S-4/A
Table of Contents

As filed with the Securities and Exchange Commission on January 15, 2019

Registration No. 333-228752

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-4

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

 

 

Quad/Graphics, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Wisconsin   2750   39-1152983

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

N61 W23044 Harry’s Way

Sussex, Wisconsin 53089-3995

(414) 566-6000

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

 

 

Jennifer J. Kent

Executive Vice President of Administration, General Counsel and Secretary Quad/Graphics, Inc.

N61 W23044 Harry’s Way

Sussex, Wisconsin 53089-3995 (414) 566-4179

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

 

 

Copies to:

 

Patrick G. Quick

Russell E. Ryba

Foley & Lardner LLP

777 East Wisconsin Avenue

Milwaukee, Wisconsin 53202-5306

(414) 271-2400

 

Audra D. Cohen

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004-2498

(212) 558-4000

and

Suzanne S. Bettman

Chief Administrative Officer and

General Counsel

LSC Communications, Inc.

191 N. Wacker Drive, Suite 1400

Chicago, Illinois 60606

(773) 272-9200

 

 

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.  ☐

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.  ☐

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.  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

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)  ☐

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

 

 

This registration statement shall hereafter become effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933.

 

 

 


Table of Contents

JOINT PROXY STATEMENT/PROSPECTUS

 

LOGO   LOGO   

January 22, 2019

To the shareholders of Quad/Graphics, Inc. and stockholders of LSC Communications, Inc.:

Quad/Graphics, Inc. and LSC Communications, Inc. have entered into an agreement and plan of merger (which we refer to as the “merger agreement”) providing for the acquisition of LSC by Quad/Graphics pursuant to a merger between a wholly owned subsidiary of Quad/Graphics and LSC (which we refer to as the “merger”). Quad/Graphics shareholders as of the close of business on January 16, 2019, the record date, are invited to attend a special meeting of Quad/Graphics shareholders on February 22, 2019, at 10:00 a.m., Central Time, to consider and vote upon a proposal to approve the issuance of shares of Quad/Graphics class A common stock in connection with the merger. LSC stockholders as of the close of business on the record date are invited to attend a special meeting of LSC stockholders on February 22, 2019, at 10:00 a.m., Central Time, to consider and vote upon, among other things, a proposal to adopt the merger agreement and a non-binding, advisory proposal to approve certain compensation that may be paid or become payable to LSC’s named executive officers that is based on or otherwise relates to the merger.

For LSC stockholders, if the merger is consummated, you will be entitled to receive, for each issued and outstanding share of LSC common stock owned by you immediately prior to the effective time of the merger, 0.625 shares of Quad/Graphics class A common stock (which we refer to as the “merger consideration”) as further described in the joint proxy statement/prospectus accompanying this letter. The market value of the merger consideration will fluctuate with the price of Quad/Graphics class A common stock. Based on the closing price of Quad/Graphics class A common stock on October 30, 2018, the last trading day before the public announcement of the signing of the merger agreement, the value of the per share merger consideration payable to holders of LSC common stock upon consummation of the merger was approximately $11.41, a premium of approximately 34% to the closing price of LSC common stock on October 30, 2018. Based on the closing price of Quad/Graphics class A common stock on January 7, 2019, the last practicable date before the date of the joint proxy statement/prospectus accompanying this letter, the value of the merger consideration payable to holders of LSC common stock upon consummation of the merger was approximately $288 million. LSC stockholders should obtain current stock price quotations for Quad/Graphics class A common stock and LSC common stock. Quad/Graphics class A common stock is traded on the New York Stock Exchange under the symbol “QUAD,” and LSC common stock is traded on the New York Stock Exchange under the symbol “LKSD.”

The Quad/Graphics board of directors has determined that the merger is in the best interests of Quad/Graphics; has approved and declared advisable the merger agreement, the merger and the issuance of shares of Quad/Graphics class A common stock in connection with the merger; and recommends that Quad/Graphics shareholders vote “FOR” the issuance of shares of Quad/Graphics class A common stock in connection with the merger.

The LSC board of directors has determined that the merger is fair and in the best interests of LSC and its stockholders; has approved and declared advisable the merger agreement, the related voting and support agreement, the merger and the other transactions contemplated by the merger agreement; and recommended adoption of the merger agreement to the stockholders of LSC. Accordingly, the LSC board of directors recommends that LSC stockholders vote “FOR” the adoption of the merger agreement and “FOR” the other proposals described in the accompanying joint proxy statement/prospectus.

Quad/Graphics and LSC will each hold a special meeting of their shareholders and stockholders, respectively, to consider certain matters relating to the merger. Quad/Graphics and LSC cannot consummate the merger unless, among other things, Quad/Graphics shareholders approve the issuance of shares of Quad/Graphics class A common stock in connection with the merger and LSC stockholders adopt the merger agreement.

Your vote is very important. To ensure your representation at your company’s special meeting, complete and return the applicable enclosed proxy card or voting instruction card or submit your proxy by phone or the internet. Please vote promptly whether or not you expect to attend your company’s special meeting. Submitting a proxy now will not prevent you from being able to vote in person at your company’s special meeting.

The joint proxy statement/prospectus accompanying this letter is also being delivered to LSC stockholders as Quad/Graphics’ prospectus for its offering of shares of Quad/Graphics class A common stock in connection with the merger.

The obligations of Quad/Graphics and LSC to consummate the merger are subject to the satisfaction or waiver of the conditions set forth in the merger agreement, a copy of which is included as Annex A to the accompanying joint proxy statement/prospectus. The joint proxy statement/prospectus provides you with detailed information about the merger. It also contains or references information about Quad/Graphics and LSC and certain related matters. You are encouraged to read the joint proxy statement/prospectus carefully and in its entirety. In particular, you should carefully read the section entitled “Risk Factors” beginning on page 37 of the joint proxy statement/prospectus for a discussion of risks you should consider in evaluating the merger and the issuance of shares of Quad/Graphics class A common stock in connection with the merger and how they will affect you.

 

Sincerely,    Sincerely,

LOGO

J. Joel Quadracci

Chairman, President and Chief Executive Officer

Quad/Graphics, Inc.

  

LOGO

Thomas J. Quinlan, III

Chairman, Chief Executive Officer and President

LSC Communications, Inc.

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

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

 

 

The accompanying joint proxy statement/prospectus is dated January 22, 2019 and is

first being mailed to shareholders of Quad/Graphics and LSC on or about January 22, 2019.


Table of Contents

LOGO

Quad/Graphics, Inc.

N61 W23044 Harry’s Way

Sussex, Wisconsin 53089-3995

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD FEBRUARY 22, 2019

Time and Date:

February 22, 2019, at 10:00 a.m. Central Time.

Place:

Quad/Graphics, Inc. (“Quad/Graphics”), N61 W23044 Harry’s Way, Sussex, Wisconsin 53089.

Matter to be Voted On:

To consider and vote on a proposal to approve the issuance of shares of class A common stock of Quad/Graphics (the “share issuance proposal”) in connection with the merger between a wholly owned subsidiary of Quad/Graphics, QLC Merger Sub, Inc. (“merger sub”), and LSC Communications, Inc. (“LSC”), as contemplated by the agreement and plan of merger, dated as of October 30, 2018, among Quad/Graphics, LSC and merger sub (which we refer to as the “merger agreement”).

Who Can Vote:

Holders of Quad/Graphics class A common stock and class B common stock at the close of business on January 16, 2019. Only Quad/Graphics shareholders as of the record date are entitled to notice of, and to vote at, the Quad/Graphics special meeting or any adjournment and postponement of the Quad/Graphics special meeting.

The Quad/Graphics board of directors has determined that the merger is in the best interests of Quad/Graphics; has approved and declared advisable the merger agreement, the merger and the issuance of shares of Quad/Graphics class A common stock in connection with the merger; and recommends that Quad/Graphics shareholders vote “FOR” the share issuance proposal.

Quad/Graphics shareholder approval of the share issuance proposal is required to consummate the merger. Quad/Graphics will transact no other business at the Quad/Graphics special meeting. The share issuance proposal and the merger are described in more detail in the accompanying joint proxy statement/prospectus, which you should read carefully and in its entirety before you submit a proxy or otherwise vote your shares.

Please vote as promptly as possible, whether or not you plan to attend the Quad/Graphics special meeting. If you later desire to revoke or change your proxy for any reason, you may do so in the manner described in the accompanying joint proxy statement/prospectus.

A PROXY FOR THE SPECIAL MEETING AND A JOINT PROXY STATEMENT/PROSPECTUS ARE ENCLOSED WITH THIS NOTICE. YOUR VOTE IS VERY IMPORTANT. APPROVAL OF THE SHARE ISSUANCE PROPOSAL BY THE QUAD/GRAPHICS SHAREHOLDERS IS A CONDITION TO THE MERGER AND REQUIRES APPROVAL BY THE MAJORITY OF VOTES CAST BY THE QUAD/GRAPHICS SHAREHOLDERS PRESENT IN PERSON OR BY PROXY AT THE SPECIAL


Table of Contents

MEETING. QUAD/GRAPHICS SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, OR TO SUBMIT THEIR VOTES BY PHONE OR THE INTERNET. SIMPLY FOLLOW THE INSTRUCTIONS PROVIDED ON THE ENCLOSED PROXY CARD. ABSTENTIONS WILL HAVE THE SAME EFFECT AS A VOTE “AGAINST” THE SHARE ISSUANCE PROPOSAL AND BROKER NON-VOTES WILL HAVE NO EFFECT ON THE OUTCOME OF THE VOTE.

By Order of the Board of Directors

 

 

LOGO

Jennifer J. Kent

Executive Vice President of Administration, General

Counsel and Secretary

Sussex, Wisconsin

January 22, 2019


Table of Contents

LOGO

LSC COMMUNICATIONS, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON FEBRUARY 22, 2019

IN THE 10TH FLOOR CONFERENCE CENTER

191 N. WACKER DRIVE

CHICAGO, ILLINOIS 60606

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of LSC Communications, Inc., which we refer to as “LSC”, will be held on February 22, 2019, at 10:00 a.m., Central Time, at the 10th Floor Conference Center, 191 N. Wacker Drive, Chicago, Illinois 60606, for the following purposes:

 

   

to adopt the agreement and plan of merger, dated as of October 30, 2018, as such agreement may be amended from time to time (which we refer to as the “merger agreement”), by and among Quad/Graphics, Inc. (which we refer to as “Quad/Graphics”), QLC Merger Sub, Inc. (which we refer to as “merger sub”) and LSC, which we refer to as the “merger agreement proposal”;

 

   

to consider and vote on a proposal to approve, by a non-binding, advisory vote, certain compensation that may be paid or become payable to LSC’s named executive officers that is based on or otherwise relates to the merger contemplated by the merger agreement, which we refer to as the “LSC compensation proposal”; and

 

   

to consider and vote on a proposal to adjourn the LSC special meeting, if reasonably necessary to provide stockholders with any required supplement or amendment to the accompanying joint proxy statement/prospectus or to solicit additional proxies in the event there are not sufficient votes at the time of the LSC special meeting to approve the merger agreement proposal, which we refer to as the “LSC adjournment proposal”.

LSC stockholder approval of the merger agreement proposal is required to consummate the merger between merger sub and LSC pursuant to which LSC will become a wholly owned subsidiary of Quad/Graphics (which we refer to as the “merger”). LSC stockholders will also be asked to approve the LSC compensation proposal and, if necessary, the LSC adjournment proposal. LSC will transact no other business at the LSC special meeting. The record date for the LSC special meeting has been set as January 16, 2019. Only LSC stockholders of record as of the close of business on such record date are entitled to notice of, and to vote at, the LSC special meeting or any adjournments and postponements thereof. For additional information regarding the LSC special meeting, see the section entitled “The Special Meeting of LSC Stockholders” beginning on page 56 of the joint proxy statement/prospectus accompanying this notice.

The LSC board of directors has determined that the merger is fair and in the best interests of LSC and its stockholders; has approved and declared advisable the merger agreement, the related voting and support agreement, the merger and the other transactions contemplated by the merger agreement; and recommended adoption of the merger agreement to the stockholders of LSC. Accordingly, the LSC board of directors recommends that LSC stockholders vote “FOR” the merger agreement proposal, “FOR” the LSC compensation proposal and “FOR” the LSC adjournment proposal.

The LSC special meeting proposals are described in more detail in the accompanying joint proxy statement/prospectus, which you should read carefully in its entirety before you vote. A copy of the merger agreement is attached as Annex A to the accompanying joint proxy statement/prospectus.

PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE LSC SPECIAL MEETING. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY


Table of Contents

FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. FOR FURTHER INFORMATION CONCERNING THE PROPOSALS BEING VOTED UPON AT THE LSC SPECIAL MEETING, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.

 

Your vote is important. Approval of the merger agreement proposal by the LSC stockholders is a condition to the consummation of the merger and requires the affirmative vote of a majority of the shares of LSC common stock outstanding as of the close of business on the record date and entitled to vote on the merger agreement proposal. LSC stockholders are requested to complete, date, sign and return the enclosed proxy in the envelope provided, which requires no postage if mailed in the United States, or to submit their votes electronically via the internet or by telephone. Simply follow the instructions provided on the enclosed proxy card. Abstentions will have the same effect as a vote “AGAINST” the merger agreement proposal. Broker non-votes will have the same effect as a vote “AGAINST” the merger agreement proposal.

By Order of the Board of Directors,

 

LOGO

Suzanne S. Bettman

Secretary, Chief Administrative Officer

and General Counsel


Table of Contents

REFERENCES TO ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about Quad/Graphics, Inc. (which we refer to as “Quad/Graphics”) and LSC Communications, Inc. (which we refer to as “LSC”) from other documents that are not included in or delivered with this joint proxy statement/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 joint proxy statement/prospectus through the Securities and Exchange Commission (sometimes referred to as the “SEC”) website at www.sec.gov or by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

Quad/Graphics, Inc.

Attention: Investor Relations

N61 W23044 Harry’s Way

Sussex, Wisconsin 53089-3995

(414) 566-2482

 

LSC Communications, Inc.

Attention: Investor Relations

191 N. Wacker Drive, Suite 1400

Chicago, Illinois 60606

(773) 272-9275

If you would like to request documents, please do so by February 14, 2019, which is five business days before the special meetings.

For a listing of documents incorporated by reference herein, see the section entitled “Where You Can Find More Information” beginning on page 200.

In addition, if you are an LSC stockholder and need to obtain additional copies of this joint proxy statement/prospectus or need to obtain LSC proxy cards or other information related to the proxy solicitation with respect to the LSC special meeting, contact Morrow Sodali LLC, the proxy solicitor for LSC, toll-free at 800-662-5200 or collect at 203-658-9400. You will not be charged for any of these documents that you request.


Table of Contents

ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus forms part of a registration statement on Form S-4 (Registration No. 333-228752) filed by Quad/Graphics with the SEC to register with the SEC the shares of Quad/Graphics class A common stock, par value $0.025 per share (sometimes referred to as “class A common stock”), to be issued to LSC stockholders pursuant to the agreement and plan of merger, dated October 30, 2018, as such agreement may be amended from time to time (which we refer to as the “merger agreement”), among Quad/Graphics, LSC and QLC Merger Sub, Inc. (which we refer to as “merger sub”).

This joint proxy statement/prospectus is a part of that registration statement and constitutes a prospectus of Quad/Graphics under Section 5 of the Securities Act of 1933, as amended (which we refer to as the “Securities Act”), and the rules thereunder, with respect to the class A common stock, in addition to being a joint proxy statement of Quad/Graphics and LSC under Section 14(a) of the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”), and the rules thereunder, and a notice of meeting and actions to be taken with respect to the special meetings of Quad/Graphics and LSC.

Quad/Graphics has supplied all information contained in or incorporated by reference into this joint proxy statement/prospectus relating to Quad/Graphics and LSC has supplied all information contained in or incorporated by reference into this joint proxy statement/prospectus relating to LSC. Quad/Graphics and LSC have both contributed information relating to the merger and the merger agreement contained in this joint proxy statement/prospectus.

You should rely only on the information contained in or incorporated by reference into this joint proxy statement/prospectus. Quad/Graphics and LSC have not authorized anyone to provide you with information that is different from that contained in or incorporated by reference into this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated January 22, 2019, and you should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than such date. Further, you should not assume that the information incorporated by reference into this joint proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither the mailing of this joint proxy statement/prospectus to LSC stockholders nor the issuance by Quad/Graphics of shares of its class A common stock pursuant to the merger agreement will create any implication to the contrary.

All currency amounts referenced in this joint proxy statement/prospectus are in U.S. dollars.

 

 

This joint proxy statement/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.


Table of Contents

TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

     1  

SUMMARY

     12  

Information About the Companies

     12  

The Merger and the Merger Agreement

     13  

Merger Consideration to be Received by LSC Stockholders

     13  

Treatment of LSC Equity Awards

     13  

Total Shares of Quad/Graphics Class A Common Stock to be Issued

     14  

Quad/Graphics Special Meeting

     15  

LSC Special Meeting

     15  

Recommendation of the Quad/Graphics Board of Directors

     16  

Recommendation of the LSC Board of Directors

     16  

Opinion of Quad/Graphics’ Financial Advisor

     17  

Opinion of LSC’s Financial Advisor

     17  

Interests of LSC’s Executive Officers and Directors in the Merger

     18  

Interests of Quad/Graphics’ Executive Officers and Directors in the Merger

     19  

Regulatory Approvals

     19  

Certain Indebtedness of Quad/Graphics and LSC

     20  

Transaction Litigation

     20  

Voting and Support Agreement

     20  

Key Provisions of the Merger Agreement

     21  

Material U.S. Federal Income Tax Consequences

     27  

No Appraisal/Dissenters’ Rights

     27  

Comparison of Shareholder Rights

     28  

QUAD/GRAPHICS SELECTED HISTORICAL FINANCIAL INFORMATION

     29  

LSC SELECTED HISTORICAL FINANCIAL INFORMATION

     31  

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     33  

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA COMBINED PER SHARE INFORMATION

     34  

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

     35  

Quad/Graphics Market Price and Dividend Information

     35  

LSC Market Price and Dividend Information

     36  

RISK FACTORS

     37  

Risks Relating to the Merger

     37  

Risks Relating to Quad/Graphics After the Merger

     43  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     47  

THE COMPANIES

     49  

Quad/Graphics

     49  

QLC Merger Sub Inc.

     50  

LSC

     50  

THE SPECIAL MEETING OF QUAD/GRAPHICS SHAREHOLDERS

     52  

Date, Time and Place

     52  

Purpose of the Quad/Graphics Special Meeting

     52  

Recommendation of the Quad/Graphics Board of Directors

     52  

Record Date and Entitlement to Vote

     52  

Methods of Voting

     52  

Quorum

     53  

Required Vote

     53  

Vote of Quad/Graphics’ Directors and Executive Officers and the Quad/Graphics Voting Trust

     53  

 

-i-


Table of Contents
     Page  

Proxies

     53  

Voting of Proxies

     54  

Revocation of Proxies

     54  

Solicitation of Proxies

     54  

No Dissenters’ or Appraisal Rights

     54  

QUAD/GRAPHICS PROPOSAL

     55  

Share Issuance Proposal

     55  

THE SPECIAL MEETING OF LSC STOCKHOLDERS

     56  

Date, Time and Place

     56  

Purpose of the LSC Special Meeting

     56  

Recommendation of the LSC Board of Directors

     56  

Record Date

     56  

Quorum; Abstentions and Broker Non-Votes; Required Votes

     56  

Methods of Voting

     57  

Revocability of Proxies

     58  

Proxy Solicitation Costs

     58  

No Appraisal/Dissenters’ Rights

     59  

Other Information

     59  

Vote of LSC’s Directors and Executive Officers

     59  

Attending the LSC Special Meeting

     59  

Results of the LSC Special Meeting

     59  

LSC PROPOSALS

     61  

Merger Agreement Proposal

     61  

LSC Compensation Proposal

     61  

LSC Adjournment Proposal

     62  

THE MERGER

     63  

General

     63  

Background of the Merger

     63  

Quad/Graphics’ Reasons for the Merger and Recommendation of Quad/Graphics’ Board of Directors

     79  

Opinion of Quad/Graphics’ Financial Advisor

     81  

LSC’s Reasons for the Merger and Recommendation of LSC’s Board of Directors

     87  

Opinion of LSC’s Financial Advisor

     91  

Certain Unaudited Prospective Financial Information

     100  

Estimated Potential Synergies Attributable to the Merger

     105  

Interests of LSC’s Executive Officers and Directors in the Merger

     106  

Interests of Quad/Graphics’ Executive Officers and Directors in the Merger

     112  

Quad/Graphics’ Board of Directors and Management after the Merger

     112  

Exchange of Certificates; No Fractional Shares

     113  

Regulatory Approvals

     114  

Certain Indebtedness of Quad/Graphics and LSC

     115  

Transaction Litigation

     116  

Material U.S. Federal Income Tax Consequences

     117  

Accounting Treatment of the Merger

     119  

No Appraisal/Dissenters’ Rights

     119  

Listing of Quad/Graphics Class  A Common Stock; Delisting and Deregistration of LSC’s Common Stock

     120  

Resale of Quad/Graphics Class A Common Stock

     120  

Business Relationships Between Quad/Graphics and LSC

     120  

THE MERGER AGREEMENT

     121  

The Merger

     121  

 

-ii-


Table of Contents
     Page  

Closing and Effective Time of the Merger

     121  

Merger Consideration

     121  

Treatment of LSC Equity Awards

     122  

Exchange Procedures

     123  

Termination of the Exchange Fund

     124  

Lost, Stolen or Destroyed Share Certificates

     124  

Adjustments to Prevent Dilution

     124  

Organizational Documents; Directors and Officers; NYSE Listing

     125  

Dividends and Distributions on Shares of Quad/Graphics Class  A Common Stock

     125  

Withholdings

     125  

Appraisal Rights

     126  

Representations and Warranties

     126  

Access and Investigation

     130  

Interim Operations of LSC and Quad/Graphics Pending the Merger

     131  

Non-Solicitation of Acquisition Proposals; Changes of Recommendation

     135  

Special Meetings

     138  

Reasonable Best Efforts; Regulatory Filings and Other Actions

     139  

Employee Benefits Matters

     141  

Transaction Litigation

     141  

Election to Quad/Graphics Board of Directors

     142  

Dividend Cooperation

     142  

Tax Treatment

     142  

Quad/Graphics’ Financing

     142  

Treatment of Certain LSC Indebtedness

     143  

Conditions to the Consummation of the Merger

     144  

Termination

     146  

Effect of Termination

     148  

Expenses

     148  

Indemnification; Directors’ and Officers’ Insurance

     148  

Amendment

     149  

Applicable Law; Jurisdiction; Specific Enforcement

     149  

VOTING AND SUPPORT AGREEMENT

     150  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     151  

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

     168  

Quad/Graphics Voting Trust

     170  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT/DIRECTORS OF LSC

     172  

Security Ownership of Directors and Executive Officers

     172  

Security Ownership of Other Beneficial Owners

     173  

DESCRIPTION OF QUAD/GRAPHICS CAPITAL STOCK

     174  

Authorized Capital Stock

     174  

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

     174  

Preferred Stock

     178  

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

     179  

Preemptive Rights

     182  

Transfer Agent and Registrar

     182  

Listing

     182  

 

-iii-


Table of Contents
     Page  

COMPARISON OF THE RIGHTS OF QUAD/GRAPHICS SHAREHOLDERS AND LSC STOCKHOLDERS

     183  

FUTURE SHAREHOLDER PROPOSALS

     197  

Quad/Graphics Shareholder Proposals

     197  

LSC Stockholder Proposals

     197  

LEGAL MATTERS

     198  

EXPERTS

     199  

Quad/Graphics

     199  

LSC

     199  

WHERE YOU CAN FIND MORE INFORMATION

     200  

ANNEX A – Agreement and Plan of Merger, dated as of October  30, 2018

     A-1  

ANNEX B – Voting and Support Agreement, dated as of October  30, 2018

     B-1  

ANNEX C – Opinion of J.P. Morgan Securities LLC

     C-1  

ANNEX D – Opinion of Merrill Lynch, Pierce, Fenner  & Smith Incorporated

     D-1  

 

-iv-


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

The following are brief answers to common questions that you may have regarding the merger agreement, the proposed merger, the special meetings and the consideration to be received in the proposed merger. The questions and answers in this section may not address all questions that may be important to you as a shareholder of Quad/Graphics or a stockholder of LSC. To better understand these matters, and for a description of the legal terms governing the proposed merger, we urge you to read carefully and in its entirety this joint proxy statement/prospectus, including the annexes to, and the documents incorporated by reference in, this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 200.

Q: Why am I receiving this document?

A: You are receiving this joint proxy statement/prospectus because Quad/Graphics, LSC and merger sub have entered into the merger agreement, pursuant to which, on the terms and subject to the conditions included in the merger agreement, Quad/Graphics has agreed to acquire LSC by means of a merger of merger sub with and into LSC, with LSC surviving the merger as a wholly owned subsidiary of Quad/Graphics (which we refer to as the “merger”) and your vote is required in connection with the merger. The merger agreement, which governs the terms of the merger, is attached to this joint proxy statement/prospectus as Annex A.

In order to consummate the merger, Quad/Graphics shareholders must approve the issuance of shares of Quad/Graphics class A common stock in connection with the merger (which we refer to as the “share issuance proposal”) in accordance with the rules of the New York Stock Exchange (which we refer to as the “NYSE”) in order for the merger to be consummated. Quad/Graphics is holding a special meeting of its shareholders (which we refer to as the “Quad/Graphics special meeting”) to obtain approval of the share issuance proposal. Your vote is very important. We encourage you to submit a proxy to have your shares voted as soon as possible.

In order to consummate the merger, LSC stockholders must adopt the merger agreement (which we refer to as the “merger agreement proposal”) in accordance with the General Corporation Law of the State of Delaware (which we refer to as the “DGCL”). LSC is holding a special meeting of its stockholders (which we refer to as the “LSC special meeting”) to obtain approval of the merger agreement proposal. At the LSC special meeting, LSC stockholders will also be asked to approve the merger-related compensation arrangements for LSC’s named executive officers in a non-binding, advisory vote (which we refer to as the “LSC compensation proposal”). Additionally, LSC stockholders will be asked to approve the adjournment of the LSC special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the LSC special meeting to adopt the merger agreement (which we refer to as the “LSC adjournment proposal”).

We are delivering this document to you as both a joint proxy statement of Quad/Graphics and LSC and a prospectus of Quad/Graphics. It is a joint proxy statement because it is being used by the boards of directors of both Quad/Graphics and LSC to solicit proxies from their shareholders and stockholders, respectively, to vote in favor of the share issuance proposal at the Quad/Graphics special meeting and the proposals at the LSC special meeting. It is a prospectus because Quad/Graphics will issue shares of its class A common stock in exchange for shares of common stock, par value $0.01 per share, of LSC (which we refer to as “LSC common stock”) to LSC stockholders if the merger is consummated.

We are sending you these materials to help you decide how to vote your shares with respect to the matters to be considered at the special meetings. This joint proxy statement/prospectus contains important information about the merger, including the Quad/Graphics special meeting and LSC special meeting. You should read it carefully and in its entirety. The enclosed proxy card(s) allow you to authorize the voting of your shares without attending your company’s special meeting.

Your vote is important regardless of how many shares you own. We encourage you to submit a proxy as soon as possible.

 

-1-


Table of Contents

Q: What do I need to do now?

A: After you carefully read this joint proxy statement/prospectus in its entirety, including the annexes, please respond by submitting your proxy by telephone or via 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 of Quad/Graphics class A common stock or class B common stock and/or LSC common stock may be voted in accordance with your instructions. 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 your company’s special meeting in person.

Q: What will LSC stockholders receive in the merger?

A: As a result of the merger, except for shares of LSC common stock owned directly or indirectly by LSC (other than shares held in a fiduciary or agency capacity that are beneficially owned by a third party) and subject to the treatment of LSC equity awards, adjustments for dilution and tax withholdings, each share of LSC common stock issued and outstanding immediately prior to the effective time of the merger (each of which we refer to as an “eligible share of LSC common stock”) will be automatically converted into the right to receive 0.625 shares (which we refer to as the “exchange ratio”) of Quad/Graphics class A common stock, without interest (which we refer to as the “merger consideration”). LSC stockholders that would otherwise be entitled to receive a fractional share of Quad/Graphics class A common stock will instead be entitled to receive cash in lieu of such fractional share, and will not be entitled to dividends, distributions, voting rights or any other rights in respect of such fractional share. For more information regarding the merger consideration, see the section entitled “The Merger Agreement—Merger Consideration” beginning on page 121.

Q: Will LSC equity awards be affected by the merger?

A: At the effective time of the merger:

 

   

LSC Options. Each outstanding award of options to purchase shares of LSC common stock under LSC’s equity plans (each of which we refer to as an “LSC option”) shall automatically be converted into an option to purchase a number of shares of Quad/Graphics class A common stock, as further described in the merger agreement.

 

   

LSC RSAs. Any vesting conditions applicable to each outstanding share of LSC common stock subject to vesting restrictions, performance conditions and/or forfeiture or repurchase by LSC under LSC’s equity plans (each of which we refer to as an “LSC RSA”) shall automatically accelerate in full and be converted into, and become exchanged for, the merger consideration, as further described in the merger agreement.

 

   

LSC RSUs. Any vesting conditions applicable to each outstanding restricted stock unit of LSC granted under LSC’s equity plans (each of which we refer to as an “LSC RSU”) that was granted prior to October 30, 2018 shall automatically accelerate in full, be cancelled and entitle the holder of such LSC RSU to receive the merger consideration. Additionally, each LSC RSU granted after October 30, 2018 shall automatically be converted into a restricted stock unit denominated in shares of Quad/Graphics class A common stock (each of which we refer to as a “converted Quad RSU”), as further described in the merger agreement.

 

   

LSC PSUs. Any vesting conditions applicable to each outstanding performance share unit of LSC granted under LSC’s equity plans (each of which we refer to as an “LSC PSU”) shall, automatically accelerate in full, be cancelled and entitle the holder of such LSC PSU to receive an amount of merger consideration, as further described in the merger agreement.

 

   

LSC Phantom Shares. Each outstanding share of phantom stock of LSC (each of which we refer to as an “LSC phantom share”) under LSC’s Policy on Retirement Benefits, Phantom Stock Grants and

 

-2-


Table of Contents
 

Stock Options for Directors (which we refer to as the “LSC directors’ plan”) shall automatically be converted into an award entitling the holder to receive an amount in cash, as further described in the merger agreement.

For more information regarding the treatment of LSC equity awards, see the section entitled “The Merger Agreement—Treatment of LSC Equity Awards” beginning on page 122.

Q: What equity stake will LSC stockholders hold in Quad/Graphics immediately following the merger?

A: Based on (a) 33,315,949 shares of LSC common stock issued and outstanding as of January 7, 2019, which includes 178,391 LSC RSAs, (b) 1,026,322 shares of LSC common stock issuable under LSC RSUs, (c) 258,487 shares of LSC common stock issuable under LSC PSUs and (d) the exchange ratio, holders of LSC common stock as of immediately prior to the effective time of the merger, would hold, in the aggregate, approximately 36.3% of the issued and outstanding shares of Quad/Graphics class A common stock immediately following the consummation of the merger, representing approximately 29.6% total economic ownership of Quad/Graphics following the merger and approximately 11.1% of the total voting power of Quad/Graphics following the merger.

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

A: As of the date of this joint proxy statement/prospectus, the merger is expected to close in mid-2019. The closing of the merger is subject to various conditions, including the approval of the share issuance proposal by the Quad/Graphics shareholders, and the approval of the merger agreement proposal by the LSC stockholders, as well as necessary regulatory consents and approvals. No assurance can be provided as to when or if the merger will be consummated, and it is possible that factors outside the control of Quad/Graphics and LSC could result in the merger being consummated at a later time, or not at all. See “The Merger Agreement—Conditions to the Consummation of the Merger” beginning on page 144.

Q: When and where are the special meetings?

A: The Quad/Graphics special meeting will take place on February 22, 2019, at 10:00 a.m. Central Time, at N61 W23044 Harry’s Way, Sussex, Wisconsin 53089-3995.

The LSC special meeting will take place on February 22, 2019, at 10:00 a.m. Central Time, at the 10th Floor Conference Center, 191 N. Wacker Drive, Chicago, Illinois 60606.

Q: What matters will be considered at the special meetings?

A: Quad/Graphics shareholders are being asked to consider and vote on the share issuance proposal. The Quad/Graphics board of directors (sometimes referred to as the “Quad/Graphics board”) recommends a vote “FOR” the share issuance proposal. Quad/Graphics will transact no other business at the Quad/Graphics special meeting other than any such business that may be properly brought before the Quad/Graphics special meeting or any adjournment or postponement thereof.

LSC stockholders are being asked to consider and vote on the merger agreement proposal, the LSC compensation proposal and the LSC adjournment proposal. The LSC board of directors (sometimes referred to as the “LSC board”) recommends a vote “FOR” the merger agreement proposal, a vote “FOR” the LSC compensation proposal and a vote “FOR” the LSC adjournment proposal. LSC will transact no other business at the LSC special meeting other than any such business that may be properly brought before the LSC special meeting or any adjournment or postponement thereof.

 

-3-


Table of Contents

Q: What shareholder vote is required to approve the share issuance proposal at the Quad/Graphics special meeting?

A: Assuming a quorum is present, to be approved at the Quad/Graphics special meeting, the share issuance proposal requires the affirmative vote of a majority of votes cast by the Quad/Graphics shareholders present in person or by proxy at the Quad/Graphics special meeting. If you mark “abstain” on your proxy card, it will have the same effect as a vote “AGAINST” the share issuance proposal.

Q: What stockholder vote is required for approval of each proposal brought before the LSC special meeting?

A: The merger agreement proposal. Approval of the merger agreement proposal requires the affirmative vote of a majority of the shares of LSC common stock outstanding as of the close of business on the record date and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the merger agreement proposal.

The LSC compensation proposal. Approval of the LSC compensation proposal requires the affirmative vote of a majority of the shares of LSC common stock present in person or by proxy at the LSC special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the LSC compensation proposal.

The LSC adjournment proposal. Approval of the LSC adjournment proposal requires the affirmative vote of a majority of the shares of LSC common stock present in person or by proxy at the LSC special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the LSC adjournment proposal.

Q: What is the effect if these proposals are not approved at the special meetings?

A: If the share issuance proposal is not approved by the requisite vote at the Quad/Graphics special meeting or the merger agreement proposal is not approved by the requisite vote at the LSC special meeting, then the merger will not occur. In that circumstance, LSC stockholders would not receive the merger consideration or other consideration in connection with the merger, their shares of LSC common stock would remain outstanding, LSC would remain an independent public company and its common stock would continue to be listed and traded on the NYSE. If the merger agreement is terminated under specified circumstances, either Quad/Graphics or LSC (depending on the circumstances) may be required to pay the other party a termination fee, reverse termination fee or other termination-related payment. See “The Merger Agreement—Termination” beginning on page 146 for a more detailed discussion of the termination fees.

Q: Why are LSC stockholders being asked to consider and vote on a proposal to approve, by non-binding, advisory vote, merger-related compensation arrangements for the LSC named executive officers (i.e., the LSC compensation proposal)?

A: Under SEC rules, LSC is required to seek a non-binding, advisory vote with respect to the compensation that may be paid or become payable to LSC’s named executive officers that is based on or otherwise relates to the merger, or “golden parachute” compensation. LSC urges its stockholders to read the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Quantification of Payments and Benefits to LSC’s Named Executive Officers” beginning on page 110, which describes such merger-related compensation.

 

-4-


Table of Contents

Q: What happens if LSC stockholders do not approve, by a non-binding, advisory vote, merger-related compensation arrangements for LSC’s named executive officers (i.e., the LSC compensation proposal)?

A: The vote on the LSC compensation proposal (i.e., to approve the merger-related compensation arrangements for LSC’s named executive officers), is separate and apart from the votes to approve the other proposals being presented at the LSC stockholder meeting. Because the vote on the LSC compensation proposal is advisory in nature only, it will not be binding upon LSC. Accordingly, the merger-related compensation will be paid to LSC’s named executive officers to the extent payable in accordance with the terms of their compensation agreements and arrangements even if LSC stockholders do not approve the LSC compensation proposal.

Q: Who is entitled to vote at the special meetings?

A: The board of directors of each of Quad/Graphics and LSC have fixed January 16, 2019, as the record date for each of their companies’ respective special meetings. If you were a holder of shares of Quad/Graphics’ class A common stock or class B common stock or a holder of shares of common stock of LSC at the close of business on the record date, you are entitled to receive notice of, and vote at, your company’s special meeting.

Q: If I am a Quad/Graphics shareholder, how many votes do I have?

A: If you are a shareholder of Quad/Graphics class A common stock, you are entitled to one vote per share of Quad/Graphics class A common stock that you own as of the record date. If you are a shareholder of Quad/Graphics class B common stock, you are entitled to ten votes per share of Quad/Graphics class B common stock that you own as of the record date. As of the close of business on January 7, 2019, there were (a) 37,876,130 shares of class A common stock outstanding with an aggregate of 37,876,130 votes and (b) 13,556,858 shares of class B common stock outstanding with an aggregate of 135,568,580 votes.

Holders of Quad/Graphics class A common stock and class B common stock vote together as a single class on the share issuance proposal.

Q: If I am a LSC stockholder, how many votes do I have?

A: Each LSC stockholder of record is entitled to one vote for each share of LSC common stock held of record by him or her as of the close of business on the record date. As of the close of business on January 7, 2019, there were 33,315,949 shares of LSC common stock outstanding.

Q: Are any Quad/Graphics shareholders already committed to vote in favor of the share issuance proposal?

A: Pursuant to a voting and support agreement entered into on October 30, 2018 in connection with the execution of the merger agreement (which we refer to as the “voting and support agreement”), the trustees of the Quad/Graphics voting trust have agreed to, among other things, vote the shares of class A common stock and class B common stock owned by the Quad/Graphics voting trust for the share issuance proposal. As of January 7, 2019, the Quad/Graphics voting trust owned 10,046 shares of class A common stock and 12,574,255 shares of class B common stock, or, collectively, approximately 72.5% of Quad/Graphics’ total voting power. For additional information on the voting and support agreement, see “Voting and Support Agreement” beginning on page 150. The voting and support agreement is attached to this joint proxy statement/prospectus as Annex B. For additional information on the Quad/Graphics’ voting trust, see “Security Ownership of Certain Beneficial Owners and Management of Quad/Graphics—Quad/Graphics Voting Trust” beginning on page 170.

 

-5-


Table of Contents

Q: What constitutes a quorum for each special meeting?

A: The presence of a majority of the votes entitled to be cast by the holders of the Quad/Graphics class A common stock and class B common stock, voting together as a single class, shall constitute a quorum for the purpose of transacting business at the Quad/Graphics special meeting. Abstentions and broker non-votes will be considered present for purposes of determining whether a quorum exists.

To hold the LSC special meeting, a quorum of the shares of LSC common stock (which is a majority of the shares outstanding and entitled to vote) is required to be represented either in person or by proxy at the LSC special meeting. Abstentions and broker non-votes are counted in determining whether a quorum is present for the LSC special meeting.

Q: Who can attend each special meeting?

A: If you held Quad/Graphics class A common stock or class B common stock, or LSC common stock, as of the record date, you may attend your company’s special meeting. If you are a beneficial owner of stock held in “street name,” you must provide evidence of your ownership of such stock, which you can obtain from your broker, bank or other nominee, in order to attend your company’s special meeting. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership.

Q: What if my bank, broker or other nominee holds my shares in “street name”?

A: If a bank, broker or other nominee holds your shares for your benefit but not in your own name, such shares are in “street name.” In that case, your bank, broker or other nominee will send you a voting instruction form to use in order to instruct the vote of your shares. The availability of telephone and internet voting instruction depends on the voting procedures of your bank, broker or other nominee. Please follow the instructions on the voting instruction form they send you. If your shares are held in the name of your bank, broker or other nominee and you wish to attend or vote in person at your company’s special meeting, you must contact your bank, broker or other nominee and request a document called a “legal proxy.” You must bring this legal proxy to your company’s special meeting in order to vote in person. Your bank, broker or other nominee will not vote your shares unless you provide instructions on how to vote.

Under the current rules of the NYSE, brokers, banks or other nominees do not have discretionary authority to vote on the share issuance proposal. Because the only proposal for consideration at the Quad/Graphics special meeting is a non-discretionary proposal, it is not expected that there will be any broker non-votes at the Quad/Graphics special meeting. However, if there are any broker non-votes, they will have no effect on the share issuance proposal.

Under the current rules of the NYSE, brokers, banks or other nominees are not permitted to vote on any matter to be considered at the LSC special meeting. As a result, your shares will not be voted on any matters unless you affirmatively instruct your broker, bank or other nominee how to vote your shares in one of the ways indicated by your broker, bank or other nominee.

Q: If I am a Quad/Graphics shareholder, how do I vote?

A: After reading and carefully considering the information contained in this joint proxy statement/prospectus, please submit a proxy or voting instructions for your shares as promptly as possible so that your shares will be represented at the Quad/Graphics special meeting, whether or not you plan to attend the Quad/Graphics special meeting. If you are a shareholder of record of Quad/Graphics as of the close of business on the record date, you may submit your proxy before the Quad/Graphics special meeting by marking, signing and dating your proxy card and returning it in the postage-paid envelope we have provided.

 

-6-


Table of Contents

In addition, shareholders of record of class A common stock and class B common stock may vote in person at the Quad/Graphics special meeting or by mail or through the internet. For additional information on voting procedures, see “The Special Meeting of Quad/Graphics Shareholders” beginning on page 52.

Q: If I am a LSC stockholder, how do I vote?

A: If your shares are registered in your name (as shareholder of record), you may have your shares of LSC common stock voted on the matters to be presented at the LSC special meeting in any of the following ways:

 

   

By Mail: Sign, date and return the enclosed proxy card in the postage paid envelope provided. Your voting instructions must be received no later than the beginning of the LSC special meeting.

 

   

By Telephone or Internet: You may either call the toll-free number listed on your proxy card, log on to the website listed on your proxy card, or scan the QR code on your proxy card and follow the simple instructions provided. The telephone and internet voting procedures are designed to allow you to vote your shares and to confirm that your instructions have been properly recorded consistent with applicable law. Please see your proxy card for specific instructions. LSC stockholders who wish to vote over the internet should be aware that there may be costs associated with electronic access, such as usage charges from internet access providers and telephone companies, and that there may be some risk a stockholder’s vote might not be properly recorded or counted because of an unanticipated electronic malfunction. Voting by telephone and the internet will be closed at 1:00 a.m. Central Time on the date of the LSC special meeting.

If your shares are held in “street name”, you should give instructions to your broker on how to vote your shares. All of the proposals to be considered at the LSC special meeting are considered non-routine matters. Accordingly, if you do not provide voting instructions to your broker, your broker will not have the discretion to vote such shares with respect to any of the matters to be considered at the LSC special meeting.

If you plan to attend the LSC special meeting and vote in person, your instructions depend on how your shares are held:

 

   

Shares Registered in Your Name: check the appropriate box on your proxy card and bring either the admission ticket attached to the proxy card or evidence of your stock ownership with you to the LSC special meeting.

 

   

Shares Registered in the Name of Your Broker or Other Nominee: ask your broker to provide you with a legal proxy in your name (which will allow you to vote your shares in person at the meeting) and bring evidence of your stock ownership from your broker with you to the LSC special meeting.

For additional information on voting procedures, see “The Special Meeting of LSC Stockholders” beginning on page 56.

After reading and carefully considering the information contained in this joint proxy statement/prospectus, please submit your proxy or voting instructions as soon as possible, whether or not you plan to attend the LSC special meeting.

Q: What do I do if I receive more than one set of voting materials?

A: You may receive more than one set of voting materials relating to the LSC special meeting and/or the Quad/Graphics special meeting, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are held in more than one name, you will receive more than one proxy

 

-7-


Table of Contents

card. You may also receive multiple copies of this joint proxy statement/prospectus if you are a shareholder and stockholder of both Quad/Graphics and LSC, respectively. For shares of Quad/Graphics class A common stock and class B common stock or LSC common stock held directly, please complete, sign, date and return each proxy card you receive, or, you may submit a proxy by telephone or via internet by following the instructions on each proxy card. For shares of Quad/Graphics class A common stock or LSC common stock held in “street name” through a broker, bank or other nominee, you should follow the procedures provided by your broker, bank or other nominee to vote your shares.

Q: I hold shares of both Quad/Graphics and LSC. Do I need to vote separately for each company?

A: Yes. You will need to separately follow the applicable procedures described in this joint proxy statement/prospectus both with respect to the voting of shares of Quad/Graphics class A common stock and class B common stock and with respect to the voting of shares of LSC common stock in order to effectively vote the shares of common stock you hold in each company.

Q: 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.

If you are a shareholder of record as of the record date and you sign, date, and return your proxy card but do not indicate how you want to vote on any particular proposal and do not indicate that you wish to abstain with respect to that proposal, your shares will be voted as follows:

 

   

Quad/Graphics class A common stock and class B common stock represented by your proxy will be voted “FOR” the share issuance proposal as recommended by the Quad/Graphics board of directors; and

 

   

LSC common stock represented by your proxy will be voted “FOR” the merger agreement proposal, “FOR” the LSC compensation proposal and “FOR” the LSC adjournment proposal, all as recommended by the LSC board of directors.

