in conducting business outside of the United States and Canada, including the impact of economic and political instability and being subject to different legal and regulatory regimes that may preclude or make more costly certain initiatives or the implementation of certain elements of its business strategy.

 

Because World Color Press’ consolidated financial statements reflect fresh start accounting adjustments starting in the third quarter of 2009, and because of the effects of the transactions that became effective pursuant to the plan of compromise and reorganization under both Chapter 11 of the U.S. Bankruptcy Code and the Companies’ Creditors Arrangement Act (Canada), financial information in future consolidated financial statements will not be comparable to World Color Press’ financial information from prior periods.

 

On World Color Press’ emergence from creditor protection under Chapter 11 of the U.S. Bankruptcy Code and the Companies’ Creditors Arrangement Act (Canada), World Color Press adopted fresh start accounting in accordance with CICA Handbook Section 1625, Comprehensive Revaluation of Assets and Liabilities, pursuant to Canadian GAAP and Statements of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code (now codified as ASC 852), pursuant to U.S. GAAP. Under fresh start accounting, World Color Press undertook a comprehensive re-evaluation of its assets and liabilities based on the estimated enterprise value of $1.5 billion as established in the plan of compromise and reorganization. Enterprise value is generally defined to be World Color Press’ estimated fair value at the fresh start date, less cash and cash equivalents.  As a result of fresh start accounting, World Color Press became a new entity for financial reporting purposes. Accordingly, the consolidated financial statements of World Color Press on or after August 1, 2009 will not be comparable in many respects to World Color Press’ statement of financial position and statement of operations for periods prior to the adoption of fresh start accounting and prior to accounting for the effects of the plan of compromise and reorganization.

 

A decline in expected profitability of the combined company or individual reporting units of the combined company could result in the impairment of assets, including goodwill, other long-lived assets and deferred tax assets.

 

The combined company will hold material amounts of goodwill, other long-lived assets and deferred tax assets on its balance sheet. A decline in expected profitability, particularly a continued decline in the global economy, could call into question the recoverability of the related goodwill, other long-lived assets or deferred tax assets and require the combined company to write down or write off these assets or, in the case of deferred tax assets, recognize a valuation allowance through a charge to income.  Such an occurrence could have a material adverse effect on the combined company’s results of operations and financial position.

 

The combined company’s failure to maintain adequate internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 or to prevent or detect material misstatements in its annual or interim consolidated financial statements in the future could result in inaccurate financial reporting, sanctions or securities litigation, or could otherwise harm the combined company’s business.

 

As a publicly traded company, the combined company will be required to comply with the standards adopted by the Public Company Accounting Oversight Board in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (sometimes referred to as Section 404) regarding internal control over financial reporting.  Quad/Graphics, as a private company, is not currently required to, and currently does not, comply with these requirements.  The process of becoming compliant with Section 404 may divert internal resources and will

 

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take a significant amount of time and effort to complete.  In addition, Quad/Graphics must also integrate World Color Press’ financial reporting systems, including its internal control over financial reporting, and, as described below, World Color Press’ management had identified a material weakness in internal control over its financial reporting as of December 31, 2008 (which had been eliminated as of December 31, 2009).  The combined company may experience higher than anticipated operating expenses, as well as increased independent auditor fees during the implementation of these changes and thereafter.  The combined company is required to be compliant under Section 404 by December 31, 2011, and at that time the combined company’s management will be required to deliver a report that assesses the effectiveness of its internal control over financial reporting, and the combined company will be required to deliver an attestation report of its auditors on the effectiveness of its internal controls over financial reporting. Completing documentation of its internal control system and financial processes, remediation of control deficiencies and management testing of internal controls will require substantial effort by the combined company. There can be no assurance that the combined company will be able to complete the required management assessment by its reporting deadline. Failure to implement these changes timely, effectively or efficiently could harm the combined company’s operations, financial reporting or financial results and could result in the combined company being unable to obtain an unqualified report on internal controls from its independent auditors.

 

As of December 31, 2008, the management of World Color Press reported a material weakness in its internal control over financial reporting.  During 2009, World Color Press management developed and implemented internal controls to address this material weakness.  As of December 31, 2009, World Color Press management, in considering the remedial measures and other actions taken to improve internal control over financial reporting, has concluded that the material weakness has been eliminated and that the December 31, 2008 Remediation Plans presented in World Color Press’ Annual Report on Form 20-F filed with the SEC on March 27, 2009 have been fully implemented.

 

If the combined company is unable to maintain effective control over financial reporting following the transaction, such conclusion would be disclosed in its Annual Report on Form 10-K for the year ending December 31, 2011. In the future, the combined company may identify material weaknesses and significant deficiencies which it may not be able to remediate in a timely manner.  If it fails to maintain effective internal control over financial reporting in accordance with Section 404, the combined company will not be able to conclude that it has and maintains effective internal control over financial reporting or its independent registered accounting firm may not be able to issue an unqualified report on the effectiveness of the combined company’s internal control over financial reporting. As a result, the combined company’s ability to report its financial results on a timely and accurate basis may be adversely affected, it may be subject to sanctions or investigation by regulatory authorities, including the SEC or the national securities exchange in the United States on which the class A stock is expected to be listed, and investors may lose confidence in the combined company’s financial information, which in turn could cause the market price of the combined company’s common stock to decrease significantly.  The combined company also may be required to restate financial statements relating to prior periods.

 

World Color Press’ bankruptcy may have lingering negative effects on the combined company’s operations and relationships with customers, suppliers and partners.

 

World Color Press’ bankruptcy may have adversely affected its operations and customer relationships, and these effects may continue after the consummation of the arrangement and affect the combined company’s operations and its ability to attract new customers and maintain favorable relationships with existing customers, suppliers and partners.  Any such effects could adversely affect the business of the combined company. In addition, the ongoing claims resolutions process of World Color Press and the expenses incurred in connection with World Color Press’ bankruptcy matters and related legal issues may adversely affect the combined company’s results of operations and financial condition.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy circular/prospectus and the documents that are incorporated by reference into this proxy circular/prospectus contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may be found in the sections of this proxy circular/prospectus entitled “Summary,” “Risk Factors,” “Quad/Graphics Business,” “The Combined Company,” “The Arrangement,” “Quad/Graphics Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere, and generally include all statements other than statements of historical fact, including statements regarding World Color Press’ and/or Quad/Graphics’ future financial position, business strategy, budgets, projected revenues and expenses and objectives of management for future operations.  Words such as “may,” “will,” “intend,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “project” or “should” and similar expressions in this proxy circular/prospectus are often used to identify forward-looking statements.

