0001144204-11-014534.txt : 20110314 0001144204-11-014534.hdr.sgml : 20110314 20110314144538 ACCESSION NUMBER: 0001144204-11-014534 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20101231 FILED AS OF DATE: 20110314 DATE AS OF CHANGE: 20110314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MDC PARTNERS INC CENTRAL INDEX KEY: 0000876883 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 980364441 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13718 FILM NUMBER: 11685103 BUSINESS ADDRESS: STREET 1: 45 HAZELTON AVE CITY: TORONTO STATE: A6 ZIP: M5R 2E3 BUSINESS PHONE: 646 429 1800 MAIL ADDRESS: STREET 1: MDC PARTNERS INC. - LEGAL DEPT. STREET 2: 950 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: MDC CORP INC DATE OF NAME CHANGE: 20001204 FORMER COMPANY: FORMER CONFORMED NAME: MDC COMMUNICATIONS CORP DATE OF NAME CHANGE: 19961028 FORMER COMPANY: FORMER CONFORMED NAME: MDC CORPORATION DATE OF NAME CHANGE: 19950419 10-K 1 v212032_10k.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2010

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
Incorporation or Organization)		   (I.R.S. Employer
Identification Number)

45 Hazelton Avenue,
Toronto, Ontario, M5R 2E3
(416) 960-9000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

950 Third Avenue,
New York, NY, 10022
(646) 429-1800

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Securities registered pursuant to Section 12(b) of the Act:

 
Title of Each Class   Name of Each Exchange on Which Registered
Class A Subordinate Voting Shares, no par value   NASDAQ; Toronto Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (Check one):

Large Accelerated Filer o   Accelerated Filer x   Non-Accelerated o   Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the shares of all classes of voting and non-voting common stock of the registrant held by non-affiliates as of June 30, 2010 was approximately $260.7 million, computed upon the basis of the closing sales price ($10.48/share) of the Class A subordinate voting shares on that date.

As of March 1, 2011, there were 29,536,114 outstanding shares of Class A subordinate voting shares without par value, and 2,503 outstanding shares of Class B multiple voting shares without par value, of the registrant.

 

 

 
 

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MDC PARTNERS INC.
  
TABLE OF CONTENTS

 
  Page
PART I
         

Item 1.

Business

     4  

Item 1A.

Risk Factors

     11  

Item 1B.

Unresolved Staff Comments

     15  

Item 2.

Properties

     15  

Item 3.

Legal Proceedings

     15  

Item 4.

Reserved

     15  
PART II
         

Item 5.

Market for Registrant’s Common Equity and Related Stockholder Matters

     16  

Item 6.

Selected Financial Data

     18  

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     20  

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

     42  

Item 8.

Financial Statements and Supplementary Data

     43  

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

     94  

Item 9A.

Controls and Procedures

     94  

Item 9B.

Other Information

     96  
PART III
         

Item 10.

Directors, Executive Officers and Corporate Governance

     97  

Item 11.

Executive Compensation

     98  

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     98  

Item 13.

Certain Relationships and Related Transactions, and Director Independence

     98  

Item 14.

Principal Accountant Fees and Services

     98  

Item 15.

Exhibits and Financial Statements Schedules

     99  
Signatures     101  

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References in this Annual Report on Form 10-K to “MDC Partners”, “MDC”, the “Company,” “we,” “us” and “our” refer to MDC Partners Inc. and, unless the context otherwise requires or otherwise is expressly stated, its subsidiaries.

All dollar amounts are stated in US dollars unless otherwise stated.

DOCUMENTS INCORPORATED BY REFERENCE

The following sections of the Proxy Statement for the Annual Meeting of Stockholders to be held on June 1, 2011, are incorporated by reference in Parts I and III: “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Executive Compensation,” “Report of the Human Resources & Compensation Committee on Executive Compensation,” “Outstanding Shares,” “Appointment of Auditors,” and “Certain Relationships and Related Transactions”.

AVAILABLE INFORMATION

Information regarding the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, will be made available, free of charge, at the Company’s website at http://www.mdc-partners.com, as soon as reasonably practicable after the Company electronically files such reports with or furnishes them to the Securities and Exchange Commission (“SEC”). The information found on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this Annual Report or Form 10-K. Any document that the Company files with the SEC may also be read and copied at the SEC’s public reference room located at 100 F. Street, N.E., Washington, DC 20549. Please call the SEC at 1 (800) SEC-0330 for further information on the public reference room. The Company’s filings are also available to the public from the SEC’s website at http://www.sec.gov.

The Company’s Code of Conduct, Whistleblower Policy, and each of the charters for the Audit Committee, Human Resources & Compensation Committee and the Nominating and Corporate Governance Committee, are available free of charge on the Company’s website at http://www.mdc-partners.com or by writing to MDC Partners Inc., 950 Third Avenue, New York, NY 10022, Attention: Investor Relations.

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FORWARD-LOOKING STATEMENTS

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 severe 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 retain and attract key employees;
• 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 and deferred acquisition consideration;
• the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities; and
• foreign currency fluctuations;

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, from borrowings under its WF Credit Facility and through incurrence of bridge or other debt financing, any 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 and the additional risk factors outlined in more detail in this Annual Report on Form 10-K under the caption “Risk Factors” and in the Company’s other SEC filings.

SUPPLEMENTARY FINANCIAL INFORMATION

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. 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.

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PART I

Item 1. Business

BUSINESS

MDC PARTNERS INC.

MDC was formed by Certificate of Amalgamation effective December 19, 1986, pursuant to the Business Corporations Act (Ontario). Effective December 19, 1986, MDC amalgamated with Branbury Explorations Limited, and thereby became a public company operating under the name of MDC Corporation. On May 28, 1996, MDC changed its name to MDC Communications Corporation and, on May 29, 1999, it changed its name to MDC Corporation Inc. On July 31, 2003, MDC acquired the remaining 26% of Maxxcom Inc. (“Maxxcom”) that it did not already own, privatizing the now wholly-owned subsidiary and merging Maxxcom’s corporate functions with MDC’s existing corporate functions. On January 1, 2004, MDC changed its name to its current name, MDC Partners Inc., and on June 28, 2004, MDC was continued under Section 187 of the Canada Business Corporations Act. MDC’s registered and head office address is located at 45 Hazelton Avenue, Toronto, Ontario, M5R 2E3.

MDC is a leading provider of marketing communications services to customers globally. MDC has operating units in the United States, Canada, Europe, and the Caribbean.

MDC’s subsidiaries provide a comprehensive range of marketing communications and consulting services, including advertising, interactive and mobile marketing, direct marketing, database and customer relationship management, sales promotion, corporate communications, market research, corporate identity, design and branding and other related services.

Part I — Business

MDC’s strategy is to build, grow and acquire market-leading businesses that deliver innovative, value-added marketing communications and strategic consulting services to their clients. MDC Partners strives to be a partnership of marketing communications and consulting companies (or Partners) whose strategic, creative and innovative solutions are media-agnostic, challenge the status quo and achieve measurable superior results for clients and stakeholders.

MDC’s Corporate Group ensures that MDC is the most Partner-responsive marketing services network through its strategic mandate to help Partner firms find clients, talent and tuck under acquisitions, as well as cross-sell services and enhance their culture for innovation and growth. MDC’s Corporate Group also works directly with Partner firms to expand their offerings through new strategic services, as well as leverage the collective expertise and scale of the group as a whole. The Corporate Group uses this leverage to provide various shared services to help reduce costs across the group.

The MDC model is driven by three key elements:

Perpetual Partnership.  The perpetual partnership creates ongoing alignment of interests to drive performance. The perpetual partnership model functions by (1) identifying the ‘right’ Partners with a sustainable differentiated position in the marketplace; (2) creating the ‘right’ Partnership structure generally by taking a majority ownership position and leaving a substantial noncontrolling equity or economic ownership position in the hands of operating management to incentivize long-term growth; (3) providing access to more resources and leveraging the network’s scale; and (4) focusing on delivering financial results.

Entrepreneurialism.  Entrepreneurial spirit is optimized by creating customized solutions to support and grow our businesses.

Human and Financial Capital.  The model balances accountability with financial flexibility to support growth.

MDC operates through “Partner” companies within the following reportable segments:

Strategic Marketing Services

The Strategic Marketing Services segment generally consists of firms that offer a full suite of integrated marketing communication and consulting services, including advertising and media, interactive marketing,

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direct marketing, public relations, corporate communications, market research, corporate identity and branding, and sales promotion to national and global clients. The Strategic Marketing Services segment is comprised of the following agencies: 72andSunny; Allison & Partners; Attention, Bruce Mau Design; Capital C Partners; Colle + McVoy; Company C; Crispin Porter + Bogusky; Crispin Porter + Bogusky Canada; Hello Design; henderson bas; HL Group Partners; kirshenbaum bond senecal + partners; Kbs+p Canada; Kwittken; Mono Advertising; Redscout; Skinny NYC; Sloane & Company; Veritas Communications; VitroRobertson; Yamamoto Moss MacKenzie; and Zyman Group.

Performance Marketing Services

The Performance Marketing Services segment includes firms that provide consumer insights to satisfy the growing need for targetable, measurable solutions or cost effective means of driving return on marketing investment and growth for regional, national and global clients. The Performance Marketing Services segment is comprised of the following agencies: 6degrees Communications; Accent; Bryan Mills Iradesso; Communifx Partners; Computer Composition; Hudson and Sunset Media; Kenna Communications; Northstar Research Partners; Onbrand; Relevent; Source Marketing; TargetCom; and Team.

Ownership Information

The following table includes certain information about MDC’s operating subsidiaries as of December 31, 2010. The “Put and Call Options” information represents existing contractual rights. Owners of interests in certain subsidiaries have the right in certain circumstances to require MDC to acquire additional 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 MDC to fund the related amounts during the periods described in the accompanying notes. 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 MDC in the event such rights are exercised is dependent on defined 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. See also “Management’s Discussion and Analysis — Other-Balance Sheet Commitments — Put Rights of Subsidiaries’ Noncontrolling Shareholders” for further discussion.

Put options represent puts of ownership interests by other interest holders to MDC with reciprocal call rights held by MDC for the same ownership interests with similar terms. The percentages shown represent the potential ownership interest MDC could achieve in each company assuming that the remaining equity holder(s) were to fully exercise their put option rights at the earliest opportunity.

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MDC PARTNERS INC.

SCHEDULE OF CURRENT AND POTENTIAL MARKETING
COMMUNICATIONS COMPANY OWNERSHIP

       
Company   % Owned at
12/31/10		   Year of
Initial
Investment		   Put/Call Options
  2011   Thereafter
               (See Notes)
Consolidated:
                                    
Strategic Marketing Services
                                    
72andSunny Partners LLC     51.0 %      2010       —       Note 1  
Allison & Partners LLC     51.0 %      2010       —       Note 2  
Attention Partners LLC     51.0 %      2009       —       Note 3  
Bruce Mau Design Inc.     75.0 %      2004       —           
Capital C Partners LP     80.0 %      2010       —       Note 4  
Colle & McVoy, LLC     95.0 %      1999       —       Note 5  
Crispin Porter & Bogusky, LLC     100.0 %      2001       —           
Crispin Porter + Bogusky Canada Inc. (f.k.a. Zig Inc.)     100.0 %      2004       —       Note 6  
Company C Communications LLC     100.0 %      2000       —       Note 7  
Hello Design, LLC     49.0 %      2004       —           
henderson bas partnership     65.0 %      2004       100.0 %          
HL Group Partners, LLC     65.9 %      2007       —       Note 8  
kirshenbaum bond senecal & partners, LLC     100.0 %      2004       —           
Kbs+p Atlanta (f.k.a. Fletcher Martin, LLC)     100.0 %      1999       —           
Kbs+p Canada, Inc. (f.k.a. Allard Johnson Communications Inc.)     100.0 %      1992       —       Note 9  
Kwittken PR LLC     60.0 %      2010       —       Note 10  
Mono Advertising, LLC     49.9 %      2004       60.0 %      Note 11  
Redscout, LLC     60.0 %      2007       —       Note 12  
Sloane & Company LLC     70.0 %      2010                Note 13  
Skinny NYC, LLC     50.1 %      2008       —       Note 14  
Veritas Communications Inc.     64.1 %      1993       81.5 %      Note 15  
Vitro Robertson, LLC     77.0 %      2004       95.0 %      Note 16  
Yamamoto Moss Mackenzie, Inc.     100.0 %      2000       —           
Zyman Group, LLC     96.0 %      2005       —       Note 17  
Performance Marketing Services
                                    
Accent Marketing Services, LLC     100.0 %      1999       —  
6degrees Integrated Communications Inc. (f.k.a. Accumark Communications Inc.)     55.0 %      1993       68.3 %      Note 18  
Bryan Mills Iradesso Corp.     62.8 %      1989       88.2 %      Note 19  
Communifx Partners, LLC     69.7 %      2010       —       Note 20  
Computer Composition of Canada Inc.     100.0 %      1988       —           
Integrated Media Solutions Partners LLC     75.0 %      2010       —       Note 21  
Kenna Communications LP     80.0 %      2010                Note 22  
Northstar Research Partners Inc.     70.0 %      1998       —       Note 23  
656712 Ontario Limited (d.b.a. Onbrand)     89.0 %      1992       —           
Relevent Partners LLC     60.0 %      2010       —           
Hudson and Sunset Media LLC (f.k.a. Shout Media LLC)     51.0 %      2010       —  
Source Marketing, LLC     83.0 %      1998       87.1 %      Note 24  
TargetCom, LLC     100.0 %      2000       —       Note 25  
The Arsenal LLC (f.k.a. Team Holdings LLC)     60.0 %      2010       —       Note 26  
Equity Accounted:
                                    
Adrenalina, LLC     49.9 %      2007       —       Note 27  

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Notes

(1) MDC has the right to increase its ownership interest in 72 and Sunny through acquisition of an incremental interest of up to 100% in 2016.
(2) MDC has the right to increase its ownership interest in Allison & Partners LLC through acquisition of an incremental interest, and other holders have the right to put only upon termination to MDC the same incremental interest up to 100% of this entity in 2015.
(3) Attention Partners LLC is owned by HL Group Partners, LLC. HL Group Partners, LLC has the right to increase its ownership in Attention Partners, LLC through acquisitions of incremental interests, and the other interest holders has the right to put to HL Group Partners, LLC the same incremental interests up to 100% only upon termination.
(4) MDC has the right to increase its ownership interest in Capital C Partners LP through acquisition of an incremental interest, up to 90% in 2015, and up to 100% in 2017.
(5) MDC has the right to increase its economic ownership in Colle & McVoy, LLC through acquisition of an incremental interest, and the other interest holder has the right to put to MDC the same incremental interest, up to 100% of this entity in 2012.
(6) During 2010, MDC has increased its ownership in Crispin Porter + Bogusky Canada Inc. 100% through acquisitions of incremental interests.
(7) During 2010, MDC increased its economic ownership in Company C Communications, LLC through acquisition of an incremental interest. Effective October 1, 2008, Company C is operated as a division of kirshenbaum bond senecal & partners, LLC.
(8) MDC has the right to increase its ownership in HL Group Partners, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 72.4% of this entity in 2012, up to 82.62% in 2013 and up to 93.73% in 2014. Effective January 25, 2010, MDC acquired an additional 1% membership interest in HL Group Partners, LLC.
(9) During 2010, MDC has increased its ownership in Kbs+p Canada Inc. to 100% through acquisitions of incremental interest.
(10) MDC has the right to increase its ownership in Kwittken PR LLC through acquisitions of incremental interests, up to 100% of this entity in 2015.
(11) MDC has the right to increase its ownership in Mono Advertising, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 54.9% of this entity in 2010, up to 60.0% in 2011, up to 65.0% in 2012, up to 70.0% in 2013 and up to 75.0% in 2014.
(12) MDC has the right to increase its ownership in Redscout, LLC through acquisition of an incremental interest, and the other interest holder has the right to put to MDC the same incremental interest, up to 80% of this entity in 2012.
(13) MDC has the right to increase its ownership interest in Sloane & Company LLC through acquisition of incremental interests, and other interest holders have the right to put to MDC the same incremental interests up to 100% in 2015.
(14) MDC has the right to increase its ownership in Skinny NYC, LLC through acquisition of incremental interests, and the other interest holders have the right to put to MDC the same incremental interest, up to 60.1% of this entity in 2014, up to 70.1% of this entity in 2015 and up to 80.1% of this entity in 2016.
(15) MDC has the right to increase its ownership in Veritas Communications Inc. through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 81.5% of this entity in 2011, up to 95.1% in 2012 and up to 100% in 2013.

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(16) MDC has the right to increase its ownership in Vitro Robertson, LLC through acquisition of an incremental interest, and the other interest holder has the right to put to MDC the same incremental interest, up to 95% of this entity in 2011, up to 97.5% in 2012 and up to 100% in 2013.
(17) In January 2009, Zyman Group, LLC has become an operating division of kirshenbaum bond senecal & partners, LLC.
(18) MDC has the right to increase its ownership in 6degrees Integrated Communications Inc. through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests up to 68.3% of this entity in 2011 and up to 75.0% in 2012. MDC’s current economic interest is 42%.
(19) MDC has the right to increase its ownership in Bryan Mills Iradesso, Corp. through acquisition of an incremental interest, and the other interest holders have the right to put to MDC the same incremental interest, up to 100% of this entity in 2012.
(20) MDC has the right to increase its ownership in Communifx Partners, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 100% of this entity in 2013.
(21) MDC has the right to increase its ownership interest in Integrated Media Solutions Partners LLC through acquisitions of incremental interests, up to 100% of this entity in 2015.
(22) MDC has the right to increase its ownership interest in Kenna Communications LP through acquisition of an incremental interest, up to 100% in 2015.
(23) MDC has the right to increase its ownership in Northstar Research Partners Inc. through acquisitions of incremental interests, and the other holders have the right to put to MDC the same incremental interests, up to 100% of this entity in 2013.
(24) MDC has the right to increase its ownership in Source Marketing, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests up 87.1% of this entity in 2011 and 91.3% in 2012 and 100% in 2013.
(25) Effective January 1, 2009, Targetcom LLC is operating as a division of Accent Marketing Services, LLC.
(26) MDC has the right to increase its ownership in The Arsenal, LLC, through acquisition of an incremental interest, up to 100% of this entity in 2013.
(27) Effective September 1, 2010, MDC has written off the value of its investment in Adrenalina, LLC.

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Financial Information Relating to Business Segments and Geographic Regions

For financial information relating to the Company’s Marketing Communications Businesses and the geographic regions the businesses operate within, refer to Note 16 (Segmented Information) of the notes to the consolidated financial statements included in this Annual Report and to “Item 7. Management’s Discussion and Analysis” for further discussion.

Competition

In the competitive, highly fragmented marketing and communications industry, the Company’s operating companies compete for business with the operating subsidiaries of large global holding companies such as Omnicom Group Inc., Interpublic Group of Companies, Inc., WPP Group plc, Publicis Group SA and Havas Advertising. These global holding companies generally have greater resources than those available to MDC and its subsidiaries, and such resources may enable them to aggressively compete with the Company’s marketing communications businesses. Each of MDC’s operating companies also faces competition from numerous independent agencies that operate in multiple markets. MDC’s operating companies must compete with these other companies to maintain existing client relationships and to obtain new clients and assignments. MDC’s operating companies compete at this level by providing clients with marketing ideas and strategies that are focused on increasing clients’ revenues and profits. These existing and potential clients include multinational corporations and national companies with mid-to-large sized marketing budgets. MDC also benefits from cooperation among the operating companies through referrals and the sharing of both services and expertise, which enables MDC to service clients’ varied marketing needs.

A partner agency’s ability to compete for new clients is affected in some instances by the policy, which many advertisers and marketers impose, of not permitting their agencies to represent competitive accounts in the same market. In the vast majority of cases, however, MDC’s consistent maintenance of separate, independent operating companies has enabled MDC to represent competing clients across its network.

Industry Trends

Historically, advertising has been the primary service provided by the marketing communications industry. However, as clients aim to establish one-to-one relationships with customers, and more accurately measure the effectiveness of their marketing expenditures, specialized and digital communications services and database marketing and analytics are consuming a growing portion of marketing dollars. The Company believes this is increasing the demand for a broader range of non-advertising marketing communications services (i.e., direct marketing, sales promotion, interactive, etc). The notion of a mass market audience is giving way to life-style segments, social events/networks, and online/mobile communities, each segment requiring a different message and/or different, often non-traditional, channels of communication. Global marketers now seek innovative ideas wherever they can find them, providing new opportunities for small to mid-sized communications companies.

Clients

The Company serves clients in virtually every industry, and in many cases, the same clients in various locations. Representation of a client rarely means that MDC handles marketing communications for all brands or product lines of the client in every geographical location. MDC’s agencies have written contracts with many of their clients. As is customary in the industry, these contracts provide for termination by either party on relatively short notice. See “Management’s Discussion and Analysis — Executive Overview” for a further discussion of MDC’s arrangements with its clients.

During 2010, 2009 and 2008, the Company’s largest client, Sprint, accounted for approximately 8%, 16% and 19% of revenues, respectively. In addition, MDC’s ten largest clients (measured by revenue generated) accounted for 37%, 49% and 45% of 2010, 2009 and 2008 revenues, respectively.

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Employees

As of December 31, 2010, MDC and its subsidiaries had the following number of employees within its reportable segments:

 
Segment   Total
Strategic Marketing Services     2,559  
Performance Marketing Services     3,323  
Corporate     38  
Total     5,920  

See Management’s Discussion and Analysis for a discussion of the effect of cost of services sold on MDC’s historical results of operations. Because of the personal service character of the marketing communications businesses, the quality of personnel is of crucial importance to MDC’s continuing success. MDC considers its relations with employees to be satisfactory.

Effect of Environmental Laws

MDC believes it is substantially in compliance with all regulations concerning the discharge of materials into the environment, and such regulations have not had a material effect on the capital expenditures or operations of MDC.

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Item 1A. Risk Factors

The following factors could adversely affect the Company’s revenues, results of operations or financial condition. See also “Statement Regarding Forward-Looking Disclosure.”

Future economic and financial conditions could adversely impact our financial condition and results.

Economic and financial conditions deteriorated sharply in the latter part of 2008, and these deteriorating conditions continued in 2009 and 2010. The pace of the global economic recovery is uneven and a future economic downturn could renew reductions in client spending levels and adversely affect our results of operations and financial position in 2011.

a. As a marketing services company, our revenues are highly susceptible to declines as a result of unfavorable economic conditions.

The recent economic downturn affected the advertising and marketing services industry more severely than other industries. In the past, some clients have responded to weakening economic conditions with reductions to their marketing budgets, which include discretionary components that are easier to reduce in the short term than other operating expenses. This pattern may recur in the future. Further decreases in our revenue would negatively affect our financial results, including a reduction of our estimates of free cash flow from operations.

b. If our clients experience financial distress, their weakened financial position could negatively affect our own financial position and results.

We have a diverse client base, and at any given time, one or more of our clients may experience financial difficulty, file for bankruptcy protection or go out of business. The recent unfavorable economic and financial conditions that have impacted many sectors of the economy could result in an increase in client financial difficulties that affect us. The direct impact on us could include reduced revenues and write-offs of accounts receivable. If these effects were severe, the indirect impact could include impairments of goodwill, credit agreement covenant violations or reduced liquidity. Our 10 largest clients (measured by revenue generated) accounted for 37% of revenue in 2010.

c. Conditions in the credit markets could adversely impact our results of operations and financial position.

Turmoil in the credit markets or a contraction in the availability of credit would make it more difficult for businesses to meet their capital requirements and could lead clients to change their financial relationship with their vendors, including us. If that were to occur, it could materially adversely impact our results of operations and financial position.

MDC competes for clients in highly competitive industries.

The Company operates in a highly competitive environment in an industry characterized by numerous firms of varying sizes, with no single firm or group of firms having a dominant position in the marketplace. MDC is, however, smaller than several of its larger industry competitors. Competitive factors include creative reputation, management, personal relationships, quality and reliability of service and expertise in particular niche areas of the marketplace. In addition, because a firm’s principal asset is its people, barriers to entry are minimal, and relatively small firms are, on occasion, able to take all or some portion of a client’s business from a larger competitor.

While many of MDC’s client relationships are long-standing, companies put their advertising and marketing services businesses up for competitive review from time to time, including at times when clients enter into strategic transactions. From year to year, the identities of MDC’s 10 largest customers may change, as a result of client losses and additions and other factors; however, the proportion of MDC’s business derived from its 10 largest clients does not vary significantly from year to year. To the extent that the Company fails to maintain existing clients or attract new clients, MDC’s business, financial condition and operating results may be affected in a materially adverse manner.

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The loss of lines of credit under our WF Credit Facility, and compliance with the covenants in the indenture governing our 11% notes, could adversely affect MDC’s liquidity and our ability to implement MDC’s acquisition strategy and fund any put options if exercised.

MDC uses amounts available under the WF Credit Facility, together with cash flow from operations, to fund its working capital needs, to fund the exercise of put option obligations and to fund our strategy of making selective acquisitions of ownership interests in entities in the marketing communications services industry.

The Company is currently in compliance with all of the terms and conditions of the WF Credit Facility. If, however, events were to occur, which result in MDC losing all or a substantial portion of its available credit under the WF Credit Facility, MDC could be required to seek other sources of liquidity. In addition, if MDC were unable to replace this source of liquidity, then MDC’s ability to fund its working capital needs and any contingent obligations with respect to put options would be materially adversely affected.

MDC may not realize the benefits it expects from past acquisitions or acquisitions MDC may make in the future.

MDC’s business strategy includes ongoing efforts to engage in material acquisitions of ownership interests in entities in the marketing communications services industry. MDC intends to finance these acquisitions by using available cash from operations and through incurrence of debt or bridge financing, either of which may increase its leverage ratios, or by issuing equity, which may have a dilutive impact on its existing shareholders. At any given time MDC 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 MDC. 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 its securities.

The success of acquisitions or strategic investments depends on the effective integration of newly acquired businesses into MDC’s current operations. Such integration is subject to risks and uncertainties, including realization of anticipated synergies and cost savings, the ability to retain and attract personnel and clients, the diversion of management’s attention from other business concerns, and undisclosed or potential legal liabilities of the acquired company. MDC may not realize the strategic and financial benefits that it expects from any of its past acquisitions, or any future acquisitions.

MDC’s business could be adversely affected if it loses key clients.

MDC’s strategy has been to acquire ownership stakes in diverse marketing communications businesses to minimize the effects that might arise from the loss of any one client or executive. The loss of one or more clients could materially affect the results of the individual operating companies and the Company as a whole. Management succession at our operating units is very important to the ongoing results of the Company because, as in any service business, the success of a particular agency is dependent upon the leadership of key executives and management personnel. If key executives were to leave our operating units, the relationships that MDC has with its clients could be adversely affected.

MDC’s ability to generate new business from new and existing clients may be limited.

To increase its revenues, MDC needs to obtain additional clients or generate demand for additional services from existing clients. MDC’s ability to generate initial demand for its services from new clients and additional demand from existing clients is subject to such clients’ and potential clients’ requirements, pre-existing vendor relationships, financial condition, strategic plans and internal resources, as well as the quality of MDC’s employees, services and reputation and the breadth of its services. To the extent MDC cannot generate new business from new and existing clients due to these limitations. MDC’s ability to grow its business and to increase its revenues will be limited.

MDC’s business could be adversely affected if it loses or fails to attract key employees.

Employees, including creative, research, media, account and practice group specialists, and their skills and relationships with clients, are among MDC’s most important assets. An important aspect of MDC’s competitiveness is its ability to retain key employee and management personnel. Compensation for these key

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employees is an essential factor in attracting and retaining them, and MDC may not offer a level of compensation sufficient to attract and retain these key employees. If MDC fails to hire and retain a sufficient number of these key employees, it may not be able to compete effectively. If key executives were to leave our operating units, the relationships that MDC has with its clients could be adversely affected.

MDC is exposed to the risk of client defaults.

MDC’s agencies often incurs expenses on behalf of its clients for productions and in order to secure a variety of media time and space, in exchange for which it receives a fee. The difference between the gross cost of the production and media and the net revenue earned by us can be significant. While MDC takes precautions against default on payment for these services (such as credit analysis and advance billing of clients) and has historically had a very low incidence of default, MDC is still exposed to the risk of significant uncollectible receivables from our clients.

MDC’s results of operations are subject to currency fluctuation risks.

Although MDC’s financial results are reported in U.S. dollars, a portion of its revenues and operating costs are denominated in currencies other than the US dollar. As a result, fluctuations in the exchange rate between the U.S. dollar and other currencies, particularly the Canadian dollar, may affect MDC’s financial results and competitive position.

Goodwill and intangible assets may become impaired.

We have recorded a significant amount of goodwill and intangible assets in our consolidated financial statements in accordance with U.S. GAAP resulting from our acquisition activities, which principally represents the specialized know-how of the workforce at the agencies we have acquired. We test, at least annually, the carrying value of goodwill for impairment, as discussed in Note 2 to our consolidated financial statements. The estimates and assumptions about future results of operations and cash flows made in connection with the impairment testing could differ from future actual results of operations and cash flows made in connection with the impairment testing could differ from future actual results of operations and cash flows. While we have concluded, for each year presented in our financial statements, that our goodwill relating to continuing operations is not impaired, future events could cause us to conclude that the asset values associated with a given operation may become impaired. Any resulting impairment loss could materially adversely affect our results of operations and financial condition.

MDC is subject to regulations that could restrict its activities or negatively impact its revenues.

Advertising and marketing communications businesses are subject to government regulation, both domestic and foreign. There has been an increasing tendency in the United States on the part of advertisers to resort to litigation and self-regulatory bodies to challenge comparative advertising on the grounds that the advertising is false and deceptive. Moreover, there has recently been an expansion of specific rules, prohibitions, media restrictions, labeling disclosures, and warning requirements with respect to advertising for certain products and usage of personally identifiable information. Representatives within government bodies, both domestic and foreign, continue to initiate proposals to ban the advertising of specific products and to impose taxes on or deny deductions for advertising which, if successful, may have an adverse effect on advertising expenditures and consequently MDC’s revenues.

In addition, laws and regulations related to user privacy, use of personal information and internet tracking technologies have been proposed or enacted in the United States and certain international markets. These laws and regulations could affect the acceptance of the internet as an advertising medium. These actions could affect our business and reduce demand for certain of our services, which could have a material adverse effect on our results of operations and financial position.

The indenture governing the 11% Notes and the WF Credit Facility governing our secured line of credit contain various covenants that limit our discretion in the operation of our business.

The indenture governing the 11% Notes and the WF Credit Facility governing our lines of credit contain various provisions that limit our discretion in the operation of our business by restricting our ability to:

• sell assets;

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• pay dividends and make other distributions;
• redeem or repurchase our capital stock;
• incur additional debt and issue capital stock;
• create liens;
• consolidate, merge or sell substantially all of our assets;
• undergo a change in control;
• enter into certain transactions with our affiliates;
• engage in new lines of business; and
• enter into sale and leaseback transactions.

These restrictions on our ability to operate our business in our discretion could seriously harm our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities. The WF Credit Facility is subject to various additional covenants, including senior and total leverage ratios, a fixed charges ratio, a minimum Earning before interest, taxes, depreciation, and amortization level, and a minimum accounts receivable level. Events beyond our control could affect our ability to meet these financial tests, and we cannot assure you that we will meet them.

Our substantial indebtedness could adversely affect our cash flow and prevent us from fulfilling our obligations, including the 11% Notes.

As of December 31, 2010, MDC had $286.2 million net of original issue discount of indebtedness. In addition, we have and expect to continue to make additional drawings under the WF Credit Facility from time to time. Our ability to pay principal and interest on our indebtedness is dependent on the generation of cash flow by our subsidiaries. Our subsidiaries’ business may not generate sufficient cash flow from operations to meet MDC’s debt service and other obligations. If we are unable to meet our expenses and debt service obligations, we may need to obtain additional debt, refinance all or a portion of our indebtedness on or before maturity, sell assets or raise equity. We may not be able to obtain additional debt, refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity. Our inability to generate sufficient cash flow to satisfy our debt obligations, to obtain additional debt or to refinance our obligations on commercially reasonable terms would have a material adverse effect on our business, financial condition and results of operations.

If we cannot make scheduled payments on our debt, we will be in default and, as a result, our debt holders could declare all outstanding principal and interest to be due and payable; the lenders under the WF Credit Facility could terminate their commitments to loan us money and foreclose against the assets securing our borrowings; and we could be forced into bankruptcy or liquidation. Our level of indebtedness could have important consequences. For example it could:

• make it more difficult for us to satisfy our obligations with respect to the 11% Notes;
• increase our vulnerability to general adverse economic and industry conditions;
• require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital and other activities;
• limit our flexibility in planning for, or reacting to, changes in our business and the advertising industry, which may place us at a competitive disadvantage compared to our competitors that have less debt; and
• limit, particularly in concert with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds or take other actions.

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Despite our current debt levels, we may be able to incur substantially more indebtedness, which could further increase the risks associated with our leverage.

We may incur substantial additional indebtedness in the future. The terms of our Credit Agreement and the indenture governing the11% Notes permit us and our subsidiaries to incur additional indebtedness subject to certain limitations. If we or our subsidiaries incur additional indebtedness, the related risks that we face could increase.

We are a holding company dependent on our subsidiaries for our ability to service our debt and pay dividends.

MDC is a holding company with no operations of our own. Consequently, our ability to service our debt and to pay cash dividends on our common stock is dependent upon the earnings from the businesses conducted by our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation to provide us with funds for our payment obligations, whether by dividends, distributions, loans or other payments. Although our operating subsidiaries have generally agreed to allow us to consolidate and “sweep” cash, subject to the timing of payments due to minority holders, any distribution of earnings to us from our subsidiaries is contingent upon the subsidiaries’ earnings and various other business considerations. Also, our right to receive any assets of any of our subsidiaries upon their liquidation or reorganization, and therefore the right of the holders of common stock to participate in those assets, will be structurally subordinated to the claims of that subsidiary’s creditors. In addition, even if we were a creditor of any of our subsidiaries, our rights as a creditor would be subordinate to any security interest in the assets of our subsidiaries and any indebtedness of our subsidiaries senior to that held by us.

We could change our existing dividend practice in the future.

The declaration and payment of dividends on our common stock is at the discretion of MDC’s board of directors and will depend upon limitations contained in our Credit Agreement and the indenture governing the 11% Notes, future earnings, capital requirements, our general financial condition and general business conditions. MDC’s practice is to pay dividends only out of excess free cash flow from operations, and in the event that worsening economic conditions, disruptions in the credit markets or other factors have a significant effect on our liquidity, MDC’s board of directors could decide to reduce or suspend dividend payments in the future.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

See the notes to the Company’s consolidated financial statements included in this Annual Report for a discussion of the Company’s lease commitments and the “Management’s Discussion and Analysis” for the impact of occupancy costs on the Company’s operating expenses.

The Company maintains office space in many cities in the United States, Canada, Europe, and the Caribbean. This space is primarily used for office and administrative purposes by the Company’s employees in performing professional services. This office space is in suitable and well-maintained condition for MDC’s current operations. All of the Company’s materially important office space is leased from third parties with varying expiration dates. Certain of these leases are subject to rent reviews or contain various escalation clauses and certain of our leases require our payment of various operating expenses, which may also be subject to escalation. In addition, leases related to the Company’s non-US businesses are denominated in other than US dollars and are therefore subject to changes in foreign exchange rates.

Item 3. Legal Proceedings

MDC’s operating entities are involved in legal proceedings of various types. While any litigation contains an element of uncertainty, MDC 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 MDC.

Item 4. Reserved

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market Information and Holders of Class A Subordinate Voting Shares

The principal United States market on which the Company’s Class A subordinate voting shares are traded is the NASDAQ National Market (“NASDAQ”) (symbol: “MDCA”), and the principal market in Canada is the Toronto Stock Exchange (symbol: “MDZ.A”). As of March 1, 2011, the approximate number of holders of our Class A subordinate voting shares, including those whose shares are held in nominee name, was 2,800. Quarterly high and low sales prices per share of the Company’s Class A subordinate voting shares, as reported on NASDAQ and The Toronto Stock Exchange, respectively, for each quarter in the years ended December 31, 2010 and 2009, are as follows:

Nasdaq

   
Quarter Ended   High   Low
     ($ per Share)
March 31, 2009     3.87       2.50  
June 30, 2009     6.00       3.24  
September 30, 2009     8.10       5.44  
December 31, 2009     9.00       6.88  
March 31, 2010     11.20       8.29  
June 30, 2010     13.19       10.30  
September 30, 2010     13.59       10.07  
December 31, 2010     17.47       13.19  

The Toronto Stock Exchange

   
Quarter Ended   High   Low
     (C$ per Share)
March 31, 2009     4.75       3.22  
June 30, 2009     6.85       4.00  
September 30, 2009     8.74       6.27  
December 31, 2009     9.98       7.50  
March 31, 2010     11.30       8.54  
June 30, 2010     13.51       10.46  
September 30, 2010     13.78       10.11  
December 31, 2010     17.37       13.39  

As of March 1, 2011, the last reported sale price of the Class A subordinate voting shares was $16.84 on NASDAQ and C$16.45 on the Toronto Stock Exchange.

Dividend Practice

In 2010, MDC’s board of directors declared the following dividends: a $0.10 per share quarterly dividend to all shareholders of record as of the close of business on February 12, 2010; an $0.11 per share quarterly dividend to all shareholders of record as of the close of business on August 13, 2010; and a $0.13 per share quarterly dividend to all shareholders of record as of the close of business on November 12, 2010. MDC’s practice is to pay dividends only out of excess free cash flow from operations. MDC is further limited in the extent to which we are able to pay dividends under our Credit Agreement and the indenture governing the 11% Notes. The payment of any future dividends will be at the discretion of MDC’s board of directors and will depend upon limitations contained in our Credit Agreement and the indenture governing the 11% Notes, future earnings, capital requirements, our general financial condition and general business conditions.

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Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information regarding securities issued under our equity compensation plans as of December 31, 2010.

     
  Number of Securities
to Be Issued Upon
Exercise of Outstanding
Options and Rights		   Weighted Average
Exercise Price of
Outstanding
Options and Rights		   Number of Securities
Remaining Available for
Future Issuance
(Excluding Column (a))
     (a)   (b)   (c)
Equity Compensation Plans:
                           
Approved by stockholders:
                           
Share options     216,200     $ 9.41       1,668,919  
Stock appreciation rights     2,597,808 (1)    $ 3.78       940,626  
Not approved by stockholders:
                           
None     —       —       —  

(1) Based on December 31, 2010 closing Class A subordinate voting share price on NASDAQ of $17.27.

On May 26, 2005, the Company’s shareholders’ approved the 2005 Stock Incentive Plan, which provides for the issuance of two million Class A shares. On June 2, 2009 and June 1, 2007, the Company’s shareholders approved amendments to the 2005 Stock Incentive Plan, which increased the number of shares available for issuance to 4.5 million Class A shares. In addition, the plan was amended to allow shares under this plan to be used to satisfy share obligations under the Stock Appreciation Rights Plan. On May 30, 2008, the Company’s shareholders approved the 2008 Key Partner Incentive Plan, which provides for the issuance of 600,000 Class A shares.

See also Note 13 of the notes to the consolidated financial statements included herein.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

None.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities:

Shares — Class A subordinate voting shares

For the twelve months ended December 31, 2010, the Company made no open market purchases of its Class A shares or its Class B shares. Pursuant to its Credit Agreement, the Company is currently restricted from repurchasing its shares in the open market.

During 2010, the Company’s employees surrendered 282,954 Class A shares valued at approximately $3.5 million in connection with the required tax withholding resulting from the vesting of restricted stock. These Class A shares were subsequently retired and no longer remain outstanding as of December 31, 2010.

Transfer Agent and Registrar for Common Stock

The transfer agent and registrar for the Company’s common stock is CIBC Mellon Trust Company. CIBC Mellon Trust Company operates a telephone information inquiry line that can be reached by dialing toll-free 1-800-387-0825 or 416-643-5500.

Correspondence may be addressed to:
MDC Partners Inc.
C/o CIBC Mellon Trust Company Corporate Trust Services
P.O. Box 7010 Adelaide Street
Postal Station Toronto, Ontario M5G 2M7

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Item 6. Selected Financial Data

The following selected financial data should be read in connection with Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes that are included in this annual report on Form 10-K.

         
  Years Ended December 31,
     2010   2009   2008   2007   2006
     (Dollars in Thousands, Except per Share Data)
Operating Data
                                             
Revenues   $ 697,825     $ 545,141     $ 583,271     $ 532,947     $ 403,030  
Operating profit   $ 28,929     $ 21,096     $ 20,698     $ 23,561     $ 23,491  
Income (loss) from continuing operations   $ (2,872 )    $ (11,239 )    $ 18,638     $ 2,467     $ 8,471  
Stock-based compensation included in income from continuing operations   $ 16,507     $ 15,444     $ 14,437     $ 10,217     $ 8,361  
Earnings (Loss) per Share
                                             
Basic
                                             
Continuing operations attributable to MDC Partners Inc.   $ (0.46 )    $ (0.61 )    $ 0.39     $ (0.72 )    $ (0.35 ) 
Diluted
                                             
Continuing operations attributable to MDC Partners Inc. common shareholders   $ (0.46 )    $ (0.61 )    $ 0.38     $ (0.72 )    $ (0.35 ) 
Cash dividends declared per share   $ 0.34     $ —     $ —     $ —     $ —  
Financial Position Data
                                             
Total assets   $ 914,348     $ 604,519     $ 529,239     $ 520,698     $ 493,501  
Total debt   $ 286,216     $ 217,946     $ 181,498     $ 164,754     $ 95,454  
Redeemable noncontrolling interest   $ 77,560     $ 33,728     $ 21,751     $ 24,187     $ 45,682  
Deferred acquisition consideration   $ 107,991     $ 30,645     $ 5,538     $ 2,511     $ 2,721  
Fixed charge coverage ratio     N/A       N/A       2.03       1.44       2.04  
Fixed charge deficiency   $ 3,265     $ 2,497       N/A       N/A       N/A  

Several significant factors that should be considered when comparing the annual results shown above are as follows:

Year Ended December 31, 2010

During 2010, the Company completed a significant number of acquisitions. Please see Note 4 of the notes to the consolidated financial statements included herein for a summary of these acquisitions.

On May 14, 2010, the Company and its wholly-owned subsidiaries, as guarantors issued and sold $65 million aggregate principal amount of 11% Senior Notes due 2016. The additional notes were issued under the Indenture governing the 11% notes and treated as a single series with the original 11% notes. The additional notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of 1933, as amended. The Company received net proceeds before expenses of $67.2 million, which included an original issue premium of $2.6 million, and underwriter fees of $0.4 million. The Company used the net proceeds of the offering to repay the outstanding balance under the Company’s revolving Credit Facility described elsewhere herein, and for general corporate purposes, including acquisitions.

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Effective September 30, 2010, the Company ceased Zig (USA) LLC operations. All periods have been restated to reflect these discontinued operations. See Note 10 of the notes to the consolidated financial statements included herein.

Year Ended December 31, 2009

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold $225 million aggregate principal amount of 11% Senior Notes due 2016 (the “11% Notes”). The 11% Notes bear interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable semiannually in arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11% Notes will mature on November 1, 2016, unless earlier redeemed or repurchased. In addition, the Company entered into a $75 million Revolving Credit Facility, expiring in October 2014. The Company used the net proceeds of this offering to repay the outstanding balance and terminate its prior Fortress Financing Agreement, and redeemed its outstanding 8% C$45 million convertible debentures. As a result, the Company incurred $4.5 million of early termination fees and wrote off of the remaining deferred financing costs relating to its prior Financing Agreement and convertible debentures.

Year Ended December 31, 2008

During the year ended December 31, 2008, MDC recognized $13.3 million of primarily non-cash, unrealized, foreign exchange gains due primarily to the strengthening of the US dollar as compared to the Canadian dollar on its intercompany balances that are denominated in the US dollar.

Effective December 31, 2008, three of the Company’s operating subsidiaries, Clifford/Bratskeir Public Relations LLC, Ito Partners, LLC and Mobium Creative Group (a division of Colle + McVoy) have been deemed discontinued operations. All periods have been restated to reflect these discontinued operations. See Note 10 of the notes to the consolidated financial statements included herein.

Year Ended December 31, 2007

In March 2007, due to continued operating and client losses, the Company ceased Margeotes Fertitta Powell, LLC (“MFP”) current operations and spun off a new operating business and as a result incurred a goodwill impairment charge of $4.5 million in 2007. The Company also recorded an impairment charge relating to MFP of $6.3 million in 2006. After reviewing the 2008 projections of the new operating business the Company decided to cease the operations of the new operating business as well. As a result, the Company has classified these operations as discontinued. In addition, an additional intangible relating to an employment contract of $0.6 million was deemed impaired and written off.

In December 2007, due to continued operating losses and the lack of new business wins the Company ceased Banjo Strategic Entertainment, LLC (“Banjo”) operations. All periods have been restated to reflect these discontinued operations. See Note 10 of the notes to the consolidated financial statements included herein.

Year Ended December 31, 2006

On November 14, 2006, MDC sold its Secure Products International Products division, and all periods have been restated to reflect these discontinued operations.

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Item 7. 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 2010 means the period beginning January 1, 2010, and ending December 31, 2010).

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.

Executive Summary

The Company’s objective is to create shareholder value by building market-leading subsidiaries and affiliates that deliver innovative, value-added marketing communications and strategic consulting to their clients. Management believes that shareholder value is maximized with an operating philosophy of “Perpetual Partnership” with proven committed industry leaders in marketing communications.

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 and capital expenditures. 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.

MDC conducts its businesses through the Marketing Communications Group. Within the Marketing Communications Group, there are two reportable operating segments: Strategic Marketing Services and Performance Marketing Services. In addition, MDC has a “Corporate Group” which provides certain administrative, accounting, financial and legal functions.

Marketing Communications Businesses

Through its operating “partners”, MDC provides advertising, consulting, customer relationship management, and specialized communication services to clients throughout the United States, Canada, Europe, and the Caribbean.

The operating companies 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. Additional information about revenue recognition appears in Note 2 of the notes to the consolidated financial statements.

MDC 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. Also included in operating expenses is depreciation and amortization.

Because we are a service business, we monitor 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 and depreciation and amortization, 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.

We measure capital expenditures as either maintenance or investment related. Maintenance capital expenditures are primarily composed of general upkeep of our office facilities and equipment that are required

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to continue to operate our businesses. Investment capital expenditures include expansion costs, the build out of new capabilities, technology or call centers, or other growth initiatives not related to the day to day upkeep of the existing operations. Growth capital expenditures are measured and approved based on the expected return of the invested capital.

Certain Factors Affecting Our Business

Overall Factors Affecting our Business and Results of Operations. The most significant factors include national, regional and local economic conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our ability to retain and attract key employees. New business wins and client loses occur for of a variety of factors. The two most significant factors are; clients’ desire to change marketing communication firms, and the creative product our firms are offering. A client may choose to change marketing communication firms for any number of reasons, such as a change in top management and the new management wants to go retain an agency that it may have previously worked with. In addition, if the client is merged or acquired by another company, the marketing communication firm is often changed. Further, global clients are trending to consolidate the use of numerous marketing communication firms to just one or two. Another factor in a client changing firms is the agency’s campaign or work product is not providing results and they feel a change is in order to generate additional revenues.

Clients will generally reduce or increase their spending or outsourcing needs based on their current business trends and profitability. These types of changes impact the Performance Marketing Services Group more than the Strategic Marketing Services Group due to the Performance Marketing Services Group having clients who require project-based work as opposed to the Strategic Marketing Services Group who primarily have retainer-based relationships.

Acquisitions and Dispositions. Our strategy includes acquiring ownership stakes in well-managed businesses with strong reputations in the industry. We engaged in a number of acquisition and disposal transactions during the 2008 to 2010 period, which affected revenues, expenses, operating income and net income. Additional information regarding material acquisitions is provided in Note 4 “Acquisitions” and information on dispositions is provided in Note 10 “Discontinued Operations” in the notes to the consolidated financial statements.

Foreign Exchange Fluctuations. Our financial results and competitive position are affected by fluctuations in the exchange rate between the US dollar and non-US dollars, primarily the Canadian dollar. See also “Quantitative and Qualitative Disclosures About Market Risk — Foreign Exchange.”

Seasonality. Historically, with some exceptions, we generate the highest quarterly revenues during the fourth quarter in each 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.

Fourth Quarter Results. Revenues for the fourth quarter of 2010 increased to $213.4 million, compared to the 2009 fourth quarter revenues of $149.5 million. The increase consisted of organic growth of $20.8 million acquisition revenue of $41.9 million and a $1.3 million increase due to foreign currency fluctuations. The Strategic Marketing Services segment had revenue growth of $24.4 million, of which $13.5 million is organic and $10.1 million is acquisition. The Performance Marketing Services segment had increased revenue of $39.5 million in 2010 of which $7.3 million was organic and $31.8 million was acquisition. Operating results for the fourth quarter of 2010 resulted in income of $21.8 million compared to a loss of $0.7 million in 2009. The increase in operating profits was primarily related to the increase in revenue. Income (loss) from continuing operations for the fourth quarter of 2010 was income $17.4 million compared to a loss of $15.9 million in 2009. The 2009 fourth quarter loss is attributable to a loss in operating income of $0.7 million compared to income of $21.8 million in 2010. Interest expense was higher in 2009 by $1.6 million, income tax expense was also higher by $6.4 million and equity in earning of affiliates was a loss in 2009 of $0.3 million compared to income in 2010 of $2.5 million. The increase in operating income of $22.5 million in 2010 over 2009 was primarily due to the increased revenue in 2010. Interest expense increased due to the Company’s refinancing of its outstanding debt. Income tax expense was higher primarily due to additional valuation allowance reserves and non-deductible stock-based compensation in 2009. The 2010 income in equity affiliates relates to distributions in excess of the Company’s carrying value of one of its equity method investments.

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Summary of Key Transactions

Year Ended December 31, 2010

The Company completed several key acquisitions in 2010. These acquisitions included the acquisition of 60% of the equity interests in The Arsenal LLC (“Team”); 75% of the equity interest in Integrated Media Solutions, LLC; 51% of the equity interests in Allison & Partners LLC; 70% of the equity interests in Sloane & Company LLC; 60% of the equity interests of Relevent Partners LLC; 80% of the total outstanding equity interests in each of Kenna Communications LP and Capital C Partners LP; and 51% of the equity interests in 72andSunny Partners LLC.

The total aggregate purchase price for these 2010 transactions was $182.1 million, which included closing cash payments equal to $92.4 million and additional estimated contingent purchase payments in future years of approximately $89.7 million. See Note 4 of the notes to the consolidated financial statements included herein for additional information on these and other acquisitions.

On May 14, 2010, the Company and its wholly-owned subsidiaries (as guarantors) issued and sold an additional $65 million aggregate principal amount of 11% Senior Notes due 2016. The additional notes were issued under the Indenture governing the 11% notes and treated as a single series with the original 11% notes. The additional notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933, as amended. The Company used the net proceeds of the offering to repay the outstanding balance under the Company’s revolving WF Credit Facility, and for acquisitions and other general corporate purposes.

Year Ended December 31, 2009

New Financing

On October 23, 2009, the Company completed a $300 million refinancing of its existing debt arrangements. The Company issued $225 million of 11% senior notes and obtained a new $75 million revolving WF Credit Facility. The proceeds were used to pay off the existing Fortress Facility, consisting of the $130 million term loan, and the C$45 million convertible debentures. The proceeds were also used for the early payment of $46.0 million of deferred acquisition consideration relating to kirshenbaum bond senecal & partners LLC (“KBSP”) and Crispin Porter & Bogusky LLC (“CPB”). In connection with the repayment of its prior indebtedness, the Company incurred termination fees and expenses of $2.0 million and wrote off deferred financing costs of $2.5 million.

Effective October 5, 2009, MDC acquired the remaining 6% equity interest in CPB from the minority holder. In accordance with the terms of the underlying limited liability company agreement, the estimated contingent purchase price of $8.5 million will be paid in future periods beginning in April 2011. Following the closing of this transaction, MDC’s ownership in CPB is 100%.

Year Ended December 31, 2008

Step-Up Acquisitions of Key Partners

On November 10, 2008, the Company acquired an additional 17% equity interest in CPB from certain noncontrolling holders. The purchase price consisted of a cash payment equal to $6.4 million plus the issuance of 105,000 newly-issued Class A shares of the Company, plus an additional contingent purchase price payment due in April 2010 based on 2007, 2008 and 2009 performance. Following the closing of this transaction, the Company’s ownership in CPB was 94%.

On December 31, 2008, the Company acquired the remaining 6.3% of Accent Marketing Services (“Accent”). The aggregate purchase price was equal to $4.8 million and was satisfied as follows: on closing, the extinguishment of $1.8 million of outstanding loans, and payment of $1.0 million in cash and an additional payment of $2.0 million paid in 2009.

Discontinued Operations

Effective December 3, 2008, Colle & McVoy, LLC completed the sale of certain assets of its Mobium division. The purchase price consisted of minimal cash received at closing plus additional potential payments to be received through 2010. As of December 31, 2008, Mobium is treated as a discontinued operation.

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In December 2008, the Company entered into negotiations with the management of Clifford/Bratskeir Public Relations LLC (“Bratskeir”) to sell certain remaining assets to management. This transaction was completed in April 2009. As of December 31, 2008, Bratskeir has been treated as a discontinued operation.

Results of Operations for the Years Ended December 31, 2010, 2009 and 2008:

       
  For the Year Ended December 31, 2010
     Strategic
Marketing
Services		   Performance
Marketing
Services		   Corporate   Total
Revenue   $ 438,941     $ 258,884     $ —     $ 697,825  
Cost of services sold     289,409       188,082       —       477,491  
Office and general expenses     90,622       44,011       22,291       156,924  
Depreciation and amortization     17,917       16,196       368       34,481  
Operating Profit (Loss)     40,993       10,595       (22,659 )      28,929  
Other Income (Expense):
                                    
Other income, net                                381  
Foreign exchange gain                                69  
Interest expense, net                                (33,282 ) 
Loss from continuing operations before income taxes, equity in affiliates and noncontrolling interest                                (3,903 ) 
Income tax recovery                                165  
Loss from continuing operations before equity in affiliates and noncontrolling interests                                (3,738 ) 
Equity in earnings of affiliates                                866  
Loss from continuing operations                                (2,872 ) 
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes                                (2,494 ) 
Net loss                                (5,366 ) 
Net income attributable to noncontrolling interests     (7,211 )      (2,863 )      —       (10,074 ) 
Net loss attributable to MDC Partners Inc.                              $ (15,440 ) 
Stock-based compensation   $ 7,282     $ 1,992     $ 7,233     $ 16,507  

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  For the Year Ended December 31, 2009
     Strategic
Marketing
Services		   Performance
Marketing
Services		   Corporate   Total
Revenue   $ 370,615     $ 174,526     $ —     $ 545,141  
Cost of services sold     220,714       132,297       —       353,011  
Office and general expenses     87,633       30,898       18,091       136,622  
Depreciation and amortization     25,518       8,466       428       34,412  
Operating Profit (Loss)     36,750       2,865       (18,519 )      21,096  
Other Income (Expense):
                                    
Other expense, net                                (91 ) 
Foreign exchange loss                                (1,956 ) 
Interest expense, net                                (21,744 ) 
Loss from continuing operations before income taxes, equity in affiliates and noncontrolling interest                                (2,695 ) 
Income tax expense                                (8,536 ) 
Loss from continuing operations before equity in affiliates and noncontrolling interests                                (11,231 ) 
Equity loss in earnings of affiliates                                (8 ) 
Loss from continuing operations                                (11,239 ) 
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes                                (1,519 ) 
Net loss                                (12,758 ) 
Net income attributable to noncontrolling interests     (4,851 )      (715 )      —       (5,566 ) 
Net loss attributable to MDC Partners Inc.                              $ (18,324 ) 
Stock-based compensation   $ 8,742     $ 868     $ 5,834     $ 15,444  

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  For the Year Ended December 31, 2008
     Strategic
Marketing
Services		   Performance
Marketing
Services		   Corporate   Total
Revenue   $ 362,203     $ 221,068     $ —     $ 583,271  
Cost of services sold     225,569       165,446       —       391,015  
Office and general expenses     84,071       35,725       17,622       137,418  
Depreciation and amortization     24,550       9,189       401       34,140  
Operating Profit (Loss)     28,013       10,708       (18,023 )      20,698  
Other Income (Expense):
                                    
Other expense, net                                (14 ) 
Foreign exchange gain                                13,257  
Interest expense, net                                (13,255 ) 
Income from continuing operations before income taxes and equity in affiliates                                20,686  
Income tax expense                                (2,397 ) 
Income from continuing operations before equity in affiliates and noncontrolling interests                                18,289  
Equity in earnings of affiliates                                349  
Income from continuing operations                                18,638  
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes                                (10,205 ) 
Net income                                8,433  
Net income attributable to the noncontrolling interests     (5,466 )      (2,834 )      —       (8,300 ) 
Net income attributable to MDC Partners Inc.                              $ 133  
Stock-based compensation   $ 6,162     $ 3,697     $ 4,578     $ 14,437  

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Revenue was $697.8 million for the year ended 2010, representing an increase of $152.7 million, or 28.1%, compared to revenue of $545.1 million for the year ended 2009. This increase relates primarily to acquisition growth of $105.8 million and an increase in organic revenue of $38.5 million. In addition, a weakening of the US Dollar, primarily versus the Canadian dollar during the year ended December 31, 2010, resulted in an increase of $8.4 million.

Operating profit for the year ended 2010 was $28.9 million compared to $21.1 million in 2009. Operating profit increased by $4.2 million in the Strategic Marketing Services, and by $7.7 million within the Performance Marketing Services segment. Corporate operating expenses increased by $4.1 million in 2010.

Income (loss) from continuing operations was a loss of $2.9 million in 2010, compared to a loss of $11.2 million in 2009. This increase in income of $8.3 million was primarily attributable to the increase in operating profit, offset by an increase in net interest expense equal to $11.5 million. This increase in net interest expense was primarily due to the Company’s outstanding 11% senior notes. These amounts were impacted by a decrease in foreign exchange losses from a loss of $2.0 million in 2009 to income of $0.1 million in 2010, and an increase in other income, net of $0.5 million from a loss of $0.1 million in 2009 to income of $0.4 million in 2010. In addition, income tax expense decreased $8.7 million, from $8.5 million in 2009 to a benefit of $0.2 million in 2010. Equity in earnings of non-consolidated affiliates increased by $0.9 million due to distributions in excess of the Company’s carrying value of one equity method investment of $2.6 million, offset by the write-off of another equity method investment due to continued losses.

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Marketing Communications Group

Revenues attributable to the Marketing Communications Group, which consists of two reportable segments — Strategic Marketing Services and Performance Marketing Services, were $697.8 million in the aggregate in 2010, compared to $545.1 million in 2009, representing a year-over-year increase of 28%.

The components of the revenue for 2010 are shown in the following table:

   
  Revenue
     $000’s   %
Year ended December 31, 2009   $ 545,141       —  
Acquisition     105,851       19.4 % 
Organic     38,477       7.1 % 
Foreign exchange impact     8,356       1.5 % 
Year ended December 31, 2010   $ 697,825       28.0 % 

The geographic mix in revenues was relatively consistent between 2010 and 2009 and is demonstrated in the following table:

   
  2010   2009
US     84 %      83 % 
Canada     14 %      15 % 
Europe and other     2 %      2 % 

The operating profit of the Marketing Communications Group increased by approximately 30.2% to $51.6 million in 2010, from $39.6 million in 2009. Operating margins increased to 7.4% for 2010 compared to 7.3% for 2009. The increase in operating margin is primarily attributable to increased revenues and a reduction in total staff costs as a percentage of revenues from 60.2% in 2009, to 55.3% in 2010. Direct costs (excluding staff costs) offset this increase as these costs increased as a percentage of revenues from 14.0% of revenue in 2009 to 20.6% of revenue in 2010 due to an increase in reimbursed client related direct costs. This increase in direct costs is due to the requirement that certain costs be included in both revenue and direct costs due to the Company acting as principle versus agent for certain client contracts. Office and general expenses as a percentage of revenue decreased from 21.7% in 2009, to 19.3% in 2010. This decrease was primarily a result of increased revenues on relatively fixed costs, offset by acquisition related costs and estimated deferred acquisition consideration adjustments of 0.3% in 2010 compared to minimal impact in 2009. Depreciation and amortization expenses decreased as a percentage of revenue from 6.2% in 2009, to 4.9% in 2010, due to these expenses being relatively flat at $34.0 million.

Marketing Communications Businesses

Strategic Marketing Services

Revenues attributable to Strategic Marketing Services in 2010 were $438.9 million, compared to $370.6 million in 2009. The year-over-year increase of $68.3 million, or 18.4%, was attributable primarily to organic growth of $43.2 million or 11.7%; acquisition growth of $20.2 million or 5.4%; and a foreign exchange conversion of $4.9 million due to the weakening of the US dollar compared to the Canadian dollar. This organic revenue growth was driven by net new business wins.

The operating profit of Strategic Marketing Services increased by approximately 11.5% to $41.0 million in 2010, from $36.8 million in 2009, while operating margins decreased to 9.3% in 2010 from 9.9% in 2009. The increase in operating profit was primarily due to the increased revenue. The decrease in operating margin was primarily related to an increase in direct costs (excluding staff costs) as a percentage of revenues from 11.0% of revenue in 2009, to 16.8% of revenue in 2010. In addition, margins were negatively impacted by acquisition related costs and estimated deferred acquisition consideration adjustments of 0.6% in 2010 compared to minimal impact in 2009. Total staff costs as a percentage of revenue decreased from 58.3% in 2009 to 55.8% in 2010, helping to offset increase in direct costs as a percentage of revenue despite the Company’s investment in talent. Depreciation and amortization decreased as a percentage of revenue from 6.9% during 2009 to 4.1% during 2010.

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Performance Marketing Services

Performance Marketing Services generated revenues of $258.9 million for 2010, an increase of $84.4 million, or 48.3%, compared to revenues of $174.5 million in 2009. The year-over-year increase was attributable primarily to acquisition growth of $85.7 million and a foreign translation of $3.4 million; offset by an organic revenue decline of $4.8 million. Revenues declined due to customers reducing their outsourcing needs and reduced client project spending in 2010.

The operating profit of Performance Marketing Services increased by $7.7 million to $10.6 million in 2010, from an operating profit of $2.9 million in 2009. Operating margins improved from 1.6% in 2009 compared to 4.1% in 2010. The increase in operating profit dollars is primarily due to increased revenue. The increase in operating margin in 2010 was due primarily to a decrease in total staff costs as a percentage of revenue from 64.1% in 2009; to 54.5% in 2010. Offsetting this decrease was an increase in direct costs (excluding staff costs) as a percentage of revenue from 20.6% in 2009 to 27.0%. Office and general expenses as a percentage of revenue decreased from 17.7% in 2009 to 17.0% in 2010 due to relatively fixed costs compared to the increase in revenue. Depreciation and amortization increased due to amortization of acquired intangibles from 2010 acquisitions.

Corporate

Operating costs related to the Company’s Corporate operations increased by $4.1 million to $22.7 million in 2010, compared to $18.5 million in 2009. This increase of $4.1 million was primarily related to increased compensation and related costs of $1.9 million ($1.4 million of which consisted of non-cash stock based compensation), travel, promotional and related costs of $2.0 million and professional and other costs of $0.2 million.

Other Expense, Net

Other expense, net, increased $0.5 million in 2010 to income of $0.4 million from an expense of $0.1 million in 2009.

Foreign Exchange

The foreign exchange gain was $0.1 million for 2010, compared to a loss of $0.1 million recorded in 2009.

During 2010, the Company settled certain intercompany accounts to reduce its exposure to the continued foreign exchange fluctuations between the US dollar and Canadian dollar. As a result, the Company recorded a net minimal foreign exchange gain in 2010 compared to the loss incurred in 2009. In 2009, the Company recorded an unrealized loss that was offset by a $1.3 million realized gain on foreign exchange transactions.

Net Interest Expense

Net interest expense for 2010 was $33.3 million, an increase of $11.5 million over the $21.7 million net interest expense incurred during 2009. Interest expense increased $11.4 million in 2010 due to the refinancing completed in October 2009 and the additional $65 million 11% senior notes issued in May 2010. Interest expense also increased due to the higher debt outstanding and higher interest rates on the refinanced debt. Interest income was $0.2 million for 2010, as compared to $0.4 million in 2009.

Income Taxes

Income tax benefit in 2010 was $0.2 million compared to expense of $8.5 million for 2009. In 2010, the Company’s effective tax rate was substantially lower than the statutory tax rate due to a decrease in the Company’s valuation allowance, and noncontrolling interest charges. These amounts were offset in part by non-deductible stock based compensation and a reserve established for potential tax positions. The Company’s effective tax rate was substantially higher than the statutory rate in 2010 due to non-deductible stock-based compensation and an increase in the Company’s valuation allowance, offset in part by noncontrolling 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 noncontrolling holders are responsible for taxes on their share of the profits.

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Equity in Affiliates

Equity in affiliates represents the income loss attributable to equity-accounted affiliate operations. In 2010, the Company incurred income of $0.9 million due to distributions in excess of the Company’s carrying value of one equity method investment of $2.6 million offset by the write-off of another equity method investment due to continued losses.

Noncontrolling Interests

Noncontrolling interest expense was $10.1 million for 2010, an increase of $4.5 million from the $5.6 million of noncontrolling interest expense incurred during 2009. The increase was primarily due to increased profitability of subsidiaries within both operating segments, which are not 100% owned.

Discontinued Operations

The loss net of taxes from discontinued operations for 2010 was $2.5 million and is comprised of the operating results of Zig (US) LLC (“Zig US”), Redscout’s 007 venture; discontinued operations of Fearless Progression LLC in 2010; and Margeotes Fertitta Powell, LLC (“MFP”) discontinued in 2007.

The loss net of taxes from discontinued operations for 2009 was $1.5 million and is comprised of the operating results of Zig US, Clifford/Bratskeir Public Relations LLC discontinued in 2009 and MFP.

Net Income

As a result of the foregoing, the net loss recorded for 2010 was $15.4 million or loss of $0.55 per diluted share, compared to a net loss of $18.3 million or $0.67 per diluted share reported for 2009.

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Revenue was $545.1 million for the year ended 2009, representing a decrease of $38.2 million, or 6.5%, compared to revenue of $583.3 million for the year ended 2008. This decrease relates primarily to a decrease in organic revenue of $31.6 million. In addition, a weakening of the US Dollar, primarily versus the Canadian dollar during the year ended December 31, 2009, resulted in a further reduction of revenues of $6.5 million.

Operating profit for the year ended 2009 was $21.1 million compared to $20.7 million in 2008. Operating profit increased $8.7 million in the Strategic Marketing Services, which was offset by a decrease of $7.8 million, within the Performance Marketing Services segment. Corporate operating expenses increased by $0.5 million.

Income (loss) from continuing operations was a loss of $11.2 million in 2009, compared to income of $18.6 million in 2008. This decrease in income of $29.8 million was primarily attributed to the result of an unrealized foreign exchange loss of $3.2 million, offset by a realized foreign exchange gain of $1.3 million in 2009, compared to an unrealized foreign exchange gain of $13.3 million in 2008 and net interest expense increased by $8.5 million primarily due to the termination fees and expenses, write-off of the remaining deferred financing costs and increased interest expense resulting from the refinancing of existing debt. Income tax expense increased $6.1 million from $2.4 million in 2008 to $8.5 million in 2009. Equity in earnings of non-consolidated affiliates decreased by $0.4 million.

Marketing Communications Group

Revenues in 2009 attributable to the Marketing Communications Group, which consists of two reportable segments — Strategic Marketing Services and Performance Marketing Services, were $545.1 million compared to $583.3 million in 2008, representing a year-over-year decrease of 6.5%.

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The components of the revenue for 2009 are shown in the following table:

   
  Revenue
     $000’s   %
Year ended December 31, 2008   $ 583,271       —  
Organic     (31,590 )      (5.4 )% 
Foreign exchange impact     (6,540 )      (1.1 )% 
Year ended December 31, 2009   $ 545,141       (6.5 )% 

The geographic mix in revenues was relatively consistent between 2009 and 2008 and is demonstrated in the following table:

   
  2009   2008
US     83 %      83 % 
Canada     15 %      15 % 
Europe and other     2 %      2 % 

The operating profit of the Marketing Communications Group increased by approximately 2.3% to $39.6 million from $38.7 million. Operating margins increased to 7.3% for 2009 compared to 6.6% for 2008. The increase in operating margin is primarily attributable to a decrease in direct costs (excluding staff costs) as a percentage of revenues from 14.6% of revenue in 2008 to 14.0% of revenue in 2009 due to an increase in reimbursed client related direct costs. Total staff costs as a percentage of revenues was 60.2% in both 2008 and 2009 despite a reduction of staff cost dollars of $23.2 million. Depreciation and amortization expenses increased as a percentage of revenue from 5.8% in 2008 to 6.3% in 2009 despite being relatively flat at $34.0 million.

Marketing Communications Businesses

Strategic Marketing Services

Revenues attributable to Strategic Marketing Services in 2009 were $370.6 million compared to $362.2 million in 2008. The year-over-year increase of $8.4 million, or 2.3%, was attributable primarily to organic growth of $11.6 million or 3.2%. This organic growth was driven by net new business wins, offset by foreign exchange conversation of $3.2 million due to the weakening of the US dollar compared to the Canadian dollar.