Q: What if I mark “abstain” when voting, or fail to vote in person or by proxy on the proposals?

A: If you fail to vote in person or by proxy any shares for which you are the record owner as of the record date or fail to instruct your broker, bank or other nominee on how to vote the shares you hold in street name, your shares will not be counted in determining whether a quorum is present at your company’s special meeting. If you mark abstain when voting, your shares will be counted in determining whether a quorum is present at your company’s special meeting.

If you are a Quad/Graphics shareholder, because the share issuance proposal requires the affirmative vote of the holders of a majority of votes cast, abstaining from voting on the share issuance proposal will have the effect of a vote “AGAINST” the share issuance proposal. Failing to vote on the share issuance proposal will not constitute a vote for or against the share issuance proposal and will be disregarded in the calculation of the votes cast.

If you are a LSC stockholder:

 

   

The Merger Agreement Proposal. Because the merger agreement proposal requires the affirmative vote of a majority of the shares of LSC common stock outstanding as of the close of business on the record date and entitled to vote on the proposal, if you fail to submit a proxy or vote in person at the LSC special meeting, or abstain, or you do not provide your broker, bank or other nominee with instructions, as applicable, this will have the same effect as a vote “AGAINST” the merger agreement proposal.

 

-8-


Table of Contents
   

The LSC Compensation Proposal. Because the LSC compensation proposal requires the affirmative vote of a majority of the shares of LSC common stock present in person or by proxy at the LSC special meeting and entitled to vote on the proposal, if you abstain it will have the same effect as a vote “AGAINST” the LSC compensation proposal. If you fail to submit a proxy or vote in person at the LSC special meeting or you do not provide your broker, bank or other nominee with instructions, as applicable, it will have no effect on the outcome of the vote on the LSC compensation proposal.

 

   

The LSC Adjournment Proposal. Because the LSC adjournment proposal requires the affirmative vote of a majority of the shares of LSC common stock present in person or by proxy at the LSC special meeting and entitled to vote on the proposal, if you abstain it will have the same effect as a vote “AGAINST” the LSC adjournment proposal. If you fail to submit a proxy or vote in person at the LSC special meeting or you do not provide your broker, bank or other nominee with instructions, as applicable, it will have no effect on the outcome of the vote on the LSC adjournment proposal.

Q: Can I change my vote after I have submitted a proxy or voting instruction card?

A: Yes. If you are a shareholder of record as of the record date, whether you vote via the internet, by telephone or by mail, you can change your proxy at any time before it is voted at your company’s special meeting. You can do this in one of three ways:

 

   

You can send a signed notice of revocation to the Secretary of Quad/Graphics or LSC, as appropriate, at the address listed for Quad/Graphics or LSC, as applicable, in the section entitled “References to Additional Information” above;

 

   

You can submit a revised proxy bearing a later date by mail, internet or telephone; or

 

   

You can attend your company’s special meeting and vote in person, which will automatically cancel any proxy previously given, though your attendance alone will not revoke any proxy that you have previously given.

If you are a beneficial owner of either Quad/Graphics class A common stock or class B common stock or LSC common stock as of the close of business on the record date, you must follow the instructions of your broker, bank or other nominee to revoke or change your voting instructions.

Q: Who will count the votes?

A: The votes at the Quad/Graphics special meeting will be counted by an independent inspector of elections appointed by the Quad/Graphics board of directors. The votes at the LSC special meeting will be counted by an independent inspector of elections appointed by the LSC board of directors.

Q: What will happen to LSC as a result of the merger?

A: If the merger is consummated, merger sub will merge with and into LSC. As a result of the merger, the separate corporate existence of merger sub will cease, and LSC will continue as the surviving corporation in the merger and as a wholly owned subsidiary of Quad/Graphics.

Q: I own shares of LSC common stock. What will happen to those shares as a result of the merger?

A: If the merger is consummated, your eligible shares of LSC common stock will be converted into the right to receive the merger consideration (i.e., 0.625 shares of Quad/Graphics class A common stock). Each holder of a share of LSC common stock that was outstanding immediately prior to the effective time of the merger will cease to have any rights with respect to shares of LSC common stock except the right to receive the merger consideration.

 

-9-


Table of Contents

Q: Where will the Quad/Graphics class A common stock that LSC stockholders receive in the merger be publicly traded?

A: Quad/Graphics’ class A common stock is publicly traded on the NYSE under the symbol “QUAD.” The shares of Quad/Graphics class A common stock that LSC stockholders receive in the merger (assuming it is consummated) will also be listed and traded on the NYSE.

Q: I am a holder of LSC common stock certificates, should I send in my stock certificates now?

A: No. If you hold certificates representing LSC common stock, please do not send your certificates with your completed proxy card. An exchange agent will send you written instructions in the form of a letter of transmittal informing you on how to exchange your shares following consummation of the merger.

Q: Are there risks I should consider in deciding how to vote?

A: Yes. There are risks with all business combinations, including the proposed merger. In evaluating the merger, you should carefully read this joint proxy statement/prospectus, including the factors discussed in the section entitled “Risk Factors” beginning on page 37. You should also read and carefully consider the risk factors of Quad/Graphics and LSC that are incorporated by reference herein.

Q: Are Quad/Graphics or LSC shareholders entitled to appraisal or dissenters’ rights?

A: No. Under both Wisconsin law and Delaware law, the shareholders of Quad/Graphics and the stockholders of LSC are not entitled to dissenters’ or appraisal rights in connection with the merger.

Q: What are the material U.S. federal income tax consequences of the merger to Quad/Graphics and LSC shareholders?

A: Quad/Graphics and LSC intend to take the position that the merger is characterized as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (which we refer to as the “Internal Revenue Code”), for U.S. federal income tax purposes. Assuming the merger is so characterized, U.S. holders of shares of LSC common stock generally will not recognize any U.S. federal income tax gain or loss upon receipt of shares of Quad/Graphics class A common stock in exchange for shares of LSC common stock in the merger, except that gain or loss will be recognized with respect to any cash received in lieu of a fractional share of Quad/Graphics class A common stock. The U.S. federal income tax consequences of the merger are discussed in more detail in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences” beginning on page 117. The discussion of the material U.S. federal income tax consequences contained in this joint proxy statement/prospectus is intended to provide only a general discussion and is not a complete analysis or description of all potential U.S. federal income tax consequences of the merger that may vary with, or are dependent on, individual circumstances. In addition, the discussion does not address the effects of any foreign, state or local tax laws.

Q: What happens if I sell my shares of Quad/Graphics class A common stock or class B common stock before the Quad/Graphics special meeting?

A: The record date for Quad/Graphics shareholders entitled to vote at the Quad/Graphics special meeting is earlier than the date of the Quad/Graphics special meeting. If you transfer your shares of Quad/Graphics class A common stock or class B common stock after the record date but before the Quad/Graphics special meeting, you will, unless special arrangements are made, retain your right to vote at the Quad/Graphics special meeting.

Q: What happens if I sell my shares of LSC common stock before the LSC special meeting?

A: The record date for LSC stockholders entitled to vote at the LSC special meeting is earlier than the date of the LSC special meeting. If you transfer your shares of LSC common stock after the record date but before the

 

-10-


Table of Contents

LSC special meeting, you will, unless special arrangements are made, retain your right to vote at the LSC special meeting but will have transferred the right to receive the merger consideration in connection with the merger to the person to whom you transferred your shares of LSC common stock.

Q: Who will solicit and pay the cost of soliciting proxies?

A: LSC has retained Morrow Sodali LLC, 470 West Ave., Suite 3000, Stamford, CT 06902 (which we refer to as “Morrow Sodali”) to assist in the solicitation process. LSC will pay Morrow Sodali a fee of approximately $40,000, as well as out-of-pocket expenses for this service. In addition to solicitation by mail, LSC’s directors, officers and employees may solicit proxies in person, by telephone or by electronic means. These persons will not be specifically compensated for doing this.

Quad/Graphics has not retained a proxy solicitor for the Quad/Graphics special meeting. Quad/Graphics’ directors, officers and employees may solicit proxies in person, by phone or by electronic means. These persons will not be specifically compensated for conducting such solicitation.

Q: Who can answer my questions about the Quad/Graphics and/or LSC special meeting or the transactions contemplated by the merger agreement?

A: If you have questions about the LSC special meeting, the Quad/Graphics special meeting or the merger, or desire additional copies of this joint proxy statement/prospectus or additional proxies, you may contact LSC’s proxy solicitor, Morrow Sodali, by calling toll-free at 800-662-5200 or collect at 203-658-9400 or Quad/Graphics by calling Kyle Egan, Director of Investor Relations and Assistant Treasurer, at 414-566-2482.

 

-11-


Table of Contents

SUMMARY

This summary highlights selected information included in this joint proxy statement/prospectus and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger agreement, you should carefully read this entire joint proxy statement/prospectus and its annexes and the documents to which we refer you before you decide how to vote with respect to the proposals to be considered and voted on at the special meeting for your company. In addition, we incorporate by reference important business and financial information about Quad/Graphics and LSC into this document, as further described in the section entitled “Where You Can Find More Information” beginning on page 200. A copy of the merger agreement is attached as Annex A to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus. We have included references to other portions of this joint proxy statement/prospectus to direct you to a more complete description of the topics presented in this summary, which you should review carefully in their entirety.

Information About the Companies

Quad/Graphics, Inc.

N61 W23044 Harry’s Way

Sussex, Wisconsin 53089-3995

(414) 566-6000

Quad/Graphics is a leading marketing solutions provider. Quad/Graphics leverages its strong print foundation as part of a much larger, robust integrated marketing platform that helps marketers and content creators improve the efficiency and effectiveness of their marketing spend across offline and online media channels. With a consultative approach, worldwide capabilities, leading-edge technology and single-source simplicity, Quad/Graphics believes it has the resources and knowledge to help a wide variety of clients in multiple vertical industries, including retail, publishing and healthcare. Quad/Graphics was founded in Pewaukee, Wisconsin, as a Wisconsin corporation, in 1971 by the late Harry V. Quadracci. As of December 31, 2017, Quad/Graphics had approximately 21,100 full-time equivalent employees in North America, South America, Europe and Asia, and served a diverse base of approximately 6,900 clients from 147 facilities located in 17 countries, as well as investments in printing operations in Brazil and India.

For additional information about Quad/Graphics, see “The Companies—Quad/Graphics” beginning on page 49.

QLC Merger Sub, Inc.

c/o Quad/Graphics, Inc.

N61 W23044 Harry’s Way

Sussex, Wisconsin 53089-3995

(414) 566-6000

QLC Merger Sub, Inc., a wholly owned subsidiary of Quad/Graphics, is a Delaware corporation that was formed on October 30, 2018 for the sole purpose of effecting the merger. In the merger, merger sub will be merged with and into LSC, with LSC surviving as a wholly owned subsidiary of Quad/Graphics.

LSC Communications, Inc.

191 N. Wacker Drive

Suite 1400

Chicago, Illinois

(773) 272-9200



 

-12-


Table of Contents

LSC, a Delaware corporation, is a global leader in print and digital media solutions. The principal business of LSC and its direct or indirect wholly owned subsidiaries is to offer a broad range of traditional and digital print, print-related services and office products. LSC serves the needs of publishers, merchandisers, cataloguers and retailers with product and service offerings that include traditional and digital print, e-services, logistics, warehousing, fulfillment and supply chain management services. LSC utilizes a broad portfolio of technology capabilities coupled with consultative attention to clients’ needs to increase speed to market, reduce costs, provide postal savings to customers, and improve efficiencies. LSC prints magazines, catalogs, retail inserts, books, and directories and its office products offerings include filing products, envelopes, note-taking products, binder products, and forms. As of December 31, 2017, LSC had approximately 24,000 total employees in its global workforce, of which approximately 19,000 employees were in the U.S. and approximately 5,000 were in international locations.

For additional information about LSC, see “The Companies—LSC” beginning on page 50.

The Merger and the Merger Agreement (see page 121)

The terms and conditions of the merger are contained in the merger agreement, which is attached to this joint proxy statement/prospectus as Annex A and is incorporated by reference herein in its entirety. Quad/Graphics and LSC encourage you to read the merger agreement carefully and in its entirety, as it is the legal document that governs the merger.

The Quad/Graphics board of directors and LSC board of directors each have approved the merger agreement and the transactions contemplated by the merger agreement. Pursuant to the terms and subject to the conditions included in the merger agreement, Quad/Graphics has agreed to acquire LSC by means of a merger of merger sub with and into LSC, with LSC surviving the merger as a wholly owned subsidiary of Quad/Graphics.

Merger Consideration to be Received by LSC Stockholders (see page 121)

As a result of the merger, each eligible share of LSC common stock will be converted into the right to receive 0.625 shares of Quad/Graphics class A common stock.

LSC stockholders will not be entitled to receive any fractional shares of Quad/Graphics class A common stock in the merger, and no LSC stockholders will be entitled to dividends or distributions, voting rights or any other rights in respect of any fractional shares of Quad/Graphics class A common stock. LSC stockholders that would have otherwise been entitled to receive a fractional share of Quad/Graphics class A common stock will instead be entitled to receive, in lieu of the issuance of fractional shares, an amount in cash, without interest and rounded to the nearest cent, equal to the product of the volume weighted average price of Quad/Graphics class A common stock for the twenty consecutive trading days ending with the second complete trading day prior to the closing date of the merger, multiplied by the fraction of a share of Quad/Graphics class A common stock to which the holder would otherwise be entitled.

Treatment of LSC Equity Awards (see page 122)

LSC Options

At the effective time of the merger, each LSC option shall, automatically and without any required action on the part of the holder thereof, be converted into an option to purchase a number of shares of Quad/Graphics class A common stock equal to the product (rounded down to the nearest whole number) of (x) the number of shares of LSC common stock underlying such LSC option immediately prior to the effective time of the merger and (y) the exchange ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (A) the exercise price per share of such LSC option immediately prior to the effective time of the merger divided by (B) the



 

-13-


Table of Contents

exchange ratio. Except as specifically provided above, following the effective time of the merger, each LSC option shall continue to be governed by the same terms and conditions (including vesting and exercisability terms) as were applicable to such LSC option immediately prior to the effective time of the merger.

LSC RSAs

At the effective time of the merger, any vesting conditions applicable to each LSC RSA shall, automatically and without any required action on the part of the holder thereof, accelerate in full and be converted into, and become exchanged for the merger consideration (less applicable taxes required to be withheld with respect to such vesting).

LSC RSUs

At the effective time of the merger, any vesting conditions applicable to each LSC RSU granted prior to October 30, 2018 shall, automatically and without any required action on the part of the holder thereof, accelerate in full and be cancelled and entitle the holder of such LSC RSU to receive (without interest) the merger consideration (less applicable taxes required to be withheld with respect to such payment).

Additionally, each LSC RSU granted after October 30, 2018 shall, automatically and without any required action on the part of the holder thereof, cease to represent a restricted stock unit denominated in shares of LSC common stock and shall be converted into a converted Quad RSU, with the number of shares of Quad/Graphics class A common stock subject to each such converted Quad RSU equal to the product (rounded down to the nearest whole number) of (A) the number of shares of LSC common stock subject to such LSC RSU immediately prior to the effective time of the merger multiplied by (B) the exchange ratio.

LSC PSUs

At the effective time of the merger, any vesting conditions applicable to each LSC PSU shall, automatically and without any required action on the part of the holder thereof, accelerate in full and be cancelled and entitle the holder of such LSC PSU to receive (without interest) an amount of merger consideration equal to (A) the number of shares of LSC common stock subject to such LSC PSU immediately prior to the effective time of the merger based on (x) for LSC PSUs granted in 2017, performance that was determined at the end of the 2017 performance period and (y) for LSC PSUs granted in 2018, the higher of target performance and actual performance through the effective time of the merger as reasonably determined by the human resources committee of the LSC board of directors (which we refer to as the “human resources committee”), multiplied by (B) the merger consideration (less applicable taxes required to be withheld with respect to such payment).

LSC Phantom Shares

At the effective time of the merger, each LSC phantom share under the LSC directors’ plan shall, automatically and without any required action on the part of the holder thereof, be converted into an award entitling the holder to receive an amount in cash equal to the value of the merger consideration (determined based on the closing price of a share of Quad/Graphics class A common stock on the closing date of the merger) with respect to each LSC phantom share, which amount shall be payable in accordance with the terms of such LSC directors’ plan and the applicable election thereunder.

Total Shares of Quad/Graphics Class A Common Stock to be Issued

Based on (a) 33,315,949 shares of LSC common stock issued and outstanding as of January 7, 2019, which includes 178,391 LSC RSAs, (b) 1,026,322 shares of LSC common stock issuable under LSC RSUs, (c) 258,487



 

-14-


Table of Contents

shares of LSC common stock issuable under LSC PSUs and (d) the exchange ratio, upon consummation of the merger, Quad/Graphics will issue approximately 21.6 million shares of Quad/Graphics class A common stock to former LSC stockholders in connection with the merger.

Collectively, the former LSC stockholders are expected to become owners of approximately 29.6% of the economic ownership of Quad/Graphics following the merger, and approximately 11.1% of the voting power of Quad/Graphics following the merger, in each case, without giving effect to any shares of Quad/Graphics class A common stock held by LSC stockholders prior to the consummation of the merger.

Quad/Graphics Special Meeting (see page 52)

The Quad/Graphics special meeting will be held on February 22, 2019, at 10:00 a.m. Central Time, at Quad/Graphics, Inc., N61 W23044 Harry’s Way, Sussex, Wisconsin 53089 to consider and vote on the share issuance proposal.

Only holders of record of Quad/Graphics’ class A common stock and class B common stock at the close of business on January 16, 2019 are entitled to vote at the Quad/Graphics special meeting. On January 7, 2019, the last practicable date before the date of this joint proxy statement/prospectus, Quad/Graphics had outstanding and entitled to vote: (a) 37,876,130 shares of class A common stock, each of which is entitled to one vote per share, with an aggregate of 37,876,130 votes; and (b) 13,556,858 shares of class B common stock, each of which is entitled to ten votes per share, with an aggregate of 135,568,580 votes.

The presence of a majority of the votes entitled to be cast by the holders of the Quad/Graphics class A common stock and class B common stock, voting together as a single class, constitutes a quorum for the purpose of transacting business at the Quad/Graphics special meeting. Abstentions and broker non-votes will be considered present for purposes of determining whether a quorum exists.

Quad/Graphics shareholders must approve the share issuance proposal in order to consummate the merger.

Approval of the share issuance proposal requires the affirmative vote of the majority of votes cast by the Quad/Graphics shareholders present in person or by proxy at the Quad/Graphics special meeting. Abstentions will have the same effect as a vote “AGAINST” the share issuance proposal, and broker non-votes will have no effect on the outcome of the vote.

The Quad/Graphics board of directors recommends that you vote “FOR” the share issuance proposal.

LSC Special Meeting (see page 56)

The LSC special meeting will be held on February 22, 2019, at 10:00 a.m. Central Time, at the 10th Floor Conference Center, 191 N. Wacker Drive, Chicago, Illinois 60606 to consider and vote on the merger agreement proposal, the LSC compensation proposal, and, if necessary, the LSC adjournment proposal.

Only holders of record of issued and outstanding shares of LSC common stock as of the close of business on January 16, 2019, the record date for the LSC special meeting, are entitled to notice of, and to vote at, the LSC special meeting or any adjournment or postponement of the LSC special meeting. LSC stockholders may cast one vote for each share of LSC common stock that such stockholder owned as of the close of business on the record date.

To hold a meeting of stockholders, a quorum of the shares (which is a majority of the shares outstanding and entitled to vote) is required to be represented either in person or by proxy at the meeting. Abstentions and broker non-votes are counted in determining whether a quorum is present for the meeting.



 

-15-


Table of Contents

The Merger Agreement Proposal

LSC stockholders must approve the merger agreement proposal in order to consummate the merger.

Approval of the merger agreement proposal requires the affirmative vote of a majority of the shares of LSC common stock outstanding as of the close of business on the record date and entitled to vote on the proposal. If you fail to submit a proxy or vote in person at the LSC special meeting, or abstain, or you do not provide your broker, bank or other nominee with instructions, as applicable, this will have the same effect as a vote “AGAINST” the merger agreement proposal.

The LSC board of directors recommends that you vote “FOR” the merger agreement proposal.

The LSC Compensation Proposal

Approval of the non-binding compensation proposal requires the affirmative vote of a majority of the shares of LSC common stock present in person or by proxy at the LSC special meeting and entitled to vote on the proposal. If you abstain it will have the same effect as a vote “AGAINST” the LSC compensation proposal. If you fail to submit a proxy or vote in person at the LSC special meeting or you do not provide your broker, bank or other nominee with instructions, as applicable, it will have no effect on the outcome of the vote.

The LSC board of directors recommends that you vote “FOR” the LSC compensation proposal.

The LSC Adjournment Proposal

Approval of the LSC adjournment proposal requires the affirmative vote of a majority of the shares of LSC common stock present in person or by proxy at the LSC special meeting and entitled to vote on the proposal, if you abstain it will have the same effect as a vote “AGAINST” the LSC adjournment proposal. If you fail to submit a proxy or vote in person at the LSC special meeting or you do not provide your broker, bank or other nominee with instructions, as applicable, it will have no effect on the outcome of the vote.

The LSC board of directors recommends that you vote “FOR” the LSC adjournment proposal.

Recommendation of the Quad/Graphics Board of Directors (see page 79)

The Quad/Graphics board of directors determined that the merger is in the best interests of Quad/Graphics and approved and declared advisable the merger agreement, the merger and the share issuance proposal. The Quad/Graphics board of directors recommends that Quad/Graphics shareholders vote “FOR” the share issuance proposal.

Recommendation of the LSC Board of Directors (see page 87)

After careful consideration of various factors described in the section entitled “The Merger—LSC’s Reasons for the Merger and Recommendation of LSC’s Board of Directors” beginning on page 87, at a meeting held on October 30, 2018, the LSC board of directors (i) determined that the merger is fair and in the best interests of LSC and its stockholders, (ii) approved and declared advisable the merger agreement, the related voting and support agreement, the merger and the other transactions contemplated by the merger agreement and (iii) recommended adoption of the merger agreement to the stockholders of LSC. Accordingly, the LSC board of directors recommends that LSC stockholders vote (i) “FOR” the merger agreement proposal, (ii) “FOR” the LSC compensation proposal and (iii) “FOR” the LSC adjournment proposal.



 

-16-


Table of Contents

Opinion of Quad/Graphics’ Financial Advisor

Quad/Graphics retained J.P. Morgan Securities LLC (which we refer to as “J.P. Morgan”) as its exclusive financial advisor in connection with the transactions contemplated by the merger agreement. J.P. Morgan delivered its oral opinion to the Quad/Graphics board of directors on October 30, 2018, which opinion was subsequently confirmed in a written opinion dated October 30, 2018, that, as of the date of such opinion, and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations on the scope of the review undertaken by J.P. Morgan as set forth in its written opinion, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to Quad/Graphics.

The full text of J.P. Morgan’s written opinion, dated October 30, 2018, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C to this joint proxy statement/prospectus and is incorporated by reference herein in its entirety. Quad/Graphics shareholders should read J.P. Morgan’s opinion carefully and in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by J.P. Morgan in rendering its opinion. This summary is qualified in its entirety by reference to the full text of such opinion. J.P. Morgan’s opinion was directed to the Quad/Graphics board of directors, in its capacity as such, and addressed only the fairness from a financial point of view to Quad/Graphics of the exchange ratio pursuant to the merger agreement as of the date of such opinion. J.P. Morgan’s opinion did not address any other aspects or implications of the merger. J.P. Morgan’s opinion did not in any manner address the price at which Quad/Graphics class A common stock would trade following the consummation of the merger or at any time, and J.P. Morgan expressed no opinion or recommendation to any Quad/Graphics shareholder or LSC stockholder as to how such holder should vote at the Quad/Graphics or LSC special meetings or whether to take any other action with respect to the merger.

For additional information, see the section entitled “The Merger—Opinion of Quad/Graphics’ Financial Advisor” beginning on page 81 and Annex C.

Opinion of LSC’s Financial Advisor

In connection with the merger, Merrill Lynch, Pierce, Fenner & Smith Incorporated (which we refer to as “BofA Merrill Lynch”), LSC’s financial advisor, delivered to LSC’s board of directors a written opinion, dated October 30, 2018, as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of LSC common stock of the exchange ratio provided for in the merger. The full text of the written opinion, dated October 30, 2018, of BofA Merrill Lynch, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex D to this document and is incorporated by reference herein in its entirety. BofA Merrill Lynch provided its opinion to LSC’s board of directors (in its capacity as such) for the benefit and use of LSC’s board of directors in connection with and for purposes of its evaluation of the exchange ratio from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the merger and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to LSC or in which LSC might engage or as to the underlying business decision of LSC to proceed with or effect the merger. BofA Merrill Lynch’s opinion does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger or any other matter.

For additional information, see the section entitled “The Merger—Opinion of LSC’s Financial Advisor” beginning on page 91 and Annex D.



 

-17-


Table of Contents

Interests of LSC’s Executive Officers and Directors in the Merger

In considering the recommendation of the LSC board of directors to vote for the merger agreement proposal, LSC stockholders should be aware that LSC’s executive officers and directors have interests in the merger that are different from, or in addition to, those of LSC stockholders generally. These interests include, among others:

 

   

The accelerated vesting of certain of LSC’s outstanding equity awards at the effective time of the merger.

 

   

Mr. Quinlan, LSC’s chief executive officer, is party to an employment agreement with LSC, which provides that, if he experiences a qualifying termination of employment within the two years following the merger, he will be entitled to receive, among other benefits, lump sum cash severance equal to three times the sum of Mr. Quinlan’s base salary and target annual bonus (if Mr. Quinlan executes a customary release), a pro rata bonus for the year of termination, a $75,000 lump sum payment and continuation of benefits until the last day of the second calendar year following the calendar year of his termination. Mr. Quinlan’s employment agreement also provides for post-termination non-competition, non-solicitation and confidentiality restrictive covenants.

 

   

Each of LSC’s executive officers, other than Mr. Quinlan, has entered into a participation agreement under LSC’s Key Employee Severance Plan (which we collectively refer to as the “participation agreements”), providing for, among other things, benefits upon both a change in control and a subsequent qualifying termination of employment within the two years following the merger. The participation agreements provide for, among other benefits, salary continuation for 24 months (18 months for Mr. Hansen) and payments that in the aggregate equal 200% of the executive officer’s target annual bonus (150% for Mr. Hansen), subject to the execution of a release and agreement to post-termination non-competition, non-solicitation and confidentiality restrictive covenants.

 

   

For each of LSC’s executive officers, the accelerated payment of a pro-rata portion of their annual bonuses in respect of the fiscal year ending December 31, 2019 upon a termination without “cause” or resignation for “good reason” following the closing of the merger.

 

   

Mr. Quinlan participates in the LSC supplemental executive retirement plan (which we refer to as the “SERP-B”), which was frozen in 2004. Pursuant to its terms, upon a change in control of LSC, Mr. Quinlan’s accrued benefits under the SERP-B will be payable to him, as he is fully vested in his accrued benefit.

 

   

Ms. Bettman and Mr. Lane participate in the LSC Deferred Compensation Plan (which we refer to as the “deferred compensation plan”). Depending on the participant’s preexisting election, if a change in control occurs before separation from service and the participant elected to receive the change in control benefit, the account balance shall be paid in a lump sum within 60 days (subject to a six month delay under Section 409A of the Code, if applicable). If the participant did not elect to receive the change in control benefit, the account balance shall remain in the plan. Both Ms. Bettman and Mr. Lane are fully vested in their accounts under the deferred compensation plan.

 

   

Each of LSC’s executive officers, other than Mr. Hansen, participate in LSC’s supplemental pension plan (which we refer to as the “LSC SERP”). The LSC SERP is frozen and no additional amounts may be contributed. Pursuant to its terms, upon a separation from service within two years of a change in control, the participants will receive a lump sum payment of their accrued benefits after a six month delay. Each of the participating executive officers is fully vested in his or her accrued benefits under the LSC SERP.

 

   

Immediately after the effective time of the merger, the Quad/Graphics board of directors will increase in size in order to cause two current members of the LSC board of directors mutually agreed by LSC and Quad/Graphics, at the direction of the trustees of the Quad/Graphics voting trust, to be appointed to the Quad/Graphics board of directors.



 

-18-


Table of Contents
   

LSC’s executive officers and directors are entitled to continued indemnification and insurance coverage under the merger agreement.

Members of the LSC board of directors were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to LSC stockholders that they vote for the merger agreement proposal. For more information, see the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger” beginning on page 106. The interests are described in more detail below, and certain of them are quantified in the narrative and in the section entitled, “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Quantification of Payments and Benefits to LSC’s Named Executive Officers” beginning on page 110.

Interests of Quad/Graphics’ Executive Officers and Directors in the Merger

In considering the recommendation of the Quad/Graphics board of directors with respect to the share issuance proposal, Quad/Graphics shareholders should be aware that the executive officers and directors have interests in the merger that may be different from, or in addition to, the interests of Quad/Graphics shareholders generally.

These interests are described in more detail in the section entitled “The Merger—Interests of Quad/Graphics’ Executive Officers and Directors in the Merger” beginning on page 112.

The members of the Quad/Graphics board of directors were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement, in approving the merger agreement and in determining to recommend that Quad/Graphics shareholders approve the share issuance proposal.

Regulatory Approvals

Quad/Graphics and LSC intend to seek all required regulatory approvals, including antitrust clearance in the United States and Mexico. Under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (which we refer to as the “HSR Act”), and the rules promulgated thereunder, the merger may not be consummated until notification and report forms have been filed with the Federal Trade Commission (which we refer to as the “FTC”) and the Department of Justice (which we refer to as the “DOJ”) and the applicable waiting period (or any extension of such waiting period) has expired or been terminated.

On November 13, 2018, notification and report forms under the HSR Act were filed by each of Quad/Graphics and LSC with the FTC and the DOJ with respect to the merger. On December 13, 2018, Quad/Graphics and LSC each received a request for additional information and documentary material (which we refer to as the “second request”) from the DOJ in connection with the DOJ’s review of the merger. Issuance of the second request extends the waiting period under the HSR Act until 30 days after both Quad/Graphics and LSC have substantially complied with the second request or such later time as the parties may agree with the DOJ, unless the waiting period is terminated earlier by the DOJ. Quad/Graphics and LSC will continue to cooperate fully with the DOJ as it reviews the merger.

Neither Quad/Graphics nor LSC is aware of any material governmental approvals or actions that are required for consummation of the merger other than as described above. It is presently contemplated that if any such additional material governmental approvals or actions are required, those approvals or actions will be sought.

For additional information, see the section entitled “The Merger Agreement—Reasonable Best Efforts; Regulatory Filings and Other Actions” beginning on page 139.



 

-19-


Table of Contents

Certain Indebtedness of Quad/Graphics and LSC (see page 115)

Quad/Graphics is party to a revolving credit and term loan agreement (which we refer to as the “Quad/Graphics credit facility”), that includes a $375 million term loan A maturing in January 2021, a $300 million term loan B maturing in April 2021 and a $725 million revolving credit facility maturing in January 2021.

LSC is party to a credit agreement (which we refer to as the “LSC credit facility”), that includes a $375 million term loan B maturing in September 2022 and a $400 million revolving credit facility. LSC has also issued $450 million aggregate principal amount of 8.750% Senior Secured Notes due 2023 (which we refer to as the “LSC senior notes”).

Upon or prior to the closing date of the merger, Quad/Graphics will amend the Quad/Graphics credit facility to increase the aggregate principal amount of loans available thereunder. Quad/Graphics intends that the loans available under the amended Quad/Graphics credit facility will be used to repay, refinance, repurchase, redeem, exchange or otherwise terminate LSC’s existing indebtedness prior to, in connection with or following the consummation of the merger, and to pay transaction expenses.

Transaction Litigation (see page 116)

Three substantially similar actions have been filed by an alleged LSC stockholder against some or all of LSC, the directors of LSC, Quad/Graphics and merger sub. On December 21, 2018, an action captioned Joe Waters v. LSC, et al., No. 1:18-cv-08419, was filed in the U.S. District Court for the Northern District of Illinois against LSC, the directors of LSC, Quad/Graphics and merger sub on behalf of a putative class of LSC stockholders. On January 2, 2019, an action captioned David Wefer v. LSC, et al., No. 1:19-cv-00007, was filed in the U.S. District Court for the Southern District of New York against LSC and the directors of LSC. On January 7, 2019, an action captioned Patrick Plumley v. LSC, et al., No. 1:19-cv-00030-UNA, was filed in the U.S. District Court for the District of Delaware against LSC, the directors of LSC, Quad/Graphics and merger sub on behalf of a putative class of LSC stockholders. The lawsuits include similar allegations challenging the adequacy or completeness of the disclosures to LSC stockholders made in the initial version of this joint proxy statement/prospectus filed on December 11, 2018 regarding the merger, and the complaints assert claims under Section 14(a) and 20(a) of the Exchange Act against some or all of LSC, the members of the LSC board and Quad/Graphics. The complaints allege, among other things, that the initial version of this joint proxy statement/prospectus filed on December 11, 2018 misstated or omitted material information regarding the financial projections prepared by LSC management, the value of shares of LSC common stock and the financial analyses performed by LSC’s financial advisor and the sales process leading up to the merger. The complaints seek injunctive relief, including to enjoin the merger, damages in the event the merger is consummated and an award of attorneys’ fees, in addition to other relief.

Additional lawsuits arising out of the merger may be filed in the future. There can be no assurance that any of the defendants will be successful in the outcome of the pending or any potential future lawsuits. A preliminary injunction could delay or jeopardize the consummation of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin the consummation of the merger. LSC and Quad/Graphics believe that the lawsuits are without merit and intend to defend vigorously against them and any other lawsuits challenging the merger.

For more information, see “The Merger—Transaction Litigation,” beginning on page 116.

Voting and Support Agreement (see page 150)

Concurrently with the execution of the merger agreement, LSC and the trustees of the Quad/Graphics voting trust entered into the voting and support agreement, which is attached to this joint proxy statement/prospectus as



 

-20-


Table of Contents

Annex B and incorporated by reference in its entirety. As of the date of the voting and support agreement, the trustees of the Quad/Graphics voting trust had, directly or indirectly, the right to vote 10,046 shares of Quad/Graphics class A common stock and 12,574,255 shares of Quad/Graphics class B common stock, representing approximately 72.5% of Quad/Graphics total voting power. Pursuant to the voting and support agreement, each trustee of the Quad/Graphics voting trust has agreed that they will appear at any shareholder meeting relating to the matters below, or cause the shares held by the Quad/Graphics voting trust to otherwise be counted as present for purposes of calculating a quorum, and vote (or cause to be voted) Quad/Graphics shares held by the Quad/Graphics voting trust in favor of the share issuance proposal and against any alternative acquisition involving Quad/Graphics (other than the merger) or other action or agreement that would reasonably be expected to breach the obligations of Quad/Graphics in the merger agreement or the trustees in the voting and support agreement or impede, delay or adversely affect the merger, the share issuance proposal or the other transactions contemplated by the merger agreement. The voting and support agreement will terminate upon the earliest to occur of the effective time of the merger and the termination of the merger agreement.

Key Provisions of the Merger Agreement (see page 121)

Closing and Effective Time of the Merger

Unless otherwise mutually agreed to in writing between Quad/Graphics and LSC, the closing of the merger will take place at 7:00 a.m. Central Time on the second business day following the day on which the last to be satisfied of the conditions to the consummation of the merger, described in the section entitled “The Merger Agreement—Conditions to the Consummation of the Merger” beginning on page 144, has been satisfied or waived (other than those conditions that by their nature must be satisfied or, to the extent permitted, waived at the closing of the merger, but subject to the satisfaction or waiver of such conditions).

Assuming timely satisfaction of the necessary closing conditions, the parties currently expect the closing of the merger to occur mid-2019. The merger will become effective at the time when the certificate of merger for the merger has been duly filed with the Secretary of State of the State of Delaware, or such later time as agreed upon in writing by Quad/Graphics and LSC and specified in the certificate of merger.

Non-Solicitation by LSC

As more fully described in the section entitled “The Merger Agreement—Non-Solicitation of Acquisition Proposals; Changes of Recommendation” beginning on page 135 and in the merger agreement, and subject to the exceptions described below and in the merger agreement, LSC has agreed not to, and to cause its representatives not to, among other things, directly or indirectly:

 

   

solicit, initiate, make, knowingly facilitate or knowingly encourage any inquiries, proposals or offers that constitute, or that would reasonably be expected to lead to, an “acquisition proposal” (as described in the section entitled “The Merger Agreement—Non-Solicitation of Acquisition Proposals; Changes of Recommendation—Definition of Acquisition Proposal” beginning on page 136);

 

   

engage in, continue or otherwise participate in any discussions or negotiations with any third party regarding, furnish to any third party non-public information or provide to any third party access to the businesses, properties, assets or personnel of LSC or any of its subsidiaries, relating to, or as would reasonably be expected to lead to, an acquisition proposal;

 

   

enter into any letter of intent, memorandum of understanding, acquisition agreement, merger agreement, contract, commitment or agreement in principle or other similar agreement relating to, or that would reasonably be expected to lead to, an acquisition proposal (other than certain confidentiality agreements);



 

-21-


Table of Contents
   

take any action to make the provisions of any takeover law inapplicable to any transactions contemplated by an acquisition proposal; or

 

   

propose publicly or agree to do any of the foregoing.

LSC Restrictions on Changes of Recommendation

Subject to certain exceptions described below, LSC and the LSC board of directors (and each committee thereof) may not:

 

   

withhold, fail to include in (or remove from) this joint proxy statement/prospectus, withdraw, adversely qualify or modify (or resolve, determine or propose publicly to withhold, fail to include in (or remove from) this joint proxy statement/prospectus, withdraw, adversely qualify or modify) its recommendation that LSC stockholders approve the merger agreement proposal;

 

   

adopt, approve, recommend, submit to stockholders or declare advisable (or resolve, determine or propose publicly to adopt, approve, recommend, submit to stockholders or declare advisable) any acquisition proposal, including any superior proposal (as described in the section entitled “The Merger Agreement—Non-Solicitation of Acquisition Proposals; Changes of Recommendation—Definition of Superior Proposal” beginning on page 138); or

 

   

execute or enter into, or propose publicly to execute or enter into, any letter of intent, memorandum of understanding, acquisition agreement, merger agreement, contract, commitment or agreement in principle or other similar agreement relating to, or that would reasonably be expected to lead to, an acquisition proposal (other than certain confidentiality agreements).

The taking of any of the actions described in any of the first two bullets above we refer to as a “company adverse change recommendation”.

LSC: No-Shop Exceptions; Permitted Changes of Recommendation and Permitted Termination to Enter into a Superior Proposal

At any time prior to the time that the merger agreement proposal has been approved by LSC stockholders, the LSC board of directors may, in response to a superior proposal received by LSC after the date of the merger agreement, make a company adverse change recommendation in connection therewith and/or terminate the merger agreement, take action to make provisions of any takeover law inapplicable to any transactions contemplated by the acquisition proposal, pay the required termination fee under the merger agreement and enter into a definitive agreement with respect to such superior proposal, provided that the foregoing actions may only be taken if:

 

   

LSC receives a bona fide acquisition proposal that did not result from a material breach of the no-shop provisions of the merger agreement;

 

   

the LSC board of directors determines in good faith, after consultation with LSC’s financial advisor and LSC’s outside legal counsel, that such acquisition proposal constitutes a superior proposal, and after consultation with LSC’s outside legal counsel, that the failure to take such action with respect to such superior proposal would be inconsistent with the fiduciary duties of the LSC board of directors under applicable law;

 

   

Quad/Graphics received from LSC prior written notice of LSC’s express intention to approve or recommend or enter into a definitive agreement with respect to the superior proposal at least five business days prior to the date of such approval, recommendation or entry; and

 

   

LSC complied with the match right obligations under the merger agreement, which are described in the section entitled “The Merger Agreement—Non-Solicitation of Acquisition Proposals; Changes of



 

-22-


Table of Contents
 

Recommendation—LSC: No-Shop Exceptions; Permitted Changes of Recommendation and Permitted Termination to Enter into a Superior Proposal” beginning on page 137.

Conditions to the Consummation of the Merger

Under the merger agreement, the respective obligations of Quad/Graphics, LSC and merger sub to consummate the merger are subject to the satisfaction or waiver at or prior to the effective time of the merger of the following conditions:

 

   

Quad/Graphics Shareholder Approval. The share issuance proposal must have been approved by the affirmative vote of a majority of votes cast by Quad/Graphics shareholders present in person or by proxy at the Quad/Graphics special meeting and entitled to vote on the proposal.

 

   

LSC Stockholder Approval. The merger agreement proposal must have been approved by holders of a majority of the outstanding shares of LSC common stock entitled to vote thereon at the LSC special meeting.

 

   

Regulatory Consents. The waiting period under the HSR Act and any other required regulatory approvals, including Mexico antitrust approval, applicable to the consummation of the merger and the other transactions contemplated by the merger agreement must have expired or been terminated, and any authorizations, consents, orders, approvals, filings and declarations under other antitrust laws must have been obtained as outlined in the section entitled “The Merger Agreement—Reasonable Best Efforts; Regulatory Filings and Other Actions” beginning on page 139.

 

   

Statutes. No law has been enacted or promulgated by any governmental body of competent jurisdiction that remains in effect that precludes, restrains, enjoins or otherwise prohibits the consummation of the merger or the other transactions contemplated by the merger agreement.

 

   

Injunctions. There must not be any order, injunction, judgment, decree, ruling or other similar requirement enacted, adopted, promulgated or applied by a governmental body or arbitrator that is binding upon or applicable to any person or its property that in effect precludes, restrains, enjoins or otherwise prohibits the consummation of the merger and the other transactions contemplated by the merger agreement.

 

   

S-4 Registration Statement. The registration statement of which this joint proxy statement/prospectus forms a part must have become effective under the Securities Act and must not be the subject of any stop order issued by the SEC or any pending proceedings initiated by the SEC seeking such a stop order.

 

   

Listing of Quad/Graphics Class A Common Stock. The shares of Quad/Graphics class A common stock issuable to LSC stockholders pursuant to the merger agreement must have been approved for listing on the NYSE, subject to official notice of issuance.

Under the merger agreement, the obligations of Quad/Graphics and merger sub to consummate the merger are subject to the satisfaction or waiver of the following additional conditions:

 

   

certain representations and warranties of LSC regarding due organization and validity of existence; corporate authority; the inapplicability of certain anti-takeover laws, approval and fairness, and the absence of other financial advisors must be true and correct in all material respects as of the date of the merger agreement and as of the closing date of the merger as though made on and as of such date (except to the extent that any such representation and warranty expressly speaks as of another date, in which case such representation and warranty will only be required to be so true and correct as of such other date);



 

-23-


Table of Contents
   

certain representations and warranties of LSC and its subsidiaries regarding capitalization must be true and correct as of the date of the merger agreement and the closing date of the merger as though made on and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will only be required to be so true and correct as of such other date), except for any de minimis inaccuracies in the aggregate in amount or effect;

 

   

certain representations and warranties of LSC and its subsidiaries regarding the absence of certain changes must be true and correct as of the date of the merger agreement and the closing of the merger as though made on and as of such date and time;

 

   

the other representations and warranties of LSC and its subsidiaries must be true and correct, without regard to materiality, a company material adverse effect, or similar qualifiers, as of the date of the merger agreement and as of the closing date of the merger as though made on and as of such date and time (except to the extent that any such representation and warranty expressly speaks as of another date, in which case such representation and warranty will only be required to be so true and correct as of such other date), other than for such failures to be so true and correct that, individually or in the aggregate, have not had or would not reasonably be expected to have a company material adverse effect (as described in the section entitled “The Merger Agreement—Representations and Warranties” beginning on page 126);

 

   

LSC must have performed and complied with in all material respects all of its agreements and covenants contained in the merger agreement required to be performed or complied with at or prior to the closing of the merger; and

 

   

Quad/Graphics must have received a certificate signed by the chief executive officer of LSC, dated as of the closing date of the merger, to the effect that the foregoing closing conditions have been satisfied.

Under the merger agreement, the obligation of LSC to consummate the merger is subject to the satisfaction or waiver of the following additional conditions:

 

   

certain representations and warranties of Quad/Graphics and merger sub regarding due organization and validity of existence; corporate authority; approval and fairness, the inapplicability of certain anti-takeover laws, and broker’s and finder’s fees must be true and correct in all material respects as of the date of the merger agreement and as of the closing date of the merger as though made on and as of such date (except to the extent that any such representation and warranty expressly speaks as of another date, in which case such representation and warranty will only be required to be so true and correct as of such other date);

 

   

certain representations and warranties of Quad/Graphics and merger sub regarding capitalization must be true and correct as of the date of the merger agreement and the closing date of the merger as though made on and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will only be required to be so true and correct as of such other date), except for any de minimis inaccuracies in the aggregate in amount or effect;

 

   

certain representations and warranties of Quad/Graphics and merger sub regarding the absence of certain changes must be true and correct as of the date of the merger agreement and the closing of the merger as though made on and as of such date and time;

 

   

the other representations and warranties of Quad/Graphics and merger sub must be true and correct, without regard to materiality, a parent material adverse effect, or similar qualifiers, as of the date of the merger agreement and as of the closing date of the merger as though made on and as of such date and time (except to the extent that any such representation and warranty expressly speaks as of another



 

-24-


Table of Contents
 

date, in which case such representation and warranty will only be required to be so true and correct as of such other date), other than for such failures to be so true and correct that, individually or in the aggregate, have not had or would not reasonably be expected to have a parent material adverse effect (as described in the section entitled “The Merger Agreement—Representations and Warranties” beginning on page 126);

 

   

Quad/Graphics and merger sub must have performed and complied with in all material respects all of their respective agreements and covenants in the merger agreement required to be performed or complied with by them at or prior to the closing of the merger; and

 

   

LSC must have received a certificate signed by the chief executive officer of Quad/Graphics, dated as of the closing date of the merger, to the effect that the foregoing closing conditions have been satisfied.