 

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the control of World Color Press and Quad/Graphics.  These risks, uncertainties and other factors could cause actual results to differ materially from those expressed or implied by those forward-looking statements.  Among such risks, uncertainties and other factors that may impact Quad/Graphics, World Color Press and the combined company after completion of the arrangement are those described in “Risk Factors” beginning on page 30 and elsewhere in this proxy circular/prospectus, and the following:

 

·                                          timely and successful completion of the transaction (including the ability of Quad/Graphics and World Color Press to satisfy all of the conditions precedent to the completion of the transaction);

 

·                                          unexpected costs or unexpected liabilities related to the transaction, or the effects of purchase accounting that may be different from Quad/Graphics’ and World Color Press’ expectations;

 

·                                          successful integration of the operations of Quad/Graphics and World Color Press;

 

·                                          the combined company may be unable to achieve the estimated potential synergies or it may take longer or cost more than expected to achieve those synergies;

 

·                                          macroeconomic conditions and general industry conditions, such as the competitive environment for companies in the printing industry;

 

·                                          regulatory and litigation matters and risks;

 

·                                          legislative developments;

 

·                                          changes in tax or other laws;

 

·                                          effects of changes in general economic conditions in the countries where Quad/Graphics and World Color Press operate, especially the United States and Canada, including the impact of economic conditions in 2010 on volumes and pricing;

 

·                                          the impact of fluctuations in interest rates, commodity prices and foreign exchange rates;

 

·                                          effects of changes in political conditions and developments in the countries where Quad/Graphics and World Color Press operate; and

 

·                                          the effect of accounting pronouncements issued periodically by standard-setting bodies.

 

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Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.  You are cautioned not to place undue reliance on such statements, which speak only as of the date of this proxy circular/prospectus or the date of any document incorporated by reference.  Except to the extent required by the federal securities laws, the companies undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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QUAD/GRAPHICS BUSINESS

 

Overview

 

Quad/Graphics is a leading global provider of print and related services that are designed to provide customers complete solutions for communicating their message to target audiences.  Quad/Graphics’ print products primarily include catalogs, consumer magazines, special interest publications, direct marketing materials and retail inserts.  Quad/Graphics’ print-related services include digital photography (with nine studios nationwide), digital imaging, binding, mailing and distribution, and data optimization and analytics services.  Founded in Pewaukee, Wisconsin in 1971 by Harry V. Quadracci, Quad/Graphics has approximately 11,600 employees in the United States, South America and Europe, serving a diverse base of approximately 3,000 customers from 15 state-of-the-art printing plants (including a joint venture plant in Brazil) and 14 full-service imaging service centers (five of which are located within printing plants).

 

Quad/Graphics maintains relationships with leading magazine publishers, including Condé Nast, Hearst Magazines, Meredith Corporation, The National Geographic Society, Rodale, Inc. and Time Inc., and produces well-known consumer titles such as Allure, Architectural Digest, GQ, InStyle, The Journal of the National Geographic Society, Lucky, Men’s Fitness, People, Runner’s World, Self, Sports Illustrated, Time, Traditional Home, Veranda and Vogue.  Quad/Graphics produces retail newspaper inserts for J.C. Penney Company, Inc., Kohl’s Corporation, Shopko Stores Operating Co., LLC, Target Corporation, and The Bon-Ton Stores, Inc.; and produces catalogs for industry leading marketers such as Cabela’s Incorporated, Coldwater Creek Inc., J.Crew Group, Inc., L.L. Bean, The Orvis Company, Redcats USA, and Williams-Sonoma. Inc.

 

Quad/Graphics seeks to benefit its clients in two main ways—minimize their cost of print production and maximize the revenue derived from their print spending.  In order to minimize a customer’s cost of production, Quad/Graphics continually strives to increase its own productivity and reduce its customers’ mailing and distribution costs through its integrated data analysis, finishing technology and logistics operations.  Quad/Graphics also works to help its customers increase their revenue by decreasing manufacturing cycle time, which allows customers additional time to sell more advertising in their published products, and by utilizing technology to increase consumer response rates, maximizing a customer’s return on print spending.

 

Over the last 15 years, Quad/Graphics has made substantial, yet disciplined, investments in its manufacturing platform, creating what Quad/Graphics believes is the most efficient and modern manufacturing platform in the commercial printing industry.  Quad/Graphics also has made substantial investments in research and development and other technological innovations.  These investments have led to the development of various manufacturing process improvements, including innovative press and finishing control systems and material-handling equipment for use in Quad/Graphics’ own operations as well as for sale to other printers worldwide.  Quad/Graphics believes that this ongoing innovation focus positions it on the leading edge of technology in the industry.  Quad/Graphics believes that this continual investment and innovation and its modern manufacturing platform, together with its focus on customer service and its distribution capabilities, have resulted in Quad/Graphics being one of the most profitable commercial printing companies in the industry, as measured by EBITDA (net earnings attributable to common shareholders plus interest expense, income tax expense, depreciation and amortization) as a percentage of net sales.  This profitability, in turn, allows Quad/Graphics to continue to invest in equipment, research and development and other technological innovations to benefit its customers.

 

The manufacturing platform and technological advantages that Quad/Graphics enjoys are further reinforced by the qualities of its workforce.  Quad/Graphics believes that its distinct corporate culture encourages an organization-wide entrepreneurial spirit and an opportunistic mentality, where employees embrace responsibility, take ownership of projects and are encouraged to drive results.  Quad/Graphics further believes that the ownership and voting control by the Quadracci family has enabled the company to maintain consistent strategic goals and disciplined strategy deployment, ensure continuity in its management team and enable its distinct corporate culture.

 

World Color Press Acquisition

 

Quad/Graphics believes that the acquisition of World Color Press will, among other things:

 

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·                                          enable the combined company to optimize plant and machine utilization, as well as mailing and logistics utilization and costs, thereby driving greater efficiency and economic benefits for the combined company and its clients;

 

·                                          enable Quad/Graphics to leverage its efficient, modern manufacturing platform for the benefit of the combined company and its clients;

 

·                                          result in an estimated $225 million of pre-tax annualized synergies within 24 months after the consummation of the arrangement, at an estimated one-time cost to achieve of approximately $195 to $240 million (based on an analysis developed by Quad/Graphics’ management);

 

·                                          create new opportunities for the combined company’s clients to realize distribution efficiencies;

 

·                                          enable Quad/Graphics to leverage the power of its research and development expertise across the combined company’s larger and more diverse product offerings and client base;

 

·                                          enable Quad/Graphics to increase the use of its data analysis and management capabilities and targeted value added production techniques across the combined company’s larger base of clients and products;

 

·                                          expand Quad/Graphics’ geographic reach and customer service presence and Quad/Graphics’ range of services and product offerings;

 

·                                          significantly improve Quad/Graphics’ supply chain management capabilities; and

 

·                                          provide enhanced liquidity and generate solid free cash flow to repay indebtedness and support investments in the future as a result of the combined company’s pro-forma credit profile and increased access to capital markets.