The operating profit of Strategic Marketing Services increased by approximately 31.2% to $36.8 million in 2009, from $28.0 million in 2008, while operating margins increased to 9.9% in 2009 from 7.7% in 2008. The increase in operating profit and margin is primarily related to a decreased in direct costs (excluding staff costs) as a percentage of revenues from 11.7% of revenue in 2008 to 11.0% of revenue in 2009, primarily due to a decrease in reimbursed client related direct costs. Total staff costs as a percentage of revenue decreased from 58.7% in 2008 to 58.3% in 2009. Depreciation and amortization represented 6.9% and 6.8% or revenues during 2009 and 2008, respectively.

Performance Marketing Services

Performance Marketing Services generated revenues of $174.5 million for 2009, which was a decrease of $46.5 million, or 21.1%, compared to revenues of $221.1 million in 2008. The year-over-year increase was attributable primarily to organic revenue declines of $43.2 million. Revenue declines were also attributable to a weakening of the US dollar versus the Canadian dollar and British pound in 2009 compared to 2008 resulted in a $3.4 million decrease in revenues from the division’s Canadian and UK-based operations. Revenues declined due to customers reducing their outsourcing needs and reducing client project spending.

The operating profit of Performance Marketing Services decreased by $7.8 million to $2.9 million in 2009, from an operating profit of $10.7 million in 2008, with operating margins of 1.6% in 2009 compared to 4.8% in 2008. The decrease in operating margin in 2009 was due primarily to an increase in total staff costs as a percentage of revenues from 62.7% in 2008 to 64.1% in 2009. Direct costs (excluding staff costs) as a percentage of revenue increased from 19.4% in 2008 to 20.6% in 2009. This increase is a result of the timing

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of when expected clients’ projects were expected to begin, while maintaining the appropriate staffing levels to properly service those projects; however, staff costs did decrease by $26.9 million. Margins were also impacted by an increase in office and general expenses as a percent of revenue, which increased from 16.2% in 2008 to 17.7% in 2009 and an increase in depreciation and amortization from 4.2% in 2008 to 4.9% in 2009. Office and general expenses costs decreased $4.8 million; however, due to their relatively fixed nature, the decrease in revenue outpaced this decrease in costs.

Corporate

Operating costs related to the Company’s Corporate operations increased by $0.5 million to $18.5 million in 2009 compared to $18.0 million in 2008. Stock based compensation expense increased $1.3 million, while cash staff costs decreased by $0.5 million and other administrative costs decreased by $0.03 million.

Other Expense, Net

Other expense, net increased to $0.1 million in 2009 from almost nil in 2008.

Foreign Exchange

The foreign exchange loss was $2.0 million for 2009 compared to a gain of $13.3 million recorded in 2008, and was due primarily to an unrealized loss due to a weakening in the US dollar during 2009 compared to the Canadian dollar primarily on its US dollar denominated intercompany balances with its Canadian subsidiaries. During 2009, the Company recorded a $1.3 million realized gain on foreign exchange transactions, which reduced the unrealized loss. At December 31, 2009, the exchange rate was 1.05 Canadian dollars to one US dollar, compared to 1.22 at the end of 2008 and 0.99 at the end of 2007.

Net Interest Expense

Net interest expense for 2009 was $21.7 million, an increase of $8.4 million over the $13.3 million net interest expense incurred during 2008. Interest expense increased $7.1 million in 2009 due to termination fees and expenses and the write-off of deferred financing costs of $4.5 million as a result of the $300 million refinancing completed in October 2009. Interest expense also increased due to the higher debt outstanding and higher interest rates on the refinanced debt. Interest income was $0.4 million for 2009, as compared to $1.7 million in 2008. This decrease was primarily due to the interest income recognized from the notes related to the sale of SPI, which was received in full in May 2009.

Income Taxes

Income tax expense in 2009 was $8.5 million compared to $2.4 million for 2008. The Company’s effective tax rate was substantially higher than the statutory rate in 2009 due to non-deductible stock-based compensation and an increase in the Company’s valuation allowance, offset in part by noncontrolling interest charges. In 2008, the Company’s effective tax rate was substantially lower than the statutory tax rate due to a decrease in the Company’s valuation allowance, a reversal of withholding taxes due to a change in the tax law, and noncontrolling interest charges. These amounts were offset in part by non-deductible stock based compensation.

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 noncontrolling 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 2009 and 2008, a loss of almost nil and income of $0.3 million was recorded, respectively.

Noncontrolling Interests

Noncontrolling interest expense was $5.6 million for 2009, down $2.7 million from the $8.3 million of noncontrolling interest expense incurred during 2008. The decrease was primarily due to a decrease in profitability of subsidiaries within the Performance Marketing Service operating segment, which are not 100% owned.

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Discontinued Operations

The loss net of taxes from discontinued operations for 2009 was $1.5 million and is comprised of the operating results of Zig (US) LLC (“Zig US”), discontinued in 2010, Clifford/Bratskeir Public Relations LLC (“Bratskeir”), discontinued in 2008 and Margeotes Fertitta Powell, LLC (“MFP”) discontinued in 2007.

The loss net of taxes from discontinued operations for 2008 was $10.2 million and is comprised of the operating results of Zig US, discontinued in 2010, Mobium, a division of Colle & McVoy, LLC (“Colle”), Bratskeir, The Ito Partnership (“Ito”) and MFP. MFP was previously discontinued in 2007; the other entities were discontinued in 2008.

Effective December 3, 2008, Colle completed the sale of certain assets of its Mobium division. The Company recorded a loss on sale of $1.2 million ($0.8 million net of taxes) and an operating loss of $3.4 million ($2.3 million net of taxes).

In December 2008, the Company entered into negotiations to sell certain remaining assets in Bratskeir to management. This transaction was completed in April 2009. As a result of this expected transaction, the Company recorded an impairment charge of $1.9 million ($1.3 million net of taxes). In addition, Bratskeir recorded an operating loss of $3.8 million ($2.5 million net of taxes) in 2008.

Effective June 30, 2008, the Company completed the sale of its interests in Ito. The sale resulted in a loss of $0.8 million ($0.5 million net of taxes.)

As a result, the Company has classified the MFP, Mobium, Bratskeir and Ito operations as discontinued.

Net Income

As a result of the foregoing, the net loss recorded for 2009 was $18.3 million or loss of $0.67 per diluted share, compared to net income of $0.1 million or $0.01 per diluted share reported for 2008.

Liquidity and Capital Resources

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

     
Liquidity   2010   2009   2008
     (In Thousands, Except for Long-Term
Debt to Shareholders’ Equity Ratio)
Cash and cash equivalents   $ 10,949     $ 51,926     $ 41,331  
Working capital (deficit)   $ (102,547 )    $ (40,152 )    $ (12,091 ) 
Cash from operations   $ 37,297     $ 67,687     $ 69,095  
Cash from investing   $ (130,253 )    $ (66,199 )    $ (50,186 ) 
Cash from financing   $ 52,401     $ 12,253     $ 11,861  
Ratio of long-term debt to shareholders’ equity     3.11       2.31       1.42  

As at December 31, 2010, 2009 and 2008, $5.2 million, $14.1 million and $8.4 million, respectively, of the Company’s consolidated cash position was held by subsidiaries. Although this amount is available for the subsidiaries’ use, it does not represent cash that is distributable as earnings to MDC for use to reduce its indebtedness. It is the Company’s intent through its cash management system to reduce outstanding borrowings under the WF Credit Facility by using available cash.

Working Capital

At December 31, 2010, the Company had a working capital deficit of $102.5 million, compared to a deficit of $40.2 million at December 31, 2009. Working capital deficit increased by $62.4 million of which $4.3 million related to operations and an accrued working capital deficiency of $58.1 million. The decrease in working capital was primarily due to accelerated timing in the amounts collected from clients, and paid to suppliers, primarily media outlets. The Company includes amounts due to noncontrolling interest holders, for their share of profits, in accrued and other liabilities. During 2010, 2009 and 2008, the Company made distributions to these noncontrolling interest holders of $7.7 million, $7.8 million and $11.6 million, respectively. At December 31, 2010, $8.6 million remains outstanding to be distributed to noncontrolling interest holders over the next twelve months.

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The Company expects that available borrowings under its Credit Agreement, together with cash flows from operations, will be sufficient over the next twelve months to adequately fund working capital deficits should there be a need to do so from time to time, as well as all of the Company’s obligations including put options and capital expenditures.

Operating Activities

Cash flow provided by continuing operations for 2010 was $39.8 million. This was attributable primarily to a loss from continuing operations of $2.9 million, plus non-cash stock based compensation of $16.5 million, depreciation and amortization of $36.6 million, a decrease in expenditures billable to clients of $23.7 million, and an increase in advance billings of $2.4 million. This was partially offset by increases in accounts receivable of $31.3 million, deferred income taxes of $5.4 million, other non-current assets and liabilities of $0.5 million, and a decrease in accounts payable, accruals and other liabilities of $0.1 million. Discontinued operations used cash of $2.5 million.

Cash flow provided by continuing operations for 2009 was $69.3 million. This was attributable primarily to a loss from continuing operations of $11.2 million, plus non-cash stock based compensation of $15.4 million, depreciation and amortization of $38.5 million, deferred income taxes of $7.0 million, an increase in accounts payable, accruals and other liabilities of $11.0 million, non current assets and liabilities of $3.1 million, an increase in advance billings of $15.8 million and foreign exchange translation of $6.6 million. This was partially offset by increases in accounts receivable of $11.4 million and expenditures billable to clients of $7.1 million. Discontinued operations used cash of $1.6 million.

Cash flow provided by continuing operations for 2008 was $72.8 million. This was attributable primarily to income from continuing operations of $18.6 million, plus non-cash stock based compensation of $14.4 million, depreciation and amortization of $35.5 million, a decrease in accounts receivable and expenditures billable to clients of $26.6 million and a decrease in prepaid expenses and other current assets of $1.4 million. This was partially offset by foreign exchange gains of $14.6 million, deferred taxes of $1.0 million, changes in other non-current assets and liabilities of $1.9 million and decreases in accounts payable, accruals and other current liabilities of $8.4 million. Discontinued operations used cash of $3.7 million.

Investing Activities

Cash flows used in investing activities were $130.3 million for 2010, compared with $66.2 million for 2009, and $50.2 million in 2008.

Cash used in acquisitions during 2010 was $117.1 million, of which $27.3 million related to earnout and deferred acquisition payments, $78.3 million related to acquisition payments and $11.5 million related to acquisition of additional equity interests pursuant to put/call option exercises.

Expenditures for capital assets in 2010 were equal to $12.5 million. Of this amount, $6.5 million was incurred by the Strategic Marketing Services segment, $5.4 million was incurred by the Performance Marketing Services segment. These expenditures consisted primarily of computer equipment, leasehold improvements, furniture and fixtures, and $0.6 million related to the purchase of Corporate assets.

Cash used in acquisitions during 2009 was $60.0 million, of which $54.0 million related to earnout and deferred acquisition payments, $3.4 million related to acquisition payments and $2.6 million related to acquisition of additional equity interests pursuant to put/call option exercises.

Expenditures for capital assets in 2009 were equal to $6.2 million. Of this amount, $3.6 million was incurred by the Strategic Marketing Services segment, $2.4 million was incurred by the Performance Marketing Services segment, and $0.2 million related to the purchase of Corporate assets. These expenditures consisted primarily of computer equipment, leasehold improvements and furniture and fixtures.

Cash used in acquisitions during 2008 was $35.6 million. Of this amount, $18.9 million was paid in the acquisition of equity interests in Crispin Porter & Bogusky, Texture Media, Clifford PR, Core Strategy Group, DMG Inc., Skinny NY, Source Marketing, Allard Johnson, and Accent Marketing. In addition, the Company paid $16.7 million as contingent deferred payments from prior acquisitions.

Expenditures for capital assets in 2008 were $14.4 million. Of this amount, $9.2 million was incurred by the Strategic Marketing Services segment, $5.1 million was incurred by the Performance Marketing Services

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segment, and $0.1 million related to the purchase of corporate assets. These expenditures consisted primarily of computer equipment, leasehold improvements and furniture and fixtures.

The cash used in investing activities of $0.2 million from dispositions in 2008 primarily relate to proceeds received from the sale of capital assets.

Profit distributions received from affiliates amounted to $0.6 million in 2010, $0.2 million in 2009, and $0.4 million for 2008.

Discontinued operations used cash of $0.7 million, nil, and $0.8 million in 2010, 2009 and 2008, respectively, relating to expenditures for capital assets, and in 2010 such payments also related to acquisitions and earnout payments.

Financing Activities

During the year ended December 31, 2010, cash flows provided by financing activities amounted to $52.4 million and primarily consisted of $67.6 million of proceeds from the additional 11% senior notes issuance, proceeds from bank overdrafts of $9.0 million, offset by $2.1 million of deferred financing costs relating to the senior notes and new revolving WF Credit Facility. The proceeds of the 11% senior notes issuance were partially offset by dividends paid and payable of $9.7 million, distributions to noncontrolling shareholders of $7.7 million, purchase of treasury shares of $3.5 million and repayment of long-term debt of $1.5 million.

During the year ended December 31, 2009, cash flows provided by financing activities amounted to $12.3 million and primarily consisted of $225 million of proceeds from the 11% senior notes issuance, offset by the original issue discount of $10.5 million and $10.1 million of deferred financing costs relating to the senior notes and new revolving WF Credit Facility. The proceeds were offset by repayments of $130.0 million term loans, $42.5 million convertible notes, $9.7 million relating to the old credit facility, and $7.8 million for distributions to noncontrolling interests.

During the year ended December 31, 2008, cash flows provided by financing activities amounted to $11.9 million, and primarily consisted of $26.3 million of proceeds from borrowings under the Company’s previous Financing Agreement. These proceeds were partially offset by $1.9 million of net repayments of long-term debt, $0.9 million relating to the repurchase of treasury shares for income tax withholding requirements, and $11.6 million for distributions to noncontrolling interests.

Total Debt

11% Senior Notes Due 2016

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold $225 million aggregate principal amount of 11% Senior Notes due 2016 (the “11% Notes”). The 11% Notes bear interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable semiannually in arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11% Notes will mature on November 1, 2016, unless earlier redeemed or repurchased. The Company received net proceeds before expenses of $209 million which included an original issue discount of approximately 4.7% or $10.5 million and underwriter fees of $5.5 million. The 11% Notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933, as amended. The Company used the net proceeds of this offering to repay the outstanding balance and terminate its prior Fortress Financing Agreement consisting of repayments of $130 million term loans, a $70 million delayed draw term loan, and $9.7 outstanding on the $55 million revolving credit facility. The Company also used the net proceeds to redeem its outstanding 8% C$45 million convertible debentures.

On May 14, 2010, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold $65 million aggregate principal amount of 11% Senior Notes due 2016. The additional notes were issued under the Indenture governing the 11% Notes and treated as a single series with the original 11% Notes. The additional notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of 1933, as amended. The Company received net proceeds before expenses of $67.2 million, which included an original issue premium of $2.6 million, and underwriter fees of $0.4 million. The Company used the net proceeds of the offering to repay the outstanding balance under the Company’s revolving credit facility described elsewhere herein, and for general corporate purposes, including acquisitions.

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The Company may, at its option, redeem the 11% Notes in whole at any time or in part from time to time, on and after November 1, 2013 at a redemption price of 105.5% of the principal amount thereof. If redeemed during the twelve-month period beginning on November 1, 2014, the Company must pay a redemption price of 102.75% of the principal amount thereof. If redeemed during the twelve-month period beginning on November 1, 2015, the Company must pay a redemption price of 100% of the principal amount thereof. Prior to November 1, 2013, the Company may, at its option, redeem some or all of the 11% Notes at a price equal to 100% of the principal amount of the Notes plus a “make whole” premium and accrued and unpaid interest. The Company may also redeem, at its option, prior to November 1, 2012, up to 35% of the 11% Notes with the proceeds from one or more equity offerings at a redemption price of 111% of the principal amount thereof. If the Company experiences certain kinds of changes of control (as defined in the Indenture), holders of the 11% Notes may require the Company to repurchase any 11% Notes held by them at a price equal to 101% of the principal amount of the 11% Notes plus accrued and unpaid interest. The indenture governing the 11% Notes contains various covenants restricting our operations in certain respects. See “Risk Factors.”

Credit Agreement

On October 23, 2009, the Company and its subsidiaries entered into a $75 million five year senior secured revolving WF Credit Facility (the “WF Credit Facility”) with Wells Fargo Foothill, LLC, as agent, and the lenders from time to time party thereto. On November 22, 2010, the Company amended its facility to increase availability to $100 million. The WF Credit Facility replaced the Company’s existing $185 million senior secured financing agreement with Fortress Credit Corp., as collateral agent, Wells Fargo Foothill, Inc., as administrative agent. Advances under the WF Credit Facility will bear interest as follows: (a)(i) LIBOR Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus (b) an applicable margin. The initial applicable margin for borrowing is 3.00% in the case of Base Rate Loans and 3.25% in the case of LIBOR Rate Loans. The applicable margin may be reduced subject to the Company achieving certain trailing twelve month earning levels, as defined. In addition to paying interest on outstanding principal under the WF Credit Facility, the Company is required to pay an unused revolver fee to lender under the WF Credit Facility in respect of unused commitments thereunder.

The WF Credit Facility is guaranteed by all of the Company’s present and future subsidiaries, other than immaterial subsidiaries as defined and is secured by all the assets of the Company. The WF Credit Facility includes covenants that, among other things, restrict the Company’s ability and the ability of its subsidiaries to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; pay dividends or other amounts from the Company’s subsidiaries; incur certain liens, sell or otherwise dispose of certain assets; enter into transactions with affiliates; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of the Company’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The WF Credit Facility also contains financial covenants, including a senior leverage ratio, total leverage ratio, a fixed charge coverage ratio and a minimum earnings level, as defined.

Debt as of December 31, 2010 was $286.2 million, which includes $6.8 million for an original issue discount. Exclusive of the original issue discount, 2010 debt was $293.0, an increase of $64.8 million compared with the $228.2 million outstanding at December 31, 2009, primarily as a result of proceeds from the May 2010 bond issuance of $65 million to fund seasonal working capital requirements, earnout obligations, and acquisitions. At December 31, 2010, $94 million is available under the WF Credit Facility to fund working capital requirements.

The Company is currently in compliance with all of the terms and conditions of its WF 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 WF Credit Facility, it may 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.

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Pursuant to the Credit Agreement, the Company must comply with certain financial covenants including, among other things, covenants for (i) senior leverage ratio (ii) total leverage ratio, (iii) fixed charges ratio, (iv) minimum earnings before interest, taxes and depreciation and amortization and (v) minimum accounts receivable level, in each case as such term is specifically defined in the WF Credit Facility. For the period ended December 31, 2010, the Company’s calculation of certain of these covenants, and the specific requirements under the Credit Agreement, respectively, were as follows:

 
  December 31, 2010
Senior leverage ratio     0.07  
Maximum per covenant     2.0  
Fixed charges ratio     2.16  
Minimum per covenant     1.25  
Total leverage ratio     3.19  
Maximum per covenant     3.50*  
Earnings before interest, taxes, depreciation and amortization   $ 91.7  million  
Minimum per covenant   $ 87.8  million  

* Effective as of the twelve month period ending March 31, 2011, the maximum total leverage ratio will be 4.0x, and will then be 3.75x for the twelve month period ending on the last day of each calendar quarter thereafter.

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 WF Credit Facility, as non-compliance with such covenants could have a material adverse effect on the Company.

Disclosure of Contractual Obligations and Other Commercial Commitments

The following table provides a payment schedule of present and future obligations. Management anticipates that the obligations outstanding at December 31, 2010 will be repaid with new financing, equity offerings and/or cash flow from operations (in thousands):

         
  Payments Due by Period
Contractual Obligations   Total   Less than
1 Year		   1 – 3 Years   3 – 5 Years   After
5 Years
Indebtedness   $ 291,400     $ 800     $ 600     $ —     $ 290,000  
Capital lease obligations     1,659       867       607       161       24  
Operating leases     114,642       22,860       39,730       26,593       25,459  
Interest on debt     191,601       32,023       63,865       63,813       31,900  
Deferred acquisition consideration     107,991       30,887       50,006       23,392       3,706  
Management services agreement     1,500       1,500       —       —       —  
Other     2,200       800       1,400       —       —  
Total contractual obligations   $ 710,993     $ 89,737     $ 156,208     $ 113,959     $ 351,089  

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The following table provides a summary of other commercial commitments (in thousands) at December 31, 2009:

         
  Payments Due by Period
Other Commercial Commitments   Total   Less than
1 Year		   1 – 3 Years   3 – 5 Years   After
5 Years
Lines of credit   $ —     $ —     $ —     $ —     $ —  
Letters of credit   $ 6,018     $ 6,018       —       —       —  
Total Other Commercial Commitments   $ 6,018     $ 6,018     $ —     $ —     $ —  

For further detail on MDC’s long-term debt principal and interest payments, see Note 12 and Note 18 of the Company’s consolidated financial statements included in this Form 10-K. See also “Deferred Acquisition and Contingent Consideration (Earnouts)” and “Other-Balance Sheet Commitments” below.

Capital Resources

At December 31, 2010, the Company had only utilized the Credit Agreement in the form of undrawn letters of credit of $6.0 million. Cash and undrawn available bank credit facilities to support the Company’s future cash requirements at December 31, 2010 was approximately $94 million.

The Company expects to incur approximately $17 million of capital expenditures in 2011. Such capital expenditures are expected to include leasehold improvements, furniture and fixtures, and computer equipment at certain of the Company’s operating subsidiaries. The Company intends to maintain and expand its business using cash from operating activities, together with funds available under the Credit Agreement. Management believes that the Company’s cash flow from operations and funds available under the Credit Agreement will be sufficient to meet its ongoing working capital, capital expenditures and other cash needs over the next eighteen months. If the Company continues to spend capital on future acquisitions, management expects that the Company may need to obtain additional financing in the form of debt and/or equity financing.

Deferred Acquisition and Contingent Consideration (Earnouts)

Acquisitions of businesses by the Company may include commitments to contingent deferred purchase consideration payable to the seller. These contingent purchase obligations are generally payable within a one to five-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.

Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period and changes in estimated value are recorded in results of operations. At December 31, 2010, there was $108.0 million of deferred consideration included in the Company’s balance sheet.

Other-Balance Sheet Commitments

Put Rights of Subsidiaries’ Noncontrolling Shareholders

Owners of interests in certain of the Company’s subsidiaries have the right in certain circumstances to require the Company to acquire either a portion of or all of 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 2011 to 2018. 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 put option 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 December 31, 2010, perform over the relevant future periods at their 2010 earnings levels, that these rights, if all exercised, could require the Company, in future periods, to pay an aggregate amount of approximately $33.0 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 $3.1 million by the issuance of the Company’s Class A subordinate voting shares. In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $48.8 million only upon termination of such owner’s employment with the applicable subsidiary or death. The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the WF 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 $2.9 million of the estimated $33.0 million that the Company would be required to pay subsidiaries noncontrolling shareholders’ upon the exercise of outstanding “put” 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 $10.0 million that would be attributable to MDC Partners Inc.

The following table summarizes the potential timing of the consideration and incremental operating income before depreciation and amortization based on assumptions as described above.

           
Consideration(4)   2011   2012   2013   2014   2015 &
Thereafter		   Total
     ($ Millions)
Cash   $ 2.3     $ 12.6     $ 3.7     $ 4.0     $ 7.3     $ 29.9  
Shares     0.6       0.7       1.0       0.5       0.3       3.1  
     $ 2.9     $ 13.3     $ 4.7     $ 4.5     $ 7.6     $ 33.0 (1) 
Operating income before depreciation and amortization to be received(2)   $ 2.9     $ 1.9     $ 2.4     $ 0.8     $ 2.0     $ 10.0  
Cumulative operating income before depreciation and amortization(3)   $ 2.9     $ 4.8     $ 7.2     $ 8.0       10.0           (5) 

(1) This amount in addition to put options only exercisable upon termination or death of $48.8 million have been recognized in Redeemable Noncontrolling Interests on the Company balance sheet in conjunction with the adoption of a new accounting pronouncement.
(2) This financial measure is presented because it is the basis of the calculation used in the underlying agreements relating to the put rights and is based on actual 2010 operating results. This amount represents additional amounts to be attributable to MDC Partners Inc., commencing in the year the put is exercised.
(3) Cumulative operating income before depreciation and amortization represents the cumulative amounts to be received by the company.
(4) The timing of consideration to be paid varies by contract and does not necessarily correspond to the date of the exercise of the put.
(5) Amounts are not presented as they would not be meaningful due to multiple periods included.

Guarantees

In connection with certain dispositions of assets and/or businesses in 2001 and 2003, as well as the 2006 sale of SPI, 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 several years.

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Historically, the Company has not made any significant indemnification payments under such agreements and no provision 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.

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

Transactions With Related Parties

CEO Services Agreement

On April 27, 2007, the Company entered into a Management Services Agreement (the “Services Agreement”) with Miles Nadal and with Nadal Management, Inc. to set forth the terms and conditions on which Mr. Nadal would continue to provide services to the Company as its Chief Executive Officer. The Services Agreement renewed on April 27, 2010, in accordance with its terms and conditions. In addition, effective April 27, 2010, the annual retainer amount under the Services Agreement was increased to $1,500,000. During both 2009 and 2010 and in accordance with this new Services Agreement, Mr. Nadal repaid an amount equal to $0.1 million of loans due to the Company. At December 31, 2010, outstanding loans due from Nadal Management to the Company, with no stated maturity date, amounted to C$6.1 million ($6.1 million), which have been reserved for in the Company’s accounts.

Trapeze Media

In 2000, the Company purchased 1,600,000 shares in Trapeze Media Limited (“Trapeze”) for $0.2 million. At the same time, the Company’s CEO purchased 4,280,000 shares of Trapeze for $0.6 million, the Company’s former Chief Financial Officer and a Managing Director of the Company each purchased 50,000 Trapeze shares for $7,000 and a Board Member of the Company purchased 75,000 shares of Trapeze for $10,000. In 2001, the Company purchased an additional 1,250,000 shares for $0.2 million, and the Company’s CEO purchased 500,000 shares for $0.1 million. In 2002, the Company’s CEO purchased 3,691,930 shares of Trapeze for $0.5 million. All of these purchases were made at identical prices (C$0.20/unit).

During 2010, 2009 and 2008, Trapeze provided services to certain partner firms of MDC, and the total amount of such services provided was $0.1 million, $0.1 million, and $0.4 million, respectively. In addition, in 2010, 2009 and 2008, an MDC Partner firm provided services to Trapeze in exchange for fees equal to $0.3 million, $0.3 million and $0.1 million, respectively.

The Company’s Board of Directors, through its Audit Committee, has reviewed and approved these transactions.

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 herein 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, redeemable noncontrolling interests, and deferred acquisition consideration, valuation allowances for receivables and deferred income tax assets and stock based compensation. 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.

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Revenue Recognition. The Company’s revenue recognition policies are as required by the Revenue Recognition topics of the FASB Accounting Standards Codification, and accordingly, revenue is generally recognized when services are provided 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 Company earns 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 arrangement. 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, which require delivery of a number of service acts, the Company uses the Proportional Performance model, which generally results in revenue being recognized based on the straight-line method due to the acts being non-similar and there being insufficient evidence of fair value for each service provided.

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 assured, 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.

The Company follows Reporting Revenue Gross as a Principal versus Net as an Agent topic of the FASB Accounting Standards Codification. This topic provides a summary on when revenue should be recorded at the gross amount billed because revenue has been earned from the sale of goods or services, or the net amount retained because a fee or commission has been earned. The Company’s business at times acts as an agent and records revenue equal to the net amount retained, when the fee or commission is earned. The Company also follows the reimbursements received for out-of-pocket expenses. This topic of the FASB Accounting Standards Codification requires that reimbursements received for out-of-pocket expenses incurred should be characterized in the income statement as revenue. Accordingly, the Company has included in revenue such reimbursed expenses.

Acquisitions, Goodwill and Other Intangibles. A fair value approach is used in testing goodwill for impairment 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. As of December 31, 2010, there were no reporting units at risk of failing step one of the Company’s annual goodwill impairment test.

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

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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.

Business Combinations. Valuation of acquired companies are based on a number of factors, including specialized know-how, reputation, competitive position and service offerings. Our acquisition strategy has been to focus on acquiring the expertise of an assembled workforce in order to continue building upon the core capabilities of our various strategic business platforms to better serve our clients. Consistent with our acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed in 2010 and 2009 include an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior years, are derived using the performance of the acquired entity and are based on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period. Changes in estimated value are recorded in results of operations. For the year ended December 31, 2010 and 2009, $778 and nil, respectively, related to changes in estimated value have been recorded as operating income. In addition, certain acquisitions also include put/call obligations for additional equity ownership interests. The estimated value of these interests are recorded as redeemable noncontrolling interests. As of January 1, 2009, the Company expenses acquisition related costs in accordance with the Accounting Standard’s Codification’s new guidance on acquisition accounting. The year ended December 31, 2010 and 2009, included $2,940 and $416 of acquisition related costs, respectively.

For each of our acquisitions, we undertake a detailed review to identify other intangible assets and a valuation is performed for all such identified assets. We use several market participant measurements to determine estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. Like most service businesses, a substantial portion of the intangible asset value that we acquire is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately. The majority of the value of the identifiable intangible assets that we acquire is derived from customer relationships, including the related customer contracts, as well as trade names. In executing our acquisition strategy, one of the primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand our existing client relationships. The expected benefits of our acquisitions are typically shared across multiple agencies and regions.

Redeemable Noncontrolling Interest. The minority interest shareholders of certain subsidiaries have the right to require the Company to acquire their ownership interest under certain circumstances pursuant to a contractual arrangement and the Company has similar call options under the same contractual terms. The amount of consideration under the put and call rights is not a fixed amount, but rather is dependent upon 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 through the date of exercise, etc. as described in Note 18.

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 includes 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 any of these factors could impact the estimated valuation allowance and income tax expense.

Interest Expense. Interest expense primarily consists of the cost of borrowing on the revolving WF Credit Facility and the 11% Senior Notes. The Company uses the effective interest method to amortize the original issue discount and original issue premium on the 11% Senior Notes. At December 31, 2010 and 2009, $848 and $204 was amortized, respectively, net of amortized premium of $197 and nil, respectively. The Company

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amortizes deferred financing costs using the effective interest method over the life of the 11% Senior Notes and straight line over the life of the revolving WF Credit Facility. The total net deferred financing costs, included in Other Assets on the balance sheet, as of December 30, 2010 and 2009 were $10,605 and $9,790, respectively, net of accumulated amortization of $1,583 and $295, respectively. During 2010, the Company recorded $2,103 of deferred financing costs primarily relating to the 2010 additional debt issuance.

Stock-based Compensation. The fair value method is applied to all awards granted, modified or settled. 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 fair value of the award, and is recorded into operating income over the service period, that is the vesting period of the award. Changes in the Company’s payment obligation are revalued each period and recorded as compensation cost over the service period in operating income.

The Company treats benefits paid by shareholders to employees as a stock based compensation charge with a corresponding credit to additional paid-in capital.

New Accounting Pronouncements

In April 2010, the FASB issues ASU 2010-17, “Revenue Recognition — Milestone Method.” ASU 2010-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The amendments in ASU 2010-17 are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption will not have an impact on our financial statements.

In April 2010, the FASB issued ASU 2010-13, “Compensation — Stock Compensation Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.” ASU 2010-13 provides amendments to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of this standard will not have an effect on our financial statements.

In February 2010, The FASB issued an additional Accounting Standards Update on Subsequent Events to clarify the updated guidance issued in May 2009. This Guidance clarifies that SEC filers must evaluate subsequent events through the date the financial statements are issued. However, an SEC filer is not required to disclose the date through which subsequent events have been evaluated. The amendment is effective June 15, 2010. The adoption did not have an impact on our financial statements.

In January 2010, the FASB issued an Accounts Standards Update on Consolidation — Accounting and Reporting for Decreases in Ownership of a Subsidiary — A Scope Clarification. This Guidance clarifies the scope of the decrease in ownership provisions and expands the disclosure requirements about deconsolidation of a subsidiary or de-recognition of a group of assets. It is effective beginning in the first interim annual reporting period ending on or after December 15, 2009. The adoption did not have an impact on our financial statements.

In January 2010, the FASB issued Fair Value Measurements and Disclosures — Improving Disclosures about Fair Value Measurements. This Guidance requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. It requires a reporting entity to disclose significant transfers in and out of Level 1 and Level 2 fair value measurements, to describe the reasons for the transfers and to present separately information about purchases, sales, issuances and settlements for fair value

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measurements using significant unobservable inputs. This Guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which is effective for interim and annual reporting periods beginning after December 15, 2010; early adoption is permitted. The adoption did not have a material effect on our financial statements.

In October 2009, the FASB issued revised guidance on the topic of Multiple — Deliverable Revenue Arrangements. The revised guidance amends certain accounting for revenue with multiple deliverables. In particular when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, the revised guidance allows use of a best estimate of the selling price to allocate the arrangement consideration among them. This guidance is effective for the first quarter of 2011, with early adoption permitted. The Company is currently evaluating the impact on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Debt Instruments: At December 31, 2010, the Company’s debt obligations consisted of amounts outstanding under its WF Credit Facility and the 11% notes. This facility bears interest at variable rates based upon the Eurodollar rate, US bank prime rate and, US base rate, at the Company’s option. The 11% notes bear interest at a fixed rate. 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. As of December 31, 2010, the Company had a zero balance on the revolving WF Credit Facility.

Foreign Exchange: The Company conducts business in five currencies, the US dollar, the Canadian dollar, Jamaican dollar, the British Pound and the Swedish Krona. 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 the “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and in Note 2 of our consolidated financial statements. For the most part, our revenues and expenses incurred related to our non-US operations are denominated in their functional currency. This minimizes the impact that fluctuations in exchange rates will have on profit margins. Intercompany debt which is not intended to be repaid is included in cumulative translation adjustments. Translation of intercompany debt, which is not intended to be repaid, is included in cumulative translation adjustments. Translation of current intercompany balances are included in net earnings. The Company generally 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.

The Company is exposed to foreign currency fluctuations relating to its intercompany balances between the US and Canada. For every one cent change in the foreign exchange rate between the US and Canada, the Company will not incur a material impact to its financial statements.

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Item 8. Financial Statements and Supplementary Data

MDC PARTNERS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
MDC Partners Inc.
New York, New York
Toronto, Canada

We have audited the accompanying consolidated balance sheets of MDC Partners Inc. as of December 31, 2010 and 2009 and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MDC Partners Inc. at December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), MDC Partners Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 14, 2011 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

New York, New York
March 14, 2011

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MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of United States Dollars, Except Share and per Share Amounts)

     
  Years Ended December 31,
     2010   2009   2008
Revenue:
                           
Services   $ 697,825     $ 545,141     $ 583,271  
Operating Expenses:
                           
Cost of services sold     477,491       353,011       391,015  
Office and general expenses     156,924       136,622       137,418  
Depreciation and amortization     34,481       34,412       34,140  
       668,896       524,045       562,573  
Operating Profit     28,929       21,096       20,698  
Other Income (Expenses)
                           
Gain (loss) on sale of assets and other     381       (91 )      (14 ) 
Foreign exchange gain (loss)     69       (1,956 )      13,257  
Interest expense and finance charges     (33,487 )      (22,098 )      (14,998 ) 
Interest income     205       354       1,743  
       (32,832 )      (23,791 )      (12 ) 
Income (loss) from continuing operations before income taxes and equity in affiliates     (3,903 )      (2,695 )      20,686  
Income tax expense (recovery)     (165 )      8,536       2,397  
Income (loss) from continuing operations before equity in affiliates     (3,738 )      (11,231 )      18,289  
Equity in earnings (loss) of non-consolidated affiliates     866       (8 )      349  
Income (loss) from continuing operations     (2,872 )      (11,239 )      18,638  
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes     (2,494 )      (1,519 )      (10,205 ) 
Net income (loss)     (5,366 )      (12,758 )      8,433  
Net income attributable to the non-controlling interests     (10,074 )      (5,566 )      (8,300 ) 
Net income (loss) attributable to MDC Partners Inc.   $ (15,440 )    $ (18,324 )    $ 133  
Income (loss) Per Common Share:
                           
Basic
                           
Income (loss) from continuing operations attributable to MDC Partners Inc. common shareholders   $ (0.46 )    $ (0.61 )    $ 0.39  
Discontinued operations attributable to MDC Partners Inc. common shareholders     (0.09 )      (0.06 )      (0.38 ) 
Net Income (loss) attributable to MDC Partners Inc. common shareholders   $ (0.55 )    $ (0.67 )    $ 0.01  
Income (loss) Per Common Share:
                           
Diluted
                           
Income (loss) from continuing operations attributable to MDC Partners Inc. common shareholders   $ (0.46 )    $ (0.61 )    $ 0.38  
Discontinued operations attributable to MDC Partners Inc. common shareholders     (0.09 )      (0.06 )      (0.37 ) 
Net income (loss) attributable to MDC Partners Inc. common shareholders   $ (0.55 )    $ (0.67 )    $ 0.01  
Weighted Average Number of Common Shares Outstanding:
                           
Basic
     28,161,144       27,396,463       26,765,839  
Diluted     28,161,144       27,396,463       27,430,162  

Non cash stock based compensation expense is included in the following line items above:

     
Cost of services sold   $ 4,427     $ 4,919     $ 7,494  
Office and general expenses     12,080       10,525       6,943  
Total   $ 16,507     $ 15,444     $ 14,437  

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

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MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Thousands of United States Dollars)

   
  December 31,
     2010   2009
ASSETS
                  
Current Assets:
                  
Cash and cash equivalents   $ 10,949     $ 51,926  
Accounts receivable, less allowance for doubtful accounts of $1,990 and $2,034     195,306       118,211  
Expenditures billable to clients     30,414       24,003  
Other current assets     13,455       8,105  
Total Current Assets     250,124       202,245  
Fixed assets, net     41,053       35,375  
Investment in affiliates     —       1,547  
Goodwill     514,488       301,632  
Other intangible assets, net     67,133       34,715  
Deferred tax assets     21,603       12,542  
Other assets     19,947       16,463  
Total Assets   $ 914,348     $ 604,519  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
Current Liabilities:
                  
Accounts payable   $ 131,074     $ 77,450  
Accrued and other liabilities     64,050       66,967  
Advance billings, net     124,993       65,879  
Current portion of long-term debt     1,667       1,456  
Deferred acquisition consideration     30,887       30,645  
Total Current Liabilities     352,671       242,397  
Long-term debt     284,549       216,490  
Long-term portion of deferred acquisition consideration     77,104       —  
Other liabilities     10,956       8,707  
Deferred tax liabilities     19,642       9,051  
Total Liabilities     744,922       476,645  
Redeemable Noncontrolling Interests     77,560       33,728  
Commitments, Contingencies and Guarantees (Note 18)
                  
Shareholders’ Equity:
                  
Preferred shares, unlimited authorized, none issued     —       —  
Class A Shares, no par value, unlimited authorized, 28,758,734 and 27,566,815 shares issued and outstanding in 2010 and 2009, respectively     226,752       218,532  
Class B Shares, no par value, unlimited authorized, 2,503 issued and outstanding in 2010 and 2009, respectively, convertible into one Class A share     1       1  
Additional paid-in capital     —       9,174  
Charges in excess of capital     (16,809 )      —  
Accumulated deficit     (146,600 )      (131,160 ) 
Stock subscription receivable     (135 )      (341 ) 
Accumulated other comprehensive loss     (4,148 )      (5,880 ) 
MDC Partners Inc. Shareholders’ Equity     59,061       90,326  
Noncontrolling Interests     32,805       3,820  
Total Equity     91,866       94,146  
Total Liabilities, Redeemable Noncontrolling Interests and Equity   $ 914,348     $ 604,519  

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

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MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of United States Dollars)

     
  Years Ended December 31,
     2010   2009   2008
Cash flows from operating activities:
                           
Net income (loss)   $ (5,366 )    $ (12,758 )    $ 8,433  
Loss from discontinued operations     (2,494 )      (1,519 )      (10,205 ) 
Income (loss) from continuing operations     (2,872 )      (11,239 )      18,638  
Adjustments to reconcile loss from continuing operations to cash provided by operating activities:
                           
Non-cash stock-based compensation     16,507       15,444       14,437  
Depreciation     16,764       16,275       16,746  
Amortization primarily from intangibles     17,717       18,137       17,394  
Amortization of deferred finance charges and debt discount     2,136       4,041       1,348  
Adjustment to deferred acquisition consideration     142       —       —  
Deferred income taxes     (5,373 )      6,972       (960 ) 
(Gain) loss on disposition of assets     (17 )      53       142  
Loss (earnings) of non consolidated affiliates     (866 )      8       (349 ) 
Other non-current assets and liabilities     (509 )      3,101       (1,891 ) 
Foreign exchange     538       6,557       (14,567 ) 
Increase/decrease in operating assets and liabilities
                           
Accounts receivable     (31,289 )      (11,420 )      26,555  
Expenditures billable to clients     23,681       (7,054 )      2,154  
Prepaid expenses and other current assets     952       1,546       1,426  
Accounts payable, accruals and other current liabilities     (119 )      11,023       (8,368 ) 
Advance billings     2,430       15,843       98  
Cash flows provided by continuing operating activities     39,822       69,287       72,803  
Discontinued operations     (2,525 )      (1,600 )      (3,708 ) 
Net cash provided by operating activities     37,297       67,687       69,095  
Cash flows from investing activities:
                           
Capital expenditures     (12,500 )      (6,209 )      (14,384 ) 
Proceeds from sale of assets     96       20       242  
Acquisitions, net of cash acquired     (117,060 )      (60,042 )      (35,641 ) 
Profit distributions from affiliates     638       198       440  
Other investments     (717 )      (163 )      (85 ) 
Cash flows used in continuing investing activities     (129,543 )      (66,196 )      (49,428 ) 
Discontinued operations     (710 )      (3 )      (758 ) 
Net cash used in investing activities     (130,253 )      (66,199 )      (50,186 ) 
Cash flows from financing activities:
                           
Proceeds from issuance of 11% Senior Note     67,600       214,506       —  
Repayments of revolving credit facility     —       (9,701 )      —  
Proceeds (repayment of) term loans     —       (130,000 )      18,500  
Repayment of convertible debt     —       (42,470 )      —  
Proceeds from revolving credit facility     —       —       7,800  
Proceeds from bank overdraft     9,026       —       —  
Distributions to noncontrolling interests     (7,685 )      (7,784 )      (11,649 ) 
Proceeds from exercise of options     60       370       —  
Payments of dividends     (9,727 )      —       —  
Repayment of long-term debt     (1,496 )      (2,000 )      (1,884 ) 
Deferred financing costs     (2,103 )      (10,085 )      —  
Proceeds from stock subscription receivable     206       13       —  
Purchase of treasury shares     (3,480 )      (596 )      (906 ) 
Cash flows provided by continuing financing activities     52,401       12,253       11,861  
Discontinued operations     —       —       —  
Net cash provided by financing activities     52,401       12,253       11,861  

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

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MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (continued)
(Thousands of United States Dollars)

     
  Years Ended December 31,
     2010   2009   2008
Effect of exchange rate changes on cash and cash equivalents     (422 )      (3,146 )      151  
Increase (decrease) in cash and cash equivalents     (40,977 )      10,595       30,921  
Cash and cash equivalents at beginning of year     51,926       41,331       10,410  
Cash and cash equivalents at end of year   $ 10,949     $ 51,926     $ 41,331  
Supplemental disclosures:
                           
Cash income taxes paid   $ 1,128     $ 384     $ 1,037  
Cash interest paid   $ 29,581     $ 14,243     $ 13,196  
Non-cash transactions:
                           
Share capital issued on acquisitions   $ —     $ —     $ 1,889  
Capital leases   $ 656     $ 340     $ 349  
Note receivable exchanged for shares of subsidiary   $ 840     $ —     $ 1,872  

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

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MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Thousands of United States Dollars Except Share and per Share Amounts)

           
  2010   2009   2008
     Number
of Shares		   Amount   Number
of Shares		   Amount   Number
of Shares		   Amount
Class A Shares
                                                      
Balance at beginning of year     27,566,815     $ 218,532       26,987,017     $ 213,533       26,235,932     $ 207,958  
Stock appreciation rights exercised     101,107       239       68,261       202       —       —  
Share options exercised     6,495       60       47,625       370       —       —  
Shares acquired and cancelled     (282,954 )      (3,480 )      (156,481 )      (596 )      (124,492 )      (1,009 ) 
Shares issued as acquisition consideration     —                —       —       306,922       1,889  
Shares issued as deferred acquisition
consideration		     —                —       —       27,545       214  
Issuance of restricted
stock		     1,367,271       11,401       620,393       5,023       541,110       4,481  
Balance at end of year     28,758,734     $ 226,752       27,566,815     $ 218,532       26,987,017     $ 213,533  
Class B Shares
                                                      
Balance at beginning of year     2,503     $ 1       2,503     $ 1       2,503     $ 1  
Shares converted to Class B shares     —       —       —       —       —       —  
Balance at end of year     2,503     $ 1       2,503     $ 1       2,503     $ 1  
Share Capital to Be Issued
                                                      
Balance at beginning of year            $ —              $ —              $ 214  
Shares to be issued as deferred acquisition consideration              —                —                —  
Shares issued as deferred acquisition
consideration		           —             —             (214 ) 
Balance at end of year           —             —           $ —  
Additional Paid-In Capital
                                                      
Balance at beginning of year            $ 9,174              $ 33,470              $ 26,743  
Stock-based
compensation		              14,954                13,720                10,129  
Reclassification related to redeemable noncontrolling interests (Note 2)              —                (31,653 )               —  
Changes in redemption value of redeemable noncontrolling interests              (11,500 )               (58 )               —  

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

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MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Thousands of United States Dollars Except Share and per Share Amounts)

           
  2010   2009   2008
     Number
of Shares		   Amount   Number
of Shares		   Amount   Number
of Shares		   Amount
Acquisition of noncontrolling interests              (7,761 )               (923 )               —  
Disposition of noncontrolling interests              158                —                —  
Dividends paid and to be paid              (10,194 )               —                —  
Acquisition purchase price consideration              —                —                1,001  
Issuance of restricted stock              (11,401 )               (5,023 )               (4,481 ) 
Share appreciation rights exercised              (239 )               (203 )               —  
Other              —                —                —  
Transfer to charges in
excess of capital		           16,809             (156 )            78  
Balance at end of year         $ —           $ 9,174           $ 33,470  
Changes in Excess of Capital
                                                      
Balance at beginning of year            $ —              $ —              $ —  
Transfer from additional paid in capital           (16,809 )            —             —  
Balance at end of year         $ (16,809 )          $ —           $ —  
Accumulated Deficit
                                                      
Balance at beginning of year            $ (131,160 )             $ (112,836 )             $ (112,969 ) 
Income (Loss) for the year           (15,440 )            (18,324 )            133  
Balance at end of year         $ (146,600 )          $ (131,160 )          $ (112,836 ) 
Stock Subscription Receivable
                                                      
Balance at beginning of year            $ (341 )             $ (354 )             $ (357 ) 
Receipts           206             13             3  
Balance at end of year         $ (135 )          $ (341 )          $ (354 ) 
Accumulated Other Comprehensive Income (Loss)
                                                      
Balance at beginning of year            $ (5,880 )               (6,633 )             $ 6,343  
Foreign currency translation adjustments           1,732             753             (12,976 ) 
Balance at end of year           (4,148 )            (5,880 )            (6,633 ) 
MDC Partners Inc. Shareholders’ Equity         $ 59,061           $ 90,326           $ 127,181  

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

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MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Thousands of United States Dollars Except Share and per Share Amounts)

           
  2010   2009   2008
     Number
of Shares		   Amount   Number
of Shares		   Amount   Number
of Shares		   Amount
Noncontrolling interests
                              
Balance at beginning of
year		            $ 3,820              $ 871              $ 731  
Acquisitions of
noncontrolling interest		              28,990                3,039                178  
Decrease in noncontrolling interests from business combinations              (127 )               (106 )               —  
Increase in noncontrolling interests from business combinations              118                —                —  
Foreign currency
translation		           4             16             (38 ) 
Balance at end of year         $ 32,805           $ 3,820           $ 871  
Total Equity         $ 91,866           $ 94,146           $ 128,052  

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

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MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

1. Basis of Presentation

MDC Partners Inc. (the “Company”) has prepared the consolidated financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) and in accordance with generally accepted accounting principles (“GAAP”) of the United States of America (“US GAAP”).

Effective September 2010, one of the Companies’s operating subsidiaries, Zig (USA) LLC has been deemed a discontinued operation. All periods have been restated to reflect the discontinued operation.

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. These reclassifications did not have any effect on the prior year net loss.

Nature of Operations

MDC Partners Inc., formerly MDC Corporation Inc., is incorporated under the laws of Canada. The Company commenced using the name MDC Partners Inc. on November 1, 2003 and legally changed its name through amalgamation with a wholly-owned subsidiary on January 1, 2004. The Company’s operations are in primarily one business group — Marketing Communications. The business group operates primarily in the United States (“US”), Canada, Europe, and in the United Kingdom. See Note 16, “Segment Information”, for further description of the one business group and MDC’s reportable segments.

2. Significant Accounting Policies

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

Principles of Consolidation.  The accompanying consolidated financial statements include the accounts of MDC Partners Inc. its domestic and international controlled subsidiaries. Intercompany balances and transactions have been eliminated on consolidation.

Use of Estimate.  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 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.

Fair Value.  The Company applies the fair value measurement guidance of Codification Topic 820, Fair Value Measurements and Disclosure for financial assets and liabilities that are required to be measured at fair value and for nonfinancial assets and liabilities that are not required to be measured at fair value on a recurring basis, including goodwill and other identifiable intangible assets. The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:

• Level 1 — Quoted prices for identical instruments in active markets.
• Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.
• Level 3 — Instruments where significant value drivers are unobservable to third parties.

When available, quoted market prices are used to determine the fair value of our financial instruments and classify such items in Level 1. In some cases, quoted market prices are used for similar instruments in active markets and classify such items in Level 2.

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Significant Accounting Policies  – (continued)

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; however, no client accounted for more than 10% of the Company’s consolidated accounts receivable as of December 31, 2010 and 2009. No clients accounted for 10% of revenue in the year ended December 31, 2010, and one client accounted for 16% and 19% of revenue for the years ended December 31, 2010, 2009 and 2008, respectively.

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 three months or less at the time of purchase. The Company has a concentration of credit risk in that there are cash deposits in excess of federally insured amounts. Included in cash and cash equivalents at December 31, 2010 and 2009 is $64 and $67, respectively, of cash restricted as to withdrawal pursuant to a collateral agreement and a customer’s contractual requirement.

Allowance for Doubtful Accounts.  Trade receivables are stated at invoiced amounts less allowances for doubtful accounts. The allowances represent estimated uncollectible receivables associated with potential customer defaults usually due to customers’ potential insolvency. The allowances include amounts for certain customers where a risk of default has been specifically identified. The assessment of the likelihood of customer defaults is based on various factors, including the length of time the receivables are past due, historical experience and existing economic conditions.

Expenditures Billable to Clients.  Expenditures billable to clients consist principally of outside vendors costs incurred on behalf of clients when providing advertising, marketing and corporate communications services to clients that have not been invoiced. Such amounts are invoiced to clients at various times over the course of the production process.

Fixed Assets.  Fixed assets are stated at cost, net of accumulated depreciation. Buildings are depreciated on a declining balance basis over the estimated useful lives of 20 to 25 years. Computers, furniture and fixtures are depreciated on a straight-line basis over periods of 3 to 7 years. Machinery and equipment are depreciated on a straight-line basis over periods of 3 to 10 years. Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset. Repairs and maintenance costs are expensed as incurred.

Impairment of Long-lived Assets.  In accordance with the FASB Accounting Standards Codification topic, Accounting for the Impairment or Disposal of Long-lived Assets, a long-lived asset or asset group is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When such events occur, the Company compares the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. If this comparison indicates that there is an impairment, the amount of the impairment is typically calculated using discounted expected future cash flows where observable fair values are not readily determinable. The discount rate applied to these cash flows is based on the Company’s weighted average cost of capital, risk adjusted where appropriate.

Equity Method Investments.  The equity method is used to account for investments in entities in which the Company has an ownership interest of less than 50% and has significant influence, or joint control by contractual arrangement with all parties having an equity interest, over the operating and financial policies of the affiliate or has an ownership interest of greater than 50% however the substantive participating rights of the noncontrolling interest shareholders preclude the Company from exercising unilateral control over the operating and financial policies of the affiliate. The Company’s investments accounted for using the equity method includes Adrenalina, 49.9% owned by the Company, and a 50% undivided interest in a real estate joint venture. In 2010, the Company recorded a distribution of $3,519 from this real estate joint venture, of

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MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Significant Accounting Policies  – (continued)

which $2,601 was in excess of the Company’s carrying amount and has been recorded as a gain in equity in earnings of non-consolidated affiliates. The Company’s management periodically evaluates these investments to determine if there has been a decline in value that is other than temporary. As of December 31, 2010, the Company has wrote off the amount of its investment in Adrenalina of $1,636 representing advances previously made.

Cost Method Investments.  The Company’s cost-based investments at December 31, 2010 were primarily comprised of various interests in limited partnerships and companies where the Company does not exercise significant influence over the operating and financial policies of the investee. The total net cost basis of these investments, which are included in Other Assets on the balance sheet, as of December 31, 2010 and 2009 was $4,650 and $3,888, respectively. These investments are periodically evaluated to determine if there have been any other than temporary declines below book value. A variety of factors are considered when determining if a decline in fair value below book value is other than temporary, including, among others, the financial condition and prospects of the investee, as well as the Company’s investment intent.

Goodwill and Indefinite Lived Intangible. In accordance with the FASB Accounting Standards Codification topic, Goodwill and Other Intangible Assets, goodwill and indefinite life intangible assets (trademarks) acquired as a result of a business combination which are not subject to amortization are tested for impairment annually, and more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. For goodwill, this determination is made at the reporting unit level and consists of two steps. First, the Company determines the fair value of a reporting unit and compares it to its carrying amount. Fair value is determined based on earnings multiples of each subsidiary. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with the FASB Accounting Standards Codification topic, Business Combinations. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

The fair value of a reporting unit was estimated using a combination of the income approach, which incorporates the use of the discounted cash flow method.

The Company has determined that each partner firm that has reported goodwill will be tested separately as each partner firm qualifies as a reporting unit under the Accounting Standards Codification guidance.

Impairment losses, where applicable, will be charged to operating profit. The Company identifies certain intangible assets (trademarks) as indefinite life if there are no legal, regulatory, contractual or economic factors that limit the useful life. If the carrying amount of an indefinite life intangible exceeds its fair value, an impairment loss is recognized for the excess. As of December 31, 2010, there was no impairment of goodwill and no reporting units were at risk of failing step one of annual test.

Definite Lived Intangible Assets.  In accordance with the FASB Accounting Standards Codification, acquired intangibles, are subject to amortization over their useful lives. The method of amortization selected reflects the pattern in which the economic benefits of the specific intangible asset is consumed or otherwise used up. If that pattern cannot be reliably determined, a straight-line amortization method is used over the estimated useful life. Intangible assets that are subject to amortization are reviewed for potential impairment at least annually or whenever events or circumstances indicate that carrying amounts may not be recoverable. See also Note 8.

Deferred Taxes.  The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are provided for the temporary difference between the financial reporting basis and tax basis of the Company’s assets and liabilities. Deferred tax benefits result principally from certain tax carryover benefits and from recording certain expenses in the financial statements that are not currently deductible for

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Significant Accounting Policies  – (continued)

tax purposes and from differences between the tax and book basis of assets and liabilities recorded in connection with acquisitions. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax liabilities result principally from deductions recorded for tax purposes in excess of that recorded in the financial statements or income for financial statement purposes in excess of the amount for tax purposes. The effect of changes in tax rates is recognized in the period the rate change is enacted.

Business Combinations.  Valuation of acquired companies are based on a number of factors, including specialized know-how, reputation, competitive position and service offerings. The Company’s acquisition strategy has been focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of its various strategic business platforms to better serve the Company’s clients. Consistent with the acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed in 2010 included an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior years, are derived using the performance of the acquired entity and are based on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period and changes in estimated value are recorded in results of operations. For the year ended December 31, 2010 and 2009, income of $778 and nil, respectively, related to changes in estimated value have been charged to operating income. In addition, certain acquisitions also include put/call obligations for additional equity ownership interests. The estimated value of these interests are recorded as Redeemable Noncontrolling Interests. As of January 1, 2009, the Company expenses acquisition related costs in accordance with the Accounting Standard’s Codification’s new guidance on acquisition accounting. For the year ended December 31, 2010 and 2009, $2,940 and $416 of acquisition related costs were charged to operations.

For each of the Company’s acquisitions, we undertake a detailed review to identify other intangible assets and a valuation is performed for all such identified assets. We use several market participant measurements to determine estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. Like most service businesses, a substantial portion of the intangible asset value that we acquire is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately. The majority of the value of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trade names. In executing the Company’s acquisition strategy, one of the primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand existing client relationships. The expected benefits of the Company’s acquisitions are typically shared across multiple agencies and regions.

Redeemable Noncontrolling Interest.  The minority interest shareholders of certain subsidiaries have the right to require the Company to acquire their ownership interest under certain circumstances pursuant to a contractual arrangement and the Company has similar call options under the same contractual terms. The amount of consideration under the put and call rights is not a fixed amount, but rather is dependent upon 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 through the date of exercise, etc. as described in Note 18.

The Company has recorded its put options as mezzanine equity at their current estimated redemption amounts. The Company accrues changes in the redemption amounts over the period from the date of issuance to the earliest redemption date of the put options. The Company accounts for the put options with a charge to noncontrolling interests to reflect the excess, if any, of the estimated exercise price over the estimated fair value of the noncontrolling interest shares at the date of the option being exercised. For the three years ended

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MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Significant Accounting Policies  – (continued)

December 31, 2010, 2009 and 2008, there has been no charges to noncontrolling interests. Changes in the estimated redemption amounts of the put options are adjusted at each reporting period with a corresponding adjustment to equity. These adjustments will not impact the calculation of earnings per share.

The following table presents changes in Redeemable Noncontrolling Interests.

     
  Years Ended December 31,
     2010   2009   2008
Beginning Balance as of January 1,   $ 33,728     $ 21,751     $ 24,187  
Reclassification related to Redeemable Noncontrolling Interests     —       31,653       —  
Redemptions     (7,987 )      (28,242 )      (2,296 ) 
Granted     40,567       6,441       —  
Changes in redemption value     10,075       58       —  
Other     —       107       156  
Currency Translation Adjustments     1,177       1,960       (296 ) 
Ending Balance as of December 31,   $ 77,560     $ 33,728     $ 21,751  

Guarantees.  Guarantees issued or modified by the Company to third parties after January 1, 2003 are generally recognized, at the inception or modification of a guarantee, as a liability for the obligations it has undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur. The initial measurement of that liability is the fair value of the guarantee. The recognition of the liability is required even if it is not probable that payments will be required under the guarantee. The Company’s liability associated with guarantees is not significant. (See Note 18.)

Revenue Recognition.  The Company’s revenue recognition policies are as required by the Revenue Recognition topics of the FASB Accounting Standards Codification, and accordingly, revenue is generally recognized as services are provided 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 Company follows the Revenue Arrangements with Multiple Deliverables topic of the FASB Accounting Standards Codification issued. This topic addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities and how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. The Company recognizes revenue based on the contracted value of each multiple deliverable when delivered. The Company also follows the topic of the FASB Accounting Standards Codification. Reporting Revenue Gross as a Principal versus Net as an Agent. 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. The Company also follows Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred, for reimbursements received for out-of-pocket expenses. This issue summarized the EITF’s views that reimbursements received for out-of-pocket expenses incurred should be characterized in the income statement as revenue. Accordingly, the Company has included in revenue such reimbursed expenses.

The Company earns 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 arrangement. 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

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MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Significant Accounting Policies  – (continued)

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, which require delivery of a number of service acts, the Company uses the Proportional Performance model, which generally results in revenue being recognized based on the straight-line method due to the acts being non-similar and there being insufficient evidence of fair value for each service provided.

Fees billed to clients in excess of fees recognized as revenue are classified as Advanced Billings.

A small portion of the Company’s contractual arrangements with customers includes performance incentive provisions, which allows 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 assured, 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. The Company records revenue net of sales and other taxes due to be collected and remitted to governmental authorities.

Cost of Services Sold.  Costs of services sold do not include depreciation charges for fixed assets.

Interest Expense.  Interest expense primarily consists of the cost of borrowing on the revolving WF Credit Facility and the 11% Senior Notes. The Company uses the effective interest method to amortize the original issue discount on the 11% Senior Notes. At December 31, 2010 and 2009, $848 and $204 was amortized, respectively, net of amortized premium of $197 and nil, respectively. The Company amortizes deferred financing costs using the effective interest method over the life of the 11% senior notes and straightline over the life of the revolving WF Credit Facility. The total net deferred financing costs, included in Other Assets on the balance sheet, as of December 31, 2010 and 2009 was $10,605, and $9,790, net of accumulated amortization of $1,583 and $295, respectively. During 2010, the Company recorded $2,103 of deferred financing costs primarily relating to the 2010 additional debt issuance.

Stock-Based Compensation.  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.

The Company uses its historical volatility derived over the expected term of the award, to determine the volatility factor used in determining the fair value of the award. The Company uses the “simplified” method to determine the term of the award due to the fact that historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term.

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 fair value of the award, and is recorded into operating income over the service period, that is the vesting period of the award. Changes in the Company’s payment obligation prior to the settlement date are recorded as compensation cost in operating profit 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 in operating income over the service period, that is the vesting period of the award.

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 each of the following years:

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

2. Significant Accounting Policies  – (continued)

 
  Year Ended
December 31, 2009
Expected dividend     $0  
Expected volatility     39.8% – 44.5%  
Risk-free interest rate     1.76% – 2.49%  
Expected option life in years     4  
Weighted average fair value of options granted     $1.18  

For the years ended December 31, 2010 and 2008, the Company did not issue any stock options or similar awards.

It is the Company’s policy for issuing shares upon the exercise of an equity incentive award to verify the amount of shares to be issued, as well as the amount of proceeds to be collected (if any) and delivery of new shares to the exercising party.

The Company has adopted the straight-line attribution method for determining the compensation cost to be recorded during each accounting period. However, awards based on performance conditions are recorded as compensation expense when the performance conditions are expected to be met. The fair value at the grant date for performance based awards granted in 2010 and 2008 was $6,649 and $6,547, respectively. There were no performance based awards granted during 2009.

The Company treats benefits paid by shareholders to employees as a stock based compensation charge with a corresponding credit to additional paid-in capital.

Pension Costs.  Several of the Company’s US and Canadian subsidiaries offer employees access to certain defined contribution pension programs. Under the defined contribution plans, these subsidiaries, in some cases, make annual contributions to participants’ accounts which are subject to vesting. The Company’s contribution expense pursuant to these plans was $1,655, $1,026 and $2,736 for the years ended December 31, 2010, 2009 and 2008, respectively.

Earnings per Common Share.  Basic earnings per share is based upon the weighted average number of common shares outstanding during each period, including the “Share capital to be issued” as reflected in the Shareholders’ Equity on the balance sheet. Diluted earnings per share is based on the above, plus, if dilutive, common share equivalents, which include outstanding options, warrants, stock appreciation rights, restricted stock units and convertible notes.

Subsidiary and Affiliate Stock Transactions.  In accordance with Accounting Standards Codification Topic on Business combinations, effective January 1, 2009, transactions involving purchases, sales or issuances of stock of a subsidiary where control is maintained are recorded as an increase or decrease in additional paid-in capital. In transactions involving subsidiary stock where control is lost, gains and losses are recorded in results of operations. Gains and losses from transactions involving stock of an affiliate are recorded in results of operations until control is achieved.

Foreign Currency Translation.  The Company’s financial statements were prepared in accordance with the requirements of the Foreign Currency Translation topic of the FASB Accounting Standards Codification. The functional currency of the Company is the Canadian dollar and it has decided to use US dollars as its reporting currency for consolidated reporting purposes. All of the Company’s subsidiaries use their local currency as their functional currency. Accordingly, the currency impacts of the translation of the balance sheets of the Company’s non-US dollar based subsidiaries to US dollar statements are included as cumulative translation adjustments in accumulated other comprehensive income. Translation of intercompany debt, which is not intended to be repaid, is included in cumulative translation adjustments. Cumulative translation adjustments are not included in net earnings unless they are actually realized through a sale or upon complete or substantially complete liquidation of the Company’s net investment in the foreign operation. Translation of

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2. Significant Accounting Policies  – (continued)

current intercompany balances are included in net earnings. The balance sheets of non-US dollar based subsidiaries are translated at the period end rate. The income statements of non-US dollar based subsidiaries are translated at average exchange rates for the period.

Gains and losses arising from the Company’s foreign currency transactions are reflected in net earnings. Unrealized gains or losses arising on the translation of certain intercompany foreign currency transactions that are of a long-term nature (that is settlement is not planned or anticipated in the future) are included as cumulative translation adjustments in accumulated other comprehensive income.

Derivative Financial Instruments.  The Company follows Accounting for Derivative Instruments and Hedging Activities. Topic of the FASB Accounting Standards Codification 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.

3. Income (Loss) per Common Share

The following table sets forth the computation of basic and diluted income (loss) per common share from continuing operations for the years ended December 31:

     
  2010   2009   2008
Numerator
                           
Numerator for diluted income (loss) per common share – income (loss) from continuing operations   $ (2,872 )    $ (11,239 )    $ 18,638  
Net income attributable to the noncontrolling interests     (10,074 )      (5,566 )      (8,300 ) 
Income (loss) attributable to MDC Partners Inc. common shareholders from continuing operations     (12,946 )      (16,805 )      10,338  
Effect of dilutive securities     —       —       —  
Numerator for diluted income per common share – income (loss) attributable to MDC Partners Inc. common shareholders from continuing operations   $ (12,946 )    $ (16,805 )    $ 10,338  
Denominator
                           
Denominator for basic income (loss) per common share – weighted average common shares     28,161,144       27,396,463       26,765,839  
Effect of dilutive securities:
                           
Employee stock options, warrants, and stock appreciation rights     —       —       1,710  
Employee restricted stock units     —       —       662,613  
Dilutive potential common shares     —       —       664,323  
Denominator for diluted income (loss) per common share – adjusted weighted shares and assumed conversions     28,161,144       27,396,463       27,430,162  
Basic income (loss) per common share from continuing operations   $ (0.46 )    $ (0.61 )    $ 0.39  
Diluted income (loss) per common share from continuing operations   $ (0.46 )    $ (0.61 )    $ 0.38  

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

3. Income (Loss) per Common Share  – (continued)

At December 31, 2010, 2009 and 2008 convertible notes, warrants, options and other rights to purchase, 4,665,293, 5,240,879 and 4,547,390 shares of common stock, respectively, were not included in the computation of diluted income (loss) per common share because doing so would have had an antidilutive effect.

4. Acquisitions

2010 Acquisitions

Fourth Quarter 2010 Acquisitions

Effective November 30, 2010, the Company, through a wholly-owned subsidiary, purchased 80% of the total outstanding equity interests in each of Kenna Communications LP, an Ontario limited partnership (“Kenna”), and Capital C Partners LP, an Ontario limited partnership (“Capital C”). Capital C is a full-service marketing agency providing services such as business strategy and consumer insights, shopper monitoring, and product innovation. Kenna delivers sales and marketing solutions to make organizations more efficient, more productive and more effective. The aggregate purchase price was equal to $26,300 and additional deferred acquisition consideration, the current estimated present value of which is $12,360 that are based upon actual results from 2010 to 2015 with final payments due in 2016. In addition, performance payments of up to $5,000 may be paid in the future based on these results. The Company recorded $12,898 as the present value of redeemable noncontrolling interest in relation to the Kenna and Capital C put option rights triggered upon such owner’s termination without cause, disability or death. Beginning in 2016, the Company has a call for the remaining 20% of each of Kenna and Capital C. If the Company does not exercise this call, the operating results of Kenna and Capital C will be allocated to the Company on a basis less than the Company’s ownership basis as defined. In December 2010, the company recorded a present value adjustment of $167 to deferred acquisition consideration. An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $10,441 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $40,103 representing the value of assembled workforce. The identified intangible assets will be amortized from a five to eight year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The intangibles and goodwill are not tax deductible. Accordingly, the Company recorded a deferred tax liability of $3,188 representing the future benefits relating to the amortization of the identified intangibles.

The actual adjustments that the Company will ultimately make in analyzing the allocation of purchase price to fair value of the net assets acquired, will depend on a number of factors, including additional information such as changes in the unaudited financial statements.

During the quarter ended December 31, 2010, the Company also completed a number of other acquistions. The Company purchased a 51% interest in 72andSunny Partners LLC (“72andSunny”). 72andSunny is full service agency that conceives and executes fully integrated campaigns across all media for top global brands. The Company also increased its ownership of Allard Johnson Communications Inc. (now known as Kbs+p Canada, Inc.,) (“Kbs+p Canada”) to 100%, and Company C LLC (“Company C”) to 100%. The aggregate purchase price paid for these other acquisitions was equal to $35,859, and consisted of total closing cash payments of $12,937, net of $790 repayment of loans; a $271 working capital adjustment; and additional contingent deferred acquisition consideration, that are based on actual financial results of the underlying business from 2010 to 2015 with final payments due in 2016 with a current estimated present value of $21,861. In December, the Company recorded a present value adjustment of $163 to deferred acquisition consideration. An allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $5,690, consisting primarily of customer lists and covenants not to compete, and goodwill of $35,370 representing the value of assembled workforce. The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. In addition,

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(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions  – (continued)

the Company has recorded $13,722, the present value of redeemable noncontrolling interest in relation to 72andSunny. 72andSunny has put option rights only upon such owner’s termination without cause, disability or death. The Company also recorded an entry to reduce redeemable noncontrolling interests by $3,802 and additional paid-in-capital of $3,123 in relation to the Kbs+p Canada step up. The amounts paid and to be paid will be tax deductibe in relation to the 72andSunny acquisition. However, it will not be tax deductible in relation to the Kbs+p Canada transaction.

The actual adjustments that the Company will ultimately make in analyzing the allocation of purchase price to fair value of the net assets acquired, will depend on a number of factors, including additional information such as changes in the unaudited financial statements.

Third Quarter 2010 Acquisitions

During the quarter ended September 30, 2010, the Company completed a number of acquisitions. The Company purchased a 60% equity interest in Relevent Group, LLC (“Relevent”), a 60% equity interest in Kwittken & Company, LLC (“Kwittken”), and certain assets and liabilities of Think 360 Inc. (“Think 360”). Relevent is a full service marketing, special events, production and promotions company that builds brands with consumers through experiential lifestyle, entertainment and relationship marketing programs. Kwittken is a full service public relations and marketing agency. Think 360 is an integrated marketing agency. The aggregate purchase price paid for these acquisitions consisted of total closing cash payments of $15,085, plus additional contingent deferred acquisition consideration, that are based on the actual financial results of the underlying businesses from 2010 to 2014, with final payments due in 2015 with a current estimated present value of $14,898. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $4,974, consisting primarily of customer lists and covenants not to compete, and goodwill of $28,910 representing the value of the assembled workforce. The identified intangibles will be amortized ranging from a two to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The present value of the redeemable noncontrolling interest not acquired at the acquisition date was $5,513. Relevent and Kwittken have put option rights upon an employee-owner’s termination without cause, disability or death. The amounts paid and to be paid will be tax deductible.

The actual adjustments that the Company will ultimately make in analyzing the allocation of purchase price to the fair value of the net assets acquired, will depend on a number of factors, including additional information such as changes in the unaudited financial statements.

The Company has also increased ownership to 100% of Zig Inc. (now known as Crispin Porter + Bogusky Canada Inc. (“CPB Canada”)) and purchased an additional 25% of Bruce Mau Design Inc., increasing the Company’s ownership to 75% The aggregate purchase price paid for these step-ups consisted of total closing cash payments of $3,115, plus additional deferred acquisition consideration of $626. During the fourth quarter of 2010, the Company made payments of $47 and recorded adjustments of $33 to increase the deferred acquisition consideration. In relation to these step-ups, the Company recorded an entry to reduce redeemable noncontrolling interests by $1,365 and an entry to reduce noncontrolling interests by $144. The Company recorded a reduction of additional paid-in-capital of $2,296 representing the difference between the fair value of the interest and the value of the redeemable noncontrolling interests. The amounts paid and to be paid will not be tax deductible.

Second Quarter 2010 Acquisitions

Effective May 6, 2010, the Company, through a wholly-owned subsidiary, purchased 75% of the total outstanding membership interests in Integrated Media Solutions, LLC (“IMS”), which expands the Company’s direct response marketing capabilities. At closing, the Company paid cash of $20,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2015 with final payments due in 2016, with a current estimated present value of $19,658 at the date of acquisition which

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4. Acquisitions  – (continued)

includes fixed payments of $2,216. During 2010, the Company made payments of $666 and recorded adjustments of $1,329 to reduce the deferred acquisition consideration. An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $9,081 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $44,678 representing the value of the assembled workforce. The fair value of the noncontrolling interest not acquired at the acquisition date was $13,219 based in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company. The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The intangibles and goodwill are tax deductible.

The actual adjustments that the Company will ultimately make in finalizing the allocation of the purchase price of IMS to the fair value of the net assets acquired at May 6, 2010 will depend on a number of factors, including additional information such as changes in the unaudited consolidated financial statements.

During the quarter ended June 30, 2010, the Company completed a number of acquisitions. The Company purchased a 51% equity interest in Allison & Partners LLC (“Allison”), a 75% equity interest in Sloane & Company LLC (“Sloane”), and certain assets and liabilities of CSC – ADPLUS, LLC (d.b.a. Infolure) (“Infolure”). Allison is a full service public relations and corporate communications agency. Sloane is a communication firm focused on corporate positioning and communications, financial public relations and investor relations, and crisis and transactions communications. Infolure is a direct marketing firm. The purchase price paid for these acquisitions consisted of aggregate cash payments of $17,632 plus additional contingent deferred acquisition consideration, that are based on actual results from 2010 to 2015 with final payments due in 2016 with a current estimated present value of $15,797 which includes fixed payments of $3,805. During 2010, the Company made payments of $2,020 and recorded adjustment of $2,198 to increase deferred acquisition consideration. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $9,431 consisting primarily of customer lists and covenants not to compete, and goodwill of $27,697 representing the value of the assembled workforce. The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. In addition, the Company has recorded $6,024, the present value of redeemable noncontrolling interests in relation to Allison and Sloane. The Allison acquisition has put option rights upon termination of an employee-owner’s employment by reason of death. The Sloane acquisition has put rights that could increase the Company’s ownership to 100% in 2015. The amounts paid and to be paid will be tax deductible.

The actual adjustments that the Company will ultimately make in analyzing the allocation of purchase price to the fair value of the net assets acquired, will depend on a number of factors, including additional information such as changes in the unaudited financial statements.

First Quarter 2010 Acquisitions

Effective March 1, 2010, the Company, through a wholly-owned subsidiary, purchased 60% of the total outstanding membership interests in Team Holdings LLC (“Team”), which expands the Company’s experiential marketing capabilities. At closing, the Company paid cash of $11,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2012 with final payments in 2013, with a current estimated present value of $12,656, and the Company paid a working capital true-up estimated at an additional $569. During 2010, the Company recorded adjustments of $1,711 to reduce the value of the deferred acquisition consideration. An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $5,220 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $32,993 representing the value of the assembled workforce. The fair value of the noncontrolling interest not acquired at the acquisition date was $15,771 based in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company. The identified intangibles will be amortized up to a seven-year period in a manner represented

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4. Acquisitions  – (continued)

by the pattern in which the economic benefits of the customer contracts/relationships are realized. During the second quarter of 2010, the Company amended the purchase agreement to include additional deferred acquisition consideration, with a current present value of $3,071, with final payments due in 2012. During 2010, the Company made payments of $986 and recorded adjustments to increase the deferred acquisition consideration by $304. The additional deferred acquisition consideration resulted in additional intangibles of $3,071. The intangibles and goodwill are tax deductible.

The actual adjustments that the Company will ultimately make in analyzing the allocation of purchase price to the fair value of the net assets acquired, will depend on a number of factors, including additional information such as changes in the unaudited financial statements.

During the three months ended March 31, 2010, the Company completed a number of other acquisitions and step-ups in ownership. The Company purchased a 76% equity interest in Communifx Partners LLC (“Communifx”), substantially all of the assets of Plaid Inc. (“Plaid”), an additional 15% equity interest in Fletcher Martin, LLC (“Fletcher Martin”), an additional 49% equity interest in Trend Core, LLC (“Trend Core”), and an additional 1% equity interest in HL Group Partners, LLC (“HL Group”). Communifx builds and manages large-scale customer database solutions to enable the planning, execution, and measurement of multi-channel marketing and advertising programs. Plaid is a marketing services business with a concentration in the digital communication and social media arena. The Company purchased the additional equity interests in Fletcher Martin and HL Group pursuant to the exercise of outstanding puts. The purchase price paid for these acquisitions and step-ups consisted of aggregate cash payments of $4,921 plus additional contingent payments of $576 that are based on actual results from 2010 to 2015 with final payments due in 2016. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $1,851 consisting primarily of customer lists and a covenant not to compete, and goodwill of $2,426 representing the value of the assembled workforce. The identified intangibles will be amortized up to a seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. In addition, the Company has recorded $710, the present value of redeemable noncontrolling interests in relation to Communifx. The Communifx acquisition has put/call rights that could increase the Company’s ownership to 100% in 2013. In relation to the step up acquisitions, the Company recorded an entry to reduce Redeemable Noncontrolling Interests by $1,116. The amount paid to the employee over fair value, $608, was recorded as a stock-based compensation charge. The Company recorded a reduction of additional paid-in capital of $1,623 representing the difference between the fair value of the shares and the value of the Redeemable Noncontrolling Interests. The amounts paid and to be paid will be tax deductible.

The actual adjustments that the Company will ultimately make in analyzing the allocation of purchase price to the fair value of the net assets acquired, will depend on a number of factors, including additional information such as changes in the unaudited financial statements.

2009 Acquisitions

In December 2009, the Company paid an additional $38,974 pursuant to the CPB purchase agreement originally entered into in November 2008 with the founders of Crispin Porter & Bogusky LLC (“CPB”). In connection with this transaction, the Company recorded $14,067 as deferred acquisition consideration, $1,450 was paid in January 2010, $433 was reversed as an adjustment and the balance was paid in April 2010. This purchase price payment was pursuant to an accelerated exercise of a call option that was exercised by the Company in November 2008 (the Company increased its ownership from 77% to 94%). Because CPB was originally consolidated as a VIE, the Company reduced Redeemable Noncontrolling Interests by $17,809. The Company recorded additional goodwill of $31,253 and identifiable intangible backlog of $3,979. The amount recorded related to the 17% step up from November 2008. The backlog was amortized over one month. In addition, the Company recorded a stock-based charge of $3,074 for amounts paid by the former shareholder to CPB employees. The Goodwill will be tax deductible.

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions  – (continued)

On December 31, 2009, the Company acquired an additional 3% interest in VitroRobertson increasing its holdings from 79% to 82%. The purchase price totaled $845 and was paid in cash. The Company recorded an entry to reduce Redeemable Noncontrolling Interests by $266. The amount paid over fair value, $370, was recorded as a stock-based compensation charge. The Company recorded a reduction of additional paid-in capital of $209 representing the difference between the fair value of the shares and the value of the Redeemable Noncontrolling Interests. As this purchase was pursuant to the exercise of an existing put/call option, no additional intangibles have been recorded. The Goodwill will be tax deductible.

On December 1, 2009, the Company agreed to make an early payment to KBP Management Partners LLC originally due in March 2010 pursuant to the purchase agreement entered into in November 2007. The additional payment totaled $14,870, of which $10,140 was paid in cash in December 2009 and $4,215 was paid in March 2010 with the balance potentially due in March 2011, recorded as deferred acquisition consideration. This additional payment was accounted for as additional goodwill. In addition, pursuant to an existing phantom stock arrangement, a stock-based compensation charge of $3,028 has been recorded for amounts paid by KBP Management Partners to phantom equity holders. The Goodwill will be tax deductible.

On October 5, 2009, the Company purchased the remaining 6% outstanding interest in CPB for an estimated fixed and contingent purchase price. The estimated purchase price of $9,818 is included in deferred acquisition consideration and includes $518 of fixed payments to be paid in 2013. The Company recorded a reduction of $8,596 to Redeemable Noncontrolling Interests and $704 to additional paid in capital. The fixed payments of $518 are allocated to identifiable intangibles and will be amortized over 3 years.

On August 31, 2009, the Company, through HL Group Partners LLC (“HL Group”), acquired a 51% interest in Attention Partners LLC (“Attention”), a social media agency that further expands HL Group’s business capabilities. At closing, the HL Group paid $1,000 and made a capital contribution of $400 to Attention. In addition, HL Group recorded estimated contingent payments totaling $1,313 due in 2010 and 2011 as deferred acquisition consideration. During 2010, the Company paid $1,022 and recorded adjustments of $113 to increase the deferred acquisition consideration to $404 with the balance potentially due in March 2011. The allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $544 (consisting of primarily of customer lists and a covenant not to compete) and goodwill of $3,057 representing the value of the assembled workforce. The fair value of the noncontrolling interests not acquired at the acquisition date was $2,431 based on the Company’s evaluation of the Company being acquired, the purchase paid by the Company. The identified intangibles will be amortized up to a three-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The intangibles and goodwill are tax deductible.

On July 1, 2009, the Company, through Crispin Porter & Bogusky LLC (“CPB”), acquired 100% of the preferred shares and 52% of the common shares of Crispin Porter & Bogusky Europe AB (formerly known as “daddy”), a digital agency based in Sweden that has created a foothold in Europe for CPB. At closing, CPB paid $3,052 plus an additional $50 deferred payment. Also in December 2009, CPB called an additional 24% and made a payment of 80% of the purchase price of $188. An additional amount of $50 is recorded as deferred acquisition consideration. The Company has additional calls and the noncontrolling owners have reciprocal puts on the remaining 24% of the common shares, which are exercisable beginning January 2012. The current estimated cost of these puts and calls is approximately $6,600 and has been recorded as Redeemable Noncontrolling Interests. The allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $650 (consisting primarily of customer lists and a covenant not to compete) and goodwill of $8,533 representing the value of the assembled workforce. The identified intangibles will be amortized up to a three-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The intangibles and goodwill are not tax deductible. Accordingly, CPB recorded a deferred tax liability of $221 representing the future tax benefits relating to the amortization of the identified intangibles.

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4. Acquisitions  – (continued)

Effective January 22, 2009, the Company acquired an additional 8.9% of equity interests in HL Group, thereby increasing MDC’s ownership to 64.9%. The purchase price totaled $1,100 and was paid in cash at closing. The Company recorded an entry to reduce Redeemable Noncontrolling Interests, as this purchase was pursuant to the early exercise of an existing put/call option. Accordingly, no additional intangibles have been recorded. However, the amount of the purchase price will be tax deductible.

2008 Acquisitions

Effective December 31, 2008, the Company acquired an additional 6.3% of equity interests in Accent Marketing LLC, increasing the Company’s ownership to 100%. The aggregate purchase price totaled $4,830 and was paid in cash of $995 at closing and repayment of outstanding loans of $1,830. The balance aggregate of $2,005 was paid in 2009. In addition, an additional contingent performance payment of $96 was paid in December 2009 based on Accent’s 2009 financial results. The allocation of the excess purchase consideration of these step acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $1,900 (consisting of customer lists), goodwill of $365 and a stock based compensation charge of $2,285, relating to the amount paid in excess of the fair value of the equity purchase. The identified intangibles will be amortized over a seven year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. This payment was also classified as a stock-based compensation charge. The intangibles, goodwill and stock based compensation charge are tax deductible.

Effective December 1, 2008, the Company acquired an additional 3% of equity interests in Source Marketing LLC, increasing the Company’s ownership to 83%. The purchase price totaled $1,286 and was paid in cash less $42 of outstanding loans. The allocation of the excess purchase consideration of this step acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $300 (consisting of customer lists), goodwill of $504 and a stock based compensation charge of $524, relating to the amount paid in excess of the fair value of the equity purchase. The identified intangibles will be amortized over a five year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The intangibles, goodwill and stock based compensation charge are tax deductible.

On November 24, 2008, the Company agreed to make an early payment to KBP Management Partners LLC of the contingent payment originally due in 2009 pursuant to the purchase agreement entered into in November 2007. The additional payment totaled $16,005, of which $14,124 was paid in cash in November 2008 and $1,881 was paid in 2009. This additional payment was accounted for as additional goodwill. In addition, pursuant to an existing phantom stock arrangement a 2008 stock based compensation charge of $3,548 has been recorded for amounts paid to the phantom equity holders. In December 2009, the Company determined the final earnout payment to be $14,870 of which $10,140 was paid in December 2009 and the balance will be paid in 2010. This final amount was accounted for as additional goodwill. In addition, pursuant to an existing phantom stock arrangement, a 2009 stock based compensation charge of $3,028 has been recorded for amounts paid to the phantom equity holders. The goodwill is tax deductible.

Effective November 10, 2008, the Company acquired an additional 17% of equity interests in Crispin Porter & Bogusky LLC (“CPB”), increasing the Company’s ownership to 94%. The purchase price totaled $6,823 plus a contingent payment in April of 2010 based on the financial performance of 2009. This contingent payment will be calculated in accordance with CPB’s existing limited liability company agreement. The consideration was paid in cash of $6,430 and the issuance of 105,000 newly-issued shares of the Company’s Class A subordinated voting stock valued at $393. For accounting purposes, the value of the Company’s Class A shares issued as consideration was calculated based on the price of the Company’s Class A shares over a period of two days before and after the November 10, 2008 announcement date. This acquisition represented an accelerated exercise of the Company’s existing call option that was otherwise exercisable in April 2010. The allocation of the excess purchase consideration of this acquisition to the fair

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4. Acquisitions  – (continued)

value of the net assets acquired resulted in $5,008 being allocated to identifiable intangibles, existing backlog. This intangible will be amortized over 14.5 month period. This intangible is tax deductible.

Effective October 10, 2008, MDC acquired an additional 8.56% of Zig Inc and an additional 13.17% of an affiliate of Zig Inc for cash of $1,320. These transactions increased the Company’s equity ownership in Zig Inc to 74.07%. The allocation of the excess purchase consideration of these step acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $176 (consisting of customer lists and existing backlog) and goodwill of $1,196. The identified intangibles will be amortized over 30 months in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The tax deductible portion of these transactions amounts to $253.

On June 16, 2008, CPB, acquired certain assets and assumed certain liabilities of Texture Media, Inc. Texture Media is a digital agency specializing in website development, and is based in Boulder, Colorado with approximately 50 employees. The purchase price consisted of $2,500 in cash and a non-contingent cash payment of $940 in one year, which $400 is included in deferred acquisition consideration. The allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $150 (consisting of customer lists and covenants not to compete) and goodwill of $3,111. The identified intangibles will be amortized up to a two year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationship are realized. The intangibles and goodwill are tax deductible.

On February 12, 2008, the Company’s Bratskeir subsidiary purchased the net assets of Clifford PR for $2,050 in cash and the issuance of 30,444 newly issued shares of the Company’s Class A stock valued at $249, plus a 10% membership interest in Clifford/Bratskeir. For accounting purposes, the value of the Company’s Class A shares issued as consideration was calculated based on the price of the Company’s Class A shares on the date of the acquisition. The accounting value of the 10% membership interest in Clifford/Bratskeir was valued at $400. The allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $1,031 (consisting of customer lists, backlog and covenants not to compete) and goodwill of $1,432. The identified intangibles will be amortized over a period of up to five years in a manner represented by the pattern in which the economic benefits of the customer contracts/relationship are realized. Effective December 31, 2008, the Company transferred the ownership of the Clifford PR assets to HL Group Partners, LLC. As part of this transfer, the Company issued 45,000 Class A Shares valued at $137 which have been recorded as stock based compensation expense. In connection with that transaction, the Company purchased the 10% membership interest in Clifford/Bratskeir for $400 less an adjustment for working capital of $88. This net amount will be paid over a three-year period and is included in deferred acquisition consideration. The intangibles and goodwill are tax deductible.

In January 2008, the Company’s 62% owned subsidiary at such time, Zyman Group, purchased certain assets of Core Strategy Group and DMG Inc. The aggregate purchase price paid at closing consisted at such time of $1,000 paid in cash and the issuance of 126,478 newly issued shares of the Company’s Class A stock valued at $1,110. In addition, the principals of Core Strategy Group and DMG received 1,000,000 newly-issued Restricted Class C units of Zyman Group, which will entitle them to a profit interest of 15% of Zyman Group’s pre-tax income in excess of a specified threshold amount. For accounting purposes, the value of the Company’s Class A shares issued as consideration was calculated based on the price of the Company’s Class A share on the date of the acquisitions. The accounting value of the Restricted Class C units of Zyman Group was determined based on a Black-Scholes value of $1,001. The allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $497 (consisting of customer lists and covenants not to compete) and goodwill of $2,626. The

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

4. Acquisitions  – (continued)

identified intangibles will be amortized up to a five year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationship are realized. The intangibles and goodwill are tax deductible.

Throughout 2008, the Company completed 16 equity acquisitions with various shareholders of Allard Johnson Communications Inc. (“Allard”). The aggregate purchase price for the 16 transactions was cash equal to $3,442. These transactions increased the Company’s equity ownership in Allard to 75.06%, an increase of 14.8%. The allocation of the excess purchase consideration of these step acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $247 (consisting of customer lists and existing backlog), goodwill of $2,752 and a stock based compensation charge of $467, relating to amounts paid in excess of the fair value of the equity purchased. The identified intangibles will be amortized over a five year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationship are realized. The intangible and goodwill are not tax deductible.

Proforma Information

The following unaudited pro forma results of operations of the Company for the years ended December 31, 2010 and 2009 and 2008 assume that the acquisition of the operating assets of the significant businesses acquired during 2010 and 2008 had occurred on January 1st of the respective year in which the business was acquired and for the comparable period only (i.e., 2010 acquisitions are reflected in 2009). Acquisitions made in 2010 included below are Team, IMS, Kenna, Capital C, Sloane, Relevent and Think 360. During 2009, there were no significant businesses 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 these periods, or are they necessarily indicative of future results of operations.

     
Liquidity   Year Ended December 31,
2010		   Year Ended December 31,
2009		   Year Ended December 31,
2008
Revenues   $ 781,822     $ 708,540     $ 584,648  
Net income (loss) attributable to MDC Partners Inc.   $ (10,963 )    $ (17,880 )    $ 1,097  
Income (loss) per common share:
                           
Basic – net income (loss)   $ (0.39 )    $ (0.65 )    $ 0.04  
Diluted – net income (loss)   $ (0.39 )    $ (0.65 )    $ 0.04  

Noncontrolling Interests

Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three years ended December 31, 2010 were as follows:

Net Income Attributable to MDC Partners Inc. and
Transfers (to) from the Noncontrolling Interest

     
Liquidity   Year Ended December 31,
2010		   Year Ended December 31,
2009		   Year Ended December 31,
2008
Net Loss attributable to MDC Partners Inc.   $ (15,440 )    $ (18,324 )    $ 133  
Transfers (to) from the noncontrolling interest
                           
Decrease in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of Redeemable Noncontrolling Interests     (7,761 )      (913 )      —  
Net transfers (to) from noncontrolling interest     (7,761 )      (913 )      —  
Change from net income attributable to MDC Partners Inc. and transfers (to) from noncontrolling interest   $ (23,201 )    $ (19,237 )    $ 133  

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

5. Fixed Assets

The following is a summary of the fixed assets as of December 31:

           
  2010   2009
     Cost   Accumulated Depreciation   Net Book Value   Cost   Accumulated Depreciation   Net Book Value
Computers, furniture and fixtures   $ 94,268     $ (68,540 )    $ 25,728     $ 79,036     $ (60,090 )    $ 18,946  
Leasehold improvements     41,217       (25,892 )      15,325       39,091       (22,662 )      16,429  
     $ 135,485     $ (94,432 )    $ 41,053     $ 118,127     $ (82,752 )    $ 35,375  

Included in fixed assets are assets under capital lease obligations with a cost of $4,323, (2009 — $3,383) and accumulated depreciation of $2,421 2009 — $2,018). Depreciation expense for the years ended December 31, 2010, 2009 and 2008 was $16,764, $16,275 and $16,747, respectively.

6. Accrued and Other Liabilities

At December 31, 2010 and 2009, accrued and other liabilities included amounts due to noncontrolling interest holders, for their share of profits, which will be distributed within the next twelve months of $8,577 and $4,058, respectively.

Changes in noncontrolling interest amounts included in accrued and other liabilities for the three years ended December 31, 2010 were as follows:

 
  Noncontrolling Interests
Balance, December 31, 2007   $ 7,916  
Income attributable to noncontrolling interests     8,300  
Distributions made     (11,649 ) 
Other(1)     289  
Balance, December 31, 2008   $ 4,856  
Income attributable to noncontrolling interests     5,566  
Distributions made     (7,784 ) 
Other(1)     1,420  
Balance, December 31, 2009   $ 4,058  
Income attributable to noncontrolling interests     10,074  
Distributions made     (7,685 ) 
Other(2)     2,130  
Balance, December 31, 2010   $ 8,577  

(1) Other consists primarily of an adjustment of stock based compensation charges to additional paid-in capital relating to obligations assumed by the non-controlling shareholders and cumulative translation adjustments.
(2) Other consists primarily of an adjustment to record distributions to be made as a result of an acquired company and cumulative translation adjustments.

7. Financial Instruments

Financial assets, which include cash and cash equivalents and accounts receivable, have carrying values which approximate fair value due to the short-term nature of these assets. Financial liabilities with carrying values approximating fair value due to short-term maturities include accounts payable, accrued and other liabilities, advance billings, and deferred acquisition consideration. Bank debt and long-term debt are variable

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

7. Financial Instruments  – (continued)

rate debt, the carrying value of which approximates fair value. The Company’s note payable is a fixed rate debt instrument, the carrying values of which approximates fair value. The fair value of financial commitments, guarantees and letters of credit, are based on the stated value of the underlying instruments. Guarantees have been issued in conjunction with the disposition of businesses in 2001 and 2003 and letters of credit have been issued in the normal course of business. The fair value for the 11% senior notes was approximately $323,700 as of December 31, 2010.

8. Goodwill and Intangible Assets

As of December 31, the gross and net amounts of acquired intangible assets were as follows:

     
Goodwill   Strategic
Marketing
Services		   Performance Marketing
Services		   Total
Balance of December 31, 2008   $ 186,053     $ 52,161     $ 238,214  
Acquired goodwill     59,053       —       59,053  
Goodwill impairment     —       —       —  
Foreign currency translation     3,008       1,357       4,365  
Balance as of December 31, 2009   $ 248,114     $ 53,518     $ 301,632  
Acquired goodwill     78,147       132,497       210,644  
Goodwill impairment     (942 )      —       (942 ) 
Foreign currency translation     1,658       1,496       3,154  
Balance as of December 31, 2010   $ 326,977     $ 187,511     $ 514,488  

   
  For the Year Ended December 31, 2010
     2010   2009
Intangibles:
                  
Trademarks (indefinite life)   $ 17,780     $ 17,780  
Customer relationships – gross   $ 68,603     $ 48,125  
Less accumulated amortization     (26,517 )      (35,843 ) 
Customer relationships – net   $ 42,086     $ 12,282  
Other intangibles – gross   $ 16,926     $ 19,352  
Less accumulated amortization     (9,659 )      (14,699 ) 
Other intangibles – net   $ 7,267     $ 4,653  
Total intangible assets   $ 103,309     $ 85,257  
Less accumulated amortization     (36,176 )      (50,542 ) 
Total intangible assets – net   $ 67,133     $ 34,715  

See Note 4 for Accounting for Business Combinations.

During 2010, the Company recorded a goodwill impairment charge of $710 relating to Fearless and $232 relating to Zig US. Fearless was a start up company that the company discontinued in June 2010. Zig US’s business operations have been treated as discontinued as of September 30, 2010.

During 2008, the Company recorded a goodwill impairment charge of $1,590 relating to Clifford/Bratskeir Public Relations LLC (“Bratskeir”). Bratskeir’s business operations have been treated as discontinued as of December 31, 2008. In addition, the Company completed the sale of certain assets of its Mobium division resulting in a $1,137 reduction of goodwill.

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

8. Goodwill and Intangible Assets  – (continued)

The weighted average amortization periods for customer relationships are 5 years and other intangible assets are 5 years. In total, the weighted average amortization period is 5 years. The amortization expense of amortizable intangible assets for the year ended December 31, 2010, was $17,631 (2009 — $17,968; 2008 —  $17,264) the estimated amortization expense for the five succeeding years is:

 
Year   Amortization
2011   $ 17,281  
2012   $ 10,907  
2013   $ 6,766  
2014   $ 4,990  
2015   $ 2,468  

9. Income Taxes

The components of the Company’s income (loss) from continuing operations before income taxes, equity in affiliates and noncontrolling interests by taxing jurisdiction for the years ended December 31, were:

     
  2010   2009   2008
Income (loss):
                           
US   $ (5,162 )    $ 2,254     $ 13,779  
Non-US     1,259       (4,949 )      6,907  
     $ (3,903 )    $ (2,695 )    $ 20,686  

The provision (benefit) for income taxes by taxing jurisdiction for the years ended December 31, were:

     
  2010   2009   2008
Current tax provision
                           
US federal   $ —     $ —     $ 4,948  
US state and local     368       1,246       328  
Non-US     4,840       318       (1,919 ) 
       5,208       1,564       3,357  
Deferred tax provision (benefit):
                           
US federal     428       8,681       (5,057 ) 
US state and local     501       2,347       189  
Non-US     (6,302 )      (4,056 )      3,908  
       (5,373 )      6,972       (960 ) 
Income tax provision   $ (165 )    $ 8,536     $ 2,397  

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

9. Income Taxes  – (continued)

A reconciliation of income tax expense using the statutory Canadian federal and provincial income tax rate compared with actual income tax expense for the years ended December 31, is as follows:

     
  2010   2009   2008
Income (loss) from continuing operations before income taxes, equity in affiliates and noncontrolling interest   $ (3,903 )    $ (2,695 )    $ 20,686  
Statutory income tax rate     31.0 %      33.0 %      33.5 % 
Tax expense using statutory income tax rate     (1,210 )      (889 )      6,930  
State and foreign taxes     1,909       3,045       (960 ) 
Non-deductible stock-based compensation     4,941       5,160       2,796  
Other non-deductible expense     890       732       876  
Change to valuation allowance on items affecting taxable income     (7,986 )      2,656       (4,149 ) 
Additional tax reserve     4,100       —       —  
Noncontrolling interests     (3,123 )      (1,767 )      (2,726 ) 
Other, net     314       (401 )      (370 ) 
Income tax expense   $ (165 )    $ 8,536     $ 2,397  
Effective income tax rate     4.2 %      316.7 %      11.6 % 

(1) Included in the change in valuation allowance is $3,188 relating to the reversal of the valuation allowance as a result of a non-taxable acquisition.

See Note 10 for income taxes for discontinued operations.

The 2010 effective income tax rate was significantly lower than the statutory rate due primarily to an additional tax reserve of $4,100, non-deductible stock-based compensation of $4,941, state and foreign income taxes of $1,909 offset by a decrease in the Company’s valuation allowance of $7,986.

The 2009 effective income tax rate was significantly higher than the statutory rate due primarily from the increase in the Company’s valuation allowance of $2,656, non-deductible stock-based compensation of $5,160 and State and foreign income taxes of $1,564.

The 2008 effective income tax rate was significantly lower than the statutory rate due primarily from the reversal of Canadian withholding taxes due to a change in Canadian tax law of $2,088 (included in other taxes above) and a decrease in the Company’s valuation allowance of $4,149, primarily due to utilization of net operating loss carry forwards.

Income taxes receivable were $712 and $622 at December 31, 2010 and 2009, respectively, and were included in accounts receivable on the balance sheet. Income taxes payable were $4,969 and $1,215 at December 31, 2010 and 2009, respectively, and were included in accrued and other liabilities on the balance sheet. It is the Company’s policy to classify interest and penalties arising in connection with the under payment of income taxes as a component of income tax expense. For the year ended 2010, $1,093 is included in the current provision of income tax expense relating to interest and penalties as a result of an identified uncertain tax position. For the years ended 2010, 2009 and 2008, income tax expense does not include any amounts for interest and penalties.

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

9. Income Taxes  – (continued)

The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, were as follows:

   
  2010   2009
Deferred tax assets:
                  
Capital assets and other   $ 7,292     $ 5,296  
Net operating loss carry forwards     41,313       45,292  
Interest deductions     7,053       5,743  
Stock compensation     896       970  
Unrealized foreign exchange     268       227  
Capital loss carry forwards     17,289       17,417  
Accounting reserves     6,118       2,751  
Gross deferred tax asset     80,229       77,696  
Less: valuation allowance     (55,311 )      (65,896 ) 
Net deferred tax assets     24,918       11,800  
Deferred tax liabilities:
                  
Deferred finance charges     (526 )      (530 ) 
Capital assets     (300 )      —  
Goodwill amortization     (18,816 )      (8,521 ) 
Total deferred tax liabilities     (19,642 )      (9,051 ) 
Net deferred tax asset   $ 5,276     $ 2,749  
Disclosed as:
                  
Deferred tax assets   $ 24,966       14,950  
Deferred tax liabilities     (19,690 )      (12,201 ) 
     $ 5,276     $ 2,749  

Included in accrued and other liabilities at December 31, 2010 and 2009 is a deferred tax liability of $48 and $3,150, respectively. Included in other current assets at December 31, 2010 and 2009 is a deferred tax asset of $3,363 and $2,408, respectively.

The Company has US federal net operating loss carry forwards of $41,892 and non-US net operating loss carry forwards of $61,153, these carry forwards expire in years 2015 through 2030. The Company also has total indefinite loss carry forwards of $131,661. These indefinite loss carry forwards consist of $20,116 relating to the US and $111,545 which are related to capital losses from the Canadian operations. In addition, the Company has net operating loss carry forwards for various state taxing jurisdictions of approximately $150,366.

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.

The valuation allowance has been recorded to reduce our deferred tax asset to an amount that is more likely than not to be realized, and is based upon the uncertainty of the realization of certain US, non-US and state deferred tax assets. The increase in the Company’s valuation allowance charged to the statement of operations for each of the years ended December 31, 2009 and 2008 was $2,656 and $6,870, respectively. In 2010 and 2008, the Company reduced its valuation and recorded a benefit in the statement of operations of $7,986 and $4,149, respectively.

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

9. Income Taxes  – (continued)

Deferred taxes are not provided for temporary differences representing earnings of subsidiaries that are intended to be permanently reinvested. The potential deferred tax liability associated with these undistributed earnings is not material.

As of December 31, 2010, the Company recorded a liability for unrecognized tax benefits as well as applicable penalties and interest in the amount of $4,717. The Company identified an uncertainty relating to the future tax deductability of certain intercompany interest and fees, to the extent that such future benefit will be established, the resolution of this position will have no effect with respect to the financial statements.

 
Changes in the Company’s reserve is as follows:
Balance December 31, 2007   $ 617  
Charges to income tax expense     —  
Balance December 31, 2008     617  
Charges to income tax expense     —  
Balance December 31, 2009     617  
Charges to income tax expense     3,007  
Balance December 31, 2010   $ 3,624  

We do not expect our unrecognized tax benefits to change significantly over the next 12 months.

The Company has completed US federal tax audits through 2006 and has completed a non-US tax audit through 2004.

10. Discontinued Operations

In December 2010, the Company discontinued a start-up division of Redscout, LLC called 007. As a result, the Company has classified this entity’s results of operations as a loss of $722 as discontinued operations.

Effective September 30, 2010, the Company ceased Zig US current operations and as a result incurred a goodwill impairment charge of $232. Including the impairment charge Zig US’s results of operations, net of income tax benefits, for the year ended 2010, there was a loss of $1,046.

In June 2010, the Company discontinued a start up called Fearless Progression LLC (“Fearless”). As a result, the Company wrote off its investment in Fearless of $710. Including the impairment charge, Fearless’s results of operations net of income tax benefits for the year ended 2010, was a loss of $743. The Company has classified this entity’s results as discontinued operations.

In December 2010, the Company recorded net adjustments of $21 to reduce a previously recorded liability relating to prior discontinued operations.

The loss net of taxes from discontinued operations for 2009 was $1.5 million and is comprised of the operating results of Clifford/Bratskeir Public Relations LLC (“Bratskeir”) of $361 and Margeotes Fertitta Powell, LLC (“MFP”) of $515 and Zig US of $643, relates to an adjustment to a previously recorded liability.

In December 2008, the Company entered into negotiations to sell certain remaining assets in Bratskeir to management. This transaction was completed in April 2009. As a result of this expected transaction, the Company recorded a goodwill and intangibles impairment charge of $1,945. Including the impairment charge Bratskeir’s results of operations, net of income tax benefits, for the years ended 2008 and 2007 were losses of $3,815 and $1,217, respectively.

Effective December 3, 2008, Colle & McVoy, LLC (“Colle”), completed the sale of certain assets of its Mobium division. The Company recorded a loss on sale of $1,159 ($765 net of taxes). Including the loss on

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10. Discontinued Operations  – (continued)

sale, Mobium’s results of operations, net of income tax benefits for the year ended 2008 was a loss of $3,022. The results of operations net of income taxes for Mobium for the year ended 2007 was income of $283.

Effective June 30, 2008, the Company sold its 60% interest in The Ito Partnership (“Ito”), a start-up operation formed in 2006. The sale resulted in a loss of $877, ($579 net of taxes). Including the loss on sale, Ito’s results of operations, net of income tax benefits for the year ended 2008 was a loss of $533.

In December 2008, the Company ceased MFP current operations. As a result, the Company has classified these operations as discontinued. In addition, an additional intangible relating to an employment contract of $629 was deemed impaired and written off. In 2008, the Company recorded a loss of $2,645 net of income taxes resulting primarily from the accrual of lease abandonment costs and severance.

In December 2007, due to continued operating losses and the lack of new business wins the Company ceased Banjo Strategic Entertainment, LLC (“Banjo”) operations. The results of operations of Banjo, net of income tax benefits, was a loss of $154 in 2007. MFP and Banjo had been previously included in the Company’s Specialized Communication Service segment.

Included in discontinued operations in the Company’s consolidated statements of operations for the years ended December 31 were the following:

     
  Years Ended December 31,
     2010   2009   2008
Revenue   $ 487     $ 1,264     $ 7,077  
Impairment charge     (942 )      —       (1,945 ) 
Operating loss     (2,883 )      (2,000 )      (12,164 ) 
Other expense     (56 )      (10 )      (3,364 ) 
Income tax recovery     343       270       5,159  
Noncontrolling interest expense recovery     102       221       164  
Net loss from discontinued operations   $ (2,494 )    $ (1,519 )    $ (10,205 ) 

Included in other expense is a loss on sale of assets of $2,036 in 2008.

At December 31, 2008, $408, $323 and $2,139 was included in current assets, other assets and accrual and other liabilities, respectively, which represent assets held for sale and related liabilities.

11. Comprehensive Income (Loss)

Total comprehensive income (loss) and its components for the years ended December 31, were:

     
  2010   2009   2008
Net income (loss) for the year   $ (5,366 )    $ (12,758 )    $ 8,433  
Other comprehensive income, net of tax:
                           
Foreign currency cumulative translation adjustment     1,736       769       (12,938 ) 
Comprehensive loss for the year     (3,630 )      (11,989 )      (4,505 ) 
Comprehensive loss attributable to the noncontrolling interest     (10,078 )      (5,582 )      (8,338 ) 
Comprehensive loss attributable to MDC Partners Inc.   $ (13,708 )    $ (17,571 )    $ (12,843 ) 

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(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

12. Bank Debt, Long-Term Debt and Convertible Notes

At December 31, the Company’s indebtedness was comprised as follows:

   
  2010   2009
Revolving credit facility   $ —     $ —  
11% senior notes due 2016     290,000       225,000  
Original issue discount     (6,843 )      (10,291 ) 
Note payable and other bank loans     1,400       1,800  
       284,557       216,509  
Obligations under capital leases     1,659       1,437  
       286,216       217,946  
Less:
                  
Current portion     1,667       1,456  
     $ 284,549     $ 216,490  

Interest expense related to long-term debt for the years ended December 31, 2010, 2009 and 2008 was $30,429, $18,057 and $13,650, respectively. For the year ended December 31, 2010 and 2009, interest expense included $848 and $204 amortization of the original issue discount, respectively and $922 and nil of present value adjustments for fixed deferred acquisition payments, respectively.

The amortization and write off of deferred finance costs included in interest expense were $1,288, $3,837 and $1,348 for the years ended December 31, 2010, 2009, and 2008 respectively.

Issuance of 11% Senior Notes

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold $225,000 aggregate principal amount of 11% Senior Notes due 2016 (the “11% Notes”). The 11% Notes bear interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable semiannually in arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11% Notes will mature on November 1, 2016, unless earlier redeemed or repurchased. The Company received net proceeds before expenses of $208,881, which included an original issue discount of approximately 4.7% or $10,494, and underwriter fees of $5,624. The 11% Notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933, as amended. The Company used the net proceeds of this offering to repay the outstanding balance and terminate its prior Fortress Financing Agreement, and redeemed its outstanding 8% C$45,000 convertible debentures on November 26, 2009.

The Company may, at its option, redeem the 11% Notes in whole at any time or in part from time to time, on and after November 1, 2013 at a redemption price of 105.500% of the principal amount thereof. If redeemed during the twelve-month period beginning on November 1, 2014, at a redemption price of 102.750% of the principal amount thereof if redeemed during the twelve-month period beginning on or after November 1, 2015 and equal to redemption price of 100% of the principal amount thereof. (Prior to November 1, 2013, the Company may, at its option, redeem some or all of the 11% Notes at a price equal to 100% of the principal amount of the Notes plus a “make whole” premium and accrued and unpaid interest.) The Company may also redeem, at its option, prior to November 1, 2012, up to 35% of the 11% Notes with the proceeds from one or more equity offerings at a redemption price of 11% of the principal amount thereof. If the Company experiences certain kinds of changes of control (as defined in the Indenture), holders of the 11% Notes may require the Company to repurchase any 11% Notes held by them at a price equal to 101% of the principal amount of the 11% Notes plus accrued and unpaid interest.

In connection with these transactions, the Company wrote-off $323 of deferred financing costs relating to its prior convertible debentures.

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

12. Bank Debt, Long-Term Debt and Convertible Notes  – (continued)

On May 14, 2010, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold $65,000 aggregate principal amount of 11% Senior Notes due 2016. The additional notes were issued under the Indenture governing the 11% notes and treated as a single series with the original 11% notes. The additional notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933, as amended. The Company received net proceeds before expenses of $67,208, which included an original issue premium of $2,600, and underwriter fees of $392. The Company used the net proceeds of the offering to repay the outstanding balance under the Company’s revolving WF Credit Facility described elsewhere herein, and for general corporate purposes, including acquisitions.

At December 31, 2010, the Company had issued $6,018 of undrawn outstanding Letters of Credit.

At December 31, 2010, accounts payable included $9,026 of outstanding checks.

The fair value for the 11% Senior Notes was $323,700 as of December 31, 2010.

WF Credit Facility

On October 23, 2009, the Company and its subsidiaries entered into a $75,000 five year senior secured revolving WF Credit Facility (the “WF Credit Facility”) with Wells Fargo Foothill, LLC, as agent, and the lenders from time to time party thereto. On November 22, 2010, this agreement was amended to increase the availability under the facility to $100,000. The WF Credit Facility replaced the Company’s existing $185,000 senior secured financing agreement with Fortress Credit Corp., as collateral agent, Wells Fargo Foothill, Inc., as administrative agent. Advances under the WF Credit Facility will bear interest as follows: (a)(i) LIBOR Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus (b) an applicable margin. The initial applicable margin for borrowing is 3.00% in the case of Base Rate Loans and 3.25% in the case of LIBOR Rate Loans. The applicable margin may be reduced subject to the Company achieving certain trailing twelve month earning levels, as defined. In addition to paying interest on outstanding principal under the WF Credit Facility, the Company is required to pay an unused revolver fee to lenders under the WF Credit Facility in respect of unused commitments thereunder.

The WF Credit Facility is guaranteed by all of the Company’s present and future subsidiaries, other than immaterial subsidiaries (as defined) and is secured by substantially all the assets of the Company. The WF Credit Facility includes covenants that, among other things, restrict the Company’s ability and the ability of its subsidiaries to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; pay dividends; incur certain liens, sell or otherwise dispose of certain assets; enter into transactions with affiliates; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of the Company’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The WF Credit Facility also contains financial covenants, including a senior leverage ratio, a total leverage ratio, a fixed charge coverage ratio and a minimum earnings level, as defined.

In connection with these transactions, the Company incurred a termination fee of $1,850 and wrote-off $2,240 of deferred financing costs relating to its prior Fortress Financing Agreement.

The Company is currently in compliance with all of the terms and conditions of its WF 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.

Prior Financing Agreement

The Prior Fortress Financing Agreement consisted of a $55,000 revolving WF Credit Facility, a $60,000 term loan and a $70,000 delayed draw term loan. Interest payable under the Financing Agreement was as follows: (a) LIBOR Rate Loans bear interest at applicable interbank rates and Reference Rate Loans bear

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

12. Bank Debt, Long-Term Debt and Convertible Notes  – (continued)

interest at the rate of interest publicly announced by the Reference Bank in New York, New York, plus (b) a percentage spread ranging from 0% to a maximum of 4.75% depending on the type of loan and the Company’s Senior Leverage Ratio.

Effective October 23, 2009, the Company repaid all outstanding amounts under the Fortress Financing Agreement.

8% Convertible Unsecured Subordinated Debentures

On June 28, 2005, the Company completed an offering in Canada of convertible unsecured subordinated debentures amounting to $36,723 (C$45,000) (the “Debentures”). The Debentures required interest at an annual rate of 8.00% payable semi-annually, in arrears, on June 30 and December 31 of each year.

The Company repaid the Debentures on November 26, 2009.

Future principal repayments, including capital lease obligations, for the years ended December 31, and in aggregate are as follows:

 
Period   Amount
2011   $ 1,667  
2012     1,020  
2013     187  
2014     103  
2015     58  
2016 and beyond     290,024  
     $ 293,059  

Capital Leases

Future minimum capital lease payments for the years ended December 31 and in aggregate are as follows:

 
Period   Amount
2011   $ 935  
2012     453  
2013     203  
2014     112  
2015     62  
2016 and thereafter     24  
       1,789  
Less: imputed interest     (130 ) 
       1,659  
Less: current portion     (867 ) 
     $ 792  

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Share Capital

The authorized share capital of the Company is as follows:

(a) Authorized Share Capital

Class A Shares

An unlimited number, subordinate voting shares, carrying one vote each, entitled to dividends equal to or greater than Class B shares, convertible at the option of the holder into one Class B share for each Class A share after the occurrence of certain events related to an offer to purchase all Class B shares.

Class B Shares

An unlimited number, carrying 20 votes each, convertible at any time at the option of the holder into one Class A share for each Class B share.

Preferred A Shares

An unlimited number, non-voting, issuable in series.

The Company has not paid dividends on any class of shares during the three years ended December 31, 2009.

(b) 2010 Share Capital Transactions

During the year ended December 31, 2010, Class A share capital increased by $8,220. The Company issued 1,367,271 relating to vested restricted stock, 6,495 shares related to the exercise of outstanding stock options and 101,107 shares related to the exercise of outstanding stock appreciation rights, increasing share capital by $11,699.

During 2010, the Company’s employees surrendered 282,954 Class A shares valued at $3,479 in connection with the required tax withholding from the vesting of various equity awards. These shares were subsequently retired and no longer remain outstanding as of December 31, 2010.

Additional paid-in capital decreased by $9,174, of which $11,640 related to the vesting of restricted stock and stock appreciation rights, $7,603 relating to transactions with noncontrolling interests, dividends paid and to be paid of $10,194, changes in the redemption value of redeemable noncontrolling interests of $11,500. These decreases were offset by $14,954 relating to an increase from stock-based compensation and $16,809 transferred to charges in excess of capital.

(c) 2009 Share Capital Transactions

During the year ended December 31, 2009, Class A share capital increased by $4,999. The Company issued 620,393 shares related to vested restricted stock, 47,625 shares related to the exercise of outstanding stock options and 68,261 shares related to the exercise of outstanding stock appreciation rights, increasing share capital by $5,595.

During 2009, the Company’s employees surrendered 156,481 Class A shares valued at $596 in connection with the required tax withholding resulting from the vesting of various equity awards. These shares were subsequently retired and no longer remain outstanding as of December 31, 2009.

Additional paid-in capital decreased by $24,296, of which $31,653 related to the recording of existing put options (Note 2), $5,226 related to the vesting of restricted stock and stock appreciation rights, $923 related to acquisitions, and other charges of $214. These decreases were offset by $13,720 relating to increase from stock-based compensation.

(c) 2008 Share Capital Transactions

During the year ended December 31, 2008, Class A share capital increased by $5,575. The Company issued 334,467 shares related to business acquisitions and 541,110 shares related to vested restricted stock increasing share capital by 6,584.

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13. Share Capital  – (continued)

During 2008, the Company’s employees surrendered 112,146 Class A shares valued at $909 in connection with the required tax withholding resulting from the vesting of restricted stock. In addition, during 2008, the Company received 12,346 Class A shares valued at $100 in connection with a partial repayment of a note receivable. These 124,492 Class A shares were subsequently retired and no longer remain outstanding as of December 31, 2008.

Additional paid-in capital increased $6,727, of which $10,129 related to an increase from stock-based compensation that was expensed during 2008 and $1,001 related to acquisition purchase price consideration and other changes of $78 partially offset by $4,481 related to the vested restricted stock.

(e) Employee Stock Incentive Plan

On May 26, 2005, the Company’s shareholders approved the Company’s 2005 Stock Incentive Plan (the “2005 Incentive Plan”). The 2005 Incentive Plan authorizes the issuance of awards to employees, officers, directors and consultants of the Company with respect to 2,000,000 shares of MDC Partners’ Class A Subordinate Voting Shares or any other security in to which such shares shall be exchanged. On June 1, 2007 and on June 2, 2009, the Company’s shareholders approved a total additional authorized Class A Shares of 2,500,000 to be added to the 2005 Incentive Plan for a total of 4,500,000 authorized Class A Shares. On May 30, 2008, the Company’s shareholders approved the 2008 Key Partner Incentive Plan, which provides for the issuance of 600,000 Class A Shares. As of December 31, 2010, the Company has granted 200,000 Director options (of which 100,000 were forfeited), which option grants were for a ten-year term and vests over five (5) years from the grant date under the 2005 Incentive Plan.

The following table summarizes information about time based and financial performance-based restricted stock and restricted stock unit awards granted under the 2005 Incentive Plan and 2008 Key Partner Incentive Plan:

       
  Performance Based Awards   Time Based Awards
     Shares   Weighted Average Grant Date Fair Value   Shares   Weighted
Average Grant Date Fair Value
Balance at December 31, 2007
     913,729     $ 8.10       482,149     $ 9.78  
Granted     801,345       8.17       369,882       4.78  
Vested     (531,610 )      8.30       (9,500 )      9.26  
Forfeited     (45,601 )      8.13       (13,000 )      8.85  
Balance at December 31, 2008     1,137,863     $ 8.05       829,531     $ 7.57  
Granted     —       —       179,927       7.15  
Vested     (545,747 )      7.95       (74,646 )      9.19  
Forfeited     (34,158 )      7.88       (10,652 )      10.04  
Balance at December 31, 2009
     557,958     $ 8.17       924,160     $ 7.33  
Granted     753,209       8.83       258,223       10.28  
Vested     (804,300 )      8.37       (562,971 )      8.60  
Forfeited     (4,944 )      8.88       (3,345 )      8.13  
Balance at December 31, 2010
     501,923     $ 8.83       616,067     $ 7.40  

The total fair value of restricted stock and restricted stock unit awards, which vested during the year ended December 31, 2010, 2009 and 2008 was $14,976, $5,022 and $4,499, respectively. In connection with the vesting of these awards, the Company realized a tax deduction of $3,431, $414 and $430 in 2010, 2009 and 2008, respectively. At December 31, 2010, the weighted average remaining contractual life for performance based awards is 2.2 years and for time based awards is 1.5 years. At December 31 2010, the fair value of all restricted stock and restricted stock unit awards is $19,308. The term of these awards is three

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(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Share Capital  – (continued)

years with vesting up to three years. At December 31, 2010, the unrecognized compensation expense for these awards was $6,085 and will be recognized through 2013. At December 31, 2010, there are 1,669 awards available to grant.

The Company’s Board of Directors adopted the 2005 Incentive Plan as a replacement for MDC Partners’ Amended and Restated Stock Option Incentive Plan (the “Prior 2003 Plan”). Following approval of the 2005 Incentive Plan, the Company ceased making awards under the Prior 2003 Plan.

Prior to adoption of the 2005 Incentive Plan, the Company’s Prior 2003 Plan provided for grants of up to 1,890,786 options to employees, officers, directors and consultants of the Company. All the options granted were for a term of five years from the date of the grant and vest 20% on the date of grant and a further 20% on each anniversary date. In addition, the Company granted 534,960 options, on the privatization of Maxxcom, with a term of no more than 10 years from initial date of grant by Maxxcom and vest 20% in each of the first two years with the balance vesting on the third anniversary of the initial grant.

Information related to share option transactions grant under all plans over the past three years is summarized as follows:

         
  Options Outstanding   Options Exercisable
     Number Outstanding   Weighted Average Price per Share   Number Outstanding   Weighted Average Price per Share   Non Vested Options
Balance, December 31, 2007     975,028     $ 11.14       851,216     $ 11.31       123,812  
Vested     —       —                         (53,812 ) 
Granted     —       —       —                    
Exercised     —       —       —                    
Expired and cancelled     (516,193 )      8.85                         (5,000 ) 
Balance, December 31, 2008     458,835     $ 9.49       393,835     $ 9.69       65,000  
Vested     —       —                         (20,000 ) 
Granted     —       —                         —  
Exercised     (47,625 )      8.76                         —  
Expired and cancelled     (171,218 )      12.22                         —  
Balance, December 31, 2009     239,992     $ 9.55       194,992     $ 9.64       45,000  
Vested     —       —                         (20,000 ) 
Granted     —       —                         —  
Exercised     (6,495 )      9.19                         —  
Expired and cancelled     (17,297 )      17.08                         —  
Balance, December 31, 2010     216,200     $ 9.41       191,200     $ 9.41       25,000  

At December 31, 2010, the intrinsic value of vested options and the intrinsic value of all options was $1,700. For options exercised during 2010 and 2009, the Company received cash proceeds of $60 and $370, respectively. The Company did not receive any windfall tax benefits. The intrinsic value of options exercised during 2010 and 2009 was $20 and $16, respectively. At December 31, 2010, the weighted average remaining contractual life of all outstanding options was 1.0 years and for all vested options was 0.8 years. At December 31, 2010, the unrecognized compensation expense of all options was $68 and will be recognized through 2012.

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Share Capital  – (continued)

Share options outstanding as of December 31, 2010 are summarized as follows:

           
  Options Outstanding   Options Exercisable
Range of Exercise Prices   Outstanding Number   Weighted Average Contractual Life   Weighted Average Price per Share   Exercisable Number   Weighted Average Price per Share   Weighted Average Contractual Life
$5.28 – $7.91     8,326       1.55     $ 6.91       8,326     $ 6.91       1.55  
$7.92 – $9.85     186,679       1.06     $ 9.08       161,679     $ 9.02       0.78  
$9.86 – $13.32     21,195       0.34     $ 13.32       21,195     $ 13.32       0.34  

(f) Stock Appreciation Rights

During 2003, the Compensation Committee of the Board of Directors approved a stock appreciation rights (“SAR’s”) compensation program for senior officers and directors of the Company. SARS’s granted prior to 2006 have a term of four years, for SAR’s granted in 2006 and after they have a term of up to 10 years and all awards vest one-third on each anniversary date.

SAR’s granted and outstanding are as follows:

         
  SAR’s Outstanding   SAR’s Exercisable
     Weighted Average Number Outstanding   Weighted Average Price per Share   Number Outstanding   Price per Share   Non Vested SAR’s
Balance at December 31, 2007     615,000     $ 11.33       511,666     $ 11.72       103,334  
Vested     —       —                         (96,668 ) 
Granted     —       —                         —  
Exercised     —       —                         —  
Expired and cancelled     (370,000 )      12.00                         —  
Balance at December 31, 2008     245,000     $ 9.74       238,334     $ 9.80       6,666  
Vested     —       —                         (6,666 ) 
Granted     3,744,686       3.76                         3,744,686  
Exercised     (172,759 )      3.72                         (172,759 ) 
Expired and cancelled     (298,158 )      8.22                         (83,158 ) 
Balance at December 31, 2009     3,518,769     $ 3.80       30,000     $ 8.18       3,488,769  
Vested     —                                  (1,747,034 ) 
Granted     —                                  —  
Exercised     (187,666 )    $ 4.19                         (187,666 ) 
Expired and cancelled     —                                  —  
Balance at December 31, 2010     3,331,103     $ 3.78       1,777,034     $ 3.77       1,554,069  

At December 31, 2010, the aggregate amount of shares to be issued on vested SAR’s was 1,388,866 shares with an intrinsic value of $23,808 and for all outstanding SAR’s, the aggregate amount of shares to be issued was 2,597,808 with an intrinsic value of $44,947. During 2010 and 2009, the aggregate value of SAR’s exercised was $1,147 and $407, respectively. During 2010, the Company received a tax deduction of $180. At December 31, 2010, the weighted average remaining contractual life of all outstanding SAR’s was 3.2 years and for all vested SAR’s was 3.2 years. At December 31, 2010, the unrecognized compensation expense of all SAR’s was $541 and will be recognized through 2012.

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Share Capital  – (continued)

           
  SAR’s Outstanding   SAR’s Exercisable
Range of Exercise Prices   Outstanding Number   Weighted Average Contractual Life   Weighted Average Price per Share   Exercisable Number   Weighted Average Price per Share   Weighted Average Contractual Life
$3.72 – $6.60     3,311,103       3.17     $ 3.75       1,757,034     $ 3.72       3.17  
$6.61 – $8.95     20,000       5.63     $ 8.38       20,000     $ 8.38       5.63  

(h) Warrants

The Company measures the fair value of warrants using the Black-Scholes option pricing model on the date of grant.

There were no warrants outstanding as at December 31, 2010.

Information related to warrant transactions over the past three years is summarized as follows:

         
  Warrants Outstanding   Warrants Exercisable
     Number Outstanding   Weighted Average Price per Share   Number Outstanding   Weighted Average Price per Share   Non Vested Warrants
Balance, December 31, 2007     728,907     $ 16.67       680,873     $ 16.61       48,034  
Vested     —                                  (48,034 ) 
Granted     —       —  
Expired and cancelled     (250,000 )      12.70                         —  
Balance, December 31, 2008     478,907     $ 14.02       478,907     $ 14.02       —  
Vested     —       —                         —  
Granted     —       —       —  
Expired and cancelled     (478,907 )    $ 14.02       —     $ —       —  
Balance, December 31, 2009     —       —       —       —       —  

The Company has reserved a total of 1,345,927 Class A shares in order to meet its obligations under various conversion rights, warrants and employee share related plans. At December 31, 2010 there were 1,668,919 shares available for future option and similar grants.

14. Fair Value Measurements

Effective January 1, 2008, the Company adopted guidance regarding accounting for Fair Value Measurements. This guidance defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The statement indicates, among other things, that a fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.

In order to increase consistency and comparability in fair value measurements, the guidance establishes a hierarchy for observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

• Level 1:  Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

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(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

14. Fair Value Measurements  – (continued)

• Level 2:  Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
• Level 3:  Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. Measurements based on undiscounted cash flows are considered to be level 3 inputs. During the fourth quarter of each year, the Company evaluates goodwill and indefinite-lived intangibles for impairment at the reporting unit level. For each acquisition, the Company performed a detailed review to identify intangible assets and a valuation is performed for all such identified assets. The Company used several market participant measurements to determine estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. The amounts allocated to assets acquired and liabilities assumed in the acquisitions were determined using level three inputs. Fair value for property and equipment was based on other observable transactions for similar property and equipment. Accounts receivable represents the best estimate of balances that will ultimately be collected, which is based in part on allowance for doubtful accounts reserve criteria and an evaluation of the specific receivable balances.

The following tables present certain information for our financial assets that is measured of fair value on a recurring basis at December 31, 2010 and 2009:

       
  Level 1 2010   Level 1 2009
     Carrying Amount   Fair Value   Carrying Amount   Fair Value
Liabilities:
                                    
Long term debt   $ 283.2     $ 323.7     $ 214.7     $ 230.6  

Our long term debt includes fixed rate debt. The fair value of this instrument is based on quoted market prices.

The following table presents changes in Deferred Acquisition Consideration.

   
  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
     2010   2009
Beginning Balance of contingent payments   $ 29,928     $ 3,986  
Payments     (25,305 )      (3,986 ) 
Grants     97,930       29,928  
Redemption value adjustments     (1,292 )      —  
Foreign translation adjustment     561       —  
Ending Balance of contingent payments   $ 101,822     $ 29,928  

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14. Fair Value Measurements  – (continued)

In addition to the above amounts, there are fixed payments of $6,169 and $717 for total deferred acquisition consideration of $107,991 and $30,645, which reconciles to the consolidating financial statements at December 31, 2010 and 2009, respectively.

Level 3 payments relate to payments made for deferred acquisition consideration. Level 3 grants relate to contingent purchase price obligations related to acquisitions. The Company records the initial liability of the estimated present value. The estimated liability is determined in accordance with various contractual valuation formulas that may be dependent on future events, such as the growth rate of the earning of the relevant subsidiary during the contractual period, and, in some cases, the currency exchange rate of the date of payment. Level 3 redemption value adjustments relate to the remeasurement and change in these various contractual valuation formulas as well as adjustments of present value.

15. Gain on Sale of Assets and Other

The gain on sale of assets and other for the years ended December 31 were as follows:

     
  2010   2009   2008
Other income (expense)   $ 364     $ (38 )    $ 128  
Gain (loss) on disposition of assets     17       (53 )      (142 ) 
     $ 381     $ (91 )    $ (14 ) 

16. Segmented Information

The Company’s segment reporting is consistent with the current manner of how the Chief Operating Decision Maker (“CODM”) and the Board of Directors view the business. The Company is focused on expanding its capabilities in database marketing and data analytics in order to position the Company for future business development efforts and revenue growth.

In order to position this strategic focus along the lines of how the CODM and management will base their business decisions, the Company report two segments. Decisions regarding allocation of resources are made and will be made based not only on the individual operating results of the subsidiaries but also on the overall performance of the reportable segments. These reportable segments are the aggregation of various reporting segments.

The Company reports in two segments plus corporate. The segments are as follows:

• The Strategic Marketing Services segment includes Crispin Porter & Bogusky and kirshenbaum bond senecal + partners 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 the Strategic Marketing Services Group 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 Performance Marketing Services segment includes our firms that provide consumer insights to satisfy the growing need for targetable, measurable solutions or cost effective means of driving return on marketing investment. These services interface directly with the consumer of a client’s product or service. Such services include the design, development, research and implementation of consumer service and direct marketing initiatives. Each of the entities within the Performance Marketing Services Group share similar economic characteristics specifically related to the nature of

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

16. Segmented Information  – (continued)

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, the services provided to the customer and they exhibit similar long term financial performance and have been aggregated together.

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. The Company continues to evaluate its Corporate Group and the services provided by the Corporate Group to the operating segments. The Company has determined that additional amounts should be allocated to the operating segments based on additional services provided in 2009. The Company will continue to evaluate the services and amount of time spent directly on the operating segments business operations, and adjust accordingly.

       
  For the Year Ended December 31, 2010
     Strategic Marketing Services   Performance Marketing Services   Corporate   Total
Revenue   $ 438,941     $ 258,884     $ —     $ 697,825  
Cost of services sold     289,409       188,082       —       477,491  
Office and general expenses     90,622       44,011       22,291       156,924  
Depreciation and amortization     17,917       16,196       368       34,481  
Operating profit (Loss)     40,993       10,595       (22,659 )      28,929  
Other income (Expense):
                                    
Other income, net                                381  
Foreign exchange gain                                69  
Interest expense, net                       (33,282 ) 
Loss from continuing operations before income taxes, equity in affiliates and noncontrolling interest                                (3,903 ) 
Income tax recovery                       165  
Loss from continuing operations before equity in affiliates and noncontrolling interests                                (3,738 ) 
Equity in earnings of affiliates                       866  
Loss from continuing operations                                (2,872 ) 
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes                       (2,494 ) 
Net loss                                (5,366 ) 
Net income attributable to noncontrolling interests     (7,211 )      (2,863 )      —       (10,074 ) 
Net (loss) attributable to MDC Partners Inc.                     $ (15,440 ) 
Stock-based compensation   $ 7,282     $ 1,992     $ 7,233     $ 16,507  
Capital expenditures from continuing operations   $ 6,476     $ 5,414     $ 610     $ 12,500  
Goodwill and intangibles   $ 367,856     $ 213,765     $ —     $ 581,621  
Total assets   $ 552,383     $ 322,520     $ 39,445     $ 914,348  

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MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

16. Segmented Information  – (continued)

       
  For the Year Ended December 31, 2009
     Strategic Marketing Services   Performance Marketing Services   Corporate   Total
Revenue   $ 370,615     $ 174,526     $ —     $ 545,141  
Cost of services sold     220,714       132,297       —       353,011  
Office and general expenses     87,633       30,898       18,091       136,622  
Depreciation and amortization     25,518       8,466       428       34,412  
Operating Profit (Loss)     36,750       2,865       (18,519 )      21,096  
Other Income (Expense):
                                    
Other expense, net                                (91 ) 
Foreign exchange loss                                (1,956 ) 
Interest expense, net                       (21,744 ) 
Loss from continuing operations before income taxes, equity in affiliates and noncontrolling interest                                (2,695 ) 
Income tax expense                       (8,536 ) 
Loss from continuing operations before equity in affiliates and noncontrolling interests                                (11,231 ) 
Equity loss in earnings of affiliates                       (8 ) 
Loss from continuing operations                                (11,239 ) 
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes                       (1,519 ) 
Net loss                                (12,758 ) 
Net income attributable to noncontrolling interests     (4,851 )      (715 )      —       (5,566 ) 
Net (loss) attributable to MDC Partners Inc.                     $ (18,324 ) 
Stock-based compensation   $ 8,742     $ 868     $ 5,834     $ 15,444  
Capital expenditures from continuing operations   $ 3,617     $ 2,353     $ 239     $ 6,209  
Goodwill and intangibles   $ 277,992     $ 58,355     $ —     $ 336,347  
Total assets   $ 430,959     $ 112,780     $ 60,780     $ 604,519  

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MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

16. Segmented Information  – (continued)

       
  For the Year Ended December 31, 2008
     Strategic Marketing Services   Performance Marketing Services   Corporate   Total
Revenue   $ 362,203     $ 221,068     $ —     $ 583,271  
Cost of services sold     225,569       165,446       —       391,015  
Office and general expenses     84,071       35,725       17,622       137,418  
Depreciation and amortization     24,550       9,189       401       34,140  
Operating Profit (Loss)     28,013       10,708       (18,023 )      20,698  
Other Income (Expense):
                                    
Other expense, net                                (14 ) 
Foreign exchange gain                                13,257  
Interest expense, net                       (13,255 ) 
Income from continuing operations before income taxes and equity in affiliates                                20,686  
Income tax expense                       (2,397 ) 
Income from continuing operations before equity in affiliates and noncontrolling interests                                18,289  
Equity in earnings of affiliates                       349  
Income from continuing operations                                18,638  
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes                       (10,205 ) 
Net Income                                8,433  
Net income attributable to the non-controlling interests     (5,466 )      (2,834 )      —       (8,300 ) 
Net income attributable to MDC Partners Inc.                     $ 133  
Stock-based compensation from continuing operations   $ 6,162     $ 3,697     $ 4,578     $ 14,437  
Capital expenditures from continuing operations   $ 9,181     $ 5,094     $ 109     $ 14,384  
Goodwill and intangibles   $ 224,793     $ 60,273     $ —     $ 285,066  
Total assets   $ 358,834     $ 132,609     $ 37,796     $ 529,239  

A summary of the Company’s long-lived assets, comprised of fixed assets, goodwill and intangibles, net, as at December 31, is set forth in the following table.

       
  United States   Canada   Other   Total
Long-lived Assets
                                    
2010   $ 32,354     $ 7,606     $ 1,093     $ 41,053  
2009   $ 30,322     $ 3,788     $ 1,265     $ 35,375  
Goodwill and Intangible Assets
                                    
2010   $ 495,133     $ 86,488     $ —     $ 581,621  
2009   $ 303,290     $ 33,057     $ —     $ 336,347  

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

16. Segmented Information  – (continued)

A summary of the Company’s revenue as at December 31 is set forth in the following table.

       
  United States   Canada   Other   Total
Revenue:
                                    
2010   $ 582,722     $ 97,452     $ 17,651     $ 697,825  
2009   $ 455,976     $ 80,124     $ 9,041     $ 545,141  
2008   $ 481,745     $ 89,230     $ 12,296     $ 583,271  

17. Related Party Transactions

(a) The Company incurred fees and paid cash incentive awards totaling $1,343, $3,945 and $3,413 in 2010, 2009 and 2008, respectively, relating to companies controlled by the Chairman and Chief Executive Officer (“CEO”) of the Company in respect of services rendered pursuant to a management services agreement and incentive plans.

On April 27, 2007, the Company entered into a new Management Services Agreement (the “Services Agreement”) with Miles Nadal and with Nadal Management, Inc. to set forth the terms and conditions on which Mr. Nadal continues to provide services to the Company as its Chief Executive Officer. The Services Agreement has a three-year term with automatic one-year extensions. Pursuant to the Services Agreement, the annual base compensation for Mr. Nadal’s services was increased to $1,500, effective April 27, 2010. The Services Agreement also provides for an annual bonus with a targeted payout of up to 250% of the base compensation. The Company also makes an annual cash payment of $500 in respect of retirement benefits, employee health benefits and perquisites. In addition, in the discretion of the Compensation Committee, the Company may grant long term equity incentives with a grant-date value of up to 300% of the then current base retainer. In addition during 2010, 2009 and 2008, in accordance with the Services Agreement, Mr. Nadal repaid to the Company an additional $95, $95 and $83, respectively, of loans due to the Company.

(b) Pursuant to the amended Services Agreement, the Company agreed to provide to its CEO, Miles S. Nadal a special bonus of C$10,000 ($10,088) upon the first to occur of (i) the average market price of the Company’s Class A subordinate voting shares is C$30 ($30) per share or more for more than 20 consecutive trading days (measured as of the close of trading on each applicable date) or (ii) a change of control of the Company. This bonus is payable until the date that is three years after the date on which Mr. Nadal is no longer employed by the Company for any reason. The after-tax proceeds of such bonus are to be applied first as repayment of any outstanding loans due to the Company from this officer and his related companies in the amount of C$6,053 (US$6,086), as at December 31, 2010, which has been reserved for in the Company’s accounts. These loans have no stated maturity date.
(c) In 2000, the Company purchased 1,600,000 shares in Trapeze Media Limited (“Trapeze”) for $215. At the same time, the Company’s CEO purchased 4,280,000 shares of Trapeze for $576, the Company’s former Chief Financial Officer and a Managing Director of the Company each purchased 50,000 Trapeze shares for $7 and a Board Member of the Company purchased 75,000 shares of Trapeze for $10. In 2001, the Company purchased an additional 1,250,000 shares for $161, and the Company’s CEO purchased 500,000 shares for $64. In 2002, the Company’s CEO purchased 3,691,930 shares of Trapeze for $470. All of these purchases were made at identical prices (C$.20/share). In 2003, the Company and the CEO exchanged their units in Trapeze for non-voting shares and entered into a voting trust agreement.

During 2010, 2009 and 2008, Trapeze provided services to certain subsidiaries, the total amount of such services provided were $70, $105 and $371, respectively. In addition, in 2010, 2009 and 2008, a subsidiary provided Trapeze with $300, $304 and $144 of services, respectively.

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MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

18. 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. See Note 2 and Note 4.

Put Options.  Owners of interests in certain subsidiaries have the right in certain circumstances to require the Company to acquire either a portion of or all of 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 2010 to 2018. 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 December 31, 2010, perform over the relevant future periods at their 2010 earnings levels, that these rights, if all exercised, could require the Company, in future periods, to pay an aggregate amount of approximately $32,985 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 $3,136 by the issuance of share capital. In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $48,836 only upon termination of such owner’s employment with the applicable subsidiary or death. 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 and if these rights are exercised. The aggregate amount of these options is $81,821, of which $77,560 has been recorded on the balance sheet at December 31, 2010 and is included in Redeemable Noncontrolling Interests.

Natural Disasters. Certain of the Company’s operations are located in regions of the United States and Caribbean which typically are subject to hurricanes. During the year ended December 31, 2010, 2009 and 2008, these operations did not incur any costs 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 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.

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MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

18. Commitments, Contingencies and Guarantees  – (continued)

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.  At December 31, 2010, the Company has $6,018 of undrawn outstanding letters of credit. In addition, the Company has commitments to fund investments in an aggregate amount of $2,200.

Leases.  The Company and its subsidiaries lease certain facilities and equipment. Gross premises rental expense amounted to $18,334 for 2010, $16,004 for 2009 and $16,684 for 2008, which was reduced by sublease income of $277 in 2010, $59 in 2009 and $31 in 2008. Where leases contain escalation clauses or other concessions, the impact of such adjustments is recognized on a straight-line basis over the minimum lease period.

Minimum rental commitments for the rental of office and production premises and equipment under non-cancellable leases net of sublease income, some of which provide for rental adjustments due to increased property taxes and operating costs for 2010 and thereafter, are as follows:

 
Period   Amount
2011   $ 22,860  
2012     21,695  
2013     18,035  
2014     14,160  
2015     12,434  
2016 and thereafter     25,459  
     $ 114,643  

At December 31, 2010, the total future cash to be received on sublease income is $877.

19. New Accounting Pronouncements

In April 2010, the FASB issues ASU 2010-17, “Revenue Recognition-Milestone Method.” ASU 2010-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The amendments in ASU 2010-17 are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption will not have an impact on our financial statements.

In April 2010, the FASB issued ASU 2010-13, “Compensation — Stock Compensation Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.” ASU 2010-13 provides amendments to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of this standard will not have an effect on our financial statements.

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MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

19. New Accounting Pronouncements  – (continued)

In February 2010, The FASB issued an additional Accounting Standards Update on Subsequent Events to clarify the updated guidance issued in May 2009. This Guidance clarifies that SEC filers must evaluate subsequent events through the date the financial statements are issued. However, an SEC filer is not required to disclose the date through which subsequent events have been evaluated. The amendment is effective June 15, 2010. The adoption did not have an impact on our financial statements.

In January 2010, the FASB issued an Accounts Standards Update on Consolidation — Accounting and Reporting for Decreases in Ownership of a Subsidiary — A Scope Clarification. This Guidance clarifies the scope of the decrease in ownership provisions and expands the disclosure requirements about deconsolidation of a subsidiary or de-recognition of a group of assets. It is effective beginning in the first interim annual reporting period ending on or after December 15, 2009. The adoption did not have an impact on our financial statements.

In January 2010, the FASB issued Fair Value Measurements and Disclosures — Improving Disclosures about Fair Value Measurements. This Guidance requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. It requires a reporting entity to disclose significant transfers in and out of Level 1 and Level 2 fair value measurements, to describe the reasons for the transfers and to present separately information about purchases, sales, issuances and settlements for fair value measurements using significant unobservable inputs. This Guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which is effective for interim and annual reporting periods beginning after December 15, 2010; early adoption is permitted. The adoption did not have a material effect on our financial statements.

In October 2009, the FASB issued revised guidance on the topic of Multiple — Deliverable Revenue Arrangements. The revised guidance amends certain accounting for revenue with multiple deliverables. In particular when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, the revised guidance allows use of a best estimate of the selling price to allocate the arrangement consideration among them. This guidance is effective for the first quarter of 2011, with early adoption permitted. The Company is currently evaluating the impact on our financial statements.

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MDC PARTNERS INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

20. Quarterly Results of Operations (Unaudited) (Restated for Discontinued Operations)

The following table sets forth a summary of the Company’s consolidated unaudited quarterly results of operations for the years ended December 31, 2010 and 2009, in thousands of dollars, except per share amounts.

       
  Quarters
     First   Second   Third   Fourth
Revenue:
                                    
2010   $ 135,915     $ 169,890     $ 178,597     $ 213,423  
2009   $ 126,516     $ 134,669     $ 134,421     $ 149,534  
Cost of services sold:
                                    
2010   $ 96,571     $ 116,364     $ 122,721     $ 141,835  
2009   $ 85,494     $ 87,910     $ 85,228     $ 94,379  
Income from continuing operations:
                                    
2010   $ (8,858 )    $ (2,669 )    $ (8,733 )    $ 17,387  
2009   $ 913     $ 1,360     $ 2,434     $ (15,945 ) 
Net income (loss) attributable to MDC Partners Inc.:
                                    
2010   $ (10,186 )    $ (5,805 )    $ (10,918 )    $ 11,469  
2009   $ 29     $ 79     $ 36     $ (18,468 ) 
Income (loss) per common share:
                                    
Basic
                                    
Continuing operations:
                                    
2010   $ (0.36 )    $ (0.17 )    $ (0.36 )    $ 0.41  
2009   $ 0.02     $ 0.01     $ 0.01     $ (0.65 ) 
Net income (loss):
                                    
2010   $ (0.37 )    $ (0.21 )    $ (0.38 )    $ 0.40  
2009   $ 0.00     $ 0.01     $ 0.00     $ (0.67 ) 
Diluted  
Continuing operations:
                                    
2010   $ (0.36 )    $ (0.17 )    $ (0.36 )    $ 0.37  
2009   $ 0.02     $ 0.01     $ 0.01     $ (0.65 ) 
Net income (loss):
                                    
2010   $ (0.37 )    $ (0.21 )    $ (0.38 )    $ 0.36  
2009   $ 0.00     $ 0.01     $ 0.00     $ (0.67 ) 

The above revenue, cost of services sold, and income (loss) from continuing operations have primarily been affected by acquisitions, divestitures and discontinued operations.

Historically, with some exceptions, the Company’s 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.

Income (loss) from continuing operations and net loss have been affected as follows:

• The fourth quarter of 2010 includes non-cash stock based compensation charges of $3,203.
• The fourth quarter of 2009 includes non-cash stock based compensation charges of $6,472 and additional amortization of $3,979 relating to acquisitions. See Note 4.

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CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

20. Quarterly Results of Operations (Unaudited) (Restated for Discontinued Operations)  – (continued)

• The third quarter of 2009 includes an unrealized foreign exchange loss of $3,079.
• The fourth quarter of 2009 interest expense includes termination fees of $1,850 and the write off of $2,564 deferred financing fees relating to the termination of the old financing agreement, and $4,870 of interest expense relating to the 11% Notes.

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

Not Applicable.

Item 9A. Controls and Procedures

(a) Evaluation of 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 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 the end of the period covered by this report pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, the Company has concluded that its disclosure controls and procedures were effective.

(b) Management’s Report on 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.

We evaluated the effectiveness of our internal control over financial reporting as of December 31, 2010. In making this assessment, we used the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of acquisitions made after the first quarter (1Q) 2010, which are included in the consolidated balance sheets of the Company, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended. Post 1Q acquisitions constituted 13% of total assets, as of December 31, 2010, and 10% of revenues for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of the post 1Q acquisitions, because of the timing of the acquisitions.

Based on our assessment, we believe that, as of December 31, 2010, we maintained effective internal control over financial reporting based on these criteria.

The effectiveness of our internal control over financial reporting as of December 31, 2010, has been independently audited by BDO USA LLP, an independent registered public accounting firm, as stated in their report which is included herein.

(c) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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(d) Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
MDC Partners Inc.
New York, New York
Toronto, Canada

We have audited MDC Partners Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). MDC Partners Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, “Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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.

As indicated in the accompanying Item 9A, Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of acquisitions made after March 31, 2010, which are included in the consolidated balance sheets of the Company, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended. Post March 31, 2010 acquisitions constituted 13% of total assets, as of December 31, 2010, and 10% of revenues for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of the post March 31, 2010 acquisitions because of the timing of the acquisitions. Our audit of internal control over financial reporting of MDC Partners Inc. and subsidiaries did not include an evaluation of the internal control over financial reporting of the post March 31, 2010 acquisitions.

In our opinion, MDC Partners Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of MDC Partners Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010 and our report dated March 14, 2011 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

New York, New York
March 14, 2011

Item 9B. Other Information

On March 7, 2011, the Company and each of its subsidiaries party thereto entered into an amendment (the “Amendment”) to the WF Credit Facility. The Amendment provides, among other things, that the Company’s total leverage ratio (as defined), measured on a quarter-end basis, must be no greater than (i) 4.0x, for the twelve month period ending March 31, 2011, and (ii) 3.75x, for the twelve month period ending on the last day of each calendar quarter thereafter. In addition, the Amendment provides greater flexibility for the Company to make restricted junior payments (as defined), including dividends.

The foregoing summary description of the Amendment is qualified in its entirety by reference to the full text of the Amendment and the WF Credit Facility, each of which are filed as exhibits to this Annual Report on Form 10-K.

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PART III

Item 10. Directors and Executive Officers of the Registrant

Reference is made to the sections captioned “Nomination of Directors,” “Information Concerning Nominees for Election as Directors,” “Information Concerning Executive Officers”, “Audit Committee”, “Ethical Conduct” and “Compliance with Section 16(a) of the Exchange Act” in our Proxy Statement for the 2010 Annual General Meeting of Stockholders, which will be filed with the Commission within 120 days of the close of our fiscal year ended December 31, 2010, which sections are incorporated herein by reference.

Executive Officers of MDC Partners

The executive officers of MDC Partners as of March 1, 2011 are:

   
Name   Age   Office
Miles S. Nadal(1)   53   Chairman of the Board, Chief Executive Officer and President
Stephen Pustil(1)   67   Vice Chairman
David B. Doft   39   Chief Financial Officer
Robert E. Dickson   52   Managing Director
Mitchell S. Gendel   45   General Counsel & Corporate Secretary
Michael C. Sabatino   46   Senior Vice President, Chief Accounting Officer
Gavin Swartzman   46   Managing Director

(1) Also a director

There is no family relationship among any of the executive officers.

Mr. Nadal is the founder of MDC and has held the positions of Chairman of the Board and Chief Executive Officer of MDC since 1986, and the position of President since 2007. Mr. Nadal is also the founder and a partner of Peerage Capital, a Canadian private equity firm, Peerage Realty Partners, and Artemis Investment Management. Mr. Nadal is active in supporting various business and community organizations including Mount Sinai Hospital, Junior Achievement of Canada, The Young Presidents Association and the Schulich School of Business.

Mr. Pustil has been a director of MDC since 1992, and its Vice Chairman since 1992. Mr. Pustil is also a Managing Partner at Peerage Capital, President of Peerage Realty Partners, and Chairman of Artemis Investment Management. Mr. Pustil is a chartered accountant and serves on the Board of Mount Sinai Hospital.

Mr. Doft joined MDC Partners in August 2007 as Chief Financial Officer. Prior to joining MDC Partners, he oversaw media and Internet investments at Cobalt Capital Management Inc. from July 2005 to July 2007. Prior thereto, he worked at Level Global Investors from October 2003 to March 2005 investing in media and Internet companies. Before that, Mr. Doft was a sell side analyst for ten years predominately researching the advertising and marketing services sector for CIBC World Markets where he served as Executive Director and ABN AMRO/ING Barings Furman Selz where he was Managing Director.

Mr. Dickson has been a Managing Director of the Company since September 2003. Mr. Dickson joined Maxxcom Inc., a subsidiary of MDC Partners, in November 2000 as Executive Vice President, Corporate Development. He is responsible for corporate development for MDC and its operating companies. Prior to joining Maxxcom, Mr. Dickson was a partner of Fraser Milner Casgrain, a Canadian business law firm, where he practiced law for 17 years. Mr. Dickson is a trustee of H&R Real Estate Investment Trust.

Mr. Gendel joined MDC Partners in November 2004, as General Counsel and Corporate Secretary. Prior to joining MDC Partners, he served as Vice President and Assistant General Counsel at The Interpublic Group of Companies, Inc. from December 1999 until September 2004.

Mr. Sabatino joined MDC Partners in April 2005 as Senior Vice President and Chief Accounting Officer. Prior to joining MDC Partners, he was an audit partner with the accounting firm of Eisner LLP from April 2004. Prior to that, from December 2001 to March 2004, he was the Co-CFO/Senior Vice President

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Finance of JAKKs Pacific, Inc., a publicly-held toy company. Before that, Mr. Sabatino was an audit partner at BDO Seidman, LLP, a public accounting firm.

Mr. Swartzman has been a Managing Director of the Company since October 2004. He is responsible for corporate development and real estate for MDC and its operating companies. Mr. Swartzman served as an officer in a similar capacity for the Company from September 2002 until February 2003. Prior thereto, Mr. Swartzman joined Amadeus Capital Corporation in 2000 as Senior Vice President where he was responsible for various corporate development activities of that company and its affiliates, including serving as the Vice President, Corporate Development from February 2003 to October 2004 for First Asset Management Inc., a Toronto based asset management company. Prior thereto, he was Executive Vice President of Pet Valu International Inc., a retail chain.

Additional information about our directors and executive officers appears under the captions “Election of Directors” and “Executive Compensation” in our Proxy Statement.

Code of Conduct

The Company has adopted a Code of Conduct, which applies to all directors, officers (including the Company’s Chief Executive Officer and Chief Financial Officer) and employees of the Company and its subsidiaries. The Company’s policy is to not permit any waiver of the Code of Conduct for any director or executive officer, except in extremely limited circumstances. Any waiver of this Code of Conduct for directors or officers of the Company must be approved by the Company’s Board of Directors. Amendments to and waivers of the Code of Conduct will be publicly disclosed as required by applicable laws, rules and regulations. The Code of Conduct is available free of charge on the Company’s website at http://www.mdc-partners.com, or by writing to MDC Partners Inc., 950 Third Avenue, New York, NY, 10022, Attention: Investor Relations.

Item 11. Executive Compensation

Reference is made to the sections captioned “Compensation of Directors” and “Executive Compensation” in our next Proxy Statement, which are incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Reference is made to Part II — Item 5 of this Form 10-K and to the sections captioned “Section 16 (a) Beneficial Ownership Reporting Compliance” in the Company’s next Proxy Statement, which are incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Reference is made to the section captioned “Certain Relationships and Related Transactions” in our next Proxy Statement, which is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Reference is made to the section captioned “Appointment of Auditors” in our next Proxy Statement, which is incorporated herein by reference.

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PART IV

Item 15. Exhibits and Financial Statements Schedules

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
MDC Partners Inc.
New York, New York
Toronto, Canada

The audits referred to in our report dated March 14, 2011 relating to the consolidated financial statements of MDC Partners Inc. and subsidiaries, which is contained in Item 8 of this Form 10-K also included the audit of the financial statement Schedule II for years ended 2010, 2009 and 2008. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.

In our opinion such financial statement Schedule II, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ BDO USA, LLP

New York, New York

March 14, 2011

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(a) Financial Statements and Schedules

The Financial Statements and schedules listed in the accompanying index to Consolidated Financial Statements in Item 8 are filed as part of this report. Schedules not included in the index have been omitted because they are not applicable.

Schedule II — 1 of 2

MDC PARTNERS INC. & SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 2010
(Dollars in Thousands)

         
Column A   Column B   Column C   Column D   Column E   Column F
Description   Balance at Beginning of Period   Charged to Costs and Expenses   Removal of Uncollectable Receivables   Translation Adjustments Increase (Decrease)   Balance at the End of Period
Valuation accounts deducted from assets to which they apply – allowance for doubtful accounts:
                                             
December 31, 2010   $ 2,034     $ 765     $ (824 )    $ 15     $ 1,990  
December 31, 2009   $ 2,179     $ 946     $ (1,154 )    $ 63     $ 2,034  
December 31, 2008   $ 1,357     $ 1,891     $ (962 )    $ (107 )    $ 2,179  

Schedule II — 2 of 2

MDC PARTNERS INC. & SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 2010
(Dollars in Thousands)

         
Column A   Column B   Column C   Column D   Column E   Column F
Description   Balance at Beginning of Period   Charged to Costs and Expenses   Other   Translation Adjustments Increase (Decrease)   Balance at the End of Period
Valuation accounts deducted from assets to which they apply – valuation allowance for deferred income taxes:
                                             
December 31, 2010   $ 65,896     $ (7,986 )    $ (3,908 )(1)    $ 1,309     $ 55,311  
December 31, 2009   $ 59,781     $ 2,656     $ (2,705 )(1)    $ 6,164     $ 65,896  
December 31, 2008   $ 86,125     $ (4,149 )    $ (8,250 )(1)    $ (13,945 )    $ 59,781  

(1) Adjustment to reconcile actual net operating loss carry forwards to prior year tax accrued, utilization of net operating loss carry forwards, which were fully reserved and adjustment for net operating loss relating to sale of business.

(b) Exhibits

The exhibits listed on the accompanying Exhibits Index are filed as a part of this report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 14, 2011  

By:

/s/ Miles S. Nadal

Name: Miles S. Nadal
Title: Chairman, Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

   
Signature   Title   Date

/s/

Miles S. Nadal

Miles S. Nadal

   Chairman, Chief Executive Officer and President   March 14, 2011

/s/

Robert Kamerschen

Robert Kamerschen

   Presiding Director   March 14, 2011

/s/

Clare Copeland

Clare Copeland

   Director   March 14, 2011

/s/

Thomas N. Davidson

Thomas N. Davidson

   Director   March 14, 2011

/s/

Scott Kauffman

Scott Kauffman

   Director   March 14, 2011

/s/

Michael J. Kirby

Michael J. Kirby

   Director   March 14, 2011

/s/

Stephen M. Pustil

Stephen M. Pustil

   Director, Vice Chairman   March 14, 2011

/s/

David Doft

David Doft

   Chief Financial Officer   March 14, 2011

/s/

Michael Sabatino

Michael Sabatino

   Senior Vice President and Chief Accounting Officer   March 14, 2011

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EXHIBIT INDEX

 
Exhibit No.   Description
3.1   Articles of Amalgamation, dated January 1, 2004 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on May 10, 2004);
3.1.1   Articles of Continuance, dated June 28, 2004 (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-Q filed on August 4, 2004);
3.1.2   Articles of Amalgamation, dated July 1, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on July 30, 2010);
3.2   General By-law No. 1, as amended on April 29, 2005 (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K filed on March 16, 2007);
4.1   Indenture, dated as of October 23, 2009, by and between the Company, the Note Guarantors, and The Bank of New York Mellon, as trustee, relating to the issuance of the Company’s 11% Senior Notes due 2016 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on October 26, 2009);
4.1.1   First Supplemental Indenture, dated as of May 14, 2010, to the Indenture, dated as of October 23, 2009, among the Company, the Note Guarantors and The Bank of New York Mellon, as trustee, including the form of 11% Senior Notes due 2016 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on May 14, 2010);
4.1.2   Second Supplemental Indenture, dated as of October 23, 2010, to the Indenture, dated as of October 23, 2009, among the Company, the Note Guarantors and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-Q filed on October 29, 2010);
10.1   Purchase Agreement, dated October 20, 2009, by and among the Company and Goldman, Sachs & Co., as representative of the initial purchasers, relating to the issuance of the Company’s 11% Senior Notes due 2016 (incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K filed on October 26, 2009);
10.1.1   Exchange and Registration Rights Agreement, dated as of October 23, 2009, by and among the Company, and Goldman, Sachs & Co., as representative of the initial purchasers, relating to the issuance of the Company’s 11% Senior Notes due 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 26, 2009);
10.1.2   Purchase Agreement, dated as of May 11, 2010, among the Company, the Note Guarantors and Goldman, Sachs & Co., as representative of the initial purchasers named therein (incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K filed on May 14, 2010);
10.1.3   Exchange and Registration Rights Agreement, dated as of May 14, 2010, among the Company, the Note Guarantors and Goldman, Sachs & Co., as representative of the initial purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 14, 2010);
10.2   Credit Agreement, dated as of October 23, 2009 by and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Foothill, LLC, as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 26, 2009);
10.2.1   First Amendment, dated March 19, 2010, to Credit Agreement, dated as of October 23, 2009 by and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Foothill, LLC (now Wells Fargo Capital Finance, LLC), as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1.1 to the Company’s Form 10-Q filed on May 7, 2010);
10.2.2   Consent and Second Amendment, dated May 6, 2010, to Credit Agreement, dated as of October 23, 2009 by and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Foothill, LLC (now Wells Fargo Capital Finance, LLC), as agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1.2 to the Company’s Form 10-Q filed on May 7, 2010);

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Exhibit No.   Description
10.2.3   Third Amendment, dated November 22, 2010, to Credit Agreement, dated as of October 23, 2009 by and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent, and the lenders party thereto*;
10.2.4   Fourth Amendment, dated March 7, 2011, to Credit Agreement, dated as of October 23, 2009 by and among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC), as agent, and the lenders party thereto*;
10.3   Management Services Agreement relating to the employment of Miles Nadal as Chief Executive Officer, dated April 27, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on May 8, 2007);
10.3.1   Letter Agreement between the Company and Miles Nadal dated April 11, 2005 (incorporated by reference to Exhibit 10.6.1 to the Company’s Form 10-K filed on April 18, 2005);
10.3.2   Letter Agreement between the Company and Miles Nadal dated April 1, 2008 (incorporated by reference to Exhibit 10.3.2 to the Company’s Form 10-K filed on March 9, 2009);
10.3.3   Amendment to Management Services Agreement relating to the employment of Miles Nadal as Chief Executive Officer, dated July 30, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on July 30, 2010);
10.4   Employment Agreement between the Company and Stephen M. Pustil, dated as of August 20, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s 10-Q filed on November 8, 2007);
10.4.1   Amendment No. 1 dated August 5, 2010, to the Employment Agreement made as of August 20, 2007, by and between MDC Partners Inc. and Stephen Pustil (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on October 29, 2010);
10.5   Employment Agreement between the Company and David Doft, dated as of July 19, 2007 (effective August 10, 2007) (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q filed on August 7, 2007);
10.6   Employment Agreement between the Company and Gavin Swartzman, dated as of September 5, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s 10-Q filed on November 8, 2007);
10.7   Employment Agreement between the Company and Robert Dickson, dated July 26, 2002 (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on May 10, 2004);
10.7.1   Amendment to Employment Agreement between the Company and Robert Dickson, dated November 20, 2007 (incorporated by reference to Exhibit 10.8.1 to the Company’s Form 10-K filed on March 10, 2008);
10.8   Amended and Restated Employment Agreement between the Company and Mitchell Gendel, dated as of July 6, 2007 (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on August 7, 2007);
10.9   Amended and Restated Employment Agreement between the Company and Michael Sabatino, dated as of July 6, 2007 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed on August 7, 2007);
10.10   Agreement of Separation and Release between the Company and Graham Rosenberg, dated August 31, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-K filed on November 2, 2009);
10.11   Amended and Restated Stock Appreciation Rights Plan, as adopted by the shareholders of the Company at the 2009 Annual and Special Meeting of Shareholders on June 2, 2009 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 5, 2009);
10.11.1   Form of Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.2 to the Company’s 10-Q filed on May 5, 2006);
10.12   Amended 2005 Stock Incentive Plan of the Company, as approved and adopted by the shareholders of the Company at the 2009 Annual and Special Meeting of Shareholders on June 2, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s 8-K filed on June 5, 2009);

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Exhibit No.   Description
10.12.1   Form of Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on November 9, 2005);
10.12.2   Form of Financial Performance-Based Restricted Stock Grant Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on March 2, 2006);
10.12.3   Form of Financial Performance-Based Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on March 2, 2006);
10.12.4   Form of Service-Based and Financial Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.4 of the Company’s Form 10-Q filed on November 8, 2007);
10.12.5   Form of Restricted Stock Grant Agreement (2010) (incorporated by reference to Exhibit 10.12.5 to the Company’s Form 10-K filed on March 10, 2010);
10.12.6   Form of Restricted Stock Unit (RSU) Grant Agreement (2010) (incorporated by reference to Exhibit 10.12.6 to the Company’s Form 10-K filed on March 10, 2010);
10.12.7   Form of EVAR Grant Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 27, 2011);
10.12.8   Form of EVAR Letter Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on January 27, 2011);
10.12.9   Form of Restricted Stock Grant Agreement (2011)*;
10.12.10   Form of Restricted Stock Unit (RSU) Grant Agreement (2011)*;
10.13   2008 Key Partner Incentive Plan, as approved and adopted by the shareholders of the Company at the 2008 Annual and Special Meeting of Shareholders on May 30, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on July 31, 2008);
10.14   Membership Interest Purchase Agreement (17%) dated November 10, 2008, among the Company, CPB Acquisition Inc., MDC Acquisition Inc., and Crispin Porter & Bogusky LLC (“CPB”), Crispin & Porter Advertising Inc., and certain employees of CPB (incorporated by reference to Exhibit 10.15 of the Company’s Form 10-K filed on March 9, 2009);
10.14.1   Amendment No. 1, dated October 5, 2009, to Membership Interest Purchase Agreement dated November 10, 2008 (incorporated by reference to Exhibit 10.14.1 to the Company’s Form 10-K filed on March 10, 2010);
10.14.2   Amendment No. 2, dated December 1, 2009, to Membership Interest Purchase Agreement dated November 10, 2008 (incorporated by reference to Exhibit 10.14.2 to the Company’s Form 10-K filed on March 10, 2010);
10.15.1   Membership Interest Purchase Agreement by and among MDC Acquisition Inc., WWG, LLC, a Florida limited liability company, Todd Graham, Kevin Berg, Vincent Parinello, Daniel K. Gregory, Stephen Groth, and Sean M. O’Toole, dated as of March 1, 2010 (incorporated by reference to Exhibit 10.2.1 to the Company’s Form 10-Q filed on May 7, 2010);
10.15.2   Amended and Restated Limited Liability Company Agreement of The Arsenal LLC (f/k/a Team Holdings LLC) by and among MDC Acquisition Inc., WWG, LLC, and WWG2, LLC, dated as of March 1, 2010 (incorporated by reference to Exhibit 10.2.2 to the Company’s Form 10-Q filed on May 7, 2010);
10.15.3   Amendment No. 1, dated July 29, 2010, to the Membership Interest Purchase Agreement dated as of March 1, 2010 by and among MDC Acquisition Inc., WWG, LLC, Todd Graham, Kevin Berg, Vincent Parinello, Daniel K. Gregory, Stephen Groth and Sean M. O’Toole (incorporated by reference to Exhibit 10.2.1 to the Company’s Form 10-Q filed on July 30, 2010);
10.15.4   Amendment No. 1, dated July 29, 2010, to the Amended and Restated Limited Liability Company Agreement of The Arsenal LLC (f/k/a Team Holdings LLC) dated as of March 1, 2010 by and among The Arsenal LLC, MDC Acquisition Inc., WWG, LLC and WWG2, LLC (incorporated by reference to Exhibit 10.2.2 to the Company’s Form 10-Q filed on July 30, 2010);

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Exhibit No.   Description
10.16.1   Membership Unit Purchase Agreement by and among MF+P Acquisition Co., Integrated Media Solutions, LLC, a New York limited liability company, Robert Ingram, Desiree Du Mont and Ron Corvino, dated as of April 30, 2010 (incorporated by reference to Exhibit 10.3.1 to the Company’s Form 10-Q filed on May 7, 2010);
10.16.2   Amended and Restated Limited Liability Company Agreement of Integrated Media Solutions Partners LLC by and among MF+P Acquisition Co. and Integrated Media Solutions, LLC, dated as of April 30, 2010 (incorporated by reference to Exhibit 10.3.2 to the Company’s Form 10-Q filed on May 7, 2010);
10.16.3   Amendment No. 1, dated July 29, 2010, to the Membership Unit Purchase Agreement dated as of April 30, 2010 by and among MF+P Acquisition Co., Integrated Media Solutions, LLC, Robert Ingram, Desiree DuMont and Ron Corvino (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on July 30, 2010);
10.17.1   Limited Partnership Unit Purchase Agreement dated as of November 30, 2010, by and among MDC Partners Inc., a Canadian corporation, Newport Partners Holdings LP, an Ontario limited partnership, Cap C LP Holdco Inc., an Ontario corporation, 2265174 Ontario Limited, an Ontario corporation, Glenn Chilton and Paul Quigley*;
10.17.2   Limited Partnership Unit Purchase Agreement dated as of November 30, 2010, by and among MDC Partners Inc., a Canadian corporation, 2265174 Ontario Limited, Glenn Chilton and Paul Quigley*;
10.18.1   Limited Partnership Unit Purchase Agreement dated as of November 30, 2010, by and among MDC Partners Inc., a Canadian corporation, Newport Partners Holdings LP, an Ontario limited partnership, Cap C LP Holdco Inc., an Ontario corporation, 2265178 Ontario Limited, an Ontario corporation, Tony Chapman and Victoria Calverley*;
10.18.2   Limited Partnership Unit Purchase Agreement dated as of November 30, 2010, by and among MDC Partners Inc., a Canadian corporation, 2265178 Ontario Limited, and Tony Chapman, Victoria Calverley, Bennett Klein and Tom Clune*;
12   Statement of computation of ratio of earnings to fixed charges*;
14   Code of Conduct of MDC Partners Inc. (incorporated by reference to Exhibit 14 to the Company’s Form 10-K filed on March 10, 2008);
14.1   MDC Partners’ Corporate Governance Guidelines, amended in May 2009 (incorporated by reference to Exhibit 14.1 to the Company’s Form 10-K filed on March 10, 2010);
21   Subsidiaries of Registrant*;
23   Consent of Independent Registered Public Accounting Firm BDO Seidman LLP*;
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 Chief Financial 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*;
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 Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*.

* Filed electronically herewith.

105

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Exhibit 10.2.3

THIRD AMENDMENT TO CREDIT AGREEMENT
 
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of November 22, 2010, by and among the Lenders party hereto, WELLS FARGO CAPITAL FINANCE, LLC, formerly known as Wells Fargo Foothill, LLC, a Delaware limited liability company, as the agent for the Lenders (in such capacity, "Agent"), MDC PARTNERS INC., a Canadian corporation ("Parent"), MAXXCOM INC., a Delaware corporation ("Borrower"), and each of the Subsidiaries of Parent identified on the signature pages hereof (together with Parent and Borrower, the "Loan Parties").
 
WHEREAS, Parent, Borrower, the other Loan Parties, Agent, and Lenders are parties to that certain Credit Agreement dated as of October 23, 2009 (as amended, modified or supplemented from time to time, the "Credit Agreement");
 
WHEREAS, Borrower, Agent and the Lenders have agreed to amend and modify the Credit Agreement as provided herein, in each case subject to the terms and provisions hereof.
 
NOW THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows:
 
1.           Defined Terms.  Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement.
 
2.           Amendments to Credit Agreement.  Subject to the satisfaction of the conditions set forth in Section 4 below and in reliance upon the representations and warranties of Borrower set forth in Section 5 below, the Credit Agreement is amended as follows:
 
(a)         The last sentence of Section 2.1(c) of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
Without limiting the foregoing, Agent may establish (i) the Canadian Priority Payables Reserves, (ii) reserves in an amount equal to the Aggregate Bank Product Reserve Amount, and (iii) unless Agent has received a Collateral Access Agreement with respect to the Loan Parties’ chief executive office located at 950 Third Avenue, New York, New York  10022, a reserve in an amount equal to 3 months rent payable under the lease for such property.
 
(b)         Section 2.1(d) of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(d)           Notwithstanding anything contained in the Loan Documents to the contrary, in the event the Maximum Revolver Amount has been increased pursuant to Section 2.2, Revolver Usage shall at no time exceed either (a) the maximum amount of Indebtedness permitted to be outstanding under Section 3.8(a)(2) of the Senior Unsecured Trust Indenture or (b) the maximum amount of Indebtedness permitted to be secured under clauses (10) and (22) of the definition of "Permitted Liens" set forth in the Senior Unsecured Trust Indenture, in each case as such provisions of the Senior Unsecured Trust Indenture may be amended, modified, waived or supplemented from time to time in accordance with the terms thereof.

 
 
 
 
(c)         The first sentence of Section 2.2 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
Borrower may, at any one time prior to the Maturity Date, by written notice to Agent (whereupon Agent shall promptly deliver a copy to each of the Lenders), request to increase the Maximum Revolver Amount to $100,000,000 (such increase, a "Revolver Increase"); provided, that such Revolver Increase shall only be made if (i) prior to or concurrent with such Revolver Increase, the Revolver Commitment of Wells Fargo Capital Finance, LLC has been or shall be reduced to an amount (unless waived by Wells Fargo Capital Finance, LLC) not to exceed $65,000,000 pursuant to one or more assignments made in accordance with the provisions of Section 13.1 of the Agreement, (ii) such Revolver Increase would not be prohibited by the terms of the Senior Unsecured Debt Documents, (iii) at the time that such Revolver Increase is to be made (and after giving effect thereto) no Default or Event of Default shall exist, (iv) Agent shall have received commitments (satisfactory to Agent) from Lenders (or their Affiliates) or other Persons acceptable to Agent to provide Revolver Commitments which, in the aggregate, equal at least $35,000,000, and (v) Availability as of the date of the request by Borrower is greater than or equal to the Maximum Revolver Amount (after giving effect to the proposed Revolver Increase).
 
(d)         Clause (iv) of Subsection 2.4(b)(ii)(H) of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(iv) up to the Aggregate Bank Product Reserve Amount in the aggregate (after taking into account any amounts previously paid pursuant to this clause (iv) during the continuation of the applicable Application Event), ratably (based on the Bank Product Reserve established by Agent for each Bank Product of a Bank Product Provider), to the Bank Product Providers based upon amounts then certified by the applicable Bank Product Provider to Agent (in form and substance satisfactory to Agent) to be due and payable to such Bank Product Providers on account of Bank Product Obligations,
 
(e)         Clause (I) of Section 2.4(b)(ii) of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(I)           ninth, to pay any other Obligations (including being paid, ratably, to the Bank Product Providers on account of all amounts then due and payable in respect of Bank Product Obligations, with any balance to be paid to Agent, to be held by Agent, for the ratable benefit of the Bank Product Providers, as cash collateral (which cash collateral may be released by Agent to the applicable Bank Product Provider and applied by such Bank Product Provider to the payment or reimbursement of any amounts due and payable with respect to Bank Product Obligations owed to the applicable Bank Product Provider as and when such amounts first become due and payable and, if and at such time as all such Bank Product Obligations are paid or otherwise satisfied in full, the cash collateral held by Agent in respect of such Bank Product Obligations shall be reapplied pursuant to this Section 2.4(b)(ii), beginning with tier (A) hereof)), and
 
 
-2-
 
 
(f)         The first paragraph of Section 2.11(a) of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(a)           Subject to the terms and conditions of this Agreement, upon the request of Borrower made in accordance herewith, the Issuing Lender agrees to issue, or to cause an Underlying Issuer, as Issuing Lender's agent, to issue, a requested Letter of Credit.  If Issuing Lender, at its option, elects to cause an Underlying Issuer to issue a requested Letter of Credit, then Issuing Lender agrees that it will obligate itself to reimburse such Underlying Issuer (which may include, among, other means, by becoming an applicant with respect to such Letter of Credit or entering into undertakings which provide for reimbursements of such Underlying Issuer with respect to such Letter of Credit; each such obligation or undertaking, irrespective of whether in writing, a "Reimbursement Undertaking") with respect to Letters of Credit issued by such Underlying Issuer.  By submitting a request to Issuing Lender for the issuance of a Letter of Credit, Borrower shall be deemed to have requested that Issuing Lender issue or that an Underlying Issuer issue the requested Letter of Credit and to have requested Issuing Lender to issue a Reimbursement Undertaking with respect to such requested Letter of Credit if it is to be issued by an Underlying Issuer (it being expressly acknowledged and agreed by Borrower that Borrower is and shall be deemed to be an applicant (within the meaning of Section 5-102(a)(2) of the Code) with respect to each Underlying Letter of Credit).  Each request for the issuance of a Letter of Credit, or the amendment, renewal, or extension of any outstanding Letter of Credit, shall be made in writing by an Authorized Person and delivered to the Issuing Lender via hand delivery, telefacsimile, or other electronic method of transmission reasonably in advance of the requested date of issuance, amendment, renewal, or extension.  Each such request shall be in form and substance reasonably satisfactory to the Issuing Lender and shall specify (i) the amount of such Letter of Credit, (ii) the date of issuance, amendment, renewal, or extension of such Letter of Credit, (iii) the expiration date of such Letter of Credit, (iv) the name and address of the beneficiary of the Letter of Credit, (v) the Loan Party for whose account the Letter of Credit is to be issued, and (vi) such other information (including, in the case of an amendment, renewal, or extension, identification of the Letter of Credit to be so amended, renewed, or extended) as shall be necessary to prepare, amend, renew, or extend such Letter of Credit.  Anything contained herein to the contrary notwithstanding, the Issuing Lender may, but shall not be obligated to, issue or cause the issuance of a Letter of Credit or to issue a Reimbursement Undertaking in respect of an Underlying Letter of Credit, in either case, that supports the obligations of Parent or its Subsidiaries at any time that one or more of the Lenders is a Defaulting Lender.  Borrower agrees that this Agreement (along with the terms of the applicable application) will govern each Letter of Credit and its issuance.  The Issuing Lender shall have no obligation to issue a Letter of Credit or a Reimbursement Undertaking in respect of an Underlying Letter of Credit, in either case, if any of the following would result after giving effect to the requested issuance:

 
-3-
 
 
(g)         Section 3.2 of the Credit Agreement is amended to delete the word "and" at the end of clause (a), replace the "." at the end of clause (b) with "; and" and add a new clause (c) as follows:
 
(c) if any request in a calendar month for such extension of credit would cause Revolver Usage to exceed $75,000,000, Borrower shall have delivered to Agent during such month and prior to such requested extension of credit the Certificate re Consolidated EBITDA and Consolidated Leverage Ratio Calculation for the most recently ended four fiscal quarter period for which financial statements are available to Parent, certifying as to the maximum amount of Revolver Usage that may be outstanding during such month that will not cause the Obligations to breach Sections 3.8 or 3.14 of the Senior Unsecured Trust Indenture.
 
(h)         The second sentence of Section 5.2 of the Credit Agreement is hereby deleted in its entirety.
 
(i)          Clause (c) of Section 6.9 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(c) any Subsidiary of Parent or the applicable parent company of such Subsidiary may make Restricted Junior Payments to such Subsidiary's shareholders and employees and management personnel of such Subsidiary's shareholders pursuant to the terms of the shareholder agreements or similar agreements between such Subsidiary or the applicable parent company of such Subsidiary and such shareholders, including without limitation payments in respect of and pursuant to the Put Obligations,
 
(j)          Subsection (a) of Section 7 of the Credit Agreement is hereby amended and restated in its entirety, as follows:
 
(a)         Minimum EBITDA.  Achieve EBITDA, measured on a quarter-end basis, of at least the required amount set forth in the following table for the applicable period set forth opposite thereto:
 
Applicable Amount
  
Applicable Period
     
$76,500,000
  
For the 12 month period ending
September 30, 2010 and for the 12 month period
ending on the last day of each calendar quarter thereafter

; provided, that, concurrently with the closing of each Permitted Acquisition consummated after September 30, 2010, the EBITDA level set forth above shall be increased by an amount equal to 100% of Pro Forma EBITDA attributable to any Loan Party or any Subsidiary of Parent acquired in such Permitted Acquisition for the 12 months preceding the date of consummation of such Permitted Acquisition; provided further, that, in no event shall the EBITDA level for the purposes set forth in this subsection be increased to an amount in excess of $115,000,000.

 
-4-
 
 
(k)         A new subsection (e) is hereby added to Section 7 of the Credit Agreement as follows:
 
(e)         Total Leverage Ratio.  Have a Total Leverage Ratio, measured on a quarter-end basis, of not greater than the applicable ratio set forth in the following table for the applicable date set forth opposite thereto:
 
Applicable Ratio
  
Applicable Date
     
3.5:1.0
  
For the 12 month period ending
December 31, 2010 and for the 12 month period
ending on the last day of each calendar quarter thereafter

(l)          A new subsection (f) is hereby added to Section 7 of the Credit Agreement as follows:
 
(f)          Minimum Accounts.  At all times, the aggregate amount of Loan Parties' Accounts shall be an amount equal to or in excess of the sum of $100,000,000 plus 133% of the amount of any Revolver Increase.
 
(m)        Clause (xi) of Section 14.1(a) of the Credit Agreement is hereby amended to delete the references to each of "Eligible Accounts" and "Eligible Balance Sheet Unbilled Accounts".
 
(n)        The first sentence of Section 15.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
Each Lender hereby designates and appoints WFF as its agent under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to designate, appoint, and authorize) Agent to execute and deliver each of the other Loan Documents on its behalf and to take such other action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto.
 
(o)         Section 17.5 of the Credit Agreement is hereby amended and restated in its entirety as follows:

 
-5-
 

Each Bank Product Provider shall be deemed a third party beneficiary hereof and of the provisions of the other Loan Documents for purposes of any reference in a Loan Document to the parties for whom Agent is acting.  Agent hereby agrees to act as agent for such Bank Product Providers and, by virtue of providing a Bank Product, each Bank Product Provider shall be automatically deemed to have appointed Agent as its agent; it being understood and agreed that the rights and benefits of each Bank Product Provider under the Loan Documents consist exclusively of such Bank Product Provider's being a beneficiary of the Liens and security interests (and, if applicable, guarantees) granted to Agent and the right to share in payments and collections out of the Collateral as more fully set forth herein. In addition, each Bank Product Provider, by virtue of entering into a Bank Product Agreement, shall be automatically deemed to have agreed that Agent shall have the right, but shall have no obligation, to establish, maintain, relax, or release reserves in respect of the Bank Product Obligations and that if reserves are established there is no obligation on the part of Agent to determine or ensure whether the amount of any such reserve is appropriate or not.  In addition, Agent shall not be obligated to establish or increase a Bank Product Reserve for any Bank Product unless, after giving effect to such establishment or increase, the sum of the Bank Product Reserves established for all Bank Products does not exceed the Aggregate Bank Product Reserve Amount.  In connection with any such distribution of payments and collections, Agent shall be entitled to assume no amounts are due or owing to any Bank Product Provider unless such Bank Product Provider has provided a written certification (setting forth a reasonably detailed calculation) to Agent as to the amounts that are due and owing to it and such written certification is received by Agent a reasonable period of time prior to the making of such distribution.  Agent shall have no obligation to calculate the amount due and payable with respect to any Bank Products, but may rely upon the written certification of the amount due and payable from the relevant Bank Product Provider.  In the absence of an updated certification, Agent shall be entitled to assume that the amount due and payable to the relevant Bank Product Provider is the amount last certified to Agent by such Bank Product Provider as being due and payable (less any distributions made to such Bank Product Provider on account thereof).  Any Loan Party may obtain Bank Products from any Bank Product Provider, although no Loan Party is required to do so.  Each Loan Party acknowledges and agrees that no Bank Product Provider has committed to provide any Bank Products and that the providing of Bank Products by any Bank Product Provider is in the sole and absolute discretion of such Bank Product Provider.  Notwithstanding anything to the contrary in this Agreement or any other Loan Document, no provider or holder of any Bank Product shall have any voting or approval rights hereunder (or be deemed a Lender) solely by virtue of its status as the provider or holder of such agreements or products or the Obligations owing thereunder, nor shall the consent of any such provider or holder be required (other than in their capacities as Lenders, to the extent applicable) for any matter hereunder or under any of the other Loan Documents, including as to any matter relating to the Collateral or the release of Collateral or Guarantors.
 
(p)         The definition of "Affiliate" is hereby amended to delete the reference to "Eligible Accounts".

 
-6-
 
 
(q)         The definition of "Bank Product Obligations" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Bank Product Obligations" means (a) all obligations, liabilities, reimbursement obligations, fees, or expenses owing by Parent or its Subsidiaries to any Bank Product Provider pursuant to or evidenced by a Bank Product Agreement and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, (b) all obligations of Borrower to reimburse an Underlying Issuer in respect of Underlying Letters of Credit, and (c) all amounts that Parent or its Subsidiaries are obligated to reimburse to Agent or any member of the Lender Group as a result of Agent or such member of the Lender Group purchasing participations from, or executing guarantees or indemnities or reimbursement obligations to, a Bank Product Provider with respect to the Bank Products provided by such Bank Product Provider to Parent or its Subsidiaries; provided, however, in order for any item described in clauses (a) (b), or (c) above, as applicable, to constitute "Bank Product Obligations", (i) if the applicable Bank Product Provider is Wells Fargo or its Affiliates, then, if requested by Agent, Agent shall have received a Bank Product Provider Letter Agreement within 20 days after the date of such request, or (ii) if the applicable Bank Product Provider is any other Person, Agent shall have received a Bank Product Provider Letter Agreement within 10 days after the date of the provision of the applicable Bank Product to Parent or its Subsidiaries.
 
(r)          The definition of "Bank Product Provider" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Bank Product Provider" means any Lender or any of its Affiliates; provided, however, that no such Person (other than Wells Fargo or its Affiliates) shall constitute a Bank Product Provider with respect to a Bank Product unless and until Agent shall have received a Bank Product Provider Letter Agreement from such Person and with respect to the applicable Bank Product within 10 days after the provision of such Bank Product to Parent or its Subsidiaries; provided further, however, that if, at any time, a Lender ceases to be a Lender under the Agreement, then, from and after the date on which it ceases to be a Lender thereunder, neither it nor any of its Affiliates shall constitute Bank Product Providers and the obligations with respect to Bank Products provided by such former Lender or any of its Affiliates shall no longer constitute Bank Product Obligations.
 
(s)         The definition of "Bank Product Reserve" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Bank Product Reserve" means, as of any date of determination, with respect to a Bank Product, the amount of reserves that Agent has established (based upon the applicable Bank Product Provider's reasonable and good faith determination of its credit exposure to Parent and its Subsidiaries in respect of Bank Product Obligations) in respect of such Bank Products then provided or outstanding.
 
 
-7-
 
 
(t)          The definition of "Base Rate" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Base Rate" means the greatest of (a) the Federal Funds Rate plus ½%, (b) the LIBOR Rate (which rate shall be calculated based upon an Interest Period of 1 month and shall be determined on a daily basis), plus 1 percentage point,  and (c) the rate of interest announced, from time to time, within Wells Fargo at its principal office in San Francisco as its "prime rate", with the understanding that the "prime rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells Fargo may designate.
 
(u)         The definition of "Borrowing Base" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Borrowing Base" means, as of any date of determination, the Dollar Equivalent of the result of:
 
(a)         75% of the amount of Eligible Balance Sheet Billed Accounts, minus
 
(b)         the aggregate amount of reserves, if any, established by Agent under Section 2.1(c) of the Agreement;
 
provided, that the aggregate Availability attributable to Eligible Balance Sheet Billed Accounts of Foreign Loan Parties shall not exceed the Dollar Equivalent of $7,500,000.
 
(v)         The definition of "Borrowing Base Certificate" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Borrowing Base Certificate" means a certificate in the form of Exhibit B-1.
 
(w)        The definition of "Defaulting Lender" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
 
-8-
 

"Defaulting Lender" means any Lender that has (a) failed to make any Advance (or other extension of credit, including the failure to make available to Agent amounts required pursuant to a Settlement or to make payment in connection with a Letter of Credit Disbursement) that it is required to make hereunder on the date that it is required to do so hereunder, (b) notified Parent, any Borrower, Agent, or any Lender in writing that it does not intend to comply with all or any portion of its funding obligations under the Agreement, (c) made a public statement to the effect that it does not intend to comply with its funding obligations under the Agreement or under other agreements generally (as reasonably determined by Agent) under which it has committed to extend credit, (d) failed, within 1 Business Day after written request by Agent, to confirm that it will comply with the terms of the Agreement relating to its obligations to fund any amounts required to be funded by it under the Agreement, (e) otherwise failed to pay over to Agent or any other Lender any other amount required to be paid by it under the Agreement within 1 Business Day of the date that it is required to do so under the Agreement, unless the subject of a good faith dispute, or (f) (i) becomes or is insolvent or has a parent company that has become or is insolvent or (ii) becomes the subject of a bankruptcy or Insolvency Proceeding, or has had a receiver, conservator, trustee, or custodian or appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or Insolvency Proceeding, or has had a receiver, conservator, trustee, or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.
 
(x)         The definition of "Eligible Balance Sheet Billed Accounts" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Eligible Balance Sheet Billed Accounts" means, as of any date of determination, Accounts of Loan Parties (including for the avoidance of doubt, any Minority-Owned Entity that is a Loan Party) arising in the ordinary course of business from the sale of goods or the rendition of services that have been billed to the Account Debtors thereof and are not unpaid more than 90 days past invoice date and that are reflected in the collateral reports provided to Agent pursuant to Section 5.2; provided, that Accounts of a Loan Party shall not be considered Eligible Balance Sheet Billed Accounts unless Agent has a perfected first priority Lien on such Accounts; provided further, that Eligible Balance Sheet Billed Accounts shall not include Accounts owing to any Loan Party (determined by Agent based on the outstanding Accounts owing to such Loan Party) in excess of 25% of the outstanding Eligible Balance Sheet Billed Accounts of all Loan Parties to the extent of such Accounts in excess of such percentage.
 
(y)        The definition of "Fixed Charge Coverage Ratio" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Fixed Charge Coverage Ratio" means, with respect to Parent for any period, the ratio of (i) EBITDA for such period minus the sum of (A) Capital Expenditures made (to the extent not already incurred in a prior period) or incurred during such period and (B) all dividends paid in cash during such period by Parent on account of Stock issued by Parent, to (ii) Fixed Charges for such period.

 
-9-
 
 
(z)         Clause (b) of the definition of "Permitted Acquisition" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(b)         no Indebtedness (other than Indebtedness evidenced by the Agreement and the other Loan Documents) will be incurred, assumed, or would exist with respect to Parent or any Subsidiary of Parent as a result of such Acquisition (other than (i) Earn-outs pursuant to the terms of the definitive documentation for such Acquisition and (ii) Acquired Indebtedness), and no Liens will be incurred, assumed, or would exist with respect to the assets of Parent or any Subsidiary of Parent as a result of such Acquisition other than Permitted Liens,
 
(aa)       The definition of "Subsidiary" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Subsidiary" of a Person means (a) a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity, and (b) except for purposes of calculating the financial covenants set forth in Section 7 and the terms used in connection therewith (including EBITDA, Fixed Charge Coverage Ratio, Senior Leverage Ratio and Total Leverage Ratio), each Minority-Owned Entity that is a Loan Party.
 
(bb)      Schedule 1.1 of the Credit Agreement is hereby amended by adding the following new definitions in their appropriate alphabetical order:
 
"Aggregate Bank Product Reserve Amount" means, as of any date of determination, the lesser of (a) $5,000,000 and (b) the sum of the Bank Product Reserves that have been established by Agent as of such date of determination.
 
"Bank Product Provider Letter Agreement" means a letter agreement in substantially the form attached hereto as Exhibit B-2, in form and substance satisfactory to Agent, duly executed by the applicable Bank Product Provider, Parent, Borrower, and Agent.
 
"Certificate re Consolidated EBITDA and Consolidated Leverage Ratio Calculation" means a certificate substantially in the form of Exhibit C-2 delivered by the chief financial officer or chief accounting officer of Borrower to Agent.
 
"Funded Indebtedness" means, as of any date of determination, all Indebtedness for borrowed money or letters of credit of Parent, determined on a consolidated basis in accordance with GAAP (which, for the avoidance of doubt, shall be net of original issue discount with respect to the Senior Unsecured Debt), that by its terms matures more than one year after the date of calculation, and any such Indebtedness maturing within one year from such date that is renewable or extendable at the option of Parent or its Subsidiaries, as applicable, to a date more than one year from such date, including, in any event, but without duplication, with respect to Parent and its Subsidiaries, the Revolver Usage and the amount of their Capitalized Lease Obligations.
 
 
-10-
 
 
"Total Leverage Ratio" means, as of any date of determination, the ratio of (a) the sum of (i) Parent's Funded Indebtedness as of such date minus (ii) the sum of (A) the lesser of (x) $7,500,000 and (y) the Dollar Equivalent amount of unrestricted cash and Foreign Cash Equivalents of the Foreign Loan Parties as of such date that is in Deposit Accounts or in Securities Accounts, or any combination thereof, and which such Deposit Account or Securities Account is the subject to a first priority perfected Lien in favor of Agent and (B) the amount of unrestricted cash and Domestic Cash Equivalents of the US Loan Parties and the Canadian Loan Parties as of such date that are held in Deposit Accounts in the United States and Canada that are subject to Control Agreements, to (b) Parent's TTM EBITDA as of such date.
 
(cc)       The definitions of "Applicable Excess Availability Amount", "Borrowing Base I", "Borrowing Base II", "Borrowing Base Trigger Date", "Dilution Reserve", "Eligible Accounts", "Eligible Balance Sheet Unbilled Account", "Maximum Revolver Usage" and "Second Amendment Effective Date" are hereby deleted in their entirety.
 
(dd)      Exhibit B-1 of the Credit Agreement is hereby replaced with Exhibit B-1 attached hereto.
 
(ee)       Exhibit B-2 of the Credit Agreement is hereby replaced with Exhibit B-2 attached hereto.
 
(ff)        Exhibit C-1 of the Credit Agreement is hereby replaced with Exhibit C-1 attached hereto.
 
(gg)      A new Exhibit C-2 is added to the Credit Agreement in the form of Exhibit C-2 attached hereto.
 
(hh)      Clause (c) of Schedule 5.1 of the Credit Agreement is hereby amended to delete the reference to "Eligible Balance Sheet Unbilled Accounts".
 
(ii)         Schedule 5.2 of the Credit Agreement is hereby replaced with Schedule 5.2 attached hereto.
 
3.          Ratification; Other Agreements.  This Amendment, subject to satisfaction of the conditions provided below, shall constitute an amendment to the Credit Agreement and all of the Loan Documents as appropriate to express the agreements contained herein.  Without limiting the foregoing, the parties hereto acknowledge and agree that, notwithstanding anything contained in the Fee Letter to the contrary, Borrower shall only be obligated to reimburse Agent for up to 2 audits during any calendar year (unless an Event of Default exists in which case the audits for which Borrower shall be liable shall not be limited) and the Fee Letter is hereby amended accordingly.  In all other respects, the Credit Agreement and the Loan Documents shall remain unchanged and in full force and effect in accordance with their original terms.
 
 
-11-
 
 
4.          Conditions to Effectiveness.  This Amendment shall become effective as of the date hereof and upon the satisfaction of the following conditions precedent:
 
(a)        Agent shall have received a fully executed copy of this Amendment;
 
(b)        Agent shall have received the Third Amendment Fee referred to below; and
 
(c)         No Default or Event of Default shall have occurred and be continuing on the date hereof or as of the date of the effectiveness of this Amendment.
 
5.          Representations and Warranties.  In order to induce Agent and Lenders to enter into this Amendment, each Loan Party hereby represents and warrants to Agent and Lenders, after giving effect to this Amendment:
 
(a)        All representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date of this Amendment, in each case as if then made, other than representations and warranties that expressly relate solely to an earlier date (in which case such representations and warranties were true and correct on and as of such earlier date);
 
(b)        No Default or Event of Default has occurred and is continuing; and
 
(c)         the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate action on the part of such Loan Party.
 
6.          Third Amendment Fee.  Borrower shall pay to Agent a fee equal to $175,000 (the "Third Amendment Fee") which shall be fully earned and due and payable on the date hereof.
 
7.          Miscellaneous.
 
(a)        Expenses.  Borrower agrees to pay on demand all costs and expenses of Agent (including the reasonable fees and expenses of outside counsel for Agent) in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and all other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith.  All obligations provided herein shall survive any termination of this Amendment and the Credit Agreement as amended hereby.
 
(b)        Governing Law.  This Amendment shall be a contract made under and governed by the internal laws of the State of New York.
 
(c)        Counterparts.  This Amendment may be executed in any number of counterparts, and by the parties hereto on the same or separate counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment.
 
 
-12-
 
 
8.          Release.
 
(a)         In consideration of the agreements of Agent and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Loan Party, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and Lenders, and their successors and assigns, and their present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent, each Lender and all such other Persons being hereinafter referred to collectively as the "Releasees" and individually as a "Releasee"), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a "Claim" and collectively, "Claims") of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which such Loan Party or any of its respective successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, including, without limitation, for or on account of, or in relation to, or in any way in connection with any of the Credit Agreement, or any of the other Loan Documents or transactions thereunder or related thereto.
 
(b)        Each Loan Party understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.
 
(c)        Each Loan Party agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.
 
[Signature Page Follows]

 
-13-
 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized and delivered as of the date first above written.
 
 
MDC PARTNERS INC., a federal company
 
organized under the laws of Canada
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Managing Director
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Senior Vice President
     
 
MAXXCOM INC.,
 
a Delaware corporation
     
 
By:
/s/ Mitchell Gendel
 
Name:
Mitchell Gendel
 
Title:
Authorized Signatory
     
 
By:
/s/ Michael Sabatino
 
Name:
Michael Sabatino
 
Title:
Authorized Signatory
 
 
 
 

 
ACCENT MARKETING SERVICES, L.L.C.,
 
a Delaware limited liability company
   
 
ADRENALINA LLC,
 
a Delaware limited liability company
   
 
ALLISON & PARTNERS LLC,
 
a Delaware limited liability company
   
 
ATTENTION PARTNERS LLC,
 
a Delaware limited liability company
   
 
BRUCE MAU DESIGN (USA) LLC,
 
a Delaware limited liability company
   
 
COLLE & MCVOY LLC,
 
a Delaware limited liability company
   
 
COLLE & MCVOY, INC.,
 
a Minnesota corporation
   
 
COMMUNIFX PARTNERS LLC,
 
a Delaware limited liability company
   
 
COMPANY C COMMUNICATIONS, INC.,
 
a Delaware corporation
   
 
COMPANY C COMMUNICATIONS LLC,
 
a Delaware limited liability company
   
 
CRISPIN PORTER & BOGUSKY LLC,
 
a Delaware limited liability company
   
 
DOTGLU LLC,
 
a Delaware limited liability company
   
 
EXPECTING PRODUCTIONS, LLC,
 
a California limited liability company
 
By: Hudson and Sunset Media, LLC, its sole member
   
 
FLETCHER MARTIN LLC,
 
a Delaware limited liability company
   
 
GUARDIANT WARRANTY, LLC,
 
a Delaware limited liability company
 
 
 
 

 
HELLO ACQUISITION INC.,
 
a Delaware corporation
   
 
HL GROUP PARTNERS LLC,
 
a Delaware limited liability company
   
 
HUDSON AND SUNSET MEDIA, LLC (formerly known as Shout Media LLC),
 
a California limited liability company
   
 
HW ACQUISITION LLC,
 
a Delaware limited liability company
   
 
INTEGRATED MEDIA SOLUTIONS PARTNERS LLC, a Delaware limited liability company
   
 
KBP HOLDINGS LLC,
 
a Delaware limited liability company
   
 
KIRSHENBAUM BOND SENECAL & PARTNERS LLC (formerly known as Kirshenbaum Bond & Partners LLC), a Delaware limited liability company
   
 
KIRSHENBAUM BOND & PARTNERS WEST LLC, a Delaware limited liability company
   
 
KWITTKEN PR LLC,
 
a Delaware limited liability company
   
 
MARGEOTES FERTITTA POWELL LLC,
 
a Delaware limited liability company
   
 
MAXXCOM (USA) FINANCE COMPANY,
 
a Delaware corporation
   
 
MAXXCOM (USA) HOLDINGS INC.,
 
a Delaware corporation
   
 
MDC ACQUISITION INC.,
 
a Delaware Corporation
   
 
MDC CORPORATE (US) INC.,
 
a Delaware corporation
   
 
MDC INNOVATION PARTNERS LLC
 
(d/b/a Spies & Assassins),
 
a Delaware limited liability company
 
 
 
 

 
MDC TRAVEL, INC.,
 
a Delaware corporation
   
 
MDC/CPB HOLDINGS INC.
 
(formerly known as CPB Acquisition Inc.),
 
a Delaware corporation
   
 
MDC/KBP ACQUISITION INC.,
 
a Delaware corporation
   
 
MF+P ACQUISITION CO.,
 
a Delaware corporation
   
 
MONO ADVERTISING, LLC,
 
a Delaware limited liability company
   
 
NEW TEAM LLC,
 
a Delaware limited liability company
   
 
NORTHSTAR RESEARCH GP LLC,
 
a Delaware limited liability company
   
 
NORTHSTAR RESEARCH HOLDINGS USA LP,
 
a Delaware limited partnership
   
 
NORTHSTAR RESEARCH PARTNERS (USA) LLC, a Delaware limited liability company
   
 
OUTERACTIVE, LLC,
 
a Delaware limited liability company
   
 
PULSE MARKETING, LLC,
 
a Delaware limited liability company
   
 
REDSCOUT LLC,
 
a Delaware limited liability company
   
 
RELEVENT PARTNERS LLC,
 
a Delaware limited liability company
   
 
SKINNY NYC LLC,
 
a Delaware limited liability company
   
 
SLOANE & COMPANY LLC,
 
a Delaware limited liability company
   
 
SOURCE MARKETING LLC,
 
a New York limited liability company
 
 
 
 

 
TARGETCOM LLC,
 
a Delaware limited liability company
   
 
TC ACQUISITION INC.,
 
a Delaware corporation
   
 
THE ARSENAL LLC
 
(formerly known as Team Holdings LLC),
 
a Delaware limited liability company
   
 
TRACK 21 LLC,
 
a Delaware limited liability company
   
 
TRAFFIC GENERATORS, LLC,
 
a Georgia limited liability company
   
 
VARICK MEDIA MANAGEMENT LLC,
 
a Delaware limited liability company
   
 
VITROROBERTSON LLC,
 
a Delaware limited liability company
   
 
YAMAMOTO MOSS MACKENZIE, INC.,
 
a Delaware corporation
   
 
ZG ACQUISITION INC.,
 
a Delaware corporation
   
 
ZIG (USA) LLC,
 
a Delaware limited liability company
   
 
ZYMAN GROUP, LLC,
 
a Delaware limited liability company
     
 
By:
/s/ Mitchell Gendel
 
Name:
Mitchell Gendel
 
Title:
Authorized Signatory
     
 
By:
/s/ Michael Sabatino
 
Name:
Michael Sabatino
 
Title:
Authorized Signatory
 
 
 
 

 
HELLO DESIGN, LLC,
 
a California limited liability company
     
 
By:
/s/ David Lai
 
Name:
David Lai
 
Title:
Authorized Signatory
     
 
By:
/s/ Mitchell Gendel
 
Name:
Mitchell Gendel
 
Title:
Authorized Signatory
     
 
ASHTON POTTER CANADA INC.,
 
an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Director
     
 
HENDERSON BAS, an Ontario general partnership, by the members of its management committee
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Director
 
 
 
 

 
COMPUTER COMPOSITION OF CANADA INC.,
 
an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Director
     
 
BRUCE MAU DESIGN INC.,
 
an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Director
     
 
BRUCE MAU HOLDINGS LTD.,
 
an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Treasurer
 
 
 
 
 
 
ALLARD JOHNSON COMMUNICATIONS INC.,
 
an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Gavin Swartzman
 
Name:
Gavin Swartzman
 
Title:
Director
     
 
TREE CITY INC.,
 
an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Director
     
 
VERITAS COMMUNICATIONS INC.,
 
an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Director
 
 
 
 

 
656712 ONTARIO LIMITED,
 
an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Director
     
 
NORTHSTAR RESEARCH HOLDINGS CANADA INC., an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Gavin Swartzman
 
Name:
Gavin Swartzman
 
Title:
Director
     
 
NORTHSTAR RESEARCH PARTNERS INC.,
 
an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Gavin Swartzman
 
Name:
Gavin Swartzman
 
Title:
Director
 
 
 
 

 
X CONNECTIONS INC., an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Director
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Director
     
 
STUDIO PICA INC., a federal company organized under the laws of Canada
     
 
By:
/s/ Richard Brott
 
Name:
Richard Brott
 
Title:
Director
     
 
By:
/s/ Terry M. Johnson
 
Name:
Terry M. Johnson
 
Title:
Director
     
 
CRISPIN PORTER + BOGUSKY CANADA INC. (formerly known as Zig Inc.), an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Authorized Signatory
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Authorized Signatory
 
 
 
 

 
6 DEGREES INTEGRATED COMMUNICATIONS INC. (formerly known as Accumark Communications Inc.), an Ontario corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Authorized Signatory
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Authorized Signatory
     
 
MAXXCOM (NOVA SCOTIA) CORP.,
 
a Nova Scotia corporation
     
 
By:
/s/ Robert E. Dickson
 
Name:
Robert E. Dickson
 
Title:
Authorized Signatory
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Authorized Signatory
     
 
BRYAN MILLS IRADESSO CORP.,
 
an Ontario corporation
     
 
By:
/s/ Robert E. Dickso
 
Name:
Robert E. Dickson
 
Title:
Authorized Signatory
     
 
By:
/s/ Glenn Gibson
 
Name:
Glenn Gibson
 
Title:
Authorized Signatory
 
 
 
 

 
CRISPIN PORTER & BOGUSKY EUROPE AB
     
 
By:
/s/ Mitchell Gendel
 
Name:
Mitchell Gendel
 
Title:
Authorized Signatory
     
 
By:
/s/ Michael Sabatino
 
Name:
Michael Sabatino
 
Title:
Authorized Signatory
 
 
 
 

 
WELLS FARGO CAPITAL FINANCE, LLC, formerly known as Wells Fargo Foothill, LLC,
 
a Delaware limited liability company, as Agent and as a Lender
     
 
By:
/s/ Paul G. Chao
 
Name:
Paul G. Chao
 
Title:
Senior Vice President
 
 
 
 
EX-10.2.4 5 v212032_ex10-2x4.htm Unassociated Document
Exhibit 10.2.4
 
FOURTH AMENDMENT TO CREDIT AGREEMENT
 
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), with an effective date as of March 7, 2011, is entered into by and among the Lenders party hereto, WELLS FARGO CAPITAL FINANCE, LLC, formerly known as Wells Fargo Foothill, LLC, a Delaware limited liability company, as the agent for the Lenders (in such capacity, "Agent"), MDC PARTNERS INC., a Canadian corporation ("Parent"), MAXXCOM INC., a Delaware corporation ("Borrower"), and each of the Subsidiaries of Parent identified on the signature pages hereof (together with Parent and Borrower, the "Loan Parties").
 
WHEREAS, Parent, Borrower, the other Loan Parties, Agent, and Lenders are parties to that certain Credit Agreement dated as of October 23, 2009 (as amended, modified or supplemented from time to time, the "Credit Agreement");
 
WHEREAS, Borrower, Agent and the Lenders have agreed to amend and modify the Credit Agreement as provided herein, in each case subject to the terms and provisions hereof.
 
NOW THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows:
 
1.           Defined Terms.  Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement.
 
2.           Amendments to Credit Agreement.  Subject to the satisfaction of the conditions set forth in Section 4 below and in reliance upon the representations and warranties of the Loan Parties set forth in Section 5 below, the Credit Agreement is amended as follows:
 
(a)          Section 2.1(d) of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(d)          Notwithstanding anything contained in the Loan Documents to the contrary, in the event the Maximum Revolver Amount has been increased pursuant to Section 2.2, Revolver Usage shall at no time exceed either (a) the maximum amount of Indebtedness permitted to be outstanding under Section 3.8(a)(2) of the Senior Unsecured Trust Indenture (or, after the consummation of any Permitted Senior Unsecured Debt Refinancing, the corresponding section of the Permitted Refinancing Senior Unsecured Trust Indenture) or (b) the maximum amount of Indebtedness permitted to be secured under clauses (10) and (22) of the definition of "Permitted Liens" set forth in the Senior Unsecured Trust Indenture (or, after the consummation of any Permitted Senior Unsecured Debt Refinancing, the corresponding clauses of the definition of "Permitted Liens" set forth in the Permitted Refinancing Senior Unsecured Trust Indenture), in each case as such provisions of the Senior Unsecured Trust Indenture or the Permitted Refinancing Senior Unsecured Trust Indenture may be amended, modified, waived or supplemented from time to time in accordance with the terms thereof.
 
 
 
 
 
(b)          Clause (c) of Section 3.2 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(c)           if any request in a calendar month for such extension of credit would cause Revolver Usage to exceed $75,000,000, Borrower shall have delivered to Agent during such month and prior to such requested extension of credit the Certificate re Consolidated EBITDA and Consolidated Leverage Ratio Calculation for the most recently ended four fiscal quarter period for which financial statements are available to Parent, certifying as to the maximum amount of Revolver Usage that may be outstanding during such month that will not cause the Obligations to breach Sections 3.8 or 3.14 of the Senior Unsecured Trust Indenture (or, after the consummation of any Permitted Senior Unsecured Debt Refinancing, the corresponding sections of the Permitted Refinancing Senior Unsecured Trust Indenture).
 
(c)           Section 5.11 of the Credit Agreement is hereby amended by deleting each reference to "20 days" contained therein and inserting, in each case, "30 days" in lieu thereof.
 
(d)           Clause (i) of Section 5.17 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(i)            In the event at any time after the Closing Date, Schedule 4.28 does not accurately reflect the locations of all tangible assets of the Loan Parties, Borrower shall, within 30 days of the date such schedule becomes inaccurate, deliver an updated Schedule 4.28 to Agent containing such information as is necessary to make such schedule accurate as of the date such schedule is delivered;
 
(e)           Section 6.5 of the Credit Agreement is hereby amended by adding the parenthetical "(or such shorter period as Agent may agree to in its sole discretion)" at the end of such Section.
 
(f)            Clause (a) of Section 6.7 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(a)           Except in connection with Earn-outs, Permitted Senior Unsecured Debt Refinancings and Refinancing Indebtedness permitted by Section 6.1,
 
(g)           Section 6.9 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
 
-2-
 
 
6.9.           Restricted Junior Payments.
 
Make any Restricted Junior Payment; provided, that (a) any Subsidiary of Parent may declare and pay dividends to a Loan Party (other than Parent), (b) any Subsidiary of Parent may pay dividends to Parent (i) in amounts necessary to pay customary expenses of the Parent in the ordinary course of its business as a public holding company (including salaries and related reasonable and customary expenses incurred by employees of the Parent) and (ii) in amounts necessary to pay taxes when due and owing by Parent, (c) any Subsidiary of Parent or the applicable parent company of such Subsidiary may make Restricted Junior Payments to such Subsidiary's shareholders and employees and management personnel of such Subsidiary's shareholders pursuant to the terms of the shareholder agreements or similar agreements between such Subsidiary or the applicable parent company of such Subsidiary and such shareholders, including without limitation payments in respect of and pursuant to the Put Obligations, (d) Parent and any Subsidiary of Parent may repurchase from its employees Stock of Parent or such Subsidiary up to an aggregate amount, for all such repurchases by Parent and all Subsidiaries of Parent permitted pursuant to this clause (d), not to exceed $4,000,000 in any fiscal year; provided, however, that if the amount of repurchases permitted by this clause (d) to be made in any fiscal year is greater than the amount of the repurchases actually made in such fiscal year (the amount by which such permitted repurchases for such fiscal year exceeds the actual amount of repurchases made for such fiscal year, the "Repurchase Carry-Over Amount"), then the Repurchase Carry-Over Amount may be carried forward to the next succeeding fiscal year (the "Repurchase Succeeding Fiscal Year"); provided further that the Repurchase Carry-Over Amount applicable to a particular Repurchase Succeeding Fiscal Year may not be carried forward to another fiscal year, (e) any Loan Party may make payments in respect of Earn-outs, and (f) so long as (i) no Default or Event of Default exists or would otherwise arise as a result thereof and (ii) Excess Availability, after giving effect thereto, exceeds the Applicable Excess Availability Amount (such conditions, collectively, the "Restricted Junior Payment Basket Conditions"), Parent and its Subsidiaries may make Restricted Junior Payments in any fiscal year ending on or after December 31, 2011, not otherwise permitted pursuant to clauses (a) through (e) above, up to an amount not to exceed 75% of Excess Cash Flow for the immediately prior fiscal year; provided, however, that, if the amount of Restricted Junior Payments permitted by this clause (f) to be made in any fiscal year ending on or after December 31, 2011 is greater than the amount of the Restricted Junior Payments actually made in such fiscal year (the amount by which such permitted Restricted Junior Payments for such fiscal year exceeds the actual amount of Restricted Junior Payments made for such fiscal year, the "Restricted Junior Payments Carry-Over Amount"), then the Restricted Junior Payments Carry-Over Amount may be carried forward to the next succeeding fiscal year (the "Restricted Junior Payments Succeeding Fiscal Year"); provided further that the Restricted Junior Payments Carry-Over Amount applicable to a particular Restricted Junior Payments Succeeding Fiscal Year (1) may not be carried forward to another fiscal year and (2) may not in any event be used unless the Restricted Junior Payment Basket Conditions are satisfied.
 
(h)           Subsection (e) of Section 7 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(e)           Total Leverage Ratio.  Have a Total Leverage Ratio, measured on a quarter-end basis, of not greater than the applicable ratio set forth in the following table for the applicable date set forth opposite thereto:
 
 
-3-
 
 
Applicable Ratio
  
Applicable Date
3.50:1.0
  
For the 12 month period ending
December 31, 2010
     
4.00:1.0
  
For the 12 month period ending
March 31, 2011
     
3.75:1.0
  
For the 12 month period ending
June 30, 2011 and for the 12 month period
ending on the last day of each calendar quarter thereafter

(i)           Subsection (f) of Section 7 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(f)           Minimum Accounts.  At all times, the aggregate amount of Loan Parties' Accounts shall be an amount equal to or in excess of 110% of the Maximum Revolver Amount.
 
(j)           The definition of "Acquisition" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Acquisition" means (a) the purchase or other acquisition by a Person or its Subsidiaries of assets of (or any division or business line of) any other Person, or (b) the purchase or other acquisition (whether by means of merger, amalgamation, consolidation, investment in the form of an initial capital contribution, or otherwise) by a Person or its Subsidiaries of Stock of any other Person.
 
(k)           The definition of "Capital Expenditures Trigger Date" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Capital Expenditure Trigger Date" means the date set forth in a written notice by Agent to Borrower and identified as the "Capital Expenditure Trigger Date", which date shall be on or after the last day of any consecutive 30 day period during which the daily average Excess Availability is less than the Applicable Excess Availability Amount.
 
(l)           Clause (b) of the definition of "Permitted Acquisition" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(b)           no Indebtedness (other than Indebtedness evidenced by the Agreement and the other Loan Documents) will be incurred, assumed, or would exist with respect to Parent or any Subsidiary of Parent as a result of such Acquisition (other than (i) Earn-outs pursuant to the terms of the definitive documentation for such Acquisition, (ii) Acquired Indebtedness and (iii) unsecured Indebtedness of Parent that is incurred pursuant to clause (g) of the definition of Permitted Indebtedness), and no Liens will be incurred, assumed, or would exist with respect to the assets of Parent or any Subsidiary of Parent as a result of such Acquisition other than Permitted Liens,
 
 
-4-
 
(m)          Clause (c) of the definition of "Permitted Acquisition" set forth in Schedule 1.1 of the Credit Agreement is hereby amended by deleting the reference to "30 days" contained therein and inserting "20 days" in lieu thereof.
 
(n)           Clause (e) of the definition of "Permitted Acquisition" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(e)           Borrower shall have Availability plus Qualified Cash in an amount equal to or greater than the Applicable Excess Availability Amount immediately after giving effect to the consummation of the proposed Acquisition,
 
(o)           Clause (g) of the definition of "Permitted Acquisition" set forth in Schedule 1.1 of the Credit Agreement is hereby amended by deleting the reference to "30 days" contained therein and inserting "20 days" in lieu thereof.
 
(p)           Clause (v) of the definition of "Permitted Indebtedness" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(v)           (i) additional Indebtedness and (ii) any Refinancing Indebtedness in respect of any Indebtedness specified in subclause (i) above; provided that the aggregate amount of Indebtedness incurred and remaining outstanding pursuant to this clause (v) shall not at any time exceed $10,000,000.
 
(q)           Clause (q) of the definition of "Permitted Investments" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
(q)           Investments in Pegasus Partners III, L.P. and its Affiliates after the Closing Date in an aggregate amount not exceeding $350,000 and any investments in Pegasus Partners III, L.P. existing on the Closing Date,
 
(r)            Clause (s) of the definition of "Permitted Investments" set forth in Schedule 1.1 of the Credit Agreement is hereby amended by deleting the reference to "$5,000,000" contained therein and inserting "$10,000,000" in lieu thereof.
 
(s)           The definition of "Senior Unsecured Debt" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Senior Unsecured Debt" means the Indebtedness in an aggregate principal amount not to exceed $225,000,000 (provided that, the principal amount of such Indebtedness may be increased so long as (i) after giving effect to such increase the aggregate principal amount of such Indebtedness outstanding does not exceed $425,000,000 at any time and (ii) TTM EBITDA for the most recently ended fiscal month for which Agent has received a monthly report pursuant to Schedule 5.1  prior to such increase is equal to or greater than $75,000,000) owing by Parent to the "Holders" (as defined in the Senior Unsecured Trust Indenture or, after the consummation of any Permitted Senior Unsecured Debt Refinancing, the Permitted Refinancing Senior Unsecured Trust Indenture) pursuant to the Senior Unsecured Debt Documents.
 
 
-5-
 
 
(t)           The definition of "Senior Unsecured Debt Documents" set forth in Schedule 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:
 
"Senior Unsecured Debt Documents" means, collectively, (a) the Senior Unsecured Trust Indenture, the "Notes" (as defined in the Senior Unsecured Trust Indenture) and the "Registration Rights Agreement" (as defined in the Senior Unsecured Trust Indenture), (b) after the consummation of any Permitted Senior Unsecured Debt Refinancing, the Permitted Refinancing Senior Unsecured Trust Indenture, the "Notes" (as defined in the Permitted Refinancing Senior Unsecured Trust Indenture) and the "Registration Rights Agreement" (as defined in the Permitted Refinancing Senior Unsecured Trust Indenture), and (c) all other agreements, instruments and documents evidencing the Senior Unsecured Debt, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof.
 
(u)           Schedule 1.1 of the Credit Agreement is hereby amended by adding the following new definitions in their appropriate alphabetical order:
 
"Applicable Excess Availability Amount" means $25,000,000; provided, that, if the Maximum Revolver Amount has been increased to an amount in excess of $125,000,000 in accordance with Section 2.2 of the Agreement, Applicable Excess Availability Amount means, as of any date of determination, an amount equal to $25,000,000 plus 20% of the difference between (i) the Maximum Revolver Amount as of such date (after giving effect to all such increases) and (ii) $125,000,000; provided further that, notwithstanding the foregoing, at all times during the period commencing on the Fourth Amendment Effective Date and ending on the date 45 days after the Fourth Amendment Effective Date, Applicable Excess Availability Amount means $15,000,000.
 
"Fourth Amendment Effective Date" means March 7, 2011."
 
"Permitted Refinancing Senior Unsecured Trust Indenture" means any indenture, in form and substance reasonably satisfactory to Agent, which replaces the Senior Unsecured Trust Indenture (or any Permitted Refinancing Senior Unsecured Trust Indenture) and pursuant to which the Senior Unsecured Debt under the Senior Unsecured Trust Indenture (or any Permitted Refinancing Senior Unsecured Trust Indenture) is refinanced or replaced; provided, that no such indenture shall (a) increase the maximum principal amount of the Senior Unsecured Debt; provided that, the maximum principal amount of the Senior Unsecured Debt may be increased so long as (x) after giving effect to such increase the aggregate principal amount of the Senior Unsecured Debt outstanding does not exceed $425,000,000 at any time and (y) TTM EBITDA for the most recently ended fiscal month for which Agent has received a monthly report pursuant to Schedule 5.1  prior to such increase is equal to or greater than $75,000,000, (b) increase the rate of interest on any of the Senior Unsecured Debt, (c) change the dates upon which payments of principal or interest on the Senior Unsecured Debt are due, (d) change or add any event of default or any covenant with respect to the Senior Unsecured Debt, (e) change any redemption or prepayment provisions of the Senior Unsecured Debt, (f) alter the subordination provisions with respect to the Senior Unsecured Debt, including, without limitation, subordinating the Senior Unsecured Debt to any other indebtedness, (g) take any liens or security interests in any assets of any Loan Party, or (h) change or amend any other term of the Senior Unsecured Debt Documents if such change or amendment would result in an Event of Default, increase the obligations of any Loan Party or confer additional material rights on any holder of the Senior Unsecured Debt in a manner adverse to any Loan Party, Agent or any Lenders.
 
 
-6-
 
 
"Permitted Senior Unsecured Debt Refinancing" means any refinancing or replacement of the Senior Unsecured Debt under the Senior Unsecured Trust Indenture (or any Permitted Refinancing Senior Unsecured Trust Indenture); provided that (a) the financing documentation entered into by Parent and the "Note Guarantors" party thereto in connection with such Permitted Senior Unsecured Debt Refinancing constitutes a Permitted Refinancing Senior Unsecured Trust Indenture and (b) Agent shall have received not less than 30 days prior written notice of such Permitted Senior Unsecured Debt Refinancing.
 
(v)         Exhibit C-2 of the Credit Agreement is hereby replaced with Exhibit C-2 attached hereto.
 
(w)         Schedule C-1 of the Credit Agreement is hereby replaced with Schedule C-1 attached hereto.
 
3.           Ratification; Other Acknowledgments.  This Amendment, subject to satisfaction of the conditions provided below, shall constitute an amendment to the Credit Agreement and all of the Loan Documents as appropriate to express the agreements contained herein.  Without limiting the foregoing, the parties hereto acknowledge and agree that, on November 22, 2010, a Revolver Increase in the amount of $25,000,000 was made in accordance with Section 2.2 of the Credit Agreement.  In all other respects, the Credit Agreement and the Loan Documents shall remain unchanged and in full force and effect in accordance with their original terms.
 
4.           Conditions to Effectiveness.  This Amendment shall become effective as of the date hereof and upon the satisfaction of the following conditions precedent:
 
(a)         Agent shall have received a fully executed copy of this Amendment;
 
(b)         Agent shall have received the Fourth Amendment Fee referred to below; and
 
(c)         No Default or Event of Default shall have occurred and be continuing on the date hereof or as of the date of the effectiveness of this Amendment.
 
 
-7-
 
 
5.           Representations and Warranties.  In order to induce Agent and Lenders to enter into this Amendment, each Loan Party hereby represents and warrants to Agent and Lenders, after giving effect to this Amendment:
 
(a)         All representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct on and as of the date of this Amendment, in each case as if then made, other than representations and warranties that expressly relate solely to an earlier date (in which case such representations and warranties were true and correct on and as of such earlier date);
 
(b)         No Default or Event of Default has occurred and is continuing; and
 
(c)         the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate action on the part of such Loan Party.
 
6.           Fourth Amendment Fee.  Borrower shall pay to Agent, for the ratable benefit of the Lenders based on their respective Pro Rata Shares, a fee equal to $125,000 (the "Fourth Amendment Fee") which shall be fully earned and due and payable on the date hereof.
 
7.           Miscellaneous.
 
(a)         Expenses.  Borrower agrees to pay on demand all costs and expenses of Agent (including the reasonable fees and expenses of outside counsel for Agent) in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and all other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith.  All obligations provided herein shall survive any termination of this Amendment and the Credit Agreement as amended hereby.
 
(b)         Governing Law.  This Amendment shall be a contract made under and governed by the internal laws of the State of New York.
 
(c)         Counterparts.  This Amendment may be executed in any number of counterparts, and by the parties hereto on the same or separate counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment.
 
 
-8-
 
8.           Release.
 
(a)         In consideration of the agreements of Agent and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Loan Party, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and Lenders, and their successors and assigns, and their present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent, each Lender and all such other Persons being hereinafter referred to collectively as the "Releasees " and individually as a "Releasee"), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a "Claim" and collectively, "Claims") of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which such Loan Party or any of its respective successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, including, without limitation, for or on account of, or in relation to, or in any way in connection with any of the Credit Agreement, or any of the other Loan Documents or transactions thereunder or related thereto.
 
(b)         Each Loan Party understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.
 
(c)         Each Loan Party agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.
 
[Signature Page Follows]
 
 
-9-
 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized and delivered as of the date first above written.
 
MDC PARTNERS INC., a federal company
organized under the laws of Canada
   
By:
/s/ Mitchell Gendel
Name:
Mitchell Gendel
Title:
Authorized Signatory
   
By:
/s/ Michael Sabatino
Name:
Michael Sabatino
Title:
Authorized Signatory
   
MAXXCOM INC.,
a Delaware corporation
   
By:
/s/ Mitchell Gendel
Name:
Mitchell Gendel
Title:
Authorized Signatory
   
By:
/s/ Michael Sabatino
Name:
Michael Sabatino
Title:
Authorized Signatory

Signature Pages to Fourth Amendment to Credit Agreement

 
 
 

 
72ANDSUNNY PARTNERS, LLC,
a Delaware limited liability company
 
ACCENT MARKETING SERVICES, L.L.C.,
a Delaware limited liability company
 
ADRENALINA LLC,
a Delaware limited liability company
 
ALLISON & PARTNERS LLC,
a Delaware limited liability company
 
ATTENTION PARTNERS LLC,
a Delaware limited liability company
 
ANOMALY PARTNERS LLC,
a Delaware limited liability company
 
BRUCE MAU DESIGN (USA) LLC,
a Delaware limited liability company
 
COLLE & MCVOY LLC,
a Delaware limited liability company
 
COLLE & MCVOY, INC.,
a Minnesota corporation
 
COMMUNIFX PARTNERS LLC,
a Delaware limited liability company
 
COMPANY C COMMUNICATIONS, INC.,
a Delaware corporation
 
COMPANY C COMMUNICATIONS LLC,
a Delaware limited liability company
 
CRISPIN PORTER & BOGUSKY LLC,
a Delaware limited liability company
 
DOTGLU LLC,
a Delaware limited liability company

Signature Pages to Fourth Amendment to Credit Agreement

 
 
 

 
EXPECTING PRODUCTIONS, LLC,
a California limited liability company
By: Hudson and Sunset Media, LLC, its sole member
 
GUARDIANT WARRANTY, LLC,
a Delaware limited liability company
 
HELLO ACQUISITION INC.,
a Delaware corporation
 
HELLO DESIGN, LLC,
a California limited liability company
 
HL GROUP PARTNERS LLC,
a Delaware limited liability company
 
HUDSON AND SUNSET MEDIA, LLC (formerly
known as Shout Media LLC),
a California limited liability company
 
HW ACQUISITION LLC,
a Delaware limited liability company
 
INTEGRATED MEDIA SOLUTIONS PARTNERS
LLC, a Delaware limited liability company
 
KBP HOLDINGS LLC,
a Delaware limited liability company
 
KBS+P ATLANTA LLC (formerly known as
FLETCHER MARTIN LLC),
a Delaware limited liability company
 
KIRSHENBAUM BOND SENECAL & PARTNERS
LLC (formerly known as Kirshenbaum Bond & Partners
LLC), a Delaware limited liability company
 
KIRSHENBAUM BOND & PARTNERS WEST LLC, a
Delaware limited liability company
 
KWITTKEN PR LLC,
a Delaware limited liability company
 
MARGEOTES FERTITTA POWELL LLC,
a Delaware limited liability company

Signature Pages to Fourth Amendment to Credit Agreement

 
 
 

 
MAXXCOM (USA) FINANCE COMPANY,
a Delaware corporation
 
MAXXCOM (USA) HOLDINGS INC.,
a Delaware corporation
 
MDC ACQUISITION INC.,
a Delaware Corporation
 
MDC CORPORATE (US) INC.,
a Delaware corporation
 
MDC INNOVATION PARTNERS LLC
(d/b/a Spies & Assassins),
a Delaware limited liability company
 
MDC TRAVEL, INC.,
a Delaware corporation
 
MDC/CPB HOLDINGS INC.
(formerly known as CPB Acquisition Inc.),
a Delaware corporation
 
MDC/KBP ACQUISITION INC.,
a Delaware corporation
 
MF+P ACQUISITION CO.,
a Delaware corporation
 
MONO ADVERTISING, LLC,
a Delaware limited liability company
 
NEW TEAM LLC,
a Delaware limited liability company
 
NORTHSTAR RESEARCH GP LLC,
a Delaware limited liability company
 
NORTHSTAR RESEARCH HOLDINGS USA LP,
a Delaware limited partnership
 
NORTHSTAR RESEARCH PARTNERS (USA) LLC, a
Delaware limited liability company
 
OUTERACTIVE, LLC,
a Delaware limited liability company

Signature Pages to Fourth Amendment to Credit Agreement

 
 
 

 
PULSE MARKETING, LLC,
a Delaware limited liability company
 
REDSCOUT LLC,
a Delaware limited liability company
 
RELEVENT PARTNERS LLC,
a Delaware limited liability company
 
SKINNY NYC LLC,
a Delaware limited liability company
 
SLOANE & COMPANY LLC,
a Delaware limited liability company
 
SOURCE MARKETING LLC,
a New York limited liability company
 
TARGETCOM LLC,
a Delaware limited liability company
 
TC ACQUISITION INC.,
a Delaware corporation
 
THE ARSENAL LLC
(formerly known as Team Holdings LLC),
a Delaware limited liability company
 
TRACK 21 LLC,
a Delaware limited liability company
 
TRAFFIC GENERATORS, LLC,
a Georgia limited liability company
 
VARICK MEDIA MANAGEMENT LLC,
a Delaware limited liability company
 
VITROROBERTSON LLC,
a Delaware limited liability company
 
YAMAMOTO MOSS MACKENZIE, INC.,
a Delaware corporation
 
ZG ACQUISITION INC.,
a Delaware corporation

Signature Pages to Fourth Amendment to Credit Agreement

 
 
 

 
ZIG (USA) LLC,
a Delaware limited liability company
 
ZYMAN GROUP, LLC,
a Delaware limited liability company
 
By:
/s/ Mitchell Gendel
Name:
Mitchell Gendel
Title:
Authorized Signatory
   
By:
/s/ Michael Sabatino
Name:
Michael Sabatino
Title:
Authorized Signatory
 
Signature Pages to Fourth Amendment to Credit Agreement

 
 
 

 
ASHTON POTTER CANADA INC.,
an Ontario corporation
 
HENDERSON BAS, an Ontario general partnership,
by the members of its management committee
 
COMPUTER COMPOSITION OF CANADA INC.,
an Ontario corporation
 
BRUCE MAU DESIGN INC.,
an Ontario corporation
 
BRUCE MAU HOLDINGS LTD.,
an Ontario corporation
 
KBS+P CANADA INC. (formerly known as Allard
Johnson Communications Inc.),
an Ontario corporation
 
TREE CITY INC.,
an Ontario corporation
 
VERITAS COMMUNICATIONS INC.,
an Ontario corporation
 
656712 ONTARIO LIMITED,
an Ontario corporation
 
NORTHSTAR RESEARCH HOLDINGS CANADA
INC., an Ontario corporation
 
NORTHSTAR RESEARCH PARTNERS INC.,
an Ontario corporation
 
X CONNECTIONS INC., an Ontario corporation
 
STUDIO PICA INC., a federal company organized
under the laws of Canada
 
CRISPIN PORTER + BOGUSKY CANADA INC.
(formerly known as Zig Inc.), an Ontario corporation
 
6 DEGREES INTEGRATED COMMUNICATIONS
INC. (formerly known as Accumark Communications
Inc.), an Ontario corporation

Signature Pages to Fourth Amendment to Credit Agreement

 
 
 

 
MAXXCOM (NOVA SCOTIA) CORP.,
a Nova Scotia corporation
 
BRYAN MILLS IRADESSO CORP.,
an Ontario corporation
 
KENNA COMMUNICATIONS LP,
an Ontario limited partnership
By: Kenna Communications GP Inc.
Its general partner
 
CAPITAL C PARTNERS LP,
an Ontario limited partnership
By: Capital C Partners GP Inc.
Its general partner
 
KENNA COMMUNICATIONS GP INC.,
an Ontario corporation
 
CAPITAL C PARTNERS GP INC.,
an Ontario corporation
   
By:
/s/ Mitchell Gendel
Name:
Mitchell Gendel
Title:
Authorized Signatory
   
By:
/s/ Michael Sabatino
Name:
Michael Sabatino
Title:
Authorized Signatory
 
Signature Pages to Fourth Amendment to Credit Agreement

 
 
 
 
CRISPIN PORTER & BOGUSKY EUROPE AB
   
By:
/s/ Mitchell Gendel
Name:
Mitchell Gendel
Title:
Authorized Signatory
   
By:
/s/ Michael Sabatino
Name:
Michael Sabatino
Title:
Authorized Signatory
 
Signature Pages to Fourth Amendment to Credit Agreement

 
 
 

 
WELLS FARGO CAPITAL FINANCE, LLC, formerly known as Wells Fargo Foothill, LLC, as Agent and as a Lender
   
By:
 /s/ Paul G. Chao 
Name:
   Paul G. Chao
Title:
   Senior Vice President

JPMORGAN CHASE BANK, N.A., as a Lender
   
By:
  /s/ Michelle Cipriani
Name:
   Michelle Cipriani
Title:
   Vice President

BANK OF MONTREAL, as a Lender
   
By:
  /s/ Naghmeh Hashemifard
Name:
   Naghmeh Hashemifard
Title:
   Director

Signature Pages to Fourth Amendment to Credit Agreement

 
 
 

Schedule C-1
 
Commitments
 
Lender
  
Revolver
Commitment
    
Total Commitment
  
Wells Fargo Capital Finance, LLC, formerly known as Wells Fargo Foothill, LLC
   $ 65,000,000     $ 65,000,000  
JPMorgan Chase Bank, N.A.
   $ 25,000,000     $ 25,000,000  
Bank of Montreal
   $ 10,000,000     $ 10,000,000  
                 
All Lenders
   $ 100,000,000     $ 100,000,000  
 
 
 
 
EX-10.12.9 6 v212032_ex10-12x9.htm
 
Exhibit 10.12.9
 
FORM OF RESTRICTED STOCK GRANT AGREEMENT (2011)

THIS AGREEMENT, made as of March 7, 2011 (the “Grant Date”), between MDC Partners Inc., a Canadian corporation (the “Corporation”), and _______________ (the “Grantee”).

WHEREAS, the Corporation has adopted the 2005 Stock Incentive Plan (the “Plan”) for the purpose of providing employees and consultants of the Corporation and eligible non-employee directors of the Corporation’s Board of Directors a proprietary interest in pursuing the long-term growth, profitability and financial success of the Corporation (except as otherwise expressly set forth herein, capitalized terms used in this Agreement shall have the definitions set forth in the Plan).

WHEREAS, the Human Resources & Compensation Committee (the “Committee”) of the Board of Directors has determined that it is in the best interests of the Corporation to make the award set forth herein, which award will vest on the third anniversary of the date hereof, subject to accelerated vesting upon achievement by the Corporation of specified financial growth targets during the calendar years 2011 – 2012.

WHEREAS, pursuant to the Plan, the Committee has determined to grant an Other Stock-Based Award to the Grantee in the form of shares of Class A subordinate voting shares, subject to the terms, conditions and limitations provided herein, including achievement of financial performance targets, and in the Plan (the “Restricted Stock”);

NOW, THEREFORE, the parties hereto agree as follows:

1.     Grant of Restricted Stock.

1.1        The Corporation hereby grants to the Grantee, on the terms and conditions set forth in this Agreement, the number of shares of Restricted Stock set forth under the Grantee's name on the signature page hereto (the “2011 Restricted Stock Award”).

1.2        The Grantee's rights with respect to all the shares of Restricted Stock underlying the 2011 Restricted Stock Award shall not vest and will remain forfeitable at all times prior to the Vesting Date (as defined below).  At any time, reference to the 2011 Restricted Stock Award shall be deemed to be a reference to the Restricted Shares granted under Section 1.1 that have neither vested nor been forfeited pursuant to the terms of this Agreement.

1.3        This Agreement shall be construed in accordance with, and subject to, the terms of the Plan (the provisions of which are incorporated herein by reference).

2.     Rights of Grantee.

Except as otherwise provided in this Agreement, the Grantee shall be entitled, at all times on and after the Grant Date, to exercise all rights of a shareholder with respect to the 2011 Restricted Stock Award, including the right to vote the shares of Restricted Stock.  Prior to the Vesting Date, the Grantee shall not be entitled to transfer, sell, pledge, hypothecate or assign any portion of the 2011 Restricted Stock Award (collectively, the “Transfer Restrictions”).
 
 
 
 
 
3.           Vesting; Lapse of Restrictions.

3.1        The Transfer Restrictions with respect to all the shares of Restricted Stock granted under this Agreement shall lapse on the third (3rd) anniversary of the Grant Date (the “Vesting Date”), provided the Grantee continues to be serving as an employee of the Corporation until such Vesting Date; provided, further, that the Transfer Restrictions with respect to all the shares of Restricted Stock shall lapse, if sooner, on the date of any one of the following “Permitted Acceleration Events”:  (i) the occurrence of a Change in Control (as defined in the Plan); (ii) the Grantee’s employment is terminated by the Corporation (other than for “cause”), or by the employee for “good reason” (as each such term may be defined in the Grantee’s underlying employment agreement); (iii) the Grantee’s death or disability; or (iv) achievement by the Corporation of the financial performance measure(s) set forth in Section 3.3 herein.   In no event shall the Grantee be vested or otherwise entitled to more than one hundred percent (100%) of the shares of Restricted Stock granted pursuant to section 1.1 above.

3.2    Notwithstanding anything in this Agreement to the contrary, upon the resignation or termination of Grantee as an executive of the Corporation for cause (other than due to a Permitted Acceleration Event), all shares of Restricted Stock in respect of which the Transfer Restrictions have not previously lapsed in accordance with Section 3.1 hereof shall be forfeited and automatically transferred to and reacquired by the Corporation at no cost to the Corporation, and neither the Grantee nor any heirs, executors, administrators or successors of such Grantee shall thereafter have any right or interest in such shares of Restricted Stock.

3.3     For purposes of the foregoing, the following terms shall have the following meanings:

(a)         “2011-2012 Performance Measures” means the achievement by the Corporation of EBITDA in the following amounts during the specified Performance Period (as defined in the Plan):
 
(i)           2011 Target.  In the event that the Corporation achieves EBITDA for the twelve-months ended December 31, 2011, in an amount equal to not less than the product of 2010 EBITDA (as defined below) multiplied by 1.05 (the “2011 Target”), then 50% of the 2011 Restricted Stock Award will vest on March 15, 2012.

(ii)          2011/2012 Cumulative Target.    In the event that the Corporation achieves EBITDA for the two (2) years ended December 31, 2012, in an amount equal to not less than the sum of (i) the 2011 Target, plus (ii) the product of the 2011 Target multiplied by 1.10 (such sum, the “2011/2012 Cumulative Target”), then 100% of the 2011 Restricted Stock Award will vest on March 15, 2013 (but only to the extent not previously vested).  The 2011/2012 Cumulative Target represents annual growth of 10% in EBITDA in 2011 and 2012, as compared to the 2011 Target.

(iii)         2011 Restricted Stock Award Limit.  In no event shall the Grantee be vested or otherwise entitled to more than one hundred percent (100%) of the shares of Restricted Stock granted as part of the 2011 Restricted Stock Award pursuant to section 1.1 above.
 
 
2
 
 
(b)           “Cause” means the Grantee’s termination by reason of (i) his/her continued or willful failure substantially to perform his/her duties for the Corporation, (ii) his/her willful and serious misconduct in connection with the performance of his/her duties for the Corporation, (iii) the Grantee’s conviction of, or entering a plea of guilty or nolo contendere to, a crime that constitutes a felony or a crime involving moral turpitude, (iv) his/her fraudulent or dishonest conduct or (v) his/her material breach of any of his/her obligations or covenants under any written policies of the Corporation or any written agreement between such Grantee and the Corporation.

(c)           “Change in Control” shall have the meaning set forth in Section 2(b) of the Plan, provided that the reference to “twenty-five percent (25%) or more of the combined voting power of MDC's then outstanding voting securities” in Section 2(b)(i) of the Plan shall, for purposes of this 2011 Restricted Stock Award, be amended to read “fifty percent (50%) or more of the combined voting power of MDC's then outstanding voting securities”; and, provided further, that the reference in Section 2(b)(iii)(A)(III)(3) to “twenty five percent (25%) or more of the combined voting power of the Surviving Corporation’s voting securities outstanding immediately following such transaction” shall, for purposes of this 2011 Restricted Stock Award, be amended to read “fifty percent (50%) or more of the combined voting power of the Surviving Corporation’s voting securities outstanding immediately following such transaction”.

(d)           “Disability” shall mean a mental or physical condition of the Grantee rendering him unable to perform his/her duties for the Corporation for a period of six (6) consecutive months or for 180 days within any consecutive 365-day period and which is reasonably expected to continue indefinitely; provided that if, as of the date of determination, the Grantee is a party to an effective employment agreement with a different definition of “Disability” or any derivation of such term, the definition of “Disability” (or its derivation) contained in such employment agreement shall be substituted for the definition set forth above for all purposes hereunder.

(e)           “EBITDA” shall mean the Corporation’s share of consolidated earnings before interest, taxes, depreciation and amortization, plus any non-cash charges for stock-based compensation which were deducted in the calculation of EBITDA.

(f)           “2010 EBITDA” shall mean the Corporation’s EBITDA for the year ended December 31, 2010, as determined by the Compensation Committee following completion of Corporation’s audited financial statements for the year ended December 31, 2010.

4.    Escrow and Delivery of Shares.

4.1        Certificates (or an electronic "book entry" on the books of the Corporation's stock transfer agent) representing the shares of Restricted Stock shall be issued and held by the Corporation (or its stock transfer agent) in escrow (together with any stock transfer powers which the Corporation may request of Grantee) and shall remain in the custody of the Corporation (or its stock transfer agent) until (i) their delivery to the Grantee as set forth in Section 4.2 hereof, or (ii) their forfeiture and transfer to the Corporation as set forth in Section 3.2 hereof. The appointment of an independent escrow agent shall not be required.
 
 
3
 
 
4.2           (a)           Certificates (or an electronic "book entry") representing those shares of Restricted Stock in respect of which the Transfer Restrictions have lapsed pursuant to Section 3.1 hereof shall be delivered to the Grantee as soon as practicable following the Vesting Date.

(b)           The Grantee, or the executors or administrators of the Grantee's estate, as the case may be, may receive, hold, sell or otherwise dispose of those shares of Restricted Stock delivered to him or her pursuant to this Section 4.2 free and clear of the Transfer Restrictions, but subject to compliance with all federal and state securities laws.

4.3           (a)           Each stock certificate issued pursuant to Section 4.1 shall bear a legend in substantially the following form:

THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS APPLICABLE TO RESTRICTED STOCK CONTAINED IN THE 2005 STOCK INCENTIVE PLAN (THE "PLAN") AND A RESTRICTED STOCK AGREEMENT (THE "AGREEMENT") BETWEEN THE CORPORATION AND THE REGISTERED OWNER OF THE SHARES REPRESENTED HEREBY. RELEASE FROM SUCH TERMS AND CONDITIONS SHALL BE MADE ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE PLAN(S) AND THE AGREEMENT, COPIES OF WHICH ARE ON FILE IN THE OFFICE OF THE SECRETARY OF THE CORPORATION.

(b)           As soon as practicable following a Vesting Date, the Corporation shall issue a new certificate (or electronic "book entry") for shares of the Restricted Stock which have become non-forfeitable in relation to such Vesting Date, which new certificate (or electronic "book entry") shall not bear the legend set forth in paragraph (a) of this Section 4.3 and shall be delivered in accordance with Section 4.2 hereof.

5.     Dividends.  All dividends declared and paid by the Corporation on shares underlying the 2011 Restricted Stock Award shall be deferred until the lapsing of the Transfer Restrictions pursuant to Section 3.1 and shall be distributed only to the extent the underlying shares of Restricted Stock vest and are distributed in accordance with Section 3.  The deferred dividends shall be held by the Corporation for the account of the Grantee until the Vesting Date, at which time the dividends, with no interest thereon, shall be paid to the Grantee or her/his estate, as the case may be.  Upon the forfeiture of the shares of Restricted Stock pursuant to Section 3, any deferred dividends shall also be forfeited to the Corporation.

6.     No Right to Continued Retention.  Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Grantee any right with respect to continuance as an employee, nor shall this Agreement or the Plan interfere in any way with the right of the Corporation to terminate the Grantee's service as an employee at any time.

7.     Adjustments Upon Change in Capitalization.  If, by operation of Section 10 of the Plan, the Grantee shall be entitled to new, additional or different shares of stock or securities of the Corporation or any successor corporation or entity or other property, such new, additional or different shares or other property shall thereupon be subject to all of the conditions and restrictions which were applicable to the shares of Restricted Stock immediately prior to the event and/or transaction that gave rise to the operation of Section 10 of the Plan.
 
 
4
 
 
8.     Modification of Agreement; Adjustment of Performance Measures by the Committee.  Except as set forth in the Plan and herein, this Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto.   Notwithstanding the foregoing, the Committee shall adjust the 2011-2012 Performance Measures in the event that the Corporation acquires or disposes any material assets or business.

9.     Severability.  Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force and effect in accordance with their terms.

10.   Governing Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflict of laws principle, except to the extent that the application of New York law would result in a violation of the Canadian Business Corporation Act.

*                           *                         *

 
5
 
 
11.    Successors in Interest.  This Agreement shall inure to the benefit of and be binding upon any successor to the Corporation.  This Agreement shall inure to the benefit of the Grantee's heirs, executors, administrators and successors.  All obligations imposed upon the Grantee and all rights granted to the Corporation under this Agreement shall be binding upon the Grantee's heirs, executors, administrators and successors.

MDC PARTNERS INC.

By:
    
Name:   Michael Sabatino
Title:     Chief Accounting Officer

MDC PARTNERS INC.

By:
    
Name:  Mitchell Gendel
Title:    General Counsel

GRANTEE:

By:
    
Name:

Number of Shares of Restricted
Stock Hereby Granted:

 
6
 
EX-10.12.10 7 v212032_ex10-12x10.htm
 
Exhibit 10.12.10
 
FORM OF RESTRICTED STOCK UNIT (RSU) GRANT AGREEMENT (2011)

THIS AGREEMENT, made as of March 7, 2011 (the “Grant Date”), between MDC Partners Inc., a Canadian corporation (the “Corporation”), and _______________ (the “Grantee”), an employee of the Corporation.

WHEREAS, the Corporation has adopted the 2005 Stock Incentive Plan (the “Plan”) for the purpose of providing employees and consultants of the Corporation a proprietary interest in pursuing the long-term growth, profitability and financial success of the Corporation (except as otherwise expressly set forth herein, capitalized terms used in this Agreement shall have the definitions set forth in the Plan).

WHEREAS, the Human Resources & Compensation Committee (the “Committee”) of the Board of Directors has determined that it is in the best interests of the Corporation to make the award set forth herein, which award will vest on the third anniversary of the date hereof, subject to accelerated vesting upon achievement by the Corporation of specified financial growth targets during the calendar years 2011 – 2012.

WHEREAS, pursuant to the Plan, the Committee has determined to grant an Other Stock-Based Award to the Grantee in the form of restricted stock units (the “Restricted Stock Units”) of shares of Class A subordinate voting shares of the Corporation (“Class A Shares”), subject to the terms, conditions and limitations provided herein and in the Plan;
 
NOW, THEREFORE, the parties hereto agree as follows:

1.           Grant of Restricted Stock Units.

1.1        The Corporation hereby grants to the Grantee, on the terms and conditions set forth in this Agreement, the number of shares of Restricted Stock Units set forth under the Grantee's name on the signature page hereto.  Each Restricted Stock Unit issued under this Agreement shall represent the right to receive one issued and outstanding share of the Class A Shares of the Corporation, but shall be subject to the restrictions, conditions and other terms set forth in this Agreement and in the Plan.

1.2        The Grantee's rights with respect to all the shares of Restricted Stock Units shall remain forfeitable at all times prior to the Vesting Date (as defined below).

1.3        This Agreement shall be construed in accordance with, and subject to, the terms of the Plan (the provisions of which are incorporated herein by reference).

2.            Rights of Grantee.

With respect to the Restricted Stock Units awarded hereunder, the Grantee shall have no rights as a stockholder of the Corporation (including the right to vote or receive dividends) with respect to any Class A Shares of the Corporation until the date of issuance to the Grantee of a certificate or other evidence of ownership representing such Class A Shares in settlement thereof.  Prior to the Vesting Date, the Grantee shall not be entitled to transfer, sell, pledge, hypothecate or assign any portion of the Restricted Stock Units (collectively, the “Transfer Restrictions”) without the prior consent of the Company.
 
 
 
 
 
3.           Vesting; Lapse of Restrictions.
 
3.1        The Transfer Restrictions with respect to all the shares underlying the Restricted Stock Units granted under this Agreement shall lapse on the third (3rd) anniversary of the Grant Date (the “Vesting Date”), provided the Grantee continues to be serving as an employee of the Corporation until such Vesting Date; provided, further, that the Transfer Restrictions with respect to all the shares underlying the Restricted Stock Units shall lapse, if sooner, on the date of any one of the following “Permitted Acceleration Events”:  (i) the occurrence of a Change in Control (as defined in the Plan); (ii) the Grantee’s employment is terminated by the Corporation (other than for “cause”), or by the employee for “good reason” (as each such term may be defined in the Grantee’s underlying employment agreement); (iii) the Grantee’s death or disability; or (iv) achievement by the Corporation of the financial performance measure(s) set forth in Section 3.3 herein.   In no event shall the Grantee be vested or otherwise entitled to more than one hundred percent (100%) of the shares underlying the Restricted Stock Units granted pursuant to section 1.1 above.

3.2    Notwithstanding anything in this Agreement to the contrary, upon the resignation or termination of Grantee as an executive of the Corporation for cause (other than due to a Permitted Acceleration Event), all shares underlying the Restricted Stock Units in respect of which the Transfer Restrictions have not previously lapsed in accordance with Section 3.1 hereof shall be forfeited and automatically transferred to and reacquired by the Corporation at no cost to the Corporation, and neither the Grantee nor any heirs, executors, administrators or successors of such Grantee shall thereafter have any right or interest in such shares of Restricted Stock.

3.3           For purposes of the foregoing, the following terms shall have the following meanings:

(a)             “2011-2012 Performance Measures” means the achievement by the Corporation of EBITDA in the following amounts during the specified Performance Period (as defined in the Plan):
 
(i)           2011 Target.  In the event that the Corporation achieves EBITDA for the twelve-months ended December 31, 2011, in an amount equal to not less than the product of 2010 EBITDA (as defined below) multiplied by 1.05 (the “2011 Target”), then 50% of the 2011 Restricted Stock Units will vest on March 15, 2012.

(ii)           2011/2012 Cumulative Target.    In the event that the Corporation achieves EBITDA for the two (2) years ended December 31, 2012, in an amount equal to not less than the sum of (i) the 2011 Target, plus (ii) the product of the 2011 Target multiplied by 1.10 (such sum, the “2011/2012 Cumulative Target”), then 100% of the 2011 Restricted Stock Units will vest on March 15, 2013 (but only to the extent not previously vested).  The 2011/2012 Cumulative Target represents annual growth of 10% in EBITDA in 2011 and 2012, as compared to the 2011 Target.

(iii)           2011 Restricted Stock Award Limit.  In no event shall the Grantee be vested or otherwise entitled to more than one hundred percent (100%) of the shares of Restricted Stock granted as part of the 2011 Restricted Stock Units pursuant to section 1.1 above.
 
 
2
 
 
(b)           “Cause” means the Grantee’s termination by reason of (i) his/her continued or willful failure substantially to perform his/her duties for the Corporation, (ii) his/her willful and serious misconduct in connection with the performance of his/her duties for the Corporation, (iii) the Grantee’s conviction of, or entering a plea of guilty or nolocontendere to, a crime that constitutes a felony or a crime involving moral turpitude, (iv) his/her fraudulent or dishonest conduct or (v) his/her material breach of any of his/her obligations or covenants under any written policies of the Corporation or any written agreement between such Grantee and the Corporation.

(c)           “Change in Control” shall have the meaning set forth in Section 2(b) of the Plan, provided that the reference to “twenty-five percent (25%) or more of the combined voting power of MDC's then outstanding voting securities” in Section 2(b)(i) of the Plan shall, for purposes of this 2011 Restricted Stock Award, be amended to read “fifty percent (50%) or more of the combined voting power of MDC's then outstanding voting securities”; and, provided further, that the reference in Section 2(b)(iii)(A)(III)(3) to “twenty five percent (25%) or more of the combined voting power of the Surviving Corporation’s voting securities outstanding immediately following such transaction” shall, for purposes of this 2011 Restricted Stock Unit Award, be amended to read “fifty percent (50%) or more of the combined voting power of the Surviving Corporation’s voting securities outstanding immediately following such transaction”.

(d)           “Disability” shall mean a mental or physical condition of the Grantee rendering him unable to perform his/her duties for the Corporation for a period of six (6) consecutive months or for 180 days within any consecutive 365-day period and which is reasonably expected to continue indefinitely; provided that if, as of the date of determination, the Grantee is a party to an effective employment agreement with a different definition of “Disability” or any derivation of such term, the definition of “Disability” (or its derivation) contained in such employment agreement shall be substituted for the definition set forth above for all purposes hereunder.

(e)           “EBITDA” shall mean the Corporation’s share of consolidated earnings before interest, taxes, depreciation and amortization, plus any non-cash charges for stock-based compensation which were deducted in the calculation of EBITDA.

(f)           “2010 EBITDA” shall mean the Corporation’s EBITDA for the year ended December 31, 2010, as determined by the Compensation Committee following completion of Corporation’s audited financial statements for the year ended December 31, 2010.

4.           Delivery of Shares.

4.1        Certificates (or an electronic "book entry") representing those Class A Shares issued in settlement of Restricted Stock Units in respect of which the Transfer Restrictions have lapsed pursuant to Section 3.1 hereof shall be delivered to the Grantee as soon as practicable following the Vesting Date.

4.2           The Grantee, or the executors or administrators of the Grantee's estate, as the case may be, may receive, hold, sell or otherwise dispose of those shares of Restricted Stock Units delivered to him or her pursuant to this Section 4.2 free and clear of the Transfer Restrictions, but subject to compliance with all federal and state securities laws.
 
 
3
 
 
5.           Dividends.  All dividends declared and paid by the Corporation on shares of Restricted Stock Units shall be deferred until the lapsing of the Transfer Restrictions pursuant to Section 3.1.  The deferred dividends shall be held by the Corporation for the account of the Grantee until the Vesting Date, at which time the dividends, with no interest thereon, shall be paid to the Grantee or her/his estate, as the case may be.  Upon the forfeiture of the shares of Restricted Stock Units pursuant to Section 3.2, any deferred dividends shall also be forfeited to the Corporation.

6.           No Right to Continued Retention.  Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Grantee any right with respect to continuance as an employee, nor shall this Agreement or the Plan interfere in any way with the right of the Corporation to terminate the Grantee's service as an employee at any time.

7.           Adjustments Upon Change in Capitalization.  If, by operation of Section 10 of the Plan, the Grantee shall be entitled to new, additional or different shares of stock or securities of the Corporation or any successor corporation or entity or other property, such new, additional or different shares or other property shall thereupon be subject to all of the conditions and restrictions which were applicable to the shares of Restricted Stock Units immediately prior to the event and/or transaction that gave rise to the operation of Section 10 of the Plan.

8.           Modification of Agreement.  Except as set forth in the Plan and herein, this Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto.

9.           Severability.  Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force and effect in accordance with their terms.

10.         Governing Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflict of laws principle, except to the extent that the application of New York law would result in a violation of the Canadian Business Corporation Act.
 
*                      *                      *                      *                      *
 
 
4
 
 
11.         Successors in Interest.  This Agreement shall inure to the benefit of and be binding upon any successor to the Corporation.  This Agreement shall inure to the benefit of the Grantee's heirs, executors, administrators and successors.  All obligations imposed upon the Grantee and all rights granted to the Corporation under this Agreement shall be binding upon the Grantee's heirs, executors, administrators and successors.
 
MDC PARTNERS INC.
  
   
By:
    
Name:  Michael Sabatino
  
Title:    Chief Accounting Officer
  
   
MDC PARTNERS INC.
  
   
By:
    
Name:  Mitchell Gendel
  
Title:    General Counsel
  
   
GRANTEE:
  
   
By:
    
Name:
  
   
Number of Restricted Stock Units Hereby Granted:
  
 
 
5
 
EX-10.17.1 8 v212032_ex10-17x1.htm
Exhibit 10.17.1

LIMITED PARTNERSHIP UNIT PURCHASE AGREEMENT
 
LIMITED PARTNERSHIP UNIT PURCHASE AGREEMENT (this "Agreement") dated as of November 30, 2010, by and among MDC PARTNERS INC., a Canadian corporation (the "Purchaser"), NEWPORT PARTNERS HOLDINGS LP, an Ontario limited partnership ("Newport"), CAP C LP HOLDCO INC., an Ontario corporation ("Communications Holdco"), 2265174 ONTARIO LIMITED ("Kenna Holdco"), an Ontario corporation, GLENN CHILTON and PAUL QUIGLEY, each an individual resident in the Province of Ontario (collectively, the "Kenna Principals" and each  a "Kenna Principal").
 
WITNESSETH:
 
WHEREAS, in order to facilitate a sale to the Purchaser, each of Newport and the Kenna Principals have caused Kenna Communications LP ("Kenna LP") to be formed for the purpose of demerging the businesses of Capital C Communications LP ("Cap C LP"), which consisted of a technology based, customer relationship business and related database marketing services business (the "Kenna Business") and the separate business of rendering advertising, customer relationship, marketing or communications services (the "Cap C Business") (see reorganization chart attached as Exhibit A (the "Reorganization");
 
AND WHEREAS immediately prior to the execution and delivery of this Agreement, Newport, Communications Holdco, the Kenna Principals and Tony Chapman and Victoria Calvelery (the "Cap C Principals") consummated the transactions contemplated by the Reorganization.  In connection with such Reorganization, Newport and the Kenna Principals caused Cap C LP to transfer all of the assets utilized as part of the Kenna Business (the "Acquired Kenna Assets") and certain disclosed liabilities and obligations of the Kenna Business to Kenna LP, pursuant to an Assignment and Assumption Agreement, and certain ancillary documents (collectively, the "Conveyance Documents") following which Cap C LP was dissolved;
 
AND WHEREAS, immediately following the Reorganization, Newport holds 67.13% of the limited partnership units of Kenna LP (the "Purchased Units"), and the Purchaser wishes to purchase the Purchased Units from Newport, such that after giving effect to such purchase, the Purchaser will own 67.13% of Kenna LP and the Kenna Principals will own 32.87% of Kenna LP, indirectly through their equity interest in Communications Holdco;
 
AND WHEREAS simultaneous with the execution and delivery of this Agreement, the Purchaser, Kenna Holdco, the Kenna Principals and Kenna LP are executing and delivering an amended and restated limited partnership agreement in respect of Kenna LP;
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

 
 
 
ARTICLE I
SALE OF THE PURCHASED UNITS
 
Section 1.1     Sale of the Purchased Units.  Subject to the terms and conditions herein stated, Newport agrees to sell, assign, transfer and deliver to the Purchaser on the Closing Date (as defined in Section 2.2), and the Purchaser agrees to purchase from Newport on the Closing Date, the Purchased Units.
 
ARTICLE II
PURCHASE PRICE AND CLOSING
 
Section 2.1     Purchase Price.
 
2.1.1              Purchase Price.  In full consideration for the purchase by the Purchaser of the Purchased Units, the purchase price (the "Purchase Price") shall be calculated and paid by the Purchaser to Newport, as set forth below.
 
(a)           Closing Payment.  At the Closing, the Purchaser shall pay to Newport an amount equal to CDN $17,000,000.
 
(b)           Payment of Purchase Price.  At the Closing, the Purchaser shall pay the Purchase Price by wire transfer of immediately available funds as follows:
 
 
(i)
$16,060,000 to the order of DB Newport LLC (as successor to Fortress Credit Corp.); and
 
 
(ii)
an amount equal to $940,000 to Newport.
 
(c)           For the purposes of any wire transfers contemplated in this Agreement, the following particulars of accounts into which funds are to be issued:
 
 
(i)
in respect of Fortress Credit Corp.:
 
 
Destination Bank:
TD Canada Trust
   
55 King Street West, Toronto, ON
 
Bank No.:
004
 
Transit No.:
10202
 
Account No.:
0690-5364551
 
SWIFT Code:
TDOMCATTTOR
 
Beneficiary:
Torys LLP, in Trust
 
Client Contact:
Amanda Balasubramanian
   
(416) 865-8137

 
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(ii)
in respect of Newport:
 
 
Destination Bank:
Royal Bank of Canada
   
Main Branch Royal Bank Plaza
   
200 Bay Street, Toronto, ON
 
Bank No.:
003
 
Transit No.:
00002
 
Account No.:
103-328-1
 
SWIFT Code:
ROYCCAT2
 
Beneficiary:
Newport Partners Holdings LP
 
Client Contact:
Suzanne Corkery
   
(416) 867-7533
 
Section 2.2     Closing.  The closing of the transactions contemplated by this Agreement (the "Closing") shall take place simultaneously with the execution and delivery of this Agreement on the date hereof, at the offices of Fogler, Rubinoff LLP, 95 Wellington Street West, Suite 1200, Toronto, Ontario, M5J 2Z9, or by the exchange of documents and instruments by mail, courier, telecopy and wire transfer to the extent mutually acceptable to the parties hereto (such date is herein referred to as the "Closing Date").
 
Section 2.3    Third Party Consents. Anything in this Agreement to the contrary notwithstanding, in the event an assignment or purported assignment to Kenna LP of any of the agreements, contracts or commitments of the Kenna Business pursuant to the Conveyance Documents or any claim, right or benefit arising thereunder or resulting therefrom, without the consent of other parties thereto, would constitute a breach thereof or would not result in Kenna LP receiving all of the rights thereunder, such agreement, contract or commitment shall be deemed not to have been assigned to Kenna LP.  In those circumstances, if requested by the Purchaser, after the Closing, each Kenna Principal will use their best efforts to obtain any such consent (excluding the payment of any fees).  If such consent is not obtained and is required to effectively assign any agreement, contract or commitment to Kenna LP, the Kenna Principals will cooperate to provide Kenna LP with the full claims, rights and benefits thereunder, including enforcement at the cost and for the benefit of Kenna LP of any and all rights of Communications Holdco, against a third party thereto arising out of the breach or cancellation by such third party or otherwise, and any amount received by Communications Holdco in respect thereof shall be held for and paid over to Kenna LP.
 
Section 2.4    Further Assurance; Post-Closing Cooperation. Newport and the Kenna Indemnitors (as defined in Article III.B) will, from time to time, at the reasonable request of the Purchaser, whether at or after the Closing Date, execute and deliver such other and further instruments of conveyance, assignment, transfer and consent reasonably required for the conveyance, assignment and transfer of the Assets (as defined in the Conveyance Documents) pursuant to the Conveyance Documents.  Following the Closing, upon reasonable advance notice, each party will afford each other party, its counsel and its accountants, during normal business hours, reasonable access to the books, records and other data relating to Newport or the Kenna Indemnitors or any of the Kenna Indemnitors' respective subsidiary entities, if any, in its possession with respect to periods prior to the Closing and the right to make copies and extracts therefrom, to the extent that such access may be reasonably required by the requesting party strictly in connection with (i) the preparation of tax returns, (ii) the determination and enforcement of rights and obligations under this Agreement, (iii) compliance with the requirements of any Governmental or Regulatory Authority (as defined in Section 3.1.2), (iv) any actual or threatened action or proceeding, and (v) the verification of the “Assets” and “Assumed Liabilities” (as such terms are defined in the Conveyance Documents), in each case only to the extent relating to the Kenna Business.
 
 
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ARTICLE III
REPRESENTATIONS OF NEWPORT, COMMUNICATIONS HOLDCO,
KENNA HOLDCO AND THE KENNA PRINCIPALS
 
A.  Newport represents and warrants to the Purchaser, as follows:
 
Section 3.1         Execution and Validity of Agreements; Restrictive Documents.
 
3.1.1              Execution and Validity.  Newport has the full legal right and capacity to enter into this Agreement and to perform its obligations hereunder.  This Agreement has been duly and validly executed and delivered by Newport and, assuming due authorization, execution and delivery by the other parties hereto, constitutes a legal, valid and binding obligation of Newport, enforceable against Newport in accordance with its terms.
 
3.1.2              No Restrictions.  There is no suit, action, claim, investigation or inquiry by any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of Canada, any foreign country or any domestic or foreign state, county, city or other political subdivision ("Governmental or Regulatory Authority"), and no legal, administrative or arbitration proceeding is pending or, to Newport's knowledge, threatened against Newport with respect to the execution, delivery and performance of this Agreement or the transactions contemplated hereby or any other agreement entered into by Newport in connection with the transactions contemplated hereby.
 
3.1.3              Non-Contravention.  The execution, delivery and performance by Newport of its obligations hereunder and the consummation of the transactions contemplated hereby, will not as of the Closing Date: (a) result in the violation by Newport of any statute, law, rule, regulation or ordinance (collectively, "Laws"), or any judgment, decree, order, writ, permit or license (collectively, "Orders"), of any Governmental or Regulatory Authority, applicable to Newport, or (b) conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require Newport to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of the assets or properties of Newport, under any of the terms, conditions or provisions of any agreement, commitment, lease, license, evidence of indebtedness, letter of credit, mortgage, indenture, security agreement, instrument, note, bond, franchise, permit, concession, or other instrument, obligation or agreement of any kind, written or oral (collectively, the "Newport Contracts"), to which Newport is a party or by which Newport or any of its assets or properties are bound.
 
 
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3.1.4              Approvals and Consents.  Other than the consents required pursuant to the Credit Agreement (as defined below) to the Reorganization and any corporate or partnership consents required for the Reorganization, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Newport Contract for the execution and delivery of this Agreement by Newport, the performance by Newport of its obligations hereunder or the consummation of the transactions contemplated hereby. For the purposes of this Agreement, the term "Credit Agreement" means that certain Credit Agreement dated as of December 7, 2006 by and among Newport Finance Corp., as borrower, Newport, Newport Private Yield LP, NPY GP Trust, Newport Partners Commercial Trust, Newport Partners Trustee Inc., Newport Partners GP Inc. and NPY Beneficiary Inc., as parent obligors, DB Newport LLC (as successor to Fortress Credit Corp.), as administrative agent and the lenders from time to time  party thereto (as amended by the First Amendment to Credit Agreement dated as of May 9, 2007, the Second Amendment to the Credit Agreement dated as of July 5, 2007, the Third Amendment to Credit Agreement and Consent dated as of January 7, 2008 and the Fourth Amendment to Credit Agreement and Consent dated September 30, 2008).
 
3.1.5              Limited Partnership Units; Equity Ownership; No Options or Restrictions.  Newport owns of record and beneficially has valid title to 67.13% of the limited partnership units of the Kenna LP, which constitute the Purchased Units, and such ownership shall be free and clear of all Liens except for those Liens in respect of which the personal property security registrations set out on Schedule 3.1.5 have been filed, which Liens shall not apply in respect of the Purchased Units, as confirmed by evidence to be delivered pursuant to Section 5.10 hereof.
 
B.  Communications Holdco, Kenna Holdco and the Kenna Principals (the "Kenna Indemnitors"), jointly and severally, represent and warrant to the Purchaser, as follows:
 
Section 3.2          Existence and Good Standing.
 
3.2.1              Full Power.  Each of Communications Holdco, Kenna Holdco and the Kenna Principals has the full power and authority to enter into this Agreement and the Conveyance Documents and to perform their respective obligations hereunder and thereunder.  The execution and delivery of this Agreement and the Conveyance Documents by Communications Holdco, and the consummation by such parties of the transactions contemplated hereby and thereby have been duly authorized by all required company action on behalf of such parties.  This Agreement and the Conveyance Documents have been duly and validly executed and delivered by Communications Holdco and constitute a legal, valid and binding obligation of Communications Holdco, enforceable against it in accordance with their terms.  Communications Holdco, Kenna Holdco and the Kenna LP are each duly organized and are each validly existing under the laws of the Province of Ontario, with the full power and authority to own their respective properties and to carry on their respective businesses, including the Kenna Business, all as and in the places where such properties are now owned or operated or such businesses are now being conducted except where such failure to qualify would not have a material adverse effect on the respective businesses.  The Kenna LP, Kenna Holdco and Communications Holdco are each duly qualified, licensed or admitted to do business and each of them is in good company and tax standing in the jurisdictions set forth on Schedule 3.2.1, which are the only jurisdictions in which the ownership, use or leasing of their respective assets and properties, or the conduct or nature of their respective businesses, makes such qualification, licensing or admission necessary.
 
 
- 5 -
 
 
3.2.2              Capital Stock; Equity Ownership; No Options or Restrictions; Subsidiaries and Investments.  There are no outstanding subscriptions, options, warrants, rights (including "phantom stock rights"), calls, commitments, understandings, conversion rights, rights of exchange, plans or other agreements of any kind providing for the purchase, issuance or sale of any equity or ownership or proprietary interest of the Kenna LP, or which grants any Person other than the Kenna Principals and Newport the right to share in the earnings of the Kenna LP.  The Kenna LP does not, directly or indirectly, own any equity interest in or have any voting rights with respect to any Person.  There are no outstanding subscriptions, options, rights, warrants, calls, commitments or arrangements of any kind to acquire any of the Purchased Units and there are no agreements or understandings with respect to the sale or transfer of any of the Purchased Units other than this Agreement. There is no suit, action, claim, investigation or inquiry by any Governmental or Regulatory Authority, and no legal, administrative or arbitration proceeding pending or threatened, against Communications Holdco, the Kenna LP, the Kenna Principals or any of the Purchased Units, with respect to the execution, delivery and performance of this Agreement or the Conveyance Documents or the transactions contemplated hereby or thereby or any other agreement entered into by Newport in connection with the transactions contemplated hereby or thereby.
 
3.2.3              Litigation.  Except as set forth on Schedule 3.2.3, there is no action, suit, proceeding at law or in equity by any Person, or any arbitration or any administrative or other proceeding by or before (or to the knowledge of the Kenna Principals, Kenna Holdco or Communications Holdco, any investigation by) any Governmental or Regulatory Authority, pending or, to the knowledge of the Kenna Principals, Kenna Holdco or Communications Holdco, threatened, against the Kenna Principals, Kenna Holdco or Communications Holdco with respect to this Agreement or the transactions contemplated hereby or by the Conveyance Documents, or any other agreement entered into by the Kenna LP, Kenna Holdco or Communications Holdco in connection with the transactions contemplated hereby, or against or affecting the Kenna Business or the assets transferred to the Kenna LP pursuant to the Conveyance Documents; and no acts, facts, circumstances, events or conditions occurred or exist which are a basis for any such action, proceeding or investigation.  None of the Kenna Principals, Kenna Holdco or Communications Holdco is subject to any Order entered in any lawsuit or proceeding.
 
3.2.4              Compliance with Laws.  Each of the Kenna Principals, Kenna Holdco and Communications Holdco is in compliance with all applicable Laws and Orders, except in each case where the failure to so comply would not reasonably be expected to have a Material Adverse Effect (as defined below). Each of the Kenna Principals, Kenna Holdco and Communications Holdco has all Required Permits, except where the failure to have such Required Permits would not reasonably be expected to have a Material Adverse Effect.  All of such Required Permits are in full force and effect and no action or claim is pending, nor to the knowledge of Communications Holdco, the Kenna Principals or Kenna Holdco threatened, to revoke or terminate any such Required Permit or declare any such Required Permit invalid in any respect. For the purposes of this Agreement, (a) the term "Material Adverse Effect" means, in respect of any Person, any effect or effects that are materially adverse to the operations, business, prospects, assets or financial condition of such Person, and (b) the term "Required Permits" means, collectively, in respect of any Person, all permits, licenses, and other government certificates, authorizations and approvals required by any Governmental or Regulatory Authority for the operation of such Person's business.
 
 
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3.2.5              Non-Contravention; Approvals and Consents.  The execution, delivery and performance by the Kenna Principals, Communications Holdco and Kenna Holdco of their respective obligations under this Agreement and the Conveyance Documents and the consummation of the transactions contemplated hereby and thereby, as applicable, will not (a) violate, conflict with or result in the breach of any provision of the declaration and limited partnership agreement (or other comparable documents) of Communications Holdco or Kenna Holdco; (b) result in the violation by Communications Holdco, the Kenna Principals and Kenna Holdco of any Laws or Orders of any Governmental or Regulatory Authority, or (c) if the consents and notices set forth in Schedule 3.2.5 are obtained, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require Communications Holdco, the Kenna Principals or Kenna Holdco to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of their respective assets or properties, or under any of the terms, conditions or provisions of any Contract (as defined in Section 3.2.12) to which Communications Holdco, the Kenna Principals or Kenna Holdco is a party or by which Communications Holdco, the Kenna Principals or Kenna Holdco or any of their respective assets or properties are or were bound. Except as set forth in Schedule 3.2.5, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which Communications Holdco, the Kenna Principals or Kenna Holdco is a party, or by which their respective assets or properties were or are bound, for the execution and delivery of this Agreement or the Conveyance Documents, the performance by Communications Holdco, the Kenna Principals or Kenna Holdco of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby.
 
C.           Each of Newport and the Kenna Indemnitors (jointly and severally as among the Kenna Indemnitors) and severally between Newport and the Kenna Indemnitors, represent and warrant to the Purchaser, as follows:
 
3.2.6              Financial Statements and No Material Changes.
 
(a)           Schedule 3.2.6(a)(i) sets forth (i) the unaudited balance sheets of the Kenna Business as at December 31, 2008 and December 31, 2009 and the related unaudited statements of operations for the fiscal years then ended, and (ii) the unaudited balance sheets of the Kenna Business as at October 31, 2010 (the "Balance Sheet") and the related unaudited statements of operations for the ten months then ended.  Such financial statements have been prepared in accordance with GAAP throughout the periods indicated except as set forth on Schedule 3.2.6(a)(ii).  Each balance sheet fairly presents the financial condition of the entity or entities included within such balance sheet, at the respective date thereof, and reflects all claims against and all debts and liabilities of such entities, fixed or contingent, as at the respective date thereof, required to be shown thereon under GAAP and the related statements of operations fairly present the results of operations for the respective period indicated.  Except for the transactions consummated pursuant to the Conveyance Documents, since October 31, 2010 (the "Balance Sheet Date"), there has been no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects of Cap C LP and the Kenna Business.
 
 
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(b)           Schedule 3.2.6(b)(i) sets forth (i) the unaudited consolidated balance sheets for Cap C LP as at December 31, 2008 and December 31, 2009, and the related unaudited consolidated statements of operations for the fiscal years then ended, and (ii) the unaudited consolidated balance sheet of Cap C LP as at September 30, 2010 (the "Current Balance Sheet") and the related unaudited consolidated statements of operations for the nine months then ended.  Such financial statements have been prepared in accordance with GAAP throughout the periods indicated except as set forth on Schedule 3.2.6(b)(ii).  Each balance sheet fairly presents the financial condition of the entity or entities included within such balance sheet, at the respective date thereof, and reflects all claims against and all debts and liabilities of such entities, fixed or contingent, as at the respective date thereof, required to be shown thereon under GAAP and the related statements of operations fairly present the results of operations for the respective period indicated.  Except for the transactions consummated pursuant to the Conveyance Documents, since September 30, 2010 (the "Current Balance Sheet Date"), there has been no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects of Cap C LP and the Kenna Business.
 
3.2.7              Books and Records.  The Kenna Principals have delivered to the Purchaser complete and correct copies of the partnership declaration and the partnership agreement of the Kenna LP in effect immediately prior to the execution of this Agreement.
 
3.2.8              Title to Properties; Encumbrances.  The Kenna LP has good and valid title to, or enforceable leasehold interests in or valid rights under contract to use, all the properties and assets owned or used in the Kenna Business, including, without limitation: (a) all the properties and assets reflected in the Balance Sheet; (b) all the properties and assets purchased or otherwise contracted for by the Kenna LP since the Balance Sheet Date (except for properties and assets reflected in the Balance Sheet or acquired or otherwise contracted for since the Balance Sheet Date that have been sold or otherwise disposed of in the ordinary course of business); and (c) all monies received from clients of the Kenna Business (including, without limitation, all monies received in connection with the Kenna Business' media purchase obligations on behalf of its clients), in each case free and clear of all Liens, except for Liens set forth on Schedule 3.2.8.
 
3.2.9              No Prior Activities.  The Kenna LP was created in order to facilitate a sale to the Purchaser and solely for the purpose of engaging in the transactions contemplated by the Conveyance Documents and this Agreement.  The Kenna LP has not engaged in any activities other than in connection with its formation, the negotiation, execution and delivery of this Agreement, the Conveyance Documents and the Kenna LP partnership agreement, and the consummation of the transactions contemplated hereby and thereby.  Except for liabilities incurred in connection with its formation and the consummation of the transactions contemplated by this Agreement, the Conveyance Documents and the Kenna LP partnership agreement, the Kenna LP has not incurred any liabilities or entered into any agreements or arrangements with any Person.
 
 
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3.2.10            Owned Real Property.  The Kenna LP does not own any real property (including ground leases) or hold a freehold interest in any real property or any option or right of first refusal or first offer to acquire any real property.
 
3.2.11            Leased Real Property.  Schedule 3.2.11 contains an accurate and complete list of all real property leases, subleases, real property licenses and other occupancy agreements, including without limitation, any modification, amendment or supplement thereto and any other related document or agreement executed or entered into by the Kenna LP, or by Cap C LP in relation to the Kenna Business and assigned to the Kenna LP pursuant to the Conveyance Documents, to which the Kenna LP is a party (as lessee, sublessee, lessor, sublessor, licensor or licensee) (each individually, a "Real Property Lease" and collectively, the "Real Property Leases").  Each Real Property Lease is valid, binding and in full force and effect; all rents and additional rents and other sums, expenses and charges due thereunder to date on each Real Property Lease have been paid; and the lessee has been in peaceable possession since the commencement of the original term of each Real Property Lease and no waiver, indulgence or postponement of the lessee's obligations thereunder has been granted by the lessor.  There exists no default or event of default by Cap C LP or the Kenna LP or to the knowledge of Newport or the Kenna Principals by any other party to any Real Property Lease; and there exists no occurrence, condition or act (including the purchase of the Purchased Units hereunder) which, with the giving of notice, the lapse of time or the happening of any further event or condition, would become a default or event of default by Cap C LP or the Kenna LP under any Real Property Lease, and there are no outstanding claims of breach or indemnification or notice of default or termination of any Real Property Lease.  Cap C LP held and the Kenna LP now holds the leasehold estate on all the Real Property Leases free and clear of all Liens except as set forth on Schedule 3.2.11.  The real property leased by Cap C LP and/or the Kenna LP is in a state of good maintenance and repair (ordinary wear and tear excepted), adequate and suitable for the purposes for which it is presently being used, and there are no material repair or restoration works likely to be required in connection with any of the leased real properties.  Cap C LP was, and the Kenna LP now is, in physical possession and actual and exclusive occupation of the whole of each of its leased properties.  No environmental claim has been made against Cap C LP or the Kenna LP with respect to any Real Property Lease.  Neither Cap C LP nor the Kenna LP owes any brokerage commission with respect to any of the Real Property Leases.
 
 
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3.2.12            Contracts.  For purposes of this Agreement, the term “Contract” shall mean any written agreement, commitment, lease, license, evidence of indebtedness, letter of credit, mortgage, indenture, security agreement, instrument, note, bond, franchise, permit, concession, or other instrument, obligation or agreement of any kind. Schedule 3.2.12 hereto contains an accurate and complete list of the following Contracts to which the Kenna LP is currently a party or Cap C LP was a party prior to the assignment of the same to the Kenna LP pursuant to the Conveyance Documents (and Schedule 3.2.12 indicates if a listed item has not been assigned as of the Closing Date (in which case, Section 2.3 shall apply) to and assumed by the Kenna LP pursuant to the Conveyance Documents): (a) all Plans (as such term is defined in Section 3.2.24), (b) any personal property lease with a fixed annual rental of $10,000 or more, (c) any Contract relating to capital expenditures which involves payments of $50,000 or more in any single transaction or series of related transactions, (d) any Contract relating to the making of a loan or advance to or investment in, any other Person, (e) any agreement, instrument or arrangement evidencing or relating in any way to indebtedness for money borrowed or to be borrowed, whether directly or indirectly, by way of loan, purchase money obligation, guarantee (other than the endorsement of negotiable instruments for collection in the ordinary course of business), conditional sale, purchase or otherwise, (f) any management service, employment, consulting or similar type of Contract which is not cancelable by the Kenna LP or Cap C LP without penalty or other financial obligation within 30 days, (g) any Contract limiting the Kenna LP's freedom to engage in any line of business or to compete with any other Person, including, without limitation, any agreement limiting the ability of the Kenna LP or Cap C LP or any of their respective affiliates to take on competitive accounts during or after the term thereof, (h) any collective bargaining or union agreement, (i) any Contract between the Kenna LP, on the one hand, and any officer or director thereof, on the other hand, not covered by subsection (f) above (including indemnification agreements), (j) any secrecy or confidentiality agreement (other than standard confidentiality agreements in computer software license agreements or agreements with clients entered into in the ordinary course of business), (k) any agreement with respect to any Intellectual Property (as defined in Section 3.2.17) other than "shrink-wrap" and similar end-user licenses, (l) any agreement with a client required to be listed on Schedule 3.2.21, (m) any agreement, indenture or other instrument which restricts the ability of the Kenna LP or any of its subsidiaries to make distributions in respect of its equity, (n) any joint venture agreement involving a sharing of profits not covered by clauses (a) through (m) above, (o) any Contract (not covered by another subsection of this Section 3.2.12) which involves $50,000 or more over the unexpired term thereof and is not cancelable by the Kenna LP, without penalty or other financial obligation within 30 days; provided, however, Contracts of a similar nature which individually do not involve $50,000 but in the aggregate involve $50,000 or more over the unexpired terms shall also be set forth on Schedule 3.2.12, (p) any Contract with a media buying service; provided, however, commitments to purchase media in the ordinary course of business do not have to be set forth on Schedule 3.2.12, and (q) any agreement (not covered by another subsection of this Section 3.2.12) between the Kenna LP, on the one hand, and any member of the Kenna LP, on the other hand. Notwithstanding anything to the contrary contained above, (x) commitments to media and production expenses which are fully reimbursable from clients, and (y) estimates or purchase orders given in the ordinary course of business relating to the execution of projects, do not have to be set forth on Schedule 3.2.12. Each Contract which has been assigned to and assumed by the Kenna LP pursuant to the Conveyance Documents, including without limitation, those required to be set forth on Schedule 3.2.12, is in full force and effect, and there exists no default or event of default by the Kenna LP or Cap C LP or, to the knowledge of Newport or the Kenna Principals, by any other party, or occurrence, condition, or act (including the purchase of the Purchased Units hereunder) which, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default or event of default thereunder by the Kenna LP, and there are no outstanding claims of breach or indemnification or notice of default or termination of any such Contract.
 
 
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3.2.13            Litigation. Except as set forth on Schedule 3.2.13, there is no action, suit, proceeding at law or in equity by any Person, or any arbitration or any administrative or other proceeding by or before (or to the knowledge of Newport, the Kenna Principals, Kenna Holdco or Communications Holdco, any investigation by) any Governmental or Regulatory Authority, pending or, to the knowledge of the Kenna Principals, Kenna Holdco or Communications Holdco, threatened, against the Kenna LP, the Kenna Business or Cap C LP with respect to this Agreement or the transactions contemplated hereby or by the Conveyance Documents, or any other agreement entered into by the Kenna Business in connection with the transactions contemplated hereby, or against or affecting the Kenna Business, and no acts, facts, circumstances, events or conditions occurred or exist which are a basis for any such action, proceeding or investigation.  The Kenna Business is not subject to any Order entered in any lawsuit or proceeding.
 
3.2.14            Taxes.  Cap C LP has timely filed, or caused to be filed, taking into account any valid extensions of due dates, completely and accurately, all federal and provincial tax or information returns required under the statutes, rules or regulations of such jurisdictions to be filed by it for all fiscal periods of Cap C LP. The term "Taxes" means taxes, duties, charges or levies of any nature imposed by any taxing or other Governmental or Regulatory Authority, including without limitation income, gains, capital gains, surtax, capital, franchise, capital stock, value-added taxes, taxes required to be deducted from payments made by the payor and accounted for to any tax authority, employees' income withholding, back-up withholding, withholding on payments to foreign Persons, social security, national insurance, unemployment, worker's compensation, payroll, disability, real property, personal property, sales, use, goods and services or other commodity taxes, business, occupancy, excise, customs and import duties, transfer, stamp, and other taxes (including interest, penalties or additions to tax in respect of the foregoing), and includes all taxes payable by Cap C LP pursuant to the Income Tax Act (Canada) (the "ITA") or any similar provision of provincial or foreign law, but only to the extent that such Taxes relate to or are in connection with the Kenna Business which has been heretofore carried on by Cap C LP.  All Taxes shown on said returns to be due and all other Taxes due and owing (whether or not shown on any Tax return) have been paid and all additional assessments received prior to the date hereof have been paid or are being contested in good faith, in which case, such contested assessments are set forth on Schedule 3.2.14.  Cap C LP has collected all sales, use, goods and services, harmonized or other commodity Taxes required to be collected and remitted or will remit the same to the appropriate taxing authority within the prescribed time periods.  Cap C LP has withheld all amounts required to be withheld on account of Taxes from amounts paid to employees, former employees, directors, officers, members, residents and non-residents and remitted or will remit the same to the appropriate taxing authorities within the prescribed time periods.  Newport and/or the Kenna Principals have delivered or caused to be delivered to the Purchaser correct and complete copies of all federal or provincial income tax returns or information returns filed with respect to Cap C LP that were requested by the Purchaser.  Except as set forth on Schedule 3.2.14, none of the federal or provincial income tax returns or information returns of Cap C LP have, to the knowledge of Newport, Communications Holdco or the Kenna Principals, ever been audited by the Canada Revenue Agency or any other Governmental or Regulatory Authority.  None of Newport, the Kenna Principals or Communications Holdco are non-residents of Canada within the meaning of the ITA.
 
3.2.15            Liabilities.  Except as incurred in the ordinary course since October 31, 2010 or as set forth in the Conveyance Documents, the Balance Sheet, the Current Balance Sheet or on Schedule 3.2.15, neither the Kenna Business, the Kenna LP nor Cap C LP has any outstanding claims, liabilities or indebtedness of any nature whatsoever as to which the Kenna Business, the Kenna LP or Cap C LP is or may become responsible (collectively in this Section 3.2.15, "Liabilities"), whether accrued, absolute or contingent, determined or undetermined, asserted or unasserted, and whether due or to become due.
 
 
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3.2.16            Insurance.  Schedule 3.2.16 contains a true and complete list (including the names and addresses of the insurers, the names of the Persons to whom such insurance policies have been issued, the expiration dates thereof, the annual premiums and payment terms thereof, whether it is a "claims made" or an "occurrence" policy and a brief description of the interests insured thereby) of all liability, property, workers' compensation and other insurance policies currently in effect that insure the property, assets and employees of the Kenna Business, including but not limited to the property, assets, business and employees of Cap C LP that were transferred to the Kenna LP pursuant to the Conveyance Documents (other than self-obtained insurance policies by such employees). Each such insurance policy is valid and binding and in full force and effect, all premiums due thereunder have been paid and neither Cap C LP, the Kenna Business nor the Kenna LP has received any notice of cancellation or termination in respect of any such policy or default thereunder.  Neither Cap C LP, the Kenna Business nor the Kenna LP, or to the knowledge of Newport, the Kenna Principals or Communications Holdco, the Person to whom such policy has been issued has received notice that any insurer under any policy referred to in this Section 3.2.16 is denying liability with respect to a claim thereunder or defending under a reservation of rights clause.  Within the last two years neither Cap C LP, the Kenna Business nor the Kenna LP has filed for any claims exceeding $25,000 against any of its insurance policies, exclusive of automobile and health insurance policies. None of such policies shall lapse or terminate by reason of the transactions contemplated by this Agreement or the Conveyance Documents and all such policies shall continue in effect after the Closing Date for the benefit of the Kenna LP.  Neither Cap C LP, the Kenna Business nor the Kenna LP has received any notice of cancellation of any such policy.  Neither Cap C LP, the Kenna Business nor the Kenna LP has received written notice from any of its insurance carriers that any premiums will be materially increased in the future or that any insurance coverage listed on Schedule 3.2.16 will not be available in the future on substantially the same terms now in effect, unless as a result of the Reorganization or the change of control contemplated herein. Neither Cap C LP, the Kenna Business nor the Kenna LP has been refused any insurance or required to pay higher than normal or customary premiums, nor has its coverage been limited by any insurance carrier to which it has applied for insurance during the last three years.
 
3.2.17            Intellectual Property.
 
Definitions. For purposes of this Agreement, the following terms have the following definitions:
 
 
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(a)           "Intellectual Property" shall include, without limitation, any or all of the following and all rights associated therewith: (a) all domestic and foreign patents, and applications therefor, and all reissues, re-examinations, divisions, renewals, extensions, continuations and continuations-in-part thereof; (b) all inventions (whether patentable or not), invention disclosures, improvements; (c) trade secrets, confidential and proprietary information, know how, technology, technical data and customer lists, financial and marketing data, pricing and cost information, business and marketing plans, databases and compilations of data, rights of privacy and publicity, and all documentation relating to any of the foregoing; (d) all copyrights, copyright registrations and applications therefor, unregistered copyrights, the content of all World Wide Web sites of a Person and all other rights corresponding thereto throughout the world; (e) all mask works, mask work registrations and applications therefor; (f) all industrial designs and any registrations and applications therefor; (g) all trade names, corporate names, logos, trade dress, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith; (h) any and all Internet domain names and Web sites (including all software and applications, and all components and/or modules thereof), used in connection therewith; and (i) all computer software including all source code, object code, firmware, development tools, files, records and data, all media on which any of the foregoing is recorded, and all documentation related to any of the foregoing.
 
(b)           "Intellectual Property of the Kenna LP" shall mean any Intellectual Property that is owned by the Kenna LP (including Intellectual Property transferred by Cap C LP to the Kenna LP pursuant to the Conveyance Documents), including Registered IP and Unregistered IP.
 
(c)           "Licensed Intellectual Property" means any Intellectual Property owned by another Person that is used by the Kenna LP in the operation of the Kenna Business, including Off-the-Shelf Software (as defined below), but excluding rights in or to materials created for clients of the Kenna Business, to the extent to which such (x) client of the Kenna Business is the first owner of copyright in such materials or (y) the materials are subject to a written assignment of copyright in favour of clients of the Kenna Business.

 
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3.2.18            Representations. Except as set forth on Schedule 3.2.18, all of the Intellectual Property of Cap C LP used in the Kenna Business was transferred to the Kenna LP pursuant to the Conveyance Documents. Schedule 3.2.18 hereto contains an accurate and complete list of all the Intellectual Property of the Kenna LP and the Licensed Intellectual Property including, without limitation, (a) patents, patent applications, registered trademarks, applications for registered trademarks, registered service marks, domain names, applications for registered service marks, logos, registered copyrights and applications for registered copyrights, and all registered design rights and applications thereto which are owned by the Kenna LP (the "Registered IP"), (b) all unregistered trademarks, unregistered service marks and material unregistered copyrights and all designs which are owned by the Kenna LP (the "Unregistered IP") and (c) all Licensed Intellectual Property that is material to the operation of the Kenna Business, other than widely distributed off-the-shelf applications subject to shrink-wrap and similar non-negotiated end-user license agreements ("Off-the-Shelf Software"). Except as set forth on Schedule 3.2.18, the registrations and applications of the Registered IP listed on Schedule 3.2.18, are in the name of Cap C LP, and are valid, in proper form, enforceable and subsisting, all necessary registration and renewal fees in connection with such registrations have been made and all necessary documents and certificates in connection with such registrations have been filed with the relevant patent and Internet domain names, copyrights and trademark authorities in the United States or other jurisdictions where the Kenna Business is conducted for the purposes of maintaining such Intellectual Property registrations, and applications therefor, and no actions (including filing of documents or payments of fees) are due within ninety (90) days after the Closing.  No registration, or application therefor, for any of the Registered IP has lapsed, expired, or been abandoned, and no such registrations, or applications therefor, are the subject of any opposition, interference, cancellation, or other legal, quasi-legal, or governmental proceeding pending before any governmental, registration, or other authority in any jurisdiction. Except as set forth on Schedule 3.2.18, (i) the Kenna LP is the sole and exclusive owner of all rights, title and interest in and to the Intellectual Property of the Kenna LP, free and clear of all Liens, (ii) no Person has any rights to use any of the Intellectual Property of the Kenna LP, (iii) neither Cap C LP nor the Kenna LP has granted to any Person, or authorized any Person to retain, any ownership in the Intellectual Property of the Kenna LP, and (iv) all Licensed Intellectual Property in the Kenna LP's possession or used in the operation of the Kenna Business has been properly licensed from the owner of such Intellectual Property, and the Kenna LP possesses all license agreements, certificates or documentation sufficient to substantiate such rights, and the Kenna LP is in compliance with, and Cap C LP has not in the past violated, such license agreements.  Except as set forth on Schedule 3.2.18, the consummation of the transactions contemplated hereby will not result in any loss or impairment of the Kenna LP's rights to own or use any Intellectual Property, nor will such consummation require the consent of any third party in respect of any Intellectual Property. To the knowledge of Newport, the Kenna Principals or Communications Holdco, the operation of the Kenna Business and use of all Intellectual Property therein does not infringe the Intellectual Property of any other Person. There are no proceedings pending or, to the knowledge of Newport, the Kenna Principals or Communications Holdco, threatened against Cap C LP, the Kenna Business or the Kenna LP with respect to the Intellectual Property, or with respect to any other Intellectual Property, alleging the infringement or misappropriation by Cap C LP, the Kenna Business or the Kenna LP of any Intellectual Property of any Person, and neither Cap C LP, the Kenna Business nor the Kenna LP has received notice from any Person that the operation of the Kenna Business infringes the Intellectual Property of any Person.  There are no claims pending or, to the knowledge of Newport, the Kenna Principals or Communications Holdco, threatened challenging the validity of any Intellectual Property of the Kenna LP or any Intellectual Property used by the Kenna LP in the conduct of the Kenna Business. Neither Cap C LP, the Kenna Principals nor the Kenna LP has entered into or is otherwise bound by any consent, forbearance or any settlement agreement which limits the rights of the Kenna LP to use the Intellectual Property of the Kenna Business.  To the knowledge of Newport, the Kenna Principals or Communications Holdco, no Person is infringing or misappropriating any of the Intellectual Property of the Kenna Business. All Intellectual Property of the Kenna Business was either developed (a) by employees of Cap C LP within the scope of such employee's employment duties; or (b) by independent contractors or other third parties who have assigned all of their rights therein to Cap C LP pursuant to a written agreement, and all such employees, independent contractors, and other third parties have waived, pursuant to a written agreement, their moral rights in all such Intellectual Property in favour of the Kenna LP or Cap C LP.  Except as set forth on Schedule 3.2.18, the Intellectual Property of the Kenna LP does not contain any software licensed under terms which require, as a condition of the use, modification, or distribution of such software, that other software incorporated into, derived from, or distributed with such software: (x) be disclosed or distributed in source code form; (y) be licensed under terms that permit making derivative works; or (z) be redistributable at no charge to subsequent licensees.
 
 
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3.2.19            Privacy and Security.  All information or data of any kind relating to the Kenna Business possessed by the Kenna LP, including but not limited to, personally identifiable information collected from consumers ("PII"), aggregate or anonymous information collected from consumers ("Non-PII") and employee data relating to the Kenna Business or possessed by the Kenna LP (collectively, "Data"), has been collected, by Cap C LP, the Kenna Business or the Kenna LP, and is being maintained, stored, processed and used by the Kenna LP in connection with the Kenna Business, in compliance with all Laws and Orders.  Cap C LP and the Kenna LP have at all times presented a privacy policy ("Privacy Policy") to consumers prior to the collection of any PII or Non-PII online.  The Privacy Policy, and any other representations, marketing materials and advertisements that address privacy issues and the treatment of PII and Non-PII, accurately and completely describe Cap C LP, the Kenna Business and the Kenna LP's respective information collection and use practices, and no such notices or disclosures have been inaccurate, misleading or deceptive.  Neither Cap C LP nor the Kenna LP has collected or received any PII from children under the age of 13 without verifiable parental consent or directed any of its websites to children under the age of 13 through which such PII could be obtained.  Cap C LP and the Kenna LP have stored and maintained all Data in a secure manner, using commercially reasonable technical measures, to assure the integrity and security of the Data and to prevent loss, alteration, corruption, misuse and unauthorized access to such Data.  There has been no unauthorized use, access to or disclosure of any Data.  Neither Cap C LP nor the Kenna LP has received any claims, notices or complaints regarding its information practices or use of Data.  The consummation of the transactions contemplated hereby will not result in any loss or impairment of the rights to own and use any Data, nor will such consummation require the consent of any third party in respect of any Data.
 
3.2.20            Compliance with Laws. The Kenna Business (including the business conducted by Cap C LP) has been conducted, in compliance with all applicable Laws and Orders, except in each case where the failure to so comply would not reasonably be expected to have a Material Adverse Effect. The Kenna Business has all Required Permits except where the failure to have such Required Permits would not reasonably be expected to have a Material Adverse Effect.  All of such Required Permits are in full force and effect and no action or claim is pending, nor to the knowledge of Newport or Communications Holdco, threatened, to revoke or terminate any such Required Permit or declare any such Required Permit invalid in any respect.
 
3.2.21            Client Relations.  Schedule 3.2.21 sets forth (a) the ten (10) largest clients of the Kenna Business (measured by revenues), and the revenues from each such client and from all clients (in the aggregate) for the calendar year ended December 31, 2009 and (b) the clients projected to be the ten (10) largest clients (measured by revenues) of the Kenna Business based on its current profit plan for the twelve months ending December 31, 2010 and 2011, together with the estimated revenues from each such client and all clients (in the aggregate) for such periods.  Communications Holdco represents that the estimated revenues set forth on Schedule 3.2.21 were made in good faith and on a reasonable basis.  Except as set forth on Schedule 3.2.21, no client of the Kenna Business has advised Communications Holdco, the Kenna LP or any Kenna Principal in writing that it is (x) terminating or considering terminating the handling of its business by Cap C LP or the Kenna LP or in respect of any particular product, project or service or (y) planning to reduce its future spending with Cap C LP, the Kenna Business or the Kenna LP in any material manner; and no client has orally advised the Kenna LP, Communications Holdco, the Kenna Business or any Kenna Principal of any of the foregoing events.
 
 
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3.2.22            Accounts Receivable; Work-in-Process; Accounts Payable.  The amount of all work-in-process, accounts receivable, unbilled invoices (including without limitation unbilled invoices for services and out-of-pocket expenses) and other debts due or recorded in the records and books of account of the Kenna Business and which was transferred to the Kenna LP pursuant to the Conveyance Documents, as being due to the Kenna Business and reflected on the Balance Sheet and the Closing Balance Sheet represent or will represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business and will be good and collectible in full (less the amount of any provision, reserve or similar adjustment therefor reflected on the Balance Sheet and the Closing Balance Sheet) in the ordinary course of business, and none of the accounts receivable or other debts (or accounts receivable arising from any such work-in-process or unbilled invoices) is or will be subject to any counterclaim or set-off except to the extent of any such provision, reserve or adjustment.  The accounts payable set forth on the Balance Sheet, and the accounts payable incurred since the Balance Sheet Date through the Closing Date, represent trade payables resulting from bona fide transactions incurred in the ordinary course of business. There has been no change since the Balance Sheet Date in the amount or aging of the work-in-process, accounts receivable, unbilled invoices, or other debts due to the Kenna Business, or the reserves with respect thereto, or accounts payable of the Kenna Business which would have a Material Adverse Effect.
 
3.2.23           Employment Relations.  (a) No unfair labour practice complaint against Cap C LP, the Kenna Business or the Kenna LP is pending before any Governmental or Regulatory Authority; (b) there is no organized labour strike, dispute, slowdown or stoppage pending or to the knowledge of Newport or Communications Holdco, threatened against or involving the Kenna Business; (c) there are no labour unions representing or, to the knowledge of Newport or Communications Holdco, attempting to represent the employees of the Kenna Business who became employees of the Kenna LP; (d) no claim or grievance nor any arbitration proceeding arising out of or under any collective bargaining agreement is pending against any of the Kenna Business, the Kenna LP or Communications Holdco and to the knowledge of Newport or Communications Holdco, no such claim or grievance has been threatened; (e) no collective bargaining agreement is currently being negotiated by Cap C LP or the Kenna LP; and (f) Cap C LP did not experience any work stoppage or similar organized labour dispute during the last three years. Except as set forth on Schedule 3.2.23, there is no legal action, suit, proceeding or claim pending or, to the knowledge of Newport, Kenna Holdco or the Kenna Principals or Communications Holdco, threatened between the Kenna Business, Kenna LP or Cap C LP and any employees or former employees of Cap C LP or the Kenna Business.
 
3.2.24            Pension and Other Benefit Plans.
 
(a)           Schedule 3.2.24 sets forth a true and complete list of all employee benefit plans, including, without limitation, pension/benefit plans maintained by Cap C LP and/or the Kenna LP (each a "Plan").
 
(b)           Except as disclosed in Schedule 3.2.24 each Plan is, and has been, established, registered, qualified, administered and invested, in compliance with (i) the terms thereof, and (ii) all applicable Laws.
 
 
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(c)           All obligations under the Plans (whether pursuant to the terms thereof or applicable Law) have been satisfied.
 
(d)           All contributions or premiums required to be paid to or in respect of each Plan have been paid in a timely fashion in accordance with the terms thereof and all applicable Law, and no Taxes, penalties or fees are owing or exigible under any Plan.
 
(e)           There are no going concern unfunded actuarial liabilities, past service unfunded liabilities or solvency deficiencies respecting any of the Plans.
 
(f)           No material changes have occurred in respect of any Plan since the date of the most recent financial, accounting or actuarial report, as applicable, issued in connection with any Plan, which could reasonably be expected to adversely affect the relevant report (including rendering it misleading in any material respect).
 
(g)           There have been no improper withdrawals or transfer of assets from any Plan.
 
(h)           None of the Plans require or permit a retroactive increase in premiums or payments, and the level of insurance reserves, if any, under any insured Plan is reasonable and sufficient to provide for all incurred but unreported claims.
 
3.2.25            Interests in Customers, Suppliers, etc.  Except as set forth on Schedule 3.2.25, neither Newport nor to the knowledge of Newport or Communications Holdco (without making any inquiry of any member of the Related Group, as hereinafter defined), any officer, director, or employee of Cap C LP or the Kenna LP immediately prior to the Closing Date, any parent, brother, sister, child or spouse of any such officer, director, key executive or employee of the Kenna LP, Communications Holdco or Newport (collectively, the "Related Group"), or any Person controlled by anyone in the Related Group:
 
(a)           owns, directly or indirectly, any interest in (excepting for ownership, directly or indirectly, of less than 1/4 of 1% of the issued and outstanding shares of any class of securities of a publicly held and traded company), or received or has any right to receive payments from, or is an officer, director, employee, agent or consultant of, any Person which is, or is engaged in business as, a competitor, lessor, lessee, supplier, distributor, sales agent, customer or client of Cap C LP or the Kenna LP;
 
(b)           owns, directly or indirectly (other than through the ownership of Limited Partnership Units), in whole or in part, any tangible or intangible property that the Kenna LP used in the conduct of the Kenna Business, other than immaterial personal items owned and used by employees at their work stations; or
 
(c)           has any cause of action or other claim whatsoever against, or owes any amount to, Cap C LP or the Kenna LP, except for claims in the ordinary course of business such as for accrued vacation pay, accrued benefits under employee benefit plans, and similar matters and agreements existing on the date hereof.
 
 
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3.2.26            Bank Accounts and Powers of Attorney.  Set forth in Schedule 3.2.26 is an accurate and complete list showing (a) the name and address of, and account information for, each bank in which Cap C LP had immediately prior to the transfer of the Kenna Business to the Kenna LP, or the Kenna LP has, an account, credit line or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto, and (b) the names of all Persons, if any, holding powers of attorney from Cap C LP or the Kenna LP and a summary statement of the terms thereof.
 
3.2.27            Compensation of Employees.  Schedule 3.2.27 is an accurate and complete list showing: (a) the names and positions of all employees and exclusive consultants of the Kenna Business, or Cap C LP immediately prior to the transfer of the Kenna Business by Cap C LP to the Kenna Business, who are, or were being, compensated at an annualized rate of $50,000 or more, together with a statement of the current annual salary, and the annual salary, bonus and incentive compensation paid or payable with respect to calendar years 2008 and 2009, and a statement of the projected annual salary, bonus and incentive compensation payable with respect to the calendar year ended December 31, 2010, and the material fringe benefits of such employees and exclusive consultants not generally available to all employees of Cap C LP or the Kenna Business; (b) all bonus and incentive compensation paid or payable (whether by agreement, custom or understanding) to any employee of Cap C LP or the Kenna Business not listed in clause (a) above for services rendered or to be rendered during calendar years 2008 and 2009; (c) the names of all retired employees, if any, of Cap C LP or the Kenna Business who are receiving or entitled to receive any healthcare or life insurance benefits or any payments from Cap C LP or the Kenna Business not covered by any pension plan to which Cap C LP or the Kenna Business is a party, their ages and current unfunded pension rate, if any; and (d) a description of the current severance and vacation policy of Cap C LP and the Kenna Business.  Neither Cap C LP nor the Kenna Business has, because of past practices or previous commitments with respect to its employees, established any rights on the part of any of its employees to additional compensation with respect to any period after the Closing Date (other than wage increases in the ordinary course of business).  Each of Cap C LP and the Kenna Business has properly classified and compensated all employees and consultants in accordance with all applicable Laws and Orders of any Governmental and Regulatory Authority.
 
3.2.28            Non-Contravention; Approvals and Consents.  The execution, delivery and performance by the Kenna LP and Cap C LP of their respective obligations under this Agreement and the Conveyance Documents, as the case may be, and the consummation of the transactions contemplated hereby and thereby, as the case may be, will not (a) violate, conflict with or result in the breach of any provision of the declaration and limited partnership agreement (or other comparable documents) of the Kenna LP and Cap C LP, (b) result in the violation by the Kenna LP or Cap C LP of any Laws or Orders of any Governmental or Regulatory Authority, or (c) if the consents and notices set forth in Schedule 3.2.28 are obtained, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require the Kenna LP or Cap C LP to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of their respective assets or properties, or under any of the terms, conditions or provisions of any Contract to which the Kenna LP or Cap C LP is a party or by which the Kenna LP or Cap C LP or any of their respective assets or properties are or were bound. Except as set forth in Schedule 3.2.28, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which the Kenna LP or Cap C LP is a party, or by which their respective assets or properties were or are bound, for the execution and delivery of this Agreement or the Conveyance Documents, the performance by the Kenna LP or Cap C LP of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby.
 
 
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3.2.29            No Changes Since the Balance Sheet Date.  From the Balance Sheet Date through the date hereof, except as specifically stated on Schedule 3.2.29, neither Cap C LP nor the Kenna LP (i) incurred any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise), except in the ordinary course of business, (ii) permitted any of its assets to be subjected to any Lien, (iii) sold, transferred or otherwise disposed of any assets except in the ordinary course of business, (iv) made any capital expenditure or commitment therefor which individually or in the aggregate exceeded $50,000; (v) made any distributions or dividend payments on any shares of its capital stock or equity participation rights, or redeemed, purchased or otherwise acquired any shares of its capital stock, or any option, warrant or other right to purchase or acquire any shares of capital stock or equity participation rights of Cap C LP or the Kenna LP, (vi) made any bonus or profit sharing distribution, (vii) increased or prepaid its indebtedness for borrowed money, except current borrowings under credit lines, or made any loan to any Person other than to any employee for normal travel and expense advances, (viii) wrote down the value of any work-in-process, or wrote off as uncollectible any notes or accounts receivable, except write-downs and write-offs in the ordinary course of business, none of which individually or in the aggregate, were material to Cap C LP or the Kenna LP, (ix) granted any increase in the rate of wages, salaries, bonuses or other remuneration of any employee who, whether as a result of such increase or prior thereto, received aggregate compensation from Cap C LP or the Kenna LP at an annual rate of $100,000 or more, or except in the ordinary course of business to any other employees, (x) entered into any employment or exclusive consulting agreement which is not cancelable by Cap C LP or the Kenna LP (and will not be cancelable by the Kenna LP) without penalty or other financial obligation within 30 days, (xi) canceled or waived any claims or rights of material value, (xii) made any change in any method of accounting procedures, (xiii) otherwise conducted Cap C LP's business or the Kenna Business or entered into any transaction, except in the usual and ordinary manner and in the ordinary course of its business, (xiv) amended or terminated any agreement which is material to their businesses, (xv) renewed, extended or modified any lease of real property or any lease of personal property, except in the ordinary course of business, or (xvi) agreed, whether or not in writing, to do any of the actions set forth in any of the above clauses.
 
3.2.30            Corporate Controls.  To the knowledge of the Kenna Principals, no officer, authorized agent, employee, consultant or any other Person while acting on behalf of Cap C LP, the Kenna Business or the Kenna LP, has, directly or indirectly: used any corporate fund for unlawful contributions, gifts, or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; established or maintained any unlawful or unrecorded fund of corporate monies or other assets; made any false or fictitious entry on its books or records; participated in any racketeering activity; or made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment, or other payment of a similar or comparable nature, to any Person, private or public, regardless of form, whether in money, property, or services, to obtain favourable treatment in securing business or to obtain special concessions, or to pay for favourable treatment for business secured or for special concessions already obtained, and neither Communications Holdco, the Kenna Business nor the Kenna LP have participated in any illegal boycott or other similar illegal practices affecting any of its actual or potential customers.
 
 
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3.2.31            Brokers.  No broker, finder, agent or similar intermediary has acted on behalf of Newport, Communications Holdco or the Kenna LP in connection with this Agreement or the transactions contemplated hereby, and no brokerage commissions, finder's fees or similar fees or commissions are payable by Communications Holdco, Kenna Holdco, the Kenna LP or Newport in connection therewith based on any agreement, arrangement or understanding with any of them.
 
3.2.32            Repayment of Loans.  Except as set forth on Schedule 3.2.32, as of the Closing, all (i) intercompany indebtedness and (ii) indebtedness (including unpaid distributions) of the Kenna LP or Capital CEK LP to Communications Holdco or Newport has been repaid in full, other than routine travel expense advances in the ordinary course of business and consistent in amount with past practice.
 
3.2.33            Disclosure.  No representation or warranty of Newport, Communications Holdco, Kenna Holdco or the Kenna Principals contained in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein, in the light of the circumstances under which they were made, not misleading.
 
3.2.34            Copies of Documents.  Communications Holdco and/or the Kenna Principals have caused to be made available for inspection and copying by the Purchaser and its advisers, true, complete and correct copies of all documents referred to in this Article III.C or in any Schedule.
 
ARTICLE IV
REPRESENTATIONS OF THE PURCHASER
 
The Purchaser represents and warrants to Newport, the Kenna Principals, Kenna Holdco and Communications Holdco as follows:
 
Section 4.1     Existence and Good Standing.  The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Canada with full corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to own its property and to carry on its business all as and in the places where such properties are now owned or operated or such business is now being conducted.
 
 
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Section 4.2     Execution and Validity of Agreement.  The Purchaser has the full corporate power and authority to make, execute, deliver and perform this Agreement and the transactions contemplated hereby.  The execution and delivery of this Agreement by the Purchaser and the consummation of the transactions contemplated hereby have been duly authorized by all required corporate action on behalf of the Purchaser.  This Agreement has been duly and validly executed and delivered by the Purchaser and, assuming due authorization, execution and delivery by the other parties hereto, constitutes the legal, valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms.
 
Section 4.3     Litigation.  There is no action, suit, proceeding at law or in equity by any Person, or any arbitration or any administrative or other proceeding by or before (or to the knowledge of the Purchaser, any investigation by), any Governmental or Regulatory Authority pending or, to the knowledge of the Purchaser, threatened against the Purchaser or any of its properties or rights with respect to this Agreement.  The Purchaser is not subject to any Order entered in any lawsuit or proceeding with respect to this Agreement or the transactions contemplated hereby.
 
Section 4.4     Non-Contravention; Approvals and Consents.  The execution, delivery and performance by the Purchaser of its obligations hereunder and the consummation of the transactions contemplated hereby will not (a) violate, conflict with or result in the breach of any provision of the certificate of incorporation and bylaws of the Purchaser, (b) result in the violation by the Purchaser of any Laws or Orders of any Governmental or Regulatory Authority applicable to the Purchaser or any of its assets or properties, or (c) result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require the Purchaser to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or, except for such Liens as may be created in connection with an MDC financing post-Closing, result in the creation or imposition of any Lien upon any of the respective assets or properties of the Purchaser, under any of the terms, conditions or provisions of any Contract to which the Purchaser is a party or by which the Purchaser or any of its assets or properties are bound. No consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which the Purchaser is a party or by which the Purchaser or any of its assets or properties are bound for the execution and delivery of this Agreement by the Purchaser, the performance by the Purchaser of its obligations hereunder or the consummation by the Purchaser of the transactions contemplated hereby.
 
Section 4.5     Brokers.  No broker, finder, agent or similar intermediary has acted on behalf of the Purchaser in connection with this Agreement or the transactions contemplated hereby, and no brokerage commissions, finder's fees or similar fees or commissions are payable by the Purchaser in connection therewith based on any agreement, arrangement or understanding with either of them.
 
Section 4.6    Investment Canada.  The Purchaser is not a “non-Canadian" within the meaning of the Investment Canada Act (Canada).
 
Section 4.7     Status. The Purchaser is not a person exempt from tax under section 149 of the ITA.
 
 
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ARTICLE V
ACTIONS AT CLOSING
 
Simultaneously herewith:
 
Section 5.1   Pre-Closing Restructuring Proceedings. All proceedings taken in connection with the Reorganization and the Conveyance Documents and all documents incident thereto shall have been completed in form and substance satisfactory to the Purchaser and Newport and their respective counsel, and the Purchaser shall have received copies of all such documents and other evidences as it or its counsel reasonably requested in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith.
 
Section 5.2     Resolutions.  Each of Newport, Kenna Holdco and Communications Holdco shall have delivered to the Purchaser a copy of the resolutions of their respective partners, or board of directors, as the case may be, authorizing the execution, delivery and performance of this Agreement and the Conveyance Documents to which it is a party, and the transactions contemplated hereby and thereby. The Purchaser shall have delivered to the other parties hereto a copy of the resolutions of its board of directors authorizing the execution, delivery and performance of this Agreement and the transactions contemplated hereby.
 
Section 5.3    Required Approvals and Consents.  Newport and the Kenna Principals shall have obtained or given, at no expense to the Purchaser, and there shall not have been withdrawn or modified, any consents or approvals or other actions listed on Schedule 3.2.5 hereof (including without limitation, obtaining all such consents, approvals and/or waivers required under the Contracts listed on Schedule 3.2.12). Each such consent or approval shall be in a form satisfactory to counsel for the Purchaser, acting reasonably.
 
Section 5.4    Limited Partnership Agreement.  The Kenna Principals and the Purchaser shall have entered into the Amended and Restated Kenna LP Agreement.
 
Section 5.5    Employment Agreements. The Kenna Principals shall have entered into an Employment Agreement with the Kenna LP on terms and conditions satisfactory to the Purchaser.
 
Section 5.6    Non-Competition. Newport shall have entered into a Non-Competition Agreement with the Purchaser, and the Kenna Principals shall have entered into a Non-Competition Agreement with the Purchaser and Kenna LP in the form and to the effect of Exhibit D hereto.
 
Section 5.7     Capital C Partners LP Purchase Agreement. Cap C LP, Communications Holdco, the Cap C Principals, Newport and the Purchaser shall have entered into and delivered a purchase agreement pursuant to which Newport sells to the Purchaser its interests in Capital C Partners LP.
 
Section 5.8     Conveyance Documents.  Communications Holdco and the Kenna LP shall have entered into the Conveyance Documents.
 
 
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Section 5.9     Mutual Release.  Newport, the Kenna Principals and Communications Holdco, among others, shall have entered into a mutual release in the form of Exhibit E hereto, and the parties thereto shall have dismissed with prejudice the related pending litigation matters.
 
Section 5.10  Fortress Release of Liens.  Newport shall have delivered to the Purchaser evidence reasonably satisfactory to the Purchaser of the release of all security interests encumbering the Purchased Units and the Acquired Kenna Assets.
 
ARTICLE VI
OTHER AGREEMENTS
 
Section 6.1     Tax Matters.
 
6.1.1              Tax Returns.  Communications Holdco, Newport, Kenna LP and/or the Kenna Principals, as applicable, shall timely and properly prepare or cause to be prepared, execute, file and deliver all (i) Tax returns, information returns, Tax elections or other tax filings required to be filed by Kenna LP, Cap C LP and Capital CEK LP in connection with the Reorganization (each a "LP Tax Filing"), and  (ii) all Tax elections required to be filed by Communications Holdco or Newport in connection with the Reorganization (each, a "Tax Election"), and shall permit the Purchaser to review and comment on each such LP Tax Filing or Tax Election prior to filing. Each of Communications Holdco and Newport shall include their respective share of any taxable income allocated to them in respect of their partnership interest in Cap C LP for the fiscal period ending on the dissolution of Cap C LP in their return filed under the ITA for the taxation year that includes the end of such fiscal period.
 
6.1.2              Tax Cooperation.  The Purchaser, Newport, Communications Holdco and the Kenna Principals shall cooperate fully as and to the extent reasonably requested by the other party, in connection with any Tax Filing pursuant to Section 6.1.1 or other Tax returns relating to the operations of the Kenna Business and any audit, litigation or other proceeding with respect to Taxes.
 
Section 6.2     Change of Name.  At the Closing or as soon as practicable after the Closing Date, Kenna Holdco shall execute appropriate documents to change its name to a name dissimilar to "Kenna", and promptly thereafter shall file any necessary documents to reflect the name change with the appropriate governmental authorities.
 
Section 6.3     Pre-Closing Distribution.
 
6.3.1              Return of Capital; Repayment of Loans.  Immediately prior to the commencement of the Reorganization: Newport and Communications Holdco shall have caused (i) Capital CEK LP to distribute to Newport $1,990,453 as a return of capital on the limited partnership units of Capital CEK LP held by Newport at October 31, 2010; and (ii) Capital CEK LP to repay in full Newport’s outstanding loans (including all accrued interest) to Capital CEK LP in the amount of $1,787,229.33 owing as of the Closing Date.
 
 
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6.3.2              Return of Capital. As soon as reasonably practicable but not later than forty-five (45) days of the Closing, the Purchaser shall ensure that Kenna LP and/or Capital C Partners LP distribute to Newport an amount equal to the amount due as a return of capital on the limited partnership units of Capital CEK LP held by Newport from November 1, 2010 until the Closing Date (the "November Capital Distribution"). The amount of the November Capital Distribution shall be determined by the Purchaser's auditor in accordance with GAAP based on the financial statements relating to the Kenna Business and the Cap C Business, and allocated in a manner consistent with the allocations from January 1, 2010 to October 31, 2010; provided, however, that any controversy, dispute, question or difference between the parties hereto regarding the determination of the November Capital Distribution shall be resolved by a senior officer of the Purchaser and a senior officer of Newport working in good faith to come to a mutually acceptable determination of the November Capital Distribution within 10 days of notice from Newport of such controversy, dispute, question or difference.
 
Section 6.4    Key Man Insurance.  Newport shall cause Newport Partners Income Fund to assign all current key man insurance policies relating to Tony Chapman, Glenn Chilton and Paul Quigley effective as of the Closing Date.
 
ARTICLE VII
SURVIVAL; INDEMNITY
 
Section 7.1     Survival.  Notwithstanding any right of any party hereto fully to investigate the affairs of any other party, and notwithstanding any knowledge of facts determined or determinable pursuant to such investigation or right of investigation, each party hereto shall have the right to rely fully upon the representations, warranties, covenants and agreements of the other parties contained in this Agreement and the Schedules, if any, furnished by any other party pursuant to this Agreement.  Subject to the limitations set forth in Section 7.6, the respective representations, warranties, covenants and agreements of Newport, Communications Holdco, the Kenna Principals, Kenna Holdco and the Purchaser contained in this Agreement shall survive the Closing for sixteen (16) months following the Closing Date.
 
Section 7.2     Obligation of Newport, Communications Holdco, Kenna Holdco and the Kenna Principals to Indemnify.
 
7.2.1              Newport Indemnity.  Subject to the limitations contained in Sections 7.2.3,  7.6.1 and 7.6.2, Newport hereby agrees to indemnify the Purchaser and its affiliates, stockholders, officers, directors, employees, agents, representatives and successors, permitted assignees of the Purchaser and their affiliates (individually, a "Purchaser Indemnified Party" and collectively, the "Purchaser Indemnified Parties") against, and to protect, save and keep harmless the Purchaser Indemnified Parties from, and to pay on behalf of or reimburse the Purchaser Indemnified Parties as and when incurred for, any and all liabilities (including liabilities for Taxes), obligations, losses, damages, penalties, demands, claims, actions, suits, judgments, settlements, penalties, interest, out-of-pocket costs, expenses and disbursements (including reasonable costs of investigation, and reasonable attorneys', accountants' and expert witnesses' fees) of whatever kind and nature (collectively, "Losses"), that may be imposed on or incurred by any Purchaser Indemnified Party as a consequence of, in connection with, incident to, resulting from or arising out of or in any way related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or representation contained in Article III.A or Article III.C hereof; (b) any action, demand, proceeding, investigation or claim by any third party (including any Governmental or Regulatory Authority) against or affecting any Purchaser Indemnified Party which may give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations and warranties of Newport contained in Article III.A or Article III.C hereof; (c) any breach or failure by Newport to comply with, perform or discharge any obligation, agreement or covenant by Newport contained in this Agreement; (d) any liability or obligation or any assertion against any Purchaser Indemnified Party, arising out of or relating, directly or indirectly, to any Excluded Asset or any Retained Liability (as such terms are defined in the Conveyance Documents) or other liability arising, in whole or in part, out of the conduct of the business of Cap C LP or any of its subsidiaries or successors, if any, prior to the Closing except for the Assumed Liabilities (as such term is defined in the Conveyance Documents); (e) any litigation or claim disclosed on Schedule 3.2.3 to this Agreement; and (f) any liability or obligation arising out of or relating, directly or indirectly, to the classification of any individual performing services for Cap C LP as an independent contractor, as a freelancer, as a consultant or in any other capacity other than as an employee.
 
 
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7.2.2              Indemnity by Kenna Indemnitors.  Subject to the limitations contained in Sections 7.2.3, 7.6.1 and 7.6.2, the Kenna Indemnitors hereby agree, jointly and severally, to indemnify the Purchaser Indemnified Parties against, and to protect, save and keep harmless the Purchaser Indemnified Parties from, and to pay on behalf of or reimburse the Purchaser Indemnified Parties as and when incurred for, any and all Losses that may be imposed on or incurred by any Purchaser Indemnified Party as a consequence of, in connection with, incident to, resulting from or arising out of or in any way related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or representation contained in Article III.B or Article III.C hereof; (b) any action, demand, proceeding, investigation or claim by any third party (including any Governmental or Regulatory Authority) against or affecting any Purchaser Indemnified Party which may give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations and warranties of Communications Holdco, Kenna Holdco or the applicable Kenna Principals contained in Article III.B or Article III.C hereof; (c) any breach or failure by Communications Holdco, Kenna Holdco or the applicable Kenna Principals to comply with, perform or discharge any obligation, agreement or covenant by Communications Holdco, Kenna Holdco or the applicable Kenna Principals contained in this Agreement; (d) any liability or obligation or any assertion against any Purchaser Indemnified Party, arising out of or relating, directly or indirectly, to any Excluded Asset or any Retained Liability (as such terms are defined in the Conveyance Documents) or other liability arising, in whole or in part, out of the conduct of the business of Cap C LP or any of its subsidiaries or successors, if any, prior to the Closing except for the Assumed Liabilities (as such term is defined in the Conveyance Documents); (e) any litigation or claim disclosed on Schedule 3.2.3 to this Agreement; and (f) any liability or obligation arising out of or relating, directly or indirectly, to the classification of any individual performing services for Cap C LP as an independent contractor, as a freelancer, as a consultant or in any other capacity other than as an employee.
 
 
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7.2.3              Notwithstanding anything to the contrary contained herein, Newport's obligation to indemnify the Purchaser Indemnified Parties under this Agreement shall only occur after the aggregate amount of all Losses claimed by the Purchaser Indemnified Parties against the Kenna Indemnitors (including Losses previously claimed by the Purchaser Indemnified Parties against the Kenna Indemnitors) exceeds $750,000.  Any such claims made against the Kenna Indemnitors may be made against Newport if such claims remain unpaid by the Kenna Indemnitors or any of them after sixty (60) days from the date of claim; provided that the Kenna Indemnitors have acted in good faith in response to such claim and that the Purchaser shall have exercised its commercially reasonable efforts to recover against such claim (including exercising its right to offset any claim for indemnity against payments due and/or payable to Kenna Holdco or the Kenna Principals in accordance with Section 7.5).
 
7.2.4              Losses.  The term "Losses" as used in this Article VII is not limited to matters asserted by third parties against any Purchaser Indemnified Party but includes Losses incurred or sustained by a Purchaser Indemnified Party in the absence of Third Party Claims (as defined in Section 7.4.2 hereof).
 
Section 7.3     Obligation of the Purchaser to Indemnify.
 
7.3.1              Subject to the limitations set forth in Section 7.6.3 hereof, the Purchaser hereby agrees to indemnify Newport (together with its affiliates, partners, officers, directors, employees, agents, representatives, successors and permitted assigns, collectively, the "Newport Indemnified Parties"), Communications Holdco, Kenna Holdco and the Kenna Principals (individually a "Seller Indemnified Party" and collectively, the "Seller Indemnified Parties") against, and to protect, save and keep harmless the Seller Indemnified Parties from, and to pay on behalf of or reimburse the Seller Indemnified Parties as and when incurred for, any and all Losses that may be imposed on or incurred by the Seller Indemnified Parties as a consequence of, in connection with, incident to, resulting from or arising out of or in any way related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or representation of the Purchaser contained in Article IV hereof; or (b) any action, demand, proceeding, investigation or claim by any third party (including any Governmental or Regulatory Authority) against or affecting any Seller Indemnified Party which may give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations and warranties of the Purchaser contained in Article IV hereof; or (c) any breach or failure by the Purchaser to comply with, perform or discharge any obligation, agreement or covenant by the Purchaser contained in this Agreement.
 
7.3.2              The Purchaser shall indemnify the Newport Indemnified Parties against, and protect, save and keep harmless the Newport Indemnified Parties from, any Taxes (within the meaning of Section 3.2.14 hereof) incurred by the Newport Indemnified Parties solely as a result of the Reorganization (including any of the individual transactions forming part thereof), without duplication, in an aggregate amount not to exceed $1 million (the "Newport Reorganization Indemnity"). For greater certainty, the Newport Reorganization Indemnity shall exclude any Taxes which would, but for the Reorganization, have been incurred by Newport in connection with the sale of its partnership interest in Capital CEK LP or Cap C LP.  Notwithstanding anything to the contrary, the Purchaser shall not indemnify the Newport Indemnified Parties in respect of any Taxes imposed on Newport which were existing liabilities of Capital CEK LP or its affiliates at the time of, or arising in connection with any matter or omission occurring prior to, the commencement of the Reorganization.
 
 
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Section 7.4     Indemnification Procedures.
 
7.4.1              Non-Third Party Claims.
 
(a)           In the event that any Person entitled to indemnification under this Agreement (an "Indemnified Party") asserts a claim for indemnification which does not involve a Third Party Claim (as defined in Section 7.4.2) (a "Non-Third Party Claim"), against which a Person is required to provide indemnification under this Agreement (an "Indemnifying Party"), the Indemnified Party shall give written notice to the Indemnifying Party (the "Non-Third Party Claim Notice"), which Non-Third Party Claim Notice shall (i) describe the claim in reasonable detail, and (ii) indicate the amount (estimated, if necessary, and to the extent feasible) of the Losses that have been or may be suffered by the Indemnified Party.
 
(b)           The Indemnifying Party may acknowledge and agree by written notice (the "Non-Third Party Acknowledgement of Liability") to the Indemnified Party to satisfy the Non-Third Party Claim within 30 days of receipt of the Non-Third Party Claim Notice.  In the event that the Indemnifying Party disputes the Non-Third Party Claim, the Indemnifying Party shall provide written notice of such dispute (the "Non-Third Party Dispute Notice") to the Indemnified Party within 30 days of receipt of the Non-Third Party Claim Notice (the "Non-Third Party Dispute Period"), setting forth a reasonable basis of such dispute.  In the event that the Indemnifying Party shall fail to deliver the Non-Third Party Acknowledgement of Liability or Non-Third Party Dispute Notice within the Non-Third Party Dispute Period, the Indemnifying Party shall be deemed to have acknowledged and agreed to pay the Non-Third Party Claim in full and to have waived any right to dispute the Non-Third Party Claim.  Once the Indemnifying Party has acknowledged and agreed to pay any Non-Third Party Claim pursuant to this Section 7.4.1, or once any dispute under this Section 7.4.1 has been finally resolved in favour of indemnification by a court or other tribunal of competent jurisdiction, subject to the provisions of Section 7.6.1, the Indemnifying Party shall pay the amount of such Non-Third Party Claim to the Indemnified Party within 10 days of the date of acknowledgement or resolution, as the case may be, to such account and in such manner as is designated in writing by the Indemnified Party.
 
7.4.2              Third-Party Claims.
 
(a)           In the event that any Indemnified Party asserts a claim for indemnification or receives notice of the assertion of any claim or of the commencement of any action or proceeding by any Person who is not a party to this Agreement or an affiliate of a party to this Agreement in respect of which such Indemnified Party is entitled to indemnification by an Indemnifying Party under this Agreement (a "Third Party Claim"), the Indemnified Party shall give written notice to the Indemnifying Party (the "Third Party Claims Notice") within 20 days after asserting or learning of such Third Party Claim (or within such shorter time as may be necessary to give the Indemnifying Party a reasonable opportunity to respond to such claim), together with a statement specifying the basis of such Third Party Claim.  The Third Party Claim Notice shall (i) describe the claim in reasonable detail, and (ii) indicate the amount (estimated, if necessary, and to the extent feasible) of the Losses that have been or may be suffered by the Indemnified Party. The Indemnifying Party must provide written notice to the Indemnified Party that it is either (i) assuming responsibility for the Third Party Claim or (ii) disputing the claim for indemnification against it (the "Indemnification Notice")  The Indemnification Notice must be provided by the Indemnifying Party to the Indemnified Party within 15 days after receipt of the Third Party Claims Notice or within such shorter time as may be necessary to give the Indemnified Party a reasonable opportunity to respond to such Third Party Claim (the "Indemnification Notice Period").

 
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(b)           If the Indemnifying Party provides an Indemnification Notice to the Indemnified Party within the Indemnification Notice Period that it assumes responsibility for the Third Party Claim (the "Defense Notice"), the Indemnifying Party shall conduct at its expense the defense against such Third Party Claim in its own name, or if necessary in the name of the Indemnified Party.  The Defense Notice shall specify the counsel the Indemnifying Party will appoint to defend such claim ("Defense Counsel"); provided, however, that the Indemnified Party shall have the right to approve the Defense Counsel, which approval shall not be unreasonably withheld or delayed, except that such approval may be withheld if the defense is to be in the name of the Indemnified Party.  In the event that the Indemnifying Party fails to give the Indemnification Notice within the Indemnification Notice Period, the Indemnified Party shall have the right to conduct the defense and to compromise and settle such Third Party Claim without the prior consent of the Indemnifying Party and subject to the provisions of Section 7.6.1, the Indemnifying Party will be liable for all costs, expenses, settlement amounts or other Losses paid or incurred in connection therewith.
 
(c)           In the event that the Indemnifying Party provides in the Indemnification Notice that it disputes the claim for indemnification against it, the Indemnified Party shall have the right to conduct the defense and to compromise and settle such Third Party Claim, without the prior consent of the Indemnifying Party. Once such dispute has been finally resolved in favour of indemnification by a court or other tribunal of competent jurisdiction or by mutual agreement of the Indemnified Party and Indemnifying Party, subject to the provisions of Section 7.6.1, the Indemnifying Party shall within 10 days of the date of such resolution or agreement, pay to the Indemnified Party all Losses paid or incurred by the Indemnified Party in connection therewith.
 
(d)           In the event that the Indemnifying Party delivers an Indemnification Notice pursuant to which it elects to conduct the defense of the Third Party Claim, the Indemnifying Party shall be entitled to have the exclusive control over the defense of the Third Party Claim and the Indemnified Party will cooperate in good faith with and make available to the Indemnifying Party such assistance and materials as it may reasonably request, all at the expense of the Indemnifying Party.  The Indemnified Party shall have the right at its expense to participate in the defense assisted by counsel of its own choosing.  The Indemnifying Party will not settle the Third Party Claim or cease to defend against any Third Party Claim as to which it has delivered an Indemnification Notice (as to which it has assumed responsibility for the Third Party Claim), without the prior written consent of the Indemnified Party, which consent will not be unreasonably withheld or delayed; provided, however, such consent may be withheld if, among other reasons, as a result of such settlement or cessation of defense, (i) injunctive relief or specific performance would be imposed against the Indemnified Party, or (ii) such settlement or cessation would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder.

 
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(e)           If an Indemnified Party refuses to consent to a bona fide offer of settlement which the Indemnifying Party wishes to accept, which provides for a full release of the Indemnified Party and its affiliates relating to the Third Party Claims underlying the offer of settlement and solely for a monetary payment, the Indemnified Party may continue to pursue such matter, free of any participation by the Indemnifying Party, at the sole expense of the Indemnified Party. In such an event, the obligation of the Indemnifying Party shall be limited to the amount of the offer of settlement which the Indemnified Party refused to accept plus the reasonable costs and expenses of the Indemnified Party incurred prior to the date the Indemnifying Party notified the Indemnified Party of the offer of settlement.
 
(f)           Notwithstanding clause (d) above, the Indemnifying Party shall not be entitled to control, but may participate in, and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of (x) that part of any Third Party Claim that (i) seeks a temporary restraining order, a preliminary or permanent injunction or specific performance against the Indemnified Party, (ii) involves criminal allegations against the Indemnified Party or (iii) may lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and (y) the entire Third Party Claim if such Third Party Claim would impose liability on the part of the Indemnified Party in an amount which is greater than the amount as to which the Indemnified Party is entitled to indemnification under this Agreement.
 
(g)           A failure by an Indemnified Party to give timely, complete or accurate notice as provided in this Section 7.4.2 will not affect the rights or obligations of any party hereunder except and only to the extent that, as a result of such failure, any party entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise directly and materially damaged as a result of such failure to give timely notice.
 
Section 7.5     Right of Offset.  Without limiting any other rights or remedies available to it, the Purchaser shall be entitled to offset any claim for indemnity made pursuant to Section 7.2 and in accordance with Section 7.4, against any payments due and/or payable to Kenna Holdco or the Kenna Principals, including, without limitation, up to $3,000,000 of any payments made pursuant to the limited partnership unit purchase agreement (the "13% Purchase Agreement") of even date made among Kenna Holdco, the Kenna Principals and the Purchaser pursuant to which the Purchaser indirectly acquired an additional approximately 13% limited partnership interest in Kenna LP, provided, however, the Purchaser may only exercise such right of offset in respect of claims relating to Losses actually incurred by a Purchaser Indemnified Party (in which case the amount of such offset shall be the amount of such actual Loss) or claims actually asserted by a third party (in which case the amount of the offset shall not exceed the Purchaser's good faith estimate of the amount of indemnifiable Losses that will ultimately be payable to a Purchaser Indemnified Party in respect of such claims).
 
 
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Section 7.6     Limitations On and Other Matters Regarding Indemnification.
 
7.6.1              Indemnity Cushion and Cap.  Subject to Section 7.6.5, neither Newport, nor the Kenna Indemnitors shall have any liability to any Purchaser Indemnified Party with respect to Losses arising out of any of the matters referred to in Section 7.2 until such time as the amount of such liability shall exceed $100,000 in the aggregate (in which case Newport and the Kenna Indemnitors shall be severally liable for all Losses).  Notwithstanding anything to the contrary herein, subject to Section 7.6.5 below, (a) the maximum aggregate liability of Newport for indemnity payments under Section 7.2.1 shall be an aggregate amount equal to $6,000,000; and (b) the maximum aggregate joint and several liability of the Kenna Indemnitors for indemnity payments under Section 7.2.2 shall be an aggregate amount equal to the sum of $750,000 plus a right of setoff of all "Contingent Payments" (as defined in the 13% Purchase Agreement) payable pursuant to the 13% Purchase Agreement, subject to a maximum aggregate of such Contingent Payments of $3,000,000.
 
7.6.2              Termination of Indemnification Obligations of Newport and the Kenna Principals.  Subject to Section 7.6.5, the obligation of Newport, Kenna Holdco and the Kenna Principals to indemnify under Section 7.2 hereof shall terminate sixteen (16) months following the Closing Date, except as to matters as to which the Purchaser Indemnified Party has made a claim for indemnification on or prior to such date, in which case the right to indemnification with respect thereto shall survive the expiration of such period until such claim for indemnification is finally resolved and any obligations with respect thereto are fully satisfied.
 
7.6.3              Termination of Indemnification Obligations of the Purchaser; Purchaser Indemnity Cap.  Subject to Section 7.6.5, the obligation of the Purchaser to indemnify under Section 7.3 hereof shall terminate sixteen (16) months following the Closing Date, except as to matters as to which any Seller Indemnified Party has made a claim for indemnification on or prior to such date, in which case the right to indemnification with respect thereto for such party shall survive the expiration of such period until such claim for indemnification is finally resolved and any obligations with respect thereto are fully satisfied. The Purchaser shall have no liability to the Seller Indemnified Parties with respect to Losses arising out of any of the matters referred to in Section 7.3 until such time as the amount of such liability shall exceed $100,000 in the aggregate.  Notwithstanding anything to the contrary herein, the maximum aggregate liability of the Purchaser for indemnity payments under this Agreement shall be an aggregate amount equal to $6,000,000.
 
7.6.4              Treatment.  Any indemnity payments by an Indemnifying Party to an Indemnified Party under this Article VII shall be treated by the parties as an adjustment to the Purchase Price.
 
 
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7.6.5              Exceptions.  Each of the limitations set forth above in this Section 7.6 shall in no event (a) apply to any Losses incurred by a Purchaser Indemnified Party which relate, directly or indirectly, to (i) any fraudulent acts committed by Newport, Communications Holdco, Kenna Holdco or the Kenna Principals; (ii) any breach of a representation or warranty contained in Sections 3.1.1, 3.1.3, 3.1.5, 3.2.1, 3.2.5, 3.2.9 or 3.2.14, and (iii) any indemnification obligation under Sections 7.2.1(d), 7.2.2(c) and (d); and (iv) the obligations of Newport, Communications Holdco, Kenna Holdco and the Kenna Principals set forth in Section 8.1 to pay certain expenses; or (b) apply to any Losses incurred by a Seller Indemnified Party which relate, directly or indirectly, to (i) any fraudulent acts committed by the Purchaser and (ii) the Purchaser's obligations set forth in Section 8.1 to pay certain expenses.
 
7.6.6              Indemnification Sole Remedy. Except as otherwise expressly provided in this Agreement or as it relates to any claim for fraud or intentional misrepresentation, the indemnifications provided for in this Article VII constitute the sole remedy available to an Indemnified Party hereunder with respect to any and all breaches or failures of representations, warranties, covenants, conditions, agreements or obligations contained in this Agreement.  In furtherance of the foregoing, each of the parties hereby waives to the fullest extent permitted under applicable Law, any and all other rights, claims and causes of action it may have against the other parties relating to the subject matter of this Agreement.
 
ARTICLE VIII
MISCELLANEOUS
 
Section 8.1     Expenses.  Except as otherwise provided in this Agreement, each of the parties hereto shall pay its or his own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of its respective counsel, financial advisors and accountants and any brokerage commissions, finder's fees, consulting fees, break-up or termination fees, or similar fees or commissions.
 
Section 8.2   Governing Law; Service of Process and Consent to Jurisdiction.  The interpretation and construction of this Agreement, and all matters relating hereto (including, without limitation, the validity or enforceability of this Agreement), shall be governed by the laws of the Province of Ontario and the laws of Canada applicable therein.
 
Section 8.3     "Person" Defined.  "Person" shall mean and include an individual, a company, a joint venture, a corporation (including any non-profit corporation), an estate, an association, a trust, a general or limited partnership, a limited liability company, a limited liability partnership, an unincorporated organization and a government or other department or agency thereof.
 
Section 8.4     "Knowledge" Defined.  Where any representation and warranty contained in this Agreement is expressly specified by reference to the knowledge of Newport, Kenna Holdco or any Kenna Principal, such term shall be limited to the actual knowledge of the executive officers of Newport, Kenna Holdco or the Kenna Principals, respectively, and unless otherwise stated, such knowledge that would have been discovered by the executive officers of Newport, Kenna Holdco or the applicable Kenna Principal, respectively, after reasonable inquiry.  Where any representation and warranty contained in this Agreement is expressly specified by reference to the knowledge of the Purchaser, as the case may be, such term shall be limited to the actual knowledge of the executive officers of such entity and unless otherwise stated, such knowledge that would have been discovered by such executive officers after reasonable inquiry.
 
 
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Section 8.5     "Affiliate" Defined.  As used in this Agreement, an "affiliate" of any Person, shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such Person.
 
Section 8.6    Captions.  The Article and Section headings used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement.
 
Section 8.7    Publicity.  Subject to the provisions of the next sentence, no party to this Agreement shall, and Newport and Kenna Holdco shall use their reasonable efforts to ensure that no representative of either of them shall, issue any press release or other public document or make any public statement relating to this Agreement or the matters contained herein without obtaining the prior approval of the Purchaser.  Notwithstanding the foregoing, the foregoing provision shall not apply to the extent that the Purchaser or Newport is required to make any announcement relating to or arising out of this Agreement by virtue of the securities laws of the United States or Canada or the rules and regulations promulgated thereunder or other rules of the NASDAQ Stock Market, Toronto Stock Exchange or the United States Securities and Exchange Commission or any announcement by any party hereto pursuant to applicable law or regulations.
 
Section 8.8     Notices.  Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party to any other party shall be in writing and shall be deemed to have been given (a) upon personal delivery, if delivered by hand or courier, (b) three days after the date of deposit in the mail, postage prepaid, or (c) the next business day if sent by a prepaid overnight courier service, and in each case at the respective addresses set forth below or such other address as such party may have fixed by notice:
 
(a)           If to the Purchaser, addressed to:
 
c/o MDC Partners Inc.
45 Hazelton Avenue
Toronto, Ontario
Canada M5R 2E3
 
Attention:  Gavin Swartzman
 
with a copy to (which shall not constitute notice):
 
c/o MDC Partners Inc.
950 Third Avenue
New York, New York 10022
 
Attention:  General Counsel

 
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(b)           If to Newport, to:
 
469 King Street West
4th Floor
Toronto, Ontario  M5V 1K4
 
Attention:       Keith Halbert
Facsimile:        (416) 867-7595
 
with a copy to (which shall not constitute notice):
 
Ogilvy Renault LLP
Royal Bank Plaza, South Tower, Suite 3800
200 Bay Street, P.O. Box 84
Toronto, Ontario  M5J 2Z4
 
Attention:       Walied Soliman
Facsimile:        (416) 216-3930
 
(c)           If to Kenna Holdco, to:
 
c/o Paul Quigley
898 Wildrush Place
Newmarket, Ontario  L3X 1L7
 
Attention:       Paul Quigley
 
with a copy to (which shall not constitute notice):
 
Lipman, Zener & Waxman LLP
1220 Eglinton Avenue West
Toronto, Ontario  M6C 2E3
 
Attention:       Bradley J. Miller
Facsimile:        (416) 789-9015

(d)           If to the Kenna Principals, to:
 
Paul Quigley
898 Wildrush Place
Newmarket, Ontario  L3X 1L7
 
and
 
Glenn Chilton
161 Coldstream Avenue
Toronto, Ontario  M5N 1X7
 

 
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with a copy to (which shall not constitute notice):
 
Lipman, Zener & Waxman LLP
1220 Eglinton Avenue West
Toronto, Ontario  M6C 2E3
 
 
Attention:
Bradley J. Miller
 
Facsimile:
(416) 789-9015

Any party may change the address to which notices are to be sent by giving notice of such change of address to the other parties in the manner herein provided for giving notice.
 
Section 8.9     Parties in Interest.  This Agreement may not be transferred, assigned, pledged or hypothecated by any party hereto, other than by operation of law.  Any purported transfer, assignment, pledge, or hypothecation (other than by operation of law) of this Agreement shall be void and ineffective.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.
 
Section 8.10   Severability.  In the event any provision of this Agreement is found to be void and unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as though the void or unenforceable part had been severed and deleted.
 
Section 8.11   Counterparts.  This Agreement may be executed in two or more counterparts or by facsimile transmission, all of which taken together shall constitute one instrument.
 
Section 8.12   Entire Agreement.  This Agreement, together with the Schedules and Exhibits hereto, constitutes the sole, exclusive and only agreements of the parties hereto pertaining to the subject matter hereof, contains all of the covenants, conditions and agreements between the parties, express or implied, whether by statute or otherwise, and sets forth the respective rights, duties and obligations of each party to the other party as of the date hereof. No oral understandings, oral statements, oral promises or oral inducements relating to the subject matter hereof exist.
 
Section 8.13   Amendments.  This Agreement may not be amended, supplemented or modified orally, but only by an agreement in writing signed by each of the parties hereto.
 
Section 8.14   Third Party Beneficiaries.  Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto and their respective successors and assigns as permitted under Section 8.9.
 
Section 8.15   Use of Terms.  Whenever the context so requires or permits, all references to the masculine herein shall include the feminine and neuter, all references to the neuter herein shall include the masculine and feminine, all references to the plural shall include the singular and all references to the singular shall include the plural.  Whenever used in this Agreement, the terms "Dollars" and "$" shall mean Canadian Dollars.
 
 
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Section 8.16  "Liens" Defined.  With respect to any asset, a "Lien" shall mean (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (other than an operating lease) (or any financial lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
 
Section 8.17   No Strict Construction; Representation by Counsel.  The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of law or contract interpretation that provides that in the case of ambiguity or uncertainty a provision should be construed against the draftsman will be applied against any party hereto.  The provisions of this Agreement shall be construed according to their fair meaning and neither for nor against any party hereto irrespective of which party caused such provisions to be drafted.  Each of the parties acknowledges that it has been represented by legal counsel in connection with the preparation and execution of this Agreement.
 
[Remainder of page intentionally left blank.]

 
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IN WITNESS WHEREOF, the parties hereto have executed this Limited Partnership Unit Purchase Agreement, on the day and year first above written.
 
 
MDC PARTNERS INC.
   
 
Per:
/s/ Mitchell Gendel
   
Name: Mitchell Gendel
   
Title:   General Counsel
   
 
NEWPORT PARTNERS HOLDINGS LP, by its general partner NPY GP TRUST, by its trustee NEWPORT PARTNERS GP INC.
   
 
Per:
/s/ Adrian Montgomery
   
Name: Adrian Montgomery
   
Title:   Vice President
   
 
CAP C LP HOLDCO INC.
   
 
Per:
/s/ Tony Chapman
   
Name: Tony Chapman
   
Title:   President
   
 
2265174 ONTARIO LIMITED
   
 
Per:
/s/ Glenn Chilton
   
Name: Glenn Chilton
   
Title:   Authorized Signatory

/s/
  
/s/ Glenn Chilton
Witness
  
Glenn Chilton
     
/s/
  
/s/ Paul Quigley
Witness
  
Paul Quigley
 
 
 
EX-10.17.2 9 v212032_ex10-17x2.htm
 Exhibit 10.17.2
  
LIMITED PARTNERSHIP UNIT PURCHASE AGREEMENT (13%)

LIMITED PARTNERSHIP UNIT PURCHASE AGREEMENT (this “Agreement”) dated as of November 30, 2010, by and among MDC PARTNERS INC., a Canadian corporation (the “Purchaser”), 2265174 Ontario Limited (“Kenna Holdco”), GLENN CHILTON and PAUL QUIGLEY (collectively, the “Kenna Principals” and each, a "Kenna Principal").

WITNESSETH:

WHEREAS, Newport Holdco Partners Holding LP (“Newport”) and the Kenna Principals formed Kenna Communications LP ("Kenna LP") for the purpose of demerging the businesses of Capital C Communications LP ("Cap C LP"), which consisted of the Kenna business (the "Kenna Business") and the Cap C business (see reorganization chart attached as Exhibit A to the Newport Purchase Agreement (the "Reorganization");

AND WHEREAS immediately prior to the execution and delivery of this Agreement, Newport, Cap C LP, the Kenna Principals and the Cap C principals consummated the transactions contemplated by the Reorganization.  In connection with such Reorganization, Newport and the Kenna Principals caused Cap C LP to transfer all of the assets utilized as the Kenna Business and certain disclosed liabilities and obligations and the Kenna Business to Kenna LP, pursuant to an Assignment and Assumption Agreement (the "Conveyance Documents");

AND WHEREAS, immediately following the Reorganization, Newport held 67.13% of the partnership units of Kenna LP (the “67% Purchased Units”), and Purchaser purchased such 67% Purchased Units from Newport pursuant to a Limited Partnership Purchase Agreement dated the date hereof (the “Newport Purchase Agreement”), such that after giving effect to such purchase, Purchaser owned 67.13% of Kenna LP, Kenna Holdco owned 20% of Kenna LP and 2265176 Ontario Limited, a wholly owned subsidiary of Kenna Holdco (“2265176”) owned 12.86% of the partnership units of Kenna LP (the “13% Units”);

AND WHEREAS, the issued capital of 2265176 consists of 101 common shares (the “Purchased Shares”), all of which are legally and beneficially owned by Kenna Holdco;

AND WHEREAS, Kenna Holdco now desires to sell, and Purchaser desires to purchase, the Purchased Shares such that after giving effect to such purchase, Purchaser will own 67.13% of Kenna LP directly, 12.87% of Kenna LP through ownership of 2265176 which owns the 13% Units, beneficially and of record, aggregating a 80.0% ownership interest in Kenna LP and Kenna Holdco will own 20% of Kenna LP;

AND WHEREAS simultaneous with the execution and delivery of this Agreement, the Purchaser, Kenna Holdco, the Kenna Principals and Kenna LP are executing and delivering an amended and restated limited partnership agreement in respect of Kenna LP (the “Kenna LP Agreement”);

 
 
 
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:
 
ARTICLE I
SALE OF THE PURCHASED SHARES

Section 1.1        Sale of the Purchased Shares.  Subject to the terms and conditions herein stated, Kenna Holdco agrees to sell, assign, transfer and deliver to the Purchaser on the Closing Date (as defined in Section 2.2), and the Purchaser agrees to purchase from Kenna Holdco on the Closing Date, the Purchased Shares.

ARTICLE II
PURCHASE PRICE AND CLOSING

Section 2.1        Purchase Price; Contingent Payments.  In full consideration for the purchase by the Purchaser of the Purchased Shares, the purchase price (the "Purchase Price") shall be calculated and paid by the Purchaser to Kenna Holdco, as set forth in this Section 2.1 below.

(a)        First Contingent Payment. Subject to clauses (i) and (j) below, within five business days after the Annual Determination for calendar year 2010 and any adjustments thereto shall have become binding on the parties in accordance with the Kenna LP Agreement, the Purchaser shall pay to Kenna Holdco the First Contingent Payment ("FAP"), calculated as follows:

FAP = 36% x 2010 PBT

; provided, however, that for purposes of calculating the FAP, “2010 PBT” shall be calculated for the period commencing on the Closing Date and ending on December 31, 2010.

(b)        Second Contingent Payment. Subject to clauses (i) and (j) below, within five business days after the Annual Determination for calendar year 2011 and any adjustments thereto shall have become binding on the parties in accordance with the Kenna LP Agreement, the Purchaser shall pay to Kenna Holdco the Second Contingent Payment ("SAP"), calculated as follows:

SAP = Applicable Percentage x 36% x 2011 PBT
  
; provided, however, in the event that 2011 PBT were less than $4,000,000, then SAP shall equal (A) the excess, if any, of (i) 2011 PBT over (ii) $2,400,000, multiplied by (B) 90%, multiplied by (C) the Applicable Percentage.
 
 
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(c)        Third Contingent Payment. Subject to clauses (i) and (j) below, within five business days after the Annual Determination for calendar year 2012 and any adjustments thereto shall have become binding on the parties in accordance with the Kenna LP Agreement, the Purchaser shall pay to Kenna Holdco the Third Contingent Payment ("TAP"), calculated as follows:

TAP = Applicable Percentage x 36% x 2012 PBT

; provided, however, in the event that 2012 PBT were less than the sum of (i) $4,000,000 plus (ii) 33% of the aggregate Top-Up Payments made as of such determination, then TAP shall equal (A) the excess, if any, of (i) 2012 PBT over (ii) 2,400,000 plus (20% of aggregate Top-Up Payments), multiplied by (B) 90%, multiplied by (C) the Applicable Percentage;

provided further, however, in the event that (x) 2011 PBT minus (y) (i) SAP divided by the Applicable Percentage applicable to SAP divided by (ii) 90%, were less than $2,400,000 plus (20% of aggregate Top-Up Payments), then for purposes of the calculations of TAP above, 2012 PBT shall be reduced by the amount of such shortfall;

(d)        Fourth Contingent Payment. Subject to clauses (i) and (j) below, within five business days after the Annual Determination for calendar year 2013 and any adjustments thereto shall have become binding on the parties in accordance with the Kenna LP Agreement, the Purchaser shall pay to Kenna Holdco the Fourth Contingent Payment ("FOAP"), calculated as follows:

FOAP = Applicable Percentage x 36% x 2013 PBT

; provided, however, in the event that 2013 PBT were less than the sum of (i) $4,000,000 plus (ii) 33% of the aggregate Top-Up Payments made as of such determination, then FOAP shall equal (A) the excess, if any, of (i) 2013 PBT over (ii) 2,400,000 plus (20% of aggregate Top-Up Payments), multiplied by (B) 90%, multiplied by (C) the Applicable Percentage;

provided further, however, in the event that (x) the sum of 2011 PBT and 2012 PBT minus (y) (i) the sum of (A) SAP divided by the Applicable Percentage applicable to SAP and (B) TAP divided by the Applicable Percentage applicable to TAP divided by (ii) 90%, were less than $4,800,000 plus (20% of aggregate Top-Up Payments), then for purposes of the calculations of FOAP above, 2013 PBT shall be reduced by the amount of such shortfall;

(e)        Fifth Contingent Payment.  Subject to clauses (i) and (j) below, within five business days after the Annual Determination for calendar year 2014 and any adjustments thereto shall have become binding on the parties in accordance with the Kenna LP Agreement, the Purchaser shall pay to Kenna Holdco the Fifth Contingent Payment ("FIAP"), calculated as follows:
                       
FIAP = Applicable Percentage x 36% x 2014 PBT
 
 
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; provided, however, in the event that 2014 PBT were less than the sum of (i) 4,000,000 plus (ii) 33% of the aggregate Top-Up Payments made as of such determination, then FIAP shall equal (A) the excess, if any, of (i) 2014 PBT over (ii) $2,400,000 plus (20% of aggregate Top-Up Payments), multiplied by (B) 90%, multiplied by (C) the Applicable Percentage;

; provided further, however, in the event that (x) the sum of 2011 PBT, 2012 PBT and 2013 PBT minus (y) (i) the sum of (A) SAP divided by the Applicable Percentage applicable to SAP, (B) TAP divided by the Applicable Percentage applicable to TAP and (C) FOAP divided by the Applicable Percentage applicable to FOAP divided by (ii) 90%, were less than $7,200,000 plus (20% of aggregate Top-Up Payments), then for purposes of the calculations of FIAP above, 2014 PBT shall be reduced by the amount of such shortfall.

(f)           Last Contingent Payment.  Subject to clauses (i) and (j) below, within five business days after the Annual Determination for calendar year 2015 and any adjustments thereto shall have become binding on the parties in accordance with the Kenna LP Agreement, the Purchaser shall pay to Kenna Holdco the Last Contingent Payment ("LAP"), calculated as follows:

LAP = Applicable Percentage x 36% x 2015 PBT

; provided, however, in the event that 2015 PBT were less than the sum of (i) $4,000,000 plus (ii) 33% of the aggregate Top-Up Payments made as of such determination, then LAP shall equal (A) the excess, if any, of (i) 2015 PBT over (ii) $2,400,000 plus (20% of aggregate Top-Up Payments), multiplied by (B) 90%, multiplied by (C) the Applicable Percentage;

; provided further, however, in the event that (x) the sum of 2011 PBT, 2012 PBT, 2013 PBT and 2014 PBT minus (y) (i) the sum of (A) SAP divided by the Applicable Percentage applicable to SAP, (B) TAP divided by the Applicable Percentage applicable to TAP, (C) FOAP divided by the Applicable Percentage applicable to FOAP and (D) FIAP divided by the Applicable Percentage applicable to FIAP, divided by (ii) 90%, were less than $9,600,000 plus (20% of aggregate Top-Up Payments), then for purposes of the calculations of LAP above, 2015 PBT shall be reduced by the amount of such shortfall.

(g)        No Negative Payments.  In the event that the calculation of FAP, SAP, TAP, FOAP, FIAP or LAP, as the case may be, results in an amount which is less than zero, such Purchase Price component shall be deemed to be zero.

(h)        Additional Top-Up Payments. Kenna shall also be eligible to receive the following potential top-up payments (the “Top-Up Payments”):
 
(i)         Within thirty (30) days after the Annual Determination (as defined below) has been determined for each 12-month calendar year 2010 and 2011, Kenna Holdco will be eligible to receive a “First Top-Up Payment” (if any) equal to the highest amount calculated under clauses (1), (2), (3) and (4) below:

 
1.
If  average PBT for calendar years 2010 and 2011 is greater than $4,500,000 but less than $5,000,001, then the Company will be eligible to receive a First Top-Up Payment equal to $1,250,000;
 
 
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2.
If  average PBT for calendar years 2010 and 2011 is equal to or greater than $5,000,001 but less than $5,500,000, then the Company will be eligible to receive a First Top-Up Payment equal to $1,500,000;
 
3.
If  average PBT for calendar years 2010 and 2011 is equal to or greater than $5,500,001 but less than $5,800,000, then the Company will be eligible to receive a First Top-Up Payment equal to $2,000,000; or
 
4.
If average PBT for calendar years 2010 and 2011 is equal to or greater than $5,800,000, then the Company will be eligible to receive a First Top-Up Payment equal to $2,500,000.

(ii)         Within thirty (30) days after the Annual Determination (as defined below) has been determined for each 12-month calendar year 2010, 2011 and 2012, Kenna Holdco will be eligible to receive a “Second Top-Up Payment” (if any) equal to the highest amount calculated under clauses (1), (2), (3) and (4) below:

 
1.
If  average PBT for calendar years 2010, 2011 and 2012 is greater than $4,500,000 but less than $5,000,001, then the Company will be eligible to receive a Second Top-Up Payment equal to $2,500,000 minus the amount of the First Top-Up Payment;
 
2.
If  average PBT for calendar years 2010, 2011 and 2012 is equal to or greater than $5,000,001 but less than $5,500,000, then the Company will be eligible to receive a Second Top-Up Payment equal to $3,000,000 minus the amount of the First Top-Up Payment;
 
3.
If  average PBT for calendar years 2010, 2011 and 2012 is equal to or greater than $5,500,001 but less than $5,800,000, then the Company will be eligible to receive a Second Top-Up Payment equal to $4,000,000 minus the amount of the First Top-Up Payment; or
 
4.
If  average PBT for calendar years 2010, 2011 and 2012 is equal to or greater than $5,800,000, then the Company will be eligible to receive a Second Top-Up Payment equal to $5,000,000 minus the amount of the First Top-Up Payment.

 
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(i)          Payment of the Purchase Price; Limitations and Conditions Precedent to Contingent Payments and Top-Up Payments. Payment of each component of the Purchase Price and any Contingent Payment or Top-Up Payment that is required to be made under this Section 2.1 shall be made in Canadian dollars by the Purchaser by direct wire transfer to the account of Kenna Holdco, as set forth on Schedule 2.1 (or to such other account as Kenna Holdco may notify the Purchaser in writing).  Notwithstanding the foregoing provisions in this Section 2.1, the Purchaser shall not be obligated to pay any Contingent Payments or Top-Up Payments to Kenna Holdco unless and until (i) Kenna LP has Working Capital of at least the Working Capital Target for a continuous period of at least 6 months, (ii) Kenna LP has paid Kenna Holdco the Pre-Closing Undistributed Profit Amount in accordance with the Kenna LP Agreement and (iii) Kenna LP has sufficient cash on-hand to pay distributions due in accordance with the Kenna LP Agreement.

(j)          Termination of Contingent Payments.  Upon the exercise and closing of a Call option or the consummation of a sale to a Prospective Purchaser (as such terms are defined in the Kenna LP Agreement) pursuant to the Kenna LP Agreement (collectively, a "Sale Event"), Kenna Holdco’s right to receive any Contingent Payments based upon PBT for the calendar year in which the applicable Sale Event occurred or for any calendar year(s) thereafter, shall cease, and the obligation of the Purchaser to pay to Kenna Holdco any such Contingent Payments shall terminate, contemporaneously with the applicable Sale Event.
 
2.2 
Definitions.

 
(i)
"Contingent Payments" shall mean the aggregate amount of the payments made in Sections 2.1(a) through (f).

 
(ii)
“Annual Determination” shall have the meaning ascribed to such term in the Kenna LP Agreement.

 
(iii)
"Applicable Percentage" shall mean, with respect to any Contingent Payment, a percentage equal to the result of (A) the quotient of (x) the average number of LP Units of Kenna LP owned by Kenna Holdco during the calendar year for which PBT is used to calculate such Contingent Payment (such average being determined as the quotient of (1) the sum of the products of the varying numbers of LP Units so owned by Kenna Holdco by the number of days in such year each such number was owned by Kenna Holdco, and (2) 365 or 366 days, as applicable for such year), divided by (y) the average total number of outstanding Class A Units and LP Units for such year (calculated on the same basis as provided in the parenthetical under (A)(x) above), divided by (B) 20%.

 
(iv)
"GAAP" shall mean United States generally accepted accounting principles consistently applied.

 
(v)
“Pre-Closing Undistributed Profit Amount” shall mean the amount of undistributed profits owed to the Kenna Principals from Cap C LP immediately prior to the consummation of the Reorganization, which amount shall be determined as of the Closing Date in accordance with the Kenna LP Agreement and which amount is estimated at Closing to be equal to $648,000.

 
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(vi)
"PBT" with respect to any year, shall mean the consolidated net income (loss) of Kenna LP before provision for any income taxes for such year, determined in accordance with GAAP; provided, however, that for purposes of calculating PBT for 2010, PBT shall be deemed to include the PBT of the Kenna Business for the period from January 1, 2010 until the Closing Date, plus the PBT of Kenna LP for the period from the Closing Date through December 31, 2010.

 
(vii)
“Working Capital” shall mean current assets minus current liabilities as determined in accordance with GAAP.

(viii)
“Working Capital Target” shall mean the sum of (x) $1,500,000 plus (b) the Pre-Closing Undistributed Profit Amount (to the extent not yet distributed in accordance with the Kenna LP Agreement).
 
Section 2.3        Closing.  The closing of the transactions contemplated by this Agreement (the "Closing") shall take place simultaneously with the execution and delivery of this Agreement on the date hereof, at the offices of MDC Partners Inc., 45 Hazelton Avenue, Toronto, Ontario, M5R 2E3, or by the exchange of documents and instruments by mail, courier, telecopy and wire transfer to the extent mutually acceptable to the parties hereto (such date is herein referred to as the "Closing Date").
  
ARTICLE III
REPRESENTATIONS OF KENNA HOLDCO AND THE KENNA PRINCIPALS

Kenna Holdco and the Kenna Principals, jointly and severally, represent and warrant to and with the Purchaser, as follows:

Section 3.1         Execution and Validity of Agreements.

3.1.1        Execution and Validity.  Kenna Holdco has the full legal right and capacity to enter into this Agreement and to perform its obligations hereunder.  This Agreement has been duly and validly executed and delivered by Kenna Holdco and, assuming due authorization, execution and delivery by the Purchaser, constitutes a legal, valid and binding obligation of Kenna Holdco, enforceable against Kenna Holdco in accordance with its terms.

3.1.2        No Restrictions.  There is no suit, action, claim, investigation or inquiry by any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of Canada, any foreign country or any domestic or foreign state, county, city or other political subdivision ("Governmental or Regulatory Authority"), and no legal, administrative or arbitration proceeding is pending or, to the Kenna Principal's knowledge, threatened against Kenna Holdco with respect to the execution, delivery and performance of this Agreement or the transactions contemplated hereby or any other agreement entered into by Kenna Holdco in connection with the transactions contemplated hereby.

 
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3.1.3        Non-Contravention; Approvals and Consents.  The execution, delivery and performance by the Kenna Principals and Kenna Holdco of their respective obligations under this Agreement and the Conveyance Documents and the consummation of the transactions contemplated hereby and thereby, will not (a) violate, conflict with or result in the breach of any provision of the declaration and limited partnership agreement (or other comparable documents) of Kenna LP or Kenna Holdco; (b) result in the violation by Kenna LP or Kenna Holdco of any Laws or Orders of any Governmental or Regulatory Authority, or (c) conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require Kenna LP or Kenna Holdco to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of their respective assets or properties, or under any of the terms, conditions or provisions of any Contract to which Kenna LP or Kenna Holdco is a party or by which Kenna LP or Kenna Holdco or any of their respective assets or properties are or were bound.  Except as set forth in Schedule 3.2.10, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any contract to which Kenna LP or Kenna Holdco is a party, or by which their respective assets or properties were or are bound, for the execution and delivery of this Agreement or the Conveyance Documents, the performance by Kenna LP or Kenna Holdco of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby.

3.2          Proceeds of Purchase Price.  Kenna Holdco has not agreed or made any written or verbal commitment to give any employee of Kenna LP (or any family member or any affiliate of the employee of Kenna LP) any portion or share of the Purchase Price in the form of a bonus, gift, award, or any similar type of remuneration.  The Kenna Principals agree that, from and after the date hereof, no portion or proceeds of the Purchase Price shall be used to compensate or give to any employee of Kenna LP (or any family member of any employee of Kenna LP) a bonus, gift, award, or any similar type of remuneration.

3.3          Limited Partnership Units and Purchased Shares Free and Clear of All Liens; No Options or Restrictions; Subsidiaries and Investments.  Immediately prior to the consummation of the transactions contemplated by this Agreement, (a) Kenna Holdco owns of record and beneficially has valid title to the Purchased Shares, and (b) 2265176 owns of record and beneficially has valid title to 13% Units of Kenna LP and such ownership, in each case, is free and clear or all Liens. There are no outstanding subscriptions, options, warrants, rights (including "phantom stock rights"), calls, commitments, understandings, conversion rights, rights of exchange, plans or other agreements of any kind providing for the purchase, issuance or sale of any equity or ownership or proprietary interest of 2265176 or the 13% Units , or which grants any Person (other than 2265176 or the Kenna Principals) the right to share in the earnings of Kenna LP.  2265176 does not, directly or indirectly, own any equity interest in or have any voting rights with respect to any Person other than the 13% Units.  There are no outstanding subscriptions, options, rights, warrants, calls, commitments or arrangements of any kind to acquire any of the Purchased Shares or 13% Units and there are no agreements or understandings with respect to the sale or transfer of any of the Purchased Shares or 13% Units other than this Agreement. There is no suit, action, claim, investigation or inquiry by any Governmental or Regulatory Authority, and no legal, administrative or arbitration proceeding pending or, to the knowledge of Kenna Holdco or the Kenna Principals, threatened, against Kenna Holdco, 2265176 or Kenna LP or any of the Purchased Shares or any of the 13% Units, with respect to the execution, delivery and performance of this Agreement or the Conveyance Documents or the transactions contemplated hereby or thereby or any other agreement entered into by Kenna Holdco in connection with the transactions contemplated hereby or thereby.

 
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Section 3.4        Brokers.  No broker, finder, agent or similar intermediary has acted on behalf of Kenna Holdco in connection with this Agreement or the transactions contemplated hereby, and no brokerage commissions, finder's fees or similar fees or commissions are payable by the Kenna Holdco or the Kenna Principals in connection therewith based on any agreement, arrangement or understanding with either of them.

Section 3.5  Reaffirmation of Representations and Warranties.  Kenna Holdco and the Kenna Principals hereby reaffirm and restate, to Purchaser, each of their respective representations and warranties set forth in Article III.C. of the Newport Purchase Agreement, which representations and warranties shall be true and correct as of the Closing Date.
                             
ARTICLE IV
REPRESENTATIONS OF THE PURCHASER

The Purchaser represents, warrants and agrees to and with Kenna Holdco as follows:

Section 4.1        Existence and Good Standing.  The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the Province of Ontario with full corporate power and authority to own its property and to carry on its business all as and in the places where such properties are now owned or operated or such business is now being conducted.

Section 4.2        Execution and Validity of Agreement.  The Purchaser has the full corporate power and authority to make, execute, deliver and perform this Agreement and the transactions contemplated hereby.  The execution and delivery of this Agreement by the Purchaser and the consummation of the transactions contemplated hereby have been duly authorized by all required corporate action on behalf of the Purchaser.  This Agreement has been duly and validly executed and delivered by the Purchaser and, assuming due authorization, execution and delivery by Kenna Holdco and the Kenna Principals, constitutes the legal, valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms.
 
Section 4.3        Litigation.  There is no action, suit, proceeding at law or in equity by any Person, or any arbitration or any administrative or other proceeding by or before (or to the knowledge of the Purchaser, any investigation by), any Governmental or Regulatory Authority pending or, to the knowledge of the Purchaser, threatened against the Purchaser or any of their respective properties or rights with respect to this Agreement.  The Purchaser is not subject to any Order entered in any lawsuit or proceeding with respect to this Agreement or the transactions contemplated hereby.
  
 
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Section 4.4        Non-Contravention; Approvals and Consents.  The execution, delivery and performance by the Purchaser of its obligations hereunder and the consummation of the transactions contemplated hereby will not (a) violate, conflict with or result in the breach of any provision of the certificate of incorporation and bylaws of the Purchaser, (b) result in the violation by the Purchaser of any Laws or Orders of any Governmental or Regulatory Authority applicable to the Purchaser or any of its assets or properties, or (c) result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require the Purchaser to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or, except for such Liens as may be created in connection with an MDC Financing (as defined in Section 6.1 hereof), result in the creation or imposition of any Lien upon any of the respective assets or properties of the Purchaser, under any of the terms, conditions or provisions of any Contract to which the Purchaser is a party or by which the Purchaser or any of its assets or properties are bound. No consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which the Purchaser is a party or by which the Purchaser or any of its assets or properties are bound for the execution and delivery of this Agreement by the Purchaser, the performance by the Purchaser of its obligations hereunder or the consummation by the Purchaser of the transactions contemplated hereby

Section 4.5        Brokers.  No broker, finder, agent or similar intermediary has acted on behalf of the Purchaser in connection with this Agreement or the transactions contemplated hereby, and no brokerage commissions, finder's fees or similar fees or commissions are payable by the Purchaser in connection therewith based on any agreement, arrangement or understanding with either of them.

ARTICLE V
ACTIONS AT CLOSING

Simultaneously herewith:
  
Section 5.1        Tax Restructuring Proceedings. All proceedings to be taken in connection with the transactions contemplated by this Agreement, including, without limitation, the pre-closing transactions constituting the Reorganization, the Conveyance Documents and all documents incident thereto must be reasonably satisfactory in form and substance to the Purchaser and its counsel, and the Purchaser shall have received copies of all such documents and other evidences as it or its counsel reasonably requested in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith.
   
Section 5. 2        Certified Resolutions.  Kenna Holdco shall have delivered to the Purchaser a copy of the resolutions of authorizing the execution, delivery and performance of this Agreement and the Conveyance Documents and the transactions contemplated hereby and thereby, certified by one of its officers.
      
Section 5.3         Limited Partnership Agreement.  The Kenna Principals, Kenna Holdco and the Purchaser shall have entered into the Amended and Restated Kenna LP Agreement.
    
 
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ARTICLE VI
OTHER AGREEMENTS

Section 6.1         MDC Financing.  Notwithstanding anything to the contrary contained in this Agreement, in consideration for the payment of the Purchase Price under Section 2.1 hereof and for other good and valuable consideration, the parties hereto hereby (i) agree that MDC Partners and/or one or more of its affiliates, in connection with its or any of its affiliates' current or future credit facilities, debt offerings (including, without limitation, senior, subordinated or mezzanine debt issued in a public offering or a Regulation S or Rule 144A private placement) or any other debt agreements, shall be entitled to: (w) pledge or grant a security interest in or otherwise have a lien placed upon the Purchaser's Limited Partnership Units; (x) pledge or grant a security interest in or to otherwise have a lien placed upon the assets and properties of Kenna LP, and/or their respective subsidiaries; (y) assign all of its rights, benefit, title and interest in Kenna LP and distributions therefrom, including, without limitation, all rights and claims pursuant to and under the Call and/or Sale Request (as such terms are defined in the applicable Limited Partnership Agreement) to or to an agent or representative on behalf of, its bank or lender or group of banks or group of lenders from time to time (as applicable and collectively, the "Lender"); and (z) have Kenna LP provide guarantees and such other ancillary security and related documentation as reasonably required by the Lender from time to time (the items in (w), (x), (y) and (z) being collectively referred to as an "MDC Financing"); and (ii) consent unconditionally to (x) the granting of all security and the execution of all documents required in connection with an MDC Financing and the enforcement thereof, where applicable, by the Lender; and (y) any transaction by which the Lender becomes the absolute legal and beneficial owner of any limited partnership Units which have been pledged or assigned to it.

Section 6.2         Equity Securities of Kenna Holdco.

(a)           As long as Kenna Holdco beneficially owns any equity interests in Kenna LP, no Kenna Principal shall sell or in any other way transfer, assign, distribute, pledge, encumber or otherwise dispose of any of the equity securities of Kenna Holdco or permit Kenna Holdco to issue any additional equity securities.
  
(b)           From and after the Closing, Kenna Holdco covenants and agrees that it shall not, directly or indirectly (i) authorize, create, issue, amend or modify any equity interests (whether common or preferred), subscriptions, options, warrants, rights (including "phantom equity rights"), calls, commitments, understandings, conversion rights, rights of exchange, plans or other agreements of any kind, providing for the purchase, issuance or sale of any membership interests, profits interests, capital interests or equity interests of any kind in Kenna Holdco; or (ii) provide compensation to any employee of Kenna LP or any subsidiary, if any, except to the extent such employee was entitled or eligible to receive such compensation at the time of, and as a result of, the Closing.  Kenna Holdco further covenants and agrees that it shall not, directly or indirectly modify or amend Kenna Holdco's Articles of Incorporation (as amended through the Closing Date), a copy of each of which is attached hereto, without the prior written consent of MDC Partners.
 
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ARTICLE VII
SURVIVAL; INDEMNITY

Section 7.1        Survival.  Notwithstanding any right of any party hereto fully to investigate the affairs of any other party, and notwithstanding any knowledge of facts determined or determinable pursuant to such investigation or right of investigation, each party hereto shall have the right to rely fully upon the representations, warranties, covenants and agreements of the other parties contained in this Agreement and the Schedules, if any, furnished by any other party pursuant to this Agreement, or in any certificate or document delivered at the Closing by any other party.  Subject to the limitations set forth in Section 7.6, the respective representations, warranties, covenants and agreements of Kenna Holdco, the Kenna Principals and the Purchaser contained in this Agreement shall survive the Closing.

Section 7.2         Obligation of Kenna Holdco and the Kenna Principals to Indemnify.
 
7.2.1        General Indemnity.  Subject to the limitations contained in Sections 7.6.1 and 7.6.2, Kenna Holdco and the Kenna Principals hereby agree, jointly and severally, to indemnify the Purchaser and its affiliates, stockholders, officers, directors, employees, agents, representatives and successors, permitted assignees of the Purchaser and their affiliates (individually, a "Purchaser Indemnified Party" and collectively, the "Purchaser Indemnified Parties") against, and to protect, save and keep harmless the Purchaser Indemnified Parties from, and to pay on behalf of or reimburse the Purchaser Indemnified Parties as and when incurred for, any and all liabilities (including liabilities for Taxes), obligations, losses, damages, penalties, demands, claims, actions, suits, judgments, settlements, penalties, interest, out-of-pocket costs, expenses and disbursements (including reasonable costs of investigation, and reasonable attorneys', accountants' and expert witnesses' fees) of whatever kind and nature (collectively, "Losses"), that may be imposed on or incurred by any Purchaser Indemnified Party as a consequence of, in connection with, incident to, resulting from or arising out of or in any way related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or representation contained in Article III hereof or in any certificate delivered by Kenna Holdco or the Kenna Principals at the Closing or otherwise in connection herewith; (b) any action, demand, proceeding, investigation or claim by any third party (including any Governmental or Regulatory Authority) against or affecting any Purchaser Indemnified Party which may give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations and warranties of Kenna Holdco or the applicable Kenna Principals contained in Article III hereof or in any certificate delivered by Kenna Holdco or the applicable Kenna Principals at the Closing or otherwise in connection herewith; (c) any breach or failure by Kenna Holdco or the applicable Kenna Principals to comply with, perform or discharge any obligation, agreement or covenant by Kenna Holdco or the Kenna Principals contained in this Agreement; or (d) any liability or obligation or any assertion against any Purchaser Indemnified Party, arising out of or relating, directly or indirectly, to any Excluded Asset or any Retained Liability (as such terms are defined in the Conveyance Documents) or other liability arising, in whole or in part, out of the conduct of the business of Cap C LP or any of its subsidiaries or successors, if any, prior to the Closing except for the Assumed Liabilities (as such term is defined in the Conveyance Documents).

 
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7.2.2        Losses.  The term "Losses" as used in this Article VII is not limited to matters asserted by third parties against any Purchaser Indemnified Party but includes Losses incurred or sustained by a Purchaser Indemnified Party in the absence of Third Party Claims (as defined in Section 7.4.2 hereof).

Section 7.3         Obligation of the Purchaser to Indemnify.  Subject to the limitations set forth in Section 7.6.3 hereof, the Purchaser hereby agrees to indemnify Kenna Holdco, Kenna and the Kenna Principals (individually a "Company Indemnified Party" and collectively, the "Company Indemnified Parties") against, and to protect, save and keep harmless the Company Indemnified Parties from, and to pay on behalf of or reimburse the Company Indemnified Parties as and when incurred for, any and all Losses that may be imposed on or incurred by the Company Indemnified Parties as a consequence of, in connection with, incident to, resulting from or arising out of or in any way related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or representation of the Purchaser contained in Article IV hereof or in any certificate delivered by the Purchaser at the Closing; or (b) any action, demand, proceeding, investigation or claim by any third party (including any Governmental or Regulatory Authority) against or affecting any Company Indemnified Party which may give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations and warranties of the Purchaser contained in Article IV hereof or in any certificate delivered by the Purchaser at the Closing; or (c) any breach or failure by the Purchaser to comply with, perform or discharge any obligation, agreement or covenant by the Purchaser contained in this Agreement.

Section 7.4         Indemnification Procedures.

7.4.1        Non-Third Party Claims.

(a)           In the event that any Person entitled to indemnification under this Agreement (an "Indemnified Party") asserts a claim for indemnification which does not involve a Third Party Claim (as defined in Section 7.4.2) (a "Non-Third Party Claim"), against which a Person is required to provide indemnification under this Agreement (an "Indemnifying Party"), the Indemnified Party shall give written notice to the Indemnifying Party (the "Non-Third Party Claim Notice"), which Non-Third Party Claim Notice shall (i) describe the claim in reasonable detail, and (ii) indicate the amount (estimated, if necessary, and to the extent feasible) of the Losses that have been or may be suffered by the Indemnified Party.
 
 
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(b)           The Indemnifying Party may acknowledge and agree by written notice (the "Non-Third Party Acknowledgement of Liability") to the Indemnified Party to satisfy the Non-Third Party Claim within 30 days of receipt of the Non-Third Party Claim Notice.  In the event that the Indemnifying Party disputes the Non-Third Party Claim, the Indemnifying Party shall provide written notice of such dispute (the "Non-Third Party Dispute Notice") to the Indemnified Party within 30 days of receipt of the Non-Third Party Claim Notice (the "Non-Third Party Dispute Period"), setting forth a reasonable basis of such dispute.  In the event that the Indemnifying Party shall fail to deliver the Non-Third Party Acknowledgement of Liability or Non-Third Party Dispute Notice within the Non-Third Party Dispute Period, the Indemnifying Party shall be deemed to have acknowledged and agreed to pay the Non-Third Party Claim in full and to have waived any right to dispute the Non-Third Party Claim.  Once the Indemnifying Party has acknowledged and agreed to pay any Non-Third Party Claim pursuant to this Section 7.4.1, or once any dispute under this Section 7.4.1 has been finally resolved in favor of indemnification by a court or other tribunal of competent jurisdiction, subject to the provisions of Section 7.6.1, the Indemnifying Party shall pay the amount of such Non-Third Party Claim to the Indemnified Party within 10 days of the date of acknowledgement or resolution, as the case may be, to such account and in such manner as is designated in writing by the Indemnified Party.

7.4.2        Third-Party Claims.

(a)           In the event that any Indemnified Party asserts a claim for indemnification or receives notice of the assertion of any claim or of the commencement of any action or proceeding by any Person who is not a party to this Agreement or an affiliate of a party to this Agreement in respect of which such Indemnified Party is entitled to indemnification by an Indemnifying Party under this Agreement (a "Third Party Claim"), the Indemnified Party shall give written notice to the Indemnifying Party (the "Third Party Claims Notice") within 20 days after asserting or learning of such Third Party Claim (or within such shorter time as may be necessary to give the Indemnifying Party a reasonable opportunity to respond to such claim), together with a statement specifying the basis of such Third Party Claim.  The Third Party Claim Notice shall (i) describe the claim in reasonable detail, and (ii) indicate the amount (estimated, if necessary, and to the extent feasible) of the Losses that have been or may be suffered by the Indemnified Party. The Indemnifying Party must provide written notice to the Indemnified Party that it is either (i) assuming responsibility for the Third Party Claim or (ii) disputing the claim for indemnification against it (the "Indemnification Notice")  The Indemnification Notice must be provided by the Indemnifying Party to the Indemnified Party within 15 days after receipt of the Third Party Claims Notice or within such shorter time as may be necessary to give the Indemnified Party a reasonable opportunity to respond to such Third Party Claim (the "Indemnification Notice Period").

(b)           If the Indemnifying Party provides an Indemnification Notice to the Indemnified Party within the Indemnification Notice Period that it assumes responsibility for the Third Party Claim (the "Defense Notice"), the Indemnifying Party shall conduct at its expense the defense against such Third Party Claim in its own name, or if necessary in the name of the Indemnified Party.  The Defense Notice shall specify the counsel the Indemnifying Party will appoint to defend such claim ("Defense Counsel"); provided, however, that the Indemnified Party shall have the right to approve the Defense Counsel, which approval shall not be unreasonably withheld or delayed, except that such approval may be withheld if the defense is to be in the name of the Indemnified Party.  In the event that the Indemnifying Party fails to give the Indemnification Notice within the Indemnification Notice Period, the Indemnified Party shall have the right to conduct the defense and to compromise and settle such Third Party Claim without the prior consent of the Indemnifying Party and subject to the provisions of Section 7.6.1, the Indemnifying Party will be liable for all costs, expenses, settlement amounts or other Losses paid or incurred in connection therewith.

 
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(c)           In the event that the Indemnifying Party provides in the Indemnification Notice that it disputes the claim for indemnification against it, the Indemnified Party shall have the right to conduct the defense and to compromise and settle such Third Party Claim, without the prior consent of the Indemnifying Party. Once such dispute has been finally resolved in favor of indemnification by a court or other tribunal of competent jurisdiction or by mutual agreement of the Indemnified Party and Indemnifying Party, subject to the provisions of Section 7.6.1, the Indemnifying Party shall within 10 days of the date of such resolution or agreement, pay to the Indemnified Party all Losses paid or incurred by the Indemnified Party in connection therewith.
 
(d)           In the event that the Indemnifying Party delivers an Indemnification Notice pursuant to which it elects to conduct the defense of the Third Party Claim, the Indemnifying Party shall be entitled to have the exclusive control over the defense of the Third Party Claim and the Indemnified Party will cooperate in good faith with and make available to the Indemnifying Party such assistance and materials as it may reasonably request, all at the expense of the Indemnifying Party.  The Indemnified Party shall have the right at its expense to participate in the defense assisted by counsel of its own choosing.  The Indemnifying Party will not settle the Third Party Claim or cease to defend against any Third Party Claim as to which it has delivered an Indemnification Notice (as to which it has assumed responsibility for the Third Party Claim), without the prior written consent of the Indemnified Party, which consent will not be unreasonably withheld or delayed; provided, however, such consent may be withheld if, among other reasons, as a result of such settlement or cessation of defense, (i) injunctive relief or specific performance would be imposed against the Indemnified Party, or (ii) such settlement or cessation would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder.
  
(e)           If an Indemnified Party refuses to consent to a bona fide offer of settlement which the Indemnifying Party wishes to accept, which provides for a full release of the Indemnified Party and its affiliates relating to the Third Party Claims underlying the offer of settlement and solely for a monetary payment, the Indemnified Party may continue to pursue such matter, free of any participation by the Indemnifying Party, at the sole expense of the Indemnified Party. In such an event, the obligation of the Indemnifying Party shall be limited to the amount of the offer of settlement which the Indemnified Party refused to accept plus the reasonable costs and expenses of the Indemnified Party incurred prior to the date the Indemnifying Party notified the Indemnified Party of the offer of settlement.
 
(f)           Notwithstanding clause (d) above, the Indemnifying Party shall not be entitled to control, but may participate in, and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of (x) that part of any Third Party Claim that (i) seeks a temporary restraining order, a preliminary or permanent injunction or specific performance against the Indemnified Party, (ii) involves criminal allegations against the Indemnified Party or (iii) may lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and (y) the entire Third Party Claim if such Third Party Claim would impose liability on the part of the Indemnified Party in an amount which is greater than the amount as to which the Indemnified Party is entitled to indemnification under this Agreement.
 
 
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(g)           A failure by an Indemnified Party to give timely, complete or accurate notice as provided in this Section 7.4 will not affect the rights or obligations of any party hereunder except and only to the extent that, as a result of such failure, any party entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise directly and materially damaged as a result of such failure to give timely notice.

Section 7.5         Right of Offset.  Without limiting any other rights or remedies available to it, the Purchaser shall be entitled to offset any claim for indemnity made pursuant to Section 7.2 and in accordance with Section 7.4, against any Contingent Payment or Top-Up Payment due to Kenna Holdco, subject to an aggregate limit of $3,000,000; provided, however, the Purchaser may only exercise such right of offset in respect of claims relating to Losses actually incurred by a Purchaser Indemnified Party (in which case the amount of such offset shall be the amount of such actual Loss) or claims actually asserted by a third party (in which case the amount of the offset shall not exceed the Purchaser's good faith estimate of the amount of indemnifiable Losses that will ultimately be payable to a Purchaser Indemnified Party in respect of such claims).

Section 7.6         Limitations On and Other Matters Regarding Indemnification

7.6.1        Indemnity Cushion and Cap.  Subject to Section 7.6.5, neither Kenna Holdco nor any of the Kenna Principals shall have any liability to any Purchaser Indemnified Party with respect to Losses arising out of any of the matters referred to in Section 7.2 until such time as the amount of such liability shall exceed $100,000 in the aggregate (in which case Kenna Holdco and the Kenna Principals shall be liable for all Losses).  Notwithstanding anything to the contrary herein, subject to Section 7.6.5 below, the maximum aggregate liability of Kenna Holdco and the Kenna Principals for indemnity payments under Section 7.2.1 shall be an aggregate amount equal to the sum of (A) $750,000 plus (B) $3,000,000 of the Contingent Payments and the Top-Up Payments paid or payable pursuant to this Agreement.

7.6.2        Termination of Indemnification Obligations of Kenna Holdco and the Kenna Principals.  Subject to Section 7.6.5, the obligation of Kenna Holdco and the Kenna Principals to indemnify under Section 7.2 hereof shall terminate on March 31, 2012, except as to matters as to which the Purchaser Indemnified Party has made a claim for indemnification on or prior to such date, in which case the right to indemnification with respect thereto shall survive the expiration of such period until such claim for indemnification is finally resolved and any obligations with respect thereto are fully satisfied.
   
7.6.3        Termination of Indemnification Obligations of the Purchaser; Purchaser Indemnity Cap.  The obligation of the Purchaser to indemnify under Section 7.3 hereof shall terminate on March 31, 2012, except as to matters as to which Kenna Holdco or the Kenna Principals have made a claim for indemnification on or prior to such date, in which case the right to indemnification with respect thereto for such party shall survive the expiration of such period until such claim for indemnification is finally resolved and any obligations with respect thereto are fully satisfied.  Notwithstanding anything to the contrary herein, the maximum aggregate liability of the Purchaser for indemnity payments under this Agreement to the Company Indemnified Parties shall be an aggregate amount equal to $3,000,000.
 
 
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7.6.4        Treatment.  Any indemnity payments by an Indemnifying Party to an Indemnified Party under this Article VIII shall be treated by the parties as an adjustment to the Purchase Price.

7.6.5        Exceptions.  Each of the limitations set forth above in this Section 7.6 shall in no event (a) apply to any Losses incurred by a Purchaser Indemnified Party which relate, directly or indirectly, to (i) any fraudulent acts committed by Kenna Holdco or the Principal; (ii) any breach of a representation or warranty contained in Sections 3.1 or 3.3 or any other provision hereof relating to Taxes, (iii) any indemnification obligation under Sections 7.2.1(c) or 7.2.1(d)  and (iv) the obligations of Kenna Holdco and the Kenna Principals set forth in Section 8.1 to pay certain expenses; or (b) apply to any Losses incurred by a Company Indemnified Party which relate, directly or indirectly, to (i) any fraudulent acts committed by the Purchaser; (ii) any indemnification obligation under Section 7.3(c); and (iii) the Purchaser's obligations set forth in Section 8.1 to pay certain expenses.

7.6.6        Control by MDC Partners. All decisions and determinations to be made by the Purchaser and/or a Purchaser Indemnified Party under this Article VII shall be made by MDC Partners in the name of and on behalf of the Purchaser and/or such other Purchaser Indemnified Party.

 
ARTICLE VIII
MISCELLANEOUS

Section 8.1         Expenses.  Except as otherwise provided in this Agreement, the Purchaser, on the one hand, and the Kenna Principals and Cap C LP, on the other hand, shall pay its or his own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel, financial advisors and accountants.
 
Section 8.2         Governing Law; Service of Process and Consent to Jurisdiction. The interpretation and construction of this Agreement, and all matters relating hereto (including, without limitation, the validity or enforcement of this Agreement), shall be governed by the laws of the Province of Ontario and the laws of Canada applicable therein.
             
Section 8.3         "Person" Defined.  "Person" shall mean and include an individual, a company, a joint venture, a corporation (including any non-profit corporation), an estate, an association, a trust, a general or limited partnership, a limited liability company, a limited liability partnership, an unincorporated organization and a government or other department or agency thereof.
                     
Section 8.4         "Knowledge" Defined.  Where any representation and warranty contained in this Agreement is expressly specified by reference to the knowledge of Kenna Holdco or any Kenna Principal, such term shall be limited to the actual knowledge of the executive officers of Kenna Holdco, Kenna and the Kenna Principals (if not an individual), and unless otherwise stated, such knowledge that would have been discovered by the executive officers of Kenna Holdco, Kenna or the applicable Kenna Principal after reasonable inquiry.  Where any representation and warranty contained in this Agreement is expressly specified by reference to the knowledge of the Purchaser, as the case may be, such term shall be limited to the actual knowledge of the executive officers of such entity and unless otherwise stated, such knowledge that would have been discovered by such executive officers after reasonable inquiry.
 
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Section 8.5         "Affiliate" Defined.  As used in this Agreement, an "affiliate" of any Person, shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such Person.
                   
Section 8.6         Captions.  The Article and Section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement.

Section 8.7         Publicity.  Subject to the provisions of the next sentence, no party to this Agreement shall, and Kenna Holdco and the Kenna Principals shall use their reasonable efforts to ensure that no representative of either of them shall, issue any press release or other public document or make any public statement relating to this Agreement or the matters contained herein without obtaining the prior approval of the Purchaser.  Notwithstanding the foregoing, the foregoing provision shall not apply to the extent that MDC Partners is required to make any announcement relating to or arising out of this Agreement by virtue of the securities laws of the United States or Canada or the rules and regulations promulgated thereunder or other rules of the NASDAQ Stock Market, Toronto Stock Exchange or the United States Securities and Exchange Commission or any announcement by any party or the Company pursuant to applicable law or regulations.

Section 8.8         Notices.  Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party to any other party shall be in writing and shall be deemed to have been given (a) upon personal delivery, if delivered by hand or courier, (b) three days after the date of deposit in the mails, postage prepaid, or (c) the next business day if sent by a prepaid overnight courier service, and in each case at the respective addresses set forth below or such other address as such party may have fixed by notice:

If to the Purchaser, addressed to:

c/o MDC Partners Inc.
45 Hazelton Avenue
Toronto, Ontario
Canada M5R 2E3
Attention:  Gavin Swartzman

with a copy to:

c/o MDC Partners Inc.
950 Third Avenue
New York, New York 10022
Attention:  General Counsel
 
 
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If to Kenna Holdco, to:

c/o Paul Quigley
898 Wildrush Place
Newmarket, Ontario  L3X 1L7
    
Attention:          Paul Quigley
 
with a copy to (which shall not constitute notice):
 
Lipman, Zener & Waxman LLP
1220 Eglinton Avenue West
Toronto, Ontario  M6C 2E3
Attention:        Bradley J. Miller
Facsimile:       (416) 789-9015
  
If to the Kenna Principals, to:

 
Paul Quigley
898 Wildrush Place
Newmarket, Ontario  L3X 1L7
 
and
 
Glenn Chilton
161 Coldstream Avenue
Toronto, Ontario  M5N 1X7
 
with a copy to (which shall not constitute notice):
 
Lipman, Zener & Waxman LLP
1220 Eglinton Avenue West
Toronto, Ontario  M6C 2E3
 
Attention:        Bradley J. Miller
Facsimile:       (416) 789-9015
                   
Any party may change the address to which notices are to be sent by giving notice of such change of address to the other parties in the manner herein provided for giving notice.
                             
Section 8.9         Parties in Interest.  This Agreement may not be transferred, assigned, pledged or hypothecated by any party hereto, other than by operation of law.  Any purported such transfer, assignment, pledge, or hypothecation (other than by operation of law) shall be void and ineffective.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.
                  
 
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Section 8.10      Severability.  In the event any provision of this Agreement is found to be void and unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as though the void or unenforceable part had been severed and deleted.

Section 8.11      Counterparts.  This Agreement may be executed in two or more counterparts or by facsimile transmission, all of which taken together shall constitute one instrument.

Section 8.12      Entire Agreement.  This Agreement, together with the Schedules and Exhibits hereto, constitutes the sole, exclusive and only agreements of the parties hereto pertaining to the subject matter hereof, contains all of the covenants, conditions and agreements between the parties, express or implied, whether by statute or otherwise, and sets forth the respective rights, duties and obligations of each party to the other party as of the date hereof. No oral understandings, oral statements, oral promises or oral inducements exist.

Section 8.13      Amendments.  This Agreement may not be amended, supplemented or modified orally, but only by an agreement in writing signed by each of the parties hereto.

Section 8.14      Third Party Beneficiaries.  Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto and their respective successors and assigns as permitted under Section 8.9, except the Purchaser Indemnified Parties as provided in Article VII hereof and with respect to the provisions of Section 7.6.6, MDC Partners.

Section 8.15      Use of Terms.  Whenever the context so requires or permits, all references to the masculine herein shall include the feminine and neuter, all references to the neuter herein shall include the masculine and feminine, all references to the plural shall include the singular and all references to the singular shall include the plural.  Whenever used in this Agreement, the terms "Dollars" and "$" shall mean Canadian Dollars.

Section 8.16      "Liens" Defined.  With respect to any asset, a "Lien" shall mean (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (other than an operating lease) (or any financial lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
 
Section 8.17      No Strict Construction; Representation by Counsel.  The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of law or contract interpretation that provides that in the case of ambiguity or uncertainty a provision should be construed against the draftsman will be applied against any party hereto.  The provisions of this Agreement shall be construed according to their fair meaning and neither for nor against any party hereto irrespective of which party caused such provisions to be drafted.  Each of the parties acknowledges that it has been represented by an attorney in connection with the preparation and execution of this Agreement.
 
*                      *                      *                      *
 
 
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IN WITNESS WHEREOF, the parties hereto have executed this Limited Partnership Unit Purchase Agreement, on the day and year first above written.
 
   
MDC PARTNERS INC.
     
   
By:
/s/ Mitchell Gendel
   
Name:   Mitchell Gendel
   
Title:    General Counsel
     
   
2265174 ONTARIO LIMITED
     
   
By:
/s/ Glenn Chilton
   
Name:   Glenn Chilton
   
Title:     Authorized Officer
     
/s/
  
/s/ Glenn Chilton
Witness
  
Glenn Chilton
       
/s/
  
/s/ Paul Quigley
Witness
  
Paul Quigley
 
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EX-10.18.1 10 v212032_ex10-18x1.htm
Exhibit 10.18.1
   
LIMITED PARTNERSHIP UNIT PURCHASE AGREEMENT
 
LIMITED PARTNERSHIP UNIT PURCHASE AGREEMENT (this "Agreement") dated as of November 30, 2010, by and among MDC PARTNERS INC., a Canadian corporation (the "Purchaser"), NEWPORT PARTNERS HOLDINGS LP, an Ontario limited partnership ("Newport"), CAP C LP HOLDCO INC., an Ontario corporation ("Communications Holdco"), 2265178 ONTARIO LIMITED ("Capital C Holdco"), an Ontario corporation, TONY CHAPMAN and VICTORIA CALVERLEY, each an individual resident in the Province of Ontario (collectively, the "Cap C Principals" and each  a "Cap C Principal").
 
WITNESSETH:
 
WHEREAS, in order to facilitate a sale to the Purchaser, each of Newport and the Cap C Principals have caused Capital C Partners LP ("CLP") to be formed for the purpose of demerging the businesses of Capital C Communications LP ("Cap C LP"), which consisted of a technology based, customer relationship business and related database marketing services business (the "Kenna Business") and the separate business of rendering advertising, customer relationship, marketing or communications services (the "Cap C Business") (see reorganization chart attached as Exhibit A (the "Reorganization");
 
AND WHEREAS immediately prior to the execution and delivery of this Agreement, Newport, Communications Holdco, the Cap C Principals and Glenn Chilton and Paul Quigley (the "Kenna Principals") consummated the transactions contemplated by the Reorganization.  In connection with such Reorganization, Newport and the Cap C Principals caused Cap C LP to transfer all of the assets utilized as part of the Cap C Business (the "Acquired Cap C Assets") and certain disclosed liabilities and obligations of the Cap C Business to CLP, pursuant to an Assignment and Assumption Agreement, and certain ancillary documents (collectively, the "Conveyance Documents") following which Cap C LP was dissolved;
 
AND WHEREAS, immediately following the Reorganization, Newport holds 67.13% of the limited partnership units of CLP (the "Purchased Units"), and the Purchaser wishes to purchase the Purchased Units from Newport, such that after giving effect to such purchase, the Purchaser will own 67.13% of CLP and the Cap C Principals will own 32.87% of CLP, indirectly through their equity interest in Communications Holdco;
 
AND WHEREAS simultaneous with the execution and delivery of this Agreement, the Purchaser, Capital C Holdco, the Cap C Principals and CLP are executing and delivering an amended and restated limited partnership agreement in respect of CLP;
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

 
 
 
 
ARTICLE I
SALE OF THE PURCHASED UNITS
 
Section 1.1        Sale of the Purchased Units.  Subject to the terms and conditions herein stated, Newport agrees to sell, assign, transfer and deliver to the Purchaser on the Closing Date (as defined in Section 2.2), and the Purchaser agrees to purchase from Newport on the Closing Date, the Purchased Units.
 
ARTICLE II
PURCHASE PRICE AND CLOSING
 
Section 2.1        Purchase Price.
 
2.1.1                Purchase Price.  In full consideration for the purchase by the Purchaser of the Purchased Units, the purchase price (the "Purchase Price") shall be calculated and paid by the Purchaser to Newport, as set forth below.
 
(a)           Closing Payment.  At the Closing, the Purchaser shall pay to Newport an amount equal to CDN $10,000,000.
 
(b)           Payment of Purchase Price.  At the Closing, the Purchaser shall pay the Purchase Price by wire transfer of immediately available funds as follows:
 
 
(i)
$9,440,000 to the order of DB Newport LLC (as successor to Fortress Credit Corp.); and
 
 
(ii)
an amount equal to $560,000 to Newport.
 
(c)           For the purposes of any wire transfers contemplated in this Agreement, the following particulars of accounts into which funds are to be issued:
 
 
(i)
in respect of Fortress Credit Corp.:
 
Destination Bank:
TD Canada Trust
 
 
55 King Street West, Toronto, ON
 
Bank No.:
004
 
Transit No.:
10202
 
Account No.:
0690-5364551
 
SWIFT Code:
TDOMCATTTOR
 
Beneficiary:
Torys LLP, in Trust
 
Client Contact:
Amanda Balasubramanian
 
 
(416) 865-8137
 
 
- 2 -
 
 
 
(ii)
in respect of Newport:
 
Destination Bank:
Royal Bank of Canada
 
Main Branch Royal Bank Plaza
 
200 Bay Street, Toronto, ON
Bank No.:
003
 
Transit No.:
00002
Account No.:
103-328-1
SWIFT Code:
ROYCCAT2
 
Beneficiary:
Newport Partners Holdings LP
Client Contact:
Suzanne Corkery
 
(416) 867-7533
 
Section 2.2        Closing.  The closing of the transactions contemplated by this Agreement (the "Closing") shall take place simultaneously with the execution and delivery of this Agreement on the date hereof, at the offices of Fogler, Rubinoff LLP, 95 Wellington Street West, Suite 1200, Toronto, Ontario, M5J 2Z9, or by the exchange of documents and instruments by mail, courier, telecopy and wire transfer to the extent mutually acceptable to the parties hereto (such date is herein referred to as the "Closing Date").
 
Section 2.3        Third Party Consents. Anything in this Agreement to the contrary notwithstanding, in the event an assignment or purported assignment to CLP of any of the agreements, contracts or commitments of the Cap C Business pursuant to the Conveyance Documents or any claim, right or benefit arising thereunder or resulting therefrom, without the consent of other parties thereto, would constitute a breach thereof or would not result in CLP receiving all of the rights thereunder, such agreement, contract or commitment shall be deemed not to have been assigned to CLP.  In those circumstances, if requested by the Purchaser, after the Closing, each Cap C Principal will use their best efforts to obtain any such consent (excluding the payment of any fees).  If such consent is not obtained and is required to effectively assign any agreement, contract or commitment to CLP, the Cap C Principals will cooperate to provide CLP with the full claims, rights and benefits thereunder, including enforcement at the cost and for the benefit of CLP of any and all rights of Communications Holdco, against a third party thereto arising out of the breach or cancellation by such third party or otherwise, and any amount received by Communications Holdco in respect thereof shall be held for and paid over to CLP.
 
Section 2.4        Further Assurance; Post-Closing Cooperation. Newport and the Cap C Indemnitors (as defined in Article III.B) will, from time to time, at the reasonable request of the Purchaser, whether at or after the Closing Date, execute and deliver such other and further instruments of conveyance, assignment, transfer and consent reasonably required for the conveyance, assignment and transfer of the Assets (as defined in the Conveyance Documents) pursuant to the Conveyance Documents.  Following the Closing, upon reasonable advance notice, each party will afford each other party, its counsel and its accountants, during normal business hours, reasonable access to the books, records and other data relating to Newport or the Cap C Indemnitors or any of the Cap C Indemnitors' respective subsidiary entities, if any, in its possession with respect to periods prior to the Closing and the right to make copies and extracts therefrom, to the extent that such access may be reasonably required by the requesting party strictly in connection with (i) the preparation of tax returns, (ii) the determination and enforcement of rights and obligations under this Agreement, (iii) compliance with the requirements of any Governmental or Regulatory Authority (as defined in Section 3.1.2), (iv) any actual or threatened action or proceeding, and (v) the verification of the "Assets" and "Assumed Liabilities" (as such terms are defined in the Conveyance Documents), in each case only to the extent relating to the Cap C Business.

 
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ARTICLE III
REPRESENTATIONS OF NEWPORT, COMMUNICATIONS HOLDCO,
CAPITAL C HOLDCO AND THE CAP C PRINCIPALS
 
A.  Newport represents and warrants to the Purchaser, as follows:
 
Section 3.1        Execution and Validity of Agreements; Restrictive Documents.
 
3.1.1         Execution and Validity.  Newport has the full legal right and capacity to enter into this Agreement and to perform its obligations hereunder.  This Agreement has been duly and validly executed and delivered by Newport and, assuming due authorization, execution and delivery by the other parties hereto, constitutes a legal, valid and binding obligation of Newport, enforceable against Newport in accordance with its terms.
 
3.1.2         No Restrictions.  There is no suit, action, claim, investigation or inquiry by any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of Canada, any foreign country or any domestic or foreign state, county, city or other political subdivision ("Governmental or Regulatory Authority"), and no legal, administrative or arbitration proceeding is pending or, to Newport's knowledge, threatened against Newport with respect to the execution, delivery and performance of this Agreement or the transactions contemplated hereby or any other agreement entered into by Newport in connection with the transactions contemplated hereby.
 
3.1.3         Non-Contravention.  The execution, delivery and performance by Newport of its obligations hereunder and the consummation of the transactions contemplated hereby, will not as of the Closing Date: (a) result in the violation by Newport of any statute, law, rule, regulation or ordinance (collectively, "Laws"), or any judgment, decree, order, writ, permit or license (collectively, "Orders"), of any Governmental or Regulatory Authority, applicable to Newport, or (b) conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require Newport to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of the assets or properties of Newport, under any of the terms, conditions or provisions of any agreement, commitment, lease, license, evidence of indebtedness, letter of credit, mortgage, indenture, security agreement, instrument, note, bond, franchise, permit, concession, or other instrument, obligation or agreement of any kind, written or oral (collectively, the "Newport Contracts"), to which Newport is a party or by which Newport or any of its assets or properties are bound.
 
 
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3.1.4         Approvals and Consents.  Other than the consents required pursuant to the Credit Agreement (as defined below) to the Reorganization and any corporate or partnership consents required for the Reorganization, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Newport Contract for the execution and delivery of this Agreement by Newport, the performance by Newport of its obligations hereunder or the consummation of the transactions contemplated hereby. For the purposes of this Agreement, the term "Credit Agreement" means that certain Credit Agreement dated as of December 7, 2006 by and among Newport Finance Corp., as borrower, Newport, Newport Private Yield LP, NPY GP Trust, Newport Partners Commercial Trust, Newport Partners Trustee Inc., Newport Partners GP Inc. and NPY Beneficiary Inc., as parent obligors, DB Newport LLC (as successor to Fortress Credit Corp.), as administrative agent and the lenders from time to time party thereto (as amended by the First Amendment to Credit Agreement dated as of May 9, 2007, the Second Amendment to the Credit Agreement dated as of July 5, 2007, the Third Amendment to Credit Agreement and Consent dated as of January 7, 2008 and the Fourth Amendment to Credit Agreement and Consent dated September 30, 2008).
 
3.1.5         Limited Partnership Units; Equity Ownership; No Options or Restrictions.  Newport owns of record and beneficially has valid title to 67.13% of the limited partnership units of the CLP, which constitute the Purchased Units, and such ownership shall be free and clear of all Liens except for those Liens in respect of which the personal property security registrations set out on Schedule 3.1.5 have been filed, which Liens shall not apply in respect of the Purchased Units, as confirmed by evidence to be delivered pursuant to Section 5.10 hereof.
 
B.  Communications Holdco, Capital C Holdco and the Cap C Principals (the "Cap C Indemnitors"), jointly and severally, represent and warrant to the Purchaser, as follows:
 
Section 3.2     Existence and Good Standing.
 
3.2.1         Full Power.  Each of Communications Holdco, Capital C Holdco and the Cap C Principals has the full power and authority to enter into this Agreement and the Conveyance Documents and to perform their respective obligations hereunder and thereunder.  The execution and delivery of this Agreement and the Conveyance Documents by Communications Holdco, and the consummation by such parties of the transactions contemplated hereby and thereby have been duly authorized by all required company action on behalf of such parties.  This Agreement and the Conveyance Documents have been duly and validly executed and delivered by Communications Holdco and constitute a legal, valid and binding obligation of Communications Holdco, enforceable against it in accordance with their terms.  Communications Holdco, Capital C Holdco and the CLP are each duly organized and are each validly existing under the laws of the Province of Ontario, with the full power and authority to own their respective properties and to carry on their respective businesses, including the Cap C Business, all as and in the places where such properties are now owned or operated or such businesses are now being conducted except where such failure to qualify would not have a material adverse effect on the respective businesses.  The CLP, Capital C Holdco and Communications Holdco are each duly qualified, licensed or admitted to do business and each of them is in good company and tax standing in the jurisdictions set forth on Schedule 3.2.1, which are the only jurisdictions in which the ownership, use or leasing of their respective assets and properties, or the conduct or nature of their respective businesses, makes such qualification, licensing or admission necessary.

 
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3.2.2         Capital Stock; Equity Ownership; No Options or Restrictions; Subsidiaries and Investments.  There are no outstanding subscriptions, options, warrants, rights (including "phantom stock rights"), calls, commitments, understandings, conversion rights, rights of exchange, plans or other agreements of any kind providing for the purchase, issuance or sale of any equity or ownership or proprietary interest of the CLP, or which grants any Person other than the Cap C Principals and Newport the right to share in the earnings of the CLP.  The CLP does not, directly or indirectly, own any equity interest in or have any voting rights with respect to any Person.  There are no outstanding subscriptions, options, rights, warrants, calls, commitments or arrangements of any kind to acquire any of the Purchased Units and there are no agreements or understandings with respect to the sale or transfer of any of the Purchased Units other than this Agreement. There is no suit, action, claim, investigation or inquiry by any Governmental or Regulatory Authority, and no legal, administrative or arbitration proceeding pending or threatened, against Communications Holdco, the CLP, the Cap C Principals or any of the Purchased Units, with respect to the execution, delivery and performance of this Agreement or the Conveyance Documents or the transactions contemplated hereby or thereby or any other agreement entered into by Newport in connection with the transactions contemplated hereby or thereby.
 
3.2.3         Litigation.  Except as set forth on Schedule 3.2.3, there is no action, suit, proceeding at law or in equity by any Person, or any arbitration or any administrative or other proceeding by or before (or to the knowledge of the Cap C Principals, Capital C Holdco or Communications Holdco, any investigation by) any Governmental or Regulatory Authority, pending or, to the knowledge of the Cap C Principals, Capital C Holdco or Communications Holdco, threatened, against the Cap C Principals, Capital C Holdco or Communications Holdco with respect to this Agreement or the transactions contemplated hereby or by the Conveyance Documents, or any other agreement entered into by the CLP, Capital C Holdco or Communications Holdco in connection with the transactions contemplated hereby, or against or affecting the Cap C Business or the assets transferred to the CLP pursuant to the Conveyance Documents; and no acts, facts, circumstances, events or conditions occurred or exist which are a basis for any such action, proceeding or investigation.  None of the Cap C Principals, Capital C Holdco or Communications Holdco is subject to any Order entered in any lawsuit or proceeding.
 
3.2.4         Compliance with Laws.  Each of the Cap C Principals, Capital C Holdco and Communications Holdco is in compliance with all applicable Laws and Orders, except in each case where the failure to so comply would not reasonably be expected to have a Material Adverse Effect (as defined below). Each of the Cap C Principals, Capital C Holdco and Communications Holdco has all Required Permits, except where the failure to have such Required Permits would not reasonably be expected to have a Material Adverse Effect.  All of such Required Permits are in full force and effect and no action or claim is pending, nor to the knowledge of Communications Holdco, the Cap C Principals or Capital C Holdco threatened, to revoke or terminate any such Required Permit or declare any such Required Permit invalid in any respect. For the purposes of this Agreement, (a) the term "Material Adverse Effect" means, in respect of any Person, any effect or effects that are materially adverse to the operations, business, prospects, assets or financial condition of such Person, and (b) the term "Required Permits" means, collectively, in respect of any Person, all permits, licenses, and other government certificates, authorizations and approvals required by any Governmental or Regulatory Authority for the operation of such Person's business.
 
 
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3.2.5         Non-Contravention; Approvals and Consents.  The execution, delivery and performance by the Cap C Principals, Communications Holdco and Capital C Holdco of their respective obligations under this Agreement and the Conveyance Documents and the consummation of the transactions contemplated hereby and thereby, as applicable, will not (a) violate, conflict with or result in the breach of any provision of the declaration and limited partnership agreement (or other comparable documents) of Communications Holdco or Capital C Holdco; (b) result in the violation by Communications Holdco, the Cap C Principals and Capital C Holdco of any Laws or Orders of any Governmental or Regulatory Authority, or (c) if the consents and notices set forth in Schedule 3.2.5 are obtained, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require Communications Holdco, the Cap C Principals or Capital C Holdco to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of their respective assets or properties, or under any of the terms, conditions or provisions of any Contract (as defined in Section 3.2.12) to which Communications Holdco, the Cap C Principals or Capital C Holdco is a party or by which Communications Holdco, the Cap C Principals or Capital C Holdco or any of their respective assets or properties are or were bound. Except as set forth in Schedule 3.2.5, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which Communications Holdco, the Cap C Principals or Capital C Holdco is a party, or by which their respective assets or properties were or are bound, for the execution and delivery of this Agreement or the Conveyance Documents, the performance by Communications Holdco, the Cap C Principals or Capital C Holdco of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby.
 
C.           Each of Newport and the Cap C Indemnitors (jointly and severally as among the Cap C Indemnitors) and severally between Newport and the Cap C Indemnitors, represent and warrant to the Purchaser, as follows:
 
3.2.6         Financial Statements and No Material Changes.
 
(a)           Schedule 3.2.6(a)(i) sets forth (i) the unaudited balance sheets of the Cap C Business as at December 31, 2008 and December 31, 2009 and the related unaudited statements of operations for the fiscal years then ended, and (ii) the unaudited balance sheets of the Cap C Business as at October 31, 2010 (the "Balance Sheet") and the related unaudited statements of operations for the ten months then ended.  Such financial statements have been prepared in accordance with GAAP throughout the periods indicated except as set forth on Schedule 3.2.6(a)(ii).  Each balance sheet fairly presents the financial condition of the entity or entities included within such balance sheet, at the respective date thereof, and reflects all claims against and all debts and liabilities of such entities, fixed or contingent, as at the respective date thereof, required to be shown thereon under GAAP and the related statements of operations fairly present the results of operations for the respective period indicated.  Except for the transactions consummated pursuant to the Conveyance Documents, since October 31, 2010 (the "Balance Sheet Date"), there has been no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects of Cap C LP and the Cap C Business.

 
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(b)           Schedule 3.2.6(b)(i) sets forth (i) the unaudited consolidated balance sheets for Cap C LP as at December 31, 2008 and December 31, 2009, and the related unaudited consolidated statements of operations for the fiscal years then ended, and (ii) the unaudited consolidated balance sheet of Cap C LP as at September 30, 2010 (the "Current Balance Sheet") and the related unaudited consolidated statements of operations for the nine months then ended.  Such financial statements have been prepared in accordance with GAAP throughout the periods indicated except as set forth on Schedule 3.2.6(b)(ii).  Each balance sheet fairly presents the financial condition of the entity or entities included within such balance sheet, at the respective date thereof, and reflects all claims against and all debts and liabilities of such entities, fixed or contingent, as at the respective date thereof, required to be shown thereon under GAAP and the related statements of operations fairly present the results of operations for the respective period indicated.  Except for the transactions consummated pursuant to the Conveyance Documents, since September 30, 2010 (the "Current Balance Sheet Date"), there has been no material adverse change in the assets or liabilities, or in the business or condition, financial or otherwise, or in the results of operations or prospects of Cap C LP and the Cap C Business.
 
3.2.7         Books and Records.  The Cap C Principals have delivered to the Purchaser complete and correct copies of the partnership declaration and the partnership agreement of the CLP in effect immediately prior to the execution of this Agreement.
 
3.2.8         Title to Properties; Encumbrances.  The CLP has good and valid title to, or enforceable leasehold interests in or valid rights under contract to use, all the properties and assets owned or used in the Cap C Business, including, without limitation: (a) all the properties and assets reflected in the Balance Sheet; (b) all the properties and assets purchased or otherwise contracted for by the CLP since the Balance Sheet Date (except for properties and assets reflected in the Balance Sheet or acquired or otherwise contracted for since the Balance Sheet Date that have been sold or otherwise disposed of in the ordinary course of business); and (c) all monies received from clients of the Cap C Business (including, without limitation, all monies received in connection with the Cap C Business' media purchase obligations on behalf of its clients), in each case free and clear of all Liens, except for Liens set forth on Schedule 3.2.8.
 
3.2.9         No Prior Activities.  The CLP was created in order to facilitate a sale to the Purchaser and solely for the purpose of engaging in the transactions contemplated by the Conveyance Documents and this Agreement.  The CLP has not engaged in any activities other than in connection with its formation, the negotiation, execution and delivery of this Agreement, the Conveyance Documents and the CLP partnership agreement, and the consummation of the transactions contemplated hereby and thereby.  Except for liabilities incurred in connection with its formation and the consummation of the transactions contemplated by this Agreement, the Conveyance Documents and the CLP partnership agreement, the CLP has not incurred any liabilities or entered into any agreements or arrangements with any Person.

 
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3.2.10       Owned Real Property.  The CLP does not own any real property (including ground leases) or hold a freehold interest in any real property or any option or right of first refusal or first offer to acquire any real property.
 
3.2.11       Leased Real Property.  Schedule 3.2.11 contains an accurate and complete list of all real property leases, subleases, real property licenses and other occupancy agreements, including without limitation, any modification, amendment or supplement thereto and any other related document or agreement executed or entered into by the CLP, or by Cap C LP in relation to the Cap C Business and assigned to the CLP pursuant to the Conveyance Documents, to which the CLP is a party (as lessee, sublessee, lessor, sublessor, licensor or licensee) (each individually, a "Real Property Lease" and collectively, the "Real Property Leases").  Each Real Property Lease is valid, binding and in full force and effect; all rents and additional rents and other sums, expenses and charges due thereunder to date on each Real Property Lease have been paid; and the lessee has been in peaceable possession since the commencement of the original term of each Real Property Lease and no waiver, indulgence or postponement of the lessee's obligations thereunder has been granted by the lessor.  There exists no default or event of default by Cap C LP or the CLP or to the knowledge of Newport or the Cap C Principals by any other party to any Real Property Lease; and there exists no occurrence, condition or act (including the purchase of the Purchased Units hereunder) which, with the giving of notice, the lapse of time or the happening of any further event or condition, would become a default or event of default by Cap C LP or the CLP under any Real Property Lease, and there are no outstanding claims of breach or indemnification or notice of default or termination of any Real Property Lease.  Cap C LP held and the CLP now holds the leasehold estate on all the Real Property Leases free and clear of all Liens except as set forth on Schedule 3.2.11.  The real property leased by Cap C LP and/or the CLP is in a state of good maintenance and repair (ordinary wear and tear excepted), adequate and suitable for the purposes for which it is presently being used, and there are no material repair or restoration works likely to be required in connection with any of the leased real properties.  Cap C LP was, and the CLP now is, in physical possession and actual and exclusive occupation of the whole of each of its leased properties.  No environmental claim has been made against Cap C LP or the CLP with respect to any Real Property Lease.  Neither Cap C LP nor the CLP owes any brokerage commission with respect to any of the Real Property Leases.
 
 
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3.2.12       Contracts.  For purposes of this Agreement, the term "Contract" shall mean any written agreement, commitment, lease, license, evidence of indebtedness, letter of credit, mortgage, indenture, security agreement, instrument, note, bond, franchise, permit, concession, or other instrument, obligation or agreement of any kind. Schedule 3.2.12 hereto contains an accurate and complete list of the following Contracts to which the CLP is currently a party or Cap C LP was a party prior to the assignment of the same to the CLP pursuant to the Conveyance Documents (and Schedule 3.2.12 indicates if a listed item has not been assigned as of the Closing Date (in which case, Section 2.3 shall apply) to and assumed by the CLP pursuant to the Conveyance Documents): (a) all Plans (as such term is defined in Section 3.2.24), (b) any personal property lease with a fixed annual rental of $10,000 or more, (c) any Contract relating to capital expenditures which involves payments of $50,000 or more in any single transaction or series of related transactions, (d) any Contract relating to the making of a loan or advance to or investment in, any other Person, (e) any agreement, instrument or arrangement evidencing or relating in any way to indebtedness for money borrowed or to be borrowed, whether directly or indirectly, by way of loan, purchase money obligation, guarantee (other than the endorsement of negotiable instruments for collection in the ordinary course of business), conditional sale, purchase or otherwise, (f) any management service, employment, consulting or similar type of Contract which is not cancelable by the CLP or Cap C LP without penalty or other financial obligation within 30 days, (g) any Contract limiting the CLP's freedom to engage in any line of business or to compete with any other Person, including, without limitation, any agreement limiting the ability of the CLP or Cap C LP or any of their respective affiliates to take on competitive accounts during or after the term thereof, (h) any collective bargaining or union agreement, (i) any Contract between the CLP, on the one hand, and any officer or director thereof, on the other hand, not covered by subsection (f) above (including indemnification agreements), (j) any secrecy or confidentiality agreement (other than standard confidentiality agreements in computer software license agreements or agreements with clients entered into in the ordinary course of business), (k) any agreement with respect to any Intellectual Property (as defined in Section 3.2.17) other than "shrink-wrap" and similar end-user licenses, (l) any agreement with a client required to be listed on Schedule 3.2.21, (m) any agreement, indenture or other instrument which restricts the ability of the CLP or any of its subsidiaries to make distributions in respect of its equity, (n) any joint venture agreement involving a sharing of profits not covered by clauses (a) through (m) above, (o) any Contract (not covered by another subsection of this Section 3.2.12) which involves $50,000 or more over the unexpired term thereof and is not cancelable by the CLP, without penalty or other financial obligation within 30 days; provided, however, Contracts of a similar nature which individually do not involve $50,000 but in the aggregate involve $50,000 or more over the unexpired terms shall also be set forth on Schedule 3.2.12, (p) any Contract with a media buying service; provided, however, commitments to purchase media in the ordinary course of business do not have to be set forth on Schedule 3.2.12, and (q) any agreement (not covered by another subsection of this Section 3.2.12) between the CLP, on the one hand, and any member of the CLP, on the other hand. Notwithstanding anything to the contrary contained above, (x) commitments to media and production expenses which are fully reimbursable from clients, and (y) estimates or purchase orders given in the ordinary course of business relating to the execution of projects, do not have to be set forth on Schedule 3.2.12. Each Contract which has been assigned to and assumed by the CLP pursuant to the Conveyance Documents, including without limitation, those required to be set forth on Schedule 3.2.12, is in full force and effect, and there exists no default or event of default by the CLP or Cap C LP or, to the knowledge of Newport or the Cap C Principals, by any other party, or occurrence, condition, or act (including the purchase of the Purchased Units hereunder) which, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default or event of default thereunder by the CLP, and there are no outstanding claims of breach or indemnification or notice of default or termination of any such Contract.
 
3.2.13       Litigation. Except as set forth on Schedule 3.2.13, there is no action, suit, proceeding at law or in equity by any Person, or any arbitration or any administrative or other proceeding by or before (or to the knowledge of Newport, the Cap C Principals, Capital C Holdco or Communications Holdco, any investigation by) any Governmental or Regulatory Authority, pending or, to the knowledge of the Cap C Principals, Capital C Holdco or Communications Holdco, threatened, against the CLP, the Cap C Business or Cap C LP with respect to this Agreement or the transactions contemplated hereby or by the Conveyance Documents, or any other agreement entered into by the Cap C Business in connection with the transactions contemplated hereby, or against or affecting the Cap C Business, and no acts, facts, circumstances, events or conditions occurred or exist which are a basis for any such action, proceeding or investigation.  The Cap C Business is not subject to any Order entered in any lawsuit or proceeding.

 
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3.2.14       Taxes.  Cap C LP has timely filed, or caused to be filed, taking into account any valid extensions of due dates, completely and accurately, all federal and provincial tax or information returns required under the statutes, rules or regulations of such jurisdictions to be filed by it for all fiscal periods of Cap C LP. The term "Taxes" means taxes, duties, charges or levies of any nature imposed by any taxing or other Governmental or Regulatory Authority, including without limitation income, gains, capital gains, surtax, capital, franchise, capital stock, value-added taxes, taxes required to be deducted from payments made by the payor and accounted for to any tax authority, employees' income withholding, back-up withholding, withholding on payments to foreign Persons, social security, national insurance, unemployment, worker's compensation, payroll, disability, real property, personal property, sales, use, goods and services or other commodity taxes, business, occupancy, excise, customs and import duties, transfer, stamp, and other taxes (including interest, penalties or additions to tax in respect of the foregoing), and includes all taxes payable by Cap C LP pursuant to the Income Tax Act (Canada) (the "ITA") or any similar provision of provincial or foreign law, but only to the extent that such Taxes relate to or are in connection with the Cap C Business which has been heretofore carried on by Cap C LP.  All Taxes shown on said returns to be due and all other Taxes due and owing (whether or not shown on any Tax return) have been paid and all additional assessments received prior to the date hereof have been paid or are being contested in good faith, in which case, such contested assessments are set forth on Schedule 3.2.14.  Cap C LP has collected all sales, use, goods and services, harmonized or other commodity Taxes required to be collected and remitted or will remit the same to the appropriate taxing authority within the prescribed time periods.  Cap C LP has withheld all amounts required to be withheld on account of Taxes from amounts paid to employees, former employees, directors, officers, members, residents and non-residents and remitted or will remit the same to the appropriate taxing authorities within the prescribed time periods.  Newport and/or the Cap C Principals have delivered or caused to be delivered to the Purchaser correct and complete copies of all federal or provincial income tax returns or information returns filed with respect to Cap C LP that were requested by the Purchaser.  Except as set forth on Schedule 3.2.14, none of the federal or provincial income tax returns or information returns of Cap C LP have, to the knowledge of Newport, Communications Holdco or the Cap C Principals, ever been audited by the Canada Revenue Agency or any other Governmental or Regulatory Authority.  None of Newport, the Cap C Principals or Communications Holdco are non-residents of Canada within the meaning of the ITA.
 
3.2.15       Liabilities.  Except as incurred in the ordinary course since October 31, 2010 or as set forth in the Conveyance Documents, the Balance Sheet, the Current Balance Sheet or on Schedule 3.2.15, neither the Cap C Business, the CLP nor Cap C LP has any outstanding claims, liabilities or indebtedness of any nature whatsoever as to which the Cap C Business, the CLP or Cap C LP is or may become responsible (collectively in this Section 3.2.15, "Liabilities"), whether accrued, absolute or contingent, determined or undetermined, asserted or unasserted, and whether due or to become due.

 
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3.2.16       Insurance.  Schedule 3.2.16 contains a true and complete list (including the names and addresses of the insurers, the names of the Persons to whom such insurance policies have been issued, the expiration dates thereof, the annual premiums and payment terms thereof, whether it is a "claims made" or an "occurrence" policy and a brief description of the interests insured thereby) of all liability, property, workers' compensation and other insurance policies currently in effect that insure the property, assets and employees of the Cap C Business, including but not limited to the property, assets, business and employees of Cap C LP that were transferred to the CLP pursuant to the Conveyance Documents (other than self-obtained insurance policies by such employees). Each such insurance policy is valid and binding and in full force and effect, all premiums due thereunder have been paid and neither Cap C LP, the Cap C Business nor the CLP has received any notice of cancellation or termination in respect of any such policy or default thereunder.  Neither Cap C LP, the Cap C Business nor the CLP, or to the knowledge of Newport, the Cap C Principals or Communications Holdco, the Person to whom such policy has been issued, has received notice that any insurer under any policy referred to in this Section 3.2.16 is denying liability with respect to a claim thereunder or defending under a reservation of rights clause.  Within the last two years neither Cap C LP, the Cap C Business nor the CLP has filed for any claims exceeding $25,000 against any of its insurance policies, exclusive of automobile and health insurance policies. None of such policies shall lapse or terminate by reason of the transactions contemplated by this Agreement or the Conveyance Documents and all such policies shall continue in effect after the Closing Date for the benefit of the CLP.  Neither Cap C LP, the Cap C Business nor the CLP has received any notice of cancellation of any such policy.  Neither Cap C LP, the Cap C Business nor the CLP has received written notice from any of its insurance carriers that any premiums will be materially increased in the future or that any insurance coverage listed on Schedule 3.2.16 will not be available in the future on substantially the same terms now in effect, unless as a result of the Reorganization or the change of control contemplated herein. Neither Cap C LP, the Cap C Business nor the CLP has been refused any insurance or required to pay higher than normal or customary premiums, nor has its coverage been limited by any insurance carrier to which it has applied for insurance during the last three years.
 
3.2.17       Intellectual Property.
 
Definitions. For purposes of this Agreement, the following terms have the following definitions:
 
(a)           "Intellectual Property" shall include, without limitation, any or all of the following and all rights associated therewith: (a) all domestic and foreign patents, and applications therefor, and all reissues, re-examinations, divisions, renewals, extensions, continuations and continuations-in-part thereof; (b) all inventions (whether patentable or not), invention disclosures, improvements; (c) trade secrets, confidential and proprietary information, know how, technology, technical data and customer lists, financial and marketing data, pricing and cost information, business and marketing plans, databases and compilations of data, rights of privacy and publicity, and all documentation relating to any of the foregoing; (d) all copyrights, copyright registrations and applications therefor, unregistered copyrights, the content of all World Wide Web sites of a Person and all other rights corresponding thereto throughout the world; (e) all mask works, mask work registrations and applications therefor; (f) all industrial designs and any registrations and applications therefor; (g) all trade names, corporate names, logos, trade dress, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith; (h) any and all Internet domain names and Web sites (including all software and applications, and all components and/or modules thereof), used in connection therewith; and (i) all computer software including all source code, object code, firmware, development tools, files, records and data, all media on which any of the foregoing is recorded, and all documentation related to any of the foregoing.

 
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(b)           "Intellectual Property of the CLP" shall mean any Intellectual Property that is owned by the CLP (including Intellectual Property transferred by Cap C LP to the CLP pursuant to the Conveyance Documents), including Registered IP and Unregistered IP.
 
(c)           "Licensed Intellectual Property" means any Intellectual Property owned by another Person that is used by the CLP in the operation of the Cap C Business, including Off-the-Shelf Software (as defined below), but excluding rights in or to materials created for clients of the Cap C Business, to the extent to which such (x) client of the Cap C Business is the first owner of copyright in such materials or (y) the materials are subject to a written assignment of copyright in favour of clients of the Cap C Business.
 
 
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3.2.18       Representations. Except as set forth on Schedule 3.2.18, all of the Intellectual Property of Cap C LP used in the Cap C Business was transferred to the CLP pursuant to the Conveyance Documents. Schedule 3.2.18 hereto contains an accurate and complete list of all the Intellectual Property of the CLP and the Licensed Intellectual Property including, without limitation, (a) patents, patent applications, registered trademarks, applications for registered trademarks, registered service marks, domain names, applications for registered service marks, logos, registered copyrights and applications for registered copyrights, and all registered design rights and applications thereto which are owned by the CLP (the "Registered IP"), (b) all unregistered trademarks, unregistered service marks and material unregistered copyrights and all designs which are owned by the CLP (the "Unregistered IP") and (c) all Licensed Intellectual Property that is material to the operation of the Cap C Business, other than widely distributed off-the-shelf applications subject to shrink-wrap and similar non-negotiated end-user license agreements ("Off-the-Shelf Software"). Except as set forth on Schedule 3.2.18, the registrations and applications of the Registered IP listed on Schedule 3.2.18, are in the name of Cap C LP, and are valid, in proper form, enforceable and subsisting, all necessary registration and renewal fees in connection with such registrations have been made and all necessary documents and certificates in connection with such registrations have been filed with the relevant patent and Internet domain names, copyrights and trademark authorities in the United States or other jurisdictions where the Cap C Business is conducted for the purposes of maintaining such Intellectual Property registrations, and applications therefor, and no actions (including filing of documents or payments of fees) are due within ninety (90) days after the Closing.  No registration, or application therefor, for any of the Registered IP has lapsed, expired, or been abandoned, and no such registrations, or applications therefor, are the subject of any opposition, interference, cancellation, or other legal, quasi-legal, or governmental proceeding pending before any governmental, registration, or other authority in any jurisdiction. Except as set forth on Schedule 3.2.18, (i) the CLP is the sole and exclusive owner of all rights, title and interest in and to the Intellectual Property of the CLP, free and clear of all Liens, (ii) no Person has any rights to use any of the Intellectual Property of the CLP, (iii) neither Cap C LP nor the CLP has granted to any Person, or authorized any Person to retain, any ownership in the Intellectual Property of the CLP, and (iv) all Licensed Intellectual Property in the CLP's possession or used in the operation of the Cap C Business has been properly licensed from the owner of such Intellectual Property, and the CLP possesses all license agreements, certificates or documentation sufficient to substantiate such rights, and the CLP is in compliance with, and Cap C LP has not in the past violated, such license agreements.  Except as set forth on Schedule 3.2.18, the consummation of the transactions contemplated hereby will not result in any loss or impairment of the CLP's rights to own or use any Intellectual Property, nor will such consummation require the consent of any third party in respect of any Intellectual Property. To the knowledge of Newport, the Cap C Principals or Communications Holdco, the operation of the Cap C Business and use of all Intellectual Property therein does not infringe the Intellectual Property of any other Person. There are no proceedings pending or, to the knowledge of Newport, the Cap C Principals or Communications Holdco, threatened against Cap C LP, the Cap C Business or the CLP with respect to the Intellectual Property, or with respect to any other Intellectual Property, alleging the infringement or misappropriation by Cap C LP, the Cap C Business or the CLP of any Intellectual Property of any Person, and neither Cap C LP, the Cap C Business nor the CLP has received notice from any Person that the operation of the Cap C Business infringes the Intellectual Property of any Person.  There are no claims pending or, to the knowledge of Newport, the Cap C Principals or Communications Holdco, threatened challenging the validity of any Intellectual Property of the CLP or any Intellectual Property used by the CLP in the conduct of the Cap C Business. Neither Cap C LP, the Cap C Principals nor the CLP has entered into or is otherwise bound by any consent, forbearance or any settlement agreement which limits the rights of the CLP to use the Intellectual Property of the Cap C Business.  To the knowledge of Newport, the Cap C Principals or Communications Holdco, no Person is infringing or misappropriating any of the Intellectual Property of the Cap C Business. All Intellectual Property of the Cap C Business was either developed (a) by employees of Cap C LP within the scope of such employee's employment duties; or (b) by independent contractors or other third parties who have assigned all of their rights therein to Cap C LP pursuant to a written agreement, and all such employees, independent contractors, and other third parties have waived, pursuant to a written agreement, their moral rights in all such Intellectual Property in favour of the CLP or Cap C LP.  Except as set forth on Schedule 3.2.18, the Intellectual Property of the CLP does not contain any software licensed under terms which require, as a condition of the use, modification, or distribution of such software, that other software incorporated into, derived from, or distributed with such software: (x) be disclosed or distributed in source code form; (y) be licensed under terms that permit making derivative works; or (z) be redistributable at no charge to subsequent licensees.
 
 
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3.2.19       Privacy and Security.  All information or data of any kind relating to the Cap C Business possessed by the CLP, including but not limited to, personally identifiable information collected from consumers ("PII"), aggregate or anonymous information collected from consumers ("Non-PII") and employee data relating to the Cap C Business or possessed by the CLP (collectively, "Data"), has been collected, by Cap C LP, the Cap C Business or the CLP, and is being maintained, stored, processed and used by the CLP in connection with the Cap C Business, in compliance with all Laws and Orders.  Cap C LP and the CLP have at all times presented a privacy policy ("Privacy Policy") to consumers prior to the collection of any PII or Non-PII online.  The Privacy Policy, and any other representations, marketing materials and advertisements that address privacy issues and the treatment of PII and Non-PII, accurately and completely describe Cap C LP, the Cap C Business and the CLP's respective information collection and use practices, and no such notices or disclosures have been inaccurate, misleading or deceptive.  Neither Cap C LP nor the CLP has collected or received any PII from children under the age of 13 without verifiable parental consent or directed any of its websites to children under the age of 13 through which such PII could be obtained.  Cap C LP and the CLP have stored and maintained all Data in a secure manner, using commercially reasonable technical measures, to assure the integrity and security of the Data and to prevent loss, alteration, corruption, misuse and unauthorized access to such Data.  There has been no unauthorized use, access to or disclosure of any Data.  Neither Cap C LP nor the CLP has received any claims, notices or complaints regarding its information practices or use of Data.  The consummation of the transactions contemplated hereby will not result in any loss or impairment of the rights to own and use any Data, nor will such consummation require the consent of any third party in respect of any Data.
 
3.2.20       Compliance with Laws. The Cap C Business (including the business conducted by Cap C LP) has been conducted, in compliance with all applicable Laws and Orders, except in each case where the failure to so comply would not reasonably be expected to have a Material Adverse Effect. The Cap C Business has all Required Permits except where the failure to have such Required Permits would not reasonably be expected to have a Material Adverse Effect.  All of such Required Permits are in full force and effect and no action or claim is pending, nor to the knowledge of Newport or Communications Holdco, threatened, to revoke or terminate any such Required Permit or declare any such Required Permit invalid in any respect.
 
3.2.21       Client Relations.  Schedule 3.2.21 sets forth (a) the ten (10) largest clients of the Cap C Business (measured by revenues), and the revenues from each such client and from all clients (in the aggregate) for the calendar year ended December 31, 2009 and (b) the clients projected to be the ten (10) largest clients (measured by revenues) of the Cap C Business based on its current profit plan for the twelve months ending December 31, 2010 and 2011, together with the estimated revenues from each such client and all clients (in the aggregate) for such periods.  Communications Holdco represents that the estimated revenues set forth on Schedule 3.2.21 were made in good faith and on a reasonable basis.  Except as set forth on Schedule 3.2.21, no client of the Cap C Business has advised Communications Holdco, the CLP or any Cap C Principal in writing that it is (x) terminating or considering terminating the handling of its business by Cap C LP or the CLP or in respect of any particular product, project or service or (y) planning to reduce its future spending with Cap C LP, the Cap C Business or the CLP in any material manner; and no client has orally advised the CLP, Communications Holdco, the Cap C Business or any Cap C Principal of any of the foregoing events.
 
 
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3.2.22       Accounts Receivable; Work-in-Process; Accounts Payable.  The amount of all work-in-process, accounts receivable, unbilled invoices (including without limitation unbilled invoices for services and out-of-pocket expenses) and other debts due or recorded in the records and books of account of the Cap C Business and which was transferred to the CLP pursuant to the Conveyance Documents, as being due to the Cap C Business and reflected on the Balance Sheet and the Closing Balance Sheet represent or will represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business and will be good and collectible in full (less the amount of any provision, reserve or similar adjustment therefor reflected on the Balance Sheet and the Closing Balance Sheet) in the ordinary course of business, and none of the accounts receivable or other debts (or accounts receivable arising from any such work-in-process or unbilled invoices) is or will be subject to any counterclaim or set-off except to the extent of any such provision, reserve or adjustment.  The accounts payable set forth on the Balance Sheet, and the accounts payable incurred since the Balance Sheet Date through the Closing Date, represent trade payables resulting from bona fide transactions incurred in the ordinary course of business. There has been no change since the Balance Sheet Date in the amount or aging of the work-in-process, accounts receivable, unbilled invoices, or other debts due to the Cap C Business, or the reserves with respect thereto, or accounts payable of the Cap C Business which would have a Material Adverse Effect.
 
3.2.23       Employment Relations.  (a) No unfair labour practice complaint against Cap C LP, the Cap C Business or the CLP is pending before any Governmental or Regulatory Authority; (b) there is no organized labour strike, dispute, slowdown or stoppage pending or to the knowledge of Newport or Communications Holdco, threatened against or involving the Cap C Business; (c) there are no labour unions representing or, to the knowledge of Newport or Communications Holdco, attempting to represent the employees of the Cap C Business who became employees of the CLP; (d) no claim or grievance nor any arbitration proceeding arising out of or under any collective bargaining agreement is pending against any of the Cap C Business, the CLP or Communications Holdco and to the knowledge of Newport or Communications Holdco, no such claim or grievance has been threatened; (e) no collective bargaining agreement is currently being negotiated by Cap C LP or the CLP; and (f) Cap C LP did not experience any work stoppage or similar organized labour dispute during the last three years. Except as set forth on Schedule 3.2.23, there is no legal action, suit, proceeding or claim pending or, to the knowledge of Newport, Capital C Holdco or the Cap C Principals or Communications Holdco, threatened between the Cap C Business, the CLP or Cap C LP and any employees or former employees of Cap C LP or the Cap C Business.
 
3.2.24       Pension and Other Benefit Plans.
 
(a)           Schedule 3.2.24 sets forth a true and complete list of all employee benefit plans, including, without limitation, pension/benefit plans maintained by Cap C LP and/or the CLP (each a "Plan").
 
(b)           Except as disclosed in Schedule 3.2.24 each Plan is, and has been, established, registered, qualified, administered and invested, in compliance with (i) the terms thereof, and (ii) all applicable Laws.
 
(c)           All obligations under the Plans (whether pursuant to the terms thereof or applicable Law) have been satisfied.
 
(d)           All contributions or premiums required to be paid to or in respect of each Plan have been paid in a timely fashion in accordance with the terms thereof and all applicable Law, and no Taxes, penalties or fees are owing or exigible under any Plan.

 
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(e)           There are no going concern unfunded actuarial liabilities, past service unfunded liabilities or solvency deficiencies respecting any of the Plans.
 
(f)           No material changes have occurred in respect of any Plan since the date of the most recent financial, accounting or actuarial report, as applicable, issued in connection with any Plan, which could reasonably be expected to adversely affect the relevant report (including rendering it misleading in any material respect).
 
(g)           There have been no improper withdrawals or transfer of assets from any Plan.
 
(h)           None of the Plans require or permit a retroactive increase in premiums or payments, and the level of insurance reserves, if any, under any insured Plan is reasonable and sufficient to provide for all incurred but unreported claims.
 
3.2.25       Interests in Customers, Suppliers, etc.  Except as set forth on Schedule 3.2.25, neither Newport nor to the knowledge of Newport or Communications Holdco (without making any inquiry of any member of the Related Group, as hereinafter defined), any officer, director, or employee of Cap C LP or the CLP immediately prior to the Closing Date, any parent, brother, sister, child or spouse of any such officer, director, key executive or employee of the CLP, Communications Holdco or Newport (collectively, the "Related Group"), or any Person controlled by anyone in the Related Group:
 
(a)           owns, directly or indirectly, any interest in (excepting for ownership, directly or indirectly, of less than 1/4 of 1% of the issued and outstanding shares of any class of securities of a publicly held and traded company), or received or has any right to receive payments from, or is an officer, director, employee, agent or consultant of, any Person which is, or is engaged in business as, a competitor, lessor, lessee, supplier, distributor, sales agent, customer or client of Cap C LP or the CLP;
 
(b)           owns, directly or indirectly (other than through the ownership of Limited Partnership Units), in whole or in part, any tangible or intangible property that the CLP used in the conduct of the Cap C Business, other than immaterial personal items owned and used by employees at their work stations; or
 
(c)           has any cause of action or other claim whatsoever against, or owes any amount to, Cap C LP or the CLP, except for claims in the ordinary course of business such as for accrued vacation pay, accrued benefits under employee benefit plans, and similar matters and agreements existing on the date hereof.
 
3.2.26       Bank Accounts and Powers of Attorney.  Set forth in Schedule 3.2.26 is an accurate and complete list showing (a) the name and address of, and account information for, each bank in which Cap C LP had immediately prior to the transfer of the Cap C Business to the CLP, or the CLP has, an account, credit line or safe deposit box and the names of all Persons authorized to draw thereon or to have access thereto, and (b) the names of all Persons, if any, holding powers of attorney from Cap C LP or the CLP and a summary statement of the terms thereof.
 
 
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3.2.27       Compensation of Employees.  Schedule 3.2.27 is an accurate and complete list showing: (a) the names and positions of all employees and exclusive consultants of the Cap C Business, or Cap C LP immediately prior to the transfer of the Cap C Business by Cap C LP to the Cap C Business, who are, or were being, compensated at an annualized rate of $50,000 or more, together with a statement of the current annual salary, and the annual salary, bonus and incentive compensation paid or payable with respect to calendar years 2008 and 2009, and a statement of the projected annual salary, bonus and incentive compensation payable with respect to the calendar year ended December 31, 2010, and the material fringe benefits of such employees and exclusive consultants not generally available to all employees of Cap C LP or the Cap C Business; (b) all bonus and incentive compensation paid or payable (whether by agreement, custom or understanding) to any employee of Cap C LP or the Cap C Business not listed in clause (a) above for services rendered or to be rendered during calendar years 2008 and 2009; (c) the names of all retired employees, if any, of Cap C LP or the Cap C Business who are receiving or entitled to receive any healthcare or life insurance benefits or any payments from Cap C LP or the Cap C Business not covered by any pension plan to which Cap C LP or the Cap C Business is a party, their ages and current unfunded pension rate, if any; and (d) a description of the current severance and vacation policy of Cap C LP and the Cap C Business.  Neither Cap C LP nor the Cap C Business has, because of past practices or previous commitments with respect to its employees, established any rights on the part of any of its employees to additional compensation with respect to any period after the Closing Date (other than wage increases in the ordinary course of business).  Each of Cap C LP and the Cap C Business has properly classified and compensated all employees and consultants in accordance with all applicable Laws and Orders of any Governmental and Regulatory Authority.
 
3.2.28       Non-Contravention; Approvals and Consents.  The execution, delivery and performance by the CLP and Cap C LP of their respective obligations under this Agreement and the Conveyance Documents, as the case may be, and the consummation of the transactions contemplated hereby and thereby, as the case may be, will not (a) violate, conflict with or result in the breach of any provision of the declaration and limited partnership agreement (or other comparable documents) of the CLP and Cap C LP, (b) result in the violation by the CLP or Cap C LP of any Laws or Orders of any Governmental or Regulatory Authority, or (c) if the consents and notices set forth in Schedule 3.2.28 are obtained, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require the CLP or Cap C LP to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of their respective assets or properties, or under any of the terms, conditions or provisions of any Contract to which the CLP or Cap C LP is a party or by which the CLP or Cap C LP or any of their respective assets or properties are or were bound. Except as set forth in Schedule 3.2.28, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which the CLP or Cap C LP is a party, or by which their respective assets or properties were or are bound, for the execution and delivery of this Agreement or the Conveyance Documents, the performance by the CLP or Cap C LP of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby.
 
 
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3.2.29       No Changes Since the Balance Sheet Date.  From the Balance Sheet Date through the date hereof, except as specifically stated on Schedule 3.2.29, neither Cap C LP nor the CLP (i) incurred any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise), except in the ordinary course of business, (ii) permitted any of its assets to be subjected to any Lien, (iii) sold, transferred or otherwise disposed of any assets except in the ordinary course of business, (iv) made any capital expenditure or commitment therefor which individually or in the aggregate exceeded $50,000; (v) made any distributions or dividend payments on any shares of its capital stock or equity participation rights, or redeemed, purchased or otherwise acquired any shares of its capital stock, or any option, warrant or other right to purchase or acquire any shares of capital stock or equity participation rights of Cap C LP or the CLP, (vi) made any bonus or profit sharing distribution, (vii) increased or prepaid its indebtedness for borrowed money, except current borrowings under credit lines, or made any loan to any Person other than to any employee for normal travel and expense advances, (viii) wrote down the value of any work-in-process, or wrote off as uncollectible any notes or accounts receivable, except write-downs and write-offs in the ordinary course of business, none of which individually or in the aggregate, were material to Cap C LP or the CLP, (ix) granted any increase in the rate of wages, salaries, bonuses or other remuneration of any employee who, whether as a result of such increase or prior thereto, received aggregate compensation from Cap C LP or the CLP at an annual rate of $100,000 or more, or except in the ordinary course of business to any other employees, (x) entered into any employment or exclusive consulting agreement which is not cancelable by Cap C LP or the CLP (and will not be cancelable by the CLP) without penalty or other financial obligation within 30 days, (xi) canceled or waived any claims or rights of material value, (xii) made any change in any method of accounting procedures, (xiii) otherwise conducted Cap C LP's business or the Cap C Business or entered into any transaction, except in the usual and ordinary manner and in the ordinary course of its business, (xiv) amended or terminated any agreement which is material to their businesses, (xv) renewed, extended or modified any lease of real property or any lease of personal property, except in the ordinary course of business, or (xvi) agreed, whether or not in writing, to do any of the actions set forth in any of the above clauses.
 
3.2.30       Corporate Controls.  To the knowledge of the Cap C Principals, no officer, authorized agent, employee, consultant or any other Person while acting on behalf of Cap C LP, the Cap C Business or the CLP, has, directly or indirectly: used any corporate fund for unlawful contributions, gifts, or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; established or maintained any unlawful or unrecorded fund of corporate monies or other assets; made any false or fictitious entry on its books or records; participated in any racketeering activity; or made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment, or other payment of a similar or comparable nature, to any Person, private or public, regardless of form, whether in money, property, or services, to obtain favourable treatment in securing business or to obtain special concessions, or to pay for favourable treatment for business secured or for special concessions already obtained, and neither Communications Holdco, the Cap C Business nor the CLP have participated in any illegal boycott or other similar illegal practices affecting any of its actual or potential customers.

 
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3.2.31       Brokers.  No broker, finder, agent or similar intermediary has acted on behalf of Newport, Communications Holdco or the CLP in connection with this Agreement or the transactions contemplated hereby, and no brokerage commissions, finder's fees or similar fees or commissions are payable by Communications Holdco, Capital C Holdco, the CLP or Newport in connection therewith based on any agreement, arrangement or understanding with any of them.
 
3.2.32       Repayment of Loans.  Except as set forth on Schedule 3.2.32, as of the Closing, all (i) intercompany indebtedness and (ii) indebtedness (including unpaid distributions) of the CLP or Capital CEK LP to Communications Holdco or Newport has been repaid in full, other than routine travel expense advances in the ordinary course of business and consistent in amount with past practice.
 
3.2.33       Disclosure.  No representation or warranty of Newport, Communications Holdco, Capital C Holdco or the Cap C Principals contained in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein, in the light of the circumstances under which they were made, not misleading.
 
3.2.34       Copies of Documents.  Communications Holdco and/or the Cap C Principals have caused to be made available for inspection and copying by the Purchaser and its advisers, true, complete and correct copies of all documents referred to in this Article III.C or in any Schedule.
 
ARTICLE IV
REPRESENTATIONS OF THE PURCHASER
 
The Purchaser represents and warrants to Newport, the Cap C Principals, Capital C Holdco and Communications Holdco as follows:
 
Section 4.1        Existence and Good Standing.  The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Canada with full corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to own its property and to carry on its business all as and in the places where such properties are now owned or operated or such business is now being conducted.
 
Section 4.2       Execution and Validity of Agreement.  The Purchaser has the full corporate power and authority to make, execute, deliver and perform this Agreement and the transactions contemplated hereby.  The execution and delivery of this Agreement by the Purchaser and the consummation of the transactions contemplated hereby have been duly authorized by all required corporate action on behalf of the Purchaser.  This Agreement has been duly and validly executed and delivered by the Purchaser and, assuming due authorization, execution and delivery by the other parties hereto, constitutes the legal, valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms.

 
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Section 4.3        Litigation.  There is no action, suit, proceeding at law or in equity by any Person, or any arbitration or any administrative or other proceeding by or before (or to the knowledge of the Purchaser, any investigation by), any Governmental or Regulatory Authority pending or, to the knowledge of the Purchaser, threatened against the Purchaser or any of its properties or rights with respect to this Agreement.  The Purchaser is not subject to any Order entered in any lawsuit or proceeding with respect to this Agreement or the transactions contemplated hereby.
 
Section 4.4        Non-Contravention; Approvals and Consents.  The execution, delivery and performance by the Purchaser of its obligations hereunder and the consummation of the transactions contemplated hereby will not (a) violate, conflict with or result in the breach of any provision of the certificate of incorporation and bylaws of the Purchaser, (b) result in the violation by the Purchaser of any Laws or Orders of any Governmental or Regulatory Authority applicable to the Purchaser or any of its assets or properties, or (c) result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require the Purchaser to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or, except for such Liens as may be created in connection with an MDC financing post-Closing, result in the creation or imposition of any Lien upon any of the respective assets or properties of the Purchaser, under any of the terms, conditions or provisions of any Contract to which the Purchaser is a party or by which the Purchaser or any of its assets or properties are bound. No consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which the Purchaser is a party or by which the Purchaser or any of its assets or properties are bound for the execution and delivery of this Agreement by the Purchaser, the performance by the Purchaser of its obligations hereunder or the consummation by the Purchaser of the transactions contemplated hereby.
 
Section 4.5        Brokers.  No broker, finder, agent or similar intermediary has acted on behalf of the Purchaser in connection with this Agreement or the transactions contemplated hereby, and no brokerage commissions, finder's fees or similar fees or commissions are payable by the Purchaser in connection therewith based on any agreement, arrangement or understanding with either of them.
 
Section 4.6        Investment Canada.  The Purchaser is not a “non-Canadian" within the meaning of the Investment Canada Act (Canada).
 
Section 4.7        Status. The Purchaser is not a person exempt from tax under section 149 of the ITA.
 
ARTICLE V
ACTIONS AT CLOSING
  
Simultaneously herewith:
 
Section 5.1       Pre-Closing Restructuring Proceedings. All proceedings taken in connection with the Reorganization and the Conveyance Documents and all documents incident thereto shall have been completed in form and substance satisfactory to the Purchaser and Newport and their respective counsel, and the Purchaser shall have received copies of all such documents and other evidences as it or its counsel reasonably requested in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith.

 
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Section 5.2        Resolutions.  Each of Newport, Capital C Holdco and Communications Holdco shall have delivered to the Purchaser a copy of the resolutions of their respective partners, or board of directors, as the case may be, authorizing the execution, delivery and performance of this Agreement and the Conveyance Documents to which it is a party, and the transactions contemplated hereby and thereby. The Purchaser shall have delivered to the other parties hereto a copy of the resolutions of its board of directors authorizing the execution, delivery and performance of this Agreement and the transactions contemplated hereby.
 
Section 5.3        Required Approvals and Consents.  Newport and the Cap C Principals shall have obtained or given, at no expense to the Purchaser, and there shall not have been withdrawn or modified, any consents or approvals or other actions listed on Schedule 3.2.5 hereof (including without limitation, obtaining all such consents, approvals and/or waivers required under the Contracts listed on Schedule 3.2.12). Each such consent or approval shall be in a form satisfactory to counsel for the Purchaser, acting reasonably.
 
Section 5.4        Limited Partnership Agreement.  The Cap C Principals and the Purchaser shall have entered into the Amended and Restated CLP Agreement.
 
Section 5.5        Employment Agreements. The Cap C Principals shall have entered into an Employment Agreement with the CLP on terms and conditions satisfactory to the Purchaser.
 
Section 5.6        Non-Competition. Newport shall have entered into a Non-Competition Agreement with the Purchaser, and the Cap C Principals shall have entered into a Non-Competition Agreement with the Purchaser and CLP in the form and to the effect of Exhibit D hereto.
 
Section 5.7        Kenna LP Purchase Agreement. Cap C LP, Communications Holdco, the Kenna Principals, Newport and the Purchaser shall have entered into and delivered a purchase agreement pursuant to which Newport sells to the Purchaser its interests in Kenna Communications LP.
 
Section 5.8        Conveyance Documents.  Communications Holdco and the CLP shall have entered into the Conveyance Documents.
 
Section 5.9        Mutual Release.  Newport, the Cap C Principals and Communications Holdco, among others, shall have entered into a mutual release in the form of Exhibit E hereto, and the parties thereto shall have dismissed with prejudice the related pending litigation matters.
 
Section 5.10      Fortress Release of Liens.  Newport shall have delivered to the Purchaser evidence reasonably satisfactory to the Purchaser of the release of all security interests encumbering the Purchased Units and the Acquired Cap C Assets.

 
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ARTICLE VI
OTHER AGREEMENTS
 
Section 6.1        Tax Matters.
 
6.1.1         Tax Returns.  Communications Holdco, Newport, CLP and/or the Cap C Principals, as applicable, shall timely and properly prepare or cause to be prepared, execute, file and deliver all (i) Tax returns, information returns, Tax elections or other tax filings required to be filed by CLP, Cap C LP and Capital CEK LP in connection with the Reorganization (each a "LP Tax Filing"), and  (ii) all Tax elections required to be filed by Communications Holdco or Newport in connection with the Reorganization (each, a "Tax Election"), and shall permit the Purchaser to review and comment on each such LP Tax Filing or Tax Election prior to filing. Each of Communications Holdco and Newport shall include their respective share of any taxable income allocated to them in respect of their partnership interest in Cap C LP for the fiscal period ending on the dissolution of Cap C LP in their return filed under the ITA for the taxation year that includes the end of such fiscal period.
 
6.1.2         Tax Cooperation.  The Purchaser, Newport, Communications Holdco and the Cap C Principals shall cooperate fully as and to the extent reasonably requested by the other party, in connection with any Tax Filing pursuant to Section 6.1.1 or other Tax returns relating to the operations of the Cap C Business and any audit, litigation or other proceeding with respect to Taxes.
 
Section 6.2        Change of Name.  At the Closing or as soon as practicable after the Closing Date, Capital C Holdco shall execute appropriate documents to change its name to a name dissimilar to "Capital C", and promptly thereafter shall file any necessary documents to reflect the name change with the appropriate governmental authorities.
 
Section 6.3        Pre-Closing Distribution.
 
6.3.1         Return of Capital; Repayment of Loans.  Immediately prior to the commencement of the Reorganization: Newport and Communications Holdco shall have caused (i) Capital CEK LP to distribute to Newport $1,990,453 as a return of capital on the limited partnership units of Capital CEK LP held by Newport at October 31, 2010; and (ii) Capital CEK LP to repay in full Newport’s outstanding loans (including all accrued interest) to Capital CEK LP in the amount of $1,787,229.33 owing as of the Closing Date.
 
6.3.2         Return of Capital. As soon as reasonably practicable but not later than forty-five (45) days of the Closing, the Purchaser shall ensure that CLP and/or Kenna Communications LP distribute to Newport an amount equal to the amount due as a return of capital on the limited partnership units of Capital CEK LP held by Newport from November 1, 2010 until the Closing Date (the "November Capital Distribution"). The amount of the November Capital Distribution shall be determined by the Purchaser's auditor in accordance with GAAP based on the financial statements relating to the Kenna Business and the Cap C Business, and allocated in a manner consistent with the allocations from January 1, 2010 to October 31, 2010; provided, however, that any controversy, dispute, question or difference between the parties hereto regarding the determination of the November Capital Distribution shall be resolved by a senior officer of the Purchaser and a senior officer of Newport working in good faith to come to a mutually acceptable determination of the November Capital Distribution within 10 days of notice from Newport of such controversy, dispute, question or difference.

 
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Section 6.4        Key Man Insurance.  Newport shall cause Newport Partners Income Fund to assign all current key man insurance policies relating to Tony Chapman, Glenn Chilton and Paul Quigley effective as of the Closing Date.
 
ARTICLE VII
SURVIVAL; INDEMNITY
 
Section 7.1        Survival.  Notwithstanding any right of any party hereto fully to investigate the affairs of any other party, and notwithstanding any knowledge of facts determined or determinable pursuant to such investigation or right of investigation, each party hereto shall have the right to rely fully upon the representations, warranties, covenants and agreements of the other parties contained in this Agreement and the Schedules, if any, furnished by any other party pursuant to this Agreement.  Subject to the limitations set forth in Section 7.6, the respective representations, warranties, covenants and agreements of Newport, Communications Holdco, the Cap C Principals, Capital C Holdco and the Purchaser contained in this Agreement shall survive the Closing for sixteen (16) months following the Closing Date.
 
Section 7.2        Obligation of Newport, Communications Holdco, Capital C Holdco and the Cap C Principals to Indemnify.
 
7.2.1         Newport Indemnity.  Subject to the limitations contained in Sections 7.2.3,  7.6.1 and 7.6.2, Newport hereby agrees to indemnify the Purchaser and its affiliates, stockholders, officers, directors, employees, agents, representatives and successors, permitted assignees of the Purchaser and their affiliates (individually, a "Purchaser Indemnified Party" and collectively, the "Purchaser Indemnified Parties") against, and to protect, save and keep harmless the Purchaser Indemnified Parties from, and to pay on behalf of or reimburse the Purchaser Indemnified Parties as and when incurred for, any and all liabilities (including liabilities for Taxes), obligations, losses, damages, penalties, demands, claims, actions, suits, judgments, settlements, penalties, interest, out-of-pocket costs, expenses and disbursements (including reasonable costs of investigation, and reasonable attorneys', accountants' and expert witnesses' fees) of whatever kind and nature (collectively, "Losses"), that may be imposed on or incurred by any Purchaser Indemnified Party as a consequence of, in connection with, incident to, resulting from or arising out of or in any way related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or representation contained in Article III.A or Article III.C hereof; (b) any action, demand, proceeding, investigation or claim by any third party (including any Governmental or Regulatory Authority) against or affecting any Purchaser Indemnified Party which may give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations and warranties of Newport contained in Article III.A or Article III.C hereof; (c) any breach or failure by Newport to comply with, perform or discharge any obligation, agreement or covenant by Newport contained in this Agreement; (d) any liability or obligation or any assertion against any Purchaser Indemnified Party, arising out of or relating, directly or indirectly, to any Excluded Asset or any Retained Liability (as such terms are defined in the Conveyance Documents) or other liability arising, in whole or in part, out of the conduct of the business of Cap C LP or any of its subsidiaries or successors, if any, prior to the Closing except for the Assumed Liabilities (as such term is defined in the Conveyance Documents); (e) any litigation or claim disclosed on Schedule 3.2.3 to this Agreement; and (f) any liability or obligation arising out of or relating, directly or indirectly, to the classification of any individual performing services for Cap C LP as an independent contractor, as a freelancer, as a consultant or in any other capacity other than as an employee.

 
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7.2.2          Indemnity by Cap C Indemnitors.  Subject to the limitations contained in Sections 7.2.3, 7.6.1 and 7.6.2, the Cap C Indemnitors hereby agree, jointly and severally, to indemnify the Purchaser Indemnified Parties against, and to protect, save and keep harmless the Purchaser Indemnified Parties from, and to pay on behalf of or reimburse the Purchaser Indemnified Parties as and when incurred for, any and all Losses that may be imposed on or incurred by any Purchaser Indemnified Party as a consequence of, in connection with, incident to, resulting from or arising out of or in any way related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or representation contained in Article III.B or Article III.C hereof; (b) any action, demand, proceeding, investigation or claim by any third party (including any Governmental or Regulatory Authority) against or affecting any Purchaser Indemnified Party which may give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations and warranties of Communications Holdco, Capital C Holdco or the applicable Cap C Principals contained in Article III.B or Article III.C hereof; (c) any breach or failure by Communications Holdco, Capital C Holdco or the applicable Cap C Principals to comply with, perform or discharge any obligation, agreement or covenant by Communications Holdco, Capital C Holdco or the applicable Cap C Principals contained in this Agreement; (d) any liability or obligation or any assertion against any Purchaser Indemnified Party, arising out of or relating, directly or indirectly, to any Excluded Asset or any Retained Liability (as such terms are defined in the Conveyance Documents) or other liability arising, in whole or in part, out of the conduct of the business of Cap C LP or any of its subsidiaries or successors, if any, prior to the Closing except for the Assumed Liabilities (as such term is defined in the Conveyance Documents); (e) any litigation or claim disclosed on Schedule 3.2.3 to this Agreement; and (f) any liability or obligation arising out of or relating, directly or indirectly, to the classification of any individual performing services for Cap C LP as an independent contractor, as a freelancer, as a consultant or in any other capacity other than as an employee.
 
7.2.3          Notwithstanding anything to the contrary contained herein, Newport's obligation to indemnify the Purchaser Indemnified Parties under this Agreement shall only occur after the aggregate amount of all Losses claimed by the Purchaser Indemnified Parties against the Cap C Indemnitors (including Losses previously claimed by the Purchaser Indemnified Parties against the Cap C Indemnitors) exceeds $750,000.  Any such claims made against the Cap C Indemnitors may be made against Newport if such claims remain unpaid by the Cap C Indemnitors or any of them after sixty (60) days from the date of claim; provided that the Cap C Indemnitors have acted in good faith in response to such claim and that the Purchaser shall have exercised its commercially reasonable efforts to recover against such claim (including exercising its right to offset any claim for indemnity against payments due and/or payable to Capital C Holdco or the Cap C Principals in accordance with Section 7.5).

 
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7.2.4         Losses.  The term "Losses" as used in this Article VII is not limited to matters asserted by third parties against any Purchaser Indemnified Party but includes Losses incurred or sustained by a Purchaser Indemnified Party in the absence of Third Party Claims (as defined in Section 7.4.2 hereof).
 
Section 7.3        Obligation of the Purchaser to Indemnify.
 
7.3.1         Subject to the limitations set forth in Section 7.6.3 hereof, the Purchaser hereby agrees to indemnify Newport (together with its affiliates, partners, officers, directors, employees, agents, representatives, successors and permitted assigns, collectively, the "Newport Indemnified Parties"), Communications Holdco, Capital C Holdco and the Cap C Principals (individually a "Seller Indemnified Party" and collectively, the "Seller Indemnified Parties") against, and to protect, save and keep harmless the Seller Indemnified Parties from, and to pay on behalf of or reimburse the Seller Indemnified Parties as and when incurred for, any and all Losses that may be imposed on or incurred by the Seller Indemnified Parties as a consequence of, in connection with, incident to, resulting from or arising out of or in any way related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or representation of the Purchaser contained in Article IV hereof; or (b) any action, demand, proceeding, investigation or claim by any third party (including any Governmental or Regulatory Authority) against or affecting any Seller Indemnified Party which may give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations and warranties of the Purchaser contained in Article IV hereof; or (c) any breach or failure by the Purchaser to comply with, perform or discharge any obligation, agreement or covenant by the Purchaser contained in this Agreement.
 
7.3.2         The Purchaser shall indemnify the Newport Indemnified Parties against, and protect, save and keep harmless the Newport Indemnified Parties from, any Taxes (within the meaning of Section 3.2.14 hereof) incurred by the Newport Indemnified Parties solely as a result of the Reorganization (including any of the individual transactions forming part thereof), without duplication, in an aggregate amount not to exceed $1 million (the "Newport Reorganization Indemnity"). For greater certainty, the Newport Reorganization Indemnity shall exclude any Taxes which would, but for the Reorganization, have been incurred by Newport in connection with the sale of its partnership interest in Capital CEK LP or Cap C LP.  Notwithstanding anything to the contrary, the Purchaser shall not indemnify the Newport Indemnified Parties in respect of any Taxes imposed on Newport which were existing liabilities of Capital CEK LP or its affiliates at the time of, or arising in connection with any matter or omission occurring prior to, the commencement of the Reorganization.
 
Section 7.4        Indemnification Procedures.
 
7.4.1            Non-Third Party Claims.
 
(a)           In the event that any Person entitled to indemnification under this Agreement (an "Indemnified Party") asserts a claim for indemnification which does not involve a Third Party Claim (as defined in Section 7.4.2) (a "Non-Third Party Claim"), against which a Person is required to provide indemnification under this Agreement (an "Indemnifying Party"), the Indemnified Party shall give written notice to the Indemnifying Party (the "Non-Third Party Claim Notice"), which Non-Third Party Claim Notice shall (i) describe the claim in reasonable detail, and (ii) indicate the amount (estimated, if necessary, and to the extent feasible) of the Losses that have been or may be suffered by the Indemnified Party.

 
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(b)           The Indemnifying Party may acknowledge and agree by written notice (the "Non-Third Party Acknowledgement of Liability") to the Indemnified Party to satisfy the Non-Third Party Claim within 30 days of receipt of the Non-Third Party Claim Notice.  In the event that the Indemnifying Party disputes the Non-Third Party Claim, the Indemnifying Party shall provide written notice of such dispute (the "Non-Third Party Dispute Notice") to the Indemnified Party within 30 days of receipt of the Non-Third Party Claim Notice (the "Non-Third Party Dispute Period"), setting forth a reasonable basis of such dispute.  In the event that the Indemnifying Party shall fail to deliver the Non-Third Party Acknowledgement of Liability or Non-Third Party Dispute Notice within the Non-Third Party Dispute Period, the Indemnifying Party shall be deemed to have acknowledged and agreed to pay the Non-Third Party Claim in full and to have waived any right to dispute the Non-Third Party Claim.  Once the Indemnifying Party has acknowledged and agreed to pay any Non-Third Party Claim pursuant to this Section 7.4.1, or once any dispute under this Section 7.4.1 has been finally resolved in favour of indemnification by a court or other tribunal of competent jurisdiction, subject to the provisions of Section 7.6.1, the Indemnifying Party shall pay the amount of such Non-Third Party Claim to the Indemnified Party within 10 days of the date of acknowledgement or resolution, as the case may be, to such account and in such manner as is designated in writing by the Indemnified Party.
 
7.4.2            Third-Party Claims.
 
(a)           In the event that any Indemnified Party asserts a claim for indemnification or receives notice of the assertion of any claim or of the commencement of any action or proceeding by any Person who is not a party to this Agreement or an affiliate of a party to this Agreement in respect of which such Indemnified Party is entitled to indemnification by an Indemnifying Party under this Agreement (a "Third Party Claim"), the Indemnified Party shall give written notice to the Indemnifying Party (the "Third Party Claims Notice") within 20 days after asserting or learning of such Third Party Claim (or within such shorter time as may be necessary to give the Indemnifying Party a reasonable opportunity to respond to such claim), together with a statement specifying the basis of such Third Party Claim.  The Third Party Claim Notice shall (i) describe the claim in reasonable detail, and (ii) indicate the amount (estimated, if necessary, and to the extent feasible) of the Losses that have been or may be suffered by the Indemnified Party. The Indemnifying Party must provide written notice to the Indemnified Party that it is either (i) assuming responsibility for the Third Party Claim or (ii) disputing the claim for indemnification against it (the "Indemnification Notice")  The Indemnification Notice must be provided by the Indemnifying Party to the Indemnified Party within 15 days after receipt of the Third Party Claims Notice or within such shorter time as may be necessary to give the Indemnified Party a reasonable opportunity to respond to such Third Party Claim (the "Indemnification Notice Period").

 
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(b)           If the Indemnifying Party provides an Indemnification Notice to the Indemnified Party within the Indemnification Notice Period that it assumes responsibility for the Third Party Claim (the "Defense Notice"), the Indemnifying Party shall conduct at its expense the defense against such Third Party Claim in its own name, or if necessary in the name of the Indemnified Party.  The Defense Notice shall specify the counsel the Indemnifying Party will appoint to defend such claim ("Defense Counsel"); provided, however, that the Indemnified Party shall have the right to approve the Defense Counsel, which approval shall not be unreasonably withheld or delayed, except that such approval may be withheld if the defense is to be in the name of the Indemnified Party.  In the event that the Indemnifying Party fails to give the Indemnification Notice within the Indemnification Notice Period, the Indemnified Party shall have the right to conduct the defense and to compromise and settle such Third Party Claim without the prior consent of the Indemnifying Party and subject to the provisions of Section 7.6.1, the Indemnifying Party will be liable for all costs, expenses, settlement amounts or other Losses paid or incurred in connection therewith.
 
(c)           In the event that the Indemnifying Party provides in the Indemnification Notice that it disputes the claim for indemnification against it, the Indemnified Party shall have the right to conduct the defense and to compromise and settle such Third Party Claim, without the prior consent of the Indemnifying Party. Once such dispute has been finally resolved in favour of indemnification by a court or other tribunal of competent jurisdiction or by mutual agreement of the Indemnified Party and Indemnifying Party, subject to the provisions of Section 7.6.1, the Indemnifying Party shall within 10 days of the date of such resolution or agreement, pay to the Indemnified Party all Losses paid or incurred by the Indemnified Party in connection therewith.
 
(d)           In the event that the Indemnifying Party delivers an Indemnification Notice pursuant to which it elects to conduct the defense of the Third Party Claim, the Indemnifying Party shall be entitled to have the exclusive control over the defense of the Third Party Claim and the Indemnified Party will cooperate in good faith with and make available to the Indemnifying Party such assistance and materials as it may reasonably request, all at the expense of the Indemnifying Party.  The Indemnified Party shall have the right at its expense to participate in the defense assisted by counsel of its own choosing.  The Indemnifying Party will not settle the Third Party Claim or cease to defend against any Third Party Claim as to which it has delivered an Indemnification Notice (as to which it has assumed responsibility for the Third Party Claim), without the prior written consent of the Indemnified Party, which consent will not be unreasonably withheld or delayed; provided, however, such consent may be withheld if, among other reasons, as a result of such settlement or cessation of defense, (i) injunctive relief or specific performance would be imposed against the Indemnified Party, or (ii) such settlement or cessation would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder.

 
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(e)           If an Indemnified Party refuses to consent to a bona fide offer of settlement which the Indemnifying Party wishes to accept, which provides for a full release of the Indemnified Party and its affiliates relating to the Third Party Claims underlying the offer of settlement and solely for a monetary payment, the Indemnified Party may continue to pursue such matter, free of any participation by the Indemnifying Party, at the sole expense of the Indemnified Party. In such an event, the obligation of the Indemnifying Party shall be limited to the amount of the offer of settlement which the Indemnified Party refused to accept plus the reasonable costs and expenses of the Indemnified Party incurred prior to the date the Indemnifying Party notified the Indemnified Party of the offer of settlement.
 
(f)           Notwithstanding clause (d) above, the Indemnifying Party shall not be entitled to control, but may participate in, and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of (x) that part of any Third Party Claim that (i) seeks a temporary restraining order, a preliminary or permanent injunction or specific performance against the Indemnified Party, (ii) involves criminal allegations against the Indemnified Party or (iii) may lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and (y) the entire Third Party Claim if such Third Party Claim would impose liability on the part of the Indemnified Party in an amount which is greater than the amount as to which the Indemnified Party is entitled to indemnification under this Agreement.
 
(g)           A failure by an Indemnified Party to give timely, complete or accurate notice as provided in this Section 7.4.2 will not affect the rights or obligations of any party hereunder except and only to the extent that, as a result of such failure, any party entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise directly and materially damaged as a result of such failure to give timely notice.
 
Section 7.5        Right of Offset.  Without limiting any other rights or remedies available to it, the Purchaser shall be entitled to offset any claim for indemnity made pursuant to Section 7.2 and in accordance with Section 7.4, against any payments due and/or payable to Capital C Holdco or the Cap C Principals, including, without limitation, up to $2,750,000 of any payments made pursuant to the limited partnership unit purchase agreement (the "13% Purchase Agreement") of even date made among Capital C Holdco, the Cap C Principals and the Purchaser pursuant to which the Purchaser indirectly acquired an additional approximately 13% limited partnership interest in CLP, provided, however, the Purchaser may only exercise such right of offset in respect of claims relating to Losses actually incurred by a Purchaser Indemnified Party (in which case the amount of such offset shall be the amount of such actual Loss) or claims actually asserted by a third party (in which case the amount of the offset shall not exceed the Purchaser's good faith estimate of the amount of indemnifiable Losses that will ultimately be payable to a Purchaser Indemnified Party in respect of such claims).
 
 
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Section 7.6        Limitations On and Other Matters Regarding Indemnification.

7.6.1         Indemnity Cushion and Cap.  Subject to Section 7.6.5, neither Newport, nor the Cap C Indemnitors shall have any liability to any Purchaser Indemnified Party with respect to Losses arising out of any of the matters referred to in Section 7.2 until such time as the amount of such liability shall exceed $100,000 in the aggregate (in which case Newport and the Cap C Indemnitors shall be severally liable for all Losses).  Notwithstanding anything to the contrary herein, subject to Section 7.6.5 below, (a) the maximum aggregate liability of Newport for indemnity payments under Section 7.2.1 shall be an aggregate amount equal to $3,500,000; and (b) the maximum aggregate joint and several liability of the Cap C Indemnitors for indemnity payments under Section 7.2.2 shall be an aggregate amount equal to the sum of $750,000 plus a right of setoff of all "Contingent Payments" (as defined in the 13% Purchase Agreement) payable pursuant to the 13% Purchase Agreement, subject to a maximum aggregate of such Contingent Payments of $2,750,000.
 
7.6.2         Termination of Indemnification Obligations of Newport and the Cap C Principals.  Subject to Section 7.6.5, the obligation of Newport, Capital C Holdco and the Cap C Principals to indemnify under Section 7.2 hereof shall terminate sixteen (16) months following the Closing Date, except as to matters as to which the Purchaser Indemnified Party has made a claim for indemnification on or prior to such date, in which case the right to indemnification with respect thereto shall survive the expiration of such period until such claim for indemnification is finally resolved and any obligations with respect thereto are fully satisfied.
 
7.6.3         Termination of Indemnification Obligations of the Purchaser; Purchaser Indemnity Cap.  Subject to Section 7.6.5, the obligation of the Purchaser to indemnify under Section 7.3 hereof shall terminate sixteen (16) months following the Closing Date, except as to matters as to which any Seller Indemnified Party has made a claim for indemnification on or prior to such date, in which case the right to indemnification with respect thereto for such party shall survive the expiration of such period until such claim for indemnification is finally resolved and any obligations with respect thereto are fully satisfied. The Purchaser shall have no liability to the Seller Indemnified Parties with respect to Losses arising out of any of the matters referred to in Section 7.3 until such time as the amount of such liability shall exceed $100,000 in the aggregate.  Notwithstanding anything to the contrary herein, the maximum aggregate liability of the Purchaser for indemnity payments under this Agreement shall be an aggregate amount equal to $6,000,000.
 
7.6.4         Treatment.  Any indemnity payments by an Indemnifying Party to an Indemnified Party under this Article VII shall be treated by the parties as an adjustment to the Purchase Price.
 
7.6.5         Exceptions.  Each of the limitations set forth above in this Section 7.6 shall in no event (a) apply to any Losses incurred by a Purchaser Indemnified Party which relate, directly or indirectly, to (i) any fraudulent acts committed by Newport, Communications Holdco, Capital C Holdco or the Cap C Principals; (ii) any breach of a representation or warranty contained in Sections 3.1.1, 3.1.3, 3.1.5, 3.2.1, 3.2.5, 3.2.9 or 3.2.14, and (iii) any indemnification obligation under Sections 7.2.1(d), 7.2.2(c) and (d); and (iv) the obligations of Newport, Communications Holdco, Capital C Holdco and the Cap C Principals set forth in Section 8.1 to pay certain expenses; or (b) apply to any Losses incurred by a Seller Indemnified Party which relate, directly or indirectly, to (i) any fraudulent acts committed by the Purchaser and (ii) the Purchaser's obligations set forth in Section 8.1 to pay certain expenses.
 
 
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7.6.6         Indemnification Sole Remedy. Except as otherwise expressly provided in this Agreement or as it relates to any claim for fraud or intentional misrepresentation, the indemnifications provided for in this Article VII constitute the sole remedy available to an Indemnified Party hereunder with respect to any and all breaches or failures of representations, warranties, covenants, conditions, agreements or obligations contained in this Agreement.  In furtherance of the foregoing, each of the parties hereby waives to the fullest extent permitted under applicable Law, any and all other rights, claims and causes of action it may have against the other parties relating to the subject matter of this Agreement.
 
ARTICLE VIII
MISCELLANEOUS
 
Section 8.1        Expenses.  Except as otherwise provided in this Agreement, each of the parties hereto shall pay its or his own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of its respective counsel, financial advisors and accountants and any brokerage commissions, finder's fees, consulting fees, break-up or termination fees, or similar fees or commissions.
 
Section 8.2        Governing Law; Service of Process and Consent to Jurisdiction.  The interpretation and construction of this Agreement, and all matters relating hereto (including, without limitation, the validity or enforceability of this Agreement), shall be governed by the laws of the Province of Ontario and the laws of Canada applicable therein.
 
Section 8.3        "Person" Defined.  "Person" shall mean and include an individual, a company, a joint venture, a corporation (including any non-profit corporation), an estate, an association, a trust, a general or limited partnership, a limited liability company, a limited liability partnership, an unincorporated organization and a government or other department or agency thereof.
 
Section 8.4        "Knowledge" Defined.  Where any representation and warranty contained in this Agreement is expressly specified by reference to the knowledge of Newport, Capital C Holdco or any Cap C Principal, such term shall be limited to the actual knowledge of the executive officers of Newport, Capital C Holdco or the Cap C Principals, respectively, and unless otherwise stated, such knowledge that would have been discovered by the executive officers of Newport, Capital C Holdco or the applicable Cap C Principal, respectively, after reasonable inquiry.  Where any representation and warranty contained in this Agreement is expressly specified by reference to the knowledge of the Purchaser, as the case may be, such term shall be limited to the actual knowledge of the executive officers of such entity and unless otherwise stated, such knowledge that would have been discovered by such executive officers after reasonable inquiry.
 
Section 8.5        "Affiliate" Defined.  As used in this Agreement, an "affiliate" of any Person, shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such Person.
 
Section 8.6         Captions.  The Article and Section headings used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement.

 
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Section 8.7        Publicity.  Subject to the provisions of the next sentence, no party to this Agreement shall, and Newport and Capital C Holdco shall use their reasonable efforts to ensure that no representative of either of them shall, issue any press release or other public document or make any public statement relating to this Agreement or the matters contained herein without obtaining the prior approval of the Purchaser.  Notwithstanding the foregoing, the foregoing provision shall not apply to the extent that the Purchaser or Newport is required to make any announcement relating to or arising out of this Agreement by virtue of the securities laws of the United States or Canada or the rules and regulations promulgated thereunder or other rules of the NASDAQ Stock Market, Toronto Stock Exchange or the United States Securities and Exchange Commission or any announcement by any party hereto pursuant to applicable law or regulations.
 
Section 8.8        Notices.  Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party to any other party shall be in writing and shall be deemed to have been given (a) upon personal delivery, if delivered by hand or courier, (b) three days after the date of deposit in the mail, postage prepaid, or (c) the next business day if sent by a prepaid overnight courier service, and in each case at the respective addresses set forth below or such other address as such party may have fixed by notice:
 
(a)           If to the Purchaser, addressed to:
 
c/o MDC Partners Inc.
45 Hazelton Avenue
Toronto, Ontario
Canada M5R 2E3
 
Attention:  Gavin Swartzman
 
with a copy to (which shall not constitute notice):
 
c/o MDC Partners Inc.
950 Third Avenue
New York, New York 10022
 
Attention:  General Counsel
 
(b)           If to Newport, to:
 
469 King Street West
4th Floor
Toronto, Ontario  M5V 1K4
 
Attention:         Keith Halbert
Facsimile:          (416) 867-7595
 
with a copy to (which shall not constitute notice):
 
Ogilvy Renault LLP
Royal Bank Plaza, South Tower, Suite 3800

 
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200 Bay Street, P.O. Box 84
Toronto, