10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number: 001-13178

_________________________

MDC Partners Inc.

(Exact name of registrant as specified in its charter)

Canada	98-0364441
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)
45 Hazelton Avenue
Toronto, Ontario, Canada	M5R 2E3
(Address of principal executive offices)	(Zip Code)

(416) 960-9000

Registrant’s telephone number, including area code:

950 Third Avenue, New York, New York 10022

(646) 429-1809

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12(b)-2 of the Exchange Act (check one)

Large Accelerated Filer  o Accelerated Filer  x Non-Accelerated Filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o No  x

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Act subsequent to the distributions of securities under a plan confirmed by a court. Yes  o No  o

The numbers of shares outstanding as of November 1, 2006 were: 24,191,113 Class A subordinate voting shares and 2,502 Class B multiple voting shares.

Website Access to Company Reports

MDC Partners Inc.’s Internet website address is www.mdc-partners.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act, will be made available free of charge through the Company’s website as soon as reasonably practical after those reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

2

MDC PARTNERS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2006 and 2005	4
	Condensed Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2006 and 2005	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 4.	Controls and Procedures	48
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity and Use of Proceeds	50
Item 4.	Submission of Matters to a Vote of Security Holders	50
Item 6.	Exhibits	51
Signatures		52

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Item 1. Financial Statements

MDC PARTNERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(thousands of United States dollars, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Revenue:
Services	$	101,122		$	96,977		$	299,333		$	261,042
Operating Expenses:
Cost of services sold (1)		57,150			55,509			177,790			155,180
Office and general expenses (2)		36,666			28,853			97,672			77,826
Depreciation and amortization		6,696			6,905			18,595			16,675
		100,512			91,267			294,057			249,681
Operating profit		610			5,710			5,276			11,361
Other Income (Expenses):
Other income (expense)		625			(395	)		1,697			616
Interest expense		(3,704	)		(2,302	)		(8,134	)		(4,926	)
Interest income		171			—			429			230
		(2,908	)		(2,697	)		(6,008	)		(4,080	)
Income (loss) from continuing operations before income taxes, equity
in affiliates and minority interests		(2,298	)		3,013			(732	)		7,281
Income tax recovery		812			397			1,711			1,676
Income/(loss) from continuing operations before equity in affiliates
and minority interests		(1,486	)		3,410			979			8,957
Equity in earnings of non-consolidated affiliates		129			348			630			624
Minority interests in income of consolidated subsidiaries		(1,780	)		(6,073	)		(9,965	)		(14,374	)
Loss from continuing operations		(3,137	)		(2,315	)		(8,356	)		(4,793	)
Income/(loss) from discontinued operations		(9,772	)		660			(20,190	)		(1,609	)
Net Loss	$	(12,909	)	$	(1,655	)	$	(28,546	)	$	(6,402	)
Income/(Loss) Per Common Share:
Basic:
Continuing operations	$	(0.13	)	$	(0.10	)	$	(0.35	)	$	(0.21	)
Discontinued operations		(0.41	)		0.03			(0.84	)		(0.07	)
Net Loss	$	(0.54	)	$	(0.07	)	$	(1.19	)	$	(0.28	)
Diluted:
Continuing operations	$	(0.13	)	$	(0.10	)	$	(0.35	)	$	(0.21	)
Discontinued operations		(0.41	)		0.03			(0.84	)		(0.07	)
Net loss	$	(0.54	)	$	(0.07	)	$	(1.19	)	$	(0.28	)
Weighted Average Number of Common Shares Outstanding:
Basic		23,911,327			23,710,572			23,849,571			23,151,825
Diluted		23,911,327			23,710,572			23,849,571			23,151,825

(1)	Includes non cash stock-based compensation of $134 and $18 in each of the three month periods ended September 30, 2006 and 2005, respectively, and $2,975 and $89 in each of the nine month periods ended September 30, 2006 and 2005, respectively.
(2)	Includes non cash stock-based compensation of $1,515 and $548, respectively, in each of the three month periods ended September 30, 2006 and 2005, respectively, and $4,006 and $2,273 in each of the nine month periods ended September 20, 2006 and 2005 respectively.

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.

4

MDC PARTNERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(thousands of United States dollars)

	September 30, 2006			December 31, 2005
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	4,592		$	12,923
Accounts receivable, less allowance for doubtful accounts of $1,780 and $1,250		120,414			117,319
Expenditures billable to clients		31,152			7,838
Inventories		—			10,359
Prepaid expenses		4,682			4,401
Other current assets		630			356
Assets held for sale		28,849			—
Total Current Assets		190,319			153,196
Fixed assets, at cost, less accumulated depreciation of $52,196 and $71,220		43,403			63,528
Investment in affiliates		10,068			10,929
Goodwill		199,340			195,026
Other intangibles assets, net		50,130			57,139
Deferred tax asset		17,825			16,057
Other assets		10,173			11,440
Assets held for sale		12,249			—
Total Assets	$	533,507		$	507,315
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	4,218		$	3,739
Revolving credit facility		85,300			73,500
Accounts payable		69,686			63,452
Accruals and other liabilities		69,549			69,891
Advance billings		50,996			38,237
Current portion of long-term debt		1,532			2,571
Deferred acquisition consideration		—			1,741
Liabilities related to assets held for sale		16,221			—
Total Current Liabilities		297,502			253,131
Long-term debt		4,991			8,475
Convertible notes		40,261			38,694
Other liabilities		8,871			7,937
Deferred tax liabilities		2,346			2,446
Liabilities related to assets held for sale		3,352			—
Total Liabilities		357,323			310,683
Minority interests		46,335			44,484
Commitments, contingencies and guarantees (Note 12)
Shareholders’ Equity:
Preferred shares, unlimited authorized, none issued		—			—
Class A Shares, no par value, unlimited authorized, 24,191,113 and 23,437,615 shares issued in 2006 and 2005		183,851			178,589
Class B Shares, no par value, unlimited authorized, 2,502 shares issued in 2006 and 2005, each convertible into one Class A share		1			1
Share capital to be issued, 266,856 Class A shares in 2005		—			4,209
Additional paid-in capital		25,600			20,028
Accumulated deficit		(81,621	)		(53,075	)
Accumulated other comprehensive income		2,018			2,396
Total Shareholders’ Equity		129,849			152,148
Total Liabilities and Shareholders’ Equity	$	533,507		$	507,315

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.

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MDC PARTNERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(thousands of United States dollars)

	Nine Months Ended September 30,
	2006			2005 Revised Note 1
Cash flows from operating activities:
Net loss	$	(28,546	)	$	(6,402	)
Loss from discontinued operations		(20,190	)		(1,609	)
Loss from continuing operations		(8,356	)		(4,793	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities
Depreciation and amortization		18,595			16,675
Non-cash stock-based compensation		6,363			2,362
Amortization of deferred finance charges		1,598			911
Deferred income taxes		(3,342	)		(3,270	)
Earnings of non-consolidated affiliates		(630	)		(624	)
Minority interest and other		(194	)		(228	)
Changes in non-cash working capital:
Accounts receivable		(17,355	)		141
Expenditures billable to clients.		(23,334	)		703
Prepaid expenses and other current assets		(1,166	)		(1,483	)
Accounts payable, accruals and other liabilities		14,353			(14,674	)
Advance billings		17,059			(3,389	)
Cash flows from continuing operating activities		3,591			(7,669	)
Discontinued operations		2,073			2,335
Net cash provided by (used in) operating activities		5,664			(5,334	)
Cash flows from investing activities:
Capital expenditures		(18,791	)		(6,572	)
Acquisitions, net of cash acquired		(5,176	)		(56,446	)
Proceeds of dispositions		604			250
Distributions from non-consolidated affiliates		499			1,381
Discontinued operations		(1,641	)		(2,052	)
Net cash used in investing activities		(24,505	)		(63,439	)
Cash flows from financing activities:
Increase (decrease) in bank indebtedness		479			(4,526	)
Proceeds from issuance of long term debt		—			36,723
Proceeds from revolving credit facility		11,800			34,000
Repayment of long-term debt		(1,228	)		(3,900	)
Issuance of share capital		150			16
Subsidiary issuance of share capital		385			—
Deferred financing costs		—			(3,316	)
Discontinued operations		(702	)		(1,664	)
Net cash provided by financing activities		10,884			57,333
Effect of exchange rate changes on cash and cash equivalents		(374	)		186
Net decrease in cash and cash equivalents		(8,331	)		(11,254	)
Cash and cash equivalents at beginning of period		12,923			22,673
Cash and cash equivalents at end of period	$	4,592		$	11,419
Supplemental disclosures:
Cash income taxes paid	$	940		$	1,154
Cash interest paid	$	6,345		$	4,236
Non-cash transactions:
Share capital issued on acquisitions	$	4,459		$	14,493
Capital leases	$	915		$	998
Note receivable exchanged for shares in subsidiary	$	1,155		$	122

The accompanying notes to the unaudited condensed consolidated financial statements are an integral part of these statements.

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MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, unless otherwise stated)

1. Basis of Presentation 

MDC Partners Inc. (the “Company”) has prepared the unaudited condensed consolidated interim financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) of the United States of America (“US GAAP”) have been condensed or omitted pursuant to these rules.

The accompanying financial statements reflect all adjustments, consisting of normally recurring accruals, which in the opinion of management are necessary for a fair presentation, in all material respects, of the information contained therein. Results of operations for interim periods are not necessarily indicative of annual results.

These statements should be read in conjunction with the consolidated financial statements and related notes included in the annual report on Form 10-K for the year ended December 31, 2005.

As of the quarter ended December 31, 2005, the Company revised the 2005 statement of cash flows to separately disclose the operating, investing and financing portions of the cash flows attributable to its discontinued operations. Accordingly, the nine months ended September 30, 2005 statement of cash flows has been revised to conform to such presentation.

Effective June 30, 2006, the Company has classified the assets and liabilities of the Company’s Secure Paper Business and Secure Cards Business as held for sale and accordingly has classified the results of their operations as discontinued operations.

2.          Significant Accounting Policies

The Company’s significant accounting policies are summarized as follows:

Principles of Consolidation. The accompanying condensed consolidated financial statements include the accounts of MDC Partners Inc. and its domestic and international controlled subsidiaries that are not considered variable interest entities, and variable interest entities for which the Company is the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities including goodwill, intangible assets, valuation allowances for receivables and deferred tax assets, and the reporting of variable interest entities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The estimates are evaluated on an ongoing basis and estimates are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates.

7

Concentration of Credit Risk. The Company provides marketing communications services to clients who operate in most industry sectors. Credit is granted to qualified clients in the ordinary course of business. Due to the diversified nature of the Company’s client base, the Company does not believe that it is exposed to a concentration of credit risk as no client accounted for more than 10% of the Company’s consolidated accounts receivable at September 30, 2006; however, one client accounted for 14% of revenue for the nine months ended September 30, 2006. For the nine months ended September 30, 2005, no client accounted for more than 10% of revenue. As of December 31, 2005, no client accounted for more than 10% of accounts receivable.

Cash and Cash Equivalents. The Company’s cash equivalents are primarily comprised of investments in overnight interest-bearing deposits, commercial paper and money market instruments and other short-term investments with original maturity dates of six months or less at the time of purchase. Included in cash and cash equivalents at September 30, 2006 and December 31, 2005, is approximately $100 and $1,300, respectively, of cash restricted to withdrawal.

Stock-Based Compensation. Effective January 1, 2003, the Company prospectively adopted fair value accounting for stock-based awards as prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Prior to January 1, 2003, the Company elected not to apply fair value accounting to stock-based awards to employees, other than for direct awards of stock and awards settleable in cash, which required fair value accounting. Prior to January 1, 2003, for awards not elected to be accounted for under the fair value method, the Company accounted for stock-based awards in accordance with Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” (“APB 25”). APB 25 is based upon an intrinsic value method of accounting for stock-based awards. Under this method, compensation cost is measured as the excess, if any, of the quoted market price of the stock issuance at the measurement date over the amount to be paid by the employee.

The Company adopted fair value accounting for stock-based awards using the prospective application transitional alternative available in SFAS 148 “Accounting for Stock-Based Compensation—Transition and Disclosure”. Accordingly, the fair value method is applied to all awards granted, modified or settled on or after January 1, 2003. Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed over the service period, that is the award’s vesting period. When awards are exercised, share capital is credited by the sum of the consideration paid together with the related portion previously credited to additional paid-in capital when compensation costs were charged against income or acquisition consideration.

Stock-based awards that are settled in cash or may be settled in cash at the option of employees are recorded as liabilities. The measurement of the liability and compensation cost for these awards is based on the intrinsic value of the award, and is recorded as a charge to operating income over the service period, that is the vesting period of the award in accordance with FASB Interpretation Number 28- “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans—an interpretation of APB Opinions No. 15 and 25” (“FIN 28”). Changes in the Company’s payment obligation subsequent to vesting of the award and prior to the settlement date are recorded as compensation cost in operating income in the period of the change. The final payment amount for such awards is established on the date of the exercise of the award by the employee.

Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair value on the date of grant and recorded as additional paid-in capital. The fair value measurement of the compensation cost for these awards is based on the Black-Scholes option pricing model and is recorded as a charge to operating income over the service period, that is the vesting period of the award.

8

Effective January 1, 2006, the Company adopted FAS 123(R) and has opted to use the modified prospective application transition method. Under this method the Company will not restate its prior financial statements. Instead, the Company will apply FAS 123(R) for new awards granted after the adoption of FAS 123(R), any portion of awards that were granted after December 15, 1994 and have not vested as of January 1, 2006, and any outstanding liability awards.

Measurement of compensation cost for awards that are outstanding and classified as equity, at January 1, 2006, will be based on the original grant-date fair value calculations of those awards. The Company had previously adopted FAS 123 and as such has been expensing the fair value of all awards issued after January 1, 2003. For all previously issued awards, the Company has been providing pro-forma disclosure for such awards. Upon the adoption of FAS 123(R), the Company expenses the fair value of the awards granted prior to January 1, 2003. The Company has adopted the straight-line attribution method for determining the compensation cost to be recorded during each accounting period. The adoption of FAS 123(R) did not have a material effect on the Company’s financial position or results of operations.

The table below summarizes what the quarterly pro forma effect for the three and nine months ended September 30, 2005, would have been had the Company adopted the fair value method of accounting for stock options and similar instruments for awards issued prior to 2003 and prior to the adoption of FAS 123(R):

	Three Months Ended September 30, 2005		Nine Months Ended September 30, 2005
Net loss as reported	$	(1,655)	$	(6,402)
Fair value costs, net of income tax, of stock-based employee compensation for options issued prior to 2003		161		522
Net loss pro forma	$	(1,816)	$	(6,924)
Basic net loss per share, as reported	$	(0.07)	$	(0.28)
Basic net loss per share, pro forma	$	(0.08)	$	(0.30)
Diluted net loss per share, as reported	$	(0.07)	$	(0.28)
Diluted net loss per share, pro forma	$	(0.08)	$	(0.30)

The fair value of the stock options and similar awards at the grant date were estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for the following period:

	Nine Months Ended September 30, 2006			Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
Expected dividend		0.00	%		0.00	%		0.00	%
Expected volatility		40	%		40	%		40	%
Risk-free interest rate		4.95	%		2.9	%		2.9	%
Expected option life in years		5-7			3			3
Weighted average stock option fair value per option granted		$ 4.74			$3.09			$3.67

On February 28, 2006, the Company issued 247,500 Class A shares of financial performance-based restricted stock, and 475,000 financial performance-based restricted stock units to its employees under the 2005 Stock Incentive Plan. The Class A shares underlying each grant of restricted stock or restricted stock units will vest upon achievement by the Company of specified financial performance criteria in 2006, 2007 and 2008. Based on the Company’s expected financial performance in 2006, the Company currently believes that 50% of the financial performance-based awards to employees will vest on March 15, 2007. Accordingly, the Company is recording a non-cash stock based compensation charge of $3,089 from the date of grant through March 15, 2007.

On March 6, 2006, the Company issued 16,000 Class A shares of restricted stock and 8,000 restricted stock units to its non-employee Directors under the 2005 Stock Incentive Plan. These awards to non-employee Directors vest on the third anniversary of the grant date. Accordingly, the Company is recording a $205 non-cash compensation charge over the three year vesting period.

9

On April 28, 2006, the Company issued 50,000 restricted stock units to an employee; 15,000 of these units will vest based upon the achievement by the Company of specified financial criteria in 2006, 2007 and 2008. The remaining 35,000 of these units will vest on the third anniversary of the grant date. Accordingly, the Company is recording a $380 non-cash compensation charge over the three-year vesting period. In addition, the Company issued 10,000 Stock Appreciation Rights to the same employee. The Company also issued 125,000 options to certain non-employee Directors.

For the three and nine months ended September 30, 2006, the Company has recorded a charge of $804 and $1,845, respectively relating to the first quarter of 2006 restricted stock and restricted stock unit grants. The value of the awards was determined based on the fair market value of the underlying stock on the date of grant. The first quarter of 2006 restricted stock granted to employees and non-employee Directors totaling 263,500 Class A shares are included in the Company’s calculation of Class A shares outstanding as of September 30, 2006.

Derivative Financial Instruments. The Company follows SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No.133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts and debt instruments) be recorded in the balance sheet as either an asset or liability measured at its fair value. The accounting for the change in fair value of the derivative depends on whether the instrument qualifies for and has been designated as a hedging relationship and on the type of hedging relationship. There are three types of hedging relationships: a cash flow hedge, a fair value hedge and a hedge of foreign currency exposure of a net investment in a foreign operation. The designation is based upon the exposure being hedged. Derivatives that are not hedges, or become ineffective hedges, must be adjusted to fair value through earnings.

Effective June 28, 2005, the Company entered into a cross currency swap contract (“Swap”), a form of derivative. The Swap contract provides for a notional amount of debt fixed at $45,000 Canadian dollars (“C$”) and at $36,452, with the interest rates fixed at 8% per annum for the Canadian dollar amount and fixed at 8.25% per annum for the US dollar amount. Consequently, under the terms of this Swap, semi-annually, the Company will receive interest of C$1,800 and will pay interest of $1,503 per annum. At December 31, 2005, the Swap fair value was estimated to be a receivable of $165 and is reflected in other assets on the Company’s balance sheet with the change in the value of the swap reflected in interest expense. On June 22, 2006, the Company settled this swap for its fair value of $357, which resulted in a gain of $192 for the nine months ended September 30, 2006 and is included in other income.

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3.      Loss Per Common Share

The following table sets forth the computation of basic and diluted loss per common share from continuing operations.

	Three Months Ended September 30,				Nine Months Ended September 30
	2006		2005		2006		2005
Numerator
Numerator for basic loss per common share - loss from continuing operations	$	(3,137)	$	(2,315)	$	(8,356)	$	($4,793)
Effect of dilutive securities:
Interest expense on convertible debentures, net of taxes of nil		—		—		—		—
Numerator for diluted loss per common share - loss from continuing operations plus assumed conversion	$	(3,137)	$	(2,315)	$	(8,356)	$	(4,793)
Denominator
Denominator for basic loss per common share - weighted average common shares		23,911,327		23,710,572		23,849,571		23,151,825
Effect of dilutive securities:
8% convertible debentures		—		—		—		—
Employee stock options, warrants, and stock appreciation rights		—				—		—
Dilutive potential common shares
Denominator for diluted loss per common share - adjusted weighted shares and assumed conversions		23,911,327		23,710,572		23,849,571		23,151,825
Basic loss per common share from continuing operations	$	(0.13)	$	(0.10)	$	(0.35)	$	(0.21)
Diluted loss per common share from continuing operations	$	(0.13)	$	(0.10)	$	(0.35)	$	(0.21)

The 8% convertible debentures, options and other rights to purchase 8,492,018 shares of common stock, which includes 263,500 shares of non-vested restricted stock, were outstanding during the three and nine months ended September 30, 2006, but were not included in the computation of diluted loss per common share because their effect would be antidilutive. Similarly, during the three and nine months ended September 30, 2005, the 8% convertible debentures, options and other rights to purchase 8,102,679 and 5,983,369 shares, respectively of common stock were outstanding but were not included in the computation of diluted loss per common share because either the exercise prices were greater than the average market price of the common shares and/or their effect would be antidilutive.

4.      Acquisitions

2006 Acquisitions

The Company is negotiating with the minority holders of Northstar Research Partners Inc. (“Northstar”), to purchase an additional 20% interest in Northstar for C$4 million ($3.6 million at September 30, 2006). This transaction is expected to close during the fourth quarter of 2006.

On July 27, 2006, the Company settled a put option obligation for a fixed amount equal to $1,492, relating to the purchase of 4.3% of additional equity interests of Accent Marketing, LLC. The settlement of this put was satisfied by a cash payment of $424, plus the cancellation of an outstanding promissory note to the Company in a principal amount equal to $1,068. The purchase price was allocated as follows: $403 to identified intangibles, amortized over eight years and the balance of $1,089 as additional goodwill. The goodwill and intangibles are not deductible for tax purposes. Including this transaction, the Company now owns 93.7% of Accent Marketing, LLC.

On February 7, 2006, the Company purchased the remaining outstanding membership interests of 12.33% of Source Marketing LLC (“Source”) pursuant to an exercise of a put option notice delivered in October 2005. The purchase price of $2,287 consisted of cash of $1,830 and the delivery of 1,063,516 shares of LifeMed Media Inc. (“LifeMed”) valued at $457. The Company’s carrying value of these LifeMed shares was $27, thus the Company recorded a gain on the disposition of these shares of $430, which has been included in other income.

11

On February 15, 2006, Source issued 15% of its membership interests to certain members of management. The purchase price for these membership interests was $1,540, which consisted of $385 cash and recourse notes in an aggregate principal amount equal to $1,155. In addition, the purchaser also received a fully vested option to purchase an additional 5% of Source at an exercise price equal to the price paid above. The option is exercisable any time prior to December 31, 2010. An amended and restated LLC agreement was entered into with these new members. The agreement also provides these members with an option to put to the Company these membership interests from December 2008-2012. As a result of the above transactions, the Company now owns 85% of Source. During the quarter ended March 31, 2006, the Company recorded a non-cash stock based compensation charge of $2,338 relating to the price paid for the membership interests which was less than the fair value of such membership interests and the fair value of the option granted.

2005 Acquisitions

Zyman Group

On April 1, 2005, the Company, through a wholly owned subsidiary, purchased approximately 61.6% of the total outstanding membership units of Zyman Group, LLC (“Zyman Group”) for purchase price consideration of $52,389 in cash and 1,139,975 Class A shares of the Company, valued at $11,257 based on the share price on or about the announcement date. Related transaction costs of approximately $976 were also incurred. In addition, the Company may be required to pay up to an additional $12,000 to the sellers if Zyman Group achieves specified financial targets for the twelve month periods ending June 30, 2006 and/or June 30, 2007. For the period ending September 30, 2006, such financial targets were not achieved.

In connection with the Zyman Group acquisition, the Company, Zyman Group and the other unitholders of Zyman Group entered into a new Limited Liability Company Agreement (the “LLC Agreement”). The LLC Agreement sets forth certain economic, governance and liquidity rights with respect to Zyman Group. Zyman Group has seven managers, four of whom were appointed by the Company. Pursuant to the LLC Agreement, the Company will have the right to purchase, and may have an obligation to purchase, for a combination of cash and shares, additional membership units of Zyman Group from the other members of Zyman Group, in each case, upon the occurrence of certain events or during certain specified time periods.

The Zyman Group name is well recognized for strategic marketing consulting and as such was acquired by the Company for its assembled workforce to enhance the creative talent within the Company’s Strategic Marketing Service segment of businesses.

The Zyman Group acquisition was accounted for as a purchase business combination. The purchase price of the net assets acquired in this transaction is $64,622. The final allocation of the cost of the acquisition to the fair value of net assets acquired and minority interests is as follows:

Cash and cash equivalents	$	5,653
Accounts receivable and other current assets		6,734
Fixed assets and other assets		7,785
Goodwill (tax deductible)		45,349
Intangible assets		20,143
Accounts payable, accrued expenses and other liabilities		(7,475	)
Total debt		(8,524	)
Minority interest at carrying value		(5,043	)
Total cost of the acquisition	$	64,622

Identifiable intangible assets of $20,143 are comprised primarily of customer relationships and related backlog and trademarks. The allocation of the purchase price to assets acquired and liabilities assumed is based upon estimates of fair values and certain assumptions that the Company believes are reasonable under the circumstances. The Company’s consolidated financial statements include Zyman Group’s results of operations subsequent to its acquisition on April 1, 2005.

During the first five years following MDC’s acquisition of the Zyman Group, MDC’s allocation of profits of the Zyman Group may differ from its proportionate share of ownership. On an annual basis, the Company receives a 20% priority return calculated based on its total investment in Zyman Group. Thereafter, based on calculations set forth in the operating agreement of Zyman Group (the “LLC Agreement”), the Company’s share of remaining Zyman Group profits in excess of the annual “threshold” amount of $20,600 may be disproportionately less than its equity ownership in Zyman Group. Specifically, on an annual basis, if Zyman operating results exceed a defined operating margin, the Company would be entitled to 25% of the excess margins in the first two years of the LLC Agreement and 30% of the excess margins in the following three years of the LLC Agreement, rather than the Company’s equity portion of 61.6%. After the first five years, the earnings of the Zyman Group will be allocated in a proportion equal to the respective equity interests of the members.

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Based on the Company’s investment in the Zyman Group, at September 30, 2006, the annual priority return is expected to be equal to approximately $12,700, with the minority owners receiving the next $7,900 up to the threshold amount. If profits are insufficient to meet the Company’s priority return during any of the first five years, the Company will receive a catch-up payment through year five equal to any shortfall from the prior year(s). Furthermore, if profits do not reach the threshold amount during the first five years, the minority owners will be entitled to receive a catch-up payment through year five equal to any shortfall from the prior year(s). Based on Zyman Group’s expected results for 2006, the Company expects to receive less than the full amount of its priority return from Zyman Group in 2006.

Neuwirth

On December 1, 2005, the Company, through its subsidiary Northstar Research Partners (USA) LLC (“NS LLC”), purchased the business of Neuwirth Research, Inc. (“Neuwirth”) for purchase price consideration of $450 in cash, a 20% equity interest in NS LLC valued at $225 based on the estimated market value of NS LLC on or about the announcement date, and 48,391 MDC Class A shares valued at $300. Related transaction costs of approximately $100 were also incurred. In addition, the Company was required to pay up to an additional $625 in cash to the seller if the acquired Neuwirth business achieves specified financial targets for the year ended December 31, 2005 and/or December 31, 2006. As of March 31, 2006, the Company determined that these targets were achieved and, accordingly, the $625 payment obligation was settled by the Company’s issuance of 30,058 Class A shares MDC stock valued at $250 and cash of $375.

In connection with the Neuwirth acquisition, the Company and seller entered into agreements related to governance and certain put option rights with respect to the seller’s 20% equity interest in NS LLC which becomes 50% exercisable in 2010 and 100% exercisable in 2015.

Neuwirth is a recognized market research firm and was acquired by the Company for its list of blue chip clients and synergies with NS LLC existing business. This acquisition is part of the Specialized Communications Services segment of businesses.

The Neuwirth acquisition was accounted for as a purchase business combination. The allocation of the cost of the acquisition to the fair value of net assets acquired is as follows:

Accounts receivable and other current assets	$	492
Fixed assets and other assets		50
Intangible assets		1,680
Accounts payable, accrued expenses and other liabilities		(522	)
Total cost of the acquisition	$	1,700

Identifiable intangible assets, consisting of an employment agreement, estimated to be $1,680, is being amortized on a straight-line basis over ten years. The allocation of the purchase price to assets acquired and liabilities assumed is based upon estimates of fair values and certain assumptions that the Company believes are reasonable under the circumstances. The Company’s consolidated financial statements include Neuwirth’s results of operations subsequent to its acquisition on December 1, 2005.

Powell

On July 25, 2005, the Company, through its subsidiary Margeotes Fertitta Powell, LLC, (“MFP”) purchased the business of Powell, LLC (“Powell”) for purchase price consideration of $332 in cash and a 5% equity interest in MFP valued at $400 based on the estimated market value of MFP on or about the announcement date. The issuance of equity interests by MFP resulted in a loss of $103 on the dilution of the Company’s equity interest in its subsidiary. Related transaction costs of approximately $20 were also incurred. In addition, in August 2006, the Company paid an additional $300 in cash to the seller.

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In connection with the Powell acquisition, the Company and seller entered into agreements related to governance and certain put option rights with respect to seller’s 5% equity interest in MFP, which become exercisable in 2010.

Powell is a well recognized, highly creative advertising agency and as such was acquired by the Company for its creative talent to supplement existing creative agencies within the Company’s Strategic Marketing Services segment of businesses.

The Powell acquisition was accounted for as a purchase business combination. The allocation of the cost of the acquisition to the fair value of net assets acquired is as follows:

Accounts receivable and other current assets	$	32
Fixed assets and other assets		31
Intangible assets		1,130
Accounts payable, accrued expenses and other liabilities		(141	)
Total cost of the acquisition	$	1,052

Identifiable intangible assets, consisting of an employment agreement, estimated to be $1,130, is being amortized on a straight-line basis over five years. The allocation of the purchase price to assets acquired and liabilities assumed is based upon estimates of fair values and certain assumptions that the Company believes are reasonable under the circumstances. The Company’s consolidated financial statements include Powell’s results of operations subsequent to its acquisition on July 25, 2005.

Other Acquisitions and Transactions

On July 31, 2005, the Company acquired a further 20% equity interest in its existing subsidiary MFP pursuant to the exercise of a put obligation under the existing purchase agreement with a minority interest holder. The purchase price of $1,740 which includes $15 of acquisition costs was paid in cash. Of the purchase price, $500 was allocated to customer relationship intangible assets and $1,240 was allocated to goodwill. The allocation of the purchase price to assets acquired and liabilities assumed is based upon certain assumptions that the Company believes are reasonable under the circumstances. As a result of this acquisition, and the Powell transaction discussed above, the Company retains a 95% equity interest in MFP.

On September 1, 2005, the Company, through a consolidated variable interest entity, Crispin Porter + Bogusky, LLC (“CPB”), purchased 20% of the total outstanding membership units of Fuseproject, LLC (“Fuseproject”) for purchase price consideration of $750 in cash and an additional $400, which was paid during the quarter ended March 31, 2006. Fuseproject is a design firm acquired by CPB to complement its creative offerings. The Fuseproject acquisition was accounted for using the equity method as CPB has significant influence over the operations of Fuseproject. The purchase price of the net assets acquired in this transaction is $1,150. The allocation of the cost of the acquisition to the fair value of the net assets acquired resulted in a portion being attributed to intangible assets valued at $40 and $1,090 consisting of goodwill. The allocation of the purchase price to assets acquired and liabilities assumed is based upon estimates of fair values and certain assumptions that the Company believes are reasonable under the circumstances. The Company’s consolidated financial statements include Fuseproject’s results of operations in equity in earnings of non-consolidated affiliates subsequent to its acquisition on September 1, 2005.

During August 2005, Bryan Mills Group Ltd., (“BMG”) a subsidiary whose operations are consolidated by the Company, completed the acquisition of 450 shares from a minority shareholder at a price of $515.00 per share, for a total purchase price of $232. This resulted in the Company’s ownership interest in BMG increasing to 71.2% from 68.0%. Also as a result of the equity transaction by BMG, the Company recorded goodwill of $146.

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During the quarter ended March 31, 2005, the Company contributed $125 of cash as additional paid in capital to its existing consolidated subsidiary, Banjo Strategies Entertainment LLC. There was no change in the Company’s ownership interest. This resulted in a loss on dilution of $61 and is reflected in the Company’s consolidated statement of operations. During the quarter ended June 30, 2005, the Company acquired further equity interests in the existing consolidated subsidiaries of Allard Johnson Communications Inc. (0.3%) and Banjo Strategies Entertainment LLC (7.2%). In aggregate, the Company paid $143 in cash for these incremental ownership interests. During the quarter ended September 30, 2005, the Company acquired a further 0.7% equity interest in the existing consolidated subsidiary, Allard Johnson Communications Inc., for $148.

Pro forma Information

The following unaudited pro forma results of operations of the Company for the nine months ended September 30, 2005 assume that the acquisition of the operating assets of the significant businesses acquired during 2005 had occurred on January 1 of the respective year in which the business was acquired. These unaudited pro forma results are not necessarily indicative of either the actual results of operations that would have been achieved had the companies been combined during this period, or are they necessarily indicative of future results of operations.

	Nine Months Ended September 30, 2005
Revenues	$	275,428
Net loss	$	(3,253)
Loss per common share:
Basic - net loss	$	(0.14)
Diluted - net loss	$	(0.14)

5.      Inventory

The components of inventory are listed below:

	December 31, 2005
Raw materials and supplies	$	4,860
Work-in-process		5,499
Total	$	10,359

6.      DiscontinuedOperations

In June 2006, the Company’s Board of Directors made the decision to sell or otherwise divest the Company’s Secure Paper Business and Secure Card Business (collectively, “SPI”). Since that date, the Company has engaged in active negotiations for the sale of the SPI Group. (See Note 14.)

Based on these events, management has concluded that the criteria for the assets/liabilities of SPI to be accounted for as assets/liabilities held for sale and the results of operations to be accounted for as discontinued operations have been met. Discontinued operations relating to SPI for the three months ended September 30, 2006 and 2005 amounted to net losses of $9,772 and $210, respectively. For the nine months ended September 30, 2006 and 2005, discontinued operations relating to SPI amounted to net losses of $20,190 and $2,177, respectively. Based on the current estimated proceeds from a sale, the Company recorded an impairment charge totaling approximately $19,498 during the nine months ended September 30, 2006. Based on the estimated net proceeds and average borrowing rate for each period, the Company has allocated interest expense to discontinued operations of $1,139 and $886 for the nine months ended September 30, 2006 and 2005.

During July 2005, LifeMed, a variable interest entity whose operations had been consolidated by the Company, completed a private placement issuing approximately 12.5 million shares at a price of $0.4973 per share. LifeMed received net proceeds of approximately $6,200. Consequently, the Company’s ownership interest in LifeMed was reduced to 18.3%, and of LifeMed, the Company recorded a gain of $1,300. This gain represents the Company’s reversal of a liability related to funding obligations that the Company is no longer obligated to fund. The Company no longer has any significant continuing involvement in the management or operations of LifeMed, and has not participated in the purchase of significant new equity offerings of LifeMed. Consequently, as of July 2005, the Company no longer consolidated the operations of LifeMed, commenced accounting for its remaining investment in LifeMed on a cost basis, and has reported the results of operations of LifeMed as discontinued operations for all periods presented. In February 2006, the Company sold 27% of its remaining ownership in LifeMed as partial settlement of a put option (see Note 4). As of September 30, 2006, the Company holds a 13.4% interest in LifeMed. As of September 30, 2006 and December 31, 2005, other assets include $73 and $100, respectively of the Company’s net investment in LifeMed. 

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In November 2004, the Company’s management reached a decision to discontinue the operations of a component of its business. This component is comprised of the Company’s UK based marketing communications business, a wholly owned subsidiary named Mr. Smith Agency, Ltd. (“Mr. Smith”, formerly known as Interfocus Networks Limited). The Company decided to dispose of the operations of this business due to its unfavorable economics. Substantially all of the net assets of the discontinued business were sold during the fourth quarter of 2004 with the disposition of all activities of Mr. Smith and remaining sale of assets was substantially complete by the end of the first quarter of 2005. No significant one-time termination benefits were incurred or are expected to be incurred. No further significant other charges are expected to be incurred.

For the three and nine months ended September 30, 2005, discontinued operations relating to LifeMed and Mr. Smith amounted to net income of $870 and $568, respectively.

Included in discontinued operations in the Company’s consolidated statement of operations for the three and nine months ended September 30, 2006 and 2005 were the following:  

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Revenue	$	20,860		$	21,920		$	56,799		$	58,178
Depreciation, amortization and impairment charge	$	11,607		$	1,063		$	21,799		$	3,199
Operating income (loss)	$	(9,268	)	$	1,163		$	(18,008	)	$	(1,906	)
Other expense	$	(138	)	$	459		$	(2,068	)	$	(320	)
Income tax (expense) recovery	$	(366	)	$	(962	)	$	(114	)	$	357
Minority interest recovery	$	—		$	—		$	—		$	260
Net income (loss) from discontinued operations	$	(9,772	)	$	660		$	(20,190	)	$	(1,609	)

As of September 30, 2006, the carrying value on the Company’s balance sheet of the assets and liabilities to be disposed were as follows:

	September 30,
	2006
Assets held for sale:
Accounts receivable	$	15,791
Inventories		11,502
Other current assets		1,556
Fixed assets		10,281
Other long-term assets		1,968
Total assets	$	41,098
Liabilities related to assets held for sale:
Accounts payable and other current liabilities	$	9,861
Advance billings		5,444
Other		4,268
Total liabilities	$	19,573

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7.      Comprehensive Loss

Total comprehensive loss and its components were:  

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Net loss for the period	$	(12,909	)	$	(1,655	)	$	(28,546	)	$	(6,402	)
Foreign currency cumulative translation adjustment	$	(2,241	)	$	1,399		$	(159	)	$	(607	)
Comprehensive loss for the period	$	(15,150	)	$	(256	)	$	(28,705	)	$	(7,009	)

8.      Short-Term Debt, Long-Term Debt and Convertible Debentures

Debt consists of:

	September 30, 2006		December 31, 2005
Short-term debt	$	4,218	$	3,739
Revolving credit facility		85,300		73,500
8% convertible debentures		40,261		38,694
Notes payable and other bank loans		5,250		5,650
Obligations under capital leases		1,273		5,396
		136,302		126,979
Less:
Revolving credit facility		85,300		73,500
Short-term debt		4,218		3,739
Current portions		1,532		2,571
	$	45,252	$	47,169

Short-term debt represents the swing line under the revolving credit facility and outstanding checks at the end of the reporting periods.

MDC Revolving Credit Facility

MDC Partners Inc. and certain of its wholly-owned subsidiaries entered into a revolving credit facility with a syndicate of banks, which as of September 30, 2006, provides for borrowings of up to $100 million (including swing-line advances of up to $10 million) maturing in September 2007 (the “Credit Facility”). This facility bears interest at variable rates based upon the Eurodollar rate, US bank prime rate, US base rate, and Canadian bank prime rate, at the Company’s option. Based on the level of debt relative to certain operating results, the interest rates on loans are calculated by adding between 200 and 325 basis points on Eurodollar and Bankers Acceptance based interest rate loans, and between 50 and 175 basis points on all other loan interest rates. The provisions of the facility contain various covenants pertaining to a minimum ratio of debt to net income before interest, income taxes, depreciation and amortization (“EBITDA”), a maximum debt to capitalization ratio, the maintenance of certain liquidity levels and minimum shareholders’ equity levels. The facility restricts, among other things, the levels of capital expenditures, investments, distributions, dispositions and incurrence of other debt. Effective April 15, 2006, a 1.0% per annum facility fee is charged on the amount of the revolving commitments under the Credit Facility in excess of $65,000, which fee became payable beginning on April 15, 2006 and for so long as the revolving commitments under the Credit Facility are in excess of $65,000. The facility is secured by a senior pledge of the Company’s assets principally comprised of ownership interests in its subsidiaries and by the underlying assets of the businesses comprising the Company’s Secure Products International Group (“SPI”) and by a substantial portion of the underlying assets of the businesses comprising the Company’s Marketing Communications Group, the underlying assets being carried at a value represented by the total assets reflected on the Company’s consolidated balance sheet at September 30, 2006.

On November 3, 2006, the Company further amended its Credit Facility. Pursuant to such amendment, among other things, the lenders (i) amended the “net worth” financial covenant to include an addition for any losses on sale or non-cash impairment charges recorded in connection with the disposition of the Secure Products International (“SPI”) business; (ii) reduced the commitment reduction requirement based upon net cash proceeds received from the sale of SPI in excess of $12.5 million; and (iii) modified the Company's “total debt ratio” covenant.

Upon the closing of the sale of SPI, the Company will repay advances under the Credit Facility by an amount equal to the net cash proceeds received by the Company. At September 30, 2006, the unused portion of the total facility was $6,594.

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The Company has classified the swing-line component of this revolving credit facility as a current liability in accordance with EITF 95-22, “Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that include both a Subjective Acceleration Clause and a Lock-Box Agreement”. This component, reflected as short term debt on the balance sheet, is classified as a current liability in accordance with EITF 95-22 since the swing-line contains a lock box arrangement that requires the cash receipts of the Company to be used to repay amounts outstanding under the swing-line and the entire credit facility is subject to subjective acceleration clauses. Management believes that no conditions have occurred that would result in subjective acceleration by the lenders, nor do they believe that any such conditions will exist over the next twelve months. The weighted average interest rate on these current portions of debt was 8.4% and 6.7% as of September 30, 2006 and December 31, 2005, respectively.

The Company is currently in compliance with all of the terms and conditions of its amended Credit Facility and management believes that, based on its current financial projections, the Company will be in compliance with its financial covenants over the next twelve months.

As of September 30, 2006 and December 31, 2005, $2,809 and $4,035 of the consolidated cash position is held by subsidiaries, which, although available for the subsidiaries’ use, does not represent cash that is available for use to reduce MDC Partners Inc. indebtedness.

8% Convertible Unsecured Subordinated Debentures

On June 28, 2005, the Company completed an offering in Canada of convertible unsecured subordinated debentures amounting to C$45,000 ($36,723) (the “Debentures”). The Debentures mature on June 30, 2010 and bear interest at an annual rate of 8.00% payable semi-annually, in arrears, on June 30 and December 31 of each year. The Company did not have an effective resale registration statement filed with the SEC on December 31, 2005, and as a result the rate of interest increased by an additional 0.50% for the first six month period following December 31, 2005. As of April 19, 2006, the Company had an effective resale registration statement and as a result the interest rate returned to 8.0% effective July 1, 2006. Unless an event of default has occurred and is continuing, the Company may elect, from time to time, subject to applicable regulatory approval, to issue and deliver Class A subordinate voting shares to the Debenture trustee in order to raise funds to satisfy all or any part of the Company’s obligations to pay interest on the Debentures in accordance with the indenture in which holders of the Debentures will be entitled to receive a cash payment equal to the interest payable from the proceeds of the sale of such Class A subordinate voting shares by the Debenture trustee.

The Debentures are convertible at the holder’s option into fully-paid, non-assessable and freely tradable Class A subordinate voting shares of the Company, at any time prior to maturity or redemption, subject to the restrictions on transfer, at a conversion price of C$14.00 ($12.53 as of September 30, 2006) per Class A subordinate voting share being a ratio of approximately 71.4286 Class A subordinate voting shares per C$1,000.00 ($895 as of September 30, 2006) principal amount of Debentures.

The Debentures may not be redeemed by the Company on or before June 30, 2008. Thereafter, but prior to June 30, 2009, the Debentures may be redeemed, in whole or in part from time to time, at a price equal to the principal amount of the Debenture plus accrued and unpaid interest, provided that the volume weighted average trading price of the Class A subordinate voting shares on the Toronto Stock Exchange during a specified period is not less than 125% of the conversion price. From July 1, 2009 until the maturity of the Debentures, the Debentures may be redeemed by the Company at a price equal to the principal amount of the Debenture plus accrued and unpaid interest, if any. The Company may elect to satisfy the redemption consideration, in whole or in part, by issuing Class A subordinate voting shares of the Company to the holders, the number of which will be determined by dividing the principal amount of the Debenture by 95% of the current market price of the Class A subordinate voting shares on the redemption date. Upon the occurrence of a change of control of the Company involving the acquisition of voting control or direction over 50% or more of the outstanding Class A subordinate voting shares prior to June 30, 2008, the Company shall be required to make an offer to purchase all of the then outstanding Debentures at a price equal to 100% of the principal amount thereof plus an amount equal to the interest payments not yet received on the Debentures calculated from the date of the change of control to June 30, 2008, discounted at a specified rate. Upon the occurrence of a change of control on or after June 30, 2008, the Company shall be required to make an offer to purchase all of the then outstanding Debentures at a price equal to 100% of the principal amount of the Debentures plus accrued and unpaid interest to the purchase date.

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Notes Payable

In connection with the Zyman acquisition, the Company assumed a note payable in the original amount of $6,275. The note bears interest of 5.73% and is due on June 8, 2009. The balance of the note payable was $5,227 and $5,589 at June 30, 2006 and December 31, 2005, respectively. The note agreement is secured by an aircraft and related equipment with a net book value of $4,455 at September 30, 2006.

9.      Shareholders’ Equity

During the nine months ended September 30, 2006 Class A share capital increased by $5,262, as the Company (i) issued 30,058 Class A shares in connection with deferred acquisition consideration, (ii) issued 266,856 Class A shares previously identified to be issued and (iii) 144,693 Class A shares related to the exercise of stock options, vested restricted stock, and stock appreciation right awards. During the nine months ended September 30, 2006 “Additional paid-in capital” increased by $5,572, of which $6,411 related to stock-based compensation that was expensed during the same period, of which $48 is included in equity in earnings of non consolidated affiliates, offset by $653 related to the exercise of stock appreciation right awards and $186 related to the resolution of a contingency based on the Company’s share price relating to a previous acquisition.

10.      Other Income (Expense) 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Other Income	$	98	$	—	$	417	$	37
Foreign currency transaction losses		(400)		(200)		(99)		(10)
Gain (loss) on sale/recovery of assets		927		(195)		1,379		589
	$	625	$	(395)	$	1,697	$	616

11.      Segmented Information

The Company currently reports in five segments. They are as follows:

· The Strategic Marketing Services (“SMS”) segment includes Crispin Porter & Bogusky, kirshenbaum bond + partners, Zyman Group LLC among others. This segment consists of integrated marketing consulting services firms that offer a full complement of marketing consulting services including advertising and media, marketing communications including direct marketing, public relations, corporate communications, market research, corporate identity and branding, interactive marketing and sales promotion. Each of the entities within SMS share similar economic characteristics, specifically related to the nature of their respective services, the manner in which the services are provided and the similarity of their respective customers. Due to the similarities in these businesses, they exhibit similar long term financial performance and have been aggregated together.

· The Customer Relationship Management (“CRM”) segment provides marketing services that interface directly with the consumer of a client’s product or service. These services include the design, development and implementation of a complete customer service and direct marketing initiative intended to acquire, retain and develop a client’s customer base. This is accomplished using several domestic and foreign-based customer contact facilities.

· The Specialized Communications Services (“SCS”) segment includes all of the Company’s other marketing services firms that are normally engaged to provide a single or a few specific marketing services to regional, national and global clients. These firms provide niche solutions by providing world class expertise in select marketing services.

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The Company’s two other segments were the Secure Cards Business and Secure Paper Business segments. In connection with a proposed sale of SPI, the Company has included results of those segments in discontinued operations. See Note 6.

The significant accounting polices of these segments are the same as those described in the summary of significant accounting policies included in the notes to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2005, except as where indicated.

The SCS segment is an “Other” segment pursuant SFAS 131 “Disclosures about Segments of an Enterprise and Related Information”.

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Summary financial information concerning the Company’s operating segments is shown in the following tables:

Three Months Ended September 30, 2006

	Strategic Marketing Services		Customer Relationship Management		Specialized Communications Services		Corporate		Total
Revenue	$	61,682	$	20,934	$	18,506	$		$	101,122
Cost of services sold		28,963		15,147		13,040				57,150
Office and general expenses		23,554		4,549		3,602		4,961		36,666
Depreciation and amortization		5,102		1,240		292		62		6,696
Operating Profit/(Loss)		4,063		(2)		1,572		(5,023)		610
Other Income (Expense):
Other income										625
Interest expense, net										(3,533)
Loss from continuing operations before income taxes, equity in affiliates and minority interests										(2,298)
Income tax recovery										812
Loss from continuing operations before equity in affiliates and minority interests										(1,486)
Equity in earnings of non-consolidated affiliates										129
Minority interests in income of consolidated subsidiaries		(1,322)		11		(469)				(1,780)
Loss from continuing operations										(3,137)
Loss from discontinued operations										(9,772)
Net Loss									$	(12,909)
Non cash stock based compensation	$	128	$	6	$	—	$	1,515	$	1,649
Supplemental Segment Information:
Capital expenditures	$	1,897	$	5,307	$	212	$	78	$	7,494
Goodwill and intangibles	$	193,731	$	25,840	$	29,899	$	—	$	249,470
Total assets	$	340,455	$	56,916	$	80,355	$	55,781	$	533,507

21

Three Months Ended September 30, 2005

	Strategic Marketing Services		Customer Relationship Management		Specialized Communications Services		Corporate		Total
Revenue	$	59,699	$	16,645	$	20,633	$	—	$	96,977
Cost of services sold		28,818		12,710		13,981		—		55,509
Office and general expense		15,833		2,529		2,629		7,862		28,853
Depreciation and amortization		5,505		910		225		265		6,905
Operating Profit/(Loss)		9,543		496		3,798		(8,127)		5,710
Other Income (Expense):
Other income (expense)										(395)
Interest expense, net										(2,302)
Income from continuing operations before income taxes, equity in affiliates and minority interests										3,013
Income tax recovery										397
Income from continuing operations before equity in affiliates and minority interests										3,410
Equity in earnings of non-consolidated affiliates										348
Minority interests in income of consolidated subsidiaries		(5,239)		(50)		(784)		—		(6,073)
Loss from continuing operations										(2,315)
Income from discontinued operations										660
Net Loss									$	(1,655)
Non cash stock based compensation	$	6	$	12	$		$	548	$	566
Supplemental Segment Information:
Capital expenditures	$	763	$	503	$	163	$	46	$	1,475

22

Nine Months Ended September 30, 2006

	Strategic Marketing Services		Customer Relationship Management		Specialized Communications Services		Corporate		Total
Revenue	$	180,272	$	60,747	$	58,314	$	—	$	299,333
Cost of services sold		92,617		44,554		40,619		—		177,790
Office and general expenses		57,854		11,882		10,589		17,347		97,672
Depreciation and amortization		14,147		3,429		860		159		18,595
Operating Profit/Loss)		15,654		882		6,246		(17,506)		5,276
Other Income (Expense):
Other income										1,697
Interest expense, net										(7,705)
Loss from continuing operations before income taxes, equity in affiliates and minority interests										(732)
Income tax recovery										1,711
Income from continuing operations before equity in affiliates and minority interests										979
Equity in earnings of non-consolidated affiliates										630
Minority interests in income of consolidated subsidiaries		(7,931)		(27)		(2007)				(9,965)
Loss from continuing operations										(8,356)
Loss from discontinued operations										(20,190)
Net Loss									$	(28,546)
Non cash stock based compensation	$	619	$	18	$	2,338	$	4,006	$	6,981
Supplemental Segment Information:
Capital expenditures	$	7,961	$	9,926	$	633	$	271	$	18,791
Goodwill and intangibles	$	193,731	$	25,840	$	29,899	$	—	$	249,470
Total assets	$	340,455	$	56,916	$	80,355	$	55,781	$	533,507

23

Nine Months Ended September 30, 2005

	Strategic Marketing Services		Customer Relationship Management		Specialized Communications Services		Corporate		Total
Revenue	$	153,810	$	49,145	$	58,087	$	—	$	261,042
Cost of services sold		77,404		38,228		39,548		—		155,180
Office and general expense		42,746		7,649		8,929		18,502		77,826
Depreciation and amortization		13,044		2,634		659		338		16,675
Operating Profit/(Loss)		20,616		634		8,951		(18,840)		11,361
Other Income (Expense):
Other income										616
Interest expense, net										(4,696)
Income from continuing operations before income taxes, equity in affiliates and minority interests										7,281
Income tax recovery										1,676
Income from continuing operations before equity in affiliates and minority interests										8,957
Equity in earnings of non-consolidated affiliates										624
Minority interests in income of consolidated subsidiaries		(11,887)		(63)		(2,424)		—		(14,374)
Loss from continuing operations										(4,793)
Loss from discontinued operations										(1,609)
Net Loss									$	(6,402)
Non cash stock based compensation	$	21	$	68	$	—	$	2,273	$	2,362
Supplemental Segment Information:
Capital expenditures	$	4,583	$	1,436	$	461	$	92	$	6,572

A summary of the Company’s revenue by geographic area, based on the location in which the services originated, is set forth in the following table:

	United States		Canada		United Kingdom		Total
Revenue
Three Months Ended September 30,
2006	$	86,433	$	13,655	$	1,034	$	101,122
2005	$	83,400	$	11,965	$	1,612	$	96,977
Nine Months Ended September 30,
2006	$	255,098	$	41,275	$	2,960	$	299,333
2005	$	216,892	$	38,627	$	5,523	$	261,042

24

12. Commitments, Contingencies and Guarantees

Deferred Acquisition Consideration. In addition to the consideration paid by the Company in respect of certain of its acquisitions at closing, additional consideration may be payable, or may be potentially payable based on the achievement of certain threshold levels of earnings. Should the current level of earnings be maintained by these acquired companies, no additional consideration, in excess of the deferred acquisition consideration reflected on the Company’s balance sheet at September 30, 2006 would be expected to be owing in 2006.

Put Options. Owners of interests in certain Marketing Communications subsidiaries have the right in certain circumstances to require the Company to acquire the remaining ownership interests held by them. The owners’ ability to exercise any such “put option” right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during the period 2006 to 2013. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.

The amount payable by the Company in the event such rights are exercised is dependent on various valuation formulas and on future events, such as the average earnings of the relevant subsidiary through the date of exercise, the growth rate of the earnings of the relevant subsidiary during that period, and, in some cases, the currency exchange rate at the date of payment.

Management estimates, assuming that the subsidiaries owned by the Company at September 30, 2006, perform over the relevant future periods at their 2005 earnings levels, that these rights, if all exercised, could require the Company, in future periods, to pay an aggregate amount of approximately $108,847 to the owners of such rights to acquire such ownership interests in the relevant subsidiaries. Of this amount, the Company is entitled, at its option, to fund approximately $23,061 by the issuance of share capital. The ultimate amount payable relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised.

Natural Disasters.  Certain of the Company’s operations are located in regions of the United States which typically are subject to hurricanes. During the three and nine months ended September 30, 2006, these operations did not incur any costs related to damages resulting from hurricanes. For the three and nine months ended September 30, 2005, these operations incurred costs of $100 related to damages resulting from hurricanes.

Guarantees. In connection with certain dispositions of assets and/or businesses in 2001 and 2003, the Company has provided customary representations and warranties whose terms range in duration and may not be explicitly defined. The Company has also retained certain liabilities for events occurring prior to sale, relating to tax, environmental, litigation and other matters. Generally, the Company has indemnified the purchasers in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically extend for a number of years.

In connection with the sale of the Company’s investment in Custom Direct Inc. (“CDI”), the amounts of indemnification guarantees were limited to the total sale price of approximately $84,000. For the remainder, the Company’s potential liability for these indemnifications are not subject to a limit as the underlying agreements do not always specify a maximum amount and the amounts are dependent upon the outcome of future contingent events.

Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees. The Company continues to monitor the conditions that are subject to guarantees and indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses under any guarantees or indemnifications in the period when those losses are probable and estimable.

25

For guarantees and indemnifications entered into after January 1, 2003, in connection with the sale of the Company’s investment in CDI, the Company has estimated the fair value of its liability, which was insignificant.

Legal Proceedings.  The Company’s operating entities are involved in legal proceedings of various types. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company.

Commitments.  The Company has commitments to fund $612 in two investment funds over a period of up to three years. At September 30, 2006, the Company has $4,520 of undrawn outstanding letters of credit.

13.      New Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation is effective for fiscal years beginning after December 15, 2006, with earlier application permitted. The Company is currently evaluating the impact if any this Interpretation will have on its financial statements.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement is effective for all fiscal year beginning after November 15, 2007 and interim periods within those fiscal years. Earlier application is encouraged. The Company is currently evaluating the impact of this statement on its financial statements.

In September 2006, FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. This statement requires employers with defined benefit plans to recognize the over funded or under funded status of a defined benefit plan. This statement also expands the required disclosures around these plans. This statement is effective for all fiscal years ending after December 15, 2006.The Company does not expect its financial statements to be significantly impacted by this statement.

14.    Subsequent Events

On November 3, 2006, the Company entered into a definitive agreement to sell the stock of its SPI in exchange for consideration equal to approximately $27 million. Consideration will be paid in the form of a $20 million cash payment at closing and additional $1 million annual payments over the next five years. In addition, the Company will receive a 7.5% equity interest in the newly formed entity acquiring SPI. The estimated net cash proceeds at closing will be used to repay borrowings under the Company’s credit facility. The transaction is expected to close on or about November 15, 2006.

26

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, references to the “Company” mean MDC Partners Inc. and its subsidiaries, and references to a fiscal year means the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal 2006 means the period beginning January 1, 2006, and ending December 31, 2006).

The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”) of the United States of America (“US GAAP”). However, the Company has included certain non-US GAAP financial measures and ratios, which it believes, provide useful information to both management and readers of this report in measuring the financial performance and financial condition of the Company. One such term is “organic revenue” which means growth in revenues from sources other than acquisitions or foreign exchange impacts. These measures do not have a standardized meaning prescribed by US GAAP and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other titled measures determined in accordance with US GAAP.

The following discussion focuses on the operating performance of the Company for the three and nine month periods ended September 30, 2006 and 2005, and the financial condition of the Company as of September 30, 2006. This analysis should be read in conjunction with the interim condensed consolidated financial statements presented in this interim report and the annual audited consolidated financial statements and Management’s Discussion and Analysis presented in the Annual Report to Shareholders for the year ended December 31, 2005 as reported on Form 10-K. All amounts are in U.S. dollars unless otherwise stated.

27

Executive Summary

MDC manages the business by monitoring several financial and non-financial performance indicators. The key indicators that we review focus on the areas of revenues and operating expenses. Revenue growth is analyzed by reviewing the components and mix of the growth, including: growth by major geographic location; existing growth by major reportable segment (organic); growth from currency changes; and growth from acquisitions.

Effective with the accounting classification of the Secure Products International Group as discontinued operations, MDC conducts its businesses through the Marketing Communications Group. Within the Marketing Communications Group, there are three reportable operating segments: Strategic Marketing Services (“SMS”), Customer Relationship Management (“CRM”) and Specialized Communications Services (“SCS”). In addition, MDC has a “Corporate Group” which provides certain administrative, accounting, financial and legal functions.

Marketing Communications Group

Through its operating “partners” in the Marketing Communications Group, MDC provides advertising, consulting and specialized communication services to clients throughout the United States, Canada, Mexico and Europe.

The operating companies within the Marketing Communications Group earn revenue from agency arrangements in the form of retainer fees or commissions; from short-term project arrangements in the form of fixed fees or per diem fees for services; and from incentives or bonuses.

MDC’s Marketing Communications Group measures operating expenses in two distinct cost categories: cost of services sold, and office and general expenses. Cost of services sold is primarily comprised of employee compensation related costs and direct costs related primarily to providing services. Office and general expenses are primarily comprised of rent and occupancy costs and administrative service costs including related employee compensation costs.

Because the Company is a service business, the Company monitors these costs on a percentage of revenue basis. Cost of services sold tend to fluctuate in conjunction with changes in revenues, whereas office and general expenses, which are not directly related to servicing clients, tend to decrease as a percentage of revenue as revenues increase because a significant portion of these expenses are relatively fixed in nature.

Certain Factors Affecting Our Business

Acquisitions and Dispositions.  MDC’s strategy includes acquiring ownership stakes in well-managed businesses with strong reputations in the industry. MDC has entered into a number of acquisition and disposal transactions in 2006 and 2005, which affected revenues, expenses, operating income, net income, assets and liabilities. Additional information regarding material acquisitions is provided in Note 4 “Acquisitions” and Note 6 “Discontinued Operations” in the notes to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

Foreign Exchange Fluctuations.  MDC’s financial results and competitive position are affected by fluctuations in the exchange rate between the US dollar and the Canadian dollar. See also “Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange.”

Seasonality.  Historically, with some exceptions, the Marketing Communications Groups’ fourth quarter generates the highest quarterly revenues in a year. The fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur.

Other important factors that could affect our results of operations are set forth in “Item 1A Risk Factors” of the Company’s Form 10-K for the period ended December 31, 2005 and the Company’s Form 10-Q for the period ended June 30, 2006. 

28

Summary of Key Transactions

Secure Products Group

In June 2006, the Company’s Board of Directors made the decision to sell or otherwise divest the Company’s Secure Paper Business and Secure Card Business (collectively, “SPI”). These are non-core operations, and their divestiture will allow MDC Partners to better focus on its Marketing Communications businesses. On November 3, 2006, the Company entered into a definitive agreement to sell the stock of its Secure Products International Group in exchange for consideration equal to approximately $27 million. Consideration will be paid in the form of a $20 million cash payment at closing and additional $1 million annual payment over the next five years in consulting fees. The Company will also receive a 7.5% equity interest in the newly formed entity acquiring SPI. The net cash proceeds at closing will be used to repay borrowings under the Company’s credit facility. The transaction is expected to close on or about November 15, 2006.

Based on these events, management has concluded that the criteria for the assets/liabilities of SPI to be accounted for as assets/liabilities held for sale and the results of operations to be accounted for as discontinued operations have been met. Discontinued operations relating to SPI for the three months ended September 30, 2006 and 2005 amounted to net losses of $9.8 million and $0.2 million, respectively. For the nine months ended September 30, 2006 and 2005 discontinued operations relating to SPI amounted to net losses of $20.2 million and $2.2 million, respectively. Based on the current estimated net proceeds from a sale, the Company recorded an impairment charge of $19.5 million during the nine months ended September 30, 2006. Based on the estimated net proceeds and average borrowing rate for each period, the Company has allocated interest expense to discontinued operations of $1.1 million and $0.9 million for the nine months ended September 30, 2006 and 2005 respectively.

Zyman Group Acquisition

On April 1, 2005, MDC, through a wholly-owned subsidiary, purchased approximately 61.6% of the total outstanding membership units of Zyman Group, LLC (“Zyman Group”) for a purchase price equal to $52.4 million in cash and 1,139,975 Class A shares of MDC. In addition, MDC may be required to pay up to an additional $12 million in cash and Class A shares to the sellers if Zyman Group achieves specified financial targets for the twelve-month periods ending June 30, 2006 and/or June 30, 2007. For the period ending September 30, 2006, such financial targets were not achieved. Based on Zyman Group’s expected performance for the twelve months ended September 30, 2007, such financial targets are not expected to be met.

MDC’s acquisition of the Zyman Group enabled MDC to expand its capabilities in the areas of strategic marketing knowledge and solutions.

During the first five years following MDC’s acquisition of the Zyman Group, MDC’s allocation of profits of the Zyman Group may differ from its proportionate share of ownership. On an annual basis, the Company receives a 20% priority return calculated based on its total investment in Zyman Group. Thereafter, based on calculations set forth in the operating agreement of Zyman Group (the “LLC Agreement”), the Company’s share of remaining Zyman Group profits in excess of the annual threshold amount may be disproportionately less than its equity ownership in Zyman Group. Specifically, on an annual basis, if Zyman operating results exceed a defined operating margin, the Company would be entitled to 25% of the excess margins in the first two years of the LLC Agreement and 30% of the excess margins in the following three years of the LLC Agreement, rather than the Company’s equity portion of 61.6%. After the first five years, the earnings of the Zyman Group will be allocated in a proportion equal to the respective equity interests of the members.

Based on the Company’s investment in the Zyman Group, at September 30, 2006, the annual priority return is expected to be equal to approximately $12.7 million, with the minority owners receiving the next $7.9 million up to the “threshold” amount of $20.6 million. If profits are insufficient to meet the Company’s priority return during any of the first five years, the Company will receive a catch-up payment through year five equal to any shortfall from the prior year(s). Furthermore, if profits do not reach the threshold amount during the first five years, the minority owners will be entitled to receive a catch-up payment through year five equal to any shortfall from the prior year(s). Based on Zyman Group’s expected results for 2006, the Company expects to receive less than its priority return from Zyman Group in 2006. In addition, based on Zyman Group’s expected results for 2007, the Company does not expect to receive more than the sum of its priority return for 2007 and catch-up payments for 2006, if any.

8% Convertible Debentures

MDC completed an issuance in Canada of convertible unsecured subordinated debentures amounting to C$45.0 million as of June 28, 2005 ($36.7 million) (the “Debentures”). The Debentures mature on June 30, 2010. The Debentures bear interest at an annual rate of 8.00% payable semi-annually, in arrears, on June 30 and December 31 of each year, commencing December 31, 2005. From January 1, 2006 until June 30, 2006, the Debentures had an annual interest rate of 8.50%. Effective July 1, 2006, the interest rate for Debentures reverted back to an annual rate of 8.00%.

29

Results of Operations:

For the Three Months Ended September 30, 2006

(thousands of United States dollars)

	Strategic Marketing Services		Customer Relationship Management		Specialized Communications Services		Corporate		Total
Revenue	$	61,682	$	20,934	$	18,506	$	—	$	101,122
Cost of services sold		28,963		15,147		13,040		—		57,150
Office and general expenses		23,554		4,549		3,602		4,961		36,666
Depreciation and amortization		5,102		1,240		292		62		6,696
Operating Profit/(Loss)		4,063		(2)		1,572		(5,023)		610
Other Income (Expense):
Other income										625
Interest expense, net										(3,533)
Loss before income taxes, equity in affiliates and minority interests										(2,298)
Income tax recovery										812
Loss before equity in affiliates and minority interests										(1,486)
Equity in earnings of non-consolidated affiliates										129
Minority interests in income of consolidated subsidiaries		(1,322)		11		(469)				(1,780)
Loss from Continuing Operations										(3,137)
Loss from Discontinued Operations										(9,772)
Net Loss									$	(12,909)
Non cash stock based compensation	$	128	$	6	$	—	$	1,515	$	1,649

30

Results of Operations:

For the Three Months Ended September 30, 2005

(thousands of United States dollars)

	Strategic Marketing Services		Customer Relationship Management		Specialized Communications Services		Corporate		Total
Revenue	$	59,699	$	16,645	$	20,633	$	—	$	96,977
Cost of services sold		28,818		12,710		13,981		—		55,509
Office and general expenses		15,833		2,529		2,629		7,862		28,853
Depreciation and amortization		5,505		910		225		265		6,905
Operating Profit/(Loss)		9,543		496		3,798		(8,127)		5,710
Other Income (Expense):
Other income (expense)										(395)
Interest expense, net										(2,302)
Income from continuing operations before income taxes, equity in affiliates and minority interests										3,013
Income tax recovery										397
Income from continuing operations before equity in affiliates and minority interests										3,410
Equity in Earnings of Non-Consolidated Affiliates										348
Minority interests in income of consolidated subsidiaries		(5,239)		(50)		(784)		—		(6,073)
										(2,315)
Loss from Continuing Operations
Income from Discontinued Operations										660
Net Loss									$	(1,655)
Non cash stock based compensation.	$	6	$	12	$	—	$	548	$	566

31

Results of Operations:

For the Nine Months Ended September 30, 2006

(thousands of United States dollars)

	Strategic Marketing Services		Customer Relationship Management		Specialized Communications Services		Corporate		Total
Revenue	$	180,272	$	60,747	$	58,314	$	—	$	299,333
Cost of services sold		92,617		44,554		40,619		—		177,790
Office and general expenses		57,854		11,882		10,589		17,347		97,672
Depreciation and amortization		14,147		3,429		860		159		18,595
Operating Profit/(Loss)		15,654		882		6,246		(17,506)		5,276
Other Income (Expense):
Other income										1,697
Interest expense, net										(7,705)
Loss before income taxes, equity in affiliates and minority interests										(732)
Income tax recovery										1,711
Income from continuing operations before equity in affiliates and minority interests										979
Equity in earnings of non-consolidated affiliates										630
Minority interests in income of consolidated subsidiaries		(7,931)		(27)		(2,007)		—		(9,965)
Loss from Continuing Operations										(8,356)
Loss from Discontinued Operations										(20,190)
Net Loss									$	(28,546)
Non cash stock based compensation	$	619	$	18	$	2,338	$	4,006	$	6,981

32

Results of Operations:

For the Nine Months Ended September 30, 2005

(thousands of United States dollars)

	Strategic Marketing Services		Customer Relationship Management		Specialized Communications Services		Corporate		Total
Revenue	$	153,810	$	49,145	$	58,087	$	—	$	261,042
Cost of services sold		77,404		38,228		39,548		—		155,180
Office and general expenses		42,746		7,649		8,929		18,502		77,826
Depreciation and amortization		13,044		2,634		659		338		16,675
Operating Profit/(Loss)		20,616		634		8,951		(18,840)		11,361
Other Income (Expense):
Other income										616
Interest expense, net										(4,696)
Income from continuing operations before income taxes, equity in affiliates and minority interests										7,281
Income tax recovery										1,676
Income from continuing operations before equity in affiliates and minority interests										8,957
Equity in earnings of non-consolidated affiliates										624
Minority interests in income of consolidated subsidiaries		(11,887)		(63)		(2,424)		—		(14,374)
Loss from Continuing Operations										(4,793)
Loss from Discontinued Operations										(1,609)
Net Loss									$	(6,402)
Non cash stock based compensation	$	21	$	68	$	—	$	2,273	$	2,362

33

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005

On a consolidated basis, revenue was $101.1 million for the third quarter of 2006, representing an increase of $4.1 million or 4.3%, compared to revenue of $97.0 million in the third quarter of 2005. This increase includes $2.2 million relating to organic growth, primarily resulting from net new business wins and additional revenues from existing clients, particularly in the United States. In addition, a weakening of the US dollar versus the Canadian dollar, in the third quarter of 2006 as compared to the third quarter of 2005, resulted in increased revenue of approximately $0.9 million. Acquisitions accounted for $0.5 million of revenue and an increase of $0.5 million related to the consolidation of an entity in the third quarter of 2006 that was previously accounted for on the equity method of accounting.

Cost of services sold for the three months ended September 30, 2006, remained relatively consistent as a percentage of revenue as compared to the same prior year period.

Operating profit for the third quarter of 2006 was $0.6 million, compared to $5.7 million for the same quarter of 2005. The decrease in operating profit was the result of decreases in operating profit of $5.5 million in the Strategic Marketing Services segment, $2.2 million in the Specialized Communications segment and $0.5 million in the Customer Relationship Management segment. This was partially offset by a decrease in corporate operating expenses of approximately $3.1 million.

The net loss for the third quarter of 2006 increased from $1.7 million in 2005 to $12.9 million in 2006, primarily as a result of a $11.6 million impairment charge relating to the discontinued operations of SPI. In addition, operating profit decreased by $5.1 million as discussed above, which was partially offset by a decrease in income attributable to minority interests of $4.3 million.

Marketing Communications Group

Revenues for the third quarter of 2006 attributable to Marketing Communications, which consists of three reportable segments - Strategic Marketing Services (“SMS”), Customer Relationship Management (“CRM”), and Specialized Communications Services (“SCS”), were $101.1 million compared to $97.0 million in the third quarter of 2005, representing an increase of $4.1 million or 4.3%.

The components of revenue growth for the Marketing Communications Group, for the third quarter of 2006 are shown in the following table:  

	Revenue
	(in millions)		%
Three months ended September 30, 2005	$	97.0
Organic		2.2		2.3	%
Acquisitions		0.5		0.5	%
Foreign exchange impact		0.9		1.0	%
Other		0.5		0.5	%
Three months ended September 30, 2006	$	101.1		4.3	%

The Marketing Communications Group had organic revenue growth of $2.2 million or 2.3% for the third quarter of 2006, primarily attributable to net new business wins and additional revenues from existing clients, particularly in the United States. In addition, a weakening of the U.S. dollar versus the Canadian dollar during the third quarter of 2006, as compared to the third quarter of 2005, resulted in increased revenues of approximately $0.9 million. Acquisitions accounted for $0.5 million of revenue growth in the third quarter of 2006. The $0.5 million of other revenue growth represents the consolidation of an affiliate effective July 1, 2006, which was previously accounted for under the equity method of accounting.

The percentage of revenue by geographic region remained relatively consistent with the prior year quarter and is demonstrated in the following table:

	Revenue
	Three Months Ended September  30, 2006			Three Months Ended September 30, 2005
US		85	%		86	%
Canada		14	%		12	%
UK		1	%		2	%

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The operating profit of the Marketing Communications Group for the third quarter of 2006 decreased by approximately $8.2 million, or 59%, to $5.6 million from $13.8 million. Operating margins were 5.6% for 2006 as compared to 14.3% for the third quarter of 2005. The decrease in operating margins was primarily reflective of an increase in staff costs as a percentage of revenues from 43% in 2005 to 50% in 2006, a charge of $2.9 million relating to the closure of one of our West Coast facilities, additional occupancy and administrative costs relating to the expansion of operations in Boulder, Colorado and expansions and office moves of other business units, partially offset by decreased amortization of intangibles relating to the Zyman Group acquisition. Cost of services as a percentage of revenue remained relatively consistent with the prior year period.

Strategic Marketing Services

Revenues attributable to SMS for the third quarter of 2006 were $61.7 million compared to $59.7 million in the third quarter of 2005. This increase of $2.0 million or 3.3% included organic revenue growth of approximately $1.2 million resulting from net new client business wins. SMS had revenue growth during the third quarter of 2006 over 2005 resulting from new client business wins; however, this growth was offset in part by client losses. In particular, the Zyman Group lost a significant client.  In addition, a weakening of the US dollar compared to the Canadian dollar in the third quarter of 2006 compared to the same quarter in 2005 resulted in a $0.3 million increase in revenues from the division’s Canadian-based operations. Revenue also increased by $0.5 million relating to the consolidation of an entity previously accounted for on the equity basis.

The operating profit of SMS for the third quarter of 2006 decreased by approximately $5.5 million, or 57%, to $4.1 million from $9.5 million for the third quarter of 2005, while operating margins were 6.6% for the third quarter of 2006 as compared to 16.0% in the third quarter of 2005. The decreased profits were primarily attributable to an increase in total staff costs as a percentage of revenue from 52.9% in 2005 to 53.5% in 2006, a charge of $2.9 million, relating to the closure of one of our West Coast facilities, additional occupancy and administrative costs relating to the expansion of operations in Boulder, Colorado and expansions and office moves of other business units, partially offset by decreased amortization of intangibles resulting from the Zyman acquisition. The increase in staff costs as a percentage of revenue results from reduced revenue at certain business units, offset in part by an increase in headcount resulting from organic revenue growth at several of the business units.

Customer Relationship Management

Revenues reported by the CRM segment for the third quarter of 2006 were $20.9 million, an increase of $4.3 million or 25.8% compared to the $16.6 million reported for the third quarter of 2005. This growth was entirely organic and was due primarily to additional business from existing clients.

The operating profit of CRM decreased by approximately $0.5 million to $0.0 million for the third quarter of 2006. Operating margins were 0.0% for the third quarter of 2006 as compared to 3.0% in the third quarter of 2005. The decrease primarily reflected an increase in office and general expenses as a percentage of revenue, due to the expansion relating to the opening of two new customer care centers during the third quarter of 2006, which are still in the start up phase of operations. In addition, depreciation and amortization increased due to the opening of three new customer care centers during 2006 compared to 2005. This was partially offset by a decrease in cost of services sold as a percentage of revenue due to the implementation of a new service contract with one of the segment’s large clients.

Specialized Communications Services

SCS generated revenues of $18.5 million for the third quarter of 2006, $2.1 million or 10.3% lower than revenue of $20.6 million in the third quarter of 2005, due to a decrease in organic revenue of $3.2 million partially offset by a $0.6 million increase in revenue related to a weakening of the U.S. dollar compared to the Canadian dollar in the third quarter of 2006 compared to the same quarter in 2005 and acquisition growth of $0.5 million in 2006. The decrease in revenue primarily resulted from reduced client spending versus the prior year period and a decrease in project related work.

The operating profit of SCS decreased by $2.2 million or 58.6% to $1.6 million in the third quarter of 2006, from $3.8 million in the third quarter of 2005 due primarily to the decrease in revenue of $2.2 million discussed above as well as an increase in total staff costs as a percentage of revenue from 43.3% in the third quarter of 2005 to 50.0% in the third quarter of 2006. As a result, operating margins decreased to 8.4% for the third quarter of 2006 as compared to 18.4% in the third quarter of 2005.

Corporate

Operating expenses for the third quarter of 2006 decreased by $3.1 million to $5.0 million from $8.1 million in the prior year quarter. The decrease is primarily attributable to decreased professional fees of $1.7 million, a net decrease in compensation related costs of $0.5 million, which is net of $1.0 million relating to increased stock based compensation and a refund of capital taxes of $0.2 million.

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 Net Interest Expense

Net interest expense for the three months ended September 30, 2006 was $3.5 million, $1.2 million higher than the $2.3 million incurred during the same period of 2005. Interest expense increased $1.4 million in the three months ended September 30, 2006 compared to the same period of 2005 due to higher outstanding debt combined with higher interest rates in 2006. Interest income was $0.2 million for the three months ended September 30, of 2006 as compared to none in the same period of 2005.

Other Income (Expense)

Other income increased to income of $0.6 million in the third quarter of 2006 from expenses of $0.4 million in the third quarter of 2005, due primarily to a $1.0 million gain on the recovery of an asset in the third quarter of 2006, compared to net foreign exchange loses in 2005.

Income Tax Recovery

The income tax recovery recorded in the third quarter of 2006 was $0.8 million as compared to $0.4 million in the third quarter of 2005. The Company’s effective tax rate was substantially lower than the statutory tax rate due to minority interest charges and non-deductible non-cash stock based compensation charges in the 2005 third quarter. For the 2006 third quarter, the effective rate was higher than the statutory rate due primarily to minority interest charges.

The Company’s US operating units are generally structured as limited liability companies, which are treated as partnerships for tax purposes. The Company is only taxed on its share of profits, while minority holders are responsible for taxes on their share of the profits.

Minority Interests

Minority interest was $1.8 million for the third quarter of 2006, down $4.3 million from the $6.1 million of minority interest incurred during the third quarter of 2005, due primarily to the decrease in profitability of the SMS operating segment.

Discontinued Operations

Loss from discontinued operations was $9.8 million for the third quarter of 2006 as compared to income from discontinued operations of $0.7 million for the third quarter of 2005 and primarily relates to the expected disposition of SPI.

Beginning in June of 2006, the Company began negotiating with buyers to sell the stock of SPI. Based on these negotiations, management has concluded all the criteria for the assets/liabilities of SPI to be accounted for as assets/liabilities held for sale and the results of operations to be accounted for as discontinued operations have been met. Discontinued operations relating to SPI for the three months ended September 30, 2006 and 2005 amounted to net losses of $9.8 million and $0.2 million, respectively. Based on the current estimated proceeds from a sale, the Company recorded an additional impairment charge of $11.6 during the three months ended September 30, 2006. This additional impairment has been included in discontinued operations net loss for the three months ended September 30, 2006.

During July 2005, LifeMed completed a private placement issuing approximately 12.5 million shares at a price of $0.4973 per share. LifeMed received net proceeds of approximately $6.2 million. Consequently, the Company’s ownership interest in LifeMed was reduced to 18.3% from this transaction. The Company no longer has any significant continuing involvement in the management or operations of LifeMed, and has not participated in the purchase of significant new equity offerings by LifeMed. Consequently, as of July 2005, the Company no longer consolidates the operations of LifeMed, and commenced accounting for its remaining investment in LifeMed on a cost basis and has reported the results of operations of LifeMed as discontinued operations for all 2005 periods presented in the condensed consolidated statement of operations.

In November 2004, the Company’s management reached a decision to discontinue the operations of a component of its business. This component is comprised of the Company’s UK based marketing communications business, a wholly owned subsidiary Mr. Smith Agency, Ltd. (formerly known as Interfocus Networks Limited). The Company decided to dispose of the operations of this business due to its unfavorable economics. Substantially all of the net assets of the discontinued business were sold during the fourth quarter of 2004 with the disposition of all activities of Mr. Smith and remaining sale of assets completed in 2005. No significant one—time termination benefits were incurred or are expected to be incurred. No further significant other charges are expected to be incurred.

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For the three months ended September 30, 2005, discontinued operations relating to LifeMed and Mr. Smith amounted to net income of $0.9 million.

Net Income Loss

As a result of the foregoing, the net loss recorded for the third quarter of 2006 was $12.9 million, or a loss of $ (0.54) per diluted share, compared to the net loss of $1.7 million, or $ (0.07) per diluted share, reported for the third quarter of 2005.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005

Revenue was $299.3 million for the nine months ended September 30, 2006, representing an increase of $38.3 million or 14.7%, compared to revenue of $261.0 million in the same period of 2005. This increase includes $22.1 million relating to organic growth, primarily resulting from new business wins in the United States, as well as $12.7 million relating to acquisition growth. In addition, a weakening of the US dollar versus the Canadian dollar, in 2006 as compared to 2005, resulted in increased revenue of approximately $3.0 million.

Cost of services sold for the nine months ended September 30, 2006, remained relatively consistent as a percentage of revenue as compared to the same prior year period.

Operating profit for the nine months ended September 30, 2006 was $5.3 million, compared to $11.4 million for the same period of 2005. The decrease in operating profit was primarily the result of decreases in operating profit of $5.0 million in the Strategic Marketing Services segment, $2.7 million in the Specialized Communications segment offset in part by an increase in operating profit of $0.2 million in the Customer Relationship Management segment and a decrease in Corporate expenses of $1.3 million.

The net loss for the nine months ended September 30, 2006 increased by $22.1 million to $28.5 million from $6.4 million for the nine months ended September 30, 2005, primarily as a result of a $19.5 million impairment charge relating to the discontinued operations of SPI, a net interest expense increase of $3.0 million as a result of the increased borrowings in connection with the Zyman acquisition, non-cash stock based compensation increase of $4.6 million, which was offset by a decrease in minority interest charges of $4.4 million.

Marketing Communications Group

Revenues for the nine months ended September 30, 2006 attributable to Marketing Communications, which consists of three reportable segments - SMS, CRM, and SCS, were $299.3 million compared to $261.0 million in the nine months ended September 30, 2005, representing an increase of $38.3 million or 14.7%.

The components of revenue growth for the Marketing Communications Group, for the nine months ended September 30, 2006 are shown in the following table:  

	Revenue
	in millions		%
Nine months ended September 30, 2005	$	261.0
Organic		22.1		8.5	%
Acquisitions		12.7		4.9	%
Foreign exchange impact		3.0		1.1	%
Other		0.5		0.2	%
Nine months ended September 30, 2006	$	299.3		14.7	%

The Marketing Communications Group had organic revenue growth of $22.1 million or 8.5% for the nine months ended September 30, 2006, primarily attributable to net new business wins and additional revenues from existing clients, particularly in the U.S. Acquisitions contributed revenue growth of $12.7 million, including $11.7 million related to the acquisition of the Zyman Group. In addition, a weakening of the U.S. dollar versus the Canadian dollar during the nine months ended September 30, 2006, as compared to the nine months ended September 30, 2005, resulted in increased revenues of approximately $3.0 million. The $0.5 million of other revenue growth represents the consolidation of an affiliate effective July 1, 2006 that was previously accounted under the equity method of accounting.

The positive organic growth, combined with acquisitions, resulted in a shift in the geographic mix of revenues, causing an increase in the percentage of revenue growth attributable to U.S. operations versus Canadian- and UK-based operations compared to the geographic mix experienced in 2005.

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This shift is demonstrated in the following table:

	Revenue
	Nine Months Ended September  30, 2006			Nine Months Ended September 30, 2005
US		85	%		83	%
Canada		14	%		15	%
UK		1	%		2	%

The operating profit of the Marketing Communications Group decreased by approximately $7.4 million or 24.6% to $22.8 million for the nine months ended September 30, 2006 from $30.2 million for the nine months ended September 30, 2005, while operating margins were 7.6% for 2006 as compared to 11.6% in 2005. The decrease in operating margins was primarily reflective of increased stock based compensation charges of $2.9 million, a charge of $2.9 million, relating to the closure of one of our West Coast facilities and increased amortization of intangibles relating to the Zyman Group acquisition. Cost of services as a percentage of revenue remained relatively consistent with the prior year period.

Strategic Marketing Services

Revenues attributable to SMS for the nine months ended September 30, of 2006 were $180.3 million compared to $153.8 million in the nine months ended September 30, 2005. The increase of $26.5 million or 17.2% included organic revenue growth of approximately $13.1 million resulting from net new client business wins and acquisition related growth of approximately $11.7 million. SMS had revenue growth during the nine months of 2006 over 2005 resulting from new client business wins; however, this growth was offset in part by client losses. In particular, the Zyman Group lost a significant client. A weakening of the US dollar compared to the Canadian dollar in the nine months ended September 30, 2006 compared to the same period of 2005 resulted in a $1.1 million increase in revenues from the division’s Canadian-based operations. In addition, revenues increased by $0.5 million relating to the consolidation of an entity previously accounted for on the equity basis.

The operating profit of SMS for the nine months ended September 30, 2006 decreased by approximately $4.9 million or 23.8% to $15.7 million from $20.6 million for same period of 2005, while operating margins were 8.7% for 2006 as compared to 13.4% in 2005. The decreased profits were primarily attributable to the increase in revenue partially offset by an increase in staff costs and other direct costs as a percentage of revenue in the nine months ended September 30, of 2006 compared to the same period of 2005, a charge of $2.9 million, relating to the closure of one of our West Coast facilities, increased stock based compensation and increased amortization of intangibles resulting from the Zyman acquisition. The increase in staff costs as a percentage of revenue results from reduced revenue at certain business units, offset in part by an increase in headcount resulting from organic revenue growth at several of the business units.

Customer Relationship Management

Revenues reported by the CRM segment for the nine months ended September 30, 2006 were $60.7 million, an increase of $11.6 million or 23.6% compared to the $49.1 million reported for the nine months ended September 30, 2005. This growth was entirely organic and was due primarily to additional business from existing clients.

The operating profit of CRM increased by approximately $0.3 million to $0.9 million for the nine months ended September 30, 2006, from $0.6 million for the same period of 2005. Operating margins were 1.5% for the nine months ended September 30, 2006 as compared to 1.3% for the same period of 2005. The increase primarily reflected a decrease in the cost of services sold as a percentage of revenue, due to the implementation of a new service contract with one of the segment’s large clients partially offset by increases in office and general expenses as a percentage of revenue and depreciation and amortization. These increases resulted from the startup of three additional customer care centers during fiscal 2006.

Specialized Communications Services

SCS generated revenues of $58.3 million for the nine months ended September 30, 2006, $0.2 million or 0.4% higher than the same period of 2005, of which $1.9 million related to a weakening of the U.S. dollar compared to the Canadian dollar in the nine months ended September 30, 2006 compared to the same prior year period. In addition, organic revenue decreased $2.6 million as a result of new business wins offset by a decrease in project related work. The remaining revenue increased $1.0 million and was attributable to acquisition related growth.

The operating profit of SCS decreased by approximately $2.7 million or 30.2% to $6.2 million in the nine months ended September 30, 2006, from $9.0 million in the same period of 2005 due primarily to the increase in stock-based compensation of $2.3 million relating to the price paid for membership interests, which was less than the fair value of such membership interests and the fair value of an option granted to certain members of management of Source Marketing LLC during the first quarter of 2006. As a result, operating margins decreased to 10.7% for 2006 as compared to 15.4% in 2005.

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Corporate

Operating expenses for the nine months ended September 30, 2006 decreased by $1.3 million to $17.5 million from $18.8 million in the prior year period. The decrease is primarily attributable to a decrease in professional fees of $2.4 million offset by net increased, compensation related costs of $1.3 million, of which $1.7 million relates to stock based compensation which is offset by reduced recruitment costs of $0.4 million.

Other Income (Expense)

Other income increased to $1.7 million for the nine months ended September 30, 2006 from $0.6 million of the nine months ended September 30, 2005. This increase is primarily the result of increased gains on the sale of assets and the settlement in June 2006, of the Company’s cross currency swap.

Net Interest Expense

Net interest expense for the nine months ended September 30, of 2006 was $7.7 million, $3.0 million higher than the $4.7 million incurred during the same period of 2005. Interest expense increased $3.2 million in the nine months ended September 30, 2006 compared to the same period of 2005 due to higher outstanding debt combined with higher interest rates in 2006, due in part to the acquisition of the Zyman Group and the issuance of the 8.0% debentures (which accrued interest at 8.5% during the first six months of 2006). Interest income increased by $0.2 million in the nine months ended September 30, of 2006 as compared to the same period of 2005.

Income Taxes Recovery

The income tax recovery recorded in the nine months ended September 30, of 2006 and 2005 was $1.7 million. The Company’s effective tax rate was substantially lower than the statutory tax rate due to minority interest charges and non deductible non-cash stock based compensation charges in 2005. In 2006, the effective tax rate was substantially higher than the statutory tax rate due primarily to minority interest charges.

The Company’s US operating units are generally structured as limited liability companies, which are treated as partnerships for tax purposes. The Company is only taxed on its share of profits, while minority holders are responsible for taxes on their share of the profits.

Equity in Affiliates

Equity in affiliates represents the income attributable to equity-accounted affiliate operations. For the nine months ended September 30, 2006 and 2005, income of $0.6 million was recorded.

Discontinued Operations

Loss from discontinued operations of $20.2 million and $1.6 million was reported for the nine months ended September 30, 2006 and 2005 respectively, and primarily relates to the expected disposition of SPI.

Beginning in June of 2006, the Company began negotiating with buyers to sell the stock of SPI. Based on these negotiations, management has concluded the criteria for the assets/liabilities of SPI to be accounted for as assets/liabilities held for sale and the results of operations to be accounted for as discontinued operations. Discontinued operations relating to SPI for the nine months ended September 30, 2006 and 2005 amounted to net losses of $20.2 million and $2.2 million, respectively. Based on the current estimated proceeds from a sale, the Company recorded an impairment charge of $19.5 million during the nine months ended September 30, 2006. Based on the estimated net proceeds and average borrowing rate for each period, the Company has allocated interest expense to discontinued operations of $1.1 million and $0.9 million for the nine months ended September 30, 2006 and 2005.

During July 2005, LifeMed completed a private placement issuing approximately 12.5 million shares at a price of $0.4973 per share. LifeMed received net proceeds of approximately $6.2 million. Consequently, the Company’s ownership interest in LifeMed was reduced to 18.3% from this transaction. The Company no longer has any significant continuing involvement in the management or operations of LifeMed, and has not participated in the purchase of significant new equity offerings by LifeMed. Consequently, as of July 2005, the Company no longer consolidates the operations of LifeMed, and commenced accounting for its remaining investment in LifeMed on a cost basis and has reported the results of operations of LifeMed as discontinued operations for all periods presented in the condensed consolidated statement of operations.

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In November 2004, the Company’s management reached a decision to discontinue the operations of a component of its business. This component is comprised of the Company’s UK based marketing communications business, a wholly owned subsidiary Mr. Smith Agency, Ltd. (formerly known as Interfocus Networks Limited). The Company decided to dispose of the operations of this business due to its unfavorable economics. Substantially all of the net assets of the discontinued business were sold during the fourth quarter of 2004 with the disposition of all activities of Mr. Smith and remaining sale of assets was substantially complete by the end of the first quarter of 2005. No significant one—time termination benefits were incurred or are expected to be incurred. No further significant other charges are expected to be incurred.

For the nine months ended September 30, 2005, discontinued operations relating to LifeMed and Mr. Smith amounted to income of $0.6 million.

Net Income Loss

As a result of the foregoing, the net loss recorded for the nine months ended September 30, 2006 was $28.5 million, or a loss of $(1.19) per diluted share, compared to the net loss of $6.4 million, or $(0.28) per diluted share, reported for the nine months ended September 30, 2005.

Liquidity and Capital Resources:

Liquidity

The following table provides summary information about the Company’s liquidity position:

	As of and for the nine months ended September 30, 2006			As of and for the nine months ended September 30, 2005			As of and for the year ended December 31, 2005
	(000’s)			(000’s)			(000’s)
Cash and cash equivalents	$	4,592		$	11,419		$	12,923
Working capital (deficit)	$	(107,183	)	$	(101,701	)	$	(99,935	)
Cash from operations	$	5,664		$	(5,334	)	$	4,670
Cash from investing	$	(24,505	)	$	(63,439	)	$	(67,404	)
Cash from financing	$	10,884		$	57,333		$	52,316
Long-term debt to shareholders’ equity ratio		1.04			0.85			0.81
Fixed charge coverage ratio		N/A			2.01			2.04
Fixed charge coverage deficiency	$	233			N/A			N/A

As of September 30, 2006, and December 31, 2005, $2.8 million and $4.0 million of the consolidated cash position was held by subsidiaries, which, although available for the subsidiaries’ use, does not represent cash that is distributable as earnings to MDC Partners Inc. for use to reduce its indebtedness.

Working Capital

At September 30, 2006, the Company had a working capital deficit of $107.2 million compared to a deficit of $99.9 million at December 31, 2005. The decrease in working capital is primarily due to seasonal shifts in the amounts billed to clients, and paid to suppliers, primarily media outlets.

Since September 30, 2005, the Company has classified the outstanding borrowings under the Credit Facility of $85.3 million and $73.5 million as of September 30, 2006 and December 31, 2005, respectively, as a current liability. See Long-term Debt below.

The Company intends to maintain sufficient availability of funds under the Credit Facility at any particular time to adequately fund such working capital deficits should there be a need to do so from time to time.

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 Cash Flows

Operating Activities

Cash flow provided by operations, including changes in non-cash working capital, for the nine months ended September 30, 2006 was $5.7 million. Cash flow provided by continuing operations for the nine months ended September 30, 2006 was $3.6 million. This was attributable primarily to the net loss from continuing operations of $8.4 million, which included non-cash depreciation and amortization of $20.2 million and non-cash stock based compensation of $6.4 million. This increase in cash was partially offset by $10.4 million of cash outflows from working capital. Cash used in continuing operations was $7.7 million in the nine months ended September 30, 2005 and was primarily reflective of a net loss from continuing operations of $4.8 million and uses of non-cash working capital of $18.7 million. This was partially offset by non-cash depreciation and amortization of $18.6 million and non-cash stock based compensation of $2.4 million. Discontinued operations provided cash of $2.1 million in the nine months ended September 30, 2006 compared to $2.3 million during the nine months ended September 30, 2005.

Investing Activities

Cash flows used in investing activities were $24.5 million for the nine months ended September 30, 2006, compared with $63.4 million in the nine months ended September 30, 2005.

Expenditures for capital assets in the nine months ended September 30, 2006 were $18.8 million. Of this amount, $8.0 million was made by the SMS segment, $9.9 million was made by the CRM segment and $0.6 million was made by the SCS segment. These expenditures consisted primarily of leasehold improvements, computer equipment and switching equipment, and $0.3 million related to the purchase of corporate assets. In the nine months ended September 30, 2005, capital expenditures totaled $6.6 million of which $4.6 million was made by the SMS segment, $1.4 million was made by the CRM segment and $0.5 million was made by the SCS segment, which expenditures consisted primarily of the acquisition of computer and switching equipment and $0.1 million related to the purchase of corporate assets.

Cash flow used in acquisitions was $5.2 million in the nine months ended September 30, 2006 and primarily related to investments in marketing communication businesses related to the settlement of put options and earn out payments. In the nine months ended September 30, 2005, cash flow used in acquisitions was $56.4 million and related to the purchase of the Zyman Group.

Distributions received from non-consolidated affiliates amounted to $0.5 million and $1.4 million for the nine months ended September 30, 2006 and 2005, respectively.

Discontinued operations used cash of $1.6 million in 2006 and $2.1 million in 2005 relating to capital asset purchases.

Financing Activities

During the nine months ended September 30, 2006, cash flows provided by financing activities amounted to $10.9 million, and consisted of $11.8 million of proceeds from the revolving credit facility and $0.5 million of proceeds from the issuance of share capital. This was partially offset by $0.7 million of net repayments of long-term debt and bank borrowing. During the nine months ended September 30, 2005, cash flows provided by financing activities amounted to $57.3 million, and consisted of proceeds from the issuance of long term debt of $70.7 million relating to the issuance of $38.6 million of convertible debentures and borrowings under the Credit Facility used to fund the acquisition of the Zyman Group. Payments made of $8.4 million consist of payments under capital leases, debt assumed in the Zyman Group acquisition and bank borrowings. In addition, the company incurred $3.3 million of finance costs relating to both the convertible debentures and various amendments under the Credit Facility.

Discontinued operations used cash of $0.7 million and $1.7 million in 2006 and 2005 respectively, relating to payments under capital leases.

Long-Term Debt

 Long-term debt (including the current portion of long-term debt) as of September 30, 2006 was $136.3 million, an increase of $9.3 million compared with the $127.0 million outstanding at December 31, 2005. The increase was primarily the result of borrowings under the Credit Facility offset by the reduction in capital lease obligations in connection with the discontinued operations of SPI as a component of liabilities related to assets held for sale.

On November 3, 2006, the Company further amended its Credit Facility. Pursuant to such amendment, among other things, the lenders (i) amended the “net worth” financial covenant to include an addition for any losses on sale or non-cash impairment charges recorded in connection with the disposition of the Secure Products International (“SPI”) business; (ii) reduced the commitment reduction requirement based upon net cash proceeds received from the sale of SPI in excess of $12.5 million; and (iii) modified the Company's “total debt ratio” covenant.

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The Company is currently in compliance with all of the terms and conditions of its Credit Facility, and management believes, based on its current financial projections, that the Company will be in compliance with covenants over the next twelve months.

If the Company loses all or a substantial portion of its lines of credit under the Credit Facility, it will be required to seek other sources of liquidity. If the Company were unable to find these sources of liquidity, for example through an equity offering or access to the capital markets, the Company’s ability to fund its working capital needs and any contingent obligations with respect to put options would be adversely affected.

Pursuant to the Credit Facility, the Company must comply with certain financial covenants including, among other things, covenants for (i) total debt ratio, (ii) fixed charges ratio, (iii) minimum liquidity, (iv) minimum net worth, and (v) limitations on capital expenditures, in each case as such term is specifically defined in the Credit Facility. For the period ended September 30, 2006, the Company’s calculation of each of these covenants, and the specific requirements under the Credit Facility, respectively, were as follows:

	September 30, 2006
Total Debt Ratio		2.75 to 1.0
Maximum per covenant		2.90 to 1.0
Fixed Charges Ratio		1.94 to 1.0
Minimum per covenant		1.15 to 1.0
Minimum Liquidity	$	8.4 million
Minimum per covenant	$	7.2 million
Net Worth	$	149 million
Minimum per covenant	$	132 million

Subsequent to September 30, 2006, certain of these financial covenants under the Credit Facility will become more restrictive. Specifically, the maximum Total Debt Ratio covenant under the Credit Facility will be as follows: December 31, 2006 - 3.25 to 1.00, March 31, 2007 - 3.00 to 1.00, and June 30, 2007 - 2.75 to 1.00. The minimum Fixed Charges Ratio covenant under the Credit Facility will be as follows: December 31, 2006 and thereafter—1.25 to 1.00.

These ratios are not based on generally accepted accounting principles and are not presented as alternative measures of operating performance or liquidity. They are presented here to demonstrate compliance with the covenants in the Company’s Credit Facility, as noncompliance with such covenants could have a material adverse effect on the Company.

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Capital Resources

At September 30, 2006 the Company had utilized approximately $93.4 million of its Credit Facility in the form of drawings and letters of credit. Cash and undrawn available bank credit facilities to support the Company’s future cash requirements, as at September 30, 2006 was approximately $11.2 million.

The Company expects to incur approximately $1.9 million of capital expenditures for the remainder of 2006. Such capital expenditures are expected to include leasehold improvements at certain of the Company’s operating subsidiaries including the opening of a new customer contact facility. The Company intends to maintain and expand its business using cash from operating activities, together with funds available under the Credit Facility and, if required, by raising additional funds through the incurrence of bridge or other debt (which may include or require further amendments to the Credit Facility) or the issuance of equity. Management believes that the Company’s cash flow from operations and funds available under the Credit Facility, and refinancings thereof, will be sufficient to meet its ongoing working capital, capital expenditures and other cash needs over the next eighteen months. If the Company has significant organic growth or growth through acquisitions, management expects that the Company may need to obtain additional financing in the form of debt and/or equity financing.

Deferred Acquisition Consideration (Earnouts)

Acquisitions of businesses by the Company include commitments to contingent deferred purchase consideration payable to the seller. The contingent purchase obligations are generally payable annually over a three-year period following the acquisition date, and are based on achievement of certain thresholds of future earnings and, in certain cases, also based on the rate of growth of those earnings. The contingent consideration is recorded as an obligation of the Company when the contingency is resolved and the amount is reasonably determinable. At September 30, 2006, there was no deferred consideration included in the Company’s balance sheet. Based on the various assumptions as to future operating results of the relevant entities, management estimates that approximately $3.2 million of additional deferred purchase obligations could be triggered during 2006 or thereafter, including approximately $1.4 million which may be paid in the form of issuance by the Company of its Class A shares. The actual amount that the Company pays in connection with the obligations may differ materially from this estimate.

Off-Balance Sheet Commitments

Put Rights of Subsidiaries’ Minority Shareholders

Owners of interests in certain of the Marketing Communications Group subsidiaries have the right in certain circumstances to require the Company to acquire the remaining ownership interests held by them. These rights are not freestanding. The owners’ ability to exercise any such “put” right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during the period 2006 to 2013. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.

The amount payable by the Company in the event such rights are exercised is dependent on various valuation formulas and on future events, such as the average earnings of the relevant subsidiary through that date of exercise, the growth rate of the earnings of the relevant subsidiary during that period, and, in some cases, the currency exchange rate at the date of payment.

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Management estimates, assuming that the subsidiaries owned by the Company at September 30, 2006, perform over the relevant future periods at their 2005 earnings levels, that these rights, if all exercised, could require the Company, in future periods, to pay an aggregate amount of approximately $108.8 million to the owners of such rights to acquire such ownership interests in the relevant subsidiaries. Of this amount, the Company is entitled, at its option, to fund approximately $23.1 million by the issuance of the Company’s Class A subordinate voting shares. The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under its credit facility (and refinancings thereof) and, if necessary, through incurrence of additional debt. The ultimate amount payable and the incremental operating income in the future relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised. Approximately $6.3 million of the estimated $108.8 million that the Company would be required to pay subsidiaries minority shareholders’ upon the exercise of outstanding put option rights, relates to rights exercisable within the next twelve months. Upon the settlement of the total amount of such put options, the Company estimates that it would receive incremental operating income before depreciation and amortization of $19.2 million.

Critical Accounting Policies

The following summary of accounting policies has been prepared to assist in better understanding the Company’s consolidated financial statements and the related management discussion and analysis. Readers are encouraged to consider this information together with the Company’s consolidated financial statements and the related notes to the consolidated financial statements as included in the Company’s annual report on Form 10-K for a more complete understanding of accounting policies discussed below.

Estimates. The preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States of America, or “GAAP”, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities including goodwill, intangible assets, valuation allowances for receivables and deferred income tax assets, stock-based compensation, and the reporting of variable interest entities at the date of the financial statements. The statements are evaluated on an ongoing basis and estimates are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances. Actual results can differ from those estimates, and it is possible that the differences could be material.

Revenue Recognition. The Company generates services revenue from its Marketing Communications businesses.

The Company’s revenue recognition policies are in compliance with the SEC Staff Accounting Bulletin 104, “Revenue Recognition” (“SAB 104”), and accordingly, revenue is generally recognized when services are earned or upon delivery of the products when ownership and risk of loss has transferred to the customer, the selling price is fixed or determinable and collection of the resulting receivable is reasonably assured.

The Marketing Communications businesses earn revenue from agency arrangements in the form of retainer fees or commissions; from short-term project arrangements in the form of fixed fees or per diem fees for services; and from incentives or bonuses.

Non-refundable retainer fees are generally recognized on a straight-line basis over the term of the specific customer contract. Commission revenue is earned and recognized upon the placement of advertisements in various media when the Company has no further performance obligations. Fixed fees for services are recognized upon completion of the earnings process and acceptance by the client. Per diem fees are recognized upon the performance of the Company’s services. In addition, for certain service transactions the Company uses the Proportional Performance model, which results in delivery being considered to occur over a period of time.

Fees billed to clients in excess of fees recognized as revenue are classified as advance billings.

A small portion of the Company’s contractual arrangements with clients includes performance incentive provisions, which allow the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. The Company recognizes the incentive portion of revenue under these arrangements when specific quantitative goals are achieved, or when the Company’s clients determine performance against qualitative goals has been achieved. In all circumstances, revenue is only recognized when collection is reasonably assured.

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The Company’s revenue recognition policies are in compliance with the SEC Staff Accounting Bulletin 104, “Revenue Recognition” (“SAB 104”). SAB 104 summarizes certain of the SEC staff’s views in applying generally accepted accounting principles to revenue recognition in financial statements. Also, in July 2000, the EITF of the Financial Accounting Standards Board released Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” (“EITF 99-19). This Issue summarized the EITF’s views on when revenue should be recorded at the gross amount billed because it has earned revenue from the sale of goods or services, or the net amount retained because it has earned a fee or commission. In the Marketing Communications Group businesses, the business at times acts as an agent and records revenue equal to the net amount retained, when the fee or commission is earned.

Acquisitions, Goodwill and Other Intangibles. A fair value approach is used in testing goodwill for impairment under SFAS 142 to determine if an other than temporary impairment has occurred. One approach utilized to determine fair values is a discounted cash flow methodology. When available and as appropriate, comparative market multiples are used. Numerous estimates and assumptions necessarily have to be made when completing a discounted cash flow valuation, including estimates and assumptions regarding interest rates, appropriate discount rates and capital structure. Additionally, estimates must be made regarding revenue growth, operating margins, tax rates, working capital requirements and capital expenditures. Estimates and assumptions also need to be made when determining the appropriate comparative market multiples to be used. Actual results of operations, cash flows and other factors used in a discounted cash flow valuation will likely differ from the estimates used and it is possible that differences and changes could be material.

The Company has historically made and expects to continue to make selective acquisitions of marketing communications businesses. In making acquisitions, the price paid is determined by various factors, including service offerings, competitive position, reputation and geographic coverage, as well as prior experience and judgment. Due to the nature of advertising, marketing and corporate communications services companies; the companies acquired frequently have significant identifiable intangible assets, which primarily consist of customer relationships. The Company has determined that certain intangibles (trademarks) have an indefinite life, as there are no legal, regulatory, contractual, or economic factors that limit the useful life.

A summary of the Company’s deferred acquisition consideration obligations, sometimes referred to as earnouts, and obligations under put rights of subsidiaries’ minority shareholders to purchase additional interests in certain subsidiary and affiliate companies is set forth in the “Liquidity and Capital Resources” section of this report. The deferred acquisition consideration obligations and obligations to purchase additional interests in certain subsidiary and affiliate companies are primarily based on future performance. Contingent purchase price obligations are accrued, in accordance with GAAP, when the contingency is resolved and payment is determinable.

Allowance for doubtful accounts. Trade receivables are stated less allowance for doubtful accounts. The allowance represents estimated uncollectible receivables usually due to customers’ potential insolvency. The allowance included amounts for certain customers where risk of default has been specifically identified.

Income tax valuation allowance. The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management considers factors such as the reversal of deferred income tax liabilities, projected future taxable income, the character of the income tax asset; tax planning strategies, changes in tax laws and other factors. A change to these factors could impact the estimated valuation allowance and income tax expense.

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Stock-Based Compensation. Effective January 1, 2003, the Company prospectively adopted fair value accounting for stock-based awards as prescribed by SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Prior to January 1, 2003, the Company elected not to apply fair value accounting to stock-based awards to employees, other than for direct awards of stock and awards settleable in cash, which required fair value accounting. Prior to January 1, 2003, for awards not elected to be accounted for under the fair value method, the Company accounted for stock-based awards in accordance with Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” (“APB 25”). APB 25 is based upon an intrinsic value method of accounting for stock-based awards. Under this method, compensation cost is measured as the excess, if any, of the quoted market price of the stock issuance at the measurement date over the amount to be paid by the employee.

The Company adopted fair value accounting for stock-based awards using the prospective application transitional alternative available in SFAS 148 “Accounting for Stock-Based Compensation—Transition and Disclosure”. Accordingly, the fair value method is applied to all awards granted, modified or settled on or after January 1, 2003. Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed over the service period, that is the award’s vesting period. When awards are exercised, share capital is credited by the sum of the consideration paid together with the related portion previously credited to additional paid-in capital when compensation costs were charged against income or acquisition consideration.

Stock-based awards that are settled in cash or may be settled in cash at the option of employees are recorded as liabilities. The measurement of the liability and compensation cost for these awards is based on the intrinsic value of the award, and is recorded into operating income over the service period, that is the vesting period of the award in accordance with FASB Interpretation Number 28- “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans—an interpretation of APB Opinions No. 15 and 25”(“FIN 28”). Changes in the Company’s payment obligation subsequent to vesting of the award and prior to the settlement date are recorded as compensation cost in operating income in the period of the change. The final payment amount for such awards is established on the date of the exercise of the award by the employee.

Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair value on the date of grant and recorded as additional paid-in capital. The fair value measurement of the compensation cost for these awards is based on using the Black-Scholes option pricing model, and is recorded into operating income over the service period, that is the vesting period of the award.

Effective January 1, 2006, the Company adopted FAS 123(R) and has opted to use the modified prospective application transition method. Under this method the Company will not restate its prior financial statements. Instead, the Company will apply FAS 123(R) for new awards granted after the adoption of FAS 123(R), any portion of awards that were granted after December 15, 1994 and have not vested as of January 1, 2006, and any outstanding liability awards.

Measurement of compensation cost for awards that are outstanding and classified as equity, at January 1, 2006, will be based on the original grant-date fair value calculations of those awards. The Company had previously adopted FAS 123 and as such has been expensing the fair value of all awards issued after January 1, 2003. For all previously issued awards, the Company has been providing pro-forma disclosure for such awards. Upon the adoption of FAS 123(R), the Company expenses the fair value of the awards granted prior to January 1, 2003. The Company has adopted the straight-line attribution method for determining the compensation cost to be recorded during each accounting period. The adoption of FAS 123(R) did not have a material effect on the Company’s financial position or results of operations.

Variable Interest Entities. The Company evaluates its various investments in entities to determine whether the investee is a variable interest entity and if so whether MDC is the primary beneficiary. Such evaluation requires management to make estimates and judgments regarding the sufficiency of the equity at risk in the investee and the expected losses of the investee and may impact whether the investee is accounted for on a consolidated basis.

New Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation is effective for fiscal years beginning after December 15, 2006, with earlier application permitted. The Company is currently evaluating the impact if any this Interpretation will have on its financial statements.

In September 2006, FASB issued SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement is effective for all fiscal year beginning after November 15, 2007 and interim periods within those fiscal years. Earlier application is encouraged. The Company is currently evaluating the impact of this statement on its financial statements.

In September 2006, FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. This statement requires employers with defined benefit plans to recognize the over funded or under funded status of a defined benefit plan. This statement also expands the required disclosures around these plans. This statement is effective for all fiscal years ending after December 15, 2006. The Company does not expect its financial statements to be significantly impacted by this statement.

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Risks and Uncertainties

This document contains forward-looking statements. The Company’s representatives may also make forward-looking statements orally from time to time. Statements in this document that are not historical facts, including statements about the Company’s beliefs and expectations, recent business and economic trends, potential acquisitions, estimates of amounts for deferred acquisition consideration and “put” option rights, constitute forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:

· risks associated with effects of national and regional economic conditions;

· the Company’s ability to attract new clients and retain existing clients;

· the financial success of the Company’s clients;

· the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its contingent payment obligations when due and payable, including but not limited to those relating to “put” options rights;

· risks arising from identified and potential future material weaknesses in internal control over financial reporting;

· the Company’s ability to retain and attract key employees;

· the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities;

· foreign currency fluctuations; and

· risks arising from the Company’s internal review of its historical option grant practices.

In addition to improving organic growth for its existing operations, the Company’s business strategy includes ongoing efforts to engage in material acquisitions of ownership interests in entities in the marketing communications services industry. The Company intends to finance these acquisitions by using available cash from operations and through incurrence of bridge or other debt financing, either of which may increase the Company’s leverage ratios, or by issuing equity, which may have a dilutive impact on existing shareholders proportionate ownership. At any given time, the Company may be engaged in a number of discussions that may result in one or more material acquisitions. These opportunities require confidentiality and may involve negotiations that require quick responses by the Company. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transactions, the announcement of any such transaction may lead to increased volatility in the trading price of the Company’s securities.

Investors should carefully consider these risk factors, the risk factors specified in Item 1A of this Form 10-Q, and in the additional risk factors outlined in more detail in the Company’s Annual Report on Form 10-K under the caption “Risk Factors” and in the Company’s other SEC filings.

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Item 3.Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk related to interest rates and foreign currencies.

Debt Instruments. At September 30, 2006, the Company’s debt obligations consisted of amounts outstanding under a revolving credit facility. This facility bears interest at variable rates based upon the Eurodollar rate, US bank prime rate, US base rate, and Canadian bank prime rate, at the Company’s option. The Company’s ability to obtain the required bank syndication commitments depends in part on conditions in the bank market at the time of syndication. Given the existing level of debt of $85.3 million, as of September 30, 2006, a 1.0% increase or decrease in the weighted average interest rate, which was 8.4% during the nine months ended September 30, 2006, would have an interest impact of approximately $0.9 million annually.

Foreign Exchange. The Company conducts business in three currencies, the US dollar, the Canadian dollar, and the British Pound. Our results of operations are subject to risk from the translation to the US dollar of the revenue and expenses of our non-US operations. The effects of currency exchange rate fluctuations on the translation of our results of operations are discussed in “Management’s Discussion and Analysis of Financial Condition and Result of Operations”. For the most part, our revenues and expenses incurred related to those revenues are denominated in the same currency. This minimizes the impact that fluctuations in exchange rates will have on profit margins. The Company does not enter into foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.

Effective June 28, 2005, the Company entered into a cross currency swap contract (“Swap”), a form of derivative in order to mitigate the risk of currency fluctuations relating to interest payment obligations. The Swap contract provides for a notional amount of debt fixed at C$45.0 million and at $36.5 million, with the interest rates fixed at 8% per annum for the Canadian dollar amount and fixed at 8.25% per annum for the US dollar amount. On June 22, 2006, the Company settled this Swap.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be included in our SEC reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and our President & Chief Financial Officer (CFO), who is our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

We conducted an evaluation, under the supervision and with the participation of our management, including our CEO, our CFO and our management Disclosure Committee, of the effectiveness of our disclosure controls and procedures as of September 30, 2006, pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, and in light of the facts and material weaknesses in the Company’s internal control over financial reporting described below, the CEO and the CFO concluded that the Company’s disclosure controls and procedures were not effective as of that date. Accordingly, the Company performed additional analysis and procedures to ensure that its consolidated financial statements were prepared in accordance with US GAAP. These procedures included monthly analytic reviews of subsidiaries’ financial results, and quarterly certifications by senior management of subsidiaries regarding the accuracy of reported financial information. In addition, the Company performed additional procedures to provide reasonable assurance that the financial statements included in this report are fairly presented in all material respects.

Changes in Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management previously assessed the effectiveness of our internal control over financial reporting as of December 31, 2005, using the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, management concluded that, as of December 31, 2005, the Company did not maintain effective internal control over financial reporting due to several material weaknesses. These material weaknesses, which are described in greater detail in the Company’s annual report on Form 10-K for the year ended December 31, 2005, comprised:

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a. Accounting for Complex and Non-Routine Transactions - The Company continues to have a material weakness with respect to accounting for complex and non-routine transactions. The Company did not have a sufficient number of finance personnel with sufficient technical accounting knowledge, or an appropriate process to address and review complex and non-routine accounting matters.

b. Revenue Recognition and Accounting for Related Costs - As a result of certain deficiencies in the controls over the application of accounting standards at certain subsidiaries within the Marketing Communications Group, and deficiencies in controls over the recording of revenue and costs of revenue at certain subsidiaries, the Company continues to have a material weakness with respect to revenue recognition and accounting for certain related costs. Specifically, controls were not designed and in place to ensure that customer contracts were analyzed to select the appropriate method of revenue recognition. In addition, controls were not designed and in place to ensure that revenue transactions were analyzed for appropriate presentation and disclosure of billable client pass-through expenses or for revenue recognition on a gross or net basis.

c. Segregation of Duties - The Company continues to have control deficiencies within its accounting and finance departments and its financial information systems over segregation of duties and user access respectively. Specifically, certain duties within the accounting and finance department were not properly segregated.

The Company is currently designing and implementing improved controls to address the material weaknesses described above. In the third quarter of 2006, the Company took (and, in certain cases, subsequently took or is continuing to take) certain steps in an effort to enhance its overall internal control over financial reporting and to address these material weaknesses. Specifically, the Company is improving procedures for reviewing underlying business agreements and analyzing, reviewing and documenting the support for management’s accounting entries and significant transactions.

The Company continues to dedicate significant personnel and financial resources to the ongoing development and implementation of a plan to remediate its material weaknesses in internal control over financial reporting. There havebeen no other changes in the Company’s internal control over financial reporting that occurred during the third quarter of 2006 or subsequently that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

A Special Committee of the Board of Directors of the Company is continuing to review the Company's historical option award practices and procedures. Management expects this internal review to be concluded, with appropriate recommendations made and implemented, prior to December 31, 2006.

The Company’s operating entities are involved in legal proceedings of various types. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company.

Item 1A. Risk Factors

There are no material changes in the risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year-ended December 31, 2005 and the Company’s Form 10-Q for the period ended June 30, 2006.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

There were no transactions occurring during the third quarter of 2006 in which the Company issued shares of its Class A subordinate voting shares that were not registered with the SEC. The Company made no purchases of its equity securities during the first nine months of 2006.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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Item 6.Exhibits

Exhibit No.	Description
10.1	Amendment No. 8 dated as of August 3, 2006, to the Credit Agreement (made on September 22, 2004) (incorporated by reference to the Company’s Form 10-Q filed on August 8, 2006);
10.2	Amendment No. 9 dated as of November 3, 2006, to the Credit Agreement (made on September 22, 2004)*
10.3	Stock Purchase Agreement, dated November 3, 2006, by and among the Company (as seller), Secured Products (Cayman), Inc. (as purchaser) and H.I.G. Capital Management, Inc., relating to the sale of the Company's Secured Products International Group *
12	Statement of computation of ratio of earnings to fixed charges;*
31.1	Certification by Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002*;
31.2	Certification by President and CFO pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002*;
32.1	Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*;
32.2	Certification by President and CFO pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*;
99.1	List of the Company’s operating subsidiaries by reportable segments.*

* Filed electronically herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MDC PARTNERS INC.

/s/ Michael Sabatino

Michael Sabatino

Chief Accounting Officer

November 9, 2006

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Amendment No. 8 dated as of August 3, 2006, to the Credit Agreement (made on September 22, 2004) (incorporated by reference to the Company’s Form 10-Q filed on August 8, 2006);
10.2	Amendment No. 9 dated as of November 3, 2006, to the Credit Agreement (made on September 22, 2004)*
10.3	Stock Purchase Agreement, dated November 3, 2006, by and among the Company (as seller), Secured Products (Cayman), Inc. (as purchaser) and H.I.G. Capital Management, Inc., relating to the sale of the Company's Secured Products International Group *
12	Statement of computation of ratio of earnings to fixed charges;*
31.1	Certification by Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002*;
31.2	Certification by President and CFO pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002*;
32.1	Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*;
32.2	Certification by President and CFO pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*;
99.1	List of the Company’s operating subsidiaries by reportable segments*.

 *Filed electronically herewith.

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EX-10.2

EXHIBIT 10.2

AMENDMENT NO. 9

AMENDMENT NO. 9 dated as of November 3, 2006 to the Credit Agreement referred to below, between MDC Partners Inc., a Canadian corporation (“MDC Partners”), Maxxcom Inc., an Ontario corporation (“Maxxcom Canada”), Maxxcom Inc., a Delaware corporation (“Maxxcom U.S.” and together with MDC Partners and Maxxcom Canada, the “Borrowers”), each of the Lenders identified under the caption “LENDERS” on the signature pages hereto and JPMorgan Chase Bank, N.A. (“JPMCB”), as U.S. administrative agent for the Lenders (in such capacity, the “U.S. Administrative Agent”).

The Borrowers, the Lenders party thereto (individually, a “Lender” and, collectively, the “Lenders”), the U.S. Administrative Agent, JPMCB, as Collateral Agent (in such capacity, the “Collateral Agent”), and JPMCB, Toronto Branch, as Canadian Administrative Agent (in such capacity, the “Canadian Administrative Agent” and together with the U.S. Administrative Agent, the “Administrative Agents”) are parties to a Credit Agreement dated as of September 22, 2004 (as amended, the “Credit Agreement”). The Borrowers and the Required Lenders wish to amend the Credit Agreement in certain respects, and accordingly, the parties hereto hereby agree as follows:

Section 1. Definitions. Capitalized terms used in this Amendment No. 9 and not otherwise defined are used herein as defined in the Credit Agreement.

Section 2. Amendments. Effective as provided in Section 5 hereof, the Credit Agreement shall be amended as follows:

2.01. References in the Credit Agreement (including references to the Credit Agreement as amended hereby) to “this Agreement” (and indirect references such as “hereunder”, “hereby”, “herein” and “hereof”) shall be deemed to be references to the Credit Agreement as amended hereby.

2.02. Section 1.01 of the Credit Agreement is hereby amended by amending the following definitions to read in their entirety as follows:

“Net Available Proceeds” means, (a) with respect to any Equity Issuance occurring on or prior to December 30, 2005, the aggregate amount of all cash received by the Borrowers and their Subsidiaries in respect of such Equity Issuance, net of any legal, title and recording tax expenses, financial advisory fees, commissions and other fees and expenses paid or payable by any such Person in connection therewith and (b) with respect to the Disposition in whole or in part of the Secure Products Business, the aggregate amount of all cash received by the Borrowers and their Subsidiaries in respect of such Disposition in excess of $12,500,000, net of (i) any legal, title and recording tax expenses, financial advisory fees, commissions and other fees and expenses paid or payable by any such Person in connection therewith and (ii) any income or other taxes paid or reasonably estimated to be payable by any such Person as a result thereof.

“Net Worth” means the shareholders’ equity of MDC Partners and its Subsidiaries determined on a Consolidated basis in accordance with U.S. GAAP; provided that the calculation of such Consolidated shareholders’ equity shall be adjusted to include an addition for any losses on sale or non-cash impairment charges recorded in connection with the Disposition in whole or in part of the Secure Products Business not to exceed $21,500,000.

2.03 Section 8.01 of the Credit Agreement is hereby amended in its entirety to read as follows:

“SECTION 8.01. Total Debt Ratio.MDC Partners will not permit the Total Debt Ratio as of the last day of any Test Period ending on or, as applicable, after the dates set forth below to exceed the ratio set forth opposite such Test Period:

Test Period Ending	Total Debt Ratio
September 30, 2006	2.90 to 1.00
December 31, 2006	3.25 to 1.00
March 31, 2007	3.00 to 1.00
June 30, 2007	2.75 to 1.00”

Section 3. Representations and Warranties. Each Borrower represents and warrants (as to itself and each of its Subsidiaries) to the Agents and Lenders that (a) the representations and warranties set forth in Article V of the Credit Agreement, as amended hereby, and in each of the other Loan Documents are complete and correct on the date hereof as if made on and as of such date and as if each reference in said Article V to “this Agreement” included reference to this Amendment No. 9 and (b) no Default shall have occurred and be continuing under the Credit Agreement, as amended hereby.

Section 4. Confirmation of Security Documents. Each of the Borrowers hereby confirms and ratifies all of its obligations under the Loan Documents to which it is a party, including its obligations as a guarantor under Article III of the Credit Agreement as amended hereby. By its execution on the respective signature lines provided below, each of the Guarantors hereby confirms and ratifies all of its obligations and the Liens granted by it under the Security Documents to which it is a party, represents and warrants that the representations and warranties set forth in such Security Documents are complete and correct on the date hereof as if made on and as of such date and confirms that all references in such Security Documents to the “Credit Agreement” (or words of similar import) refer to the Credit Agreement as amended hereby without impairing any such obligations or Liens in any respect.

Section 5. Conditions Precedent to Effectiveness. The amendments set forth in Section 2 hereof shall become effective, as of the date hereof, upon (a) receipt by the U.S. Administrative Agent of one or more counterparts of this Amendment No. 9 executed by the Obligors and the Required Lenders and (b) the payment of an amendment fee to the U.S. Administrative Agent for the account of each Lender that has approved this Amendment No. 9 on or before 12:00 noon, New York City time, on November 3, 2006, such amendment fee to be in an amount equal to 0.10% of the Commitment of such Lender.

Section 6. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 9 may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement and any of the parties hereto may execute this Amendment No. 9 by signing any such counterpart. This Amendment No. 9 shall be governed by, and construed in accordance with, the law of the State of New York.

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 9 to be duly executed and delivered as of the day and year first above written.

MDC PARTNERS INC.

By:________________________________

Name:

Title: Authorized Signatory

By:________________________________

Name:

Title: Authorized Signatory

MAXXCOM INC., an Ontario corporation

By:________________________________

Name:

Title: Authorized Signatory

By:________________________________

Name:

Title: Authorized Signatory

MAXXCOM INC., a Delaware corporation

By:________________________________

Name:

Title: Authorized Signatory

By:________________________________

Name:

Title: Authorized Signatory

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Agreed as set forth in Section 4 above:

GUARANTORS

Signed sealed and delivered by the attorney of Placard Pty Ltd ACN 074 646 343 under power of attorney and who has received no notice of the revocation of the power, in the presence of:
_______________________	_______________________
Signature of witness	Signature of attorney
Name of witness: Ray Forzley	Name of attorney: Walter Campbell

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1208075 ONTARIO LIMITED

1220777 ONTARIO LIMITED

1385544 ONTARIO LIMITED

2026646 ONTARIO LIMITED

656712 ONTARIO LIMITED

AMBROSE CARR LINTON CARROLL INC.

ASHTON POTTER CANADA INC.

BRUCE MAU DESIGN INC.

BRUCE MAU HOLDINGS LTD.

CAMPBELL + PARTNERS COMMUNICATIONS LTD.

COMPUTER COMPOSITION OF CANADA INC.

HENDERSON BAS

MAXXCOM (NOVA SCOTIA) CORP.

MAXXCOM INTERACTIVE INC.

METACA CORPORATION

STUDIOTYPE INC.

TREE CITY INC

By: ________________________________

Name:

Title: Authorized Signatory

By: ________________________________

Name:

Title: Authorized Signatory

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ACCENT ACQUISITION CO.

ACCENT INTERNATIONAL, INC.

ACCENT MARKETING SERVICES, L.L.C.

ASHTON-POTTER (USA) LTD.

BRATSKEIR & COMPANY, INC.

CHINNICI DIRECT, INC.

CMS U.S. HOLDCO, INC.

COLLE & MCVOY, INC.

CPB ACQUISITION INC.

CRISPIN PORTER & BOGUSKY LLC

DOTGLU LLC

FLETCHER MARTIN LLC

FMA ACQUISITION CO.

HELLO ACQUISITION INC.

KBP HOLDINGS LLC

KIRSHENBAUM BOND & PARTNERS LLC

KIRSHENBAUM BOND & PARTNERS WEST LLC

LAFAYETTE PRODUCTIONS LLC

MACKENZIE MARKETING, INC.

MARGEOTES/FERTITTA + PARTNERS LLC

MAXXCOM (USA) FINANCE COMPANY

MAXXCOM (USA) HOLDINGS INC.

MDC USA HOLDINGS INC.

MDC/KBP ACQUISITION INC.

MF+P ACQUISITION CO.

MONO ADVERTISING, LLC

PRO-IMAGE CORPORATION

SABLE ADVERTISING SYSTEMS, INC.

SMI ACQUISITION CO.

SOURCE MARKETING LLC

TARGETCOM LLC

VITROROBERTSON LLC

ZG ACQUISITION INC.

ZYMAN GROUP, LLC

By: ________________________________

Name:

Title: Authorized Signatory

By: ________________________________

Name:

Title: Authorized Signatory

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LENDERS

JPMORGAN CHASE BANK, N.A.

By:________________________________

Name:

Title:

JPMORGAN CHASE BANK, N.A., TORONTO

BRANCH

By:________________________________

Name:

Title:

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BANK OF MONTREAL (CHICAGO BRANCH)

By:________________________________

Name:

Title:

BANK OF MONTREAL

By:________________________________

Name:

Title:

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THE BANK OF NOVA SCOTIA, by its Atlanta Agency

By:________________________________

Name:

Title:

THE BANK OF NOVA SCOTIA

By:________________________________

Name:

Title:

By:________________________________

Name:

Title:

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TORONTO DOMINION (TEXAS) INC.

By:________________________________

Name:

Title:

THE TORONTO-DOMINION BANK

By:________________________________

Name:

Title:

- 10 -

CIBC INC.

By:________________________________

Name:

Title:

CANADIAN IMPERIAL BANK OF COMMERCE

By:________________________________

Name

Title:

By:________________________________

Name:

Title:

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EX-10.3

EXHIBIT 10.3

STOCK PURCHASE AGREEMENT

by and among

SECURED PRODUCTS (CAYMAN), INC.,

H.I.G. CAPITAL MANAGEMENT, INC.

and

MDC PARTNERS INC.

dated as of

November 3, 2006

STOCK PURCHASE AGREEMENT

Stock Purchase Agreement, dated as of November 3, 2006, by and among Secured Products (Cayman), Inc., a Cayman Islands exempted company (“Purchaser”), and MDC Partners Inc., a Canadian corporation (“Seller”) and the holder of all the capital stock of 2114744 Ontario Inc., a newly-formed Ontario corporation that will conduct its business as Mercury Graphics (“Mercury”); Metaca Corporation, a Canadian corporation (“Metaca”); MDC USA Holdings Inc. (“MDC Holdco”), a Delaware corporation that owns all of the capital stock of Ashton-Potter [USA] Ltd., a Delaware corporation (“AP”)(Mercury, Metaca and MDC Holdco are referred to as the “Base Companies”, and collectively with AP and Placard Pty Ltd. (“Placard”), an Australian corporation that is wholly-owned by Metaca, the “Companies”), and H.I.G. Capital Management, Inc., a Delaware corporation (“HIG”) (for purposes of Sections 1.2(b)(i), 2.1(b)(iv) and 7 only). Certain capitalized terms used in this Agreement have the meanings assigned to them in Article IX.

WHEREAS each of the boards of directors of Purchaser and Seller has unanimously approved, and deems it advisable and in the best interests of its respective stockholders to consummate, the acquisition by Purchaser (or its designated Subsidiaries) from Seller, and the sale by Seller to Purchaser (or its designated Subsidiaries), of all the outstanding capital stock of the Base Companies upon the terms and subject to the conditions set forth herein;

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements set forth herein, intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I

PURCHASE AND SALE OF SHARES

1.1.Sale and Transfer of Shares. Subject to the terms and conditions of this Agreement, at the Closing, Seller shall sell, convey, assign, transfer and deliver to Purchaser (or its designated Subsidiaries) all the issued and outstanding Shares, free and clear of all Encumbrances, except for any Encumbrance arising under the Securities Act or any applicable state or provincial securities laws, and Purchaser (or its designated Subsidiaries) shall purchase, acquire and accept the Shares from Seller.

1.2.Consideration; Purchase Price. (a)  Subject to the terms and conditions of this Agreement, in consideration of the aforesaid sale, conveyance, assignment, transfer and delivery to Purchaser (or its designated Subsidiaries) of the Shares, Purchaser (or its designated Subsidiaries) shall (i) pay to Seller an amount of cash equal to $20 million (the “Base Purchase Price”), as adjusted pursuant to clause (c) (as so adjusted, the “Purchase Price”) and (ii) issue or deliver to Seller to Seller an amount equal to 7.5% of the issued ordinary shares, par value US$1.00, in Purchaser (the “MDC Shares”).

(b)The Purchase Price shall be paid by Purchaser to Seller as follows:

(i)Simultaneously with the execution of this Agreement, HIG shall deliver to the Escrow Agent, a wire transfer in immediately available federal funds in an amount equal to $1 million (the “Contract Deposit”), to be held by the Escrow Agent in accordance with the Deposit Escrow Agreement among the Escrow Agent, HIG, Purchaser and Seller of even date herewith (the “Deposit Escrow Agreement”). The Contract Deposit shall be non-refundable except as expressly provided in Article VII hereof;

(ii)At the Closing, an amount equal to $1 million of the Purchase Price (the “Escrow Amount”) shall be placed in escrow for a period of up to one (1) year following the Closing Date pursuant to the terms of the Escrow Agreement, as security for the purchase price adjustments described in Section 2.2, if any, and the indemnification obligations, if any, of Seller as set forth in Section 8 hereof; and

(iii)At the Closing, (A) Purchaser shall pay to Seller an amount equal to the balance of the Estimated Purchase Price (i.e., the balance of the Estimated Purchase Price less the Escrow Amount) and (B) (x) the Escrow Agent shall pay the Contract Deposit to HIG (together will all accrued interest thereon) or, (y) if the Contract Deposit has been released prior to the Closing pursuant to Section 7.2, Seller shall refund the Contract Deposit and the Second Contract Deposit to HIG by wire transfer of immediately available federal funds.

(c)The Base Purchase Price shall be (i) increased by the amount, if any, by which the Closing Working Capital exceeds $13 million or decreased by the amount, if any, by which the Closing Working Capital is less than $13 million; (ii) decreased by the aggregate amount of Indebtedness (excluding the Mercury Lease) of the Companies as of the Closing; and (iii) decreased by the aggregate amount of any professional fees and expenses (including, without limitation, accounting, broker and legal expenses and fees) that have been incurred by the Companies in connection with the transactions contemplated hereby and that have not been paid by the Seller as of the Closing (the “Transaction Expenses”).

(d)For purposes of determining the amount of cash to be paid as the Estimated Purchase Price by Purchaser to Seller at the Closing, Seller shall in good faith prepare an estimated calculation of the Closing Working Capital (such amount, the “Estimated Closing Working Capital”) on the basis described in the first sentence of Section 2.2(b). Seller shall deliver the calculation of Estimated Closing Working Capital to Purchaser not less than two Business Days before the Closing Date along with a certificate executed by an officer of the Seller certifying that such statement of Estimated Closing Working Capital was prepared on the basis described in Section 2.2(b).

(e)As used in this Agreement, the “Estimated Purchase Price” shall mean the amount equal to the Base Purchase Price (i) increased by the amount, if any, by which the Estimated Closing Working Capital exceeds $13 million or (ii) decreased by the amount, if any, by which the Estimated Closing Working Capital is less than $13 million, and as the same may be adjusted pursuant to Section 1.2(c)(ii) and (iii) of this Agreement.

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ARTICLE II

THE CLOSING

2.1.The Closing. (a)  The sale and transfer of the Shares by Seller to Purchaser (or its designated Subsidiaries) shall take place at the offices of Seller at 10:00 am (New York City time) on November 15, 2006 (the “Closing Date”), unless another date or place is agreed in writing by each of the parties hereto.

(b)At the Closing:

(i)Seller shall deliver to Purchaser (or its designated Subsidiaries) one or more certificates representing all the issued and outstanding Shares, each such certificate to be duly and validly endorsed in favor of Purchaser (or its designated Subsidiaries) or accompanied by a separate stock power duly and validly executed by Seller and otherwise sufficient to vest in Purchaser (or its designated Subsidiaries) legal and beneficial ownership of such Shares;

(ii)Purchaser (or its designated Subsidiaries) shall transfer the Estimated Purchase Price, less the Escrow Amount, to an account designated by Seller prior to the Closing by wire transfer of immediately available U.S. Dollar funds; and

(iii)Purchaser (or its designated Subsidiaries) shall transfer the Escrow Amount to the account designated by Escrow Agent prior to the Closing by wire transfer of immediately available U.S. Dollar funds.

(iv)HIG and Seller shall cause the Escrow Agent to release and pay the amount of the Contract Deposit to HIG (by joint written instruction), unless the Contract Deposit has been released to Seller prior to the Closing in connection with an Extension Election pursuant to Article 7, in which case Seller shall return to HIG the Contract Deposit and the Second Contract Deposit to HIG by wire transfer of immediately available federal funds at the Closing;

(v)Purchaser and Seller shall enter into a Transition Services Agreement substantially in the form of Exhibit A hereto (the “Transition Services Agreement”).

(vi)Purchaser and Seller shall enter into a Shareholders’ Agreement with respect to the MDC Shares substantially in the form of Exhibit B hereto.

(vii)Purchaser, Seller and the Escrow Agent shall enter into the Escrow Agreement substantially in the form of Exhibit C hereto (the “Escrow Agreement”).

(viii)All of the MDC Partner-designated directors and officers of the Companies listed on Schedule 2.1(b)(viii) shall have tendered resignations of their positions with the Companies.

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(ix)Seller shall prepare and deliver to the Purchaser a certificate (the “Certificate of Indebtedness”) representing and certifying as to (A) the amount of Indebtedness of each Company outstanding on the Closing Date, and specifying the amount owed to each creditor listed thereon and (B) the amount of Transaction Expenses of each Company outstanding on the Closing Date, and specifying the amount owed to each party listed thereon.

(x)Seller shall deliver to Purchaser pay-off letters and lien discharges (or agreements therefor) reasonably satisfactory to the Purchaser from each creditor listed on Schedule 2.1(b)(ix) hereto. Seller shall have evidenced the discharge of all Intercompany Arrangements between Placard and Metaca required to be discharged pursuant to Section 5.5 (in a manner reasonably satisfactory to the Purchaser).

(xi)Seller shall deliver the written consents, in form and substance reasonably satisfactory to Purchaser and Purchaser’s counsel, to the consummation of the transactions contemplated by this Agreement (including the Mercury Contribution) referenced on Schedule 2.1(b)(xi) hereto.

(xii)Seller shall have evidenced the completion of the Mercury Contribution pursuant to the Asset Purchase Rollover Agreement substantially in the form attached as Exhibit E hereto.

2.2.Post-Closing Adjustment.(a)  Seller has prepared the attached Schedule 2.2 which lists certain current asset and current liability accounts and certain accounting principles, methodologies and policies to be used to determine the Closing Working Capital. The Purchase Price shall be adjusted after the Closing in accordance with this Section 2.2 based upon the actual Closing Working Capital of the accounts shown on Schedule 2.2. For purposes hereof, the statement of the Closing Working Capital, together with the calculation of the Purchase Price that results from the determination of such amount, shall be referred to as the “Closing Statement.”

(b)The Closing Statement shall be prepared on the basis of, and using the same accounting principles, methodologies and policies, as specified in Schedule 2.2 and, to the extent not specified therein, as used in preparing the Financial Statements. If the Purchase Price as finally determined in accordance with this Section 2.2 (i) is less than the Estimated Purchase Price, Seller shall pay to Purchaser the amount by which the Purchase Price falls short of the Estimated Purchase Price, or (ii) exceeds the Estimated Purchase Price, Purchaser shall pay to Seller the amount by which the Estimated Purchase Price falls short of the Purchase Price. Any such payment shall be made by wire transfer of immediately available U.S. Dollar funds to an account designated by the party receiving payment within three Business Days after the final determination of the Purchase Price. The amount of any such payment not made when due shall bear interest at a rate per annum equal to the rate announced by Citibank, N.A. from time to time as its “BaseRate” plus two percent (2%) from the third Business Day after the final determination of the Purchase Price. Any amount owed by Seller to Purchaser pursuant to clause (b) may, at the Purchaser’s option, be satisfied from the Escrowed Amount pursuant to the Escrow Agreement.

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(c)As promptly as practicable (and, in any event, within 120 days after the Closing), Purchaser shall prepare and deliver to Seller the Closing Statement prepared in accordance with this Section 2.2. If Seller disagrees with the determination of the Closing Statement, Seller shall notify Purchaser of such disagreement within 60 days after delivery of the Closing Statement, which notice shall set forth any such disagreement in reasonable detail. If Seller fails to deliver this notice by the end of such 60 days, Seller shall be deemed to have accepted the Closing Statement delivered by Purchaser. Matters included in the calculations in the Closing Statement that are not objected to by Seller in such notice shall be deemed accepted by Seller and shall not be subject to further dispute or review. During the 60-day period of Seller’s review of the Closing Statement and the resolution of any disputes that may arise under this Section 2.2, Purchaser will, upon reasonable notice and during regular business hours, provide Seller and its accountants access to the books and records and personnel of the Companies and all documents, schedules and workpapers used by Purchaser in the preparation of the Closing Statement. Purchaser and Seller shall negotiate in good faith to resolve any such disagreement, and any resolution agreed to in writing by Purchaser and Seller shall be final and binding upon the parties.

(d)If Purchaser and Seller are unable to resolve any disagreement as contemplated by Section 2.2(c) within 30 days after delivery by Seller of written notice of such disagreement, Purchaser and Seller shall jointly select a partner at a mutually acceptable accounting firm to resolve such disagreement (the person so selected shall be referred to herein as the “Accounting Arbitrator”). The parties shall instruct the Accounting Arbitrator to consider only those items and amounts set forth in the Closing Statement as to which Purchaser and Seller have not resolved their disagreement. Purchaser and Seller shall use reasonable best efforts to cause the Accounting Arbitrator to deliver to the parties, as promptly as practicable, a written report setting forth the resolution of any such disagreement determined in accordance with the terms of this Agreement. Such report shall be final and binding upon the parties. The fees, costs and expenses of the Accounting Arbitrator shall be borne one-half by Purchaser and one-half by Seller; provided that if the Accounting Arbitrator determines that one party’s position is completely correct, then such party shall pay none of the fees, costs and expenses of the Accounting Arbitrator and the other party shall pay all such fees, costs and expenses.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth in the Disclosure Schedule delivered by Seller to Purchaser simultaneously with the execution hereof, Seller represents and warrants to Purchaser that all of the statements contained in this Article III are true as of the date of this Agreement (or, if made as of a specified date, as of such date) and as of the Closing Date. For purposes of the representations and warranties of Seller contained herein, disclosure in any section of the Disclosure Schedule of any facts or circumstances shall be deemed to be adequate response and disclosure of such facts or circumstances with respect to another representation or warranty by Seller calling for disclosure of such information if (a) a specific cross-reference is made to or from the appropriate Disclosure Schedule for such other representation or warranty or (b) the disclosure is described in sufficient detail such that its qualification of the other representation or warranty is reasonably apparent. Except as set forth in the Disclosure Schedule, Seller represents and warrants to Purchaser as of the date hereof (or, if the representation or warranty is made as of a specified date, as of such date), and as of the Closing Date, as follows:

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3.1.Organization. Seller and each of the Companies (a) is a corporation or other legal entity duly organized, validly existing and, if applicable, in good standing under the laws of its jurisdiction of organization; (b) has all requisite corporate or other legal entity power and authority to carry on its business as it is now being conducted and to own the properties and assets it now owns; and (c) is duly qualified or licensed to do business in every jurisdiction in which such qualification is required. No meeting has been convened, resolution proposed, petition presented or order made for the winding up of any Company. Seller has heretofore delivered to Purchaser, or made available for review by Purchaser, complete and correct copies of the certificate of incorporation and by-laws of each Company, and all amendments thereto, as presently in effect.

3.2.Authorization. Seller has the requisite corporate power and authority and full legal right to execute, deliver and perform this Agreement and to consummate the Closing and the Mercury Contribution. The execution, delivery and performance by Seller of this Agreement and the consummation by Seller of the Closing and the Mercury Contribution have been duly authorized by the board of directors of Seller, and no other corporate action on the part of Seller or any Company is necessary to authorize the execution, delivery and performance by Seller of this Agreement or the consummation by Seller of the Closing and the Mercury Contribution.

3.3.Execution; Validity of Agreement. This Agreement has been duly executed and delivered by Seller, and, assuming due and valid authorization, execution and delivery hereof by Purchaser, is a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms.

3.4.Consents and Approvals; No Violations. Except for (i) the filing of reports by Seller under the Exchange Act and in accordance with NASDAQ National Market and Toronto Stock Exchange rules and requirements and (ii) filings, permits, authorizations, consents and approvals as may be required under the HSR Act and applicable non-U.S. laws with respect to foreign investment and competition, and other applicable requirements of state or provincial securities or blue sky laws, none of the execution, delivery or performance of this Agreement by Seller or the consummation by Seller of the Closing or the Mercury Contribution will (a) conflict with or result in any breach of any provision of the certificate of incorporation or by-laws of Seller or any of the Companies, (b) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity, (c) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any contract, agreement, insurance policy, loan, lease, license, guarantee or commitment by which the Companies or any of their respective assets or properties are bound, (d) violate any statute, law, constitutional provision, code, regulation, ordinance, rule, ruling, judgment, decision, order, writ, injunction, decree, permit, concession, grant, franchise, license, agreement, directive, binding guideline or policy, or rule of common law, requirement of or other governmental restriction of or determination by any Government Entity or any interpretation of any of the foregoing by any Governmental Entity (“Law”) applicable to Seller, any of the Companies or any of their properties or assets, or (e) result in the creation or imposition of any Encumbrance (other than a Permitted Encumbrance) on any properties or assets of the Companies, excluding from the foregoing clauses (b), (c) and (d) such violations, breaches and defaults which would become applicable as a result of the business or activities in which Purchaser is or proposes to be engaged (to the extent different from the businesses engaged in by the Companies) or as a result of any acts or omissions by, or the status of any facts pertaining specifically to, Purchaser or any of its Affiliates (other than the Companies).

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3.5.Ownership and Possession of Shares. As of the Closing, Seller is the registered and beneficial owner of all the issued and outstanding Shares, free and clear of all Encumbrances whatsoever, except for any Encumbrances created by this Agreement and Encumbrances arising under the Securities Act or any applicable state or provincial securities laws.

3.6.Capitalization. The issued and outstanding capital stock of each Base Company consists exclusively of the Shares. Metaca is the registered holder and beneficial owner of all of the shares issued in the capital of Placard. MDC Holdco is the registered holder and beneficial owner of all of the shares issued in the capital of AP. Seller is the registered holder and beneficial owner of all of the shares issued in the capital of Mercury. All the Shares are duly authorized, validly issued, fully paid and non-assessable. There are no options, rights or agreements to which any of Seller, any Company or any of their respective Subsidiaries is a party or by which any of them is bound obligating any of them (a) to issue, deliver or sell, or refrain from issuing, delivering or selling, any shares of capital stock of any Company or any Subsidiary, or to grant, extend or enter into any such option, right or agreement, (b) to repurchase, redeem or otherwise acquire, or to refrain from repurchasing, redeeming or otherwise acquiring, any shares of capital stock of any Company or any Subsidiary, or to grant, extend or enter into any such option, right or agreement or (c) to vote, or to refrain from voting, any shares of capital stock of any Company or any Subsidiary.

3.7.Subsidiaries and Affiliates. Schedule 3.7 of the Disclosure Schedule sets forth, as of the date hereof, a complete list of each Subsidiary of each Company, and each Subsidiary is wholly-owned by such Company. Except as set forth on the Disclosure Schedule, none of the Companies has any Subsidiaries and none of the Companies otherwise owns, any shares in the capital of or any interest in, or control, directly or indirectly, any corporation, partnership, association, joint venture, business trust, or other business entity.

3.8.Financial Statements. True and complete copies of the Financial Statements are included in the Disclosure Schedule. The Financial Statements have been prepared in accordance with applicable GAAP (subject, in the case of the Interim Financials, to the absence of notes and to normal recurring year-end adjustments) and present, in all material respects, the financial position and the results of operations of each Company as of the dates and for the periods referred to therein. Each of the balance sheets included in the Financial Statements fairly and accurately presents, in all material respects, the financial condition of each Company as of its respective date. Each of the statements of income, retained earnings and cash flows, if any, included in the Financial Statements fairly and accurately present, in all material respects, the results of operations of each Company for the periods covered thereby.

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3.9.Absence of Certain Changes.

(a)Since the Balance Sheet Date, (i) no event, change or circumstance that would have a Company Material Adverse Effect has occurred, and (ii) except as set forth in Section 3.9 of the Disclosure Schedule, each Company has carried on its business only in the ordinary course, and there has not been (A) any change in the assets, liabilities, sales, income or business of such Company or in the relationships with suppliers, customers or lessors, other than changes which were both in the ordinary course of business and have not been, either in any case or in the aggregate, materially adverse; (B) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting, either in any case or in the aggregate, the property or business of such Company; (C) any forgiveness or cancellation of any debt or claim by such Company or any waiver of any right of material value other than compromises of accounts receivable in the ordinary course of business; (D) any entry by such Company into any transaction other than in the ordinary course of business; or (D) any discharge or satisfaction by such Company of any lien or encumbrance or payment by such Company of any obligation or liability (fixed or contingent) other than (x) current liabilities included in the Year-End Balance Sheet or the Closing Statement and (y) current liabilities incurred since the date of the Year-End Balance Sheet in the ordinary course of business.

(b)Except as set forth on Schedule 3.9 or as contemplated in connection with the transactions set forth in this Agreement, since the Balance Sheet Date, no Company has:

(i)(x) amended its certificate of incorporation or by-laws or similar organizational documents or (y) (A) issued, sold, transferred, pledged, disposed of or encumbered any shares of any class or series of its capital stock, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of any class or series of its capital stock, (B) declared, set aside or paid any non-cash dividend or any other distribution payable in stock or property (other than cash and cash equivalents) with respect to any shares of any class or series of its capital stock, (C) split, combined or reclassified any shares of any class or series of its stock or (D) redeemed, purchased or otherwise acquired directly or indirectly any shares of any class or series of its capital stock, or any instrument or security which consists of or includes a right to acquired such shares;

(ii)made any change in the compensation, pension or other benefits payable or to become payable to any of its employees (other than normal recurring increases in the ordinary course of business or pursuant to plans, programs or agreements existing on the date hereof);

(iii)adopted a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other corporate reorganization of such Company;

(iv)changed in any material respect any of the accounting methods used by it unless required by applicable GAAP and disclosed to Purchaser in writing;

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(v)become legally committed to any new capital expenditure requiring expenditures after the Closing in excess of $50,000, except for expenditures pursuant to projects for which work has already been commenced or committed;

(vi)except in the ordinary course of business, sold, leased, licensed, mortgaged or created an Encumbrance upon (other than Permitted Encumbrances) any of its respective assets or properties at a price in excess of $50,000 in the aggregate or in a transaction that is not arms-length;

(vii)made any loans or advances to any Person such that the amount of principal owed by such Person to any Company shall be in excess of $10,000; and

(viii) entered into any agreement, contract or commitment to do any of the foregoing.

3.10.Property and Assets.

(a)  Each of the Companies has good and marketable title to, or a valid lease, license or right to use, all assets, properties and rights used by it. Those real and other tangible properties purported to be owned by each of the Companies are held free and clear of all Encumbrances other than (i) Encumbrances for Taxes not yet due and payable, (ii) mechanics’, materialmen’s, carriers’, workers’, repairers’, landlords’ and similar Encumbrances arising or incurred in the ordinary course of business, (iii) zoning, entitlement, building and other land use regulations that are not violated by current occupancy or use and (iv) customary covenants, conditions, restrictions, easements and similar restrictions of record affecting title that do not impair current occupancy or use (clauses (i) through (iv) being “Permitted Encumbrances”). All tangible assets owned or leased by each Company are in satisfactory operating condition for the uses to which they are being put, subject to ordinary wear and tear and ordinary maintenance requirements. Section 3.10(a)(i) of the Disclosure Schedule sets forth a complete list of all Real Property and specifies which Real Property is owned and which is leased. Section 3.10(a)(ii) of the Disclosure Schedule sets forth a complete and correct list of all capital assets of each of the Companies having a book or fair market value in excess of $25,000. There are no material defects in any such capital assets (subject to ordinary wear and tear and ordinary maintenance requirements) or Real Property, as to title or condition, not described in Section 3.10(a)(i) or 3.10(a)(ii) of the Disclosure Schedule. Neither Seller nor any of the Companies has received any notice that either the whole or any portion of the Real Property is to be condemned, expropriated, requisitioned or otherwise taken by any public authority. Neither Seller nor any of the Companies has any knowledge of any public improvements that may result in special assessments against any of the Real Property. Section 3.10(a)(i) of the Disclosure Schedule sets forth (i) a complete and correct description of all leases of Real Property to which any of the Companies is a party and (ii) a complete and accurate list of the street addresses of all real property leased by any of the Companies. Complete and correct copies of all such leases have been delivered or made available to Purchaser. Each such lease is valid and subsisting, and no action has been taken or omitted by any Company or the Seller and, to the Knowledge of the Seller, no other event or condition exists, which constitutes, or after notice or lapse of time or both would constitute, a default under any such lease. The leasehold interests of each Company are subject to no lien or other encumbrance, and such Company is in quiet possession of the properties covered by such leases.

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(b)Except as set forth in Section 3.10(b) of the Disclosure Schedules, the property and assets transferred to Mercury in accordance with the Mercury Contribution, when utilized with a labor force substantially similar to that employed by the Company immediately prior to the Mercury Contribution, are adequate and sufficient to conduct the business of Mercury as conducted by the Seller immediately prior to the Mercury Contribution. Such properties and assets, taken as a whole, constitute all of the properties and assets used primarily or held primarily for use in connection with the business conducted by Mercury.

3.11.Leases, Contracts and Commitments. (a)  Section 3.11 of the Disclosure Schedule sets forth, as of the date hereof, a complete list of every binding contract, agreement, loan, lease, license, joint venture agreement, tax sharing agreement, guarantee or commitment to which each Company and each Subsidiary of such Company is a party and that (i) provides for future payments, or pursuant to which payments were received or made during the one (1) year period ending on the date hereof, by a Company or any Subsidiary of that Company, or to a Company or any Subsidiary of that Company, of more than $50,000 per annum (excluding contracts terminable on 30 days notice or less without penalty, and purchase orders and invoices entered into or incurred in the ordinary course of business); (ii) is a collective bargaining or similar agreement; or (iii) materially restricts a Company from engaging in any business activity anywhere in the world. Except as expressly set forth in Section 3.11 of the Disclosure Schedule, no Company is a party to or subject to any contract with any officer, director or Affiliate of Seller or any of the Companies.

(b)There is not and, to the Knowledge of Seller, there has not been claimed or alleged by any Person, with respect to any contract listed in Section 3.11 of the Disclosure Schedule, any existing default or event that, with notice or lapse of time or both, would constitute a default or event of default on the part of any Company or, to the Knowledge of Seller, on the part of any other party thereto. Each Company has in all material respects performed all obligations required to be performed by it to date under each such material contract. Subject to obtaining any necessary consents by the other party or parties to any such material contract (the requirement of any such consent being reflected in Section 3.4 of the Disclosure Schedule), no such material contract includes any provision the effect of which may be to enlarge or accelerate any obligations of any Company upon or after the Closing or give additional rights to any other party thereto or will in any other way be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement.

3.12.Insurance. Section 3.12 of the Disclosure Schedule lists all insurance policies in effect as of the date hereof that are owned or held by each Company or that provide coverage with respect to the business or assets of each of the Companies. All such insurance policies are valid and currently effective insurance policies with financially sound and reputable companies funds and underwriters in such types and amounts as are consistent with customary practices and standards of companies engaged in business and operations similar to those of such Company. All such policies (a) are in full force and effect, (b) are and have been sufficient for compliance in all material respects by each of the Companies with all requirements of law and all agreements to which such Company is a party, and (c) provide that they will remain in full force and effect, and all related premiums have been paid, through the respective dates set forth in Section 3.12 of the Disclosure Schedule. The Companies shall have access to recovery of claims under such insurance policies owned or held by each Company until such expiration dates. Neither Seller nor any of the Companies is in default in any material respect with respect to its obligations under any of such insurance policies and has not received any notification of cancellation of any such insurance policies. No insurance carrier has denied coverage for any claim asserted by any of the Companies since January 1, 2000, nor has any insurance carrier declined to provide any coverage to any of the Companies since January 1, 2000. As of the Closing Date, no applicable limits under any such policies have been exhausted or significantly diminished. Except as set forth in Section 3.12 of the Disclosure Schedules, since January 1, 2001, there has been no lapse in coverage in respect of any area of liability or loss addressed by the insurance policies listed in Section 3.12 of the Disclosure Schedules.

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3.13.Litigation. Except as set forth in Section 3.13 of the Disclosure Schedule, none of the Companies is a party to, or, to the Knowledge of Seller, threatened to be made a party to, any actions, suits, proceedings, grievances, hearings or investigations. Seller is not a party to or, to the Knowledge of the Seller, threatened to be made a party to any actions, suits, proceedings, hearings or investigations of, in or before any Governmental Entity that challenges the validity of this Agreement or any action taken or to be taken by Seller pursuant to this Agreement.

3.14.Environmental Matters. Except as set forth in Section 3.14 of the Disclosure Schedule, (i) neither the Companies nor any of their respective Subsidiaries are in violation or, to the Knowledge of Seller, alleged violation of any Environmental Laws and (ii) none of the Real Property or, to the Knowledge of Seller any real property formerly owned, leased or used by the Companies or any of their respective Subsidiaries (the “Former Real Property”) are in violation or alleged violation of any Environmental Laws.

(a)None of the Companies or any of their respective Subsidiaries has received any notice from any third party, including, without limitation, any Governmental Entity, that (i) any of the Companies or any of their Subsidiaries has been identified by the United States Environmental Protection Agency (“EPA”) as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) any Hazardous Substances which any of the Companies, any of their Subsidiaries or any of their respective predecessors-in-interest has generated, transported or disposed of has been found at any site at which a Governmental Entity or other third party has conducted or has ordered that any of the Companies, any of their Subsidiaries or any of their respective predecessors-in-interest conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; (iii) any of the Companies, any of their Subsidiaries or any of their respective predecessors-in-interest is, shall or may be a named party to any claim, action, cause of action, complaint, (contingent or otherwise) legal or administrative proceeding arising out of any third party’s incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the presence or release of Hazardous Substances; (iv) alleges any past or present violations or gives notice of an investigation regarding possible past or present violations of any Environmental Laws by any of the Companies or any of their Subsidiaries; or (v) alleges any event, condition, circumstance, activity, practice, incident, action or plan which is reasonably likely to interfere with or prevent continued compliance with or which would give rise to any common law or statutory liability, or otherwise form the basis of any claim, action, suit or proceeding, against any of the Companies or any of their Subsidiaries based on or resulting from the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge or release of any Hazardous Substance. The Seller has no Knowledge of any matter that would require notification to any Governmental Entity or could entitle any Governmental Entity to require monitoring, closure, clean up or remediation under any Environmental Law.

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(b)(i) To the Knowledge of Seller, no portion of any of the Real Property or the Former Real Property has been used for the handling, manufacturing, processing, storage or disposal of Hazardous Substances, and no underground tank or other underground storage receptacle for Hazardous Substances is located on such properties; (ii) in the course of any activities conducted by any of the Companies, any of their Subsidiaries or, to the Knowledge of Seller, any of their respective predecessors-in-interest on any of the Real Property or, the Former Real Property, no Hazardous Substances have been generated, imported, transported, used, handled, processed, stored or disposed of except in accordance with applicable Environmental Laws; (iii) to the Knowledge of Seller, the Real Property does not contain any Hazardous Substances, other than Hazardous Substances the presence and condition of which comply with applicable Environmental Laws; (iv) there have been no releases or, to the Knowledge of Seller, threats of releases of Hazardous Substances on, upon, or into or from the vicinity of any of the Real Property or Former Real Property; and (v) any Hazardous Substances that have been generated at any of the Real Property or Former Real Property or by any of the Companies or their Subsidiaries have been transported offsite only by carriers having identification numbers issued by the EPA or otherwise in compliance in all material respects with applicable law, and have been treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws.

(c)None of the Real Property is or shall be subject to any applicable environmental cleanup responsibility law or environmental restrictive transfer law or regulation, by virtue of the transactions set forth herein and contemplated hereby.

3.15.Compliance with Laws. (a) Except as set forth in Section 3.15 of the Disclosure Schedule, each Company is in possession of all material franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity that is necessary for it to carry on its business as it is now being conducted and no suspension or cancellation of any of the foregoing is pending or, to the Knowledge of Seller, threatened. Each of the Companies has and maintains the permits listed in Section 3.15 of the Disclosure Schedules (collectively, the “Permits”) and such Permits include all material licenses, permits and other authorizations from all Governmental Entities as are required under Environmental Laws or are otherwise necessary for the conduct of the business or operations of the Companies and each of their respective Subsidiaries, and the Companies and each of their Subsidiaries are in material compliance with all of the Permits. Except as expressly designated in Section 3.15 of the Disclosure Schedule, the Companies and their respective Subsidiaries have complied in all material respects with all Laws applicable to their businesses, assets and employees. None of the Companies nor any of their respective Subsidiaries have received notice of any contravention or allegation of any contravention of any such applicable Law.

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(b)Except as set forth in Schedule 3.15(b), Placard has complied in all material respects at all times with all Privacy Laws, and has collected, used and disclosed such personal information in accordance with applicable privacy policies, notices, guidelines and statements made available to its customers (or required by its customers), employees or other individuals or to the public from time to time. The execution of this Agreement and the consummation of the transactions contemplated hereby will not result in a breach of such Privacy Laws, policies, notices, guidelines or statements. No Person has claimed, and, to the Knowledge of Seller, no grounds exist for a Person to claim, compensation from Placard for a breach of any such Privacy Laws, policies, notices, guidelines or statements.

(c)Except as set forth in Schedule 3.15(b), Seller and each of the Companies has complied in all material respects at all times with all applicable laws respecting the collection, use and disclosure of personal information, and has collected, used and disclosed such personal information in accordance with applicable privacy policies, notices, guidelines and statements made available to its customers (or requested by its customers), employees or other individuals or to the public from time to time. The execution of this Agreement and the consummation of the transactions contemplated hereby will not result in a breach of such laws, policies, notices, guidelines or statements.

(d)All consents required to be obtained in connection with the disclosure to Purchaser by Seller and the Companies of any personal information in connection with Purchaser’s evaluation of, or for the completion and consummation of, the transactions contemplated by this Agreement and all such consents as are necessary to permit Purchaser to use such personal information following the Closing have been obtained. Seller and each of the Companies have disclosed to Purchaser the purposes for which such personal information was collected.

3.16.Employee Benefit Plans. (a)  Section 3.16 of the Disclosure Schedule contains a true and complete list of all Plans. Seller has heretofore made available to Purchaser a true and complete copy of each written Plan (or, with respect to any Plan which is not written, a summary thereof), and with respect to each such Plan, true and complete copies of any amendments thereto, any associated trust, custodial, insurance or service agreements and any material written policies or procedures used in Plan administration, any annual report, any material actuarial report, or material disclosure materials including, without limitation, any summary plan description submitted to any governmental agency or distributed to participants or beneficiaries thereunder in the current or preceding calendar year, each agreement creating or modifying any related trust or other funding vehicle, and the most recently received IRS determination letters and any governmental advisory opinions, rulings, orders compliance statements, closing agreements or similar materials specific to such Plan.

(b)No liability under Title IV or Section 302 of ERISA has been incurred by any Company or any ERISA Affiliate that has not been satisfied in full.

(c)The PBGC has not instituted proceedings to terminate any Title IV Plan and no condition exists that presents a material risk that such proceedings will be instituted.

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(d)No Title IV Plan is a “multi-employer pension plan,” as defined in Section 3(37) of ERISA, nor is any Title IV Plan a plan described in Section 4063(a) of ERISA. Except as set out in Section 3.16 of the Disclosure Schedule, no Plan that is a “registered pension plan” as that term is defined in subsection 248(1) of the Income Tax Act (Canada) (hereinafter an “RPP”) is a multi-employer pension plan as defined under the provisions of applicable Law.

(e)Each Plan is and has heretofore been established, registered, qualified, funded, invested and administered in all material respects in accordance with its terms and in all material respects with the requirements of applicable Law, including ERISA, the Code and the Income Tax Act (Canada) and in accordance with all understandings, written or oral, between the Seller or any Company and employees or former employees of any Company.

(f)All liabilities of the Companies (whether accrued, absolute, contingent or otherwise) related to all Plans have been fully and accurately disclosed in accordance with GAAP in the Financial Statements and will be fully and accurately disclosed in the Closing Statement in all material respects.

(g)No improvements to any Plan have been promised and no amendments or improvements to any Plan will be made or promised by any Company or the Seller prior to Closing.

(h)Each Plan intended to be “qualified” within the meaning of Section 401(a) of the Code has been determined to be so qualified by the Internal Revenue Service (or, where there is no determination letter but a qualified plan is based upon a master and prototype or volume submitter form, the sponsor of such form has received an advisory opinion as to the form upon which any Company is entitled to rely under applicable Internal Revenue Service procedures) and, to the Knowledge of Seller, no event or circumstance exists that has or is likely to result in the revocation of such qualification or which requires or could require action under the compliance resolution programs of the IRS to preserve such qualification.

(i)To the Knowledge of Seller, there is no pending or threatened legal action, legal or regulatory proceeding or investigation, other than routine or immaterial claims for benefits, concerning any Plan or, to the Knowledge of the Seller, any fiduciary or service provider thereof and to the Knowledge of the Seller, there is no basis for any such legal action, proceeding or investigation. No event has occurred with respect to any RPP which would entitle any Person to cause the wind-up or termination of such RPP in whole or in part.

(j)Except with respect to those Plans identified on Section 3.16 of the Disclosure Schedule, no Plan provides benefits subsequent to termination of employment to employees or their beneficiaries (except as required by applicable state insurance laws and Title I, Part 6 of ERISA).

(k)With respect to each Plan for which a separate fund of assets is or is required to be maintained, full payment has been made of all amounts that Seller is required, under the terms of each such Plan, applicable Law or any collective bargaining agreement, to have paid as contributions to that Plan as of the Closing Date and each such Plan is fully funded or fully insured on an ongoing, solvency and wind-up basis.

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(l)The execution of this Agreement and the consummation of the transactions contemplated hereby (including the Mercury Contribution) will not, by itself or in combination with any other event, result in any payment (whether of severance pay or otherwise) becoming due from any Plan to any current or former director, officer, consultant or employee of the Seller or result in the vesting, acceleration of payment or increases in the amount of any benefit payable to or in respect of any such current or former director, officer, consultant or employee.

(m)Each Plan subject to the laws of any jurisdiction outside of the United States (i) if intended to qualify for special tax treatment meets all requirements for such treatment, (ii) is fully funded and has been fully accrued for on the applicable Company’s financial statements, and (iii) if required to be registered, has been registered with the appropriate authorities and has been maintained in good standing with the appropriate regulatory authorities.

(n)Placard has complied with its obligations under the governing rules of the relevant Plan, including making all contributions required to be made under those rules and any agreement with any present employees of Placard.

(p)Placard is not an employer sponsor in an Australian Superannuation Arrangement. Placard contributes to an Australian Superannuation Arrangement and does not have any other obligation, liability or duty to make any payment to any person, in respect of any Australian Superannuation Arrangements.

(q)Placard is not required to make superannuation contributions to an Australian Superannuation Arrangement that provides defined benefits (whether or not that Australian Superannuation Arrangement also provides accumulation style benefits).

(r)A change of control in Placard will not change the existing participation / contribution arrangements with an Australian Superannuation Arrangement that it currently contributes to.

(s)Placard has complied with all of its superannuation obligations, duties and liabilities in respect of its employees under all laws and regulations.

(t)Except in the case of Ganesh Ganeshalingham, Placard contributes superannuation on behalf of each employee at a rate not exceeding 9%.

(u)In respect of all its employees, Placard has paid an amount not less than the minimum superannuation contributions on the correct earnings base so as to not incur liability under the Superannuation Guarantee (Administration) Act 1992 or the Superannuation Guarantee Charge Act 1992.

(v)There is no matching of superannuation contribution arrangement in place.

(w)Prior to and as at the Closing Date, no superannuation contributions were or are required to be made by Placard in respect of any contractors.

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3.17.Tax Matters.

(a)Each of the Companies has timely filed (or has been appropriately included in) any Tax Returns required to be filed by or with respect to it. All such Tax Returns are true, correct and complete in all material respects. All Taxes payable by each Company or any of its Subsidiaries (whether or not showing on any Tax Return) have been timely paid. Except for an extension granted until September 15, 2006, for MDC Holdco and its Subsidiaries to file its 2005 consolidated tax return, none of the Companies nor any of their Subsidiaries currently is the beneficiary of any extension of time within which to file any Tax Return. No written claim has ever been made by any taxing authority in a jurisdiction in which a Company or Subsidiary does not file Tax Returns that such Company or Subsidiary, as the case may be, is or may be subject to taxation in that jurisdiction.

(b)There are no Encumbrances for Taxes upon any property or assets of the Companies, except for Encumbrances for Taxes not yet due and payable. Each Company and each of its Subsidiaries has withheld and paid or remitted to the appropriate Governmental Entity all Taxes required to have been withheld and paid or remitted in connection with any amounts paid or owing to any present or former employee, independent contractor, creditor, stockholder, non-resident (or deemed non-resident) or other third party. Each Company and its Subsidiaries has charged, collected and remitted, on a timely basis, all Taxes as required under applicable Law on any sale or delivery whatsoever, made by such entity.

(c)No federal, state, provincial, local or foreign audits, examinations, investigations or other administrative proceedings (such audits, examinations, investigations and other administrative proceedings referred to collectively as “Audits”) or court proceedings are presently pending or, to the Knowledge of Seller, threatened with regard to any Taxes or Tax Returns filed by or on behalf of any Company or any of its Subsidiaries, and none of the Companies nor any of their Subsidiaries has received a written notice from any taxing authority of any intention to open such an Audit, a request for information related to Tax matters, or a notice of deficiency or proposed adjustment or reassessment or a notice of reassessment that is outstanding for any amount of Tax proposed asserted or assessed against any Company or any of its Subsidiaries. There are no outstanding requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment or reassessment of any Taxes or deficiencies against any Company or any Subsidiary of a Company.

(d)None of the Companies nor any of their Subsidiaries is a party to any material tax sharing, tax indemnity or other agreement or arrangement with any Person. No Company nor any Subsidiary of the Companies is a party to any agreement, contract, arrangement or plan that has resulted or could result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of section 280G of the Code, or any amount that would not be fully deductible as a result of the application of Section 162(m) of the Code (or, in each case, any corresponding provision of state, local or foreign law). None of the Companies nor any of their Subsidiaries has been a United States real property holding corporation within the meaning of section 897(c)(2) of the Code during the applicable period specified in section 897(c)(1)(A)(ii). None of the Companies nor any of their Subsidiaries has been a member of an affiliated group filing a consolidated return within the meaning of section 1502 of the Code and the Treasury Regulations promulgated thereunder, other than such a group the common parent of which was such Company, and none of the Companies nor any of their Subsidiaries has any liability for the Taxes of any other Person pursuant to Treasury Regulation section 1.1502-6 (or any corresponding provision of state, local, or foreign law), as a transferee or successor, by contract or otherwise.

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(e)The unpaid Taxes of the Companies and their Subsidiaries did not, as of the most recent fiscal month end, exceed the accrual for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Financial Statements as of the Balance Sheet Date, and will not exceed that accrual as adjusted for the passage of time through the Closing Date in accordance with the past practice and custom of the Companies and their Subsidiaries in filing their Tax Returns. Since the Balance Sheet Date, none of the Companies nor any of their Subsidiaries has incurred any liability for Taxes arising from extraordinary gains or losses, as that term is defined for purposes of GAAP, other than in the ordinary course of business consistent with past custom and practice.

(f)None of the Companies nor any of their Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of (1) a change in method of accounting for a taxable period (or portion thereof) ending on or before the Closing Date, (2) any “closing agreement” as described in Section 7121 of the Code (or any corresponding provision of state, local or foreign Law), (3) any “intercompany transaction” or “excess loss account” within the meaning of the Treasury Regulations (or any corresponding provision of state, local or foreign Law), (4) any installment sale or open transaction made on or prior to the Closing Date, or (5) as a result of any prepaid amount received on or prior to the Closing Date.

(g)None of the Companies nor any of their Subsidiaries has distributed stock of another Person, or had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by section 355 or section 361 of the Code. None of the Companies nor any of their Subsidiaries has participated, within the meaning of Treasury Regulation Section 1.6011-4(c), in (A) any “reportable transaction” within the meaning of Section 6011 of the Code, and the Treasury Regulations thereunder, (B) any “confidential corporate tax shelter” within the meaning of Section 6111 of the Code and the Treasury Regulations thereunder, or (C) any “potentially abusive tax shelter” within the meaning of Section 6112 of the Code and the Treasury Regulations thereunder.

(h)Each plan, program, arrangement or agreement that constitutes in any part a nonqualified deferred compensation plan within the meaning of Section 409A of the Code is identified as such on Section 3.17(h) of the Disclosure Schedule. Since December 31, 2004, each plan, program, arrangement or agreement identified or required to be identified on Schedule 3.17(h) has been operated and maintained in all material respects in accordance with the requirements of IRS Notice 2005-1 and a good faith, reasonable interpretation of Section 409A of the Code and its purpose with respect to amounts deferred (within the meaning of Section 409A of the Code) after December 31, 2004.

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(i)None of the Companies nor any of their Subsidiaries have participated, directly or through a partnership, in a transaction or series of transactions contemplated in subsection 247(2) of the Tax Act or any comparable Law of any province or territory in Canada. No items of income or expense will be reallocated under Section 482 of the Code or any similar provision under applicable state or local Law for any taxable period (or portion thereof) ending after the Closing Date with respect to any material transactions or arrangements between or among any of a Company, its Subsidiaries, or any of its or their Affiliates.

(j)None of the Companies nor any of their Subsidiaries will be required to include in a taxable period ending after the Closing Date any amount of net taxable income (after taking into account deductions claimed for such a period that relate to a prior period) attributable to income that accrued in a prior taxable period but that was not included in taxable income for that or another prior taxable period. Without limiting the generality of the foregoing, there are no circumstances existing which could result in the application to a Company or any of its Subsidiaries of sections 78, 80, 80.01, 80.02, 80.03, 80.04 or 160 of the Tax Act or any analogous provision of any comparable Law of any province or territory of Canada.

(k)Seller is not a non-resident of Canada for purposes of section 116 of the Tax Act.

(l)Solely with respect to Tax matters relating to Placard:

(i)No asset of Placard has been the subject of a claim for rollover relief under Part IIIA of the ITAA 1936 or Subdivision 126-B of the ITAA 1997 in circumstances where there might be an application of either section 160ZZOA of the ITAA 1936 or Subdivision 104-J of the ITAA 1997.

(ii)Placard:

(A)   is registered for GST under the GST Law, if required by the GST Law;

(B)   has complied in all respects with the GST Law; and

(C)   is not in default of any obligation to make any payment or return (including any Business Activity Statement) or notification under the GST Law.

(m) Solely with respect to Placard, no third-party debt forgiveness has occurred prior to the Closing Date.

3.18.Intellectual Property. Section 3.18 of the Disclosure Schedule sets forth a complete and accurate list of (a) all patents, trademarks, trade names, industrial designs and domain names and all copyright registered in the name of any of the Companies by any of the Companies, all applications therefor, and all licenses (as licensee or licensor) and other material agreements relating thereto other than licenses relating to off-the-shelf software, and (b) all written agreements relating to any other Intellectual Property and any other technology, know-how and processes which any Company is licensed or authorized by others to use or which any Company has licensed or authorized for use by others other than licenses relating to off-the-shelf software. Each of the Companies owns, or is licensed to use or otherwise possesses legally enforceable rights in, its Company Intellectual Property. Immediately after the Closing, each Company will continue to have the right to use or otherwise exploit the Company Intellectual Property in the same manner as such Company Intellectual Property is used or otherwise exploited by such Company prior to the Closing. To the Knowledge of Seller, there are no oppositions, cancellations, invalidity proceedings, interferences or re-examination proceedings pending with respect to any Company Intellectual Property. To the Knowledge of Seller, the use by each Company of its Company Intellectual Property does not infringe any Intellectual Property rights of any third party. Neither Seller nor any of the Companies has received any written notice from any third party challenging the right of any Company to use any of the Company Intellectual Property. To the Knowledge of the Seller, there has never been any instance of confusion between the Company and any entity with the element "Mercury Graphics" in its name nor, except as disclosed in the Disclosure Schedule, any communication from or to any third party regarding an allegation of a likelihood of confusion between the Company and such entity.

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3.19.Labor Matters. Except as set forth in Section 3.19 of the Disclosure Schedule, there is no labor strike, dispute, slowdown, stoppage, lockout or other form of industrial labor action currently in effect, pending, or to the Knowledge of Seller, threatened against any Company.

(a)Except as set forth in Section 3.19 of the Disclosure Schedule, none of the Companies is a party to or bound by any collective bargaining agreement (which includes, with respect to Placard, any registered or unregistered collective agreement), labor contract, letter of understanding, letter of intent of voluntary recognition agreement with any labor, union, trade or employee organization. Except as set forth in Section 3.19 of the Disclosure Schedule, Placard is not bound by any state or federal award, or any Notional Agreement Preserving State Awards or Preserved State Agreement (as defined in the Australia Workplace Relations Act 1996) derived from a state award or agreement, with respect to its employees.

(b)No laborunion has been certified as bargaining agent for any of the employees of any Company, and, with respect to Placard, no trade union other than the Australian Manufacturing Workers' Union is involved in the business of Placard. None of the Companies is a party to or bound by any collective bargaining agreement, labour contract, letter of understanding, letter of intent, or voluntary recognition agreement with any labour union, trade union, or employee organization.

(c)There is no unfair labor practice charge or complaint pending or threatened against any Company nor are the employees of any Company currently subject to any union organization effort.

(d)Since the enactment of the WARN Act, none of the Companies has effectuated a “plant closing” (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of the Companies, and there has not occurred a “mass layoff” (as defined in the WARN Act) or any mass termination under other applicable laws affecting any site of employment or facility of the Companies.

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(e)There are no outstanding orders or, to the Knowledge of Seller, investigations made under applicable occupational health and safety legislation related to any Company. There are no current, pending or, to the Knowledge of Seller, threatened charges against any Company under occupational health and safety laws. There have been no fatal or critical accidents which have occurred in the course of the operation of the businesses which might lead to charges under such laws. To the Knowledge of Seller, there are no materials present in the operation of any Company which may result in an occupational disease.

(f)Placard has complied in all material respects with all awards, collective agreements and other form of agreements made or taken to exist under an Australian industrial or labor statute.

3.20.Indebtedness. Except as set forth in Section 3.20 of the Disclosure Schedules, the Companies have no outstanding Indebtedness other than (i) Indebtedness outstanding between Seller or its affiliates (“Intercompany Indebtedness”) and (ii) trade or business obligations incurred in the ordinary course of business. Except as set forth in Section 5.5 of the Disclosure Schedule, all Intercompany Indebtedness will be paid in full or otherwise satisfied on or prior to the Closing Date.

3.21.Compensation of and Contracts With Employees. Section 3.21 of the Disclosure Schedule sets forth a complete and accurate list of, with respect to each Company, (a) each employee of such Company and the rate, character and amount of compensation paid to each such employee for the fiscal year ended December 31, 2005, and (b) the rate, character and amount of compensation paid to each such employee through July 31, 2006. There have been no changes in such compensation since such date outside the ordinary course of business. Except as set forth in Section 3.21 of the Disclosure Schedule and with the exception of Placard, no Company has any employment agreement, written or oral, with any currently active employee, including any agreement to provide any severance, bonus or benefit to any such employee. Except as set forth in Section 3.21 of the Disclosure Schedule, the employment of each employee of Placard can be terminated lawfully by Placard giving the employee not more than 5 weeks' notice and Placard has no agreement with any of its employees to provide any bonus or benefit to any such employee. No policies or procedures of Placard are binding contractually on it and each policy or procedure can be varied lawfully at Placard's sole discretion at any time and, except as set forth in Section 3.21 of the Disclosure Schedule, no contractors are engaged within Placard's business and the engagement of any contractors engaged within Placard's business can be terminated on not more than 1 month's notice. No Company has any severance or redundancy policy which provides for any entitlements beyond that required by applicable Law. Except as set forth in Section 3.21 of the Disclosure Schedule, since December 31, 2005, no Company has made any pension, bonus or other payment, other than base salary, or become obligated to make any such payment, to any of its employees, other than as contemplated by the terms of the agreements described on Schedule 3.21. Except as set forth in Section 3.21 of the Disclosure Schedule, no Company has any outstanding loans or advances to any employee. No Company has paid, nor will it be required to pay, any bonus, fee, incentive payment, distribution, remuneration or other compensation to any Person (other than salaries, wages or bonuses paid or payable to employees in the ordinary course of business) as a result of the transactions contemplated by this Agreement.

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3.22.Potential Conflicts of Interest. Except as set forth in Section 3.22 of the Disclosure Schedule, no officer or director of Seller or any of the Companies (a) owns, directly or indirectly, any interest in (excepting not more than 3% stock holdings for investment purposes in securities of publicly held and traded companies) or is an officer, director, employee or consultant of any Person which is a competitor, lessor, lessee, customer or supplier of any the Companies; (b) owns, directly or indirectly, in whole or in part, any tangible or intangible property which any of the Companies is using or the use of which is necessary for the business of the Companies; or (c) has any cause of action or other claim whatsoever against, or owes any amount to, any Company, except for claims in the ordinary course of business, such as for accrued vacation pay, accrued benefits under the Plans and similar matters and agreements.

3.23.Suppliers and Customers. Section 3.23 of the Disclosure Schedule sets forth the ten (10) largest suppliers and ten (10) largest customers of each Company for the twelve (12) month period ending on July 31, 2006. No supplier or customer of material importance to any of the Companies has canceled or otherwise terminated, or to the Knowledge of Seller, threatened to cancel or otherwise to terminate, its relationship with any of the Companies or has during the last twelve (12) months decreased materially, or to the Knowledge of Seller, threatened to decrease or limit materially, its services, supplies or materials for use by any of the Companies or its usage or purchase of the services or products of any of the Companies except for normal cyclical changes related to customers’ businesses. To the Knowledge of Seller, no such supplier or customer intends to cancel or otherwise substantially modify its relationship with any Company, or to decrease materially or limit its services, supplies or materials to any Company, solely as a result of the transactions contemplated by this Agreement.

3.24.Accounts Receivable. All accounts and notes receivable reflected on the Interim Financial Statements, and all accounts and notes receivable arising subsequent to July 31, 2006, have arisen in the ordinary course of business, represent valid obligations owing to the applicable Company and have been collected or, to the Knowledge of the Seller, are collectible in the aggregate recorded amounts thereof in accordance with their terms, net of the reserve for uncollected accounts to be set forth on the Closing Statement.

3.25.No Undisclosed Liabilities. Except to the extent (a) reflected or reserved against in the Interim Financial Statements or the Closing Statement, (b) incurred in the ordinary course of business after July 31, 2006, or (c) described on any Disclosure Schedule, none of the Companies nor any of their Subsidiaries has any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise (including without limitation as guarantor or otherwise with respect to obligations of others), which liabilities or obligations required to be recorded or reflected on a balance sheet by GAAP were not so recorded or reflected in the Year End Balance Sheet, the Interim Financial Statements or the Closing Statement.

3.26.Inventory. The inventory and supplies of each Company are adequate for such Company’s present needs in all material respects, and are in usable and salable condition in the ordinary course of its business.

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3.27.Minutes Books. Complete copies of all minute books, certificates of registration, statutory books and registers of each Company have been provided or made available to the Purchaser, and such documents do not contain material inaccuracies or discrepancies of any kind and accurately record therein all actions taken by the Board of Directors and shareholders of such Company.

3.28.Warranty Claims; Product Liability. Except as set forth in Section 3.28 of the Disclosure Schedule, to the Knowledge of Seller the Companies have no actual or alleged liability for death, injury or damage to person or property as a result of any actual or alleged defect in any product sold, designed, built or manufactured by any of the Companies on or prior to the Closing Date in any amount which is not reserved against on the Closing Statement or fully covered by the Companies’ insurance policies, and there are no contractual product warranty claims arising out of defects in any product sold, designed, built or manufactured by any of the Companies on or prior to the Closing Date in amounts which are not either reserved against on the Closing Statement or fully covered by the Companies’ insurance policies.

3.29.Brokers or Finders. No agent, broker, investment banker, financial advisor or other firm or Person is or will be entitled to any brokers’ or finder’s fee or other commission or similar fee in connection with the transactions contemplated by this Agreement except for Jefferies & Co., Inc., TD Securities and Guiliani Capital Advisors, whose fees and expenses will be paid by Seller in accordance with Seller’s agreement with such firm.

Purchaser acknowledges that, except for the representations and warranties contained in this Article III, neither Seller nor any other Person acting on behalf of Seller, makes any representation or warranty, express or implied.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to Seller, as of the date hereof and as of the Closing Date, that:

4.1.Organization. Purchaser (a) is a corporation or other legal entity duly organized, validly existing and, if applicable, in good standing under the laws of its jurisdiction of organization, (b) has all requisite corporate or other legal entity power and authority to carry on its business as it is now being conducted and to own the properties and assets it now owns and (c) is duly qualified or licensed to do business in every jurisdiction in which such qualification is required.

4.2.Authorization; Validity of Agreement. Purchaser has the requisite corporate or other legal entity power and authority and full legal right to execute, deliver and perform this Agreement and to consummate the Closing. The execution, delivery and performance by Purchaser of this Agreement and the consummation by Purchaser of the Closing have been duly authorized by the board of directors of Purchaser, and no other corporate action on the part of Purchaser is necessary to authorize the execution, delivery and performance by Purchaser of this Agreement or the consummation by Purchaser of the Closing. This Agreement has been duly executed and delivered by Purchaser, and, assuming due and valid authorization, execution and delivery hereof by Seller, is a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms.

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4.3.Consents and Approvals; No Violations. Except for the filings, permits, authorizations, consents and approvals as may be required under the HSR Act and applicable non-U.S. laws with respect to foreign investment and competition, and other applicable requirements of state or provincial securities or blue sky laws, none of the execution, delivery or performance of this Agreement by Purchaser or the consummation by Purchaser of the Closing will (a) conflict with or result in any breach of any provision of the certificate of incorporation or by-laws or similar organizational document of Purchaser, (b) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity, (c) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Purchaser or any of its Subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound or (d) violate any Law applicable to Purchaser, any of its Subsidiaries or any of their respective properties or assets, excluding from the foregoing clauses (b), (c) and (d) such violations, breaches or defaults which would not, individually or in the aggregate, either (i) have an adverse effect on Purchaser’s ability to consummate the Closing or perform its obligations under this Agreement or (ii) impede in any respect or delay the consummation of the Closing.

4.4.Acquisition of Shares for Investment; Ability to Evaluate and Bear Risk. (a)  Purchaser is acquiring the Shares for investment and not with a view toward, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the Shares. Purchaser agrees that the Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and qualification under any applicable state or provincial securities laws, except pursuant to an exemption from such registration under such Act and qualification under such laws.

(b)Purchaser is able to bear the economic risk of holding the Shares for an indefinite period, and has knowledge and experience in financial and business matters such that it is capable of evaluating the risks of the investment in Shares.

4.5.Availability of Funds. Purchaser has access to sufficient immediately available funds in cash or cash equivalents, and will at the Closing have sufficient immediately available U.S. Dollar funds in cash, to pay the Purchase Price and to pay all other amounts payable in connection with this Agreement and effect the Closing.

4.6.Litigation. Each of Purchaser and its Subsidiaries (a) is not subject to any outstanding injunctions, judgments, orders or decrees and (b) is not a party or, to the knowledge of Purchaser, threatened to be made a party, to any actions, suits, proceedings, hearings or investigations of, in, or before any Governmental Entity, in the case of clauses (a) and (b), that are related to this Agreement or the transactions contemplated hereby or that would, individually or in the aggregate, either (i) have an adverse effect on the ability of Purchaser to consummate the Closing or perform its obligations under this Agreement or (ii) impede in any respect or delay the consummation of the Closing.

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4.7.Investigation by Purchaser; Seller’s Liability. For purposes of the Purchaser’s rights to indemnification pursuant to Article VIII of this Agreement, Purchaser acknowledges that in entering into this Agreement (a) it has relied solely on (i) the specific representations and warranties of Seller set forth in Article III and schedules thereto and (ii) its own independent investigation, review and analysis of the business, operations, assets, liabilities, results of operations, financial condition, software, technology and prospects of the Companies (and not on any factual representations or opinions of Seller or Seller’s representatives except the specific representations and warranties of Seller set forth in Article III and schedules thereto) and (b) that neither Seller nor the Companies or any of their respective directors, officers, shareholders, employees, Affiliates, controlling persons, agents, advisors or representatives makes or has made any oral or written representation or warranty, either express or implied, as to the accuracy or completeness of any of the information (including in the descriptive memorandum relating to the Companies provided to Purchaser, in materials furnished in the Company’s data room, in presentations by the Company’s management or otherwise) provided or made available to Purchaser or its directors, officers, employees, shareholders, Affiliates, controlling persons, agents, advisors or representatives (except the specific representations and warranties of Seller set forth in Article III and schedules thereto). The foregoing acknowledgment shall not be deemed to apply to or limit in any way any rights or claims by Purchaser against Seller in respect of fraud or intentional breach.

4.8.Brokers or Finders. Neither Purchaser nor any of its Subsidiaries or its Affiliates has entered into any agreement or arrangement entitling any agent, broker, investment banker, financial advisor or other firm or Person to any broker’s or finder’s fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement.

Seller acknowledges that, except for the representations and warranties contained in this Article IV, neither Purchaser nor any other Person acting on behalf of Purchaser, makes any representation or warranty, express or implied.

ARTICLE V

ADDITIONAL COVENANTS OF THE PARTIES

5.1.Tax Matters.

(a)Apportionment of Taxes. With respect to all jurisdictions in which Tax Returns are filed:

(i)In order appropriately to apportion any Taxes relating to a period that includes the Closing Date, the parties hereto will, to the extent permitted by applicable Law, elect with the relevant taxing authority to treat for all purposes the Closing Date as the last day of a taxable period of the Company (a “Short Period”), and such period shall be treated as a Short Period and a period ending on the Closing Date for purposes of this Agreement. Accordingly, to the extent permitted or required by applicable Law: (i) the taxable period of the Company and its Subsidiaries that began on January 1 of the calendar year that includes the Closing Date shall be treated as closing as of the close of business on the Closing Date; and (ii) no election shall be made under Treasury Regulation Section 1.1502-76(b)(2)(ii) or Treasury Regulation Section 1.1502-76(b)(2)(iii) for the month that includes the Closing Date.

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(ii)For purposes of this Agreement, the method of apportioning any Tax with respect to a taxable period that begins before, and ends after, the Closing Date (a “Straddle Period”), between the portion of such Straddle Period up to and including the Closing Date and the portion of such Straddle Period beginning after the Closing Date, shall be (i) in the case of a Tax that is not an income Tax or any Tax based on gross income, sales, gross receipts or specific transactions (including real property taxes), the total amount of such Tax for the Straddle Period in question multiplied by a fraction, the numerator of which is the number of days in the Straddle Period through and including the Closing Date, and the denominator of which is the total number of days in such Straddle Period, and (ii) in the case of an income Tax and any Tax that is based on any of gross income, sales, gross receipts or specific transactions, the Tax that would be due with respect to the portion of the Straddle Period through and including the Closing Date, if such portion of the Straddle Period were a separate taxable period, except that exemptions, allowances, deductions or credits that are calculated on an annual basis (such as the deduction for depreciation or capital allowances) shall be apportioned on a per diem basis.

(b)Transfer Taxes and Other Closing Expenses. Seller shall timely pay when due, or shall reimburse Purchaser promptly upon demand and delivery of proof of payment of, all excise, sales, transfer, documentary, filing, recordation and other similar taxes, levies, fees and charges, if any (including all real estate transfer taxes and conveyance and recording fees, if any), that may be imposed upon, or payable or collectible or incurred in connection with, this Agreement and the transactions contemplated hereby (such Taxes, “Transfer Taxes”). Purchaser shall cooperate with Seller and, subject to the other terms of this Agreement, take any action reasonably requested by Seller which does not cause Purchaser to incur any cost or material inconvenience in order to minimize Transfer Taxes. Notwithstanding the provisions of Section 5.1(c), which shall not apply to Tax Returns relating to Transfer Taxes, any Tax Returns that must be filed in connection with Transfer Taxes shall be prepared and filed when due by the party primarily or customarily responsible under the applicable local law for filing such Tax Returns, and such party will use its reasonable efforts to provide such Tax Returns to the other party at least 10 Business Days prior to the due date for such Tax Returns. All other expenses of Closing will be paid by the party incurring such expense.

(c)Tax Returns.

(i)Seller shall be responsible for the timely filing (taking into account any extensions received from the relevant tax authorities) of all Tax Returns required by law to be filed by (or that include) each Company or its Subsidiaries in respect of any period ending on or prior to the Closing Date. Such Tax Returns shall be prepared in accordance with the past practice and custom of each Company and its Subsidiaries in filing its or their Tax Returns, shall be true, correct and in all material respects complete and shall be prepared in accordance with applicable federal, state, provincial, local or foreign Tax laws, regulations or rules. Seller shall cause the Companies to timely pay all Taxes shown as due on such Tax Returns. Seller shall be entitled to any and all tax refunds during the periods for which Seller is responsible for the timely filing of all Tax Returns in accordance with this Section 5.1(c)(i). Purchaser shall promptly transfer such refunds received by the Purchaser to the Seller when obtained from a taxing authority within 45 days.

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(ii)Purchaser shall be responsible for the timely filing (taking into account any extensions received from the relevant tax authorities) of all Tax Returns required by law to be filed by (or include) each Company or its Subsidiaries in respect of any period ending after the Closing Date (other than income Tax Returns with respect to periods for which a consolidated, combined or unitary Tax Return of Seller will include the operations of such Company and its Subsidiaries), and, subject to the allocation of Taxes discussed in Section 5.1(a) hereof and this subparagraph (ii), shall be responsible forall Taxes shown as due on such Tax Returns. Any such Tax Returns that relate in whole or in part to a Straddle Period shall be prepared on a basis consistent with those prepared for prior taxable periods unless a different treatment of any item is required by an intervening change in law. Seller shall be responsible for, and shall pay promptly upon request by Purchaser, and in any event within no more than three days’ prior to the filing deadline for such Tax Return, all Taxes shown as due on such Tax Returns, to the extent such Taxes are allocable under the principles of Section 5.1(a) above to a taxable period ending on or before the Closing Date or to the portion of a Straddle Period ending on the Closing Date.

(iii)Purchaser shall be entitled to review and comment on any Tax Returns for each Company for any taxable period that ends on or prior to the Closing Date. Seller shall submit a draft of any such Tax Return (with copies of any relevant schedules, work papers and other documentation then available) to Purchaser at least 30 days before the date such Tax Return is required to be filed with the relevant tax authority for its review and comment, and Seller shall make such changes to such Tax Returns as are reasonably requested by Purchaser, insofar as such changes relate to or affect amounts for which Purchaser would be responsible under the provisions of this Section 5.4, such changes are consistent with the past practice of each Company and its Subsidiaries in filing its or their Tax Returns, and such changes are consistent with applicable Law.

(d)Certain Post-Closing Actions which Affect Seller’s Liability for Taxes. With respect to each Company:

(i)Purchaser shall not permit such Company to take any action that reasonably could be expected to increase Seller’s liability for Taxes for a taxable period (or portion thereof) ending on or prior to the Closing Date, without Seller’s written consent.

(ii)None of Purchaser or any Affiliate of Purchaser shall (or shall cause or permit such Company to) amend, refile or otherwise modify any Tax Return relating in whole or in part to any Company with respect to any taxable year or period ending on or before the Closing Date (or with respect to any Straddle Period, to the extent the changes made to such Tax Return affect the portion of such Straddle Period ending on the Closing Date), if such amendment, refiling or other modification would have the result of increasing the liability of the Seller for Taxes under this Agreement, without the prior written consent of Seller.

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(iii)None of Purchaser or any Affiliate of Purchaser shall (or shall cause or permit such Company to) carryback for federal, state, provincial, local or foreign tax purposes to any taxable period, or portion thereof, of such Company or Seller or any Affiliate of Seller ending before, or which includes, the Closing Date any operating losses, net operating losses, capital losses, tax credits or similar items arising in, resulting from or generated in connection with a taxable year of Purchaser or any Affiliate of Purchaser, or portion thereof, ending on or after the Closing Date except to the extent Seller provides its specific authorization for such a carryback, which authorization will not be unreasonably withheld, conditioned or delayed.

(iv)If an examination of any federal, state, local or other Tax Return of Seller or the Company for any taxable period (or portion thereof) ending on or before the Closing Date shall result (by settlement or otherwise) in any adjustment which permits Purchaser, the Company to increase deductions, losses or tax credits or decrease the amount of reportable income, gains or recapture of tax credits (including by way of any increase in basis) for one or more periods ending after the Closing Date, Seller shall notify Purchaser and provide it with adequate information so that Purchaser can reflect on its or the Company’s Tax Returns such increases in deductions, losses or tax credits or decreases in income, gains or recapture of tax credits.

(e)Termination of Existing Tax Sharing Agreements. Any and all existing Tax sharing agreements or arrangements, written or oral, between Seller and any Company or any Subsidiary, shall terminate as of the Closing, and after the Closing Date, neither any Company, any Subsidiary, the Purchaser, nor any Affiliate of any of them, shall have any liability thereunder after the Closing Date.

(f)Cooperation. Purchaser and Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of any Tax Returns and any audit, litigation or other proceeding with respect to Taxes of or related to the Companies or any Subsidiary. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information reasonably relevant to any such Tax Return, audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Each of Seller and Purchaser agrees to (i) retain or cause to be retained all books and records in its possession on the Closing Date relating to Tax matters of or pertaining to a Company or any Subsidiary for any taxable period beginning before the Closing Date until expiration of the statute of limitations (including any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority and (ii) give each other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, allow the requesting party to take possession of such books and records.

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(g)Allocation of Purchase Price. The Purchase Price shall be allocated among the Shares of each Base Company in the manner specified in Schedule 5.1, and such schedule shall be revised from time to time to reflect any post-closing adjustment to the Purchase Price. Purchaser and Seller shall follow the allocations set out in Schedule 5.1 in determining and reporting their liabilities for any Taxes and, without limitation, shall file all of their respective Tax Returns in accordance and in a manner consistent with such allocations.

(h)Seller Tax Covenants. Seller agrees to notify Purchaser of any proposed action to occur on or prior to the Closing Date affecting the Taxes of any of the Companies, including making or changing any material Tax election, settling or compromising any claim for refund, consenting to any extension or waiver of the limitation period applicable to any Tax claim or assessment, and taking any other similar action in respect of Taxes; provided, however, that none of the Companies shall take such action if Purchaser determines that such action will have an adverse impact on any of the Companies in a post-Closing taxable period.

(i)Tax Elections. Seller shall be responsible for filing all Tax elections as provided for in the Asset Purchase Rollover Agreement entered into between Seller and Mercury pursuant to the Mercury Contribution, and Seller shall indemnify and save harmless Mercury from any interest, penalties or other Tax liability, or any Losses, arising in connection with such Tax elections, other than any Tax liability arising solely as a consequence of an agreed amount (for purposes of such Tax elections) in respect of a property being less than the fair market value of such property as at the closing date (as defined in the Asset Purchase Rollover Agreement).

5.2.Publicity. The initial press release with respect to the execution of this Agreement shall be a joint press release acceptable to Purchaser and Seller. Each of Purchaser and Seller shall, and shall cause each of its Affiliates to, not issue or cause the publication of any press release or disclosure with respect to this Agreement or the transactions contemplated hereby without prior consultation with the other party, except as may be required by Law or by any listing agreement with a national securities exchange or trading market. This Section 5.2 shall not limit the applicability of the Confidentiality Agreement.

5.3.Employees; Employee Benefits. (a)  With respect to each employee benefit plan, practice or policy of Purchaser or any of its Affiliates, Purchaser shall make reasonable efforts to ensure that each Retained Employee shall be given credit under such plan for all service prior to the Closing Date with the applicable Company or any predecessor employer (to the extent such credit was given by Seller, the applicable Company or any predecessor employer under a comparable Plan), for purposes of determining eligibility and vesting and for all other purposes for which such service is either taken into account or recognized; provided, however, such service need not be credited to the extent it would result in a duplication of benefits, including benefit accrual under defined benefit plans. Purchaser shall make reasonable efforts to ensure that such service also shall apply for purposes of satisfying any welfare benefit plan waiting periods, evidence of insurability requirements, or the application of any preexisting condition limitations. Purchaser shall make reasonable efforts to ensure that Retained Employees shall be given credit for amounts paid under a corresponding employee benefit plan during the same period for purposes of applying deductibles, copayments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms and conditions of the comparable employee benefit plan of Purchaser. The obligations of Purchaser under this Section 5.3(a) shall apply only to the extent that the Retained Employees commence participation under an employee benefit plan, practice or policy of the Purchaser or one of its Affiliates (other than the Companies) on or promptly after the Closing.

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(b)If any Retained Employee is discharged by the Company as of or after the Closing, then Purchaser shall be responsible for any and all severance costs for such Retained Employee, including payments owing under those agreements, plans or arrangements listed in the Disclosure Schedule. Purchaser shall be responsible and assume all liability for all notices or payments due to any Retained Employees, and all notices, payments, fines or assessments due to any Governmental Entity, pursuant to any applicable foreign, federal, state or local law, common law, statute, rule or regulation with respect to the employment, discharge or layoff of employees by the Company after the Closing, including the WARN Act and Section 4980B of the Code and any rules or regulations as have been issued in connection with the foregoing.

(c)From and after the Closing, Purchaser shall be responsible for, and shall indemnify and hold harmless Seller and its Affiliates and their officers, directors, employees, Affiliates and agents and the fiduciaries (including plan administrators) of the Plans from and against, any and all claims, losses, damages, costs and expenses (including attorneys’ fees and expenses) and other liabilities and obligations relating to or arising out of (i) all salaries, wages, commissions, employee incentive or other compensation, severance, holiday, vacation, or retirement benefits earned but unpaid as of the Closing and post-Closing bonuses due to any Retained Employee (other than bonuses that become payable as a result of the transactions contemplated by this Agreement, all of which shall be satisfied by the Seller prior to the Closing), (ii) the liabilities assumed by Purchaser under this Section 5.3 or any failure by Purchaser to comply with the provisions of this Section 5.3, and (iii) any claims of, or damages or penalties sought by, any Retained Employees, or any Governmental Entity on behalf of or concerning any Retained Employees, with respect to any act or failure to act by Purchaser to the extent arising from the employment, discharge, layoff or termination of any Retained Employee.

(d)Purchaser shall provide short-term disability coverage for all Retained Employees eligible to receive short-term disability benefits under policies of the Companies as of the Closing on substantially the same terms and conditions as in effect immediately prior to the Closing, so that such Retained Employees receive short-term disability benefits for a total of six months from the original date of disability.

(e)Effective as of the Closing, Purchaser shall (i) assume liability for all active workers’ compensation cases attributable to Retained Employees as of the Closing; (ii) provide Retained Employees with coverage for all required workers’ compensation benefits and (iii) from and after the Closing be responsible for all required workers’ compensation claims filed by Retained Employees regardless of whether the underlying event for such claims occurred prior to the Closing.

5.4.Transition Services. Except as with respect to the services to be provided pursuant to the Transition Services Agreement to be entered into as of the date hereof between Seller and Purchaser, all data processing, cash management, accounting, insurance, banking, personnel, legal, communications and other products and services provided to the Companies by Seller or any Affiliate of Seller (other than the Companies), including any agreements or understandings (written or oral) with respect thereto, shall terminate simultaneously with the Closing without any further action or liability on the part of the parties thereto.

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5.5.Intercompany Arrangements. Except with respect to the Intercompany Accounts listed on Section 5.5 of the Disclosure Schedules, Seller shall arrange for all Intercompany Accounts between a Company, on the one hand, and Seller and its Affiliates (excluding the Companies), on the other hand, to be entirely settled effective as of the Closing. In addition, except as otherwise expressly contemplated by this Agreement, all agreements and commitments, whether written, oral or otherwise, which are solely between a Company, on the one hand, and Seller and its Affiliates (excluding the Companies), on the other hand, shall be terminated and of no further effect, simultaneously with the Closing without any further action or liability on the part of the parties thereto, except to the extent they relate to arms-length commercial matters between the Subsidiaries of Seller (other than the Company), on the one hand, and the Company, on the other hand.

5.6.Maintenance of Books and Records. After the Closing, each of the parties hereto shall preserve, until at least the eighth anniversary of the Closing Date, all pre-Closing Date records possessed or to be possessed by such party relating to the Company. After the Closing Date and up until at least the eighth anniversary of the Closing Date, upon any reasonable request from a party hereto or its representatives, the party holding such records shall (a) provide to the requesting party or its representatives reasonable access to such records during normal business hours and (b) permit the requesting party or its representatives to make copies of such records, in each case at no cost to the requesting party or its representatives (other than for reasonable out-of-pocket expenses); provided, however, that nothing herein shall require either party to disclose any information to the other if such disclosure would jeopardize any attorney-client or other legal privilege or contravene any applicable law. Such records may be sought under this Section for any reasonable purpose, including to the extent reasonably required in connection with the audit, accounting, tax, litigation, securities law disclosure or other similar needs of the party seeking such records. Notwithstanding the foregoing, any and all such records may be destroyed by a party if such destroying party sends to the other party hereto written notice of its intent to destroy such records, specifying in reasonable detail the contents of the records to be destroyed; such records may then be destroyed after the 60^th day following such notice unless the other party hereto notifies the destroying party that such other party desires to obtain possession of such records, in which event the destroying party shall transfer the records to such requesting party and such requesting party shall pay all reasonable expenses of the destroying party in connection therewith.

5.7.Seller’s Trademarks. Notwithstanding anything to the contrary contained in this Agreement, it is expressly agreed that (a) Purchaser is not purchasing, acquiring or otherwise obtaining, and the Companies will not be entitled to retain following the Closing Date, any right, title or interest in any Trademarks employing Seller’s name or any part or variation of such name or anything confusingly similar thereto (including any reference to “MDC”) and (b) the Companies, Purchaser or their Affiliates shall not make any use of Seller’s Trademarks from and after the Closing. Effective as of the Closing, Seller shall assign and convey to AP all of its rights and interests in and to the name “Secured Products International” or any similar name and shall not use of any such names for any commercial purpose thereafter.

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5.8.Insurance Policies. (a)   Seller and its Affiliates (other than the Companies) shall retain all right, title and interest in and to their respective insurance policies (other than those insurance policies that have been transferred by Seller to Mercury in connection with the Mercury Contribution), including those insurance policies listed on Schedule 5.8 (the “MDC Insurance Policies”). Seller shall continue to maintain (but shall have no obligation to renew) the MDC Insurance Policies under their current terms for purposes of preserving the Companies’ rights, if any, to recovery with respect to such Companies’ losses, damages and claims arising out of events occurring prior to the Closing (“Pre-Closing Company Claims”) for which premiums securing coverage for such claims have been paid in full as of the Closing Date (and shall not take any affirmative action to terminate coverage for such Pre-Closing Company Claims).

(b)At any time after the Closing, each Company shall have the right to tender all Pre-Closing Company Claims to the Seller’s applicable insurance provider and the Seller shall provide reasonable cooperation and assistance in connection therewith (including, if required, making any such claim to an insurer on behalf of any Company). All proceeds paid out under MDC Insurance Policies after the Closing solely with respect to Pre-Closing Company Claims tendered by any Company shall be for the benefit of the applicable Company.

(c)After the Closing, upon the reasonable request of the Purchaser, the Seller shall provide to the Purchaser updated loss information regarding pre-closing occurrences related to the Companies (including, without limitation, information regarding the current value of any pre-Closing losses).

5.9.Unclaimed Property Audit. Purchaser agrees to cooperate and agrees to cause the Companies to cooperate with Seller and any of its employees, directors, representatives and other agents in Seller’s preparation for and response to any unclaimed property audit by any state or province including, but not limited to, promptly providing copies of all reasonably requested documents and making any Company employees available to respond to inquiries of Seller in connection with any such audit. The obligations of Purchaser under this Section 5.9 shall survive until the expiration of the applicable state or provincial statutes of limitation.

5.10.Bank Accounts. Seller shall provide Purchaser with a complete list of each of the bank accounts of the Companies and the authorized signatories for each such account as soon as practicable before the Closing Date. The parties shall cooperate in connection with the replacement or supplementation of such signatories effective as of the Closing.

5.11.Further Assurances. (a)  From and after the Closing, each of Seller and Purchaser shall furnish or cause to be furnished to the other party and its employees, counsel, auditors and other representatives such information and assistance relating to the Companies (to the extent within the control of such other party) as is reasonably necessary for financial reporting and accounting matters of the other party, including the furnishing of such documentation and information relating to the Companies as may be reasonably requested in connection with the preparation of reports, accounts and other documents and materials to be filed with or submitted to the SEC, Canadian securities regulatory authorities, or any stock exchange or in connection with any proposed capital markets offering that would be exempt from the registration requirements of the Securities Act or Canadian provincial securities laws.

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(b)At any time and from time to time, each party to this Agreement agrees, subject to the terms and conditions of this Agreement, to take such commercially reasonable actions and to execute and deliver such documents as may be necessary to effectuate the purposes of this Agreement and the Mercury Contribution at the earliest practicable time (including, without limitation, the conveyance to Mercury of any assets of the Mercury Graphics division of the Seller, except as set forth in Section 3.10(b) of the Disclosure Schedules) that for any reason continue to be owned or held by the Seller, any such conveyance to be made by deeds, bills of sale, certificates of title and other instruments of assignment and transfer effective in each case to vest in Mercury good and valid record and marketable title to such assets, free and clear of all Encumbrances other than Permitted Encumbrances.

5.12.Collection of Receivables. If, after the Closing Date, Seller or any of its Affiliates receives any payment or remittance with respect to any account receivable of any of the Companies, Seller shall, or shall cause its Affiliate to, deliver promptly to the applicable Company all cash, checks or other property received with respect to such receivables.

5.13.Interim Operations of the Companies. Except as contemplated by this Agreement, and except as may be consented to in writing by Purchaser, Seller covenants and agrees that, after the date hereof and prior to the Closing Date the business of each Company shall be conducted in a substantially similar manner as heretofore conducted and only in the ordinary course. No Company shall take any action that would cause any of the representations or warranties in Section 3.9(b) to be untrue in any material respect as of the Closing. Subject to the Confidentiality Agreement, Seller shall afford to Purchaser and its authorized representatives reasonable access during normal business hours to all properties, books, records, contracts and documents of the Companies and a full opportunity to make such reasonable investigations as it shall desire to make of Companies, and Seller shall furnish or cause to be furnished to Purchaser and its authorized representatives all such information with respect to the affairs and businesses of the Companies as Purchaser may reasonably request. Seller will promptly advise Purchaser in writing of any Company Material Adverse Effect. Seller shall use reasonable commercial efforts to continue to obtain all third party consents listed on Schedule 3.4 and that have not already been obtained prior to the execution of this Agreement, except as set forth on Schedule 3.4.

ARTICLE VI

CONDITION TO CLOSING

6.1.Conditions to Each Party’s Obligation to Effect the Closing. The obligation of each party to consummate the Closing shall be subject to the satisfaction or waiver on or prior to the Closing Date of the following condition: no Law shall have been enacted or promulgated by any Governmental Entity which expressly prohibits the consummation of the Closing; and there shall be no order or injunction of a court of competent jurisdiction in effect expressly prohibiting consummation of the Closing.

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6.2.Condition to Obligation of Purchaser to Effect the Closing. The obligation of Purchaser to consummate the Closing shall be subject to the satisfaction or waiver on or prior to the Closing Date of each of the following conditions:

(a)No Company Material Adverse Effect. Since the date of this Agreement, (i) no event has occurred which results in, or would reasonably be expected to result in, a Company Material Adverse Change, and (ii) no fact or circumstance has become known to Seller that has resulted in, or would reasonably be expected to result in, a Company Material Adverse Change; provided, however, that the foregoing clauses (i) and (ii) shall not constitute a condition to the obligation of Purchaser to consummate the Closing if the Extension Election has been exercised by Purchaser and HIG pursuant to Section 7.1(ii).

(b)Seller’s Certificate. The Seller shall have delivered to Purchaser in writing, at and as of the Closing, a certificate duly executed by Seller, in form and substance reasonably satisfactory to Purchaser and Purchaser’s counsel, certifying that the conditions in Section 6.2(a) have been satisfied; provided, however, that foregoing shall not constitute a condition to the obligation of Purchaser to consummate the Closing if the Extension Election has been exercised by Purchaser and HIG pursuant to Section 7.1(ii).

(c)Closing Proceedings. Seller shall have taken all actions required by it under, and shall have complied in all material respects with all of its obligations set forth in, the provisions of Sections 2.1(b)(i),(v),(vi), (vii), (ix), (x) and (xii).

6.3.Conditions to Obligations of Seller to Effect the Closing. The obligations of Seller to consummate the Closing shall be subject to the satisfaction or waiver on or prior to the Closing Date of each of the following conditions:

(a)Closing Proceedings. The Purchaser shall have taken all actions required by, and shall have complied with all of its obligations set forth in, the provisions of Section 1.2(b).

ARTICLE VII

TERMINATION OF AGREEMENT

7.1.Termination. The transactions contemplated hereby may be terminated or abandoned at any time prior to the Closing Date:

(i)By the mutual written consent of Purchaser and Seller.

(ii)By Seller if the Closing shall not have occurred on or prior to November 15, 2006, unless (A) the conditions precedent to the obligation of Purchaser to consummate the Closing set forth in Section 6.1 and 6.2 have not been satisfied as of such date or (B) Purchaser has notified Seller of its election to extend such date to December 1, 2006 and HIG has, prior to 5:00 p.m. eastern time on November 15, 2006 (an “Extension Election”), (x) delivered a written instruction to the Escrow Agent to release the Contract Deposit to Seller in accordance with the Escrow Agreement and (y) paid to Seller, by wire transfer in immediately available federal funds, an additional deposit amount equal to $1 million (the “SecondContractDeposit”).

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(iii)By Seller if the Extension Election has been exercised by Purchaser and HIG pursuant to Section 7.1(ii) and the Closing shall not have occurred on or prior to December 1, 2006, unless the conditions precedent to the obligation of Purchaser to consummate the Closing set forth in Section 6.1 and 6.2 have not been satisfied as of such date.

(iv)By Purchaser if the Closing shall not have occurred on or prior to November 15, 2006 (unless the conditions precedent to the obligation of Seller to consummate the Closing set forth in Section 6.1 and 6.3 have not been satisfied as of such date).

(v)By either Party if the Closing has not occurred on or prior to December 31, 2006.

7.2.Effect of Termination. In the event of the termination of this Agreement in accordance with Section 7.1, (a) this Agreement shall become null and void and of no further force or effect except for Section 5.2, this Article VII and Article X and (b) such termination shall relieve each party from all violations of this Agreement that occurred prior to such termination other than violations of Articles I or II and willful breaches; provided, however, that (A) in the event that Seller terminates this Agreement pursuant to Section 7.1(ii), Seller may thereafter provide notice of such termination to the Escrow Agent, whereupon the Escrow Agent shall release and pay the Contract Deposit to Seller pursuant to the Deposit Escrow Agreement or (B) in the event that Seller terminates this Agreement pursuant to Section 7.1(iii), Seller may retain the Contract Deposit and the Second Contract Deposit. The Contract Deposit and the Second Contract Deposit (if applicable) shall constitute liquidated damages in full satisfaction of any claims, liabilities, damages or other losses of Seller related to the termination of this Agreement under Section 7.1(ii) or (iii). In the case of any termination other than a termination by Seller pursuant to Section 7.1(ii) or 7.1(iii), then (x) Purchaser may thereafter provide notice of such termination to the Escrow Agent, whereupon the Escrow Agent shall release and return the Contract Deposit to Purchaser pursuant to the Deposit Escrow Agreement or (y) if the Extension Election has been made, Seller shall, not later than one (1) business day after such termination, return the Contract Deposit and the Second Contract Deposit to HIG by wire transfer of immediately available federal funds. The amount of such payment required by subpart (y) of the immediately preceding sentence not made when due shall bear interest at a rate per annum equal to the Base Rate plus two percent (2%).

ARTICLE VIII

INDEMNIFICATION

8.1.Indemnification; Remedies. (a)  From and after the Closing, Seller shall indemnify, defend and hold harmless Purchaser from and against all Losses incurred by Purchaser, its Subsidiaries and the respective directors, officers and employees (“Purchaser Indemnified Persons”) that arise out of:

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(i)any breach by Seller of any of Seller’s representations and warranties contained in this Agreement or any other certificate delivered pursuant hereto (including, without limitation, the Certificate of Indebtedness);

(ii)any breach or failure to perform by Seller of its covenants, obligations or undertaking contained in this Agreement;

(iii)(A) all Taxes (or the non-payment thereof) of the Companies and their Subsidiaries for all taxable periods (or portions thereof) ending on or before the Closing Date (including the portion of any Straddle Period ending on the Closing Date), determined under the principles of Section 5.4(a) hereof, (B) all Taxes of any member of a consolidated, unitary or combined group for which any Company or its Subsidiaries or any Purchaser Indemnified Persons may be held liable, whether by virtue of the application of Treasury Regulation section 1.1502-6 (or any corresponding provision of state, local or foreign Law) or otherwise, and (C) all Taxes of any Person for which any Company or its Subsidiaries or any Purchaser Indemnified Persons may be held liable as a transferee or successor, by contract, or pursuant to any applicable Law which Taxes relate to an event or transaction relating to the Companies or the Subsidiaries prior to the Closing Date; provided, that in the case of clauses (A), (B) and (C) above, Sellers shall be liable for any Taxes only to the extent that such Taxes exceed the accrual, if any, in respect thereof on the Closing Statement;

(iv)any liability of AP arising out of the potential litigation matter disclosed in Section 3.13 of the AP Disclosure Schedule, and any liability of Metaca arising out of the potential litigation matter disclosed in Section 3.13 of the Metaca Disclosure Schedule;

(v)any liability of Mercury arising out of the counterclaim litigation matter disclosed in Section 3.13 of the Mercury Disclosure Schedule to the extent such Losses exceed amounts that have been recovered by Mercury, if any, in connection with its Statement of Claim related thereto as of the time such Losses are incurred;

(vi)any liability of Placard arising solely out of the claim against Placard by the Australian Manufacturer’s Worker Union described in Section 3.13 of the Placard Disclosure Schedule;

(vii)any claim by an executive officer or director of any of the Companies for indemnification, based solely on any conduct or event that occurred prior to the Closing Date and related solely to the operations or business of any of the Companies; provided, however, that the foregoing indemnity shall not apply to any such claim that would not have been covered by Seller’s D&O indemnity policies in effect on the Closing Date and described on Schedule 3.12;

(viii)solely to the extent relating to or arising out of the fact that the Companies were Affiliates of the Seller, (A) the presence or release of or exposure to Hazardous Substances, (B) the transportation, disposal or recycling of any Hazardous Substances, and (C) any violation or alleged violation of Environmental Laws, in each case relating solely to properties owned or occupied by the Seller or its Affiliates but not owned or occupied by any of the Companies;

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(ix)solely to the extent arising out of or related to the Companies being or having been Affiliates of the Seller, any liabilities of the Companies under Plans of the Seller or its Affiliates (other than the Companies); and

(x)in connection with the failure of AP to maintain liability insurance coverage from the period beginning on January 1, 2005 and ending on July 8, 2005 (the “Gap Period”) on the same terms as the general liability insurance policy identified as Item (g) on Schedule 3.12 of the AP Disclosure Schedule with Peerless Insurance Company (Policy No. CBP9915578), any Losses that would have been covered under such policy had it been in place during such Gap Period.

(b)Seller’s indemnification obligation under Section 8.1(a) shall be subject to each of the following limitations:

(i)With respect to indemnification for Losses arising out of or relating to any breaches of any representation or warranty by Seller in this Agreement other than Sections 3.1, 3.2, 3.5, 3.6, 3.14, 3.16 3.17 or 3.20 (collectively, “Representation and Warranty Losses”), such obligation to indemnify shall terminate on March 31, 2008, unless before such date Purchaser has provided Seller with an applicable Claim Notice;

(ii)With respect to indemnification for Losses arising out of or relating to any breaches of any representation or warranty by Seller in Sections 3.1, 3.2, 3.5, 3.6, 3.14, 3.16, 3.17 or 3.20, such obligation to indemnify shall terminate on the date of the applicable statute of limitations, unless before such date Purchaser has provided Seller with an applicable Claim Notice;

(iii)With respect to Representation and Warranty Losses, there shall be no obligation to indemnify under Section 8.1(a) unless the aggregate of all Representation and Warranty Losses for which Seller, but for this clause (iii), would be liable under Section 8.1(a) exceeds on a cumulative basis an amount equal to $350,000 (the “Indemnity Threshold”), and then only to the extent of such excess;

(iv)With respect to Representation and Warranty Losses, there shall be no obligation to indemnify under Section 8.1(a) for any item where the Losses for the claim or series of related claims relating thereto are less than $15,000 (it being understood that such items shall not be aggregated for purposes of the immediately preceding clause (iii));

(v)With respect to Losses arising under clauses (iv) and (v) of Section 8.1(a), there shall be no obligation to indemnify unless the aggregate of all such Losses exceeds on a cumulative basis an amount equal to $50,000, and then only to the extent of such excess;

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(vi)With respect to Losses arising out of any breach of the representations or warranties in Section 3.16 (“ERISA Losses”), (A) there shall be no obligation to indemnify under Section 8.1(a) unless the aggregate of all ERISA Losses for which Seller, but for this clause (vi), would be liable under Section 8.1(a) exceeds on a cumulative basis an amount equal to $250,000, whereupon the Seller will be obligated to indemnify for the entire amount of all ERISA Losses and (B) the aggregate amount payable for all ERISA Losses shall not exceed an amount equal to $5 million;

(vii)With respect to Representation and Warranty Losses, there shall be no obligation to indemnify under Section 8.1(a) for any amount, in the aggregate, in excess of an amount equal to 20% of the Purchase Price;

(viii)The aggregate amount payable for all Losses (including Representation and Warranty Losses) shall not exceed an amount equal to the Purchase Price;

(ix)With respect to indemnification for Losses pursuant to Section 8.1(a)(vi), (A) such obligation to indemnify shall apply only to Losses incurred prior to the earlier of (x) the completion of a new labor agreement with the Australian Manufacturer’s Worker Union and (y) March 31, 2008, unless a Proceeding has been filed or initiated with respect thereto, and Purchaser has issued a Claim Notice with respect to such Proceeding, prior to such date and (B) the aggregate amount payable for all such Losses shall not exceed an amount equal to $175,000; and

(x)Each Loss shall be reduced by (A) the amount of any insurance proceeds actually paid to Purchaser or any Purchaser Indemnified Person with respect to such Loss, or (B) any indemnity, contribution or other similar payment actually paid to Purchaser or any Purchaser Indemnified Person by any third party with respect to such Loss, subject to Section 8.5 below.

(c)From and after the Closing, Purchaser shall indemnify, defend and hold harmless Seller from and against all Losses incurred by Seller, its Subsidiaries and the respective directors and officers of Seller and its Subsidiaries (the “Seller Indemnified Parties”) that arise out of (i) any breach by Purchaser of any of Purchaser’s representations and warranties contained in this Agreement and (ii) any breach by Purchaser of its covenants contained in this Agreement.

(d)For purposes of determining breachesby Seller of its representations and warranties which will be subject to indemnification under Section 8.1(a), and for determining Losses arising from such breaches, Purchaser and Seller have agreed to use predictable dollar thresholds as provided in Section 8.1(b) of this Agreement. Accordingly, Purchaser and Seller agree that with respect to any representation or warranty referred to in Section 8.1, if such representation or warranty contains a materiality qualification (including “material,” “materially,” “in all material respects,” or “Material Adverse Change”), then such materiality qualification shall be disregarded and only the dollar thresholds stated in Section 8.1(b) will apply; provided, however, that the foregoing provision to disregard materiality shall not apply for purposes of determining breaches of Seller’s representations and warranties set forth in Sections 3.8 or 3.9 of this Agreement (but will apply for purposes of determining Losses arising from such breaches).

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8.2.Notice of Claim; Defense. (a)  If (i) any third-party institutes or asserts any claim, demand, investigation, audit in respect of any Tax liability, action or proceeding (each of the foregoing, a “Proceeding”) that may give rise to Losses for which a party (an “Indemnifying Party”) may be liable for indemnification under this Article VIII (a “Third-party Claim”) or (ii) any Person entitled to indemnification under this Agreement (an “Indemnified Party”) shall have a claim to be indemnified by an Indemnifying Party that does not involve a Third-party Claim (a “Direct Claim”), then, in case of clause (i) or (ii), the Indemnified Party shall promptly send to the Indemnifying Party a written notice specifying the nature of such claim and the amount of all related Liabilities (a “Claim Notice”), provided that the Indemnifying Party shall be relieved of its indemnification obligations under this Article VIII only to the extent that it is prejudiced by the failure of the Indemnified Parties to provide a timely and adequate Claim Notice. With respect to liquidated Losses finally determined to be due and payable, if within thirty (30) days the Indemnifying Party has not contested the Claim Notice in writing, then the Indemnified Party will pay the full amount of such liquidated Losses within ten (10) days after the expiration of such thirty-day period. Any liquidated amount owed by an Indemnifying Party hereunder with respect to any Losses may be set-off by the Indemnified Party against any amounts owed by the Indemnified Party to the Indemnifying Party. Any amount finally determined to be due and owed by Seller to Purchaser pursuant to this Article VIII may, at the Purchaser’s option, be satisfied from the Escrowed Amount pursuant to the Escrow Agreement. The unpaid balance of any Losses shall bear interest at a rate per annum equal to the rate announced by Citibank, N.A. from time to time as its “BaseRate” plus two percent (2%) from the date notice thereof is given by the Indemnified Party to the Indemnifying Party.

(b)In the event of a Third-party Claim, the Indemnifying Party may elect to retain counsel of its choice to represent such Indemnified Parties in connection with such Proceeding and shall pay the fees, charges and disbursements of such counsel. The Indemnified Parties may participate, at their own expense and through legal counsel of their choice, in any such Proceeding, provided that (i) the Indemnifying Party may elect to control the defense of the Indemnified Parties in connection with such Proceeding and (ii) the Indemnified Parties and their counsel shall cooperate with the Indemnifying Party and its counsel in connection with such Proceeding. The Indemnifying Party shall not settle any such Proceeding without the relevant Indemnified Parties’ prior written consent (which shall not be unreasonably withheld), unless the terms of such settlement provide for no relief other than the payment of monetary damages. Notwithstanding the foregoing, (A) if the Indemnifying Party elects not to retain counsel and assume control of such defense or if both the Indemnifying Party and any Indemnified Party are parties to or subjects of such Proceeding and conflicts of interests exist between the Indemnifying Party and such Indemnified Party such that, in the Indemnified Parties’ reasonable discretion, separate representation by the Indemnified Parties’ counsel is advisable, and (B) with respect to any Proceedings relating to the matters described in Sections 8.1(a)(iv), (v) and (vi), the Indemnified Parties shall retain counsel reasonably acceptable to the Indemnifying Party in connection with such Proceeding and assume control of the defense in connection with such Proceeding, and the fees, charges and disbursements of no more than one such counsel per jurisdiction selected by the Indemnified Parties shall be reimbursed by the Indemnifying Party (and in the case of the matter described in Section 8.1(a)(vi), Purchaser shall use reasonable commercial efforts to keep Seller apprised of the status of such matter and any negotiations with the claimant related thereto). Under no circumstances will the Indemnifying Party have any liability in connection with any settlement of any Proceeding that is entered into without its prior written consent (which shall not be unreasonably withheld).

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(c)From and after the delivery of a Claim Notice, at the reasonable request of the Indemnifying Party, each Indemnified Party shall grant the Indemnifying Party and its counsel, experts and representatives full access, during normal business hours, to the books, records, personnel and properties of the Indemnified Party to the extent reasonably related to the Claim Notice at no cost to the Indemnifying Party (other than for reasonable out-of-pocket expenses of the Indemnified Parties).

8.3.Tax Effect of Indemnification Payments. All indemnity payments made pursuant to this Article VIII shall be treated for all Tax purposes as adjustments to the consideration paid with respect to the Shares.

8.4.No Duplication; Exclusive Remedy. (a)  Any liability for indemnification hereunder shall be determined without duplication of recovery by reason of the state of facts giving rise to such liability constituting a breach of more than one representation, warranty, covenant or agreement.

(b)From and after the Closing, the exclusive remedy of each party in connection with this Agreement and the transactions contemplated hereby (whether under this contract or arising under common law or any other Law) shall be as provided in this Article VIII, except as otherwise specified in Sections 2.2 and 7.2 and except in the case of claims for fraud or intentional breach.

8.5.Mitigation. Purchaser and Seller shall cooperate with each other with respect to resolving any claim or liability with respect to which one party is obligated to indemnify the other party including by making commercially reasonable efforts to mitigate, whether by seeking claims against a third party, an insurer or otherwise, and to resolve any such claim or liability. If a Loss is covered by insurance or subject to third party recoveries, but proceeds have not been received, the Indemnified Party shall use reasonable efforts to recover the amount of such insurance or recoverable from the insurer or third party, and, if applicable, will reimburse the Indemnifying Party for any Losses already paid hereunder (net of costs incurred to recover such amounts).

ARTICLE IX

DEFINITIONS AND INTERPRETATION

9.1.Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context clearly requires otherwise:

“401(k) Plan Participants” shall have the meaning set forth in Section 5.6(b).

“Accounting Arbitrator” has the meaning set forth in Section 2.2.

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“Affiliate” shall have the meaning set forth in Rule 12b-2 of the Exchange Act.

“Agreement” or “this Agreement” shall mean this Stock Purchase Agreement, together with the Exhibits, Appendices and Schedules hereto and the Disclosure Schedule.

“AP” shall have the meaning set forth in the opening paragraph.

“Audits” shall have the meaning set forth in Section 3.17.

“Australian Superannuation Arrangement” means any fund, plan, scheme, agreement or arrangement under which superannuation benefits, retirement benefits, pensions, annuities or other allowances of a similar nature are or may be provided to or in respect of any present or former employees of Placard or any Subsidiary of Placard or their respective dependants.

“Balance Sheet Date” shall mean July 31, 2006, the date of the most recent balance sheet included in the Financial Statements.

“Base Purchase Price” shall have the meaning set forth in Section 1.2.

“Business Day” shall mean a day other than Saturday, Sunday or any day on which the principal commercial banks located in the State of New York are authorized or obligated to close under the laws of such state.

“Certificate of Indebtedness” shall have the meaning set forth in Section 2.1(b)(ix).

“Claim Notice” shall have the meaning set forth in Section 8.2(a).

“Closing” shall mean the closing referred to in Section 2.1.

“Closing Date” shall mean the date on which the Closing occurs.

“Closing Statement” shall have the meaning set forth in Section 2.2.

“Closing Working Capital” shall mean, as of the close of business on the date immediately preceding the Closing Date, the excess of (i) current assets of the Companies (including cash and cash equivalents and excluding non-trade intercompany receivables) over (ii) current liabilities of the Companies (excluding non-trade intercompany payables), determined in accordance with Schedule 2.2.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Company” shall have the meaning set forth in the opening paragraph. In the case of Mercury, the term “Company” shall also include the Mercury Graphics division of the Seller as operated by the Seller prior to the Mercury Contribution; provided, however, that no other assets, liabilities or operations of Seller shall be deemed included as part of the term “Company.”

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“Company Intellectual Property” shall mean all Intellectual Property that is used in the business of the Companies.

“Company Material Adverse Effect” shall mean any material adverse effect on the business, financial condition or results of operations of the Companies, taken as a whole; provided, however, that the effects of events, changes and circumstances relating to (a) the industries and markets in which the Companies operate, (b) macroeconomic factors, interest rates, general financial market conditions, war, terrorism or hostilities, (c) changes in Law, generally accepted accounting principles or official interpretations of the foregoing, (d) compliance with this Agreement, or (e) the transactions contemplated hereby or the public announcement of this Agreement, shall not be considered when determining if a Company Material Adverse Effect has occurred.

“Computer Software” shall mean computer software programs, databases and all documentation related thereto.

“Confidentiality Agreement” shall mean the letter agreement dated March 21, 2006 between Seller and Purchaser.

“Copyrights” shall mean U.S. and foreign registered and unregistered copyrights (including those in Computer Software and databases), rights of publicity and all registrations and applications to register the same.

“Designs” means designs defined under the Australia Designs Act 2003 (Cth) and any similar rights capable of protection under the laws of any foreign jurisdictions.

“Direct Claim” shall have the meaning set forth in Section 8.2(a).

“Disclosure Schedule” shall mean the disclosure schedules of even date herewith delivered by Seller to Purchaser simultaneously with the execution hereof.

“Due Date” shall mean, with respect to any Tax Return, the date such return is due to be filed (taking into account any valid extensions).

“Encumbrances” shall mean any and all liens, charges, security interests, options, claims, mortgages, pledges, proxies, voting trusts or agreements, obligations, understandings, adverse claims or arrangements or other restrictions on title or transfer of any nature whatsoever.

“Environmental Law” shall mean all federal, provincial, state, county, regional, municipal, local or foreign laws, statutes, regulations, codes, plans, orders, decrees, judgments, notices, Permits, rules, ordinances, by-laws or demand letters relating to environmental matters, Hazardous Substances, natural resources, pollution or protection of human health, safety or the environment, including, without limitation, laws relating to emissions, discharges, releases or threatened releases of Hazardous Substances into ambient air, surface water, groundwater, or land or otherwise relating to the manufacture, processing, distribution, use, presence, production, treatment, storage, disposal, transport, or handling of Hazardous Substances, including, but not limited to, the Federal Water Pollution Control Act (33 U.S.C. §1251 et seq.), Resource Conservation and Recovery Act (42 U.S.C. §6901 et seq.), Safe Drinking Water Act (42 U.S.C. §3000(f) et seq.), Toxic Substances Control Act (15 U.S.C. §2601 et seq.), Clean Air Act (42 U.S.C. §7401 et seq.), Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. §9601 et seq.) (“CERCLA”), Canadian Environmental Protection Act (S.C. 1999, c. 33), Fisheries Act (R.S.C., 1985, c. F-14), Environmental Protection Act (R.S.O. 1990, c. E.19), Ontario Water Resources Act (R.S.O. 1990, c. O.40), and other similar state, provincial, regional, municipal and local statutes, and any regulations promulgated thereto.

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“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” shall mean any trade or business, whether or not incorporated, that together with the applicable Company would be deemed a “single employer” within the meaning of Section 4001(b) of ERISA.

“Escrow Agent” shall mean JPMorgan Chase Bank, N.A..

“Escrow Agreement” has the meaning set forth in Section 2.1(b)(iii).

“Escrow Amount” has the meaning set forth in Section 1.2(a).

“Estimated Closing Working Capital” shall have the meaning set forth in Section 1.2.

“Estimated Purchase Price” shall have the meaning set forth in Section 1.2.

“Evaluation Material” shall have the meaning assigned to such term in the Confidentiality Agreement.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Financial Statements” shall mean (a) the audited balance sheets of AP, Metaca, Placard and Mercury (represented by the Mercury Graphics division of the Seller as conducted prior to the Mercury Contribution) at December 31, 2005 and 2004 together with the audited statements of income and statements of cash flows for the years ended December 31, 2005 and 2004 and (b) the Interim Financial Statements.

“GAAP” shall mean, for any jurisdiction, generally accepted accounting principles for such jurisdiction, consistently applied.

“Governmental Entity” means any country, any national body (including the European Union), any state, province, municipality, or subdivision of any of the foregoing, any agency, governmental department, court, entity, commission, board, ministry, bureau, locality or authority of any of the foregoing, or any quasi-governmental or private body exercising any regulatory, taxing, importing, exporting, or other governmental or quasi-governmental function.

“HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

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“Hazardous Substances” means any hazardous substance as defined in 42 U.S.C. § 9601(14), any hazardous waste as defined by 42 U.S.C. §6903(5), any pollutant or contaminant as defined by 42 U.S.C. §9601(33) or any toxic substance, pollutant, contaminant, waste, oil or hazardous material or other chemical or substance (including, without limitation, asbestos in any form, urea formaldehyde, perchlorate or polychlorinated biphenyls) regulated by or forming the basis of liability under any Environmental Laws.

“Indebtedness” shall mean, without double counting, (a) the indebtedness of any of the Companies for borrowed money owed to third parties, (b) accrued interest payable by any Company on the indebtedness under clause (a), and (c) the obligations of any Company under their capitalized leases (which leases shall, for greater certainty, exclude those operating leases described on Schedule 3.11A of the Disclosure Schedules); provided that in no event shall Indebtedness include any amount that is included in the Closing Working Capital.

“Indemnified Party” shall have the meaning set forth in Section 8.2(a).

“Indemnifying Party” shall have the meaning set forth in Section 8.2(a).

“Indemnity Threshold” shall have the meaning set forth in Section 8.1(b)(ii).

“Insurance Policy” shall mean any insurance policy maintained by Seller or any of its Affiliates (other than the Companies).

“Intellectual Property” shall mean all of the following: Trademarks, Patents, Copyrights, Trade Secrets and Licenses.

“Intercompany Accounts” shall mean all balances related to indebtedness, including any intercompany indebtedness, loan, guaranty, receivable, payable or other account (other than trade payables and receivables) between Seller and its Subsidiaries (other than the Companies) on the one hand, and any Company, on the other hand.

“Interim Financial Statements” the unaudited balance sheets of AP, Metaca, Placard and Mercury (represented by the Mercury Graphics division of the Seller as conducted prior to the Mercury Contribution) as of July 31, 2006 together with the related statements of income for the for the seven (7) month period then ended.

“Interim Period” shall have the meaning set forth in Section 5.4(a)(ii).

“IRS” shall mean the United States Internal Revenue Service.

“Knowledge of Seller” shall mean the actual knowledge, including knowledge that a reasonable senior executive would have under the circumstances following reasonable inquiry, of Barry Switzer, Gord Bayda, Jerry Moodie, Ganesh Ganeshalingam, Stephen Pustil and Walter Campbell.

“Law” shall have the meaning set forth in Section 3.4.

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“Licenses” shall mean all licenses and agreements pursuant to which any Company has acquired rights in or to any Trademarks, Patents or Copyrights, or licenses and agreements pursuant to which any Company has licensed or transferred the right to use any of the foregoing.

“Losses” shall mean any and all actual losses, liabilities, damages, judgments, settlements and expenses (including interest and penalties recovered by a third party with respect thereto and reasonable attorney and other professional fees and expenses).

“Mercury” shall have the meaning set forth in the opening paragraph.

“Mercury Contribution” shall mean the series of transactions completed by the Seller on or prior to the date hereof pursuant to which the assets and liabilities of the Mercury division of the Seller have been contributed into Mercury.

“Mercury Lease” means that certain lease between Mercury Graphic Corporation, as lessee, and Saskatchewan Economic Development Corporation, as lessor, dated September 21, 1990, as amended.

“Metaca” shall have the meaning set forth in the opening paragraph.

“Patents” shall mean issued U.S. and foreign patents and pending patent applications, patent disclosures, and any and all divisions, continuations, continuations-in-part, reissues, reexaminations, and extensions thereof, any counterparts claiming priority therefrom, utility models, patents of importation/confirmation, certificates of invention and similar statutory rights.

“PBGC” shall mean the Pension Benefit Guaranty Corporation.

“Permitted Encumbrances” shall have the meaning set forth in Section 3.10.

“Person” shall mean a natural person, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Entity or other entity or organization.

“Placard” shall have the meaning set forth in the opening paragraph.

“Plan” shall mean each deferred compensation and each incentive compensation, stock purchase, stock option and other equity compensation plan, program, agreement or arrangement; each severance or termination pay, medical, surgical, hospitalization, life insurance and other “welfare” plan, fund or program (within the meaning of Section 3(1) of ERISA); each profit-sharing, stock bonus or other “pension” plan, fund or program (within the meaning of Section 3(2) of ERISA); each employment, termination or severance agreement; and each other employee benefit plan, pension, retirement savings or retirement income plan, fund, program, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contributed to by any Company or by any ERISA Affiliate, or to which any Company or an ERISA Affiliate is party or has any outstanding liability to or in respect of or obligation under, whether formal or informal, written or oral, for the benefit of any director, officer, consultant, or employee, whether active or terminated, of any Company excluding any government sponsored plans requiring mandatory contributions by employers and/or employees.

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“Privacy Law” shall mean (a) the Australia Privacy Act 1988 (Cth); and (b) the National Privacy Principles contained in Schedule 3 to the Australia Privacy Act 1988 (Cth) or an approved privacy code (as defined in the Australia Privacy Act 1988 (Cth)) that applies to a Company.

“Proceeding” shall have the meaning set forth in Section 8.2(a).

“Purchase Price” shall have the meaning set forth in Section 1.2.

“Purchaser” shall have the meaning set forth in the opening paragraph.

“Purchaser Indemnified Persons” shall have meaning set forth in Section 8.1(a).

“Real Property” shall mean all material real property that is owned, leased or used by the Companies or any of their respective Subsidiaries.

“Retained Employee” shall mean each person who was an active or inactive employee (including but not limited to any such employee who is on any leave of absence, whether paid or unpaid, including, but not limited to, “short-term disability leave”, “long-term disability leave” or “workers’ compensation leave” as such term is defined in a Plan) of any Company immediately prior to the Closing Date.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“SEC” shall mean the United States Securities and Exchange Commission.

“Seller” shall have the meaning set forth in the opening paragraph.

“Shares” shall mean the outstanding shares of common stock issued by the Base Companies.

“Short Period” shall have the meaning set forth in Section 5.4(a)(i).

“Straddle Period” shall mean a taxable year or period beginning on or before, and ending on or after, the Closing Date.

“Subsidiary” shall mean, with respect to any Person, any corporation or other organization, whether incorporated or unincorporated, of which (a) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries or (b) such Person or any other Subsidiary of such Person is a general partner (excluding any such partnership where such Person or any Subsidiary of such Person does not have a majority of the voting interest in such partnership).

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“Tax Act” shall mean the Income Tax Act (Canada) and the regulations thereunder, as amended.

“Taxes” shall mean all taxes, however denominated, including any interest or penalties that may become payable in respect thereof, imposed by any federal, state, provincial, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income taxes (including, but not limited to, United States and Canadian federal income taxes and state or provincial income taxes), payroll and employee withholding taxes, unemployment insurance and employment insurance payments, social security, Canada Pension Plan and provincial pension plan contributions, value-added, sales and use taxes, excise taxes, goods and services taxes, harmonized sales taxes, environmental, franchise taxes, gross receipts taxes, occupation taxes, real and personal property taxes, stamp taxes, severance taxes, capital stock taxes, capital taxes, alternative or add-on minimum taxes, estimated taxes, transfer taxes, withholding taxes, workers’ compensation, and other obligations of the same or of a similar nature, whether arising before, on or after the Closing Date and whether disputed or not.

“Tax Return” means a report, return, declaration, election, agreement, claim for refund, or other information return or statement (including any schedule or attachment thereto and including any amendment thereof) required to be supplied to or filed with a Governmental Entity with respect to Taxes including, where permitted or required, combined or consolidated returns for any group of entities that includes the Company.

“Third-party Claim” shall have the meaning set forth in Section 8.2(a).

“Title IV Plan” shall mean a Plan that is subject to Section 302 or Title IV of ERISA or Section 412 of the Code.

“Trademarks” shall mean U.S. and foreign registered and unregistered trademarks, trade dress, service marks, logos, trade names, corporate names, business names and all registrations and applications to register the same.

“Trade Secrets” shall mean all categories of trade secrets as defined in the Uniform Trade Secrets Act, including business information and any trade secrets capable of protection in any applicable non-U.S. jurisdiction.

“Transfer Taxes” shall have the meaning set forth in Section 5.4(a)(iii).

“U.S.” shall mean the United States of America.

“U.S. Dollar” or “$” means the lawful currency of the United States of America.

“WARN Act” shall mean the Worker Adjustment and Retraining Notification Act.

“Year End Balance Sheet” means the audited balance sheet of the Companies at December 31, 2005.

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9.2.Interpretation. (a)  The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(b)Whenever the words “include”, “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.”

(c)The words “hereof”, “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified.

(d)The meaning assigned to each term defined herein shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning.

(e)A reference to any party to this Agreement or any other agreement or document shall include such party’s successors and permitted assigns.

(f)A reference to any legislation or to any provision of any legislation shall include any amendment to, and any modification or re-enactment thereof, any legislative provision substituted therefor and all regulations and statutory instruments issued thereunder or pursuant thereto.

(g)The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

(h)All payments and adjustments under this Agreement shall be made in U.S. Dollars.

ARTICLE X

MISCELLANEOUS

10.1.Fees and Expenses. All costs and expenses incurred in connection with this Agreement and the consummation of the Closing shall be paid by the party incurring such expenses, except as specifically provided to the contrary in this Agreement.

10.2.Amendment and Modification. This Agreement may be amended, modified and supplemented in any and all respects, but only by a written instrument signed by all of the parties hereto expressly stating that such instrument is intended to amend, modify or supplement this Agreement.

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10.3.Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if mailed, delivered personally, telecopied (which is confirmed) or sent by an overnight courier service, such as Federal Express, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

if to Purchaser and/or HIG, to:

c/o H.I.G. Capital Management, Inc.

855 Boylston Street, 11^th Floor

Boston, MA 02116

Attention: John Black, William NolanTelephone: 617-262-8455

Telecopy: 617-262-1505

with a copy to:

Bingham McCutchen LLP

399 Park Avenue

New York, NY 10022Attention: Neil W. Townsend, Esq.

Telephone: 212-705-7722

Telecopy: 212-702-3644

and

if to Seller, to:

Steven Berns, President and CFO

MDC Partners Inc.

950 Third Avenue

New York, N.Y. 10022

Telephone: 646-429-1818

Telecopy: 212-937-4365

With a copy to:

Mitchell Gendel, General Counsel

MDC Partners Inc.

950 Third Avenue

New York, N.Y. 10022

Telephone: 646-429-1803

Telecopy: 212-937-4365

10.4.Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties.

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10.5.Entire Agreement; No Third Party Beneficiaries. This Agreement and the Confidentiality Agreement (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and thereof and (b) are not intended to confer upon any Person other than the parties hereto and thereto and, solely with respect to Section 8, the other Purchaser Indemnified Parties and Seller Indemnified Parties.

10.6.Severability. Any term or provision of this Agreement that is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction or other authority declares that any term or provision hereof is invalid, void or unenforceable, the parties agree that the court making such determination shall have the power to reduce the scope, duration, area or applicability of the term or provision, to delete specific words or phrases, or to replace any invalid, void or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.

10.7.Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles of conflicts of law thereof.

10.8.Jurisdiction. To the fullest extent permitted by applicable Law, each party hereto (i) agrees that any claim, action or proceeding by such party seeking any relief whatsoever arising out of, or in connection with, this Agreement or the transactions contemplated hereby shall be brought only in the United States District Court for the Southern District of New York or any New York State court, in each case, located in the Borough of Manhattan and not in any other State or Federal court in the United States of America or any court in any other country, (ii) agrees to submit to the exclusive jurisdiction of such courts located in the Borough of Manhattan for purposes of all legal proceedings arising out of, or in connection with, this Agreement or the transactions contemplated hereby, (iii) waives and agrees not to assert any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court or any claim that any such proceeding brought in such a court has been brought in an inconvenient forum, (iv) agrees that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 10.3 (Notices) or any other manner as may be permitted by Law shall be valid and sufficient service thereof and (v) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Law. The preceding sentence shall not limit the jurisdiction of the Accounting Arbitrator as set forth in Section 2.2, although claims may be asserted in such courts described in the preceding sentence for purposes of enforcing the jurisdiction of the Accounting Arbitrator.

10.9.Time of Essence. Each of the parties hereto hereby agrees that, with regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

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10.10.Extension; Waiver. At any time prior to the Closing Date, either party hereto may extend the time for the performance of any of the obligations or other acts of the other party. Any agreement on the part of a party to any such extension shall be valid only if set forth in an instrument in writing signed by or on behalf of such party. The failure of either party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights.

10.11.Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be transferred by either party (whether by operation of law or otherwise) without the prior written consent of the other party. Any transfer of any rights, interests or obligations hereunder in violation of this Section shall be null and void. Notwithstanding the foregoing, the Purchaser shall be permitted to assign or delegate all or part of its rights or obligations hereunder (a) to one or more of its Subsidiaries (provided that such assignment or delegation shall not relieve the Purchaser of its obligations and responsibilities hereunder) and (b) by way of collateral assignment to any bank or financing institution providing financing to the Purchaser.

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IN WITNESS WHEREOF, Purchaser, Seller and HIG have executed this Agreement or caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first written above.

SECURED PRODUCTS (CAYMAN), INC.
	By
	Name:
	Title:

MDC PARTNERS INC.
	By
	Name:
	Title:

H.I.G. CAPITAL MANAGEMENT, INC.
	By
	Name:
	Title:

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EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the quarterly report of MDC Partners Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Miles S. Nadal, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated as of November 9, 2006

/s/ MILES S. NADAL

By: Miles S. Nadal

Title: Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the quarterly report of MDC Partners Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven Berns, President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated as of November 9, 2006

/s/ STEVEN BERNS

By: Steven Berns

Title: President and Chief Financial Officer