 

Industry

 

General

 

The global printing industry encompasses a wide range of sectors, including general commercial printing, newspapers and newspaper inserts, directories, books, direct mail, packaging, financial printing, business forms, greeting cards and label and wrapper printing.  Printing is one of the largest industries in the United States, with more than 991,000 employees and approximately 36,000 companies generating an estimated $168 billion in annual sales, according to the PIA/GATF 2008 Print Market Atlas.  The print industry is also highly fragmented and competitive, with the largest 400 printers representing less than 35% of the overall United States and Canadian market, based on the Printing Impressions PI400 and PIA/GATF 2008 Print Market Atlas.  Quad/Graphics operates primarily in the commercial print portion, which includes advertising printing such as direct mail, circulars, brochures, displays, inserts and pamphlets; business cards; stationery; catalogs; directories; newspapers; magazines and books.  According to the PIA/GATF 2008 Print Market Atlas, the United States commercial printing sector, excluding newspapers, is estimated to generate approximately $79 billion in sales annually.

 

Print Industry Trends

 

Demand for printed products has generally correlated with real gross domestic product growth, as economic activity and advertising spending are key drivers of demand for printing and related services.  More recently, the global economic recession has caused advertisers to dramatically reduce spending.  Throughout 2008 and 2009, magazine publishers facing diminished advertising pages reduced total page counts, catalog marketers reduced page counts, circulation and the frequency of print campaigns, retailers curbed investments in store inventory and reduced advertising, and other advertisers reduced their direct mail campaigns, particularly in the banking, insurance, credit card, real estate and nonprofit industries.  Decreasing print volumes caused by the impacts

 

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of the economic recession, increases in postage expenses (which significantly outpaced inflation over the last ten years) and the increase in the use of alternative marketing technologies, as discussed below, led many printing businesses to fail and the industry to undergo consolidation.  The printing industry consolidation and decreasing print volumes have created significant pricing pressures and excess capacity in the printing industry.  According to capacity utilization data from the United States Federal Reserve System, the excess capacity in the printing industry, which had not fully recovered from the 2002 and 2003 recession, further increased recently, with printing industry capacity utilization of 67.4% in January 2010, compared to 69.6%, 77.7% and 80.5% in January 2009, 2008 and 2007, respectively.

 

In response to the economic recession, Quad/Graphics believes that traditional users of print and print-related services have turned their focus to generating and tracking the highest returns on their marketing dollars.  In addition, the emergence of alternative marketing technologies, such as online distribution and hosting of content and mobile technologies, on both a stand-alone basis and in conjunction with other marketing channels, has resulted in these traditional users of print and related services allocating their marketing and advertising spending across a wide and expanding selection of non-print electronic media options.  Quad/Graphics believes that advertisers and other traditional users of print find that they receive the greatest return on their marketing dollars when they effectively utilize data to target the appropriate customers and combine digital alternatives with customized print products in a targeted, multi-channel marketing campaign.

 

In this increasingly multi-channel marketplace, Quad/Graphics believes that the printing industry has been driven to make substantial capital investments in new technologies, such as those to deliver targeted and customized print solutions to integrate effectively its products and services within a multi-channel marketing campaign.  In addition, Quad/Graphics believes the commercial print industry has moved towards shorter print runs and increased production efficiency of products with lower page counts and increasing complexity.  Finally, Quad/Graphics believes that successful commercial printing companies will invest in finishing and mailing and logistics capabilities to minimize their clients’ total manufacturing cost, which includes mailing and logistics (and is not simply limited to print).  For many customers, mailing and distribution represent their largest cost, typically two to three times the cost of their print expense.  Therefore, a printer’s ability to impact mailing and distribution expenses through data management and sophisticated, automated manufacturing and finishing equipment is quite valuable to customers.

 

Seasonality

 

Advertising and consumer spending trends affect demand in the end markets that Quad/Graphics serves.  Historically, demand for printing of magazines and catalogs is higher in the second half of the calendar year, which is driven by increased advertising pages within magazines and seasonal marketing requirements, which, in turn, creates higher demand for catalogs and newspaper inserts.  Quad/Graphics expects the seasonality impact in future years to continue to track with historical patterns.

 

Competitive Advantages

 

Quad/Graphics believes its success has been fueled by its efficient and modern manufacturing platform, its distribution capabilities, its commitment to ongoing innovation and rapid adoption of technology, its intense customer service focus, its distinct corporate culture and the continuity in its ownership and management.  These competitive advantages have resulted in Quad/Graphics being, what it believes, is one of the most profitable commercial printing companies in the industry, as measured by EBITDA as a percentage of net sales.  This profitability, in turn, has fueled Quad/Graphics investment in equipment and research and development and other technological innovations, which helps minimize a customer’s cost of production and increase its customers’ revenues.

 

Efficient and Modern Manufacturing Platform

 

Quad/Graphics has what it believes is the most efficient and modern manufacturing platform in the commercial printing industry.  The key components of Quad/Graphics’ manufacturing platform are described below.

 

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Quad/Graphics has continuously invested in a disciplined and consistent manner in its manufacturing platform.  The investment in modern equipment allows for more pages to be printed for each revolution of the press, reducing the amount of time that each individual printing job takes to complete.  In addition, Quad/Graphics’ long-standing commitment to investing in manufacturing process improvements has led to consistent annual increases in productivity, reductions in waste and smaller crew sizes.  Quad/Graphics’ investment in its manufacturing platform is based on evaluating investment opportunities on the useful economic life of the underlying equipment rather than focusing on the potential mechanical life of the equipment.  This discipline is critical in an industry in which technological change can create obsolescence well before the end of the mechanical life of equipment.

 

Another key aspect of Quad/Graphics’ modern manufacturing platform is its footprint of large plants (plants having an average size greater than 1.0 million square feet) across the United States.  Quad/Graphics believes that the large plant size of the majority of its printing facilities offers Quad/Graphics the scale to drive savings from its investment in efficient and modern equipment and integrated automation and advanced finishing technologies.  Redundancy of capacity in major equipment also provides Quad/Graphics with the flexibility to meet difficult customer service requirements, such as late-breaking copy changes or the need to increase or reduce the number of pages or copies in a print run.  In addition, Quad/Graphics believes that its large plant structure enables the most optimal distribution by utilizing Quad/Graphics’ in-house distribution services.

 

Quad/Graphics has also focused on investments in automation designed to reduce headcount and labor costs.  Capital investments in advanced applications of robotics and automation and manufacturing process improvements has allowed Quad/Graphics to lower personnel costs through attrition, wage freezes, reduction of overtime and temporary labor, and workforce reductions.  This has resulted in Quad/Graphics being able to control labor expenses as a percent of net sales even in the slower economic environment of the last few years.

 

Quad/Graphics’ distribution capabilities utilize integrated data analysis, finishing technology and logistics operations to maximize distribution efficiency and reduce costs for customers.  Quad/Graphics believes that the investment in binding and mailing operations provides customers greater targeting, flexibility and cost savings by creating targeted and variable print communications cost-effectively on a mass scale.  Personalization and targeting create the opportunity to reach the right recipients with the right (or relevant) message at the right time, resulting in a significant increase in response rates for Quad/Graphics’ customers.  This, in turn, lowers a customer’s overall cost per response.  Quad/Graphics believes that its distribution services (including the use of ground and rail) allow it to reduce customer freight costs for shipments to newsstands and postal centers while providing a high level of dependability and rapid response times that are crucial to the delivery of time-sensitive materials.  In addition, ownership of a fleet of company-owned tractor-trailers helps ensure that Quad/Graphics will be able to meet its customers’ distribution capacity requirements.

 

Finally, Quad/Graphics has invested in vertically-integrated, non-print capabilities to assist it in delivering lower costs for its clients, enhancing customer service levels, increasing flexibility and providing more aggregate services to each customer.   Such capabilities include data management, imaging, logistics and distribution, ink manufacturing and equipment research and design.  This vertical integration allows Quad/Graphics substantial control over critical links in the overall print supply chain, such as Quad/Graphics’ ink manufacturing capabilities, that help it control the quality, cost and availability of a key input in the printing process.

 

Leading Distribution Capabilities

 

Postal rates are a significant component of many customers’ cost structures and Quad/Graphics believes that postal costs influence the number of pieces that its customers print and mail.  Through its logistics operations, finishing technology and integrated data analysis, Quad/Graphics manages the distribution of most of the products of its United States customers to maximize efficiency and reduce these costs for its customers.  Quad/Graphics helps its customers reduce their overall postage costs through what it believes is the industry’s largest co-mail program.  Quad/Graphics’ co-mail program involves the sorting and bundling of printed products to be mailed to consumers, in order to facilitate better integration with the United States Postal Service.  The United States Postal Service offers significant work-sharing discounts for this sorting and bundling as it reduces handling by the postal service.  Quad/Graphics’ products are co-mailed directly from the manufacturing facility in which they are produced, eliminating additional freight charges and time from stand-alone consolidation facilities typically utilized in the

 

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industry.  In 2009, Quad/Graphics co-mailed more than 2.2 billion magazines and catalogs, earning in excess of $70 million in discounts from the United States Postal Service on behalf of its customers.

 

Quad/Graphics is also able to leverage the volume of products running through its large plants for further customer distribution savings.  In addition, Quad/Graphics’ facilities are strategically located within a one day’s drive of all major United States population centers, providing its customers the flexibility to print closest to their ultimate consumers.

 

Commitment to Ongoing Innovation and Rapid Adoption of Technology

 

Quad/Graphics’ historic and continued commitment to research and development, manufacturing process improvements and other technological innovations has enabled Quad/Graphics to experiment with new processes and develop and maintain what Quad/Graphics believes is leading-edge technology in the commercial printing industry.  Quad/Graphics’ engineers, designers and computer experts, working closely with Quad/Graphics’ press and finishing operators, have developed a range of advancements from the manufacturing platform to the finishing department.  In fact, in the 2009 Patent Board’s Conglomerate Company Patent Scorecard ™ published in The Wall Street Journal, Quad/Graphics received the highest Research Intensity ™ score of any of the top 50 companies in the Heavy Industrial Equipment sector (moving up from second out of the top 35 companies in 2008).  In that same Patent Scorecard ™, in both 2009 and 2008 Quad/Graphics was ranked as the highest printer or printing equipment-related manufacturer in the Industry Impact ™ category, which quantifies how influential a company’s patent portfolio is on the development of technologies in other companies.

 

The value of Quad/Graphics’ innovations to the industry is supported by the fact that it generates revenue by supplying some of these technology solutions and consulting services to other printers.  In particular, Quad/Graphics believes it is an internationally known, leading manufacturer of electronic process control systems and maintains offices in the Netherlands, Ireland, France, Germany, Italy, India, Japan and China to sell and service these products to equipment manufacturers and other printers.

 

Another example of Quad/Graphics’ technological advantage is the integration of its imaging, manufacturing and distribution networks into a single platform using a networked information technology (IT) infrastructure.  This single platform provides seamless information flow across sales and estimating, production planning, scheduling, manufacturing, warehousing, logistics, invoicing, reporting and customer service.  Quad/Graphics believes the creation of a single universally-integrated platform across its overall operations is unparalleled in the printing industry.

 

Intense Focus on Customer Service

 

Throughout its history Quad/Graphics has focused the attention of the entire organization on customers and their needs.  By empowering employees to enact customer solutions, Quad/Graphics provides its clients with a tremendous amount of flexibility, allowing them be more nimble and responsive to the needs of the marketplace.  Quad/Graphics “high tech/high touch” approach has led to what Quad/Graphics believes is a reputation for being one of the best service providers in the industry.  While transacting a high level of detail on a day-to-day basis, the rapid adaptation and use of technology allows the customer relationship to evolve to a more consultancy oriented exchange, and the service team is positioned to offer more strategic value rather than just manage operational details.

 

Recognizing that technology is not a substitute for face-to-face relationships, but rather a way to enhance them, Quad/Graphics has equipped its employees to work closely across divisions and all facilities via a singular, integrated network unified by a common culture, language and process at all times.  At the center of this integration are Quad/Graphics’ SmartTools™.  These real-time information management tools link Quad/Graphics’ people and equipment company-wide, automating the exchange of information and streamlining the entire printing process from creation and imaging through to press, finishing and distribution.  SmartTools™ extend to Quad/Graphics’ clients as well, providing 24/7 access to the very same up-to-the-minute information used universally by Quad/Graphics’ production, customer service and sales representatives, and allowing them to better manage current projects and plan future work.

 

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Distinct Corporate Culture

 

Quad/Graphics believes that its distinct corporate culture, which encourages a long-term perspective, an organization-wide entrepreneurial spirit and an opportunistic mentality, has contributed to its long-term success.  Quad/Graphics fosters an entrepreneurial environment by empowering and encouraging employees to take responsibility and ownership of projects and enact solutions within a flat hierarchical structure.  Employees who have been employed for at least one full calendar year also have a beneficial ownership in Quad/Graphics through company stock held in a profit sharing plan, enhancing the sense of ownership present within the employee base.  Quad/Graphics believes that the empowerment, engagement and development of Quad/Graphics’ employee owners fosters a strong partnership approach within the business.

 

Quad/Graphics invests in its employees by providing ongoing technical, job and safety training; retirement planning; and health and wellness benefits.  For example, through QuadMed primary care clinics located at select worksite locations, Quad/Graphics provides high quality, low cost primary medical care and specialty services to employees and their families.