Termination

Quad/Graphics and LSC may terminate the merger agreement and abandon the merger at any time prior to the effective time of the merger by mutual written consent of Quad/Graphics and LSC by action of their respective board of directors.

The merger agreement may also be terminated by either Quad/Graphics or LSC at any time prior to the effective time of the merger in any of the following situations so long as the material breach of the terminating party of its obligations under the merger agreement has not been the proximate cause of the failure of such condition to the consummation of the merger or the failure of the consummation of the merger to occur:

 

   

any law or order permanently restraining, enjoining or otherwise prohibiting the consummation of the merger becomes final and non-appealable (which we refer to as a “regulatory approval termination event”);

 

   

the LSC special meeting is held and the LSC stockholders do not approve the merger agreement proposal at such meeting or at any permitted adjournment or postponement of such meeting (which we refer to as an “LSC stockholder approval termination event”);

 

   

the Quad/Graphics special meeting is held and the Quad/Graphics shareholders do not approve the share issuance proposal at such meeting or at any permitted adjournment or postponement of such meeting (which we refer to as a “Quad/Graphics shareholder approval termination event”); or

 

   

the consummation of the merger does not occur by October 30, 2019 (which we refer to as an “end date termination event”).

In addition, the merger agreement may be terminated by Quad/Graphics:

 

   

prior to the time the LSC stockholders approve the merger agreement proposal, if any of the following occurs (each of which we refer to as an “LSC board recommendation termination event”):

 

   

a company adverse change recommendation is effected;

 

   

LSC has failed to publicly reaffirm its recommendation in favor of the merger agreement proposal within 10 business days after the commencement of any acquisition proposal that is a tender offer or exchange offer;

 

   

LSC has materially breached its “no-shop” or “board recommendation” covenants and such breach is not curable or, if curable, is not cured within the earlier of (i) 10 calendar days after written notice of the breach is given by Quad/Graphics to LSC and (ii) the fifth business day prior to October 30, 2019; or



 

-25-


Table of Contents
   

prior to the effective time of the merger, if there is a breach by LSC of any representation or warranty or failure to perform or comply with any covenant or obligation contained in the merger agreement, such that the condition to closing described above relating to the accuracy of the representations and warranties of LSC or LSC’s compliance with or performance of the covenants or agreements of LSC would not be satisfied, and such breach or condition is not curable, or, if curable, is not cured by LSC prior to the earlier of 30 days after written notice thereof is given by Quad/Graphics to LSC and the second business day prior to October 30, 2019 (which we refer to as the “LSC breach termination event”), unless there is also a Quad/Graphics breach termination event (as defined below) in effect at such time.

Further, the merger agreement may be terminated by LSC:

 

   

prior to the effective time of the merger, if Quad/Graphics has failed to take a vote of the shareholders of Quad/Graphics on the share issuance proposal at least five business days prior to October 30, 2019, or Quad/Graphics is in breach of its obligation to submit the share issuance proposal at the Quad/Graphics special meeting, provided, however, that the right to terminate the merger agreement under this bullet is not available if a material breach of LSC’s obligations under the merger agreement was the proximate cause of the failure to obtain approval of the share issuance proposal;

 

   

prior to the effective time of the merger, if there is a breach by Quad/Graphics or merger sub of any representation or warranty or failure to perform or comply with any covenant or obligation contained in the merger agreement, such that the condition to closing described above relating to the accuracy of the representations and warranties of Quad/Graphics and merger sub or Quad/Graphics’ compliance with or performance of the covenants or agreements of Quad/Graphics or merger sub would not be satisfied, and such breach or condition is not curable, or, if curable, is not cured by Quad/Graphics or merger sub prior to the earlier of 30 days after written notice thereof is given by LSC to Quad/Graphics and the second business day prior to October 30, 2019 (which we refer to as the “Quad/Graphics breach termination event”), unless there is also a LSC breach termination event in effect at such time; or

 

   

prior to the time the approval of the merger agreement proposal by LSC stockholders is obtained, to enter into a definitive acquisition agreement providing for the consummation of a superior proposal in accordance with the merger agreement.

Termination Fees

Termination Fees Payable by LSC

The merger agreement requires LSC to pay Quad/Graphics a termination fee of $12.5 million (which we refer to as the “termination fee”), and requires LSC to reimburse Quad/Graphics for all documented and reasonable out-of-pocket expenses incurred by Quad/Graphics or merger sub in connection with the merger agreement and the transactions contemplated by the merger agreement, in an amount not to exceed $2,000,000, if:

 

   

Quad/Graphics terminates the merger agreement due to an LSC board recommendation termination event;

 

   

LSC terminates the merger agreement, prior to the time the approval of the merger agreement proposal by LSC stockholders is obtained, to enter into a definitive acquisition agreement providing for the consummation of a superior proposal in accordance with the merger agreement; or

 

   

(i) Quad/Graphics or LSC terminates the merger agreement because there has been an LSC stockholder approval termination event or an LSC breach termination event (as a result of a material breach of the “no-shop” or “board recommendation” covenants), (ii) after October 30, 2018 and at or prior to the



 

-26-


Table of Contents
 

time of the termination of the merger agreement, an acquisition proposal was publicly announced after October 30, 2018 and not unconditionally withdrawn, and (iii) within 12 months after such termination, LSC or any subsidiary of LSC consummates an acquisition proposal or enters into a definitive agreement to effect an acquisition proposal (in each case, substituting “50%” for “15%” in the definition of acquisition proposal for these purposes), provided, that no termination fee will be payable pursuant to this bullet point if Quad/Graphics would be or is required to pay the “regulatory approval reverse termination fee” (as defined below).

LSC will not be required to pay the termination fee on more than one occasion.

Termination Fees Payable by Quad/Graphics

The merger agreement requires Quad/Graphics to pay LSC a termination fee of $45 million (which we refer to as the “regulatory approval reverse termination fee”), if:

 

   

Quad/Graphics or LSC terminates the merger agreement because there has been a regulatory approval termination event due to a governmental body having enacted an order with respect to any of the HSR Act or Mexico antitrust approval or an end date termination event; or

 

   

LSC terminates the merger agreement due to a Quad/Graphics breach termination event as a result of any material breach by Quad/Graphics of certain covenants related to regulatory consents;

provided that, in each case, at the time of such termination certain required conditions to the closing of the merger relating to the regulatory consents and injunctions have not been satisfied.

Expenses

Except as otherwise provided in the merger agreement, all fees and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated by the merger agreement will be paid by the party incurring such fees or expenses, whether or not the merger is consummated.

Material U.S. Federal Income Tax Consequences (see page 117)

Quad/Graphics and LSC intend to take the position that the merger is characterized as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code for U.S. federal income tax purposes. Assuming that the merger is so characterized, U.S. holders of shares of LSC common stock generally will not recognize any U.S. federal income tax gain or loss upon receipt of shares of Quad/Graphics class A common stock in exchange for shares of LSC common stock in the merger, except that gain or loss will be recognized with respect to any cash received in lieu of a fractional share of Quad/Graphics class A common stock. The U.S. federal income tax consequences of the merger are discussed in more detail in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences” beginning on page 117. The discussion of the material U.S. federal income tax consequences contained in this joint proxy statement/prospectus is intended to provide only a general discussion and is not a complete analysis or description of all potential U.S. federal income tax consequences of the merger that may vary with, or are dependent on, individual circumstances. In addition, the discussion does not address the effects of any foreign, state or local tax laws.

No Appraisal/Dissenters’ Rights (see page 119)

Because shares of LSC common stock are listed on the NYSE and holders of shares of LSC common stock are not required to receive consideration other than shares of Quad/Graphics class A common stock, which are listed on the NYSE, and cash in lieu of fractional shares, in the merger, holders of LSC common stock are not entitled to exercise appraisal or dissenters’ rights under Delaware law in connection with the merger.



 

-27-


Table of Contents

No appraisal or dissenters’ rights are available to Quad/Graphics shareholders in connection with the transactions contemplated by the merger agreement.

Comparison of Shareholder Rights

The rights of LSC stockholders who receive shares of Quad/Graphics class A common stock in the merger will be governed by Quad/Graphics’ amended and restated articles of incorporation and amended bylaws, rather than by LSC’s amended and restated certificate of incorporation and amended and restated by-laws. As a result, LSC stockholders will have different rights once they become Quad/Graphics shareholders due to the differences in the organizational documents of LSC and Quad/Graphics. The key differences are described in the section entitled “Comparison of the Rights of Quad/Graphics Shareholders and LSC Stockholders” beginning on page 183.



 

-28-


Table of Contents

QUAD/GRAPHICS SELECTED HISTORICAL FINANCIAL INFORMATION

The following table presents selected historical consolidated financial data for Quad/Graphics as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 and the nine months ended September 30, 2018 and 2017. The consolidated financial data for each of the years ended December 31, 2017, 2016 and 2015, and as of December 31, 2017 and 2016 have been derived from Quad/Graphics’ selected financial data and audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which is incorporated by reference herein in its entirety. The selected historical consolidated financial data of Quad/Graphics for each of the years ended December 31, 2014 and 2013 and as of December 31, 2015, 2014 and 2013 have been derived from Quad/Graphics’ selected financial data and audited consolidated financial statements for such years, which have not been incorporated by reference herein. The selected historical consolidated financial data of Quad/Graphics as of September 30, 2017 have been derived from Quad/Graphics’ selected financial data and unaudited consolidated financial statements for such period, which has not been incorporated by reference herein. The selected historical consolidated financial data of Quad/Graphics for the nine months ended September 30, 2018 and 2017 and as of September 30, 2018 have been derived from Quad/Graphics’ unaudited interim consolidated financial statements included in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, which is incorporated by reference herein in its entirety.

The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Quad/Graphics nor does it include the effects of the merger. This summary should be read together with the other information contained in Quad/Graphics’ Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and Quad/Graphics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes therein. For additional information, see the section entitled “Where You Can Find More Information” beginning on page 200.

 

    As of and for the nine
months ended
September 30,
    As of and for the year ended December 31,  
    2018(3)     2017(4)     2017(4)     2016     2015(2)     2014     2013  
    (in millions, except per share data)  

Consolidated Statements of Operations Data:

             

Net sales

  $ 3,012.1     $ 2,967.2     $ 4,131.4     $ 4,329.5     $ 4,597.1     $ 4,777.6     $ 4,712.7  

Operating income (loss)(1)

    68.6       127.9       155.3       117.3       (838.0     125.3       132.8  

Net earnings (loss) attributable to Quad/Graphics common shareholders

    29.3       51.9       107.2       44.9       (641.9     18.6       32.5  

Earnings (loss) per diluted share attributable to Quad/Graphics common shareholders

    0.57       1.01       2.07       0.90       (13.40     0.38       0.65  

Consolidated Balance Sheets Data:

             

Total assets

  $ 2,533.8     $ 2,477.4     $ 2,452.4     $ 2,570.1     $ 2,847.5     $ 4,008.8     $ 4,103.6  

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

    1,027.0       981.2       917.2       1,038.7       1,249.6       1,309.4       1,258.2  

Other Financial Data:

             

Dividends per share of common stock

  $ 0.90     $ 0.90     $ 1.20     $ 1.20     $ 1.20     $ 1.20     $ 1.20  

 

(1)

Operating income (loss) for all previously reported periods reflects the unaudited January 1, 2018 retrospective adoption of ASU 2017-07, which requires certain components of net pension income to be



 

-29-


Table of Contents
  excluded from operating income (loss) and to be presented elsewhere in the statement of operations. See Note 1 to the condensed consolidated financial statements on Quad/Graphics’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 for further information.
(2)

Goodwill impairment charges of $808.3 million ($542.4 million, net of tax) were recorded during the year ended December 31, 2015.

(3)

The statement of operations data includes the operating results from Ivie & Associates and Rise Interactive from the dates of their acquisition or increased investment, respectively, in 2018. On January 1, 2018, Quad/Graphics adopted Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” (“Topic 606”), which provides revised guidance on recognizing revenue from contracts with customers. Quad/Graphics adopted Topic 606 using the modified retrospective approach and applied the guidance to those contracts which were not completed as of January 1, 2018. This means that Topic 606 has been applied to the 2018 financial statements going forward, but that prior period financial statements reflect the revenue recognition standard of Topic 605, Revenue from Contracts with Customers.

(4)

The statement of operations data includes the operating results from QuadTech, Inc. through the date of its divestiture in 2017.



 

-30-


Table of Contents

LSC SELECTED HISTORICAL FINANCIAL INFORMATION

The following table presents selected historical consolidated and combined financial data for LSC as of and for the years ended December 31, 2017, 2016 and 2015. The consolidated and combined financial data for each of the years ended December 31, 2017, 2016 and 2015, and as of December 31, 2017 and 2016 have been derived from LSC’s selected financial data and audited consolidated and combined financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (except for items 1, 7 and 15 which were recast in its Current Report on Form 8-K filed with the SEC on December 11, 2018), which are incorporated by reference herein in their entirety. The selected historical combined financial data of LSC as of December 31, 2015 have been derived from LSC’s selected financial data and audited consolidated and combined financial statements for the year ended December 31, 2016, which has not been incorporated by reference herein. The selected historical consolidated financial data of LSC as of September 30, 2017 has been derived from LSC’s selected financial data and unaudited consolidated financial statements for such period, which has not been incorporated by reference herein. The selected historical consolidated financial data of LSC for the nine months ended September 30, 2018 and 2017 and as of September 30, 2018 have been derived from LSC’s unaudited interim consolidated financial statements included in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, which is incorporated by reference herein in its entirety.

The selected historical financial data reflects the consolidated and combined position of LSC as an independent, publicly-traded company for periods on or after its separation from R.R. Donnelley & Sons Company (which we refer to as “RRD”) on October 1, 2016. Selected financial data for periods prior to October 1, 2016 reflect the combined historical business and operations of LSC as it was historically managed as part of RRD, and have been prepared on a “carve-out” basis for the purpose of presenting LSC’s historical financial condition and results of operations.

The information set forth below is only a summary and is not necessarily indicative of the results of future operations of LSC nor does it include the effects of the merger. This summary should be read together with the other information contained in LSC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (except for items 1,7 and 15 which were recast in its Current Report on Form 8-K filed with the SEC on December 11, 2018) and LSC’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes therein. For additional information, see the section entitled “Where You Can Find More Information” beginning on page 200.



 

-31-


Table of Contents
    As of and for the nine
months ended
September 30,
    As of and for the year ended December 31,  
    2018(2)     2017(3)     2017(3)     2016     2015     2014     2013  
    (in millions, except per share data)  

Consolidated Statements of Operations Data:

             

Net sales

  $ 2,886.7     $ 2,604.5     $ 3,602.5     $ 3,653.9     $ 3,742.9     $ 3,853.4     $ 3,741.0  

Operating income (loss)(1)

    52.7       (4.2     (18.8     130.2       105.1       46.2       121.2  

Net earnings (loss) attributable to LSC common stockholders

    (7.0     1.2       (56.9     105.6       73.6       58.0       94.5  

Earnings (loss) per diluted share attributable to LSC common stockholders

    (0.21     0.03       (1.69     3.23       2.27       1.79       2.91  

Consolidated Balance Sheets Data:

             

Total assets

  $ 1,972.3     $ 2,072.9     $ 2,013.8     $ 1,952.2     $ 2,011.1     $ 1,869.1     $ 2,035.0  

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

    669.8       706.6       698.9       742.3       2.5       0.1       —    

Other Financial Data:

             

Dividends per share of common stock

  $ 0.78     $ 0.75     $ 1.00     $ 0.25     $ —       $ —       $ —    

 

(1)

Operating income (loss) for all previously reported periods reflects the unaudited January 1, 2018 retrospective adoption of ASU 2017-07, which requires certain components of net pension income to be excluded from operating income (loss) and to be presented elsewhere in the statement of operations. See Note 1 to the condensed consolidated financial statements on LSC’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 for further information.

(2)

The statement of operations data includes the operating results from LSC’s European printing business and the operations of LSC’s retail offset printing facilities through the dates of their divestitures in 2018, and includes the operating results from RRD’s Print Logistics business from the date of its acquisition in 2018. On January 1, 2018, LSC adopted Topic 606, which provides revised guidance on recognizing revenue from contracts with customers. LSC adopted Topic 606 using the modified retrospective approach and applied the guidance to those contracts which were not completed as of January 1, 2018. This means that Topic 606 has been applied to the 2018 financial statements going forward, but that prior period financial statements reflect the revenue recognition standard of Topic 605, Revenue from Contracts with Customers.

(3)

The statement of operations data includes the operating results from LSC’s acquisitions of HudsonYards Studios, LLC, Fairrington Transportation Corp., F.T.C. Transport, Inc. and F.T.C. Services, Inc., CREEL Printing, LLC, NECI, LLC, Publishers Press, LLC, Quality Park, and The Clark Group, Inc. from the dates of their acquisitions in 2017.



 

-32-


Table of Contents

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following selected unaudited pro forma condensed combined balance sheet data gives effect to the proposed merger as if it had occurred on September 30, 2018 while the unaudited pro forma condensed combined statement of operations data for the year ended December 31, 2017 and the nine months ended September 30, 2018 is presented as if the merger had occurred on January 1, 2017. The following selected unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and is not necessarily indicative of what Quad/Graphics’ financial position or results of operations actually would have been had the merger occurred as of the dates indicated. In addition, the selected unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of Quad/Graphics following the merger. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 37. Furthermore, the selected unaudited pro forma condensed combined financial information does not reflect the effect of the annualized net synergies that may result from the merger. The selected unaudited pro forma condensed combined statement of operations information also includes adjustments needed to present Quad/Graphics’ and LSC’s combined results as if certain acquisitions and divestitures that occurred during the periods were consummated on January 1, 2017. The following selected unaudited pro forma condensed combined financial information should be read in conjunction with the section titled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 151 and the related notes included in this joint proxy statement/prospectus.

 

     Nine Months Ended
September 30, 2018
     Year Ended
December 31, 2017
 
     (in millions, except per share data)  

Statement of operations information

     

Total net sales

   $ 5,793.5      $ 8,113.0  

Operating income

     109.2        154.9  

Net earnings (loss) attributable to Quad/Graphics and LSC common shareholders

     62.2        76.1  

Earnings (loss) per share attributable to Quad/Graphics and LSC common shareholders

     

Basic

   $ 0.87      $ 1.07  

Diluted

   $ 0.85      $ 1.04  

Weighted average number of common shares outstanding

     

Basic

     71.6        71.2  

Diluted

     73.4        73.4  

 

     As of
September 30,
2018

(in millions)
 

Balance sheet information

  

Cash and cash equivalents

   $ 29.7  

Total assets

     4,607.5  

Long-term debt, unsecured notes to be issued and capital lease obligations (excluding current portion)

     2,069.5  

Total liabilities

     3,921.6  


 

-33-


Table of Contents

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA

COMBINED PER SHARE INFORMATION

The following table presents Quad/Graphics’ and LSC’s historical and pro forma per share data for the nine months ended September 30, 2018 and the year ended December 31, 2017. The pro forma per share data for the nine months ended September 30, 2018 and the year ended December 31, 2017 is presented as if the merger had been consummated on January 1, 2017. This information should be read together with the historical consolidated (and combined for LSC) financial statements and related notes of Quad/Graphics and LSC, filed by each with the SEC, and incorporated by reference in this joint proxy statement/prospectus, and with the unaudited pro forma combined financial statements included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 151.

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

 

     Nine Months
Ended

September 30, 2018
    Year Ended
December 31, 2017
 
     (in millions, except per share data)  

Unaudited pro forma combined

    

Earnings (loss) per share attributable to Quad/Graphics and LSC common shareholders

    

Basic

   $ 0.87     $ 1.07  

Diluted

     0.85       1.04  

Dividends declared per common share

     0.90       1.20  

Book value per common share

     11.06       N/A  

Unaudited pro forma combined equivalent(a)

    

Earnings (loss) per share attributable to Quad/Graphics and LSC common shareholders

    

Basic

   $ 0.54     $ 0.67  

Diluted

     0.53       0.65  

Dividends declared per common share

     0.56       0.75  

Book value per common share

     11.06       N/A  

Quad/Graphics—historical

    

Earnings (loss) per share attributable to Quad/Graphics common shareholders

    

Basic

     0.59       2.16  

Diluted

     0.57       2.07  

Dividends declared per common share

     0.90       1.20  

Book value per common share

     9.93       10.05  

LSC—historical

    

Earnings (loss) per share attributable to LSC common shareholders

    

Basic

     (0.21     (1.69

Diluted

     (0.21     (1.69

Dividends declared per common share

     0.78       1.00  

Book value per common share

     6.64       7.19  

 

(a) determined using the pro forma combined per share data multiplied by 0.625 (the exchange ratio).



 

-34-


Table of Contents

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

Quad/Graphics Market Price and Dividend Information

Quad/Graphics class A common stock is listed on the NYSE under the symbol “QUAD.” The following table sets forth the intraday high and low prices per share for Quad/Graphics class A common stock for the periods indicated and the cash dividends per share declared with respect to Quad/Graphics class A common stock in the periods indicated, in each case rounded to the nearest whole cent. Any determination to pay dividends in the future will be at the discretion of the 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 Quad/Graphics board of directors deems relevant. Quad/Graphics’ fiscal year ends on December 31.

 

     High ($)      Low ($)      Dividend ($)  

2016:

        

First Quarter

     13.89        7.32        .30  

Second Quarter

     23.29        11.83        .30  

Third Quarter

     29.50        22.63        .30  

Fourth Quarter

     28.64        22.76        .30  

2017:

        

First Quarter

     28.40        21.33        .30  

Second Quarter

     29.04        21.54        .30  

Third Quarter

     23.61        18.16        .30  

Fourth Quarter

     24.04        20.80        .30  

2018:

        

First Quarter

     31.29        19.56        .30  

Second Quarter

     26.30        17.73        .30  

Third Quarter

     24.93        19.71        .30  

Fourth Quarter

     21.08        11.56        .30  

2019:

        

First Quarter (through Jan. 7)

     13.43        11.78         

Quad/Graphics class B common stock is held by certain members of the Quadracci family or trusts for their benefit (and can only be voluntarily transferred to Quad/Graphics or to a member of the Quadracci “family group,” as defined in the Quad/Graphics’ amended and restated articles of incorporation). There is no public trading market for the Quad/Graphics class B common stock.



 

-35-


Table of Contents

LSC Market Price and Dividend Information

LSC common stock is listed on the NYSE under the symbol “LKSD.” The following table sets forth the intraday high and low prices per share for LSC common stock for the periods indicated and the cash dividends per share declared with respect to LSC common stock in the periods indicated, in each case rounded to the nearest whole cent. LSC’s fiscal year ends on December 31.

 

     High ($)      Low ($)      Dividend ($)  

2016:

        

Third Quarter (Sept. 28 through Sept. 30)

     —          —          —    

Fourth Quarter

     36.89        17.00        .25  

2017:

        

First Quarter

     30.10        20.44        .25  

Second Quarter

     26.73        20.19        .25  

Third Quarter

     21.95        15.05        .25  

Fourth Quarter

     18.00        13.72        .25  

2018:

        

First Quarter

     18.64        11.79        .26  

Second Quarter

     18.17        11.58        .26  

Third Quarter

     16.46        10.64        .26  

Fourth Quarter

     11.52        6.60        .26  

2019:

        

First Quarter (through Jan. 7)

     7.99        6.82        —    

On October 30, 2018, the last trading day before the public announcement of the signing of the merger agreement, the closing sale price of Quad/Graphics class A common stock was $18.25 and the closing sale price per share of LSC common stock was $8.49, in each case on the NYSE. On October 31, 2018, the trading day on which the public announcement of the signing of the merger agreement was made, the closing sale price of Quad/Graphics class A common stock was $15.43 and the closing sale price per share of LSC common stock was $9.43, in each case on the NYSE. On January 7, 2019, the latest practicable date before the date of this joint proxy statement/prospectus, the closing sale price per share of Quad/Graphics class A common stock was $13.31 and the closing sale price per share of LSC common stock was $7.91, in each case on the NYSE.

The table below sets forth the equivalent market value per share of LSC common stock on October 30, 2018, October 31, 2018 and January 7, 2019, as determined by multiplying the closing prices of shares of Quad/Graphics class A common stock on those dates by the exchange ratio. Although the exchange ratio is fixed, the market prices of Quad/Graphics class A common stock and LSC common stock will fluctuate before the special meetings and before the merger is consummated. The market value of the merger consideration ultimately received by LSC stockholders will depend on the closing price of Quad/Graphics class A common stock on the day such stockholders receive their shares of Quad/Graphics class A common stock.

 

     Quad/Graphics
Class A Common
Stock ($)
     LSC
Common
Stock ($)
     Equivalent
Per Share
of LSC
Common
Stock ($)
 

October 30, 2018

     18.25        8.49        11.41  

October 31, 2018

     15.43        9.43        9.64

January 7, 2019

     13.31        7.91        8.32  


 

-36-


Table of Contents

RISK FACTORS

Quad/Graphics shareholders and LSC stockholders should carefully consider the following factors, in addition to those factors discussed elsewhere herein and in the documents that Quad/Graphics and/or LSC have filed with the SEC and which have been incorporated by reference into this joint proxy statement/prospectus and the other information in this joint proxy statement/prospectus, before voting at their respective special meetings.

Risks Relating to the Merger

Because the exchange ratio is fixed and because the market price of Quad/Graphics class A common stock may fluctuate, LSC stockholders cannot be certain of the precise value of the merger consideration they may receive.

Under the terms of the merger agreement, at the time the merger is consummated, each eligible share of LSC common stock will be converted into the right to receive 0.625 shares of Quad/Graphics class A common stock, subject to adjustment for any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in capitalization. The exchange ratio will not be adjusted for changes in the market price of Quad/Graphics class A common stock or LSC common stock prior to the consummation of the merger. If the merger is consummated, there will be a time lapse between each of the date of this joint proxy statement/prospectus, the dates on which LSC stockholders vote to approve the merger agreement proposal at the LSC special meeting and Quad/Graphics shareholders vote to approve the share issuance proposal at the Quad/Graphics special meeting, and the date on which LSC stockholders entitled to receive the merger consideration actually receive the merger consideration. The market value of shares of Quad/Graphics class A common stock may fluctuate during and after these periods as a result of a variety of factors, including general market and economic conditions, changes in Quad/Graphics’ businesses, operations and prospects and regulatory considerations. Such factors are difficult to predict and in many cases may be beyond the control of Quad/Graphics and LSC. Consequently, at the time LSC stockholders must decide whether to approve the merger agreement proposal, they will not know the actual market value of any merger consideration they will receive when the merger is consummated. The actual value of any merger consideration received by LSC stockholders at the consummation of the merger will depend on the market value of the shares of Quad/Graphics class A common stock at that time. This market value may differ, possibly materially, from the market value of shares of Quad/Graphics class A common stock at the time the merger agreement was entered into or at any other time. LSC stockholders should obtain current stock quotations for shares of Quad/Graphics class A common stock before voting their shares of LSC common stock.

The market price of Quad/Graphics class A common stock will continue to fluctuate after the merger.

Upon consummation of the merger, holders of LSC common stock who receive the merger consideration will become holders of shares of Quad/Graphics class A common stock. The market price of Quad/Graphics class A common stock may fluctuate significantly following consummation of the merger and holders of LSC common stock could lose some or all of the value of their investment in Quad/Graphics class A common stock.

LSC stockholders will have a reduced ownership and voting interest in Quad/Graphics following the merger compared to their ownership in LSC and will exercise less influence over management.

Currently, LSC stockholders have the right to vote in the election of LSC’s board of directors and the power to approve or reject any matters requiring stockholder approval under Delaware law and under LSC’s certificate of incorporation and bylaws. Upon consummation of the merger, each LSC stockholder who receives the merger consideration will become a shareholder of Quad/Graphics with a percentage ownership of Quad/Graphics that is smaller than the LSC stockholder’s current percentage ownership of LSC. Based on the number of issued and outstanding shares of Quad/Graphics class A common stock and the number of shares of LSC common stock outstanding as of January 7, 2019, and the exchange ratio, after the merger, LSC stockholders are expected to,

 

-37-


Table of Contents

collectively, become owners of approximately 29.6% of the economic ownership of Quad/Graphics following the merger, and approximately 11.1% of the voting power of Quad/Graphics following the merger, in each case, without giving effect to any shares of Quad/Graphics class A common stock held by LSC stockholders prior to the consummation of the merger. Even if all former LSC stockholders voted together on all matters presented to Quad/Graphics shareholders, the former LSC stockholders would exercise significantly less influence over Quad/Graphics after the consummation of the merger relative to their influence over LSC prior to the consummation of the merger, and thus would have a less significant impact on the approval or rejection of future Quad/Graphics proposals submitted to a shareholder vote. Further, while Quad/Graphics has agreed under the merger agreement to increase the size of the Quad/Graphics board of directors in order to cause two current members of the LSC board of directors mutually agreed by LSC and Quad/Graphics, at the direction of the trustees of the Quad/Graphics voting trust, to be appointed to the Quad/Graphics board of directors, there is no assurance that such directors will remain as members of the Quad/Graphics board of directors beyond their initial term.

Shares of Quad/Graphics class A common stock received by LSC stockholders as a result of the merger will have different rights from shares of LSC common stock.

Upon consummation of the merger, LSC stockholders will no longer be stockholders of LSC and will become shareholders of Quad/Graphics. There are important differences between the current rights of LSC stockholders and the rights to which such stockholders will be entitled as shareholders of Quad/Graphics. For a discussion of the different rights associated with the shares of Quad/Graphics class A common stock, see the section entitled “Comparison of the Rights of Quad/Graphics Shareholders and LSC Stockholders” beginning on page 183.

The merger agreement may be terminated in accordance with its terms and the merger may not be consummated.

The merger agreement is subject to a number of conditions that must be fulfilled in order to consummate the merger, which are described in the section entitled “The Merger Agreement—Conditions to the Consummation of the Merger” beginning on page 144. Those conditions include, among others: (i) the adoption of the merger agreement by LSC stockholders, (ii) the approval of the share issuance proposal by Quad/Graphics’ shareholders, (iii) the expiration of the applicable waiting period under the HSR Act, and other required regulatory approvals, (iv) the absence of any governmental order or law that precludes, restrains, enjoins or otherwise prohibits, the consummation of the merger or the other transactions contemplated by the merger agreement, and (v) Quad/Graphics’ shares of class A common stock issuable in the merger having been approved for listing on the NYSE. These conditions to the closing of the merger may not be fulfilled in a timely manner or at all, and, accordingly the merger may be delayed or may not be consummated.

In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after obtaining shareholder approval, or, if the merger is not consummated by October 30, 2019, either Quad/Graphics or LSC may choose to terminate the merger agreement and not proceed with the merger. Quad/Graphics or LSC may also elect to terminate the merger agreement in certain other circumstances as further detailed in the section entitled “The Merger Agreement—Termination” beginning on page 146.

The merger agreement limits LSC’s ability to pursue alternatives to the merger.

The merger agreement contains provisions that may discourage a third party from submitting an acquisition proposal (as defined in the section titled “The Merger Agreement—Non-Solicitation of Acquisition Proposals; Changes of Recommendation—Definition of Acquisition Proposal” beginning on page 136) to LSC that might result in greater value to LSC stockholders than the merger, or may result in a potential competing acquirer of LSC proposing to pay a lower per share price to acquire LSC than it might otherwise have proposed to pay. These provisions include a general prohibition on LSC soliciting or, subject to certain exceptions relating to the exercise of fiduciary duties by the LSC board of directors, furnishing information with respect to LSC or entering

 

-38-


Table of Contents

into discussions with any third party regarding any acquisition proposal or offer for a competing transaction. LSC also has an unqualified obligation to submit the merger agreement proposal to a vote by LSC stockholders, even if LSC receives an alternative acquisition proposal that the LSC board of directors believes is superior to the merger, unless the merger agreement is terminated in accordance with its terms prior to such time. In the event that LSC terminates the merger agreement to enter into an alternative acquisition that the LSC board of directors believes is superior to the merger, LSC will be required by the merger agreement to pay Quad/Graphics a termination fee of $12.5 million plus reimburse Quad/Graphics up to $2 million for reasonable and documented out-of-pocket expenses related to the merger agreement and the transactions contemplated thereby.

Failure to consummate the merger could negatively impact the stock price and the future business and financial results of Quad/Graphics and LSC.

The merger agreement contains a number of conditions that must be satisfied or waived prior to the consummation of the merger. There can be no assurance that all of the conditions to the consummation of the merger will be so satisfied or waived. If the conditions to the merger are not satisfied or waived, Quad/Graphics and LSC will be unable to consummate the merger and the merger agreement may be terminated.

If the merger is not consummated for any reason, the ongoing businesses of Quad/Graphics and LSC may be adversely affected and, without realizing any of the benefits of having consummated the merger, Quad/Graphics and LSC will be subject to a number of risks, including the following:

 

   

Quad/Graphics and LSC may experience negative reactions from the financial markets, including negative impacts on the market price of shares of Quad/Graphics class A common stock and LSC common stock;

 

   

the manner in which customers, vendors, business partners and other third parties perceive Quad/Graphics and LSC may be negatively impacted, which in turn could affect Quad/Graphics’ and LSC’s marketing operations and their ability to compete for new business or obtain renewals in the marketplace more broadly;

 

   

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

 

   

Quad/Graphics and LSC may experience negative reactions from employees;

 

   

LSC may be required to pay Quad/Graphics a termination fee of $12.5 million and reimburse Quad/Graphics for its out-of-pocket expenses up to $2 million and Quad/Graphics may be required to pay LSC a termination fee of $45 million if the merger is terminated under certain circumstances, as described in the merger agreement and summarized in this joint proxy statement/prospectus;

 

   

Quad/Graphics and LSC each may be required to pay certain costs relating to the merger, even if the merger is not consummated;

 

   

under the merger agreement, Quad/Graphics and LSC are subject to certain restrictions on the conduct of their businesses prior to consummating the merger, which may affect their ability to execute certain of their business strategies; and

 

   

the attention of Quad/Graphics and LSC management may be directed towards the consummation of the merger and merger-related considerations and may be diverted from the day-to-day business operations of Quad/Graphics and LSC, respectively, and matters related to the merger 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 LSC.

If the merger is not consummated, the price of Quad/Graphics class A common stock and LSC common stock may decline to the extent that the current market price reflects a market assumption that the merger will be

 

-39-


Table of Contents

consummated and that the related benefits will be realized, or to the extent there is a market perception that the merger was not consummated due to an adverse change in the business of Quad/Graphics or LSC.

The regulatory approvals required for the consummation of the merger may not be obtained or may take longer than expected to be received. In addition, an adverse outcome of any antitrust or similar review undertaken by a governmental authority could prevent the merger from being consummated or have an adverse effect on Quad/Graphics following the merger.

Consummation of the merger is conditional upon receipt of certain regulatory approvals, including, without limitation, the expiration or termination of the waiting period under the HSR Act in the United States and Mexico antitrust approval. Although Quad/Graphics and LSC have agreed to use their reasonable best efforts to obtain the requisite regulatory approvals, there can be no assurance that these approvals will be obtained.

In addition, the regulatory authorities from which these approvals are required may impose conditions on the consummation of the merger or require changes to the terms of the merger. In attempting to obtain the requisite regulatory approvals, neither Quad/Graphics nor any of its subsidiaries will be required to make any divestiture, sale or other disposition of its assets or businesses. However, although it is not required under the merger agreement to do so, if Quad/Graphics agrees to such conditions in order to obtain any approvals required to consummate the merger, then the business and results of operations of Quad/Graphics following the merger may be adversely affected.

Furthermore, if the merger agreement is terminated under certain circumstances as further detailed in the section entitled “The Merger Agreement—Termination” beginning on page 146 due to failure to obtain regulatory approvals or the material breach of Quad/Graphics of its obligations in respect of obtaining regulatory approvals, Quad/Graphics will pay LSC a reverse termination fee of $45 million.

The synergies expected to be produced may not be realized or may require Quad/Graphics after the consummation of the merger to incur additional costs that may adversely affect the value of Quad/Graphics’ class A common stock.

The success of the merger will depend, in part, on Quad/Graphics’ ability to realize the synergies expected to be produced from integrating LSC’s businesses with Quad/Graphics’ existing business through capacity rationalization, the elimination of duplicative functions, greater operational efficiencies and greater efficiencies in supply chain management, among other areas. Quad/Graphics has identified approximately $135 million of annualized net synergies that are expected to be achieved in less than 24 months after the consummation of the merger.

Quad/Graphics’ management estimates that the total cost to Quad/Graphics of achieving the annualized net synergies will be approximately $135 million in integration costs. Quad/Graphics’ estimates are based on a number of assumptions, which may prove incorrect. See “The Merger—Estimated Potential Synergies Attributable to the Merger” beginning on page 105 for additional information.

Following the merger, Quad/Graphics may also incur additional and/or unexpected costs in order to realize the anticipated synergies. While Quad/Graphics’ management believes that the annualized net synergies are achievable, it 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 LSC’s businesses may include, among others:

 

   

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

 

   

unanticipated changes in applicable laws and regulations;

 

-40-


Table of Contents
   

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

 

   

preserving significant business relationships;

 

   

consolidating corporate and administrative functions; and

 

   

other unanticipated issues, expenses and liabilities.

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

The executive officers and directors of LSC have interests and arrangements that may be different from, or in addition to, those of LSC stockholders generally.

When considering the recommendation of the LSC board of directors with respect to the proposals described in this joint proxy statement/prospectus, LSC stockholders should be aware that the executive officers and directors of LSC may have interests in the merger, which are different from, or in addition to, those of LSC stockholders, generally. These interests include the treatment in the merger of outstanding equity, equity-based and incentive awards, severance arrangements, other compensation and benefit arrangements, the future membership of two LSC board members, who have not yet been determined, on the Quad/Graphics board of directors after the effective time of the merger and the right to continued indemnification of LSC directors and officers by Quad/Graphics, as the surviving company of the merger.

LSC stockholders should be aware of these interests when they consider the recommendation of the LSC board of directors that they vote to approve the merger agreement proposal. The LSC board of directors was aware of these interests when it approved and declared advisable the merger agreement and the transactions contemplated thereby on the terms and subject to the conditions set forth in the merger agreement, determined that the merger agreement, the related voting and support agreement, the merger and other the transactions contemplated by the merger agreement were fair to, and in the best interests of, LSC and LSC stockholders and recommended that LSC stockholders approve the merger agreement proposal. The interests of LSC executive officers and directors are described in more detail in the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger” beginning on page 106.

Quad/Graphics and LSC will incur significant transaction and merger-related costs in connection with the merger, which may be in excess of those anticipated.

Both Quad/Graphics and LSC have incurred and will incur substantial expenses in connection with negotiation and consummation of the transactions contemplated by the merger agreement, including financial and legal advisor fees, financing costs and the costs and expenses of filing, printing and mailing of this joint proxy statement/prospectus.

Quad/Graphics and LSC expect to continue to incur a number of non-recurring costs associated with consummating the merger, combining the operations of the two companies and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. The substantial majority of the non-recurring expenses will consist of transaction costs related to the merger and include, among others, financing costs, employee retention costs, fees paid to financial, legal, and public relations advisors, severance and benefit costs and filing fees. As these transaction costs are non-recurring, these costs and expenses are not reflected in the pro forma statement of operations included in this joint proxy statement/prospectus. An estimate of certain of these costs, including debt issuance costs, change of control payments, debt breakage fees, broker, legal and advisor fees and retention bonuses are reflected in the pro forma balance sheet.

 

-41-


Table of Contents

Quad/Graphics and LSC will also incur transaction fees and costs related to formulating and implementing integration plans. Additional unanticipated costs also may be incurred while the merger is pending and for a period thereafter for the integration of the two companies’ businesses. Although Quad/Graphics and LSC expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow the companies to offset integration-related costs over time, this net benefit may not be achieved in the near-term, or at all. Certain of these costs will be borne by each of Quad/Graphics and LSC even if the merger is not consummated.

The opinions of Quad/Graphics’ and LSC’s respective financial advisors do not reflect changes in circumstances between the signing of the merger agreement and the consummation of the merger.

Quad/Graphics and LSC have received opinions from their respective financial advisors in connection with the signing of the merger agreement, but have not obtained updated opinions from their respective financial advisors as of the date of this joint proxy statement/prospectus. Changes in the operations and prospects of Quad/Graphics or LSC, general market and economic conditions and other factors that may be beyond the control of Quad/Graphics or LSC, and on which Quad/Graphics’ and LSC’s financial advisors’ opinions were based, may significantly alter the value of Quad/Graphics or LSC or the prices of the shares of Quad/Graphics class A common stock or of the shares of LSC common stock by the time the merger is consummated. The opinions do not speak as of the time the merger will be consummated or as of any date other than the October 30, 2018 date of such opinions. Because Quad/Graphics and LSC do not currently anticipate asking their respective financial advisors to update their opinions, the opinions will not address the fairness of the merger consideration from a financial point of view at the time the merger is consummated. Quad/Graphics board of directors’ recommendation that Quad/Graphics shareholders vote “FOR” approval of the share issuance proposal and the LSC board of directors’ recommendation that LSC stockholders vote “FOR” approval of the merger agreement proposal, the LSC compensation proposal and the LSC adjournment proposal, however, is made as of the date of this joint proxy statement/prospectus.

For a description of the opinions that Quad/Graphics and LSC received from their respective financial advisors, see the sections entitled “The Merger—Opinion of Quad/Graphics’ Financial Advisor” and “The Merger—Opinion of LSC’s Financial Advisor” beginning on pages 81 and 91, respectively. A copy of the opinion of J.P. Morgan, Quad/Graphics’ financial advisor, is attached as Annex C to this joint proxy statement/prospectus, and a copy of the opinion of BofA Merrill Lynch, LSC’s financial advisor, is attached as Annex D to this joint proxy statement/prospectus, and each is incorporated by reference herein in its entirety.

Lawsuits have been filed against LSC, the LSC board of directors, Quad/Graphics and merger sub challenging the adequacy or completeness of the disclosures made in the initial version of this joint proxy statement/prospectus filed on December 11, 2018, and other lawsuits may be filed against LSC, Quad/Graphics and/or their respective boards challenging the merger. An adverse ruling in any such lawsuit may prevent the merger from being consummated.

Three substantially similar actions were filed by an alleged LSC stockholder against some or all of LSC, the directors of LSC, Quad/Graphics and merger sub in the U.S. District Court for the Northern District of Illinois, the U.S. District Court for the Southern District of New York and the U.S. District Court for the District of Delaware challenging the adequacy or completeness of the disclosures to LSC stockholders made in the initial version of this joint proxy statement/prospectus filed on December 11, 2018 regarding the merger. Among other remedies, the plaintiffs seek to enjoin the merger until additional information relating to the merger is disclosed.

Additional lawsuits arising out of the merger may be filed in the future. See the section entitled “The Merger—Transaction Litigation” beginning on page 116 for more information about litigation related to the merger that has been commenced prior to the date of this joint proxy statement/prospectus. There can be no assurance that any of the defendants will be successful in the outcome of the pending or any potential future lawsuits. A preliminary injunction could delay or jeopardize the consummation of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin the consummation of the merger.

 

-42-


Table of Contents

LSC and/or Quad/Graphics may be targets of further securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the merger from being consummated.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgement could result in monetary damages, which could have a negative impact on Quad/Graphics’ and LSC’s respective liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the merger, then that injunction may delay or prevent the merger from being consummated, which may adversely affect Quad/Graphics’ and LSC’s respective business, financial position and results of operations.

Risks Relating to Quad/Graphics After the Merger

The integration of LSC into Quad/Graphics may not be as successful as anticipated.

The merger involves numerous operational, strategic, financial, accounting, legal, tax and other risks, potential liabilities associated with the acquired business, and uncertainties related to design, operation and integration of LSC’s internal control over financial reporting. Difficulties in integrating LSC into Quad/Graphics may result in LSC performing differently than expected, in operational challenges or in the failure to realize anticipated expense-related efficiencies. Quad/Graphics’ and LSC’s existing businesses could also be negatively impacted by the merger. Potential difficulties that may be encountered in the integration process include, among other factors:

 

   

the inability to successfully integrate the businesses of LSC into Quad/Graphics in a manner that permits Quad/Graphics to achieve the full revenue and cost savings anticipated from the merger;

 

   

complexities associated with managing the larger, more complex, integrated business;

 

   

not realizing anticipated operating synergies;

 

   

integrating personnel from the two companies and the loss of key employees;

 

   

potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the merger;

 

   

integrating relationships with customers, vendors and business partners;

 

   

performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by consummating the merger and integrating LSC’s operations into Quad/Graphics; and

 

   

the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.

Quad/Graphics’ results may suffer if it does not effectively manage its expanded operations following the merger.

Following consummation of the merger, Quad/Graphics’ success will depend, in part, on its ability to manage its expansion, which poses numerous risks and uncertainties, including the need to integrate the operations and business of LSC into its existing business in an efficient and timely manner, to combine systems and management controls and to integrate relationships with customers, vendors and business partners.

Quad/Graphics’ may fail to realize all of the anticipated benefits of the merger.

The success of the merger will depend, in part, on Quad/Graphics’ ability to realize the anticipated benefits and cost savings from combining Quad/Graphics’ and LSC’s businesses, including operational and other annualized net synergies of approximately $135 million that Quad/Graphics believes it will achieve. The

 

-43-


Table of Contents

anticipated benefits and cost savings of the merger may not be realized fully or at all, may take longer to realize than expected or could have other adverse effects that Quad/Graphics does not currently foresee. Some of the assumptions that Quad/Graphics has made, such as the achievement of operating synergies, may not be realized. The integration process may, for each of Quad/Graphics and LSC, result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could be potential unknown liabilities and unforeseen expenses associated with the merger that were not discovered in the course of performing due diligence.

Uncertainties associated with the merger may cause a loss of management personnel and other key employees, which could adversely affect the future business and operations of Quad/Graphics following the merger.

Quad/Graphics and LSC are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans. Each company’s success until the merger and Quad/Graphics success after the merger will depend in part upon the ability of Quad/Graphics and LSC to retain key management personnel and other key employees. Current and prospective employees of Quad/Graphics and LSC may experience uncertainty about their roles within Quad/Graphics following the merger, which may have an adverse effect on the ability of each of Quad/Graphics and LSC to attract or retain key management and other key personnel. Accordingly, no assurance can be given that following the merger, Quad/Graphics will be able to attract or retain key management personnel and other key employees of Quad/Graphics and LSC to the same extent that Quad/Graphics and LSC have previously been able to attract or retain their own employees.

The market price of Quad/Graphics class A common stock may decline in the future as a result of the sale of shares of Quad/Graphics class A common stock held by former LSC stockholders or current Quad/Graphics shareholders.

Based on the number of shares of LSC common stock outstanding as of January 7, 2019 and the number of outstanding LSC equity awards currently estimated to be payable in Quad/Graphics class A common stock in connection with the merger, Quad/Graphics expects to issue up to approximately 21.6 million shares of Quad/Graphics class A common stock to LSC stockholders in the merger. Following their receipt of shares of Quad/Graphics class A common stock as merger consideration, former LSC stockholders may seek to sell the shares of Quad/Graphics class A common stock delivered to them, and the merger agreement contains no restriction on the ability of former LSC stockholders to sell such shares of Quad/Graphics class A common stock following consummation of the merger. Other shareholders of Quad/Graphics class A common stock may also seek to sell shares of Quad/Graphics class A common stock held by them following, or in anticipation of, consummation of the merger. These sales (or the perception that these sales may occur), coupled with the increase in the outstanding number of shares of Quad/Graphics class A common stock, may affect the market for, and the market price of, Quad/Graphics class A common stock in an adverse manner.

Quad/Graphics’ debt following the merger may limit its financial flexibility.

As of September 30, 2018, Quad/Graphics had approximately $1.06 billion of outstanding indebtedness (including short-term debt and the current portion of long-term debt) and LSC had approximately $0.94 billion of outstanding indebtedness (including the current portion of long-term debt). Quad/Graphics will amend its credit facility to increase the aggregate principal amount of loans available thereunder and then use certain of those loans to repay, refinance, repurchase, redeem, exchange or otherwise terminate LSC’s existing indebtedness prior to, in connection with or following the consummation of the merger. In addition, under the merger agreement, all amounts outstanding under the LSC credit facility will be repaid upon the closing of the merger and Quad/Graphics is required to provide all necessary funds for such repayment. As a result, immediately following the consummation of the merger, Quad/Graphics is expected to have outstanding indebtedness of approximately $2.25 billion, based on Quad/Graphics’ and LSC’s outstanding indebtedness as of September 30, 2018.

 

-44-


Table of Contents

Results of operations and financial condition of Quad/Graphics following the merger may differ materially from the pro forma information presented in this joint proxy statement/prospectus.

The pro forma financial information included in this joint proxy statement/prospectus is derived from the historical audited and unaudited consolidated financial statements of Quad/Graphics and LSC, as well as from certain internal, unaudited financial statements. The preparation of this pro forma information is based upon available information and certain assumptions and estimates that Quad/Graphics and LSC believe are reasonable. However, this pro forma information may be materially different from what Quad/Graphics’ actual results of operations and financial condition would have been had the merger occurred during the periods presented or from what Quad/Graphics’ results of operations and financial position will be after the consummation of the proposed transaction. In particular, the assumptions used in preparing the pro forma financial information may not be realized, and other factors may affect Quad/Graphics’ financial condition and results of operations following the merger.

Holders of Quad/Graphics class A common stock are not able to independently elect directors of Quad/Graphics or control any of Quad/Graphics’ management policies or business decisions or its decisions to issue additional shares, declare and pay dividends or enter into corporate transactions because the holders of Quad/Graphics class A common stock have substantially less voting power than the holders of Quad/Graphics class B common 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 Quad/Graphics class A common stock.

Quad/Graphics’ outstanding stock is divided into two classes of common stock: class A common stock and class B common stock. The class B common stock has ten votes per share on all matters and the class A common stock is entitled to one vote per share. As of January 7, 2019, the class B common stock constitutes about 78.2% of Quad/Graphics’ total voting power. Based on the number of shares of LSC common stock outstanding as of January 7, 2019 and the number of outstanding LSC equity awards currently estimated to be payable in Quad/Graphics class A common stock in connection with the merger, Quad/Graphics expects to issue up to approximately 21.6 million shares of Quad/Graphics class A common stock to LSC stockholders in the merger. Based on the foregoing numbers, following the merger, it is expected that the class B common stock will constitute about 69.5% of Quad/Graphics total voting power. As a result, holders of class B common stock will be able to exercise a controlling influence over Quad/Graphics’ business, have the power to elect its directors and indirectly control decisions such as whether to issue additional shares, declare and pay dividends or enter into corporate transactions. All of the class B common stock is owned by certain members of the Quadracci family, trusts for their benefit or other affiliates of Quad/Graphics, whose interests may differ from the interests of the holders of class A common stock.

As of January 7, 2019, approximately 92.8% of the outstanding class B common stock is held of record by the Quad/Graphics voting trust, and that constitutes approximately 72.5% of Quad/Graphics’ total voting power. Based on the number of shares of LSC common stock and Quad/Graphics class A common stock currently outstanding, the number of outstanding LSC equity awards currently estimated to be payable in Quad/Graphics class A common stock in connection with the merger, and applying the exchange ratio, the class B common stock held pursuant to the Quad/Graphics voting trust following the merger is expected to constitute about 64.5% of Quad/Graphics’ total voting power. The trustees of the Quad/Graphics 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 will be able to exercise a controlling influence over Quad/Graphics’ business following the merger, will have the power to elect its directors and will indirectly control decisions such as whether to issue additional shares, declare and pay dividends or enter into corporate transactions.

 

-45-


Table of Contents

Quad/Graphics is expected to remain a controlled company within the meaning of the rules of the NYSE following the merger and, as a result, it will continue to rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

Following the consummation of the merger, the Quad/Graphics voting trust is expected to continue to own more than 50% of the total voting power of Quad/Graphics stock, and, as a result, Quad/Graphics will remain a controlled company under the corporate governance listing standards of the NYSE. As a controlled company, an exception under the NYSE listing standards exempts Quad/Graphics from the obligation to comply with certain of the NYSE’s corporate governance requirements, including the requirements:

 

   

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

 

   

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 common stock may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE.

In addition to the foregoing risks, you should read and consider risk factors specific to Quad/Graphics’ business that will also affect Quad/Graphics after the consummation of the merger. These risks are described in Part I, Item 1A of Quad/Graphics’ Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as such may be amended or supplemented in Part II, “Other Information,” Item 1A, “Risk Factors,” of Quad/Graphics’ subsequently filed Quarterly Reports on Form 10-Q, and in other documents that are incorporated by reference herein. For the location of information incorporated by reference in this joint proxy statement/prospectus, see the section entitled “Where You Can Find More Information” beginning on page 200.

Furthermore, you should read and consider risk factors specific to LSC’s business that will also affect Quad/Graphics after the consummation of the merger. These risks are described in Part I, Item 1A of LSC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as such may be amended or supplemented in Part II, “Other Information,” Item 1A, “Risk Factors,” of LSC’s subsequently filed Quarterly Reports on Form 10-Q, and in other documents that are incorporated by reference herein. For the location of information incorporated by reference in this joint proxy statement/prospectus, see the section entitled “Where You Can Find More Information” beginning on page 200.

 

-46-


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus and the documents that are incorporated by reference into this joint proxy statement/prospectus contain “forward-looking statements” within the meaning of, and subject to the safe harbor created by, Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical fact, included in this joint proxy statement/prospectus or the documents incorporated by reference herein that address activities, events or developments that Quad/Graphics and LSC expects, believes or anticipates will or may occur in the future are forward-looking statements. These forward-looking statements relate to, among other things, our objectives, goals, strategies, beliefs, intentions, plans, estimates, prospects, projections, expectations and outlook of Quad/Graphics or LSC, and can generally be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “believe,” “continue,” “project,” “predict,” “potential,” “create,” “intend,” “could,” “guidance,” “look,” “outlook,” “goal,” “future,” “assume,” “forecast,” “build,” “focus,” “work,” “target,” “hope,” “aim,” “would,” or “should” or the negatives of these terms, variations on them and other similar expressions.

These forward-looking statements include, but are not limited to, statements regarding the merger, pro forma descriptions of Quad/Graphics following the merger and its operations, integration and transition plans, synergies, opportunities and anticipated future performance. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this joint proxy statement/prospectus. These include:

 

   

the risk that the merger agreement may be terminated in accordance with its terms and that the merger may not be consummated;

 

   

the possibility that LSC stockholders may not approve the merger agreement proposal;

 

   

the risk that the parties may not be able to obtain the expiration or termination of the waiting period applicable under the HSR Act in a timely manner or satisfy any of the other conditions to the consummation of the merger in a timely manner or at all;

 

   

the risk that the merger may not be accretive, and may be dilutive, to Quad/Graphics’ earnings per share, which may negatively affect the market price of Quad/Graphics class A common stock;

 

   

the possibility that Quad/Graphics and LSC will incur significant transaction and other costs in connection with the merger, which may be in excess of those anticipated by Quad/Graphics or LSC;

 

   

the risk that Quad/Graphics may fail to realize the benefits expected from the merger;

 

   

the risk that, following the merger, Quad/Graphics may be unable to achieve the expected annualized net synergies or that it may take longer than expected to achieve those synergies;

 

   

the risk that any announcements relating to, or the consummation of, the merger could have adverse effects on the market price of Quad/Graphics class A common stock;

 

   

the risk that the merger and its announcement and/or consummation could have an adverse effect on the ability of Quad/Graphics and LSC to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers; and

 

   

the risks to their operating results and businesses generally.

Quad/Graphics and LSC caution that the foregoing list of risks, uncertainties and other factors is not exhaustive, and you should carefully consider the other factors detailed from time to time in Quad/Graphics’ and LSC’s filings with the SEC and other uncertainties and potential events when reviewing Quad/Graphics’ and LSC’s forward-looking statements. For more information, see the sections entitled “Risk Factors” and “Where You Can Find More Information” beginning on page 37 and 200, respectively.

Because forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties, some of which are beyond the control of Quad/Graphics and LSC, actual results

 

-47-


Table of Contents

may differ materially from those expressed or implied by such forward-looking statements. Consequently, all of the forward-looking statements Quad/Graphics and LSC make in this joint proxy statement/prospectus are qualified by the information contained or incorporated by reference herein, including the information contained under this heading and elsewhere in this joint proxy statement/prospectus, and the information detailed in Part I, Item 1A of Quad/Graphics’ Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as such may be amended or supplemented in Part II, “Other Information,” Item 1A, “Risk Factors,” of Quad/Graphics’ subsequently filed Quarterly Reports on Form 10-Q, and in Part I, Item 1A of LSC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as such may be amended or supplemented in Part II, “Other Information,” Item 1A, “Risk Factors,” of LSC’s subsequently filed Quarterly Reports on Form 10-Q.

You are cautioned not to place undue reliance on such statements, which speak only as of the date of this joint proxy statement/prospectus or the date of any document incorporated by reference. Except to the extent required by the federal securities laws, Quad/Graphics and LSC undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

-48-


Table of Contents

THE COMPANIES

Quad/Graphics

Quad/Graphics is a leading marketing solutions provider. Quad/Graphics leverages its strong print foundation as part of a much larger, robust integrated marketing platform that helps marketers and content creators improve the efficiency and effectiveness of their marketing spend across offline and online media channels. With a consultative approach, worldwide capabilities, leading-edge technology and single-source simplicity, Quad/Graphics believes it has the resources and knowledge to help a wide variety of clients in multiple vertical industries, including retail, publishing and healthcare.

Quad/Graphics was founded in Pewaukee, Wisconsin, as a Wisconsin corporation, in 1971 by the late Harry V. Quadracci. As of December 31, 2017, Quad/Graphics had approximately 21,100 full-time equivalent employees in North America, South America, Europe and Asia, and served a diverse base of approximately 6,900 clients from 147 facilities located in 17 countries, as well as investments in printing operations in Brazil and India.

Quad/Graphics is on a transformative journey that it describes in evolutions. Each new evolution expands Quad/Graphics’ offerings and creates enhanced value for its clients. Quad 1.0 covered a period of tremendous organic growth that began with its founding in 1971. During this 40-year period, Quad/Graphics grew rapidly through greenfield growth, built a premier manufacturing and distribution platform equipped with the latest technology, established its reputation as one of the industry’s foremost innovators and created a company culture based on strong values that remains in place today.

Quad 2.0 began in 2010 and continues today with Quad/Graphics’ ongoing role as a disciplined industry consolidator. Quad/Graphics saw an opportunity to participate in industry consolidation in response to economic and industry pressures following the Great Recession of 2008 and 2009, which severely impacted print volumes. Through a series of consolidating acquisitions, Quad/Graphics was able to enhance and expand its product offerings, while removing inefficient and underutilized capacity, pulling out costs and transitioning work to more efficient facilities.

Quad 3.0 evolved when the seismic shifts in today’s multichannel marketing environment provided the opportunity for Quad/Graphics to expand its offering as a marketing solutions provider to create greater value for its clients in two distinct ways:

 

   

Quad/Graphics will continue to leverage its strong print foundation and expand its integrated marketing platform to help marketers and content creators create, integrate, deploy and measure content more efficiently and effectively.

 

   

To fuel Quad 3.0, Quad/Graphics is supported by an engaged workforce with the latest in manufacturing technology to drive continued productivity improvements. Quad/Graphics believes this will strengthen its core manufacturing platform to be the strongest and most sustainable platform in the industry, with the goal of remaining the industry’s high-quality, low-cost producer.

For the year ended December 31, 2017, Quad/Graphics had total net sales of approximately $4.1 billion, total operating income of approximately $164.9 million and net earnings of approximately $107.2 million. For the nine months ended September 30, 2018, Quad/Graphics had total net sales of approximately $3.0 billion, total operating income of approximately $68.6 million and net earnings of approximately $28.5 million.

Quad/Graphics’ operating and reportable segments, including their product and service offerings, and a “Corporate” category are as follows:

The United States Print and Related Services segment is predominantly comprised of Quad/Graphics’ United States printing operations and is managed as one integrated platform. This includes retail inserts,

 

-49-


Table of Contents

publications, catalogs, special interest publications, journals, direct mail, books, directories, in-store marketing and promotion, packaging, newspapers, custom print products, other commercial and specialty printed products and global paper procurement, together with marketing and other complementary services, including consumer insights, audience targeting, personalization, media planning and placement, process optimization, campaign planning and creation, pre-media production, videography, photography, digital execution, print execution and logistics. This segment also includes the manufacture of ink. The United States Print and Related Services segment accounted for approximately 91% of Quad/Graphics’ consolidated net sales for the year ended December 31, 2017.

The International segment consists of Quad/Graphics’ printing operations in Europe and Latin America, including operations in England, France, Germany, Poland, Argentina, Colombia, Mexico and Peru, as well as investments in printing operations in Brazil and India. This segment provides printed products and marketing and other complementary services consistent with the United States Print and Related Services segment. The International segment accounted for approximately 9% of Quad/Graphics’ consolidated net sales for the year ended December 31, 2017.

Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal and finance, as well as certain expenses and income from frozen employee retirement plans, such as pension benefit plans.

Quad/Graphics’ class A common stock is listed on the NYSE under the symbol “QUAD.” Quad/Graphics’ class B common stock is not publicly-traded but is convertible into class A common stock on a one-for-one basis. Quad/Graphics’ principal executive offices are located at N61 W23044 Harry’s Way, Sussex, Wisconsin 53089 and its telephone number is (414)-566-6000.

QLC Merger Sub Inc.

QLC Merger Sub, Inc., a wholly owned subsidiary of Quad/Graphics, is a Delaware corporation that was formed on October 30, 2018 for the sole purpose of effecting the merger. In the merger, merger sub will be merged with and into LSC, with LSC surviving as a wholly owned subsidiary of Quad/Graphics.

Its principal executive offices and its telephone number are the same as those of Quad/Graphics.

LSC

LSC, a Delaware corporation, is a global leader in print and digital media solutions. The principal business of LSC and its direct or indirect wholly owned subsidiaries is to offer a broad range of traditional and digital print, print-related services and office products.

On October 1, 2016, RRD completed its previously announced separation (which we refer to as the “RRD separation”) into three separate independent publicly-traded companies: (i) its publishing and retail-centric print services and office products business, which is the business of LSC; (ii) its financial communications services business, which is the business of Donnelley Financial Solutions, Inc. (which we refer to as “Donnelley Financial”) and (iii) a global, customized multichannel communications management company, which is the business of RRD after the RRD separation. To effect the RRD separation, RRD undertook a series of transactions to separate net assets and legal entities. RRD completed the distribution of 80.75%, of the outstanding shares of LSC common stock and Donnelley Financial to RRD stockholders on October 1, 2016. RRD retained a 19.25% ownership stake in both LSC and Donnelley Financial. On October 1, 2016, RRD stockholders of record as of the close of business on September 23, 2016 (which we refer to as “the separation record date”) received one share of LSC common stock and one share of Donnelley Financial common stock for every eight shares of RRD common stock held as of the separation record date.

 

-50-


Table of Contents

On March 28, 2017, RRD completed the sale of approximately 6.2 million shares of LSC common stock, representing its entire 19.25% retained ownership. In connection with the over-allotment option granted to the underwriters as part of the secondary sale by RRD, LSC also sold approximately 0.9 million shares of common stock, receiving proceeds of $18 million, that were used for general corporate purposes.

In connection with the RRD separation, LSC, RRD and Donnelley Financial entered into commercial arrangements, transition services agreements and various other agreements related to the separation that remain in effect.

LSC serves the needs of publishers, merchandisers, cataloguers and retailers with product and service offerings that include traditional and digital print, e-services, logistics, warehousing, fulfillment and supply chain management services. LSC utilizes a broad portfolio of technology capabilities coupled with consultative attention to clients’ needs to increase speed to market, reduce costs, provide postal savings to customers, and improve efficiencies. LSC prints magazines, catalogs, retail inserts, books, and directories and its office products offerings include filing products, envelopes, note-taking products, binder products, and forms. As of December 31, 2017, LSC had approximately 24,000 total employees in its global workforce, of which approximately 19,000 employees were in the U.S. and approximately 5,000 were in international locations.

LSC’s operating and reporting segments are aligned with how the chief operating decision maker of LSC currently manages the business. LSC’s operating and reportable segments, and a “Corporate” category, are summarized below:

The Magazines, Catalogs and Logistics segment primarily produces magazines and catalogs, as well as provides logistics solutions to LSC and other third-parties. The segment also provides certain other print-related services, including mail-list management and sortation. The segment has operations primarily in the U.S. The Magazines, Catalogs and Logistics segment is divided into two reporting units: magazines and catalogs; and logistics. The Magazines, Catalogs and Logistics segment accounted for approximately 44% of LSC’s consolidated net sales in 2017.

The Book segment produces books for publishers primarily in the U.S. The segment also provides supply-chain management services and warehousing and fulfillment services, as well as e-book formatting for book publishers. The Book segment accounted for approximately 28% of LSC’s consolidated net sales in 2017.

The Office Products segment manufactures and sells branded and private label products in five core categories. The Office Products segment accounted for approximately 14% of LSC’s consolidated net sales in 2017.

The Other grouping consists of the following non-reportable segments: Europe, Directories, Mexico, and Print Management. Europe produces magazines, catalogs and directories and provides packaging and pre-media services. On September 28, 2018, LSC completed the sale of its European printing business to Walstead Group. Mexico produces magazines, catalogs, statements, forms, and labels. Print Management provides outsourced print procurement and management services. The Other grouping consists of approximately 14% of LSC’s consolidated net sales in 2017.

Corporate consists of unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, communications, certain facility costs and Last-in, First-out inventory provisions. In addition, share-based compensation expense is included in Corporate and not allocated to the operating segments. Prior to the separation, many of these costs were based on allocations from RRD, however, LSC has incurred such costs directly after the separation.

LSC common stock is listed on the NYSE under the symbol “LKSD.” LSC’s principal executive offices are located at 191 N. Wacker Drive, Chicago, Illinois 60606 and its telephone number is (773) 272-9200.

 

-51-


Table of Contents

THE SPECIAL MEETING OF QUAD/GRAPHICS SHAREHOLDERS

Date, Time and Place

The Quad/Graphics special meeting will be held on February 22, 2019, at 10:00 a.m. Central Time, at Quad/Graphics, Inc., N61 W23044 Harry’s Way, Sussex, Wisconsin 53089.

Purpose of the Quad/Graphics Special Meeting

The purpose of the Quad/Graphics special meeting is to consider and vote on the share issuance proposal. The approval of the share issuance proposal is required to consummate the merger.

Quad/Graphics will transact no other business at the Quad/Graphics special meeting.

Recommendation of the Quad/Graphics Board of Directors

The Quad/Graphics board of directors recommends that you vote “FOR” the share issuance proposal.

For additional information on the recommendation of the board of directors of Quad/Graphics, see the section entitled “The Merger—Quad/Graphics’ Reasons for the Merger and Recommendation of Quad/Graphics’ Board of Directors” beginning on page 79.

Record Date and Entitlement to Vote

Only holders of record of Quad/Graphics’ class A common stock and class B common stock at the close of business on January 16, 2019 are entitled to vote at the Quad/Graphics special meeting. As of January 7, 2019, the last practicable date before the date of this joint proxy statement/prospectus, Quad/Graphics had outstanding and entitled to vote: (a) 37,876,130 shares of class A common stock, each of which is entitled to one vote per share, with an aggregate of 37,876,130 votes; and (b) 13,556,858 shares of class B common stock, each of which is entitled to ten votes per share, with an aggregate of 135,568,580 votes.

Methods of Voting

If you are a shareholder of record of class A common stock or class B common stock, you may vote by mail using your proxy card, by telephone, via the internet or in person at the Quad/Graphics special meeting. To vote by mail, simply complete your proxy card, date and sign it, and return it in accordance with the instructions provided on the proxy card. To vote by telephone, follow the instructions provided on your proxy card. To vote via the internet, follow the instructions provided on your proxy card.

If a bank, broker or other nominee holds your Quad/Graphics’ class A common stock or class B common stock for your benefit but not in your own name, such shares are in “street name.” In that case, your bank, broker or other nominee will send you a voting instruction form to use for your shares. The availability of internet voting instruction depends on the voting procedures of your bank, broker or other nominee. Please follow the instructions on the voting instruction form they send you.

A broker non-vote will result if your bank, broker or other nominee returns a proxy but does not provide instruction as to how shares should be voted on a particular matter. Under the current rules of the NYSE, banks, brokers or other nominees do not have discretionary authority to vote on the Quad/Graphics share issuance proposal. Because the only proposal for consideration at the Quad/Graphics special meeting is a non-discretionary proposal, it is not expected that there will be any broker non-votes at the Quad/Graphics special meeting.

 

-52-


Table of Contents

Quorum

The presence of a majority of the votes entitled to be cast by the holders of the Quad/Graphics class A common stock and class B common stock, voting together as a single class, constitutes a quorum for the purpose of transacting business at the Quad/Graphics special meeting. Abstentions and broker non-votes will be considered present for purposes of determining whether a quorum exists.

Required Vote

Approval of the share issuance proposal requires the affirmative vote of the majority of votes cast by the Quad/Graphics shareholders present in person or by proxy at the Quad/Graphics special meeting. Abstentions will have the same effect as a vote “AGAINST” the share issuance proposal, and broker non-votes will have no effect on the outcome of the vote. Holders of Quad/Graphics class A common stock and class B common stock vote together as a single class on the share issuance proposal.

Vote of Quad/Graphics’ Directors and Executive Officers and the Quad/Graphics Voting Trust

As of January 7, 2019, Quad/Graphics’ directors and executive officers beneficially owned and were entitled to vote 2,993,085 shares of class A common stock and 633,536 shares of class B common stock, or, collectively, approximately 5.4% of Quad/Graphics’ total voting power as of January 7, 2019. Quad/Graphics currently expects that all of its directors and executive officers will vote their shares “FOR” the share issuance proposal.

Pursuant to the voting and support agreement, the trustees of the Quad/Graphics voting trust have agreed to, among other things, vote the shares of class A common stock and class B common stock owned by the Quad/Graphics voting trust “FOR” the share issuance proposal. As of January 7, 2019, the Quad/Graphics voting trust owned 10,046 shares of class A common stock and 12,574,255 shares of class B common stock, or, collectively, approximately 72.5% of the total voting power of Quad/Graphics. For additional information on the voting and support agreement, see the section entitled “Voting and Support Agreement” beginning on page 150.

Proxies

Your vote is very important. Whether or not you plan to attend the Quad/Graphics special meeting, we urge you to vote promptly to ensure that your shares are represented at the meeting. To vote by mail, simply complete your proxy card, date and sign it, and return it in accordance with the instructions provided on the proxy card. To vote by telephone, follow the instructions provided on your proxy card. To vote via the internet, follow the instructions provided on your proxy card.

For a proxy to be valid, you must sign and date it, and must either return it in the envelope provided and per the instructions provided on your proxy card. An undated but executed proxy will be deemed to be dated the date of this document.

You may also cast your vote by proxy via the internet at the website indicated on your proxy card or by telephone by calling the toll-free number shown on your proxy card and following the instructions. You must do so not later than 11:59 p.m. (Eastern Time) on February 21, 2019 or, if the Quad/Graphics special meeting is adjourned, 48 hours (excluding Saturdays, Sundays and holidays) before the time the Quad/Graphics special meeting is to be reconvened. You will also need your control number located on the front of your proxy card to identify yourself to the system. If you submit your proxy via the internet or by telephone, please do not return a signed form of proxy. A signed and completed form of proxy or properly submitted telephone or internet proxy received by Quad/Graphics prior to or at the Quad/Graphics special meeting will be voted as instructed.

If you need an additional form of proxy or otherwise need assistance concerning voting your proxy card, please contact, Kyle Egan, Director of Investor Relations and Assistant Treasurer, at 414-566-2482.

 

-53-


Table of Contents

If your broker or other nominee or intermediary holds your shares in its name, carefully follow the instructions given to you by your broker or other intermediary to ensure that your shares are properly voted.

Voting of Proxies

A proxy which is properly executed, duly returned to Quad/Graphics and not revoked, or a valid vote by telephone or via the internet, will be voted in accordance with the instructions contained in it. The shares represented by executed but unmarked proxies will be voted as follows:

 

   

FOR” the share issuance proposal; and

 

   

on such other business or matters that may properly come before the Quad/Graphics special meeting in accordance with the best judgment of the persons named as proxies in the form of proxy.

Other than the consideration of the share issuance proposal, the Quad/Graphics board of directors has no knowledge of any matters to be presented for action by the shareholders at the Quad/Graphics special meeting. An inspector of elections appointed by the Quad/Graphics board of directors will tabulate all votes at the Quad/Graphics special meeting.

Revocation of Proxies

Even if you complete and mail your proxy card, or vote by telephone or via the internet, you may nevertheless revoke your proxy at any time prior to the Quad/Graphics special meeting by sending Quad/Graphics written notice, voting your shares in person at the Quad/Graphics special meeting or submitting a later-dated proxy.

Solicitation of Proxies

The enclosed proxy card is being solicited by Quad/Graphics and the Quad/Graphics board of directors. In addition to solicitation by mail, Quad/Graphics’ directors, officers and employees may solicit proxies in person, by phone or by electronic means. These persons will not be specifically compensated for conducting such solicitation.

Quad/Graphics will ask brokers, banks and other nominees to forward the proxy solicitation materials to the beneficial owners of shares of Quad/Graphics common stock held of record by such nominee holders. Quad/Graphics will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.

No Dissenters’ or Appraisal Rights

Under Wisconsin law, Quad/Graphics shareholders are not entitled to dissenters’ or appraisal rights in connection with the issuance of shares of class A common stock as contemplated by the merger agreement.

 

-54-


Table of Contents

QUAD/GRAPHICS PROPOSAL

Share Issuance Proposal

It is a condition to the consummation of the merger that Quad/Graphics shareholders approve the issuance of shares of class A common stock in the merger. In the merger, each eligible share of LSC common stock will be converted into the right to receive 0.625 shares of class A common stock, as further described in “The Merger Agreement—Merger Consideration” beginning on page 121.

Under NYSE rules, a company is required to obtain shareholder approval prior to the issuance of shares of common stock if the number of shares of common stock to be issued is, or will be upon issuance, equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the shares of common stock. If the merger is consummated pursuant to the merger agreement, Quad/Graphics expects to issue up to approximately 21.6 million shares of class A common stock in connection with the merger. Accordingly, the aggregate number of shares of class A common stock that Quad/Graphics will issue in the merger will exceed 20% of the shares of class A common stock and class B common stock outstanding before such issuance, and for this reason, Quad/Graphics is seeking the approval of its shareholders for the issuance of shares of class A common stock pursuant to the merger agreement.

In the event the share issuance proposal is not approved by Quad/Graphics shareholders, the merger will not be consummated. In the event the share issuance proposal is approved by Quad/Graphics shareholders, but the merger agreement is terminated (without the merger being consummated) prior to the issuance of shares of class A common stock pursuant to the merger agreement, Quad/Graphics will not issue any shares of class A common stock as a result of the approval of the share issuance proposal.

Approval of the share issuance proposal requires the affirmative vote of a majority of votes cast by Quad/Graphics shareholders present in person or by proxy at the Quad/Graphics special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the share issuance proposal, and broker non-votes will have no effect on the outcome of the vote.

THE QUAD/GRAPHICS BOARD OF DIRECTORS RECOMMENDS A VOTE

“FOR” THE SHARE ISSUANCE PROPOSAL.

 

-55-


Table of Contents

THE SPECIAL MEETING OF LSC STOCKHOLDERS

Date, Time and Place

The LSC special meeting will be held on February 22, 2019 at 10:00 a.m., Central Time, at the 10th Floor Conference Center, 191 N. Wacker Drive, Chicago, Illinois 60606.

Purpose of the LSC Special Meeting

The purpose of the LSC special meeting is to consider and vote on:

 

   

the merger agreement proposal;

 

   

the LSC compensation proposal; and

 

   

the LSC adjournment proposal.

LSC will transact no other business at the LSC special meeting.

Recommendation of the LSC Board of Directors

The LSC board of directors recommends that LSC stockholders vote:

 

  1.

FOR” the merger agreement proposal;

 

  2.

FOR” the LSC compensation proposal; and

 

  3.

FOR” the LSC adjournment proposal.

For additional information on the recommendation of the LSC board of directors, see the section entitled “The Merger—LSC’s Reasons for the Merger and Recommendation of LSC’s Board of Directors” beginning on page 87.

Record Date

Only holders of record of issued and outstanding shares of LSC common stock as of the close of business on January 16, 2019, the record date for the LSC special meeting, are entitled to notice of, and to vote at, the LSC special meeting or any adjournment or postponement of the LSC special meeting.

Quorum; Abstentions and Broker Non-Votes; Required Votes

A quorum of LSC stockholders is necessary to hold a valid meeting. A quorum will exist at the LSC special meeting with respect to each matter to be considered at the LSC special meeting if the holders of a majority of shares of LSC common stock outstanding and entitled to vote on the record date are present in person or represented by proxy at the LSC special meeting. All shares represented by proxy are counted as present for purposes of establishing a quorum, including abstentions. Under the NYSE rules, brokers who hold shares in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of proposals that the NYSE determines to be “non-routine” and will not vote on such proposals if the broker has not received instructions from the beneficial owners on how to vote on the proposals. As a result, your shares will not be voted on any matter unless you affirmatively instruct your bank, broker or other nominee how to vote your shares in one of the ways indicated by your bank, broker or other nominee.

If you submit a properly executed proxy card, even if you do not vote for some or all of the proposals or vote to “ABSTAIN” in respect of some or all of the proposals, your shares of LSC common stock will be

 

-56-


Table of Contents

counted for purposes of calculating whether a quorum is present at the LSC special meeting with respect to each matter to be considered at the LSC special meeting. Executed but unvoted proxies will be voted in accordance with the recommendations of the LSC board of directors. If additional votes must be solicited to approve the merger agreement proposal, it is expected that the LSC special meeting will be adjourned to solicit additional proxies. Shares of LSC common stock held in street name will be counted as present for the purpose of determining the existence of a quorum at the LSC special meeting so long as a stockholder has given the broker or other nominee voting instructions on at least one of the proposals brought before the LSC special meeting. The proposals for consideration at the LSC special meeting are considered “non-routine” matters under NYSE Rule 452, and, therefore, no broker non-votes can occur at the meeting. A stockholder’s shares will not be counted as present for the purpose of determining the existence of a quorum if no instructions have been provided on how to vote on any such proposals.

Approval of the merger agreement proposal requires the affirmative vote of a majority of the shares of LSC common stock outstanding as of the close of business on the record date and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the merger agreement proposal.

Approval of the LSC compensation proposal requires the affirmative vote of a majority of the shares of LSC common stock present in person or by proxy at the LSC special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the LSC compensation proposal.

Approval of the LSC adjournment proposal requires the affirmative vote of a majority of the shares of LSC common stock present in person or by proxy at the LSC special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the LSC adjournment proposal.

The matters to be voted on at the LSC special meeting are described in the section entitled “LSC Proposals” beginning on page 61.

Methods of Voting

LSC stockholders holding shares directly as stockholders of record may vote via the internet by going to the web address provided on the enclosed proxy card and following the instructions for internet voting; by telephone using the toll-free telephone number listed on the enclosed proxy card; or by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

LSC stockholders of record may vote their shares in person by ballot at the LSC special meeting or by submitting their proxies:

 

   

via the internet until 1:00 a.m. Central Time on February 22, 2019;

 

   

by telephone until 1:00 a.m. Central Time on February 22, 2019; or

 

   

by completing, signing and returning your proxy or voting instruction card via mail. If you vote by mail, your proxy card must be received no later than the beginning of the LSC special meeting.

Stockholders of LSC whose shares are held in “street name” by a broker, nominee, fiduciary or other custodian should refer to the proxy card, voting instruction form or other information forwarded by their broker, nominee, fiduciary or other custodian for instructions on how to vote their shares.

Voting in Person

Shares held directly in your name as a stockholder of record may be voted in person at the LSC special meeting. If you choose to vote your shares in person at the LSC special meeting, please bring the admission ticket attached to the enclosed proxy card or evidence of your stock ownership and government-issued photo

 

-57-


Table of Contents

identification. Even if you plan to attend the LSC special meeting, the LSC board of directors recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the LSC special meeting.

If you are a beneficial holder of your shares of LSC stock, you will receive separate voting instructions from your broker, bank or other nominee explaining how to vote your shares. Please note that if your shares are held in “street name” by a broker, bank or other nominee and you wish to vote at the LSC special meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in your name from the record owner. You are encouraged to request a legal proxy from your broker, bank or other nominee promptly as the process can be lengthy.

Voting by Proxy

If hold your shares of LSC common stock directly with LSC as a stockholder of record, you may direct your vote by proxy without attending the LSC special meeting. You can vote by proxy via the internet, by telephone or by mail by following the instructions provided in the enclosed proxy card.

Stockholders of LSC whose shares are held in “street name” by a broker, nominee, fiduciary or other custodian should refer to the proxy card, voting instruction form or other information forwarded by their broker, nominee, fiduciary or other custodian for instructions on how to vote their shares.

Questions About Voting

If you have any questions about how to vote or direct a vote in respect of your shares of LSC common stock, you may contact Morrow Sodali, LSC’s proxy solicitor, at:

 

   

LSC stockholders may call toll-free at 800-662-5200.

 

   

Banks and brokers may call collect at 203-658-9400.

Revocability of Proxies

If you are an LSC stockholder of record, whether you vote via the internet, by telephone or mail, you can change or revoke your proxy before it is voted at the LSC special meeting in one of the following ways:

 

   

submit a new proxy card bearing a later date;

 

   

vote again via the internet or by telephone at a later time;

 

   

give written notice before the LSC special meeting to the LSC Corporate Secretary at the address listed for LSC in the section entitled “References to Additional Information” above stating that you are revoking your proxy; or

 

   

attend the LSC special meeting and vote your shares in person. Please note that your attendance at the LSC special meeting will not alone serve to revoke your proxy.

Proxy Solicitation Costs

The enclosed proxy card is being solicited on behalf of the LSC board of directors. In addition to solicitation by mail, LSC’s directors, officers and employees may solicit proxies in person, by telephone or by electronic means. These persons will not be specifically compensated for doing this.

LSC has retained Morrow Sodali to assist in the solicitation process. LSC will pay Morrow Sodali a fee of approximately $40,000, as well as out-of-pocket expenses.

 

-58-


Table of Contents

LSC will ask banks, brokers and other custodians, nominees and fiduciaries to forward proxy solicitation materials to the beneficial owners of shares of LSC common stock held of record by such nominee holders. LSC will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.

No Appraisal/Dissenters’ Rights

Because shares of LSC common stock are listed on the NYSE and holders of shares of LSC common stock are not required to receive consideration other than shares of Quad/Graphics class A common stock, which are listed on the NYSE, and cash in lieu of fractional shares, in the merger, holders of LSC common stock are not entitled to exercise appraisal or dissenters’ rights under Delaware law in connection with the merger.

Other Information

The matters to be considered at the LSC special meeting are of great importance to the stockholders of LSC. Accordingly, you are urged to read and carefully consider the information contained in or incorporated by reference into this joint proxy statement/prospectus and submit your proxy via the internet or by telephone or complete, date, sign and promptly return the enclosed proxy card in the enclosed postage-paid envelope. If you submit your proxy via the internet or by telephone, you do not need to return the enclosed proxy card.

Vote of LSC’s Directors and Executive Officers

As of January 7, 2019, LSC directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 982,533 shares of LSC common stock, or approximately 2.95% of the total shares of LSC common stock issued and outstanding as of January 7, 2019.

LSC currently expects that all of its directors and executive officers will vote their shares “FOR” the merger agreement proposal, “FOR” the LSC compensation proposal and “FOR” the LSC adjournment proposal.

Attending the LSC Special Meeting

You are entitled to attend the LSC special meeting only if you were an LSC stockholder of record at the close of business on the record date, you held your shares of LSC beneficially in the name of a broker, bank or other nominee as of the record date or you hold a valid proxy for the LSC special meeting.

If you were an LSC stockholder of record at the close of business on the record date and wish to attend the LSC special meeting, please so indicate on your proxy card or as prompted by the internet or telephone voting system. Your name will be verified against the list of LSC stockholders of record prior to you being admitted to the LSC special meeting.

If a broker, bank or other nominee is the record owner of your shares of LSC common stock, you will need to have proof that you are the beneficial owner as of the record date to be admitted to the LSC special meeting. A recent statement or letter from your broker, bank or other nominee confirming your ownership as of the record date, or presentation of a valid proxy from a broker, bank or other nominee that is the record owner of your shares, would be acceptable proof of your beneficial ownership.

You should be prepared to present government-issued photo identification for admittance to the LSC special meeting. If you do not provide government-issued photo identification or comply with the other procedures outlined above upon request, you might not be admitted to the LSC special meeting.

Results of the LSC Special Meeting

The preliminary voting results will be announced at the LSC special meeting. In addition, within four business days following the LSC special meeting, LSC will file the final voting results with the SEC on a Current

 

-59-


Table of Contents

Report on Form 8-K. If the final voting results have not been certified within that four business day period, LSC will report the preliminary voting results on a Current Report on Form 8-K at that time and will file an amendment to the Current Report on Form 8-K to report the final voting results within four days of the date that the final results are certified.

LSC STOCKHOLDERS SHOULD CAREFULLY READ THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE MERGER AGREEMENT PROPOSAL AND THE OTHER MATTERS TO BE VOTED ON AT THE LSC SPECIAL MEETING.

 

-60-


Table of Contents

LSC PROPOSALS

Merger Agreement Proposal

It is a condition to the consummation of the merger that LSC stockholders adopt the merger agreement by approving the merger agreement proposal. In the merger, each LSC stockholder will receive, for each eligible share of LSC common stock that is issued and outstanding as of immediately prior to the effective time of the merger, 0.625 shares of Quad/Graphics class A common stock. Additional detail is provided in “The Merger Agreement—Merger Consideration” beginning on page 121.

The approval of the merger agreement proposal by LSC stockholders is required by Section 251 of the DGCL and is a condition to the consummation of the merger.

Approval of the merger agreement proposal requires the affirmative vote of a majority of the shares of LSC common stock outstanding as of the close of business on the record date and entitled to vote. Abstentions will have the same effect as a vote “AGAINST” the merger agreement proposal.

THE LSC BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE

“FOR” THE MERGER AGREEMENT PROPOSAL.

LSC Compensation Proposal

Pursuant to Section 14A of the Exchange Act and Rule 14a-21(c) thereunder, LSC is seeking a non-binding, advisory stockholder approval of the compensation of LSC’s named executive officers that is based on or otherwise relates to the merger as disclosed in the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Quantification of Payments and Benefits to LSC’s Named Executive Officers” beginning on page 110. The proposal gives LSC stockholders the opportunity to express their views on the merger-related compensation of LSC’s named executive officers.

Accordingly, LSC is asking LSC stockholders to vote in favor of the adoption of the following resolution, on a non-binding, advisory basis:

“RESOLVED, that the compensation that will or may be paid or become payable to the LSC’s named executive officers, in connection with the merger, and the agreements or understandings pursuant to which such compensation will or may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Quantification of Payments and Benefits to LSC’s Named Executive Officers—Golden Parachute Compensation” are hereby APPROVED.”

The vote on the LSC compensation proposal is a vote separate and apart from the merger agreement proposal. Accordingly, you may vote to approve the merger agreement proposal, and vote not to approve the compensation proposal and vice versa. If the merger is consummated, the merger-related compensation will be paid to LSC’s named executive officers to the extent payable in accordance with the terms of the compensation agreements and arrangements even if LSC stockholders fail to approve the advisory vote regarding merger-related compensation. However, LSC seeks the support of its stockholders and believes that stockholder support is appropriate because LSC has a comprehensive executive compensation program designed to link the compensation of its executives with LSC’s performance and the interests of LSC stockholders. Accordingly, holders of LSC common stock are being asked to vote on the above resolution.

Approval of the non-binding LSC compensation proposal requires the affirmative vote of a majority of the shares of LSC common stock present in person or by proxy at the LSC special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the LSC compensation proposal.

THE LSC BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE

“FOR” THE LSC COMPENSATION PROPOSAL.

 

-61-


Table of Contents

LSC Adjournment Proposal

LSC stockholders are also being asked to approve a proposal to adjourn the LSC special meeting, if reasonably necessary, to provide LSC stockholders with any required supplement or amendment to the joint proxy statement/prospectus or to solicit additional proxies in favor of the merger agreement proposal in the event there are not sufficient votes at the time of the LSC special meeting to approve the merger agreement proposal. If the LSC special meeting is adjourned for the purpose of soliciting additional proxies, LSC stockholders who have already submitted their proxies will be able to revoke them at any time prior to their exercise.

Approval of the LSC adjournment proposal requires the affirmative vote of a majority of the shares of LSC common stock present in person or by proxy at the LSC special meeting and entitled to vote on the proposal, regardless of whether a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the LSC adjournment proposal.

THE LSC BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE

“FOR” THE LSC ADJOURNMENT PROPOSAL.

 

-62-


Table of Contents

THE MERGER

General

Quad/Graphics, LSC and merger sub have entered into the merger agreement providing for the acquisition of LSC by Quad/Graphics. The acquisition will be effected pursuant to a merger of merger sub, which is a wholly owned subsidiary of Quad/Graphics, with and into LSC, with LSC surviving the merger as a wholly owned, direct subsidiary of Quad/Graphics.

The merger agreement contains a number of conditions that must be satisfied or waived prior to the consummation of the merger, including, but not limited to, obtaining shareholder approval of the proposals set forth at the Quad/Graphics and LSC special meetings, obtaining regulatory approvals and obtaining approval to list the shares of Quad/Graphics class A common stock issuable in connection with the merger on the NYSE. There can be no assurance that all of the conditions to the consummation of the merger will be so satisfied or waived. If the conditions to the merger are not satisfied or waived, Quad/Graphics and LSC will be unable to consummate the merger and the merger agreement may be terminated.

If the merger is consummated, LSC stockholders will be entitled to receive, for each eligible share of LSC common stock owned by them immediately prior to the effective time of the merger, 0.625 shares of Quad/Graphics class A common stock as further described in this joint proxy statement/prospectus. The market value of the merger consideration will fluctuate with the price of Quad/Graphics class A common stock until the merger is consummated.

Quad/Graphics shareholders and LSC stockholders are encouraged to read the section titled “The Merger Agreement” as well as the merger agreement which is attached to this joint proxy statement/prospectus as Annex A and incorporated herein by reference, because it sets forth the terms of the merger.

Background of the Merger

As part of LSC’s ongoing efforts to strengthen its business and enhance stockholder value, the LSC board of directors and senior management regularly review and assess LSC’s operations, performance, prospects and strategic directions, including the possibility of pursuing various strategic transactions. From time to time, the senior management of LSC has held conversations and communicated with various investment banking firms regarding potential strategic transaction opportunities and other strategic alternatives available to LSC. In considering various potential strategic opportunities, with the advice of outside advisors, the LSC board of directors and senior management have taken into account various factors, including potential synergy opportunities, enhancement and/or streamlining of product offerings, expansion of technological capabilities, integration with logistics and marketing, asset quality and the likelihood that such opportunity could be executed and be value enhancing for LSC stockholders. The LSC board of directors determined it would continue to consider such potential opportunities, including the potential benefits and risks associated therewith.

In connection with LSC’s ongoing evaluation of its business, the LSC board of directors, with input from senior management, periodically reviewed the strategic landscape in the print industry and discussed various potential strategic opportunities for LSC in such industry. As part of that review since its spinoff from RRD in October 2016, LSC has completed a number of accretive acquisitions that have allowed it to generate incremental earnings in complementary business lines in the face of a declining organic sales environment. These acquisitions have, for instance, included The Clark Group, a third-party logistics provider, Fairrington, a co-mailing and logistics company, Publishers Press, LLC, a printing provider with web-offset printing, prepress and distribution services, CREEL Printing, LLC, an offset and digital printing company and the acquisition of the print logistics business from RRD. LSC has also made several acquisitions to supplement its office products offerings, as well as streamlined its business to focus on North America with its disposition of its European operations in summer 2018, and has made certain other strategic investments. From time to time, the LSC board of directors has

 

-63-


Table of Contents

assessed other opportunities and industry participants, including Quad/Graphics. From time to time during 2017, LSC entered into a select number of nondisclosure and confidentiality agreements with financial sponsors that expressed to LSC an interest in discussing a potential acquisition of all or part of LSC, although such conversations did not result in any offers or indications of interest. Such nondisclosure and confidentiality agreements included customary standstill provisions, but the terms of such provisions have expired in accordance with the terms of such agreements.

The LSC board of directors regularly keeps abreast of changing market dynamics, industry opportunities and the legal landscape surrounding mergers and acquisitions. At its regularly scheduled meeting on July 22, 2017, the LSC board of directors received a briefing on the current regulatory environment from Sullivan & Cromwell LLP (which we refer to as “S&C”), LSC’s legal counsel. At its regularly scheduled meeting on September 14, 2017, the LSC board of directors received a presentation regarding strategic opportunities and valuation from BofA Merrill Lynch, which has regularly advised LSC on financial matters since its inception. Representatives of S&C were also in attendance at this meeting.

The Quad/Graphics board of directors and senior management in the ordinary course of business regularly review and evaluate the possibility of pursuing disciplined acquisitions as part of their ongoing efforts to strengthen and grow Quad/Graphics business and enhance shareholder value. Beginning in 2010 and continuing today, Quad/Graphics saw an opportunity to participate in industry consolidation in response to economic and industry pressures following the recession of 2008 and 2009, which severely impacted print volumes. Through a series of acquisitions, Quad/Graphics has been able to enhance and expand its product offerings, while improving capacity utilization, pulling out costs and transitioning work to more efficient facilities. In addition to the foregoing, the seismic shifts in today’s multichannel marketing environment provided the opportunity for Quad/Graphics to expand its offering as a marketing solutions provider by utilizing its strong print foundation as part of a much larger, robust integrated marketing platform that helps marketers and content creators improve the efficiency and effectiveness of their marketing spend across offline and online media channels. As part of this strategy, Quad/Graphics identified LSC as a potential value-driven industry acquisition candidate.

In December 2017 and January 2018, Quad/Graphics engaged J.P. Morgan and BDT & Company, LLC (which we refer to as “BDT”) as its financial advisors to assist Quad/Graphics in connection with a potential transaction with LSC.

On May 14, 2018, the Quad/Graphics board of directors met to discuss a potential strategic combination of Quad/Graphics and LSC, including the potential merits and risks of such a combination. At the meeting, the Quad/Graphics board authorized J. Joel Quadracci, Chairman, President and Chief Executive Officer of Quad/Graphics, to reach out to LSC regarding a potential transaction involving the companies.

On May 15, 2018, Thomas J. Quinlan, III, the Chairman, President and Chief Executive Officer of LSC, received an email from Mr. Quadracci to request a telephone call. Mr. Quinlan and Mr. Quadracci scheduled a call for the following day.

On May 16, 2018, Mr. Quinlan and Mr. Quadracci had a telephone call, during which Mr. Quadracci expressed an interest in a potential transaction involving LSC and Quad/Graphics. No specific terms were discussed on this call. Mr. Quinlan indicated that he would discuss the matters raised by Mr. Quadracci with the LSC board of directors.

At approximately the same time, Quad/Graphics contacted its outside counsel, Foley & Lardner LLP (which we refer to as “F&L”), regarding a potential strategic combination of Quad/Graphics and LSC.

On May 17, 2018, the LSC board of directors held a regularly scheduled board meeting, with representatives from LSC management also in attendance. At the meeting, Mr. Quinlan discussed his conversation with Mr. Quadracci. The LSC board of directors expressed a willingness to consider a proposal by Quad/Graphics should such a proposal be forthcoming. LSC thereafter retained S&C in connection with its consideration of a potential transaction with Quad/Graphics.

 

-64-


Table of Contents

Also on May 17, 2018, Mr. Quadracci and Mr. Quinlan had a telephone call, during which Mr. Quinlan indicated that the LSC board of directors is willing to consider a proposal by Quad/Graphics. Mr. Quadracci indicated that Quad/Graphics would prepare a proposal to be presented to the LSC board of directors and send an initial draft of a mutual confidentiality agreement for LSC to review.

On May 21, 2018, Mr. Quinlan informed certain members of the LSC board of directors of his conversation with Mr. Quadracci.

Also on May 21, 2018, Suzanne S. Bettman, the Chief Administrative Officer and General Counsel of LSC, received a telephone call from Jennifer J. Kent, the Executive Vice President of Administration and General Counsel of Quad/Graphics, during which Ms. Kent indicated that Quad/Graphics had prepared an initial draft of a mutual confidentiality agreement without a standstill provision, which she would send to Ms. Bettman to review with legal counsel.

Between May 21, 2018 and May 23, 2018, LSC and Quad/Graphics negotiated a mutual confidentiality agreement in order to exchange certain of their respective confidential and proprietary information. Among other terms, the confidentiality agreement contained a standstill obligation prohibiting each party, directly or indirectly through intermediaries, for a specified period and subject to certain exceptions, from participating in an acquisition of securities of the other party, soliciting any proxies with respect to the voting of any common stock of the other party or seeking to influence, advise or control the board of directors of the other party, in each case without the written consent of the board of directors of such other party. LSC executed the confidentiality agreement on May 23, 2018, and Quad/Graphics countersigned the agreement on May 24, 2018.

On May 24, 2018, Mr. Quadracci and Mr. Quinlan met. At that meeting, Mr. Quadracci indicated that the Quad/Graphics board of directors supported pursuing a potential transaction involving LSC and Quad/Graphics. Although no specific proposal was discussed, including with respect to price and valuation of LSC, Mr. Quadracci indicated that he expected the consideration for the transaction would consist primarily of Quad/Graphics class A common stock and Quad/Graphics would retain its dual class structure. Mr. Quadracci also indicated that the Quad/Graphics board of directors would discuss appointing certain members of the current LSC board of directors to the Quad/Graphics board in connection with the transaction. Mr. Quadracci requested a meeting with Mr. Quinlan, Andrew B. Coxhead, the Chief Financial Officer of LSC, and David Honan, the Executive Vice President and Chief Financial Officer of Quad/Graphics, to discuss certain financial information. Mr. Quadracci also informed Mr. Quinlan that Quad/Graphics had retained J.P. Morgan as its financial advisor and F&L as its legal counsel. Mr. Quinlan advised Mr. Quadracci that he would update the LSC board of directors on his conversation with Mr. Quadracci.

Later on May 24, 2018, the LSC board of directors held a board meeting, with members of LSC’s management and representatives from S&C also in attendance. At the meeting, Mr. Quinlan provided the LSC board of directors with an update regarding his conversation with Mr. Quadracci. The representatives of S&C also reviewed with the LSC board of directors its fiduciary duties in connection with their consideration of a potential transaction with Quad/Graphics. The LSC board of directors asked Mr. Quinlan questions regarding the meeting with Mr. Quadracci and discussed additional considerations in connection with the potential transaction with Quad/Graphics. The LSC board of directors determined that Mr. Quinlan should contact Mr. Quadracci on or around June 1, 2018 to request additional information as to the proposed terms for a potential transaction with Quad/Graphics and that no non-public information should be shared until such additional information was received. At this meeting, the LSC board of directors also discussed the engagement of a financial advisor to LSC in connection with the potential transaction with Quad/Graphics, and the LSC board of directors authorized Mr. Quinlan to contact BofA Merrill Lynch to discuss BofA Merrill Lynch serving, and subject to a review of any potential conflicts, to engage BofA Merrill Lynch to serve, as financial advisor to LSC.

On May 29, 2018, Mr. Quinlan, Mr. Coxhead and Ms. Bettman held a telephone call with a representative, of BofA Merrill Lynch with regard to the possible engagement of BofA Merrill Lynch to serve as LSC’s

 

-65-


Table of Contents

financial advisor in connection with a potential transaction with Quad/Graphics. Following this discussion and after BofA Merrill Lynch provided LSC with information regarding certain corporate and investment banking relationships, BofA Merrill Lynch began advising LSC on these matters. On June 9, 2018, LSC confirmed BofA Merrill Lynch’s engagement as LSC’s financial advisor by executing an engagement letter.

On May 31, 2018, Mr. Quadracci and Mr. Quinlan had a telephone call, during which Mr. Quinlan indicated that while the LSC board of directors believes in the rationale of a potential transaction with Quad/Graphics and that substantial synergies would accrue to LSC’s stockholders, before it was prepared to share non-public information with Quad/Graphics, the LSC board of directors requested that Quad/Graphics provide an indication of interest that described Quad/Graphics’ assumptions, a proposed transaction structure and price and took into account the initiatives that LSC has implemented but have not yet been reflected in the stock price of LSC. Mr. Quadracci then requested a telephone call between Mr. Coxhead and Mr. Honan, which was scheduled for the following day but would be limited to a discussion of publicly available information only. On June 1, 2018, Mr. Quinlan informed the LSC board of directors of his conversation with Mr. Quadracci and indicated that he expected that Quad/Graphics would provide a non-binding indication of interest to LSC in the next two weeks.

On June 1, 2018, Mr. Coxhead and Mr. Honan had a telephone call, during which Mr. Coxhead and Mr. Honan discussed information with regard to, among other things, the treatment of LSC’s equity awards upon a change of control, amounts payable to LSC’s management upon a change of control and multi-employee pension plans liability.

On June 5, 2018, the Quad/Graphics board of directors met to further discuss a potential strategic combination of Quad/Graphics and LSC and reviewed the synergy analysis prepared by Quad/Graphics management relating to such a combination as well as a preliminary analysis of the financing that would be required to consummate it. At the meeting, the Quad/Graphics board of directors authorized Mr. Quadracci to continue discussions with Mr. Quinlan and to present LSC with an indication of interest regarding a potential transaction. Throughout the transaction process, Mr. Quadracci and other members of Quad/Graphics’ senior management team updated the Quad/Graphics board of directors on a regular basis as well as upon the occurrence of significant developments regarding the potential transaction.

Following the board meeting on June 5, 2018, Mr. Quinlan and Mr. Quadracci had a telephone call, during which Mr. Quadracci indicated that Quad/Graphics would like to provide a written non-binding indication of interest to LSC but could not do so without LSC Board permission because of the obligations of the standstill provision in the confidentiality agreement.

On June 7, 2018, Mr. Quadracci and Mr. Quinlan had a telephone call, during which Mr. Quinlan informed Mr. Quadracci that in response to Quad/Graphics’ request for a waiver of the standstill provision in order to permit Quad/Graphics to provide a private, written proposal as to the terms of a potential transaction, Mr. Quinlan scheduled a meeting of the board of directors of LSC for Monday, June 11, 2018 to discuss and consider consenting to such a waiver. Mr. Quadracci indicated that if the waiver was granted he would provide a written proposal to Mr. Quinlan on Monday evening following the LSC board of directors meeting.

On June 11, 2018, the LSC board of directors held a meeting, with members of LSC management and representatives of S&C also in attendance. At the meeting, Mr. Quinlan provided the LSC board of directors with an update regarding his recent conversations with Mr. Quadracci. Mr. Quinlan informed the LSC board of directors that Mr. Quadracci indicated that Quad/Graphics would like to submit a written non-binding indication of interest to the LSC board. Mr. Quinlan further informed the LSC board of directors that the confidentiality agreement between LSC and Quad/Graphics contained a customary standstill provision that prohibited Quad/Graphics from providing such an indication of interest unless consented to by the LSC board. The LSC board of directors discussed the request for a one-time waiver of such standstill obligation, and following such discussion, the LSC board of directors approved the one-time waiver of the standstill obligation to permit Quad/Graphics to provide a private, written proposal as to the terms of a potential transaction.

 

-66-


Table of Contents

Immediately following the conclusion of the meeting of the LSC board of directors on June 11, 2018, Mr. Quinlan sent an email to Mr. Quadracci, informing Mr. Quadracci that the LSC board of directors authorized a one-time waiver of the standstill provision to permit Quad/Graphics to provide a private written proposal as to the terms of a potential transaction to the LSC board.

In response to Mr. Quinlan’s email, also on June 11, 2018, Mr. Quadracci, Mr. Honan, Mr. Quinlan and Mr. Coxhead had a telephone call, during which Mr. Quadracci and Mr. Honan conveyed the terms of a proposal for a potential transaction involving LSC and Quad/Graphics. At the beginning of the call, Mr. Quadracci, on behalf of Quad/Graphics, provided Mr. Quinlan with a written, non-binding indication of interest for a potential transaction involving LSC and Quad/Graphics, which reflected the terms discussed during the call. Such indication of interest included (i) a stock-for-stock merger transaction structure based on a fixed exchange ratio to be set at a 5% premium to LSC’s stock price, (ii) maintenance of Quad/Graphics’ dual class common stock structure, with its low vote, class A common stock to be issued as consideration to LSC stockholders in connection with the potential transaction, (iii) Quad/Graphics’ view that the proposed transaction would result in value creation of at least 25% to LSC stockholders after considering the value of the potential synergies, which Quad/Graphics believed would be between $100 and $150 million on an annual basis and (iv) the payment of up to $100 million special dividend to Quad/Graphics shareholders prior to consummation of the merger.

On June 14, 2018, the LSC board of directors held a meeting, with members of LSC management and representatives of S&C and BofA Merrill Lynch also in attendance. At the meeting, Mr. Quinlan provided the LSC board of directors with an update with regard to the potential transaction with Quad/Graphics and an overview of the non-binding indication of interest received on June 11, 2018 from Quad/Graphics. The representatives of BofA Merrill Lynch reviewed the terms of the proposal, including the valuation of LSC implied by the proposal, provided a comparison of LSC and Quad/Graphics on certain performance metrics and discussed the potential financial benefits of a combination with Quad/Graphics as compared to LSC’s standalone strategy. The representatives of S&C reviewed the LSC board’s fiduciary duties in connection with their consideration of a potential transaction with Quad/Graphics. The representatives of BofA Merrill Lynch also reviewed potential next steps with regard to responding to the proposal. The LSC board of directors discussed the terms of the proposal and the potential alternatives regarding a response. After such discussion, the LSC board of directors determined that the non-binding indication of interest from Quad/Graphics undervalued LSC, and determined that Mr. Quinlan should respond to Mr. Quadracci rejecting the proposal, emphasizing that any future proposal from Quad/Graphics should be at a meaningfully higher value.

On June 15, 2018, Mr. Quinlan called Mr. Quadracci, during which Mr. Quinlan informed Mr. Quadracci that the LSC board of directors determined that Quad/Graphics’ non-binding indication of interest was an insufficient basis to proceed with the evaluation of a potential transaction with Quad/Graphics, and that if Quad/Graphics were to deliver any future proposal to LSC, it would need to include a meaningfully higher value to LSC stockholders and provide detail on deal certainty and governance matters.

On June 18, 2018, Mr. Quadracci and Mr. Quinlan had a telephone call, during which Mr. Quadracci indicated that Quad/Graphics was willing to increase the premium previously offered in its non-binding indication of interest from 5% to 10% of LSC’s stock price. Mr. Quadracci indicated that Quad/Graphics would not provide for any seats on its board for existing LSC board members, and detail surrounding deal certainty would be discussed in person. Mr. Quinlan responded that the proposed premium of 10% was not a significant enough increase in the premium for him to raise with the LSC board. On June 19, 2018, Mr. Quinlan informed the LSC board of directors of this discussion with Mr. Quadracci.

On June 20, 2018, representatives of BofA Merrill Lynch, J.P. Morgan and BDT, at the direction of their respective clients, held a teleconference to discuss their respective valuations of LSC.

On July 3, 2018, Mr. Quadracci called Mr. Quinlan during which Mr. Quadracci informed Mr. Quinlan that while Quad/Graphics could not increase its offer of a 10% premium to LSC’s stock price he would like to

 

-67-


Table of Contents

maintain an open line of communication. Mr. Quinlan indicated that unless Mr. Quadracci provides an offer that LSC views as actionable, LSC would not be open to any further communication regarding a potential transaction. On the same day, Mr. Quinlan informed the LSC board of directors of this discussion with Mr. Quadracci.

On July 16 and 17, 2018, the Quad/Graphics board of directors, at a regularly scheduled meeting, received an update of the status of discussions with LSC.

On July 18, 2018, Mr. Quinlan and Mr. Quadracci had a telephone call, during which Mr. Quadracci inquired about the potential sale of LSC’s European operations and discussed acquiring LSC at a fixed exchange ratio.

On July 19, 2018, the LSC board of directors held a regularly scheduled board meeting, with representatives from LSC management also in attendance. At the meeting, Mr. Quinlan provided the LSC board of directors with an update regarding his recent conversations with Mr. Quadracci.

On July 25, 2018, Mr. Quinlan and Mr. Quadracci had a telephone call, during which Mr. Quadracci indicated that the sale of LSC’s European operations could affect the potential synergies of a potential transaction between LSC and Quad/Graphics. Mr. Quadracci requested a meeting among Mr. Quinlan, Mr. Coxhead, Mr. Honan and himself with a representative of BofA Merrill Lynch and J.P. Morgan also present to discuss potential synergies that might result from the potential transaction. Mr. Quinlan informed Mr. Quadracci that Quad/Graphics would need to provide a written proposal as to the terms of a potential transaction before he would request authority from the LSC board of directors to schedule such a meeting. Mr. Quadracci stated that he would be willing to provide a revised proposal, and Mr. Quinlan indicated that he would request that the LSC board of directors consent to another waiver of the standstill provision in order to permit Quad/Graphics to provide a private, written proposal as to the terms of a potential transaction. Mr. Quadracci and Mr. Quinlan also agreed that Quad/Graphics would consider a more specific offer after both parties released their earnings results for the second quarter ended June 30, 2018. On August 1, 2018, Quad/Graphics announced its financial and operating results for the second quarter ended June 30, 2018 and filed its Quarterly Report on Form 10-Q with the SEC, and on August 2, 2018, LSC announced its financial and operating results for the second quarter ended June 30, 2018 and filed its Quarterly Report on Form 10-Q with the SEC.

On August 1, 2018, the LSC board of directors held a meeting, with members of LSC management and representatives of S&C also in attendance. At the meeting, Mr. Quinlan provided the LSC board of directors with an update regarding his recent conversations with Mr. Quadracci. Mr. Quinlan informed the LSC board of directors that Mr. Quadracci indicated an interest in submitting a revised written non-binding proposal to the LSC board of directors that Mr. Quadracci believed would be actionable by LSC board. Mr. Quinlan reminded the LSC board of directors that the confidentiality agreement between LSC and Quad/Graphics contained a customary standstill provision that prohibited Quad/Graphics from providing such a written proposal unless consented to by the LSC board. The representatives of S&C reviewed the LSC board’s fiduciary duties in connection with their consideration of a potential transaction with Quad/Graphics. The LSC board of directors discussed the request for a one-time waiver of such standstill obligation, and following such discussion, the LSC board of directors approved the one-time waiver of the standstill obligation to permit Quad/Graphics to provide a private, written proposal as to the terms of a potential transaction.

On August 10, 2018, the Quad/Graphics board of directors met and, among other things, received a status update with respect to a potential combination with LSC, including an update of LSC’s financial outlook as well as an analysis of what LSC would look like following the sale of its European operations. Senior management also discussed with the Quad/Graphics board its analysis of the potential synergies that could be achieved in a combination with LSC. At the conclusion of the meeting, the Quad board authorized management to continue its discussions with LSC and to send LSC a written proposal.

Following the Quad/Graphics board of directors meeting on August 10, 2018, Mr. Quadracci, on behalf of Quad/Graphics, provided Mr. Quinlan with a non-binding proposal for a potential transaction involving LSC and

 

-68-


Table of Contents

Quad/Graphics. Such proposal included (i) a stock-for-stock merger transaction structure in which LSC stockholders would receive a fixed exchange ratio of 0.6434 shares of Quad/Graphics’ class A common stock for each share of LSC common stock, which based on Quad/Graphics’ stock price of $21.76 per share on August 10, 2018 represented a premium of 20% to LSC’s stock price of $11.67 on August 10, 2018, (ii) LSC stockholders would own approximately 30% of Quad/Graphics after the merger, (iii) Quad/Graphics would consider increasing the size of the Quad/Graphics board of directors to include up to two additional LSC directors, (iv) LSC and Quad/Graphics would agree to use reasonable best efforts to secure all necessary regulatory approvals within a 12 month period and (v) an assumption of the potential synergies of $140 million annually after estimated one-time costs of approximately $200 million to achieve such synergies.

On August 17, 2018, the LSC board of directors held a meeting, with members of LSC management and representatives of S&C and BofA Merrill Lynch also in attendance. The representatives from S&C reviewed the LSC board’s fiduciary duties in connection with their consideration of a potential transaction with Quad/Graphics. Mr. Quinlan then provided the LSC board of directors with a preliminary overview of the non-binding proposal received on August 10, 2018 and updated the LSC board of directors with respect to his discussions with Mr. Quadracci. The representatives of BofA Merrill Lynch then reviewed the terms of the August 10, 2018 non-binding proposal and compared the elements of such proposal to the June 11, 2018 non-binding proposal, including the proposed exchange ratio, premium to the current LSC stock price, synergy assumptions, post-closing governance arrangements and regulatory risk allocation. The representatives of BofA Merrill Lynch also discussed LSC’s 2018 stock price performance, an analysis of the exchange ratio over time and relative market metrics of LSC and Quad/Graphics on a side-by-side basis. The representatives of BofA Merrill Lynch also provided an illustrative model showing the financial benefits that could result from a potential transaction, and representatives of BofA Merrill Lynch, Mr. Quinlan and Mr. Coxhead discussed LSC’s estimates of potential synergies from the transaction. The LSC Board, management and advisors then discussed potential next steps with regard to responding to the proposal, including with respect to the proposed exchange ratio, regulatory considerations and deal certainty. Following such discussion, the LSC board of directors authorized members of LSC management and the representatives of BofA Merrill Lynch to continue to discuss deal certainty and the exchange ratio with Quad/Graphics and to schedule a meeting with Quad/Graphics to discuss potential synergies.

On August 20, 2018, representatives of BofA Merrill Lynch, J.P. Morgan and BDT held a teleconference to discuss the terms of Quad/Graphics’ August 10, 2018 non-binding proposal and potential synergies that might result from the potential transaction. BofA Merrill Lynch informed J.P. Morgan that LSC believed the synergies would be higher and expected an exchange ratio in excess of 0.700x. The representatives of BofA Merrill Lynch, J.P. Morgan and BDT also discussed certain regulatory considerations relating to the potential transaction, and BofA Merrill Lynch indicated, at the direction of LSC, that in addition to the regulatory efforts requirements, LSC would expect to receive a reverse termination fee in the event regulatory approval of the proposed transaction is not received.

On August 24, 2018, the LSC board of directors held a teleconference discussion with members of LSC management and representatives of S&C and BofA Merrill Lynch. Mr. Quinlan provided an update of discussions with Quad/Graphics since the last meeting of the LSC board of directors and informed the LSC board of directors that members of management of LSC and S&C were discussing various regulatory related matters. The LSC board, management of LSC and representatives of BofA Merrill Lynch also discussed logistics and the attendees for a meeting between LSC and Quad/Graphics regarding potential synergies that might result from the potential transaction.

On August 28, 2018, Mr. Quinlan, Mr. Coxhead, Richard Lane, the Chief Strategy Officer of LSC, Ms. Bettman, Mr. Quadracci, Mr. Honan, Thomas J. Frankowski, Executive Vice President and Chief Operating Officer of Quad/Graphics, and Ms. Kent, with representatives of BofA Merrill Lynch, J.P. Morgan and BDT also in attendance met to discuss each company’s financial projections and the potential synergies that might result from the potential transaction.

 

-69-


Table of Contents

On September 5, 2018, the Quad/Graphics board of directors met and received a status update with respect to a potential combination with LSC, including a discussion of the August 28 diligence session, an update of the relative valuations in light of LSC’s financial projections and an updated synergy analysis prepared by Quad/Graphics management. During this meeting, the Quad/Graphics board considered whether to increase the proposed exchange ratio above 0.6434x in response to the information provided in the August 28 meeting. Based on the foregoing presentations and discussion, the Quad board of directors authorized management to send LSC a revised proposal and to continue discussions with them towards a potential business combination.

On September 7, 2018, Mr. Quadracci, on behalf of Quad/Graphics, provided Mr. Quinlan with a non-binding proposal for a potential transaction involving LSC and Quad/Graphics. Such proposal included (i) a stock-for-stock merger transaction structure in which LSC stockholders would receive a fixed exchange ratio between 0.6434 and 0.7000 shares of Quad/Graphics’ class A common stock for each share of LSC common stock, (ii) a one-time special cash dividend to existing Quad/Graphics shareholders of up to $1.20 per share of common stock and an adjustment to the exchange ratio if Quad/Graphics elects to pay this dividend, (iii) a termination fee of $30 million payable by Quad/Graphics to LSC in the event that regulatory approval is not achieved after the parties have undertaken reasonable best efforts to secure all necessary regulatory approvals within 12 months following the execution of a definitive agreement between the parties and (iv) Quad/Graphics would increase the size of its board of directors to include up to two additional independent directors from the current LSC board of directors as designated by Quad/Graphics at the closing of the potential transaction.

On September 13, 2018, the LSC board of directors held a meeting, with members of LSC management and representatives of S&C and BofA Merrill Lynch also in attendance. At the meeting, Mr. Quinlan provided an update on the potential transaction with Quad/Graphics, including the terms of the September 7, 2018 non-binding proposal and the recent discussion with Quad/Graphics and each party’s respective financial advisors regarding potential synergies that might result from a transaction and other financial aspects of the potential transaction. The representatives of BofA Merrill Lynch discussed the proposed terms of the September 7, 2018 non-binding proposal, including the proposed exchange ratio, the premium to LSC’s stock price, synergy assumptions, post-closing governance arrangements and regulatory considerations. The representatives of S&C then discussed how the proposed regulatory considerations may impact deal certainty. The representatives of BofA Merrill Lynch then discussed the special, one-time cash dividend that Quad/Graphics proposed to declare to its shareholders prior to the consummation of the potential transaction and the adjustments to the exchange ratio that would be effected in the event that the Quad/Graphics board decided to declare the special dividend. The LSC board of directors discussed the proposed special dividend and the potential value and other implications for LSC stockholders if the special dividend were to be paid. The representatives of BofA Merrill Lynch then reviewed the potential financial and operational benefits to LSC and Quad/Graphics of a merger between the companies based on the assumed synergies of the combined companies. The representatives of BofA Merrill Lynch also discussed LSC’s stock price outlook, the value range contemplated by the range of exchange ratios in the September 7, 2018 proposal and the proposed reverse regulatory termination fee in the context of market precedents. The representatives of S&C discussed the regulatory efforts standard proposed by Quad/Graphics of “reasonable best efforts” to obtain regulatory approval and the proposed reverse termination fee. The LSC board, management and the advisors then discussed potential next steps with regard to responding to the proposal. The LSC board of directors discussed the appropriate baseline exchange ratio at which the LSC board of directors would be willing to continue discussions, the proposed special dividend, the regulatory considerations and LSC representation on the Quad/Graphics board of directors following closing. After such discussion, the LSC board of directors authorized BofA Merrill Lynch to inform J.P. Morgan that LSC would be willing to continue discussions so long as (i) Quad/Graphics committed to an exchange ratio of 0.7000x or higher, (ii) the parties engaged in diligence on regulatory approval matters in order to inform LSC’s views as to the regulatory efforts covenant and reverse termination fee in the definitive agreement, (iii) LSC received comfort that the financial condition of the combined company could support payment of the special dividend, (iv) the parties conducted additional due diligence regarding potential synergies, (v) the parties mutually agreed to the two directors to be selected from the current LSC board to serve on the Quad/Graphics board of directors following closing and (vi) the Quad/Graphics voting trust entered into a voting

 

-70-


Table of Contents

agreement in connection with the execution of the definitive agreement to vote in favor of the potential transaction. Following the meeting of the LSC board of directors on September 13, 2018, BofA Merrill Lynch informed J.P. Morgan accordingly.

Also on September 13, 2018, LSC provided Quad/Graphics with unaudited forecasted financial information and then on September 17, 2018, Mr. Honan, representatives of J.P. Morgan, Mr. Coxhead and representatives of BofA Merrill Lynch held a teleconference, during which Mr. Coxhead and Mr. Honan discussed LSC’s unaudited forecasted financial information.

On September 24, 2018, the Quad/Graphics board of directors had a meeting in which they received an update regarding the status of negotiations with LSC. In connection with the update, the Quad/Graphics board further discussed the synergy analysis prepared by Quad/Graphics management and the potential terms of the financing necessary in order to consummate the potential combination. The Quad/Graphics board also discussed a timeline and certain of the other mechanics regarding a combination. During the discussion, the Quad board of directors authorized management to send LSC a revised proposal setting forth an exchange ratio of 0.7000x.

On September 24, 2018, representatives of BofA Merrill Lynch and representatives of J.P. Morgan held a call, during which J.P. Morgan informed BofA Merrill Lynch that Quad/Graphics in response to LSC’s requests was prepared to move forward on the following basis: (i) the merger agreement would include a fixed exchange ratio of 0.7000 shares of Quad/Graphics’ class A common stock, subject to confirmatory due diligence, (ii) Quad/Graphics would be permitted to declare a $1.20 per share cash dividend to its existing shareholders but would reserve the right not to proceed if payment of such dividend would no longer in the best interests of Quad/Graphics’ shareholders, (iii) two current members of the LSC board of directors would be added to Quad/Graphics board of directors to be mutually agreed between LSC and Quad/Graphics and (iv) the Quad/Graphics voting trust would enter into an agreement to vote in favor of the transaction. J.P. Morgan indicated that Quad/Graphics would like to move as quickly as possible to commence due diligence, in order to announce a transaction prior to or simultaneously with its third quarter earnings in late October.

On September 25, 2018, the LSC board of directors held a teleconference discussion with members of LSC management and representatives of S&C. Mr. Quinlan reviewed with the LSC board of directors a summary of the discussions between representatives of BofA Merrill Lynch and J.P. Morgan. Following the LSC board of directors teleconference, BofA Merrill Lynch, at the direction of LSC, verbally confirmed to J.P. Morgan the acceptance of a 0.7000x exchange ratio and asked that Quad/Graphics confirm the current terms of a potential combination in a revised written proposal.

On September 26, 2018, Mr. Quadracci, on behalf of Quad/Graphics, provided Mr. Quinlan with a revised non-binding written proposal for a potential transaction involving LSC and Quad/Graphics. Such proposal included (i) a stock-for-stock merger transaction structure in which LSC stockholders would receive a fixed exchange ratio of 0.7000 shares of Quad/Graphics’ class A common stock for each share of LSC common stock, (ii) a one-time special dividend to existing Quad/Graphics shareholders of $1.20 per share of common stock and an adjustment to the exchange ratio if Quad/Graphics elects to pay this dividend, but Quad/Graphics will retain the option to forego declaration of the dividend under certain scenarios if doing so would be mutually beneficial to the holders of LSC’s and Quad/Graphics’ common stock, (iii) two directors from the current LSC board of directors to be mutually agreed upon by LSC and Quad/Graphics, as directed by the trustees of the Quad/Graphics voting trust, would be appointed to the Quad/Graphics board of directors at the closing of the potential transaction, (iv) a voting agreement between LSC and the Quad/Graphics voting trust in support of the potential transaction at the execution of the definitive agreement or shortly thereafter and (v) a termination fee of $30 million, payable to LSC, in the event that regulatory approval is not achieved after the parties have undertaken reasonable best efforts to secure all necessary regulatory approvals within 12 months following the execution of a definitive agreement between the parties.

Also on September 26, 2018, J.P. Morgan, on behalf of Quad/Graphics, sent a mutual due diligence request list and proposed transaction timeline to BofA Merrill Lynch, and on October 1, 2018, at LSC’s direction, BofA

 

-71-


Table of Contents

Merrill Lynch sent a supplemental due diligence request list to J.P. Morgan. Both parties began collecting due diligence documents to be provided to each other for review. In addition, because certain information that could be requested as part of the due diligence process might be considered competitively sensitive information, LSC and Quad/Graphics entered into a clean team confidentiality agreement on October 4, 2018, pursuant to which certain competitively sensitive information of LSC and Quad/Graphics would be made available only to each party’s outside counsel, any consultants or experts retained by outside counsel and certain specified employees of each party through a folder designated as “clean team only” in the electronic data room of LSC and Quad/Graphics, respectively.

From September 26, 2018 until the execution of the merger agreement on October 30, 2018, LSC and Quad/Graphics conducted mutual due diligence, which included conference calls with the respective management of LSC and Quad/Graphics and a review of materials made available by LSC and Quad/Graphics in electronic data rooms.

On October 5, 2018, F&L delivered to S&C an initial draft of the merger agreement. On October 6, 2018, S&C and F&L had a preliminary discussion regarding certain terms in the draft merger agreement. In particular, S&C discussed with F&L the covenant regarding obtaining regulatory approval, and language that was included in the draft which expressly provided that Quad/Graphics did not have to divest or hold separate any assets or agree to enter into other arrangements in connection with obtaining regulatory approval (which we refer to herein as the “no remedy action requirement”). Quad/Graphics position on the no remedy action requirement was premised on Quad/Graphics view of the scope of the market. S&C conveyed that in connection with using “reasonable best efforts” to obtain regulatory approval, LSC expected Quad/Graphics would agree to take certain remedy actions, if required, to obtain such approval.

On October 8, 2018, Ms. Kent spoke with Rajeev Balakrishna, the Associate General Counsel of LSC, and reiterated the position of Quad/Graphics with respect to the regulatory efforts provision set forth in the draft merger agreement.

On October 9, 2018, F&L and S&C had multiple conversations to discuss the covenant regarding obtaining regulatory approval in the draft merger agreement. Representatives of BofA Merrill Lynch and representatives of J.P. Morgan also discussed the covenant regarding obtaining regulatory approval.

Also on October 9, 2018, Mr. Honan contacted Mr. Coxhead to schedule a discussion of third quarter results, updated full year outlook and follow-up financial due diligence questions. Mr. Honan and Mr. Coxhead scheduled a meeting for October 16, 2018.

On October 11, 2018, S&C called F&L to preview the language that would be reflected in S&C’s revised draft of the merger agreement with respect to the regulatory efforts provision, specifying that the revised draft would provide that “reasonable best efforts” to obtain regulatory approval would require Quad/Graphics to agree to a certain level of remedy actions if requested by a governmental body. On October 11, 2018, S&C delivered to F&L a revised draft of the merger agreement.

On October 12, 2018, S&C delivered to F&L an initial draft of a voting and support agreement proposed to be entered into with the trustees of the Quad/Graphics voting trust in connection with the proposed transaction.

On October 12, 2018, the Quad/Graphics board of directors met, which meeting was also attended by Quad/Graphics senior management as well as F&L, J.P. Morgan and BDT. The Quad/Graphics’ board received and discussed presentations on the proposed financing plan in order to consummate the potential combination with LSC, the ongoing due diligence investigation, the synergy analysis prepared by Quad/Graphics management and updates thereto and key transaction terms, including LSC’s perspective on the above-noted regulatory approval provisions of the draft merger agreement and the status of negotiations on such provisions.

 

-72-


Table of Contents

On October 12, 2018, Mr. Quadracci advised Mr. Quinlan that the proposed terms of the regulatory efforts covenant in S&C’s revised draft of the merger agreement were unacceptable to the Quad/Graphics board of directors. Between October 12, 2018 and October 14, 2018, certain members of management of each of LSC and Quad/Graphics had various telephone calls with respect to the proposed terms of the regulatory approval covenant and the proposed amount of the reverse termination fee.

On October 14, 2018, S&C, on behalf of LSC, delivered to F&L a revised written proposal relating to the covenant regarding obtaining regulatory approval in the draft merger agreement, which provided for a reverse termination fee of $60 million, and required Quad/Graphics to take a certain level of remedy actions if requested by a governmental body, which was a lesser level than previously proposed by LSC. On the morning of October 15, 2018, at the direction of LSC, BofA Merrill Lynch discussed this proposal with J.P. Morgan.

On October 15, 2018, F&L, on behalf of Quad/Graphics, delivered to S&C a response to LSC’s written proposal of October 14, 2018, which (i) provided that Quad/Graphics would not be required to take any remedy actions, but Quad/Graphics would agree to consider in good faith whether to agree to such remedy actions if required to obtain regulatory approval from a governmental body, and (ii) rejected a reverse termination fee of $60 million.

On October 15, 2018, Mr. Quinlan advised Mr. Quadracci that the financial due diligence meeting scheduled to take place on October 16, 2018 would be cancelled in light of the impasse regarding the regulatory efforts covenant and amount of the reverse termination fee.

On October 17, 2018, Ms. Kent and Ms. Bettman had a telephone call, during which they discussed the regulatory efforts covenant and amount of the reverse termination fee.

On October 17, 2018, the LSC board of directors held a meeting, with members of LSC management and representatives of S&C also in attendance. At the meeting, Mr. Quinlan provided an update on the potential transaction with Quad/Graphics, including the mutual due diligence review and merger agreement discussions. Mr. Quinlan then discussed that in connection with the exchange of the first drafts of the merger agreement, the parties identified a material issue with respect to the allocation of risk in respect of obtaining regulatory approval for the potential transaction and that due to this issue LSC was not at this time in active discussion with Quad/Graphics. Mr. Quinlan then summarized the regulatory related issues. The representatives of S&C reviewed the LSC board’s fiduciary duties in connection with their consideration of a potential transaction with Quad/Graphics. The representatives of S&C then reviewed the terms of the proposals exchanged between LSC and Quad/Graphics with regard to the regulatory related issues and the LSC board discussed such proposals. There was discussion regarding the antitrust issues with respect to the potential transaction with Quad/Graphics. Representatives of BofA Merrill Lynch were then invited to join the meeting. Mr. Coxhead then reviewed with the LSC board of directors third quarter results that were below previously announced guidance as well as Wall Street consensus. Mr. Coxhead discussed that LSC was considering a downward revision to its full year 2018 guidance and that management would discuss the third quarter results and any revisions to guidance and five year projections at an LSC board meeting on October 20, 2018. Following discussion with regard to third quarter results, the representatives of BofA Merrill Lynch discussed Quad/Graphics’ expectations with regard to financing of the potential transaction and that in connection with such financing Quad/Graphics expected to incur significant financing fees. The representatives of BofA Merrill Lynch then discussed the regulatory approval efforts covenant and reverse termination fee amounts in precedent transactions, explaining that the size of the reverse termination fee is often dependent on the level of regulatory efforts in the definitive agreement. Mr. Quinlan then discussed next steps, including a subsequent meeting of the LSC board of directors for October 20, 2018, during which the LSC board of directors would receive any updates on discussions regarding the regulatory efforts and the reverse termination fee and a more detailed discussion regarding the third quarter financial results and the updated forecasts.

On October 18, 2018, the Quad/Graphics board of directors met again and received an update on the status of negotiations with LSC on the above-noted regulatory approval provisions of the draft merger agreement.

 

-73-


Table of Contents

On October 18, 2018, F&L, on behalf of Quad/Graphics, delivered to S&C a response with regard to the covenant regarding obtaining regulatory approval and the amount of the reverse termination fee. The response indicated that Quad/Graphics would agree either to pay a reverse termination fee of $40 million, with no obligation to take any remedy actions, or to take certain remedial actions but not pay a reverse termination fee.

On October 19, 2018, S&C, on behalf of LSC, delivered to F&L a response with regard to the covenant regarding obtaining regulatory approval and the amount of the reverse termination fee. The response included two alternatives, in each case requiring certain remedy options and a reverse termination fee. After review of LSC’s response, Quad/Graphics rejected both alternatives proposed by LSC and indicated that it would accept either a remedy action requirement or a reverse termination fee, but not both terms.

On October 20, 2018, the LSC board of directors held a meeting, with members of LSC management and representatives of S&C and BofA Merrill Lynch also in attendance. At the meeting, Mr. Quinlan provided the LSC board of directors with an overview of the latest view of management’s five-year projections and the general state of the business. Mr. Coxhead then discussed the long range projection update, as further detailed in the section entitled “The Merger—Certain Unaudited Prospective Financial Information”, beginning on page 100. Mr. Quinlan and Ms. Bettman provided an update on the discussions between LSC and Quad/Graphics regarding the regulatory approval efforts covenant and the amount of the reverse termination fee and the implications of the regulatory approval efforts covenant and related reverse termination fee on deal certainty. Ms. Bettman and representatives of S&C then discussed the most recent proposal received from Quad/Graphics on October 18, 2018. LSC management and LSC’s advisors discussed with the LSC board of directors additional information on the economics of the reverse termination fee, the commitment to the potential transaction that Quad/Graphics has shown by its willingness to incur transaction and financing expenses, regulatory provisions included in precedent transactions, and the provision in the merger agreement obligating the parties to litigate any legal proceeding challenging the merger before terminating the merger agreement and paying the reverse termination fee. The LSC board of directors discussed their views on Quad/Graphics proposal regarding the regulatory approval efforts covenant and the reverse termination fee and directed management of LSC and its advisors to (i) accept Quad/Graphics’ proposal that would provide for no remedy action requirement but would require Quad/Graphics pay a $45 million reverse termination fee if regulatory approval was not obtained or the agreement was terminated under other circumstances related to not obtaining regulatory approval, (ii) provide third quarter results and revised five-year projections to Quad/Graphics and (iii) continue to negotiate the terms of the merger agreement and voting and support agreement with Quad/Graphics and its advisors.

Following the meeting of the LSC board of directors on October 20, 2018, Mr. Quinlan and Ms. Bettman telephoned Mr. Quadracci and Ms. Kent and confirmed LSC’s willingness to proceed on the basis of Quad/Graphics’ proposal that would provide for no remedy action requirement but would require Quad/Graphics pay a $45 million reverse termination fee if regulatory approval was not obtained, and requested that the financial due diligence meeting, originally scheduled for October 16, 2018 but cancelled due to the parties’ previous impasse on the regulatory provisions in the merger agreement, be held the following day. Also on October 20, 2018, LSC and Quad/Graphics exchanged their respective third quarter results and updated five-year projections, which are further detailed in the section entitled “The Merger—Certain Unaudited Prospective Financial Information”, beginning on page 100, and Quad/Graphics provided LSC with a summary of its updated estimate of expected synergies. The updated LSC five-year projections reflected lower anticipated results than the projections provided to Quad/Graphics in September.

On October 21, October 22 and October 23, 2018, LSC and Quad/Graphics held teleconferences to discuss each companies’ revised projections, as well as due diligence findings and the related effects on the anticipated synergies that could be achievable in the potential transaction. Following these teleconferences, Mr. Quadracci and Mr. Honan informed the Quad/Graphics board of directors of their discussions with the management of LSC, and then discussed the same with J.P. Morgan, including the effect this information may have on the proposed exchange ratio.

 

-74-


Table of Contents

From October 22, 2018 to October 30, 2018, as part of the ongoing due diligence efforts, members of management and legal teams, including subject matter experts, of LSC and Quad/Graphics held conference calls regarding their respective businesses to facilitate the evaluation of the transaction and continued to exchange due diligence materials.

On October 22, 2018, F&L delivered to S&C a revised draft of the merger agreement. The material open issues in the revised draft included: (i) interim operating covenants and post-closing covenants relating to employee benefit matters, (ii) the number of current members of the LSC board of directors that would be appointed to the Quad/Graphics board, (iii) the timing and financial parameters around the special dividend, (iv) the terms of the no shop provision, including the definition of superior proposal, (v) the scope of LSC’s cooperation with respect to Quad/Graphics’ financing plans and (vi) the treatment of LSC’s indebtedness. Following receipt of the revised draft, the parties and their respective financial and legal advisors had multiple discussions on the terms of the merger agreement.

On October 24, 2018, J.P. Morgan telephoned BofA Merrill Lynch to advise that due to third quarter performance and the lower projections presented by LSC, Quad/Graphics was lowering the fixed exchange ratio it was willing to pay for each share of LSC common stock from 0.7000 to 0.6000 shares of Quad/Graphics class A common stock for every share of LSC common stock. Later on October 24, 2018, the LSC board of directors, representatives of S&C and BofA Merrill Lynch and members of LSC management met prior to the October 25 board meeting. Mr. Quinlan and representatives from BofA Merrill Lynch provided the LSC board of directors with an update on the latest proposal from Quad/Graphics. The representatives of S&C reviewed with the LSC board of directors its fiduciary duties in connection with their consideration of a potential transaction with Quad/Graphics. The representatives of S&C also discussed and answered questions regarding the regulatory process in connection with the potential transaction with Quad/Graphics.

On the morning of October 25, 2018, the Quad/Graphics board of directors held a meeting. Members of Quad/Graphics management, as well as representatives of J.P. Morgan and BDT, were also in attendance. Mr. Quadracci updated the Quad/Graphics board of directors on the events and developments since the prior meeting of the Quad/Graphics board, including the economic discussions with LSC on October 22. During the meeting, representatives from J.P. Morgan reviewed with the Quad/Graphics board of directors preliminary financial analyses with respect to a potential combination of Quad/Graphics and LSC, and, along with Quad/Graphics senior management, updated the Quad/Graphics board regarding the expected financing necessary in order to consummate a combination. Quad/Graphics management also advised the Quad/Graphics board regarding the nature and status of its financial and legal due diligence of LSC and reviewed with the Quad/Graphics board the key provisions of the current draft of the merger agreement, which had previously been provided to the Quad/Graphics board. At the meeting, the Quad/Graphics board of directors also discussed and considered Quad/Graphics management’s expectation that the merger would produce annualized net synergies of approximately $135 million through capacity rationalization, the elimination of duplicative functions, greater operational efficiencies and greater efficiencies in supply chain management, at an estimated cost to achieve of approximately $135 million. At the conclusion of the meeting, the Quad/Graphics board of directors authorized management to go back to LSC with a revised exchange ratio of 0.6000x to 0.6500x.

Also on the morning of October 25, 2018, the LSC board of directors held a regularly scheduled meeting, with members of LSC management and representatives of S&C and BofA Merrill Lynch also in attendance. At the meeting, the representatives of S&C reviewed with the LSC board of directors its fiduciary duties in connection with their consideration of a potential transaction with Quad/Graphics. The representatives of BofA Merrill Lynch then reviewed with the LSC board of directors their updated disclosure letter regarding certain of its relationships with LSC and Quad/Graphics, which had been provided to the LSC board. Mr. Coxhead then presented a financial and synergy update during which he discussed historical and projected results for LSC and Quad/Graphics as well as a synergy estimate comparison. The representatives of BofA Merrill Lynch then provided an update regarding Quad/Graphics’ proposed financing plan. Mr. Coxhead and Ms. Bettman then provided an update regarding LSC’s due diligence on Quad/Graphics. The representatives of BofA Merrill Lynch

 

-75-


Table of Contents

then reviewed the terms of the potential transaction with Quad/Graphics, including the proposed special cash dividend and the relative post-transaction ownership percentages for LSC’s stockholders and Quad/Graphics’ shareholders. The representatives of BofA Merrill Lynch reviewed with the LSC board of directors the new Quad/Graphics proposal of a 0.6000x exchange ratio on October 24, 2018, which Quad/Graphics indicated was a response to LSC’s third quarter performance and updated projections, which are further detailed in the section entitled “The Merger—Certain Unaudited Prospective Financial Information”, beginning on page 100. The LSC board, LSC management and the advisors discussed the new proposed exchange ratio, the current state of the business and the market reaction that could occur if the merger agreement was not executed prior to LSC’s anticipated earnings release and updated guidance announcement scheduled to occur on November 1, 2018. There were also discussions regarding the special cash dividend and conditioning Quad/Graphics ability to pay the dividend prior to closing of the transaction upon certain financial metrics to ensure that the LSC stockholders would not receive shares in a company that is over-levered. The representatives of BofA Merrill Lynch then reviewed its financial analysis of the potential transaction the LSC board of directors and reviewed certain pro forma financial information for the combined company, including the sources and uses and pro forma capitalization and leverage of the combined company, the combined company’s pro forma income statement (including the synergies that might result from the potential transaction) and the pro forma leverage profile of the combined company. The representatives of BofA Merrill Lynch discussed other potential alternative transactions that could be available to LSC, including with potential private equity firms and strategic companies, and the financial considerations of such transactions as compared to the current proposal from Quad/Graphics. The representatives of BofA Merrill Lynch also discussed the potential sale of certain of LSC’s businesses as part of LSC’s standalone plan. The LSC board, LSC management and the advisors then discussed (i) the revised exchange ratio proposed by Quad/Graphics and possible responses, (ii) possible financial parameters around a special dividend, (iii) reiterating the request for two board seats on the Quad/Graphics board and (iv) the retention pool requested by LSC given the potential length of time between signing and closing. Following such discussions, the LSC board of directors authorized Mr. Quinlan to propose (i) a higher exchange ratio within a specified range, (ii) two board seats on the Quad/Graphics board for current members of the LSC board of directors to be mutually agreed between LSC and Quad/Graphics, (iii) financial parameters with respect to the ability of Quad/Graphics to pay the special cash dividend tied to the pro forma leverage of the combined company and (iv) an appropriately sized retention pool for LSC employees. The representatives of S&C then reviewed the material terms of the then-current draft of the merger agreement and discussed with the LSC board of directors the material open merger agreement issues, including timing and financial parameters around the special dividend, the terms of the no shop provision in the merger agreement, including the definition of a superior proposal, certain interim operating covenants, the scope of LSC’s cooperation with respect to Quad/Graphics’ financing plans, the treatment of LSC’s indebtedness, the number of members of the LSC board of directors that will be appointed to the Quad/Graphics board, the proposed termination rights and size of the termination fees and the conditions to their payment. The representatives of S&C also provided the LSC board of directors with a summary of the voting and support agreement. Ms. Bettman and the representatives of S&C then reviewed the employee compensation and benefits provisions in the merger agreement and the open issues relating to those matters. Ms. Bettman and the representatives of S&C then reviewed the communications plans with respect to the potential transaction with Quad/Graphics.

Following the companies’ respective board meetings, on October 25, 2018, Mr. Quinlan and Mr. Quadracci had a telephone call, during which Mr. Quinlan informed Mr. Quadracci of LSC’s responses with respect to open issues discussed at the meeting of the LSC board of directors earlier that day. Mr. Quinlan responded that, among other things, the LSC board was requesting an exchange ratio of 0.6500x. Mr. Quadracci rejected this offer, but proposed an exchange ratio of 0.6250x. Mr. Quinlan, on behalf of LSC, agreed to this exchange ratio, subject to satisfactory resolution of remaining outstanding issues. Later on October 25, 2018, F&L delivered to S&C a revised draft of the voting and support agreement.

On October 26, 2018, S&C delivered to F&L a revised draft of the merger agreement, and S&C and F&L continued to exchange drafts of the merger agreement and voting and support agreement until October 30, 2018 to resolve the final open issues related to the merger agreement and voting and support agreement. The material

 

-76-


Table of Contents

open issues that were resolved during this time period included the terms of the no shop provision in the merger agreement, including the definition of a superior proposal, certain interim operating covenants, the scope of LSC’s cooperation with respect to Quad/Graphics’ financing plans, the treatment of LSC’s indebtedness, the number of members of the LSC board of directors that will be appointed to the Quad/Graphics board of directors, the obligation of each party to hold a meeting for the vote of its shareholders irrespective of any change of recommendation of such party’s board, the proposed termination rights and size of the termination fees and the conditions to their payment, interim and post-closing employee benefit covenants and the size of the retention pool.

On October 27, 2018, Ms. Kent and representatives of F&L discussed the proposed terms of the voting and support agreement with the trustees of the Quad/Graphics voting trust. On that day, S&C also distributed to F&L a revised draft of that agreement.

On October 28, 2018, the LSC board of directors held a meeting, with members of LSC management and representatives of S&C and BofA Merrill Lynch also in attendance. At the meeting, Mr. Quinlan provided an update on the status of negotiations with Quad/Graphics regarding the potential transaction, noting that the parties had agreed on an exchange ratio of 0.6250x, two board seats for LSC directors, a leverage test in order for Quad/Graphics to pay the special dividend, but that the amount of the retention bonus pool was still under discussion.

Over the course of October 29, 2018 and October 30, 2018, senior management of Quad/Graphics and representatives of F&L participated in multiple conference calls with senior management of LSC and representatives of S&C to negotiate and resolve the remaining open issues in the merger agreement, including the elimination of the Quad/Graphics special dividend. On October 30, 2018, the parties and their respective advisors resolved the major open issues in the draft merger agreement, including the amount of the retention bonus pool, subject to approval by each party’s board and final documentation. For additional information regarding the final terms of the merger agreement, see the section entitled “The Merger Agreement” beginning on page 121 and a copy of the merger agreement attached as Annex A to this joint proxy statement/prospectus.

On October 30, 2018, the LSC board of directors held a meeting, with members of LSC management and representatives of S&C and BofA Merrill Lynch also in attendance. At the meeting, Mr. Quinlan provided the LSC board of directors with an update on the negotiations between LSC and Quad/Graphics and their respective financial and legal advisors relating to the merger agreement, voting and support agreement and other related documentation. The representatives of S&C reminded the LSC board of directors of their fiduciary duties in connection with the potential transaction with Quad/Graphics. Mr. Coxhead and Ms. Bettman then provided an update on financial and legal due diligence review. The representatives of BofA Merrill Lynch then discussed the financial terms of the potential transaction with Quad/Graphics, including that Quad/Graphics was no longer seeking to pay a special cash dividend, and the relative post-transaction ownership percentages of LSC’s stockholders and Quad/Graphics’ shareholders. The representatives of BofA Merrill Lynch then reviewed with the LSC board of directors an update to the analysis previously delivered to the LSC board of directors at the meeting of the LSC board of directors on October 25, 2018. The representatives of BofA Merrill Lynch and Mr. Coxhead then updated the LSC board of directors regarding Quad/Graphics’ financing arrangements, informing the LSC board of directors that Quad/Graphics had obtained a commitment letter from J.P. Morgan to provide it with financing under its existing credit agreement so long as it meets certain leverage ratios. LSC’s management and advisors reported on the various discussions with Quad/Graphics, the management of LSC and S&C regarding such financing arrangements, whether Quad/Graphics should obtain a backstop facility from J.P. Morgan that did not contain such conditionality and the cost of such backstop. The representatives of BofA Merrill Lynch reviewed with the LSC board of directors of directors its financial analysis of the exchange ratio and delivered to the LSC board of directors of directors an oral opinion, which was confirmed by delivery of a written opinion dated October 30, 2018, to the effect that, as of that date and based on and subject to various assumptions and limitations described in its opinion, the exchange ratio provided for in the proposed merger memorialized in the merger agreement was fair, from a financial point of view, to holders of LSC common stock.

 

-77-


Table of Contents

The representatives of S&C then reviewed with the LSC board of directors an updated written summary of the merger agreement and voting and support agreement and provided the LSC board of directors with an overview of the key changes made from the last draft reviewed with the LSC board, including (i) the terms of the no shop provision, including the definition of superior proposal, (ii) the provisions regarding cooperation in Quad/Graphics’ financing efforts, (iii) the termination fee of $12.5 million and expense reimbursement of up to $2 million to be paid by LSC in certain circumstances and (iv) LSC’s remedies in the event that Quad/Graphics did not hold a special meeting for its shareholders to approve the issuance of shares as consideration in connection with the potential transaction. Ms. Bettman and the representatives of S&C also reviewed the employee compensation and benefits provisions in the merger agreement and disclosure schedules, including the agreed retention pool. After considering and discussing the foregoing and the proposed terms of the merger agreement, and taking into consideration the factors described in the sections entitled “The Merger—LSC’s Reasons for the Merger and Recommendation of the LSC board of directors of Directors” and “The Merger—Certain Unaudited Prospective Financial Information”, beginning on page 87 and 100, respectively, the members of the LSC board of directors (i) determined that the merger is fair and in the best interests of, LSC and its stockholders, (ii) approved and declared advisable the merger agreement, the voting and support agreement, the merger and the other transactions contemplated by the merger agreement and (iii) recommended adoption of the merger agreement to the stockholders of LSC.

On October 30, 2018, the Quad/Graphics board of directors held a meeting. Members of Quad/Graphics management, as well as representatives of J.P. Morgan, BDT and F&L, were also in attendance. During the meeting, representatives from J.P. Morgan reviewed with the Quad/Graphics board of directors its financial analyses with respect to the proposed merger with LSC and, upon the request of the Quad/Graphics board, rendered its oral opinion, which was subsequently confirmed in writing, dated October 30, 2018, that, as of October 30, 2018, and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations on the scope of the review undertaken by J.P. Morgan as set forth in its opinion, the exchange ratio set forth in the merger agreement was fair, from a financial point of view, to Quad/Graphics. Also during the meeting, representatives from F&L, together with Ms. Kent, reviewed with the Quad/Graphics board the materials summarizing the proposed substantially final terms of the merger agreement, which had previously been provided to the Quad/Graphics board. At this meeting, the Quad/Graphics board of directors also received a summary of the proposed financing for the transactions contemplated by the merger agreement. Following discussion, including the consideration of the factors described under the section entitled “The Merger—Quad/Graphics’ Reasons for the Merger and Recommendation of Quad/Graphics’ Board of Directors” beginning on page 79, the Quad/Graphics board of directors unanimously: (i) determined that the merger and the other transactions contemplated by the merger agreement are in the best interests of Quad/Graphics, (ii) approved the merger agreement, the merger and the issuance of shares of Quad/Graphics class A common stock in connection with the merger and (iii) resolved to recommend that the holders of Quad/Graphics common stock approve the issuance of shares of Quad/Graphics class A common stock in connection with the merger (i.e., the share issuance proposal). The Quad/Graphics board of directors further authorized and directed management to execute the merger agreement and also approved the financing necessary to complete the transactions contemplated by the merger agreement.

Following the LSC board of directors meeting and Quad/Graphics board of directors meeting, on October 30, 2018, the merger agreement was executed and delivered by Quad/Graphics and LSC. On the same day, Quad/Graphics executed the commitment relating to the financing necessary to complete the transactions contemplated by the merger agreement and LSC and the trustees of the Quad/Graphics voting trust and LSC executed the voting and support agreement.

Early in the morning of October 31, 2018, prior to commencement of trading on the NYSE, Quad/Graphics and LSC issued a joint press release announcing the transaction.

 

-78-


Table of Contents

Quad/Graphics’ Reasons for the Merger and Recommendation of Quad/Graphics’ Board of Directors

The Quad/Graphics board of directors determined that the merger is in the best interests of Quad/Graphics and approved and declared advisable the merger agreement, the merger and the issuance of shares of Quad/Graphics class A common stock in connection with the merger. The Quad/Graphics board of directors recommends that Quad/Graphics shareholders vote “FOR” the share issuance proposal.

In reaching its decision, the Quad/Graphics board of directors consulted with Quad/Graphics management, as well as Quad/Graphics’ legal and financial advisors, and considered various information and a number of factors, weighing both perceived benefits of the merger as well as potential risks of the merger. The following discussion of the information and factors considered by the Quad/Graphics board of directors is not intended to be exhaustive. In view of the wide variety of factors considered by the Quad/Graphics board of directors in connection with its evaluation of the merger, the Quad/Graphics board of directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described below, individual members of the Quad/Graphics board of directors may have given different weight to different factors. The Quad/Graphics board of directors considered this information as a whole and considered overall the information and factors to be favorable to, and in support of, its determinations and recommendation. Among the material information and factors favoring the merger and the other transactions contemplated by the merger agreement considered by the Quad/Graphics board of directors were the following:

 

   

Quad/Graphics believes that the merger will fuel Quad/Graphics’ 3.0 transformation strategy that creates value by leveraging a strong print foundation as part of a much larger and more robust integrated marketing solutions offering by:

 

   

Creating a highly efficient print platform.

 

   

Strengthening the role of print in a multichannel media world.

 

   

Broadening Quad/Graphics’ client base and revenue-generating potential.

 

   

Quad/Graphics’ expectation that the merger will deliver cost- and time-saving opportunities for clients through:

 

   

Enhanced production and distribution efficiencies and flexibility from the greater scale of the combined complementary platforms.

 

   

Expanded logistics services and volume-driven postage savings programs, such as co-mailing.

 

   

Strengthened print management services and business process outsourcing.

 

   

The merger maintains Quad/Graphics’ long-term strategic vision by:

 

   

Preserving Quadracci family leadership and voting control in the company.

 

   

Joel Quadracci will remain as the Chairman, President and Chief Executive Officer of Quad/Graphics after the merger is consummated.

 

   

Quad/Graphics’ expectation that the merger will be accretive to earnings, excluding non-recurring integration costs.

 

   

Based on an analysis developed by Quad/Graphics’ management, annualized net synergies are expected to be approximately $135 million, and are expected to be achieved in less than 24 months after the consummation of the merger through capacity rationalization, the elimination of duplicative functions, greater operational efficiencies and greater efficiencies in supply chain management, at an estimated cost to achieve of approximately $135 million.

 

   

Quad/Graphics’ expectation that the merger, as well as the net synergies expected from the merger, will result in additional free cash flow generation.

 

-79-


Table of Contents
   

Quad/Graphics believes that the merger will result in a more profitable company with a strong and healthy balance sheet that provides continued financial flexibility to strategically deploy capital between investing back into the business, making strategic acquisitions and returning capital to shareholders through dividends and share repurchases.

 

   

Quad/Graphics’ past record of successfully integrating acquisitions and realizing the projected financial goals and benefits of acquisitions and Quad/Graphics management’s belief that Quad/Graphics will be able to integrate LSC with Quad/Graphics successfully.

 

   

The Quad/Graphics board of directors’ knowledge of, and discussions with Quad/Graphics management and its advisors regarding, each of Quad/Graphics’ and LSC’s business operations, financial condition, earnings and prospects, taking into account LSC’s publicly-filed information and the results of Quad/Graphics’ due diligence investigation of LSC.

 

   

The recommendation of the merger by Quad/Graphics’ senior management team.

 

   

The oral opinion of J.P. Morgan rendered on October 30, 2018 and the written opinion of J.P. Morgan, dated October 30, 2018, to the Quad/Graphics board of directors to the effect that as of the date of such opinion, and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations on the scope of the review undertaken by J.P. Morgan as set forth therein, the exchange ratio set forth in the merger agreement was fair, from a financial point of view, to Quad/Graphics. For additional information regarding the opinion of J.P. Morgan, see the section entitled “The Merger—Opinion of Quad/Graphics’ Financial Advisor” beginning on page 81. The full text of the written opinion of J.P. Morgan is attached as Annex C to this joint proxy statement/prospectus.

 

   

That the exchange ratio is fixed and will not fluctuate in the event that the market price of LSC common stock increases relative to the market price of Quad/Graphics class A common stock between the date of the merger agreement and the consummation of the merger.

 

   

That Quad/Graphics is not required to agree to any antitrust regulatory authorities’ imposed terms or conditions on their approvals of the merger that could adversely affect the business or financial results of Quad/Graphics following the merger.

 

   

That Quad/Graphics will continue to be led by the current strong, experienced Quad/Graphics management team and that the addition of two current LSC directors to the Quad/Graphics board of directors post-merger, which directors will be mutually agreed upon by LSC and Quad/Graphics, at the direction of the Quad/Graphics voting trust, will add further valuable expertise and experience and in-depth familiarity with LSC to the Quad/Graphics board of directors.

 

   

That there are limited circumstances in which the LSC board of directors may terminate the merger agreement or change its recommendation that LSC stockholders adopt the merger agreement proposal, and if the merger agreement is terminated by Quad/Graphics as a result of a change in recommendation of the LSC board of directors or by LSC in order to enter into a definitive agreement with a third party providing for the consummation of a superior proposal, then in each case LSC has agreed to pay Quad/Graphics a termination fee of $12.5 million plus reimburse Quad/Graphics up to $2.0 million for out-of-pocket expenses related to the merger agreement and the transactions contemplated thereby. For additional information, see the section entitled “The Merger Agreement—Termination” beginning on page 146.

The Quad/Graphics board of directors also considered and balanced against the material information and factors favoring the merger and the other transactions contemplated by the merger agreement a number of potential risks associated with the merger, including the following:

 

   

That the merger may not be consummated in a timely manner or at all and the potential consequences of non-consummation or delays in consummation.

 

-80-


Table of Contents
   

The risk that antitrust regulatory authorities may not approve the merger or may attempt to impose terms and conditions on their approvals that could adversely affect the business and financial results of Quad/Graphics following the merger.

 

   

The effect that the length of time from announcement of the merger until consummation of the merger could have on the market price of Quad/Graphics class A common stock, Quad/Graphics’ operating results and the relationship with Quad/Graphics’ employees, shareholders, customers, suppliers, regulators and others who do business with Quad/Graphics.

 

   

That the anticipated benefits of the merger may not be realized in full or in part, including the risk that the net synergies may not be achieved or not achieved in the expected time frame.

 

   

That the attention of Quad/Graphics’ senior management may be diverted from other strategic priorities to implement the merger and make arrangements for the integration of LSC’s and Quad/Graphics’ operations, assets and employees following the merger.

 

   

That LSC stockholders may not approve the merger agreement proposal.

 

   

The risk that the refinancing of Quad/Graphics’ existing debt financing arrangements in connection with the merger may not ultimately be achieved at all or on the terms anticipated by Quad/Graphics.

 

   

That the exchange ratio is fixed and will not fluctuate in the event that the market price of Quad/Graphics class A common stock increases relative to the market price of LSC common stock between the date of the merger agreement and the consummation of the merger.

 

   

That there are limited circumstances in which the Quad/Graphics board of directors may terminate the merger agreement.

 

   

That if the merger agreement is terminated by either party because the merger has not been consummated by October 30, 2019 and the antitrust regulatory approvals of the merger have not been obtained by that time, or if a final, non-appealable order or other action of a governmental body is in effect permanently restraining, enjoining or otherwise prohibiting consummation of the merger, then Quad/Graphics has agreed to pay LSC a reverse termination fee of $45 million. For additional information, see the section entitled “The Merger Agreement—Termination” beginning on page 146.

 

   

The transaction costs to be incurred by Quad/Graphics in connection with the merger.

 

   

The risks associated with the occurrence of events that may materially and adversely affect the assets, liabilities, business, condition (financial or otherwise) or results of operations of LSC and its subsidiaries but that will not entitle Quad/Graphics to terminate the merger agreement.

 

   

The potential impact on the market price of Quad/Graphics class A common stock as a result of the issuance of the merger consideration to LSC stockholders.

 

   

That certain executive officers and directors of Quad/Graphics may have interests in the merger that may be different from, or in addition to, the interests of Quad/Graphics shareholders generally. See the section entitled “The Merger—Interests of Quad/Graphics’ Executive Officers and Directors in the Merger” beginning on page 112 for further information.

 

   

Various other risks described in the section entitled “Risk Factors” beginning on page 37.

The foregoing discussion of the information and factors considered by the Quad/Graphics board of directors is forward-looking in nature and should be read in light of the factors described in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 47.

Opinion of Quad/Graphics’ Financial Advisor

Pursuant to an engagement letter dated December 8, 2017, Quad/Graphics retained J.P. Morgan as its financial advisor in connection with the proposed merger.

 

-81-


Table of Contents

At a meeting of the Quad/Graphics board of directors on October 30, 2018, J.P. Morgan rendered its oral opinion, and subsequently confirmed in writing to the Quad/Graphics board of directors that, as of that date and on the basis of and subject to the various factors, assumptions and limitations set forth in such written opinion, the exchange ratio in the merger was fair, from a financial point of view, to Quad/Graphics. We refer to the J.P. Morgan written opinion, dated October 30, 2018, as the “J.P. Morgan opinion.”

The full text of the J.P. Morgan opinion dated October 30, 2018, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken in rendering its opinion, is attached as Annex C to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of the J.P. Morgan opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the J.P. Morgan opinion. You should read the J.P. Morgan opinion carefully and in its entirety. The J.P. Morgan opinion was directed to the Quad/Graphics board of directors (in its capacity as such) in connection with (and for the purposes of) its evaluation of the proposed merger, addressed only the fairness to Quad/Graphics, from a financial point of view, of the exchange ratio in the merger, and did not address any other aspect of the merger. J.P. Morgan has expressed no opinion as to the fairness of the exchange ratio to the holders of any other class of securities, creditors or other constituencies of Quad/Graphics or as to the underlying decision by Quad/Graphics to engage in the merger. The issuance of the J.P. Morgan opinion was approved by a fairness opinion committee of J.P. Morgan. The summary of the J.P. Morgan opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. The J.P. Morgan opinion does not constitute a recommendation as to how Quad/Graphics shareholders should vote with respect to the share issuance proposal or any other matter.

In arriving at its opinion, J.P. Morgan, among other things:

 

   

reviewed the merger agreement;

 

   

reviewed certain publicly available business and financial information concerning LSC, Quad/Graphics and the industries in which they operate;

 

   

compared the financial and operating performance of LSC and Quad/Graphics with publicly available information concerning certain other companies J.P. Morgan deemed relevant and reviewed the current and historical market prices of the LSC common stock and Quad/Graphics’ class A common stock;

 

   

reviewed certain internal financial analyses and forecasts prepared by the management of Quad/Graphics relating to the businesses of LSC and Quad/Graphics, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the merger (referred to in this section only as the “Synergies”); and

 

   

performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its opinion.

J.P. Morgan also held discussions with certain members of the management of LSC and Quad/Graphics with respect to certain aspects of the merger, the past and current business operations of LSC and Quad/Graphics, the financial condition and future prospects and operations of LSC and Quad/Graphics, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by LSC and Quad/Graphics or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (and did not assume any obligation for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of LSC or Quad/Graphics under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, including the Synergies, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by Quad/Graphics’ management as

 

-82-


Table of Contents

to the expected future results of operations and financial condition of Quad/Graphics and LSC to which those analyses or forecasts relate. J.P. Morgan expressed no view as to those analyses or forecasts (including the Synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the merger and the other transactions contemplated by the merger agreement will be consummated as described in the merger agreement. J.P. Morgan also assumed that the representations and warranties made by LSC and Quad/Graphics in the merger agreement and the related agreements were and will be true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to Quad/Graphics with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on LSC or Quad/Graphics or on the contemplated benefits of the merger.

The projections Quad/Graphics furnished to J.P. Morgan for LSC for the calendar years 2018 through 2027 were prepared by the management of Quad/Graphics (referred to in this section only as the “LSC projections”). The projections Quad/Graphics furnished to J.P. Morgan for Quad/Graphics for the calendar years 2018 through 2027 were prepared by the management of Quad/Graphics (referred to in this section only as the “Quad/Graphics projections”). Neither Quad/Graphics nor LSC publicly discloses internal management projections of the type provided to J.P. Morgan in connection with J.P. Morgan’s analysis of the merger, and such projections were not prepared with a view toward public disclosure. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such projections.

The J.P. Morgan opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, October 30, 2018. Subsequent developments may affect the J.P. Morgan opinion, and J.P. Morgan does not have any obligation to update, revise, or reaffirm the J.P. Morgan opinion. The J.P. Morgan opinion is limited to the fairness, from a financial point of view, to Quad/Graphics, of the exchange ratio in the merger and J.P. Morgan has expressed no opinion as to the fairness of the exchange ratio to the holders of any class of securities, creditors or other constituencies of Quad/Graphics or as to the underlying decision by Quad/Graphics to engage in the merger. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the merger, or any class of those persons relative to the exchange ratio in the merger or with respect to the fairness of any such compensation. J.P. Morgan expressed no opinion as to the price at which Quad/Graphics class A common stock or LSC common stock will trade at any future time.

The terms of the merger agreement, including the exchange ratio, were determined through arms’ length negotiations between LSC and Quad/Graphics, and the decision to enter into the merger agreement was solely that of the Quad/Graphics board of directors, J.P. Morgan’s opinion and financial analyses were only one of the many factors considered by the Quad/Graphics board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the Quad/Graphics board of directors or management with respect to the merger or the exchange ratio.

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses undertaken by J.P. Morgan in connection with rendering the J.P. Morgan opinion delivered to Quad/Graphics’ board of directors on October 30, 2018 and contained in the presentation delivered to the Quad/Graphics board of directors on October 30, 2018 in connection with the rendering of J.P. Morgan’s opinion and does not purport to be a complete description of the analyses or data presented by J.P. Morgan. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and, in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s financial analyses.

 

-83-


Table of Contents

Public Trading Multiples Analysis

Using publicly available information, J.P. Morgan compared selected financial data of LSC and Quad/Graphics with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be analogous to LSC and Quad/Graphics.

For LSC, the companies selected by J.P. Morgan were as follows:

 

   

Donnelley Financial Solutions, Inc.

 

   

Quad/Graphics, Inc.

 

   

R. R. Donnelley & Sons Company

 

   

Transcontinental, Inc.

For Quad/Graphics, the companies selected by J.P. Morgan were as follows:

 

   

Donnelley Financial Solutions, Inc.

 

   

LSC Communications, Inc.

 

   

R. R. Donnelley & Sons Company

 

   

Transcontinental, Inc.

These companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analyses, may be considered similar to those of LSC or Quad/Graphics, as applicable. However, certain of these companies may have characteristics that are materially different from those of LSC or Quad/Graphics. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the selected companies differently than they would affect LSC or Quad/Graphics, as applicable.

Using publicly available information, J.P. Morgan calculated, for each selected company, the ratio of such company’s firm value (calculated as the market value of such company’s common stock on a fully diluted basis, plus any debt and tax adjusted pension deficit, less cash and cash equivalents) to the consensus equity research analysis estimate for such company’s expected EBITDA (calculated as earnings before interest, tax, depreciation and amortization, excluding pension income) for the year ending December 31, 2019 (the “FV/2019E EBITDA”). The FV/2019E EBITDA ratios for the companies selected for LSC ranged from a low of 5.2x to a high of 6.2x. The FV/2019E EBITDA ratios for the companies selected for Quad/Graphics ranged from a low of 4.8x to a high of 6.2x.

Based on the results of this analysis, J.P. Morgan selected multiple reference ranges for FV/2019E EBITDA for LSC of 5.5x to 6.5x. The range for LSC was then applied to LSC’s estimated EBITDA for calendar year 2019 provided by the management of Quad/Graphics to J.P. Morgan, yielding an implied equity value per share range of $6.00 to $12.25 (rounded to the nearest $0.25). J.P. Morgan compared the implied per share equity value ranges for LSC to LSC’s unaffected closing price per share of $8.11 on October 29, 2018, and to an implied merger price per share of LSC common stock of $11.01 (based on Quad/Graphics’ unaffected class A common stock closing price per share of $17.62 on October 29, 2018).

Based on the results of the analysis described above, J.P. Morgan selected multiple reference ranges for FV/2019E EBITDA for Quad/Graphics of 5.5x to 6.5x. The range for Quad/Graphics was then applied to Quad/Graphics’ estimated EBITDA for calendar year 2019 provided by the management of Quad/Graphics to J.P. Morgan, yielding an implied equity value per share range of $19.50 to $27.00 (rounded to the nearest $0.25). J.P. Morgan compared the implied equity value per share range for Quad/Graphics to Quad/Graphics’ unaffected class A common stock closing price per share of $17.62 on October 29, 2018.

 

-84-


Table of Contents

Discounted Cash Flow Analysis

J.P. Morgan conducted discounted cash flow analyses for the purpose of determining the implied fully diluted equity value per share of Quad/Graphics class A common stock and the implied fully diluted equity value per share of LSC common stock. A discounted cash flow analysis is a method of evaluating an asset using estimates of the future unlevered free cash flows generated by the asset and taking into consideration the time value of money with respect to those cash flows by calculating their “present value.” For the purposes of the J.P. Morgan opinion, “unlevered free cash flows” were calculated by taking earnings before interest and taxes, subtracting cash taxes, adding back depreciation and amortization, subtracting capital expenditures, adjusting for changes in working capital, subtracting cash for acquisitions and adding back proceeds on sale of assets. For purposes of the J.P. opinion, “present value” refers to the current value of one or more future unlevered free cash flows from the asset, which is referred to as that asset’s cash flows, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, capitalized returns and other appropriate factors. For purposes of the J.P. Morgan opinion, “terminal value” refers to the capitalized value of all cash flows from an asset for periods beyond the final forecast period.

J.P. Morgan calculated the unlevered free cash flows for LSC and Quad/Graphics for calendar years 2019 through 2027, as reflected in the LSC projections and Quad/Graphics projections, respectively. For each set of projections, J.P. Morgan also calculated a range of terminal values for LSC and Quad/Graphics at the end of this period by applying a perpetuity growth rate ranging from (3.00%) to (1.00%) for LSC and (2.00%) to 0.00% for Quad/Graphics during the terminal period of the projections. The unlevered free cash flows and the ranges of terminal values were discounted to present values as of December 31, 2018 using a range of discount rates from 8.50% to 9.50% for LSC and from 8.00% to 9.00% for Quad/Graphics. The discount rates for LSC and Quad/Graphics were chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of the respective companies. The present value of the unlevered free cash flows and the range of terminal values for LSC were then adjusted for net debt and net pension deficits, and the present value of the unlevered free cash flows and the range of terminal values for Quad/Graphics were then adjusted for net debt, net pension deficits and non-controlling interests, to indicate the ranges of implied equity values per share set forth in the table below (rounded to the nearest $0.25). J.P. Morgan also calculated the unlevered free cash flows related to the Synergies, taking into account the costs to achieve such Synergies, for calendar years 2019 through 2027, based on forecasts prepared by the management of Quad/Graphics. J.P. Morgan also calculated a range of terminal values for such synergies at the end of this period by applying a perpetuity growth rate ranging from (2.0%) to (1.5%). The unlevered free cash flows and the range of terminal values for Synergies were discounted to present values as of December 31, 2018 using a range of discount rates from 8.50% to 9.50%. The table below shows the ranges of implied equity value per share for LSC common stock, with and without such Synergies (rounded to the nearest $0.25).

 

    

DCF

   Implied equity
value per share

LSC

  

8.5% to 9.50% discount rate

   $2.25 to $5.00

Standalone

   (3.00)% to (1.00)% perpetuity growth rate   

Standalone plus 50% of Synergies

      $14.00 to $18.50    

Standalone plus 100% of Synergies

      $25.75 to $31.75    

Quad/Graphics

  

8.00% to 9.00% discount rate

   $22.75 to $30.50    

Standalone

   (2.00)% to 0.00% perpetuity growth rate   

The range of implied equity values per share for LSC common stock was compared to LSC’s unaffected closing price per share of $8.11 on October 29, 2018, and to an implied merger price per share of LSC common stock of $11.01 (based on Quad/Graphics’ unaffected class A common stock closing price per share of $17.62 on October 29, 2018). The range of implied equity values per share for Quad/Graphics class A common stock was compared to Quad/Graphics’ unaffected class A common stock closing price per share of $17.62 on October 29, 2018.

 

-85-


Table of Contents

Relative Value Analysis

Based upon (i) the implied equity values of LSC and Quad/Graphics calculated in the public trading multiples analysis described above, and (ii) the implied equity values for LSC and Quad/Graphics calculated in the discounted cash flow analysis described above, J.P. Morgan calculated an implied range of exchange ratios. For each comparison, J.P. Morgan compared the highest equity value for LSC to the lowest equity value for Quad/Graphics to derive the highest implied equity value for LSC common stockholders implied by each set of reference ranges. J.P. Morgan also compared the lowest equity value for LSC to the highest equity value for Quad/Graphics to derive the lowest implied exchange ratio for LSC common stockholders implied by each set of reference ranges. The implied ranges of the exchange ratio resulting from this analysis were:

 

     Implied Exchange Ratio  
         Low              High      

Public Trading Multiples Analysis

     0.2200x        0.6300x  

Discounted Cash Flow Analysis

     

Quad/Graphics to LSC standalone

     0.0775x        0.2225x  

Quad/Graphics to LSC with 50% of Synergies

     0.4600x        0.8075x  

Quad/Graphics to LSC with 100% of Synergies

     0.8450x        1.3900x  

The resulting implied ranges of the exchange ratio were then compared to the exchange ratio of 0.4603x (based on the unaffected closing price per share for LSC common stock and Quad/Graphics class A common stock, respectively, on October 29, 2018) and the exchange ratio of 0.6250x in the merger.

Implied Value Creation Analysis

J.P. Morgan conducted an implied value creation analysis, based on the expected case financial forecasts prepared by Quad/Graphics management for calendar years 2018 through the end of 2027 for use in J.P. Morgan’s analysis, that compared the implied equity value per share of Quad/Graphics class A common stock derived from a discounted cash flow valuation on a standalone basis to the pro forma combined company implied value per share, adjusted for the exchange ratio of 0.6250x. J.P. Morgan determined the pro forma combined company implied equity value per share by calculating: (i) the sum of (a) the implied equity value of each of Quad/Graphics and LSC using the midpoint value of each as determined in the discounted cash flow analysis described above, plus (b) 100% of the midpoint of the estimated discounted present value of the Synergies, and minus (c) transaction costs in connection with the merger, and (ii) divided by the pro forma number of shares outstanding based upon the exchange ratio of 0.6250x in the merger. The analysis indicated that the merger created a hypothetical incremental implied value for holders of Quad/Graphics class A common stock of 14%.

Other Information

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan to Quad/Graphics’ board of directors. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual value of Quad/Graphics or LSC. The order of analyses described does not represent the relative importance or weight given to those analyses by J.P. Morgan. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed

 

-86-


Table of Contents

in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as described in the above summary is identical to Quad/Graphics or LSC. However, the companies selected by J.P. Morgan were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s financial analysis, may be considered similar to those of Quad/Graphics and LSC. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to Quad/Graphics and LSC.

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. J.P. Morgan was selected to deliver an opinion to Quad/Graphics’ board of directors with respect to the merger on the basis of that experience and its familiarity with Quad/Graphics.

For services rendered in connection with the merger (including the delivery of its opinion), Quad/Graphics has agreed to pay J.P. Morgan a transaction fee of $10.0 million, which is payable in installments as follows: (i) $2.5 million on the earlier of the public announcement of the merger or the delivery of a fairness opinion by J.P. Morgan and (ii) the balance upon the closing of the merger. In addition, Quad/Graphics has agreed to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of counsel. Quad/Graphics also agreed to indemnify J.P. Morgan against certain liabilities arising out of J.P. Morgan’s engagement.

During the two years preceding the date of the J.P. Morgan opinion, J.P. Morgan and its affiliates had commercial or investment banking relationships with Quad/Graphics and LSC, for which J.P. Morgan and such affiliates received customary compensation. Such services during such period included acting as a lead arranger of Quad/Graphics’ credit facilities in February 2017, and such services for LSC during such period included acting as a joint bookrunner on an offering of equity securities of LSC owned by LSC’s former parent entity. In addition, a commercial banking affiliate of J.P. Morgan is an agent bank and lender under outstanding credit facilities of Quad/Graphics for which it received customary compensation or other financial benefits. J.P. Morgan and its affiliates hold, on a proprietary basis, less than 1% of the outstanding class A common stock of Quad/Graphics and less than 1% of the outstanding common stock of LSC. During the two-year period preceding delivery of the J.P. Morgan opinion, the aggregate fees received by J.P. Morgan from Quad/Graphics were $1.8 million and from LSC were $2.0 million. In the ordinary course of business, J.P. Morgan and its affiliates may actively trade the debt and equity securities or financial instruments (including derivatives, bank loans or other obligations) of Quad/Graphics or LSC for their own account or for the accounts of customers, and accordingly, J.P. Morgan and its affiliates may at any time hold long or short positions in such securities or other financial instruments.

LSC’s Reasons for the Merger and Recommendation of LSC’s Board of Directors

At a meeting held on October 30, 2018, the LSC board of directors (i) determined that the merger is fair and in the best interests of LSC and its stockholders, (ii) approved and declared advisable the merger agreement, the voting and support agreement, the merger and the other transactions contemplated by the merger agreement and (iii) recommended adoption of the merger agreement to the stockholders of LSC.

In reaching the decisions to approve the merger agreement, the voting and support agreement and the other transactions contemplated by the merger agreement and to recommend that LSC stockholders vote to adopt the

 

-87-


Table of Contents

merger agreement, the LSC board of directors consulted extensively with its financial and legal advisors and LSC management. After such discussions, the LSC board of directors determined that the merger is fair and in the best interests of LSC and its stockholders.

The LSC board’s decision to approve the merger agreement, the voting and support agreement and the other transactions contemplated by the merger agreement and to recommend to LSC’s stockholders that they vote to adopt the merger agreement was based on a number of factors, including the following (which are not necessarily presented in order of relative importance):

 

   

The current and prospective competitive climate for LSC’s printed products and print and related services, including the declining demand for printed products, the impact of digital technologies on print products, the continued excess capacity in the print industry, the demand for value-added services such as co-mail, logistics and supply chain management, and electronic substitution driven by cost pressures at key customers, as well as the financial condition of the U.S. and global economy in general and the impact that such trends have had on LSC’s results and operations.

 

   

The overall cost structure of operating LSC’s businesses, including the costs associated with administrative and support functions.

 

   

The LSC board’s knowledge of, and discussions with LSC management regarding, LSC’s business, operations, financial condition, earnings and prospects and its knowledge of Quad/Graphics’ business, operations, financial condition, earnings and prospects, taking into account Quad/Graphic’s publicly filed information, the result of LSC’s due diligence review of Quad/Graphics conducted during the course of discussions and the synergies assessment conducted.

 

   

The value of the consideration to be received by LSC stockholders in the merger, which, based on the closing price of Quad/Graphics’ class A common stock on October 30, 2018, represented a premium of approximately 34% over the closing price of LSC common stock on the same date.

 

   

The fact that, since the merger consideration will consist entirely of Quad/Graphics’ class A common stock, LSC stockholders will own approximately 29% of the combined company allowing current LSC stockholders to participate in the future earnings and expected growth of the combined company and enjoy the benefits of the merger through realization of synergies, as well as the risks and uncertainties associated with the realization of a combined business strategy and synergies.

 

   

That the exchange ratio represents a fixed number of shares of Quad/Graphics’ class A common stock, which affords LSC stockholders the benefit of any increase in the trading price of Quad Graphics’ class A common stock between the announcement and consummation of the merger.

 

   

LSC’s management’s expectation, based on assessments conducted by both LSC and Quad/Graphics and the demonstrated ability of both companies to achieve the projected synergies in previous transactions, that the combined company is expected to realize approximately $135 million in net synergies within the first 24 months after the consummation of the merger.

 

   

LSC stockholders are expected to benefit from the synergies and growth from the transaction, considering factors including Quad/Graphics’ business, assets, financial condition, results of operations, business plan and prospects, the size and scale of the combined company and the expected pro forma effect of the merger on the combined company.

 

   

The expectation that, following the merger, the combined company would have a strong and healthy balance sheet that will provide continued financial flexibility to strategically deploy capital between investing back into the business, making strategic acquisitions and returning capital to shareholders through consistent dividends and share repurchases.

 

   

The fact that, following the consummation of the merger, two members of the LSC board of directors will be added to the Quad/Graphics board, continuing to provide knowledge and insight regarding LSC’s legacy business, leadership and to be integrally involved in the strategy of the combined company.

 

-88-


Table of Contents
   

The opinion of BofA Merrill Lynch, dated October 30, 2018, to the LSC board of directors as to the fairness, from a financial point of view to the holders of LSC common stock of the exchange ratio provided for in the merger. See section entitled “The Merger—Opinion of LSC’s Financial Advisor” beginning on page 91. The full text of the written opinion of BofA Merrill Lynch is attached as Annex D to this joint proxy statement/prospectus.

 

   

That the trustees of the Quad/Graphics voting trust have entered into a voting and support agreement with LSC pursuant to which, among other things, the voting trust will vote all of the shares of Quad/Graphics class A common stock and class B common stock that it has, directly or indirectly, the right to vote or direct the voting of, in favor of the share issuance and against any alternative acquisition involving Quad/Graphics.

 

   

The review by the LSC board of directors with its legal and financial advisors of the structure of the proposed merger and the terms of the merger agreement, including Quad/Graphics’ representations, warranties and covenants, the conditions to its obligations and the termination provisions and related termination fees, as well as the likelihood of consummation of the proposed merger and the LSC board’s evaluation of the likely time period necessary to close the merger.

 

   

That LSC expects that, for U.S. federal income tax purposes, the merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code.

The LSC board of directors also considered the following specific aspects of the merger agreement (which are not necessarily presented in order of relative importance):

 

   

The LSC board’s belief that the terms of the merger agreement, including LSC’s representations, warranties and covenants and the conditions to each party’s obligations, are reasonable and consistent with applicable market practice.

 

   

The fact that the merger agreement contains customary exclusions from the definition of “material adverse effect”, making it unlikely that Quad/Graphics could assert the existence of a material adverse effect giving them a right not to consummate the merger.

 

   

The fact that the merger agreement provides that, under certain circumstances, and subject to certain conditions, LSC is permitted to furnish information to and conduct negotiations with a third party in connection with an unsolicited acquisition proposal for an acquisition of LSC that constitutes or would reasonably be expected to result in a superior proposal.

 

   

The fact that the LSC board, subject to certain conditions, has the right to make a company adverse change recommendation in connection with a superior proposal or terminate the merger agreement to enter into a definitive agreement with respect to a superior proposal, subject to giving Quad/Graphics notice and an opportunity to propose changes to the merger agreement, and the payment of a termination fee of $12.5 million and expense reimbursement of an amount up to $2 million in the event of actual termination.

 

   

The fact that the LSC board of directors believed that the termination fee of $12.5 million payable under certain circumstances (or the obligation to reimburse Quad/Graphics’ out-of-pocket expenses in certain circumstances, up to a cap of $2 million) is reasonable and customary in size in transactions similar to the merger.

 

   

The fact that there are limited circumstances in which the Quad/Graphics board may terminate the merger agreement and if the merger agreement is terminated under certain circumstances due to the failure to obtain regulatory approvals or the material breach by Quad/Graphics of its obligations in respect of obtaining regulatory approvals, then Quad/Graphics has agreed to pay LSC a fee of $45 million.

 

   

The fact that the merger agreement is not subject to any financing condition.

 

-89-


Table of Contents

In consideration of its deliberations, the LSC board of directors also considered a variety of risks, uncertainties and other potentially negative factors, including the following (which are not necessarily presented in order of relative importance):

 

   

The risks and costs to LSC if the merger is not consummated, including the diversion of management and employee attention, potential employee attrition, the potential effect on LSC’s business and relations with its customers, suppliers, vendors, employees and independent contractors and the potential impact on its stock price and that, while the transactions are expected to be consummated, there is no assurance that all conditions to the parties’ obligations to consummate the transactions will be satisfied or waived, and, as a result, it is possible that the transactions might not be consummated even if approved by LSC stockholders.

 

   

The possibility that governmental bodies may not approve the merger, that such approval could be conditioned upon the taking of certain actions such as divestures that Quad/Graphics is not obligated to take under the merger agreement or that such approval could take an extended period of time to obtain.

 

   

The transaction costs to be incurred in connection with the merger.

 

   

The fact that the consummation of the merger is subject to the risk that Quad/Graphics may not be able to obtain financing to refinance LSC’s existing indebtedness, notwithstanding the absence of a financing condition in the merger agreement, or the risk that the terms of such financing may not be favorable to Quad/Graphics and the combined company.

 

   

The possibility that because the merger consideration is a fixed number of shares of Quad/Graphics’ class A common stock, LSC stockholders could be adversely affected by a decrease in the trading price of Quad/Graphics’ class A common stock relative to the trading price of LSC’s common stock during the pendency of the merger and the fact that the merger agreement does not provide LSC with a price-based termination right, a pricing collar or cap, or other similar protection.

 

   

The possibility that the combined company will not realize any or all of the anticipated strategic and other benefits of the merger, including as a result of the challenges of combining the businesses, operations and workforces of LSC and Quad/Graphics, and the risk that expected operating efficiencies and cost savings synergies may not be realized or will take longer to realize than expected.

 

   

The fact that LSC stockholders will receive stock in Quad/Graphics, which will continue to be controlled by the Quadracci family, leaving control along with the general business direction of Quad/Graphics, with the Quadracci family which, through the class A common stock and class B common stock owned by the Quad/Graphics voting trust, will own approximately 64% of the voting power.

 

   

The fact that LSC’s stockholders will own 29% of the equity in Quad/Graphics but have only 11% voting interest in the combined company, compared to the 100% voting interest in LSC.

 

   

The fact that the merger agreement contains restrictions on the conduct of LSC’s business prior to the consummation of the merger, including the requirement that LSC conduct its business only in the ordinary course, subject to specific exceptions, which could delay or prevent LSC from undertaking business opportunities that may arise pending the consummation of the merger.

 

   

The fact that the merger agreement imposes limitations on LSC’s ability to solicit alternative acquisitions prior to closing and its ability to terminate the merger agreement, including a requirement that LSC pay a $12.5 million termination fee in certain circumstances and reimburse Quad/Graphics for out-of-pocket expenses incurred in connection with the merger agreement of up to $2 million in the event of termination in certain circumstances.

 

   

The possibility that the termination fee of $12.5 million to be paid to Quad/Graphics if the merger agreement is terminated under certain circumstances specified in the merger agreement may potentially deter a potential acquirer from proposing an alternative acquisition that would provide value to LSC stockholders superior to that of the proposed merger.

 

-90-


Table of Contents
   

The fact that, consistent with expected qualification of the merger as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, LSC’s stockholders will, for U.S. federal income tax purposes, recognize gain or loss with respect to any cash received in lieu of fractional shares.

 

   

The fact that LSC’s directors and executive officers may have interests in the merger that are different from, or in addition to, those of LSC’s stockholders generally, including certain interests arising from the employment and compensation arrangements of LSC’s executive officers, and the manner in which they would be affected by the merger as detailed in the section “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger” beginning on page 106.

 

   

The risk that LSC’s stockholders may vote against adoption of the merger agreement.

 

   

Various other risks described in the section entitled “Risk Factors” beginning on page 37.

The LSC board of directors considered all of these factors as a whole and concluded that these factors supported a determination that the proposed merger was advisable and in the best interests of LSC and its stockholders. The foregoing discussion of the information and factors considered by the LSC board of directors is not exhaustive. In view of the wide variety of factors considered by the LSC board of directors in connection with its evaluation of the merger and complexity of these matters, the LSC board of directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described above and any other factors, individual members of the LSC board of directors may have viewed factors differently or given different weight or merit to different factors.

In considering the recommendation of the LSC board of directors that the LSC stockholders vote to adopt the merger agreement, LSC stockholders should be aware that the directors and executive officers of LSC may have certain interests in the merger that may be different from, or in addition to, the interests of LSC stockholders generally. The LSC board of directors was aware of these interests and considered them when approving the merger agreement and recommending that LSC stockholders vote to adopt the merger agreement. See the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger” beginning on page 106.

The foregoing discussion of the information and factors considered by the LSC board of directors is forward-looking in nature. This information should be read in light of the factors described in the section entitled “Cautionary Statements Regarding Forward-Looking Statements” beginning on page 47.

Accordingly, the LSC board of directors recommends that LSC stockholders vote (i) “FOR” the merger agreement proposal, (ii) “FOR” the LSC compensation proposal and (iii) “FOR” the LSC adjournment proposal.

Opinion of LSC’s Financial Advisor

LSC has retained BofA Merrill Lynch to act as LSC’s financial advisor in connection with the merger. BofA Merrill Lynch is an internationally recognized investment banking firm which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. LSC selected BofA Merrill Lynch to act as LSC’s financial advisor in connection with the merger on the basis of BofA Merrill Lynch’s experience in transactions similar to the merger, its reputation in the investment community and its familiarity with LSC and its business.

On October 30, 2018, at a meeting of LSC’s board of directors held to evaluate the merger, BofA Merrill Lynch delivered to LSC’s board of directors an oral opinion, which was confirmed by delivery of a written

 

-91-


Table of Contents

opinion dated October 30, 2018, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in its opinion, the exchange ratio provided for in the merger was fair, from a financial point of view, to holders of LSC common stock.

The full text of BofA Merrill Lynch’s written opinion to LSC’s board of directors, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex D to this document and is incorporated by reference herein in its entirety. The following summary of BofA Merrill Lynch’s opinion is qualified in its entirety by reference to the full text of the opinion. BofA Merrill Lynch delivered its opinion to LSC’s board of directors for the benefit and use of LSC’s board of directors (in its capacity as such) in connection with and for purposes of its evaluation of the exchange ratio from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the merger and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to LSC or in which LSC might engage or as to the underlying business decision of LSC to proceed with or effect the merger. BofA Merrill Lynch’s opinion does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger or any other matter.

In connection with rendering its opinion, BofA Merrill Lynch has, among other things:

 

(i)

reviewed certain publicly available business and financial information relating to LSC and Quad/Graphics;

 

(ii)

reviewed certain internal financial and operating information with respect to the business, operations and prospects of LSC furnished to or discussed with BofA Merrill Lynch by the management of LSC, including certain financial forecasts relating to LSC prepared by the management of LSC (referred to in this section only as the “LSC Forecasts” and referred to as the “LSC unadjusted financial projections” in the section “The Merger—Certain Unaudited Prospective Financial Information”);

 

(iii)

reviewed certain internal financial and operating information with respect to the business, operations and prospects of Quad/Graphics furnished to or discussed with BofA Merrill Lynch by the management of Quad/Graphics, including certain financial forecasts relating to Quad/Graphics prepared by the management of Quad/Graphics (referred to in this section only as the “Quad/Graphics Forecasts” and referred to as the “Quad/Graphics unadjusted financial projections” in the section “The Merger—Certain Unaudited Prospective Financial Information”);

 

(iv)

reviewed certain financial forecasts relating to Quad/Graphics prepared by the management of LSC (referred to in this section only as the “LSC-Quad/Graphics Forecasts” and referred to as the “adjusted Quad/Graphics financial projections” in the section “The Merger—Certain Unaudited Prospective Financial Information”) and discussed with the management of LSC its assessments as to the relative likelihood of achieving the future financial results reflected in the Quad/Graphics Forecasts and the LSC-Quad/Graphics Forecasts;

 

(v)

reviewed certain estimates as to the amount and timing of cost savings (collectively referred to in this section only as the “Cost Savings”) anticipated by the managements of LSC and Quad/Graphics to result from the merger;

 

(vi)

discussed the past and current business, operations, financial condition and prospects of LSC with members of senior managements of LSC and Quad/Graphics, and discussed the past and current business, operations, financial condition and prospects of Quad/Graphics with members of senior managements of LSC and Quad/Graphics;

 

(vii)

reviewed the potential pro forma financial impact of the merger on the future financial performance of Quad/Graphics, including the potential effect on Quad/Graphics’ estimated adjusted earnings per share;

 

(viii)

reviewed the trading histories for LSC common stock and Quad/Graphics class A common stock and a comparison of such trading histories with each other and with the trading histories of other companies BofA Merrill Lynch deemed relevant;

 

-92-


Table of Contents
(ix)

compared certain financial and stock market information of LSC and Quad/Graphics with similar information of other companies BofA Merrill Lynch deemed relevant;

 

(x)

compared certain financial terms of the merger to financial terms, to the extent publicly available, of other transactions BofA Merrill Lynch deemed relevant;

 

(xi)

reviewed the relative financial contributions of LSC and Quad/Graphics to the future financial performance of the combined company on a pro forma basis;

 

(xii)

reviewed a draft, dated October 30, 2018, of the merger agreement (referred to in this section only as the “Draft Agreement”); and

 

(xiii)

performed such other analyses and studies and considered such other information and factors as BofA Merrill Lynch deemed appropriate.

In arriving at its opinion, BofA Merrill Lynch assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and have relied upon the assurances of the managements of LSC and Quad/Graphics that they are not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the LSC Forecasts, BofA Merrill Lynch was advised by LSC, and assumed, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of LSC as to the future financial performance of LSC. With respect to the Quad/Graphics Forecasts, BofA Merrill Lynch was advised by Quad/Graphics, and assumed, with the consent of LSC, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Quad/Graphics as to the future financial performance of Quad/Graphics. With respect to the LSC-Quad/Graphics Forecasts, BofA Merrill Lynch was advised by LSC, and assumed, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of LSC as to the future financial performance of Quad/Graphics and, based on the assessments of the management of LSC as to the relative likelihood of achieving the future financial results reflected in the Quad/Graphics Forecasts and the LSC-Quad/Graphics Forecasts, BofA Merrill Lynch relied, at the direction of LSC, on the LSC-Quad/Graphics Forecasts for purposes of its opinion. With respect to the Cost Savings, BofA Merrill Lynch was advised by LSC and Quad/Graphics, and assumed, with the consent of LSC, that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the managements of LSC and Quad/Graphics as to the matters covered thereby. BofA Merrill Lynch relied, at the direction of LSC, on the assessments of the management of Quad/Graphics as to Quad/Graphics’ ability to achieve the Cost Savings and was advised by LSC, and assumed, that the Cost Savings would be realized in the amounts and at the times projected. BofA Merrill Lynch relied, at the direction of LSC, upon the assessments of the management of LSC as to the potential impact of market, governmental and regulatory trends and developments relating to or affecting LSC and its business. BofA Merrill Lynch did not make and was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of LSC or Quad/Graphics, nor did it make any physical inspection of the properties or assets of LSC or Quad/Graphics. BofA Merrill Lynch did not evaluate the solvency or fair value of LSC or Quad/Graphics under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. BofA Merrill Lynch assumed, at the direction of LSC, that the merger would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the merger, no delay, limitation, restriction or condition, including any divestiture requirements or amendments or modifications, would be imposed that would have an adverse effect on LSC, Quad/Graphics or the contemplated benefits of the merger. BofA Merrill Lynch also assumed, at the direction of LSC, that the merger would qualify for federal income tax purposes as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code. BofA Merrill Lynch also assumed, at the direction of LSC, that the final executed merger agreement would not differ in any material respect from the Draft Agreement reviewed by it.

BofA Merrill Lynch expressed no view or opinion as to any terms or other aspects or implications of the merger (other than the exchange ratio to the extent expressly specified in its opinion), including, without

 

-93-


Table of Contents

limitation, the form or structure of the merger or any terms, aspects or implications of any related transactions or any other agreement, arrangement or understanding entered into in connection with or related to the merger or otherwise. BofA Merrill Lynch was not requested to, and did not, solicit indications of interest or proposals from third parties regarding a possible acquisition of all or any part of LSC or any alternative transaction. BofA Merrill Lynch’s opinion was limited to the fairness, from a financial point of view, of the exchange ratio to holders of LSC common stock and no opinion or view was expressed with respect to any consideration received in connection with the merger by the holders of any class of securities, creditors or other constituencies of any party. BofA Merrill Lynch expressed no opinion or view with respect to the value of the Quad/Graphics class A common stock relative to the value of the class B common stock, par value $0.025 per share, of Quad/Graphics. In addition, no opinion or view was expressed with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to any of the officers, directors or employees of any party to the merger, or class of such persons, relative to the exchange ratio or otherwise. Furthermore, no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to LSC or in which LSC might engage or as to the underlying business decision of LSC to proceed with or effect the merger. BofA Merrill Lynch did not express any view or opinion as to what the value of Quad/Graphics class A common stock actually would be when issued or the prices at which LSC common stock or Quad/Graphics class A common stock would trade at any time, including following announcement or consummation of the merger. BofA Merrill Lynch also did not express any view or opinion with respect to, and relied at the direction of LSC, upon the assessments of representatives of LSC regarding, legal, regulatory, accounting, tax and similar matters relating to LSC or the merger, as to which matters BofA Merrill Lynch understood that LSC obtained such advice as it deemed necessary from qualified professionals. In addition, BofA Merrill Lynch expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the merger or any other matter.

BofA Merrill Lynch’s opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Merrill Lynch as of, the date of its opinion. It should be understood that subsequent developments may affect its opinion, and BofA Merrill Lynch does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Merrill Lynch’s opinion was approved by a fairness opinion review committee of BofA Merrill Lynch. Except as described in this summary, LSC imposed no other limitations on the investigations made or procedures followed by BofA Merrill Lynch in rendering its opinion.

The discussion set forth below in the section entitled “The Merger—Summary of Material Financial Analyses” represents a brief summary of the material financial analyses presented by BofA Merrill Lynch to LSC’s board of directors in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by BofA Merrill Lynch, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by BofA Merrill Lynch. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by BofA Merrill Lynch.

Summary of Material Financial Analyses

Selected Publicly Traded Companies Analyses. BofA Merrill Lynch performed separate selected public companies analyses of LSC and Quad/Graphics in which BofA Merrill Lynch reviewed and compared publicly available financial and stock market information for LSC and Quad/Graphics and the selected publicly traded companies listed below. BofA Merrill Lynch then used the results of such analyses to determine an implied exchange ratio for the merger.

LSC. In performing a selected public companies analysis of LSC, BofA Merrill Lynch reviewed publicly available financial and stock market information for LSC and four selected publicly traded companies in the printing industry, referred to in this section of this joint proxy statement/prospectus as the “LSC selected publicly

 

-94-


Table of Contents

traded companies”, of which, in BofA Merrill Lynch’s professional judgment and experience, the company designated as a primary selected publicly traded company was more similar to LSC than the other selected publicly traded companies, in each case when viewed as a whole, as regards to financial, operating and other characteristics, and each of which BofA Merrill Lynch considered based on, among other things, their respective end markets, operations, growth profiles and profit margins, to be relevant to BofA Merrill Lynch’s analysis.

BofA Merrill Lynch reviewed, among other things, adjusted enterprise values of the LSC selected publicly traded companies, calculated as equity values based on closing stock prices on October 29, 2018 plus debt and less cash and adjusted for tax affected unfunded pension liabilities and giving pro forma effect to certain transactions, as applicable, as a multiple of calendar years 2018 and 2019 estimated earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA, adjusted for pension. The LSC selected publicly traded companies and their respective multiples are as follows:

 

Primary Selected Publicly Traded Company

   2018 Adjusted
EBITDA
Multiple
     2019 Adjusted
EBITDA
Multiple
 

Quad/Graphics, Inc.

     4.9x        5.3x  

 

Other Selected Publicly Traded Companies

   2018 Adjusted
EBITDA
Multiple
     2019 Adjusted
EBITDA
Multiple
 

Deluxe Corporation

     5.8x        5.7x  

R. R. Donnelley & Sons Company

     5.8x        5.9x  

Transcontinental Inc.

     7.3x        6.1x  

The 2018 and 2019 Adjusted EBITDA (pension adjusted) multiples observed for the primary LSC selected publicly traded company were 4.9x and 5.3x, respectively. The overall low to high calendar year 2018 Adjusted EBITDA (pension adjusted) multiples observed for the other LSC selected publicly traded companies were 5.8x to 7.3x (with a mean of 6.3x and a median of 5.8x). The overall low to high calendar year 2019 Adjusted EBITDA (pension adjusted) multiples observed for the other LSC selected publicly traded companies were 5.7x to 6.1x (with a mean of 5.9x and a median of 5.9x). BofA Merrill Lynch then applied ranges of calendar year 2018 and 2019 Adjusted EBITDA (pension adjusted) multiples of 4.5x to 5.5x and 5.0x to 5.5x, respectively, derived from the LSC selected publicly traded companies and based on BofA Merrill Lynch’s professional judgment and experience, to LSC’s calendar year 2018 and 2019 estimated Adjusted EBITDA (pension adjusted). This analysis indicated an approximate implied per share value range for LSC common stock, rounded to the nearest $0.05, of $1.90 to $8.70 based on calendar year 2018 estimated Adjusted EBITDA (pension adjusted) and $6.65 to $10.20 based on calendar year 2019 estimated Adjusted EBITDA (pension adjusted).

Quad/Graphics. In performing a selected public companies analysis of Quad/Graphics, BofA Merrill Lynch reviewed publicly available financial and stock market information for Quad/Graphics and four selected publicly traded companies in the printing industry, referred to in this section of this joint proxy statement/prospectus as the “Quad/Graphics selected publicly traded companies”, of which, in BofA Merrill Lynch’s professional judgment and experience, the company designated as a primary selected publicly traded company was more similar to Quad/Graphics than the other selected publicly traded companies, in each case when viewed as a whole, as regards to financial, operating and other characteristics, and each of which BofA Merrill Lynch considered based on, among other things, their respective end markets, operations, growth profiles and profit margins, to be relevant to BofA Merrill Lynch’s analysis.

 

-95-


Table of Contents

BofA Merrill Lynch reviewed, among other things, adjusted enterprise values of the Quad/Graphics selected publicly traded companies, calculated as equity values based on closing stock prices on October 29, 2018 plus debt and less cash and adjusted for tax affected unfunded pension liabilities and giving pro forma effect to certain transactions, as applicable, as a multiple of calendar years 2018 and 2019 Adjusted EBITDA (pension adjusted). The Quad/Graphics selected publicly traded companies and their respective multiples are as follows:

 

Primary Selected Publicly Traded Company

   2018 Adjusted
EBITDA
Multiple
     2019 Adjusted
EBITDA
Multiple
 

LSC Communications, Inc.

     4.8x        5.0x  

 

Other Selected Publicly Traded Companies

   2018 Adjusted
EBITDA
Multiple
     2019 Adjusted
EBITDA
Multiple
 

Deluxe Corporation

     5.8x        5.7x  

R. R. Donnelley & Sons Company

     5.8x        5.9x  

Transcontinental Inc.

     7.3x        6.1x  

The 2018 and 2019 Adjusted EBITDA (pension adjusted) multiples observed for the primary Quad/Graphics selected publicly traded company were 4.8x and 5.0x, respectively. The overall low to high calendar year 2018 Adjusted EBITDA (pension adjusted) multiples observed for the other Quad/Graphics selected publicly traded companies were 5.8x to 7.3x (with a mean of 6.3x and a median of 5.8x). The overall low to high calendar year 2019 Adjusted EBITDA (pension adjusted) multiples observed for the other Quad/Graphics selected publicly traded companies were 5.7x to 6.1x (with a mean of 5.9x and a median of 5.9x). BofA Merrill Lynch then applied ranges of calendar year 2018 and 2019 Adjusted EBITDA (pension adjusted) multiples of 4.5x to 5.5x and 5.0x to 5.5x, respectively, derived from the Quad/Graphics selected publicly traded companies and based on BofA Merrill Lynch’s professional judgment and experience, to Quad/Graphics’ calendar year 2018 and 2019 estimated Adjusted EBITDA (pension adjusted). This analysis indicated an approximate implied per share value range for Quad/Graphics class A common stock, rounded to the nearest $0.05, of $14.55 to $22.55 based on calendar year 2018 estimated Adjusted EBITDA (pension adjusted) and $14.85 to $18.50 based on calendar year 2019 estimated Adjusted EBITDA (pension adjusted).

Implied Exchange Ratio. Utilizing the implied per share equity value reference ranges derived for LSC and Quad/Graphics described above by dividing the low endpoint and the high endpoint of the per share equity reference range derived for LSC by the high endpoint and the low endpoint of the per share equity reference range derived for Quad/Graphics, respectively, BofA Merrill Lynch calculated the following approximate implied exchange ratio reference ranges, as compared to the exchange ratio:

 

Implied Exchange Ratio Reference Ranges Based On

   Exchange Ratio

2018E Adjusted EBITDA

(pension adjusted)

   2019E Adjusted EBITDA
(pension adjusted)
  

0.6250x

0.0841x – 0.5979x

   0.3606x – 0.6874x   

Estimated financial data of the selected publicly traded companies were based on publicly available research analysts’ estimates. Estimated financial data of LSC were based on the LSC Forecasts and estimated financial data of Quad/Graphics were based on the LSC-Quad/Graphics Forecasts as described in the section “The Merger—Certain Unaudited Prospective Financial Information”.

No company used in this analysis is identical or directly comparable to LSC or Quad/Graphics. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which LSC or Quad/Graphics was compared.

 

-96-


Table of Contents

Discounted Cash Flow Analyses. BofA Merrill Lynch performed separate discounted cash flow analyses of LSC and Quad/Graphics, without taking into account the potential pro forma financial effect of synergies, and used the results to determine an implied exchange ratio for the merger.

LSC. BofA Merrill Lynch calculated the estimated present value of the standalone unlevered, after-tax free cash flows that LSC was forecasted to generate during LSC’s fourth quarter of fiscal year 2018 and fiscal years 2019 through 2022 based on the LSC Forecasts (as described under “The Merger—Certain Unaudited Prospective Financial Information”). BofA Merrill Lynch was advised by LSC management that LSC did not have any, or only had a de minimis amount of, federal net operating loss tax carryforwards as of September 30, 2018. BofA Merrill Lynch calculated terminal values for LSC by applying terminal multiples of 4.5x to 5.5x to LSC’s terminal year estimated Adjusted EBITDA (pension adjusted), which range was selected based on BofA Merrill Lynch’s professional judgment and experience and after taking into consideration, among other things, the observed data for LSC and the LSC selected publicly traded companies, the historical trading multiples of LSC and the LSC selected publicly traded companies, and certain differences in the respective financial profiles of LSC and the LSC selected publicly traded companies as described under “The Merger—Summary of Material Financial Analyses—Selected Publicly Traded Companies Analyses”, which implied perpetuity growth rates of (3.3%) to (0.5%). The cash flows and terminal values were then discounted to present value as of September 30, 2018 using discount rates ranging from 8.25% to 9.25%, which were based on an estimate of LSC’s weighted average cost of capital obtained using the capital asset pricing model (which takes into account the risk free rate, the levered beta, the applicable equity market risk premium and the estimated cost of debt). From the resulting enterprise values, BofA Merrill Lynch deducted net debt (including tax affected underfunded pension liabilities) of $994 million as of September 30, 2018 to derive equity values. This analysis indicated an approximate implied per share equity value range for LSC common stock, rounded to the nearest $0.05, of $8.75 to $14.70.

Quad/Graphics. BofA Merrill Lynch calculated the estimated present value of the standalone unlevered, after-tax free cash flows that Quad/Graphics was forecasted to generate during Quad/Graphics’ fourth quarter of fiscal year 2018 and fiscal years 2019 through 2022 based on the LSC-Quad/Graphics Forecasts (as described under “The Merger—Certain Unaudited Prospective Financial Information”). BofA Merrill Lynch calculated terminal values for Quad/Graphics by applying terminal multiples of 4.5x to 5.5x to Quad/Graphics’ terminal year estimated Adjusted EBITDA (pension adjusted), which range was selected based on BofA Merrill Lynch’s professional judgment and experience and after taking into consideration, among other things, the observed data for Quad/Graphics and the Quad/Graphics selected publicly traded companies, the historical trading multiples of Quad/Graphics and the Quad/Graphics selected publicly traded companies, and certain differences in the respective financial profiles of Quad/Graphics and the Quad/Graphics selected publicly traded companies as described under “The Merger—Summary of Material Financial Analyses—Selected Publicly Traded Companies Analyses”, which implied perpetuity growth rates of (4.4%) to (1.5%). The cash flows and terminal values were then discounted to present value as of September 30, 2018 using discount rates ranging from 8.00% to 9.00%, which were based on an estimate of Quad/Graphics’ weighted average cost of capital obtained using the capital asset pricing model. From the resulting enterprise values, BofA Merrill Lynch deducted net debt (including tax affected underfunded pension liabilities and minority interests) of $1,137 million as of September 30, 2018 to derive equity values. This analysis indicated an approximate implied per share equity value range for Quad/Graphics class A common stock, rounded to the nearest $0.05, of $15.10 to $20.65.

Implied Exchange Ratio. Utilizing the implied per share equity value reference ranges derived for LSC and Quad/Graphics described above by dividing the low endpoint and the high endpoint of the per share equity reference range derived for LSC by the high endpoint and the low endpoint of the per share equity reference range derived for Quad/Graphics, respectively, without taking into account the potential pro forma financial effect of synergies, BofA Merrill Lynch calculated the following approximate implied exchange ratio reference range, as compared to the exchange ratio:

 

Implied Exchange Ratio Reference Range

   Exchange Ratio  

0.4239x – 0.9708x

     0.6250x  

 

-97-


Table of Contents

Other Factors

Has/Gets Analysis. BofA Merrill Lynch performed a has/gets analysis to calculate the theoretical change in value for LSC stockholders resulting from the merger based on a comparison of (i) the pro forma ownership by LSC stockholders of the combined company following the merger, and (ii) the 100% ownership by LSC stockholders of the LSC common stock on a stand-alone basis. For LSC on a stand-alone basis, BofA Merrill Lynch used the reference range obtained in its discounted cash flow analysis described above under “The Merger—Summary of Material Financial Analyses—Discounted Cash Flow Analyses.” BofA Merrill Lynch then performed the same analysis with respect to the combined company on a pro forma basis, giving effect to the merger. For the pro forma analyses, BofA Merrill Lynch used, as applicable, the same ranges of terminal multiples and discount rates as it had used for its analysis of LSC and Quad/Graphics on a stand-alone basis. BofA Merrill Lynch also used a low to high range for the approximate net present value of synergies to the combined company of $402 million to $480 million, obtained using terminal multiples of 4.50x to 5.50x, which range was selected based on BofA Merrill Lynch’s professional judgment and experience, and a discount rate range of 8.25% to 9.25%, which was based on an estimate of LSC’s weighted average cost of capital obtained using the capital asset pricing model, and assumed increased debt from the merger to the combined company of $95 million. This analysis yielded the following implied per share equity value reference ranges for LSC common stock on a stand-alone basis and for the combined company:

 

     Per Share Equity Value Reference
Ranges for LSC Shareholders
 

Stand-Alone

   $ 8.75 – $14.68  

Pro Forma

   $ 11.85 – $16.73  

Other. BofA Merrill Lynch also noted certain additional factors that were not considered part of BofA Merrill Lynch’s material financial analyses with respect to its opinion but were referenced for informational purposes, including, among other things, the following:

 

   

selected precedent transactions announced between January 26, 2010 and June 14, 2016 involving the sale of companies in the printing industry and the adjusted transaction values, calculated as the enterprise value implied for the target company based on the consideration payable in the selected transaction and adjusted for tax affected unfunded pension liabilities, as a multiple of the target company’s EBITDA for the last twelve months (adjusted for net periodic expense or income, as applicable, associated with the unfunded pension liabilities), which indicated an implied per share equity value reference range for LSC common stock, rounded to the nearest $0.05, of $3.10 to $10.15;

 

   

historical trading prices of LSC common stock and Quad/Graphics class A common stock during the 52-week period ended October 29, 2018, which indicated low and high closing prices for LSC common stock and Quad/Graphics class A common stock during such period of approximately $7.92 and $18.26 per share and $16.82 and $30.89 per share, respectively, as compared to the closing prices of LSC common stock and Quad/Graphics class A common stock on October 29, 2018 of $8.11 per share and $17.62 per share, respectively;

 

   

publicly available research analysts’ one-year forward price targets for LSC common stock and Quad/Graphics class A common stock, discounted to present value as of October 29, 2018 utilizing a discount rate of 12.9% and 9.7%, respectively, which indicated low to high price targets for LSC common stock of approximately $10.65 to $19.50 per share and a price target for Quad/Graphics class A common stock of approximately $25.53 per share, as compared to the closing prices of LSC common stock and Quad/Graphics class A common stock on October 29, 2018 of $8.11 per share and $17.62 per share, respectively;

 

   

the relative contributions of LSC and Quad/Graphics to the combined company’s equity value, estimated Adjusted EBITDA (pension adjusted) for fiscal years 2018 through 2020 and estimated free cash flow for fiscal years 2018 through 2020, which indicated that each of such relative contributions of LSC to the combined company would be less than the equity ownership percentage for holders of LSC common stock in the combined company of approximately 29.4% implied by the exchange ratio;

 

-98-


Table of Contents
   

the relationship between movements in LSC common stock and Quad/Graphics class A common stock during the period from October 3, 2016 (the date on which LSC common stock began regular way trading on the NYSE following its spin-off from RRD) through October 29, 2018; and

 

   

the potential pro forma financial effect of the merger on Quad/Graphics’ estimated adjusted earnings per share for fiscal years 2019 through 2022, after giving effect to potential strategic and operational benefits anticipated to result from the merger, which indicated that the merger could be accretive to Quad/Graphics’ estimated adjusted earnings per share for fiscal years 2019 through 2022.

Miscellaneous

As noted above, the discussion set forth above in the section entitled “The Merger—Summary of Material Financial Analyses” is a summary of the material financial analyses presented by BofA Merrill Lynch to LSC’s board of directors in connection with its opinion and is not a comprehensive description of all analyses undertaken or factors considered by BofA Merrill Lynch in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. BofA Merrill Lynch believes that its analyses summarized above must be considered as a whole. BofA Merrill Lynch further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying BofA Merrill Lynch’s analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.

In performing its analyses, BofA Merrill Lynch considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of LSC and Quad/Graphics. The estimates of the future performance of LSC and Quad/Graphics in or underlying BofA Merrill Lynch’s analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by BofA Merrill Lynch’s analyses. These analyses were prepared solely as part of BofA Merrill Lynch’s analysis of the fairness, from a financial point of view, to the holders of LSC common stock of the exchange ratio provided for in the merger and were provided to LSC’s board of directors in connection with the delivery of BofA Merrill Lynch’s opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Merrill Lynch’s view of the actual values of LSC or Quad/Graphics.

The type and amount of consideration payable in the merger was determined through negotiations between LSC and Quad/Graphics, rather than by any financial advisor, and was approved by LSC’s board of directors. The decision to enter into the merger agreement was solely that of LSC’s board of directors. As described above, BofA Merrill Lynch’s opinion and analyses were only one of many factors considered by LSC’s board of directors in its evaluation of the proposed merger and should not be viewed as determinative of the views of LSC’s board of directors or management with respect to the merger or the exchange ratio.

LSC has agreed to pay BofA Merrill Lynch for its services in connection with the merger an aggregate fee currently estimated to be approximately $16,400,000, $1,500,000 was payable upon delivery of its opinion and the remaining portion of which is contingent upon consummation of the merger. LSC also has agreed to reimburse BofA Merrill Lynch for its expenses incurred in connection with BofA Merrill Lynch’s engagement and to indemnify BofA Merrill Lynch, any controlling person of BofA Merrill Lynch and each of their respective directors, officers, employees, agents and affiliates against specified liabilities, including liabilities under the federal securities laws.

 

-99-


Table of Contents

BofA Merrill Lynch and its affiliates comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of their businesses, BofA Merrill Lynch and its affiliates may invest on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations) of LSC, Quad/Graphics and certain of their respective affiliates.

BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to LSC and certain of its affiliates and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as a book-running manager and/or underwriter for certain debt and equity offerings of LSC, (ii) having acted or acting as an administrative agent, collateral agent, bookrunner and arranger for, and/or as a lender under, certain term loans, letters of credit, credit and leasing facilities and other credit arrangements of LSC and/or certain of its affiliates, (iii) having provided or providing certain foreign exchange trading services to LSC and/or certain of its affiliates and (iv) having provided or providing certain treasury management products and services to LSC and/or certain of its affiliates. In addition, BofA Merrill Lynch and/or certain of its affiliates have maintained, currently are maintaining, and in the future may maintain, significant commercial (including vendor and/or customer) relationships with LSC and/or certain of its affiliates. From October 1, 2016 through September 30, 2018, BofA Merrill Lynch and its affiliates derived aggregate revenues from LSC and certain of its affiliates of approximately $7 million for investment and corporate banking services.

In addition, BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Quad/Graphics and certain of its affiliates and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as a bookrunner and arranger for, and/or as a lender under, certain term loans, letters of credit, credit and leasing facilities and other credit arrangements of Quad/Graphics and/or certain of its affiliates, (ii) having provided or providing certain managed investments services and products to Quad/Graphics and/or certain of its affiliates and (iii) having provided or providing certain treasury management products and services to Quad/Graphics and/or certain of its affiliates. In addition, BofA Merrill Lynch and/or certain of its affiliates have maintained, currently are maintaining, and in the future may maintain, significant commercial (including vendor and/or customer) relationships with Quad/Graphics and/or certain of its affiliates. From October 1, 2016 through September 30, 2018, BofA Merrill Lynch and its affiliates derived aggregate revenues from Quad/Graphics and certain of its affiliates of approximately $5 million for investment and corporate banking services.

Certain Unaudited Prospective Financial Information

Quad/Graphics and LSC do not, as a matter of course, make public long-term projections as to their respective future sales, earnings or other results due to, among other reasons, the unpredictability of the underlying assumptions and estimates inherent in preparing financial projections. However, in evaluating a potential transaction between Quad/Graphics and LSC, management of Quad/Graphics and management of LSC each prepared five-year financial projections, which were provided to their respective board of directors. Certain of these financial projections were also provided to the other party, as well as to the financial advisors of the respective companies. Those financial projections (which, in the case of Quad/Graphics, we sometimes refer to as the “Quad/Graphics unadjusted financial projections” and, in the case of LSC, we sometimes refer to as the “LSC unadjusted financial projections” and, collectively as the “unadjusted financial projections”) are being provided herein solely because they were considered by the Quad/Graphics board of directors and the LSC board of directors in connection with the merger, as well as by J.P. Morgan and BofA Merrill Lynch in connection with delivery of their fairness opinions, and are not being provided for other purposes. In addition, Quad/Graphics’

 

-100-


Table of Contents

management prepared for the Quad/Graphics board of directors in connection with its approval of and entry into the merger agreement (but did not provide to LSC prior to the announcement of the merger) certain financial projections for LSC based on the LSC unadjusted financial projections prepared by LSC’s management, which were then adjusted to take into account Quad/Graphics’ management’s estimates of industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to LSC’s businesses. Those financial projections (which we sometimes refer to as the “adjusted LSC financial projections”) are being provided herein solely because they were considered by the Quad/Graphics board of directors in connection with the merger, as well as by J.P. Morgan in connection with the delivery of its fairness opinion, and are not being provided for other purposes. In addition, LSC’s management prepared certain financial projections for Quad/Graphics based on the Quad/Graphics unadjusted financial projections prepared by Quad/Graphics’ management, which were then adjusted to take into account LSC’s management’s estimates of industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to Quad/Graphics’ businesses. Those financial projections (which we sometimes refer to as the “adjusted Quad/Graphics financial projections” and, together with the adjusted LSC financial projections, the “adjusted financial projections”) are being provided herein solely because they were considered by BofA Merrill Lynch in connection with the delivery of its fairness opinion, and are not being provided for other purposes.

The following summary of the unadjusted financial projections are not provided to influence you to make any investment decision with respect to the merger or otherwise, but is being included because the unadjusted financial projections (or certain of unadjusted financial projections) was made available to LSC, the LSC board, BofA Merrill Lynch, Quad/Graphics, the Quad/Graphics board and J.P. Morgan, as applicable, in evaluating a potential transaction between LSC and Quad/Graphics.

Both the unadjusted financial projections and the adjusted financial projections (which we sometimes refer to collectively as the “financial projections”) reflect numerous judgments, estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to Quad/Graphics’ and LSC’s businesses, all of which are difficult to predict and many of which are beyond control. The financial projections are subjective in many respects and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the financial projections constitute forward-looking information and are subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted in such projections, including the various risks set forth in Quad/Graphics’ Annual Report on Form 10-K for the fiscal year ended December 31, 2017, in Quad/Graphics’ subsequently filed Quarterly Reports on Form 10-Q, in LSC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, in LSC’s subsequently filed Quarterly Reports on Form 10-Q and in other documents that are incorporated by reference herein. Furthermore, you should read and consider risk factors specific to LSC’s business that will also affect Quad/Graphics after the consummation of the merger. These risks are set forth in LSC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, in LSC’s subsequently filed Quarterly Reports on Form 10-Q and in other documents that are incorporated by reference herein. See also “Risk Factors” beginning on page 37, “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 47 and “Where You Can Find More Information” beginning on page 200. There can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. The financial projections cannot be considered a reliable predictor of future results and should not be relied upon as such. The financial projections cover multiple years and such information by its nature becomes less reliable with each successive year.

In the view of the management of Quad/Graphics and the management of LSC, the accompanying financial projections were prepared on a reasonable basis, reflected, at the time the financial projections were prepared, the best available estimates and judgments, and presented, to the best of each respective company’s management’s knowledge and belief at the time the financial projections were prepared, the expected course of action and the expected future financial performance of Quad/Graphics or LSC, as applicable.

 

-101-


Table of Contents

The financial projections do not take into account any circumstances or events occurring after the date they were prepared, nor do they take into account the effect of any failure to occur of the merger and should not be viewed as accurate or continuing in that context. The financial projections consider the companies on a stand-alone basis and do not take into account the effect of the merger and in no event should the aggregate of any of the projections of Quad/Graphics and LSC be considered projections of Quad/Graphics after the merger. See “Risk Factors—Risks Relating to the Merger” beginning on page 37 for an analysis of the potential adverse effect that the announcement and pendency of the merger may have on Quad/Graphics’ and LSC’s respective businesses, financial conditions, results of operations, business prospects or on stock prices.

The financial projections were prepared solely for use in connection with evaluating the merger and not with a view toward public disclosure or soliciting proxies, nor were they prepared with a view toward compliance with the published guidelines of the SEC regarding projections and the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Quad/Graphics’ or LSC’s independent registered public accounting firms, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the financial projections included below, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the financial projections.

The LSC unadjusted financial projections and the adjusted Quad/Graphics financial projections were used by BofA Merrill Lynch in rendering its opinion, dated October 30, 2018, to the LSC board of directors as to the fairness, from a financial point of view and as of the date of such opinion, of the exchange ratio to be received by the holders of LSC common stock, which opinion was based on and subject to the assumptions made and limitations on the review undertaken by BofA Merrill Lynch. For a description of the opinion that LSC received from BofA Merrill Lynch, see the section entitled “The Merger—Opinion of LSC’s Financial Advisor” beginning on page 91.

The Quad/Graphics unadjusted financial projections and the adjusted LSC financial projections were used by J.P. Morgan in rendering its opinion, dated October 30, 2018, to the Quad/Graphics board of directors as to the fairness, from a financial point of view and as of the date of such opinion, of the exchange ratio to Quad/Graphics, which opinion was based on and subject to the assumptions made and limitations on the review undertaken by J.P. Morgan. For a description of the opinion that Quad/Graphics received from J.P. Morgan, see the section entitled “The Merger—Opinion of Quad/Graphics’ Financial Advisor” beginning on page 81.

The inclusion of the financial projections herein will not be deemed an admission or representation by Quad/Graphics or LSC that they are viewed by Quad/Graphics or LSC as material information of Quad/Graphics (either before or after the merger) or LSC. These projections are not included in this joint proxy statement/prospectus in order to induce any holder of Quad/Graphics common stock or LSC common stock to vote in favor of the proposals submitted to them in connection with this joint proxy statement/prospectus. Neither Quad/Graphics nor LSC intends to update or otherwise revise the financial projections to reflect circumstances existing since their preparation, to reflect the occurrence of unanticipated events even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.

 

-102-


Table of Contents

Certain Stand-Alone Unadjusted Projected Financial Information for Quad/Graphics Prepared by Quad/Graphics’ Management

The following table presents the Quad/Graphics unadjusted financial projections for the fiscal years ending December 31, 2018 through December 31, 2022 prepared by Quad/Graphics management:

 

(in millions)

   2018      2019      2020      2021      2022  

Net Sales

   $ 4,190      $ 4,012      $ 3,806      $ 3,621      $ 3,451  

Adjusted EBITDA(1)

     420        390        370        352        338  

 

(1)

Adjusted EBITDA is a non-GAAP measure, which is defined as net earnings (loss) excluding (a) interest expense, (b) income tax expense (benefit), (c) depreciation and amortization, (d) pension income other than service cost and (e) restructuring, impairment and other charges.

Certain Stand-Alone Adjusted Projected Financial Information for Quad/Graphics Prepared by LSC’s Management

 

     For Fiscal Year Ending on December 31,  

(in millions)

   2018E      2019E      2020E      2021E      2022E  

Net Sales

   $ 4,190      $ 4,012      $ 3,806      $ 3,621      $ 3,451  

Adjusted EBITDA(1)

   $ 420      $ 381      $ 362      $ 344      $ 328  

 

(1)

Adjusted EBITDA is a non-GAAP measure, which is defined as net earnings (loss) excluding (a) interest expense, (b) income tax expense (benefit), (c) depreciation and amortization, (d) pension income other than service cost and (e) restructuring, impairment and other charges.

 

Certain Stand-Alone Unadjusted Projected Financial Information for LSC Prepared by LSC’s Management

The following tables present the LSC unadjusted financial projections for the fiscal years ending December 31, 2018 through December 31, 2022 prepared by LSC management:

 

Financials

 
($ in millions, except for EPS)    For Fiscal Year Ending on December 31,  
     2018PF E(1)      2019E      2020E      2021E      2022E  

Net Sales

   $ 3,711      $ 3,576      $ 3,535      $ 3,457      $ 3,383  

Adjusted EBITDA(2)

   $ 283      $ 290      $ 289      $ 286      $ 281  

Adjusted EBIT(3)

   $ 150      $ 162      $ 166      $ 169      $ 169  

 

(1)

The 2018 financial projections above are presented after giving pro forma effect to (i) LSC’s acquisition on July 2, 2018 of the print logistics division of RRD, (ii) LSC’s disposition of its retail offset printing facilities on June 5, 2018 to Trend Offset Printing Services, Inc., and (iii) LSC’s disposition of its European printing business on September 28, 2018 to Walstead Group.

(2)

Adjusted EBITDA is a non-GAAP measure, which is calculated as earnings before interest expense, net of interest income, income tax expense, depreciation and amortization expense and excludes restructuring, impairment and other charges and the impact of certain purchase accounting adjustments.

(3)

Adjusted EBIT is a non-GAAP measure, which is calculated as earnings before interest expense, net of interest income, and income tax expense and excludes restructuring, impairment and other charges and the impact of certain purchase accounting adjustments.

 

-103-


Table of Contents

Selected Cash Flow Items

 
($ in millions, except for EPS)    For Fiscal Year Ending on December 31,  
         2018              2019E              2020E              2021E              2022E      

Capital Expenditures

   $ 74      $ 85      $ 75      $ 62      $ 61  

Free Cash Flow(1)

   $ 90      $ 74      $ 81      $ 98      $ 93  

Change in net working capital(2)

   $ 26      $ 18      $ 5      $ 11      $ 10  

 

(1)

Free cash flow is a non-GAAP measure, which is calculated as cash provided by operating activities less cash used for capital expenditures. In connection with the preparation of its opinion, BofA Merrill Lynch used these figures in calculating an unlevered free cash flow measure.

(2)

Net working capital is calculated as the sum of accounts receivable and inventories, less accounts payable.

 

Other Items

 
($ in millions, except for EPS)    For Fiscal Year Ending on December 31,  
     2018PF E(1)          2019E              2020E              2021E              2022E      

Pension income / (expense)

   $ 48      $ 45      $ 45      $ 45      $ 45  

Adjusted EBITDA (Pension adjusted)(2)

   $ 235      $ 245      $ 244      $ 241      $ 236  

 

(1)

The 2018 financial projections above are presented after giving pro forma effect to (i) LSC’s acquisition on July 2, 2018 of the print logistics division of RRD, (ii) LSC’s disposition of its retail offset printing facilities on June 5, 2018 to Trend Offset Printing Services, Inc., and (iii) LSC’s disposition of its European printing business on September 28, 2018 to Walstead Group.

(2)

Adjusted EBITDA (Pension adjusted) is a non-GAAP measure, which is calculated as earnings before interest expense, net of interest income, income tax expense, depreciation and amortization expense and does not include pension income, restructuring, impairment and other charges and certain purchase accounting adjustments.

The unadjusted financial projections prepared by the management of LSC are based on various assumptions, including the following principal assumptions:

 

   

On-going market declines and cost pressures in the magazine and catalog platform, offset by expected margin improvements in the book segment and a ramp-up of synergies in the logistics platform.

 

   

The impact of four magazine and catalog plant closures and one office products plant closure.

 

   

Assumed cost savings from LSC’s comprehensive review of operations and business improvement initiative, of $10 million to $20 million over the period of 2019-2021.

 

   

Expenses with respect to LSC’s annual bonus plan of $7 million assumed in 2019 and $14 million thereafter.

 

   

Annual dividends of $1.04 per share, consistent with the level of the current quarterly dividend.

 

   

Free cash flow available after dividend payments used to reduce debt.

Certain Stand-Alone Adjusted Projected Financial Information for LSC Prepared by Quad/Graphics’ Management

 

(in millions)

   2018(1)      2019      2020      2021      2022  

Net Sales

   $ 3,749      $ 3,481      $ 3,314      $ 3,118      $ 2,959  

Adjusted EBITDA(2)

     240        218        193        170        152  

Adjusted EBIT(3)

     100        88        73        62        55  

 

(1)

The information prepared by Quad/Graphics’ management included the operating results from LSC’s European printing business and the operations of LSC’s retail offset printing facilities through the dates of

 

-104-


Table of Contents
  their divestitures in 2018 and the operating results from the RRD Print logistics business from the date of its acquisition in 2018.
(2)

Adjusted EBITDA is a non-GAAP measure, which is defined as net earnings (loss) excluding (a) interest expense, (b) income tax expense (benefit), (c) depreciation and amortization, and (d) restructuring, impairment and transaction-related charges.

(3)

Adjusted EBIT is a non-GAAP measure, which is defined as net earnings (loss) excluding (a) interest expense, (b) income tax expense (benefit), (c) pension income other than service cost and (d) restructuring, impairment and other charges.

Unlevered Free Cash Flow for LSC and Quad/Graphics Prepared by BofA Merrill Lynch

The following presentation of “Unlevered Free Cash Flow” for LSC and Quad/Graphics was prepared by BofA Merrill Lynch for purposes of its discounted cash flow analysis described above under “The Merger—Opinion of LSC’s Financial Advisor.” Such information was not prepared by LSC or Quad/Graphics, or included in the LSC unadjusted financial projections or the adjusted Quad/Graphics financial projections provided to BofA Merrill Lynch for purposes of its financial analyses, but was prepared by BofA Merrill Lynch using the projected financial information furnished by LSC management. Nevertheless, Unlevered Free Cash Flow is being presented in the tables relating to the financial projections below in order to provide a more complete understanding of the data utilized by BofA Merrill Lynch in conducting its financial analyses. For purposes of its discounted cash flow analysis described above under “The Merger—Opinion of LSC’s Financial Advisor”, BofA Merrill Lynch treated stock-based compensation expense as a cash expense.

 

(in millions)

     Q4 2018          2019          2020          2021          2022    

LSC Unlevered Free Cash Flow(1)

   $ 185    $ 109    $ 110    $ 126    $ 126

Quad/Graphics Unlevered Free Cash Flow(1)

     239      216      205      192      181

 

(1)

For purposes hereof, Unlevered Free Cash Flow is defined as earnings before interest and taxes, less income tax provision (at assumed effective tax rates), capital expenditures, changes in net working capital, changes in other cash flows and certain cash restructuring charges, plus depreciation and amortization.

Estimated Potential Synergies Attributable to the Merger

The merger is expected to produce significant annualized net synergy savings (which we sometimes refer to as “synergies”) over time. Quad/Graphics estimates that it will realize synergies through capacity rationalization, the elimination of duplicative functions, greater operational efficiencies and greater efficiencies in supply chain management.

Quad/Graphics has identified approximately $135 million of pre-tax annualized net synergies that could be achieved in less than 24 months after the consummation of the merger. All synergies identified were the result of cost savings from eliminating redundant costs and assets or improving efficiencies across both the Quad/Graphics and LSC cost structures, net of any cost increases related to compensation or reduced earnings from lost customers.

Quad/Graphics performed analysis primarily in three areas of concentration to determine the estimated net synergies: (1) costs savings from commercial printing capacity rationalization into lower cost, more modern and efficient printing facilities from certain high cost facilities, (2) cost savings from the elimination of duplicative or redundant administrative costs, and (3) cost savings from supply chain management and purchasing efficiencies due to increased purchasing volumes of the combined companies. These estimated net synergies are based on a number of assumptions, including:

 

   

Implementing cost savings programs, such as the consolidation of certain manufacturing operations, without a significant impact in customer service levels.

 

-105-


Table of Contents
   

Implementing cost savings programs related to personnel reductions and other redundant administrative costs.

 

   

Realizing savings on purchased or manufactured materials consumed, including but not limited to paper, ink and other materials consumed primarily in the manufacturing process.

Quad/Graphics’ management estimates that the total cost of accomplishing the merger and achieving synergies will be approximately $135 million in integration costs and approximately $173 million in transaction costs.

The estimated synergies referenced above were developed by management of Quad/Graphics. The estimated synergies reflect Quad/Graphics’ management’s estimates of the potential creation of cost reduction or cost avoidance opportunities through the ability to consolidate separate, stand-alone operations into a single entity. Any synergies actually achieved by Quad/Graphics following the merger could be greater than, less than or equal to these estimates. As in any transaction, shareholders assume the risk that Quad/Graphics will not achieve the strategic, financial, and operational benefits (including synergies) stated as a rationale for the merger. See “Risk Factors—Risks Relating to the Merger—The synergies expected to be produced may not be realized or may require Quad/Graphics after the consummation of the merger to incur additional costs that may adversely affect the value of Quad/Graphics’ class A common stock” beginning on page 40.

Interests of LSC’s Executive Officers and Directors in the Merger

In considering the recommendation of the LSC board of directors to vote for the merger agreement proposal, LSC stockholders should be aware that the executive officers and directors of LSC have interests in the merger that are different from, or in addition to, the interests of LSC stockholders generally and that may create potential conflicts of interest. The LSC board of directors was aware of these interests and considered them, among other matters, in evaluating and negotiating the merger agreement and approving the merger agreement, and in recommending to LSC stockholders that they vote for the merger agreement proposal. For more information, see the sections entitled “The Merger—Background of the Merger” beginning on page 63 and “The Merger—LSC’s Reasons for the Merger and Recommendation of LSC’s Board of Directors” beginning on page 87. These interests are described in more detail below, and certain of them are quantified in the narrative and in the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Quantification of Payments and Benefits to LSC’s Named Executive Officers—Golden Parachute Compensation” beginning on page 111.

Treatment of LSC Equity Awards

The LSC options, LSC RSAs, LSC RSUs, LSC PSUs and LSC phantom shares (which we collectively refer to as the “LSC equity awards”) held by LSC’s directors and executive officers immediately prior to the effective time of the merger will be generally treated in the same manner as those LSC equity awards held by other employees of LSC. As described further in the section titled “The Merger Agreement—Treatment of LSC Equity Awards” beginning on page 122, LSC equity awards will be subject to the following treatment:

 

   

LSC Options. At the effective time of the merger, each LSC option shall, automatically and without any required action on the part of the holder thereof, be converted into an option to purchase a number of shares of Quad/Graphics class A common stock equal to the product (rounded down to the nearest whole number) of (x) the number of shares of LSC common stock underlying such LSC option immediately prior to the effective time of the merger and (y) the exchange ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (A) the exercise price per share of such LSC option immediately prior to the effective time of the merger divided by (B) the exchange ratio. Except as specifically provided above, following the effective time of the merger, each LSC option shall continue to be governed by the same terms and conditions (including vesting and exercisability terms) as were applicable to such LSC option immediately prior to the effective time of the merger.

 

-106-


Table of Contents
   

LSC RSAs. At the effective time of the merger, any vesting conditions applicable to each LSC RSA shall, automatically and without any required action on the part of the holder thereof, accelerate in full and be converted into, and become exchanged for the merger consideration (less applicable taxes required to be withheld with respect to such vesting).

 

   

LSC RSUs. At the effective time of the merger, any vesting conditions applicable to each LSC RSU granted prior to October 30, 2018 shall, automatically and without any required action on the part of the holder thereof, accelerate in full and be cancelled and entitle the holder of such LSC RSU to receive (without interest) the merger consideration (less applicable taxes required to be withheld with respect to such payment).

Additionally, each LSC RSU granted after October 30, 2018 shall, automatically and without any required action on the part of the holder thereof, cease to represent a restricted stock unit denominated in shares of LSC common stock and shall be converted into a converted Quad RSU, with the number of shares of Quad/Graphics class A common stock subject to each such converted Quad RSU equal to the product (rounded down to the nearest whole number) of (A) the number of shares of LSC common stock subject to such LSC RSU immediately prior to the effective time of the merger multiplied by (B) the exchange ratio.

 

   

LSC PSUs. At the effective time of the merger, any vesting conditions applicable to each LSC PSU shall, automatically and without any required action on the part of the holder thereof, accelerate in full and be cancelled and entitle the holder of such LSC PSU to receive (without interest) an amount of merger consideration equal to (A) the number of shares of LSC common stock subject to such LSC PSU immediately prior to the effective time of the merger based on (x) for LSC PSUs granted in 2017, performance that was determined at the end of the 2017 performance period and (y) for LSC PSUs granted in 2018, the higher of target performance and actual performance through the effective time of the merger as reasonably determined by the human resources committee, multiplied by (B) the merger consideration (less applicable taxes required to be withheld with respect to such payment).

 

   

LSC Phantom Shares. At the effective time of the merger, each LSC phantom share under the LSC directors’ plan shall, automatically and without any required action on the part of the holder thereof, be converted into an award entitling the holder to receive an amount in cash equal to the value of the merger consideration (determined based on the closing price of a share of Quad/Graphics class A common stock on the closing date of the merger) with respect to each LSC phantom share, which amount shall be payable in accordance with the terms of such LSC directors’ plan and the applicable election thereunder.

For an estimate of the amounts that would be payable to each of LSC’s named executive officers on settlement of their unvested LSC equity awards, see the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Quantification of Payments and Benefits to LSC’s Named Executive Officers—Golden Parachute Compensation” beginning on page 111. The estimated aggregate amount that would be payable to the eight LSC non-employee directors in settlement of their outstanding LSC RSUs and phantom shares (including accrued dividend equivalents and, with respect to the LSC phantom shares, dividends and interest accrued thereon) that are outstanding on January 7, 2019 if the effective time of the merger occurred on June 30, 2019 is $1,131,542. The amounts in this paragraph were determined using a price per share of LSC common stock of $10.17 (the average closing market price of LSC common stock over the first five business days following the public announcement of the merger on October 31, 2018).

Employment Agreement with Mr. Quinlan

On September 29, 2016, LSC assumed the employment agreement between RRD and LSC’s Chief Executive Officer, Mr. Quinlan, which was subsequently amended on October 25, 2017 and which, as amended, we refer to as the “Quinlan employment agreement.” In the event that Mr. Quinlan’s employment is terminated by LSC for any reason other than for “cause” or by Mr. Quinlan for “good reason” (each as defined in the

 

-107-


Table of Contents

Quinlan employment agreement, and each of which we refer to as a “qualifying termination”) within two years following a change in control, Mr. Quinlan will be entitled to receive the payments and benefits listed below:

 

   

an amount equal to three times of the sum of Mr. Quinlan’s base salary and target annual bonus, payable in a cash lump sum, subject to the execution of a customary release;

 

   

a pro rata bonus for the year of the qualifying termination, payable when bonuses are paid to LSC’s senior executives;

 

   

continuation of all benefits (including Mr. Quinlan’s car allowance) to which Mr. Quinlan was eligible to receive prior to his termination until and including the last day of the second calendar year following the calendar year in which the qualifying termination occurs; and

 

   

a lump sum payment of $75,000, payable six months and one day after Mr. Quinlan’s qualifying termination.

Additionally, the Quinlan employment agreement provides that upon Mr. Quinlan’s separation from service from LSC, any vesting conditions applicable to any of Mr. Quinlan’s time-vested LSC equity awards (other than any RSUs that may be granted to him in 2019, if any), will vest 100% immediately as of the date of Mr. Quinlan’s separation from service, while all outstanding performance-based awards will be treated in accordance with their applicable award agreement. Because other arrangements provide for treatment of Mr. Quinlan’s LSC equity awards that is as favorable to him as, or more favorable to him than, the treatment prescribed in the Quinlan employment agreement, his awards will be treated as set forth above in the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Treatment of LSC Equity Awards.” For purposes of the Quinlan employment agreement, the merger will constitute a change in control.

For an estimate of the value of the payments and benefits described above that would be payable to Mr. Quinlan under the Quinlan employment agreement upon a qualifying termination in connection with the merger, see the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Quantification of Payments and Benefits to LSC’s Named Executive Officers—Golden Parachute Compensation” beginning on page 111.

Key Employee Severance Plan

Each of LSC’s executive officers, other than Mr. Quinlan, has entered into a participation agreement under LSC’s Key Employee Severance Plan, each of which provides for, among other things, benefits upon both a change in control and a subsequent qualifying termination of employment. The closing of the merger will constitute a change in control for purposes of the participation agreements.

The participation agreements provide that, in the event the executive officer experiences a qualifying termination within two years following a change in control, the executive officer will be entitled to receive the following, subject to the execution of a release and agreement to certain restrictive covenants, including non-competition, non-solicitation and confidentiality covenants:

 

   

salary continuation for 24 months (18 months for Mr. Hansen);

 

   

equal payments made in accordance with LSC’s regular payroll dates that, in the aggregate, equal 200% (150% for Mr. Hansen) of the executive officer’s target annual bonus over a period of 24 months (18 months for Mr. Hansen);

 

   

a lump-sum payment representing the difference between the executive officer’s monthly medical insurance cost immediately prior to his or her qualifying termination and the monthly cost for COBRA for 24 months (18 months for Mr. Hansen); and

 

   

six months of outplacement assistance from a provider selected by LSC.

 

-108-


Table of Contents

Additionally, Ms. Bettman’s participation agreement provides that upon her qualifying termination, all of her outstanding LSC options, LSC RSAs, LSC RSUs (other than any LSC RSUs that may be granted to her in 2019, if any) or other equity grants (other than performance shares or LSC PSUs) issued to her on or after October 25, 2017 will fully vest immediately as of the date of her qualifying termination and any performance shares or LSC PSUs will be treated in accordance with the applicable award agreement. Because other arrangements provide for treatment of Ms. Bettman’s LSC equity awards that is as favorable to her as, or more favorable to her than, the treatment prescribed in Ms. Bettman’s participation agreement, her awards will be treated as set forth above in the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Treatment of LSC Equity Awards.”

For an estimate of the value of the payments and benefits described above that would be payable to the LSC executive officers, other than Mr. Quinlan, under their participation agreements upon a qualifying termination in connection with the merger, see the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Quantification of Payments and Benefits to LSC’s Named Executive Officers—Golden Parachute Compensation” beginning on page 111. For a discussion of the payments and benefits that would be payable to Mr. Quinlan upon a qualifying termination of employment in connection with the merger, see the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Employment Agreement with Mr. Quinlan” beginning on page 107.

Annual Incentive Plan Awards

Under the merger agreement, LSC may determine achievement of performance and pay annual cash bonuses to its executive officers under its annual bonus incentive plan (which we refer to as the “LSC AIP”), in respect of the fiscal year ending December 31, 2018 in the ordinary course of business and consistent with the existing bonus award terms and past practice.

LSC may also establish performance metrics and grant annual bonus awards to its executive officers for the 2019 fiscal year under the LSC AIP. Annual bonuses under the LSC AIP in 2019 will be subject to “double-trigger” vesting on a pro-rata basis upon a termination without cause or resignation for good reason after the closing of the merger for all participants, including LSC’s executive officers. As described above in the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Employment Agreement with Mr. Quinlan” beginning on page 107, Mr. Quinlan is entitled to receive his pro rata bonus under the LSC AIP for the year of his qualifying termination pursuant to the terms of the Quinlan employment agreement.

For an estimate of the value of the pro-rated annual bonus incentive awards that would be payable to LSC’s named executive officers in connection with the merger, see the section entitled “The Merger—Interests of LSC’s Executive Officers and Directors in the Merger—Quantification of Payments and Benefits to LSC’s Named Executive Officers—Golden Parachute Compensation” beginning on page 111.

Supplemental Executive Retirement Plan

Mr. Quinlan participates in the SERP-B that was transferred from RRD to LSC in connection with LSC’s separation from RRD. The SERP-B is frozen, no additional amounts may be contributed and no further benefits are being accrued. Pursuant to its terms, upon a change in control of LSC, Mr. Quinlan’s accrued benefits under the SERP-B will be payable to him, as he is fully vested in his accrued benefit.

Deferred Compensation Plan

Ms. Bettman and Mr. Lane participate in the LSC deferred compensation plan. Depending on the participant’s preexisting election, if a change in control occurs before separation from service and the participant elected to receive the change in control benefit, the account balance shall be paid in a lump sum within 60 days

 

-109-


Table of Contents

(subject to a six-month delay under Section 409A, if applicable). If the participant did not elect to receive the change in control benefit, the account balance shall remain in the plan. Ms. Bettman and Mr. Lane are fully vested in their account balances under the deferred compensation plan.

Supplemental Pension Plan

Each of LSC’s executive officers except Mr. Hansen participate in the LSC SERP. The LSC SERP is frozen and no additional amounts may be contributed. Pursuant to its terms, upon a separation from service within two years of a change in control, participants will receive a lump sum payment of their accrued benefits after a six-month delay. Each of the participating executive officers is fully vested in his or her accrued benefits.

Membership on the Quad/Graphics Board of Directors Following the Merger

The parties have agreed that immediately following the merger, the Quad/Graphics board of directors will be comprised of the persons serving on the Quad/Graphics board of directors immediately prior to the merger as well as two additional members who served as LSC directors immediately prior to the merger and who are mutually agreed upon by LSC and Quad/Graphics, at the direction of the trustees of the Quad/Graphics voting trust. As of the date of this joint proxy statement/prospectus, no decisions have been made with respect to which current LSC directors will be appointed to the Quad/Graphics board of directors post-merger.

Indemnification and Insurance

Pursuant to the terms of the merger agreement, LSC’s directors and officers will be entitled to certain ongoing indemnification and coverage under the merger agreement, the surviving company’s organizational documents and directors’ and officers’ liability insurance policies. See the section entitled “The Merger Agreement—Indemnification; Directors’ and Officers’ Insurance” beginning on page 148 for a description of such ongoing indemnification and coverage obligations.

Quantification of Payments and Benefits to LSC’s Named Executive Officers

This section sets forth the information required by Item 402(t) of the SEC’s Regulation S-K regarding compensation for each “named executive officer” of LSC that is based on, or otherwise relates to, the merger. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section we use such term to describe the merger-related compensation payable to LSC’s named executive officers. The “golden parachute” compensation payable to these individuals is subject to a non-binding advisory vote of LSC stockholders, as described in the sections entitled “The Special Meeting of LSC Stockholders” beginning on page 56 and “LSC Proposals—LSC Compensation Proposal” beginning on page 61.

The table below sets forth, for the purposes of this golden parachute disclosure, the amount of payments and benefits (on a pre-tax basis) that each of LSC’s named executive officers would receive, using the following assumptions: (1) the effective time of the merger will occur on June 30, 2019 (which is the assumed date solely for purposes of this golden parachute compensation disclosure), (2) each of LSC’s named executive officers will experience a qualifying termination at such time, (3) the named executive officer’s base salary rate and annual target bonus remain unchanged from those in place as of January 7, 2019, (4) equity awards that are outstanding as of January 7, 2019 and (5) a price per share of LSC common stock of $10.17 (the average closing market price of LSC common stock over the first five business days following the public announcement of the merger on October 31, 2018). As a result of the foregoing assumptions, which may or may not actually occur or be accurate on the relevant date, including the assumptions described in the footnotes to the table, the actual amounts, if any, to be received by a named executive officer may materially differ from the amounts set forth below. In addition, the amounts in the table do not reflect any amounts in respect of each named executive officer’s accounts in either the LSC SERP, the LSC deferred compensation plan, or the SERP-B, as applicable, as each named executive officer is fully vested in his or her applicable account balances under each such plan.

 

-110-


Table of Contents

For purposes of this discussion, “single-trigger” refers to benefits that arise as a result of the closing of the merger and “double-trigger” refers to benefits that require two conditions, which are the closing of the merger as well as a qualifying termination of employment.

Golden Parachute Compensation

 

Name

   Cash ($)(1)(2)      Equity ($)(3)      Benefits ($)(4)(5)      Total ($)  

Thomas J. Quinlan, III

   $ 9,975,000      $ 5,643,329      $ 90,776      $ 15,709,105  

Suzanne S. Bettman

   $ 3,105,000      $ 1,271,642      $ 30,000      $ 4,406,642  

Andrew B. Coxhead

   $ 2,430,000      $ 1,160,985      $ 46,575      $ 3,637,560  

Kent A. Hansen

   $ 975,000      $ 221,587      $ 30,000      $ 1,226,587  

Richard T. Lane

   $ 2,025,000      $ 647,252      $ 39,132      $ 2,711,384  

 

(1)

For Mr. Quinlan, the cash amount consists of the following severance benefits payable on a qualifying termination within two years after closing, as set forth in the table below: (a) an amount equal to the sum of three times Mr. Quinlan’s annual base salary and target annual bonus, (b) a pro rata bonus for the year of termination, paid at the same time as other annual bonuses are paid; and (c) an additional $75,000 payment, paid six months and one day after such termination. All amounts are payable in a lump sum and are all “double-trigger” (i.e., the amounts are payable upon a qualifying termination within two years following the occurrence of a change in control).

(2)

The cash amounts payable to each of the other named executive officers, other than Mr. Quinlan, consist of the following: (a) an amount equal to the sum of two times (one and a half times for Mr. Hansen) the named executive officer’s annual base salary, and (b) payments that in the aggregate equal 200% (150% for Mr. Hansen) of the named executive officer’s target annual bonus. The amounts are all payable in substantially equal installments over two years (18 months for Mr. Hansen) and are “double-trigger.” Set forth below are the separate values of each of the cash payments for each of LSC’s named executive officers, including Mr. Quinlan, in each case assuming target performance for purposes of the pro rata annual bonus.

 

Name

   Cash Severance ($)      Pro Rata Bonus ($)      Additional
Payment ($)
     Total ($)  

Thomas J. Quinlan, III

   $ 9,000,000      $ 900,000      $ 75,000      $ 9,975,000  

Suzanne S. Bettman

   $ 2,700,000      $ 405,000        —        $ 3,105,000  

Andrew B. Coxhead

   $ 2,160,000      $ 270,000        —        $ 2,430,000  

Kent A. Hansen

   $ 853,125      $ 121,875          —        $ 975,000  

Richard T. Lane

   $ 1,800,000      $ 225,000        —        $ 2,025,000  

 

(3)

As described above, at the effective time of the merger, (a) all LSC options will be converted into options to purchase shares of Quad/Graphics class A common stock, (b) all unvested LSC RSAs and LSC RSUs granted prior to October 30, 2018 will be converted into and be exchanged for the merger consideration and (c) all LSC PSUs will be converted into and become exchanged for an amount of the merger consideration equal to (A) the number of shares of LSC common stock subject to such LSC PSU immediately prior to the effective time of the merger based on (I) for LSC PSUs granted in 2017, performance that was determined at the end of the 2017 performance period and (II) for LSC PSUs granted in 2018, the higher of target performance and actual performance through the effective time of the merger as reasonably determined by the human resources committee, multiplied by (B) the merger consideration. Treatment for all such equity awards is “single-trigger.” Set forth below are the values of each type of unvested equity-based award that would vest on closing, based on the assumptions set forth on page 110, and including accrued dividends payable upon vesting with respect to the LSC RSAs. All LSC PSUs granted in 2018 are presented assuming target performance. Note that as discussed above, the amounts in the table do not reflect any LSC RSUs that may be granted to the named executive officers with respect to their 2019 annual compensation prior to the closing of the merger, and which may, for Mr. Hansen only, provide for double-trigger vesting upon a termination without “cause” or a resignation for “good reason” within two years of the closing (for each of the other LSC named executive officers, any such LSC RSUs granted to them will be forfeited upon a termination for any reason prior to the scheduled vesting date).

 

-111-


Table of Contents

Name

  Unvested
Options ($)
    Unvested
RSAs ($)
    Accrued
RSA
Dividends ($)
    Unvested
RSUs ($)
     Unvested
PSUs ($)
     Total ($)  

Thomas J. Quinlan, III

  $ 0     $ 607,322     $ 136,752     $ 3,730,417      $ 1,168,838      $ 5,643,329  

Suzanne S. Bettman

  $ 0     $ 277,509     $ 54,872     $ 713,080      $ 226,181      $ 1,271,642  

Andrew B. Coxhead

  $ 0     $ 268,132     $ 51,306     $ 568,228      $ 273,319      $ 1,160,985  

Kent A. Hansen

  $ 0     $ 68,322     $ 13,834     $ 82,886      $ 56,545      $ 221,587  

Richard T. Lane

  $ 0     $ 135,942     $ 26,465     $ 334,074      $ 150,770      $ 647,252  

 

(4)

For Mr. Quinlan, reflects the approximate cost of his post-termination health care, supplemental life insurance, supplemental disability insurance, financial planning, and car allowance. These benefits are all “double-trigger,” payable on a qualifying termination within two years after the closing of the merger.

(5)

For each of the named executive officers other than Mr. Quinlan, reflects (i) an approximate amount equal to the difference between the named executive officer’s monthly medical insurance cost immediately prior to the applicable qualifying termination and the monthly cost for COBRA for 24 months (18 months for Mr. Hansen), paid in a cash lump sum, and (ii) the approximate cost of six months of outplacement assistance from a provider to be selected by LSC. These benefits are all “double-trigger,” payable on a qualifying termination within two years after the closing of the merger.

Interests of Quad/Graphics’ Executive Officers and Directors in the Merger

In considering the recommendation of the Quad/Graphics board of directors to vote for the share issuance proposal, Quad/Graphics shareholders should be aware that certain directors have interests in the merger that may be different from, or in addition to, the interests of Quad/Graphics shareholders generally. All of the members of the Quad/Graphics board of directors were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement, in approving the merger agreement and in determining to recommend that Quad/Graphics shareholders approve the share issuance proposal.

Quad/Graphics has in place a stock restriction agreement pursuant to which approximately 7.8 million shares of class B common stock of Quad/Graphics held by certain members of the Quadracci family or trusts for their benefit can only be transferred to members of the Quadracci “family group” as defined in the agreement; and any attempted transfer to any person outside of the Quadracci “family group” provides Quad/Graphics with the option to purchase those shares at the lesser of a formula price or an average of the last sales prices of Quad/Graphics’ class A common stock over a 20-day period. The stock restriction agreement automatically terminates when the Quadracci “family group” owns less than 20% of the class A common stock and class B common stock of Quad/Graphics on a fully diluted basis. It is possible the issuance of shares of Quad/Graphics class A common stock in connection with the merger will result in the Quadracci “family group” falling below the 20% threshold, and accordingly, the stock restriction agreement may terminate. The following directors of Quad/Graphics are within or associated with the Quadracci “family group”: J. Joel Quadracci, Christopher B. Harned, Kathryn Quadracci Flores and John C. Fowler. All of such directors participated in the action of the board of directors of Quad/Graphics to consider and approve the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Quad/Graphics class A common stock in connection with the merger. The independent directors of Quad/Graphics decided, pursuant to and in accordance with Quad/Graphics’ Corporate Governance Guidelines, that such participation did not involve an actual or potential conflict of interest.

Quad/Graphics’ Board of Directors and Management after the Merger

Immediately following the merger, the Quad/Graphics board of directors will be comprised of the persons serving on the board of directors of Quad/Graphics immediately prior to the merger and two additional members who served as directors of LSC and who are mutually agreed upon by LSC and Quad/Graphics, at the direction of the trustees of the Quad/Graphics voting trust. As of the date of this joint proxy statement/prospectus, no decisions have been made with respect to which current LSC directors will be appointed to the Quad/Graphics board of directors post-merger.

 

-112-


Table of Contents

The executive officers of Quad/Graphics immediately prior to the merger will be the executive officers of Quad/Graphics following the merger.

Exchange of Certificates; No Fractional Shares

At or prior to the effective time of the merger, Quad/Graphics will select and appoint an exchange agent, reasonably acceptable to LSC, to act as an exchange agent in connection with the transactions contemplated by the merger agreement, including the exchange of eligible shares of LSC common stock for the merger consideration. The conversion of eligible shares of LSC common stock into the right to receive the merger consideration, plus any cash in lieu of fractional shares of Quad/Graphics class A common stock and plus any dividends or distributions on Quad/Graphics class A common stock with a record date after the effective time of the merger will occur automatically at the effective time of the merger. As soon as reasonably practicable (and in any event within three business days) after the effective time of the merger, Quad/Graphics will cause the exchange agent to provide appropriate transmittal materials, including a letter of transmittal, to holders of record of shares of LSC common stock eligible to receive the merger consideration and advising such holders of the procedure for surrendering certificates in exchange for the merger consideration.

The letter of transmittal will specify that delivery shall be effected, and risk of loss and title to the certificates will pass, only upon delivery of the certificates or affidavits of loss in lieu of such certificates to the exchange agent. The letter of transmittal will be accompanied by instructions for surrendering the certificates in exchange for the merger consideration, plus any cash in lieu of fractional shares of Quad/Graphics class A common stock and plus any dividends or distributions on Quad/Graphics class A common stock with a record date after the effective time of the merger. No interest will be paid or will accrue on any of the merger consideration upon surrender of a certificate. LSC stockholders should not return stock certificates with the enclosed proxy card.

At the effective time of the merger, all eligible shares of LSC common stock will cease to be outstanding, will be automatically cancelled and will cease to exist, and any certificate formerly representing any shares of LSC common stock, and each non-certificated share of LSC common stock represented by book entry will thereafter represent only the right to receive, without interest, the merger consideration plus any cash in lieu of fractional shares of Quad/Graphics class A common stock and plus any dividends or distributions on Quad/Graphics class A common stock with a record date after the effective time of the merger.

No dividends or other distributions with respect to shares of Quad/Graphics class A common stock will be paid to any LSC stockholder whose shares were converted into the right to receive the merger consideration unless and until such stockholder has surrendered or transferred such certificates or shares and related instruments in accordance with the merger agreement. Subject to applicable law, when holders of LSC common stock surrender their certificates or shares, they will receive any dividends and other distributions on shares of Quad/Graphics class A common stock with a record date after the effective time of the merger and a payment date on or prior to the date of surrender, without interest, and be entitled to receive any dividends and other distributions on shares of Quad/Graphics class A common stock with a record date after the effective time of the merger and a payment date after the date of surrender, without interest.

Any holder of shares of LSC common stock held through book-entry will not be required to deliver a certificate or an executed letter of transmittal to the exchange agent to receive the merger consideration plus any cash in lieu of fractional shares of Quad/Graphics class A common stock and plus dividends or distributions on Quad/Graphics class A common stock with a record date after the effective time of the merger in respect of such book-entry shares of LSC common stock.

In lieu thereof, Quad/Graphics will, as promptly as reasonably practicable (and in any event within three business days) after the effective time of the merger, cause the exchange agent to mail to each stockholder whose shares are held through book-entry but not held through The Depository Trust Company (which we refer to as

 

-113-


Table of Contents

“DTC”), a statement reflecting the number of whole shares of Quad/Graphics class A common stock such holder is entitled to receive and a check in the amount of any cash in lieu of fractional share of Quad/Graphics class A common stock the holder has the right to receive plus any dividends or distributions on Quad/Graphics class A common stock made with a record date after the effective time of the merger. For holders of LSC common stock whose shares are held through DTC, Quad/Graphics and LSC will cooperate to establish procedures with the exchange agent and DTC to ensure the exchange agent will transmit to DTC on the closing date of the merger, or if the closing occurs after 10:30 a.m. Central Time on the closing date of the merger, on the first business day after the closing date of the merger, upon surrender of the shares of LSC common stock held by DTC, the merger consideration plus any cash in lieu of fractional shares of Quad/Graphics class A common stock and plus any dividends or distributions on Quad/Graphics class A common stock with a record date after the effective time of the merger.

LSC stockholders will not be entitled to receive any fractional shares of Quad/Graphics class A common stock in the merger, and no LSC stockholders will be entitled to dividends, distributions, voting rights or any other rights in respect of any fractional shares of Quad/Graphics class A common stock. LSC stockholders that would have otherwise been entitled to receive a fractional share of Quad/Graphics class A common stock will instead be entitled to receive, in lieu of fractional shares, an amount in cash, without interest and rounded to the nearest whole cent, equal to the product of the average of the volume weighted average price per share of Quad/Graphics class A common stock on the NYSE on each of the twenty consecutive trading days ending with the second complete trading day prior to the date on which the effective time of the merger occurs, multiplied by the fraction of a share of Quad/Graphics class A common stock (after taking into account all of the shares of LSC common stock held by the holder at the effective time of the merger and rounded to the nearest one thousandth) to which the holder would otherwise be entitled to receive.

The exchange agent, Quad/Graphics or the surviving company will be entitled to deduct and withhold from any cash consideration (in lieu of fractional shares or otherwise) payable to any former holder of LSC common stock such amounts as are required to be deducted and withheld with respect to the payment of the merger consideration, as applicable, or the making of such payment under the Internal Revenue Code, or under any provision of state, local or foreign tax law. To the extent the amounts are so withheld by the exchange agent, Quad/Graphics or the surviving company, as the case may be, such withheld amounts will be treated for all purposes of the merger agreement as having been paid to the holder of shares of LSC common stock in respect of whom such deduction and withholding was made by the exchange agent, Quad/Graphics or the surviving company, as the case may be.

Regulatory Approvals

Quad/Graphics and LSC intend to seek all required regulatory approvals, including antitrust clearance in the United States under the HSR Act and in Mexico.

HSR Act

The FTC, and the Antitrust Division of the DOJ, frequently analyze the competitive effects of transactions such as the merger. Before or after the merger, the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the merger or seeking divestiture of substantial assets of Quad/Graphics, LSC or their subsidiaries. Private parties and state attorneys general may also bring an action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if such a challenge is made, of the result of such challenge.

The HSR Act, and the rules and regulations thereunder, provide that certain transactions, including the merger, may not be consummated until required information and materials have been furnished to the DOJ and the FTC and certain waiting periods have expired or been terminated. Quad/Graphics and LSC filed their

 

-114-


Table of Contents

respective Pre-Merger (Arrangement) Notification and Report Forms with the FTC and the DOJ under the HSR Act effective as of November 13, 2018. On December 13, 2018, Quad/Graphics and LSC each received a second request for additional information and documentary material from the DOJ in connection with the DOJ’s review of the merger. Issuance of the second request extends the waiting period under the HSR Act until 30 days after both Quad/Graphics and LSC have substantially complied with the second request or such later time as the parties may agree with the DOJ, unless the waiting period is terminated earlier by the DOJ. Quad/Graphics and LSC will continue to cooperate fully with the DOJ as it reviews the merger.

Mexico

The approval of the merger by the Federal Economic Competition Commission (which we refer to as “COFECE”) under the Mexican Federal Economic Competition Law is required to consummate the merger. Under the Mexican Federal Economic Competition Law, transactions involving parties with sales and/or assets above certain levels cannot be completed until they are reviewed and approved by COFECE. Phase 1 typically takes approximately 25 business days. Once the notification is deemed complete, COFECE may issue a second request for information and data within 15 business days (which can be extended in exceptional cases). After the parties comply with the request, COFECE has 60 business days to issue a ruling. COFECE may extend the period to up to an additional 40 business days. Quad/Graphics and LSC have not yet filed a formal notification to COFECE of the merger.

Other Regulatory Approvals

Neither Quad/Graphics nor LSC is aware of any material governmental approvals or actions that are required for consummation of the merger other than as described above. It is presently contemplated that if any such additional material governmental approvals or actions are required, those approvals or actions will be sought.

Certain Indebtedness of Quad/Graphics and LSC

Existing Quad/Graphics Credit Facility

The Quad/Graphics credit facility includes a $375 million term loan A maturing in January 2021, a $300 million term loan B maturing in April 2021 and a $725 million revolving credit facility maturing in January 2021. Quad/Graphics’ Annual Report on Form 10-K for the year ended December 31, 2017, which is incorporated by reference into this joint proxy statement/prospectus, contains more detailed information about the Quad/Graphics credit facility.

LSC Credit Facility

The LSC credit facility includes a $375 million term loan B and a $400 million revolving credit facility. As of September 30, 2018, the outstanding principal amount of revolving loans drawn was $229 million, and the outstanding principal amount of the term loan was $270 million. LSC’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, which is incorporated by reference into this joint proxy statement/prospectus, contains more detailed information about the LSC credit facility. Quad/Graphics intends to cause the LSC credit facility to be repaid and terminated in connection with the consummation of the merger. The LSC credit facility can be prepaid without premium or penalty other than London Interbank Offered Rate breakage costs. In addition, under the merger agreement, all amounts outstanding under the LSC credit facility will be repaid upon the closing of the merger and Quad/Graphics is required to provide all necessary funds for such repayment.

LSC’s Senior Notes

LSC has issued $450 million aggregate principal amount of LSC Senior Notes. As of September 30, 2018, the outstanding principal amount of the LSC senior notes was $450 million. LSC’s Quarterly Report on Form

 

-115-


Table of Contents

10-Q for the quarter ended September 30, 2018, which is incorporated by reference into this joint proxy statement/prospectus, contains more detailed information about the LSC senior notes. The indenture governing the LSC senior notes (which we refer to as the “LSC indenture”) requires LSC (or a third party, in permitted circumstances) to make an offer to repurchase the LSC senior notes at 101% of their face amount, plus any accrued and unpaid interest, within 30 days of the occurrence of a change of control. A “change of control”, as defined under the LSC indenture, occurs when, among other things, LSC merges with or into another person or entity pursuant to a transaction in which the outstanding voting stock of LSC is converted into or exchanged for cash, securities, or other property. The LSC indenture permits the LSC senior notes to be redeemed in whole or in part prior to October 15, 2019 at a redemption price equal to 100% of the principal amount of such LSC senior notes, plus any accrued and unpaid interest, and the greater of (1) 1.00% of the principal amount of such LSC senior notes and (2) the excess of (a) the present value on the applicable redemption date of (i) the redemption price of the LSC senior notes on October 15, 2019 as described in the next succeeding sentence, plus (ii) all required remaining scheduled interest payments due on such LSC senior notes through October 15, 2019 (excluding accrued and unpaid interest to the applicable redemption date), computed at an adjusted treasury rate discount rate as of the applicable redemption date, over (b) the principal amount of such LSC senior notes on the applicable redemption date. On or after October 15, 2019, but prior to October 15, 2020, the LSC senior notes may be redeemed at 106.563% of the principal amount of such LSC senior notes, plus accrued and unpaid interest.

Under the merger agreement, Quad/Graphics may request LSC to (a) make an offer to purchase with respect to all of the outstanding aggregate principal amount of the LSC senior notes, or (b) deliver a notice of optional redemption for the LSC senior notes, in each case conditioned on the consummation of the merger and the funding of such repurchase or redemption by Quad/Graphics or its subsidiaries. Quad/Graphics intends to have funding available for any accepted offers to repurchase in connection with a change of control offer or any optional redemption of the LSC senior notes.

Amendment to Quad/Graphics Credit Facility

Upon or prior to the closing date of the merger, Quad/Graphics will amend the Quad/Graphics credit facility to (a) increase the aggregate amount of the existing revolving credit facility from $725 million to $800 million in two tranches, with the first tranche of approximately $83 million maturing on January 4, 2021 and the second tranche of approximately $717 million maturing five years from the closing date of the merger, (b) increase the aggregate amount of the existing term loan A from $375 million to $ 825 million in two tranches, with the first tranche of approximately $32 million maturing on January 4, 2021 and the second tranche of approximately $793 million maturing five years from the closing date of the merger, (c) increase the aggregate amount of the existing term loan B from $300 million to $500 million with a term of seven years, and (d) allow Quad/Graphics to consummate the merger. Quad/Graphics intends that the loans available under the amended Quad/Graphics credit facility will be used to repay, refinance, repurchase, redeem, exchange or otherwise terminate LSC’s existing indebtedness prior to, in connection with or following the consummation of the merger, and to pay transaction expenses.

Transaction Litigation

Three substantially similar actions have been filed by an alleged LSC stockholder against some or all of LSC, the directors of LSC, Quad/Graphics and merger sub. On December 21, 2018, an action captioned Joe Waters v. LSC, et al., No. 1:18-cv-08419, was filed in the U.S. District Court for the Northern District of Illinois against LSC, the directors of LSC, Quad/Graphics and merger sub on behalf of a putative class of LSC stockholders. On January 2, 2019, an action captioned David Wefer v. LSC, et al., No. 1:19-cv-00007, was filed in the U.S. District Court for the Southern District of New York against LSC and the directors of LSC. On January 7, 2019, an action captioned Patrick Plumley v. LSC, et al., No. 1:19-cv-00030-UNA, was filed in the U.S. District Court for the District of Delaware against LSC, the directors of LSC, Quad/Graphics and merger sub on behalf of a putative class of LSC stockholders. The lawsuits include similar allegations challenging the

 

-116-


Table of Contents

adequacy or completeness of the disclosures to LSC stockholders made in the initial version of this joint proxy statement/prospectus filed on December 11, 2018 regarding the merger, and the complaints assert claims under Section 14(a) and 20(a) of the Exchange Act against some or all of LSC, the members of the LSC board and Quad/Graphics. The complaints allege, among other things, that the initial version of this joint proxy statement/prospectus filed on December 11, 2018 misstated or omitted material information regarding the financial projections prepared by LSC management, the value of shares of LSC common stock and the financial analyses performed by LSC’s financial advisor and the sales process leading up to the merger. The complaints seek injunctive relief, including to enjoin the merger, damages in the event the merger is consummated and an award of attorneys’ fees, in addition to other relief.

Additional lawsuits arising out of the merger may be filed in the future. There can be no assurance that any of the defendants will be successful in the outcome of the pending or any potential future lawsuits. A preliminary injunction could delay or jeopardize the consummation of the merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin the consummation of the merger. LSC and Quad/Graphics believe that the lawsuits are without merit and intend to defend vigorously against them and any other lawsuits challenging the merger.

Material U.S. Federal Income Tax Consequences

The following discussion is a summary that addresses the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of shares of LSC common stock that exchange their shares of LSC common stock for shares of Quad/Graphics class A common stock in the merger. The discussion is based on the provisions of the Internal Revenue Code, its legislative history, U.S. Treasury regulations, administrative rulings and judicial decisions, all as currently in effect as of the date hereof and all of which are subject to change (possibly with retroactive effect) and all of which are subject to differing interpretations.

For purposes of this summary, a “U.S. holder” is a beneficial owner of shares of LSC common stock that is (a) an individual who is a citizen of the United States or who is resident in the United States for U.S. federal income tax purposes, (b) an entity that is classified for U.S. federal income tax purposes as a corporation and that is organized under the laws of the United States, any state thereof, or the District of Columbia, or is otherwise treated for U.S. federal income tax purposes as a domestic corporation, (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (d) a trust (i) whose