 

Continuity of Control

 

The Quadracci family continues to play a significant role at Quad/Graphics.  Joel Quadracci, Chairman, President and Chief Executive Officer, is the son of the late founder Harry V. Quadracci, and the Quadracci family maintains a majority equity ownership stake in the company (which will be a majority voting power stake after the consummation of the acquisition of World Color Press) and active membership on the board of directors.  Quad/Graphics believes that the continuity of the Quadracci family’s involvement has enabled Quad/Graphics to maintain consistent strategic goals and strategy deployment, ensure continuity in its management team and enable an entrepreneurial culture and core set of values for its employees.

 

Quad/Graphics is led by an experienced management team with a proven track record in the printing industry.  Members of Quad/Graphics’ senior management team average 19 years of experience with Quad/Graphics.  This continuity of management helps to maintain consistent strategic goals and strategy deployment and enable Quad/Graphics’ distinct corporate culture throughout the organization.

 

Strategy

 

Quad/Graphics is focused on the following strategic goals.

 

Drive Print as the Foundation of Coordinated Multi-Channel Marketing Campaigns

 

Quad/Graphics believes that print remains the core element of an effective multi-channel marketing campaign.  Quad/Graphics seeks to facilitate coordinated multi-channel marketing campaigns utilizing print, email and personalized websites to engage consumers, drive higher response rates and, thereby, returns for advertisers on their marketing dollars.  A 2007 study commissioned by Google found print effective in driving people to the internet where they can seek out additional information.  In this study, 70% of those consumers made a purchase following this additional research.  Quad/Graphics intends to continue to drive the evolution and relevance of print communications within marketing campaigns by leveraging its:

 

·                                          efficient and modern manufacturing platform and data analytics capabilities, which allow customers to create customized communications within printed products on a cost-effective basis, with the objective of delivering higher responses at a lower cost; and

 

·                                          digital media capabilities, which enable effective, coordinated multichannel marketing campaigns.

 

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Utilize an Efficient and Innovative Distribution Network to Provide Enhanced Value to Customers

 

Quad/Graphics has made strategic capital expenditure investments to build what it believes is one of the most efficient and innovative distribution networks in the commercial printing industry.  Quad/Graphics maintains a fully-integrated, national distribution network that includes:

 

·                                          in-house transportation and logistics services, including a fleet of company-owned tractor-trailers, that enable rapid deployment of products;

 

·                                          technology and processes to reduce postage expenses, typically its customers’ largest expense, including an extensive co-mail program that combines and mails numerous clients’ mail pieces together to capture sorting and handling discounts from the United States Postal Service; and

 

·                                          advanced finishing capabilities that enables enhanced co-mailing efficiencies.

 

Quad/Graphics intends to continue to invest in new distribution equipment, technology and services to deploy distribution solutions for its customers.

 

Maximize Operational and Technological Excellence

 

Quad/Graphics utilizes a disciplined return on capital framework to make significant investments in its print manufacturing platform and data management capabilities to result in what it believes is one of the most integrated, automated, efficient and modern manufacturing platforms in the industry.  In addition, a culture of ongoing manufacturing process improvement permeates the organization and drives innovation.  The in-house research and development division has been instrumental in developing and deploying what Quad/Graphics believes are industry-leading manufacturing solutions, which has allowed the company to continue to be price competitive and profitable.

 

Drive Domestic and International Growth in Core and Related Businesses

 

Quad/Graphics intends to continue to seek opportunities to grow diversified streams of revenue, utilizing core capabilities to expand its print and print-related products and services, grow its core businesses, and strategically increase geographic coverage.  Quad/Graphics expects to utilize a combination of organic, partnership and acquisition growth to meet these goals.

 

Empower, Engage and Develop our Employees

 

Quad/Graphics believes that its distinct corporate culture, which encourages a long-term perspective, an organization-wide entrepreneurial spirit and an opportunistic mentality, will contribute to its long-term success.  Quad/Graphics proactively fosters an entrepreneurial environment by empowering and encouraging employees to take responsibility and ownership of projects and enact solutions within a flat hierarchical structure.  Quad/Graphics also endorses a “promotion-from-within” strategy based on the premise that many of its best leaders are those who have had a long tenure with the company and understand its core business and customer base.  Quad/Graphics supports the empowerment, engagement and development of its employees by investing in its employee base through education in the latest print technologies as well as job training and leadership principles.  In addition, Quad/Graphics supports its employees through retirement planning and the provision of health and wellness benefits.

 

Segment Description

 

Quad/Graphics operates primarily in the commercial print portion of the printing industry, with related product and service offerings designed to offer customers complete solutions for communicating their messages to target audiences.  Quad/Graphics’ segments are summarized below:

 

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U.S. Print and Related Services

 

The U.S. Print and Related Services segment includes Quad/Graphics’ Unites States printing operations, managed as one integrated platform.  This segment’s products include catalogs, magazines, special interest publications, direct mail and retail inserts.  The related service offerings include data management, imaging, production workflow, direct marketing and logistics services.  This segment also includes the design, development, manufacture and service of printing-related auxiliary equipment, as well as the manufacture of ink.  The U.S. Print and Related Services segment accounted for approximately 87% of Quad/Graphics’ consolidated net sales in 2009 and 2008 and approximately 97% of its consolidated net sales in 2007.

 

International

 

The International segment includes Quad/Graphics’ non-United States printing operations in Europe and South America.  This segment provides printed products and related services consistent with the U.S. Print and Related Services segment, with the exception of printing-related auxiliary equipment.  The International segment accounted for approximately 13% of Quad/Graphics’ consolidated net sales in 2009 and 2008 and approximately 3% of its consolidated net sales in 2007.

 

Corporate

 

The Corporate segment consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal, finance, information technology and human resources.

 

For additional financial information by segment and by geographic area, see Notes 21 and 22 to the Quad/Graphics consolidated financial statements, respectively.

 

Competition

 

The printing industry, with approximately 36,000 companies in the United States, is highly fragmented and competitive.  Although there has been industry consolidation, particularly in the past decade, the largest 400 printers still represent less than 35% of the United States and Canadian market, according to the Printing Impressions PI400 and the PIA/GATF 2008 Print Market Atlas.  Quad/Graphics also faces competition from alternative sources of communication, including email, the internet, mobile technologies, electronic readers and interactive television.

 

Across Quad/Graphics’ range of products and services, competition is based on a number of factors, including the following:

 

·                                          total price of printing, materials and distribution;

 

·                                          quality;

 

·                                          range of services offered;

 

·                                          distribution capabilities;

 

·                                          customer service;

 

·                                          availability to schedule work on appropriate equipment;

 

·                                          on-time production and delivery; and

 

·                                          state-of-the-art technology to meet a client’s business objectives.

 

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Customers

 

Quad/Graphics enjoys long-standing relationships with a diverse base of clients, which includes both national and regional corporations in the United States, Europe and South America.  Quad/Graphics’ customers include industry leading blue-chip companies that operate in a wide range of industries and serve both businesses and consumers, including retailers, publishers and direct marketers.  Quad/Graphics’ relationship with its ten largest customers averages almost 20 years in duration and Quad/Graphics typically signs multi-year print agreements with these customers.

 

In 2009, Quad/Graphics served approximately 3,000 customers, and its ten largest customers accounted for approximately 25% of net sales, with none representing more than 6% individually.  Quad/Graphics believes that its large and diverse customer base, broad geographic coverage and extensive range of printing and print-related capabilities are competitive strengths.

 

Patents, Trademarks and Trade Names

 

Quad/Graphics operates two research and development facilities that support the development of new equipment, process improvements, raw materials and content management and distribution technologies to better meet customer needs and improve operating efficiencies.  The company continues to innovate within the printing and print-related industry and, as a result, has developed what it believes to be one of the most powerful patent portfolios in the print industry.

 

Quad/Graphics currently holds or has rights to commercialize 119 patents and applications relating to its business.  Additionally, Quad/Graphics markets products, services and capabilities under a number of trademarks and trade names.  The last of Quad/Graphics’ presently issued patents are to expire in 2028, but the company has a number of pending patent applications that it believes will help ensure the continued strength of its portfolio.  Quad/Graphics aggressively defends its patent portfolio and intends to continue to do so in the future.

 

Raw Materials

 

The primary raw materials Quad/Graphics uses in its print business are paper, ink and energy.

 

Quad/Graphics generally does not assume paper price risk.  The majority of paper used by the company is supplied directly by its customers.  For those customers that do not directly supply their own paper, Quad/Graphics makes use of its purchasing efficiencies to supply paper by negotiating with leading paper suppliers to maximize purchasing efficiencies, uses a wide variety of paper grades, weights and sizes, and does not rely on any one supplier.  Paper is sold to these customers based on prevailing market rates.  While Quad/Graphics generally does not assume paper price risk, higher paper prices and tight paper supplies may have an impact on customers’ demand for printed products.  Quad/Graphics’ working capital requirements , including the impact of seasonality, is partially mitigated through the direct purchasing of paper by the majority of Quad/Graphics’ customers.

 

Quad/Graphics produces the majority of ink used in production, allowing it to control the quality and supply of key inputs.  Raw materials for the ink manufacturing process are purchased externally from a variety of suppliers.

 

Quad/Graphics generally cannot pass on to customers the impact of higher electric and natural gas energy prices on its manufacturing costs, and increases in energy prices in recent years have resulted in higher manufacturing costs for certain of its operations.  Quad/Graphics mitigates its risk through natural gas hedges where appropriate.  In its logistic operations, however, Quad/Graphics is able to pass a substantial portion of any increase in fuel prices directly to its customers.

 

Environmental Stewardship

 

As the owner, lessee or operator of various real properties and facilities, Quad/Graphics is subject to various federal, state and local environmental laws and regulations, including those relating to air emissions; waste

 

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generation, handling, management and disposal; and remediation of contaminated sites.  Historically, compliance with these laws and regulations has not had a material adverse effect on the company’s results of operations, financial position or cash flows.  Compliance with existing or new environmental laws and regulations may require Quad/Graphics to make future expenditures.

 

Quad/Graphics strives to be the leader in the printing industry in adopting new technologies and processes to protect the environment.  Quad/Graphics believes it has long been known for its environmental stewardship.  In the past decade alone, Quad/Graphics has been awarded more than 25 major environmental achievement honors, both on a state and national level, including becoming the first major manufacturer of any kind to achieve a Leadership in Energy and Environmental Design-Existing Building (LEED-EB) certification for an existing manufacturing site (its Sussex, Wisconsin facility).  Quad/Graphics’ proactive approach to incorporate environmentally-friendly practices has also positively impacted operating costs through the reduction of waste, energy use, emissions and labor, as well as through the implementation of water conservation solutions.  Quad/Graphics has also undertaken steps to reduce greenhouse gas emissions from its manufacturing processes and to improve fuel efficiency and reduce emissions in its fleet of company-owned tractor trailers.

 

Employees

 

As of December 31, 2009, Quad/Graphics had approximately 11,600 employees.  None of Quad/Graphics’ current employees in the United States are covered by a collective bargaining agreement.  Quad/Winkowski Sp. z.o.o, a wholly owned subsidiary of Quad/Graphics, has a trade union in its facility located in Pila, Poland, but there is no labor contract at the Pila facility.  In addition, Anselmo L. Morvillo S.A., an 85% owned subsidiary of Quad/Graphics, has a trade union in Argentina, where Morvillo and the union are parties to a labor contract.  Quad/Graphics believes that its employee relations are good and that the company maintains an employee-centric culture.

 

Business Acquisitions

 

Quad/Graphics has made several acquisitions to add new products or services, expand geographic coverage or enhance its technology capabilities over the past five years.  The most significant of the transactions related to Quad/Graphics’ acquisition of the remaining 32% of the stock Quad/Graphics did not already own of Winkowski Sp. z o.o, a printer located in Pila and Wyszkow, Poland.  The transaction was completed on January 30, 2009, and the entity was rebranded QuadWinkowski.  QuadWinkowski was previously a joint venture between Quad/Graphics and Winkowski Graficzne Sp. z o.o, originally established in 1998 with Quad/Graphics as a minority partner.  QuadWinkowski’s operations, which produce advanced print-production services including digital imaging, web offset and sheet fed printing, finishing and distribution, are included in the International segment.

 

Legal Proceedings

 

Quad/Graphics is subject to various legal actions, administrative proceedings and claims arising out of the ordinary course of business.  Quad/Graphics believes that such unresolved legal actions, proceedings and claims will not materially adversely affect its results of operations, financial condition or cash flows.

 

Properties

 

Quad/Graphics’ corporate office is located in owned office space in Sussex, Wisconsin.  In addition, as of December 31, 2009, Quad/Graphics leases or owns 34 facilities in the United States, some of which have multiple buildings and warehouses, and these United States facilities encompass approximately 12.8 million square feet.  Quad/Graphics leases or owns 17 international facilities encompassing approximately 1.7 million square feet in Europe and South America.  Of the United States and international facilities, approximately 13.7 million square feet of space is owned, while the remaining 0.9 million square feet is leased.

 

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The following table lists, as of February 19, 2010, Quad/Graphics’ principal manufacturing facilities, all of which are owned except where noted:

 

Location

 

Size (Square Feet)

 

 

 

 

 

Lomira, Wisconsin, United States

 

2,253,965

 

Sussex, Wisconsin, United States

 

1,846,652

 

Martinsburg, Virginia, United States

 

1,720,833

 

Hartford, Wisconsin, United States

 

1,571,452

 

Saratoga Springs, New York, United States

 

1,024,703

 

Oklahoma City, Oklahoma, United States

 

1,010,372

 

West Allis, Wisconsin, United States

 

910,625

 

Wyszkow, Poland

 

789,640

 

The Rock, Georgia, United States

 

767,600

 

Pila, Poland

 

589,632

 

Pewaukee, Wisconsin, United States

 

316,155

 

Buenos Aires, Argentina

 

270,000

 

Reno, Nevada, United States

 

181,542

 

Fredericksburg, Virginia, United States (leased facility)

 

165,000

 

 

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WORLD COLOR PRESS BUSINESS

 

World Color Press is a commercial printer that provides high-value, complete market solutions, including pre-print, print and post-print services to leading retailers, branded goods companies, catalogers and publishers of magazines, books, directories and other printed media.  With a presence in North American and Latin American countries (which, for the purpose of this proxy circular/prospectus, include Mexico), World Color Press is able to serve customers on a regional, national and international basis.

 

World Color Press operates in a dynamic, highly fragmented and competitive printing industry and has established market-leading positions in the segments that it serves through a combination of building long-term partnerships with the world’s leading print media customers, investing in key strategic technologies and expanding the scope of its product offerings and geographical presence through strategic acquisitions.  The customers of World Color Press include many of the largest publishers, retailers and catalogers in the geographic areas in which it operates.  With respect to retail inserts, World Color Press’ customers include CVS Caremark Corporation and Wal-Mart Stores Inc. World Color Press prints catalogues for customers such as Bass Pro Shops Canada, Inc. and Limited Brands Inc. (Victoria’s Secret).  World Color Press’ book publishing customers include Harlequin Enterprises Limited, The McGraw-Hill Companies, Inc., Pearson Education Inc., Simon & Schuster, Inc., The Reader’s Digest Association Ltd. and Thomas Nelson, Inc.  World Color Press prints magazines for publishers including Hachette Filipacchi Media U.S., Inc., Source Interlink Media, LLC, The Reader’s Digest Association Ltd. and Wenner Media LLC.  World Color Press’ directories customers include Dex One Corporation, Yellow Book USA, Inc. and Yellow Pages Group Limited.

 

As of February 19, 2010, World Color Press, together with its corporate office located in Montreal, Quebec, Canada, had 80 printing, distribution and office facilities located in North America and Latin America.  In the United States, World Color Press is the second largest commercial printer with 57 facilities in 26 states.  World Color Press is the second largest commercial printer in Canada with 15 premises in five provinces through which World Color Press offers a diversified mix of printed products and related value-added services to the Canadian market and internationally.  World Color Press is also a leading commercial printer in Latin America, with eight facilities in Argentina, Brazil, Chile, Colombia, Mexico and Peru.

 

Business Segments and Print Services

 

World Color Press operates in the commercial print media segment of the printing industry and its business segments are located in two main geographical regions: North America and Latin America.

 

World Color Press serves the printing needs of retailers and marketers who utilize free-standing retail inserts, catalogs and direct mail.  The scale and breadth of technology in World Color Press’ print production platform offers customers the option for large, multi-versioned advertising campaigns, while special catalog services help customers compile lists for distribution, co-mailing, co-stitching and selective-binding capacity, as well as provide ink-jet addressing and messaging for each recipient.  World Color Press has direct mail facilities that provide complete direct mail production services from the data programming stages through to bulk mailing.

 

Publishers use World Color Press to print Sunday magazines, books, magazines and directories.  World Color Press is a leader in the application of new technologies for book production, including electronic pre-media, information networking and digital printing.

 

The pre-media services of World Color Press include a complete spectrum of film and digital preparation services.  Digital preparation services include the color electronic pre-media system, which takes art work from concept to final product, and desktop publishing, which gives the customer greater control over the finished product.  These specialized digital and pre-media facilities provide customers high quality, 24-hour preparatory services linked directly to World Color Press’ various printing facilities. World Color Press’ co-mailing and logistics services help magazine publishers reduce costs and improve distribution.  Logistics services provides mailing list, shipping and distribution expertise which include the ability to plan, deliver and track customized, flexible mailing strategies based on the client’s specific distribution requirements.  These services are also offered to third party customers.

 

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World Color Press is a leading printer in Latin America, with a manufacturing presence in Argentina, Brazil, Chile, Columbia, Mexico and Peru.  The Latin America business segment offers the same broad range of print and print services similar to those offered in North America with the exception of direct mail products.  The Latin American platform also serves as a competitive alternative to Asia in the printing of books for which time-to-market is not a significant factor.

 

Manufacturing and Technology

 

World Color Press’ manufacturing platform provides customers with multi-versioning options as well as a variety of other value-added services, and enables World Color Press to print simultaneously for its customers in multiple facilities reducing cycle time and transportation costs.  Print and production technology have undergone substantial technological advances over the past decade, resulting in significant improvements in both speed and print quality.  As a result, World Color Press has invested in faster, more efficient and high quality presses, allowing it to further improve efficiency and meet the needs of both publishers and retailers.

 

Pre-media has continued to adapt to ever changing technology advancements and embrace web-enabled digital workflows, while the latest hardware and software solutions help drive the services upstream in the creative process and downstream to print and web media options.

 

Sales and Marketing

 

World Color Press’ sales and marketing activities are highly integrated and reflect an increasingly international approach to meeting customers’ needs that are complemented by product-specific sales efforts.  Sales representatives are located in facilities or in regional offices throughout North America and Latin America, generally close to their customers and prospects.  Each sales representative has the ability to sell into any facility in its network.  This enables the customer to coordinate simultaneous printing throughout World Color Press’ network through one sales representative.

 

*     *     *     *     *

 

For additional information about World Color Press, see World Color Press’ annual report on Form 40-F for the year ended December 31, 2009 filed with the SEC on March 1, 2010 and all other documents filed by World Color Press with the SEC that are incorporated by reference in this prospectus/proxy circular.  See “Where You Can Find More Information” beginning on page 245.

 

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THE SPECIAL MEETING OF WORLD COLOR PRESS SHAREHOLDERS

 

Date, Time and Place of World Color Press Special Meeting

 

The World Color Press special meeting of shareholders will be held on                            , 2010 at            a.m., local time, at                     .

 

Matters to be Considered

 

At the World Color Press special meeting, holders of World Color Press common shares and World Color Press preferred shares will be asked to:

 

1.                                       Consider, pursuant to the Interim Order of the Superior Court of Québec, District of Montréal, dated                    , 2010, as the same may be amended and, if deemed advisable, to pass, with or without variation, the arrangement resolution, the full text of which is attached to this proxy circular/prospectus in Annex A, to approve an arrangement under Section 192 of the CBCA involving, among other things, the acquisition by Quad/Graphics of all of the issued and outstanding common shares of World Color Press and the redemption of all of the issued and outstanding preferred shares of World Color Press; and

 

2.                                       Transact such other business as may properly come before the special meeting or any adjournment(s) or postponement(s) of the special meeting.

 

The arrangement agreement, the arrangement resolution and the plan of arrangement are attached as Annex A to this proxy circular/prospectus. World Color Press shareholders are encouraged to read the arrangement agreement and related exhibits in their entirety and the other information contained in this proxy circular/prospectus, including the annexes, carefully before deciding how to vote.

 

Recommendation of the World Color Press Board of Directors

 

After careful consideration, the World Color Press board of directors unanimously determined that the arrangement agreement and the transactions contemplated by the arrangement agreement, including the arrangement, are fair to the holders of World Color Press common shares and in the best interests of World Color Press and has unanimously approved and adopted the arrangement agreement, the plan of arrangement and the transactions contemplated by the arrangement agreement.  The World Color Press board of directors unanimously recommends that World Color Press shareholders vote FOR the arrangement resolution.

 

Record Date and Entitlement to Vote

 

The World Color Press board of directors has fixed 5:00 p.m. (Eastern Time) on                            , 2010 as the record date for determination of shareholders entitled to notice of and to vote at the World Color Press special meeting.  Only holders of World Color Press common shares and World Color Press preferred shares at 5:00 p.m. (Eastern Time) on the record date are entitled to vote at the World Color Press special meeting.

 

As of                  , 2010, there were                          World Color Press common shares and                World Color Press preferred shares outstanding and entitled to vote at the World Color Press special meeting.

 

Each holder of World Color Press common shares is entitled to one vote for each World Color Press common share owned at 5:00 p.m. (Eastern Time) on the record date.  Each holder of World Color Press preferred shares is entitled to      vote[s] for each World Color Press preferred share owned at 5:00 p.m. (Eastern Time) on the record date.  To vote by telephone or via the Internet, see the instructions attached to your proxy card(s).

 

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Registered Holders of World Color Press Shares

 

If you are a registered holder of World Color Press common shares or World Color Press preferred shares at 5:00 p.m. (Eastern Time) on the record date, you are entitled to attend the World Color Press special meeting in person or by proxy and to cast votes in respect of the shares held by you on the record date.

 

Non-Registered Shareholders

 

The information in this section is important to many shareholders of World Color Press as a substantial number of such shareholders do not hold their shares of World Color Press in their own name.

 

Non-registered shareholders should note that only proxies deposited by World Color Press shareholders whose names appear on the share register of World Color Press may be recognized and acted upon at the special meeting.  If World Color Press common shares or World Color Press preferred shares are shown in an account statement provided to a non-registered shareholder by an intermediary, then in almost all cases the name of such non-registered shareholder will not appear in the share register of World Color Press.  Such shares will most likely be registered in the name of the broker or an agent of the broker.  In Canada, the vast majority of such shares of World Color Press will be registered in the name of CDS Clearing and Depositary Services Inc., which acts as a nominee for many brokerage firms.  Such shares can only be voted by intermediaries in accordance with instructions received from the  non-registered shareholders.  As a result, non-registered shareholders of World Color Press should carefully review the voting instructions provided by their intermediary with this proxy circular/prospectus and ensure that they direct the voting of their shares of World Color Press in accordance with those instructions.

 

Applicable securities laws in the provinces and territories of Canada require intermediaries to seek voting instructions from non-registered shareholders of World Color Press in advance of the special meeting.  Each intermediary has its own mailing procedures and provides its own return instructions to clients.  The purpose of the form of proxy or voting instruction form provided to a non-registered shareholder by such non-registered shareholder’s intermediary is limited to instructing the registered holder on how to vote such shares on behalf of the non-registered shareholder.  Most brokers in Canada now delegate responsibility for obtaining instructions from clients to Broadridge Financial Solutions, Inc. (sometimes referred to as  Broadridge).  Broadridge typically prepares voting instruction forms, mails those forms to non-registered shareholders and asks those non-registered shareholders to return the forms to Broadridge or follow specific telephone or other voting procedures.  Broadridge then tabulates the results of all instructions received by it and provides appropriate instructions respecting the voting of such shares at the meeting.  A non-registered shareholder receiving a voting instruction form from Broadridge cannot use that form to attend and vote their shares of World Color Press directly at the special meeting. Instead, a non-registered shareholder wishing to attend and vote its shares directly at the meeting must follow the instructions for doing so provided by Broadridge or its intermediary.  Voting instruction forms must be returned to Broadridge or the alternate voting procedures must be completed well in advance of the meeting in order to ensure that such shares are voted.

 

Quorum

 

Pursuant to the Interim Order, attendance in person or by proxy of holders of at least 10% of the voting rights attached to the issued and outstanding World Color Press common shares and preferred shares entitled to vote on the arrangement resolution at the World Color Press special meeting will constitute a quorum for the transaction of business at the special meeting.  If a quorum is not present, the special meeting may be adjourned to allow additional time for obtaining additional proxies or votes.  At any subsequent reconvening of the World Color Press special meeting, all proxies will be voted in the same manner as the proxies would have been voted at the original convening of the World Color Press special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the subsequent meeting.

 

Required Vote

 

In accordance with the Interim Order, the arrangement resolution will be approved if a quorum in respect of the World Color Press common shares and the World Color Press preferred shares is present as described above and

 

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at least two-thirds of the votes cast by the holders of World Color Press common shares and the holders of World Color Press preferred shares, voting together as a single class, on the arrangement resolution are cast in favor of it.

 

Any spoiled votes, illegible votes and defective votes will be considered not to be votes cast.

 

If you do not return your proxy or submit your proxy by telephone or via the Internet or vote in person at World Color Press’ special meeting, your vote will not be counted.

 

Voting Shares and Principal Holders of Voting Shares

 

On                        , 2010, there were outstanding                  World Color Press common shares and                  World Color Press preferred shares.  Each World Color Press common share carries the right to one vote and each World Color Press preferred share carries the right to        vote[s] at the World Color Press special meeting.

 

As of the record date, the only shareholders that, to the knowledge of World Color Press management, owned beneficially, or exercised control or direction over more than 10% of the total outstanding World Color Press common shares were:

 

·                                          The Catalyst Group Inc., which controlled                      World Color Press common shares or approximately       % of the total outstanding World Color Press common shares as of that date;

 

·                                          Avenue Capital Management II, LP, which controlled                      World Color Press common shares or approximately       % of the total outstanding World Color Press common shares as of that date; and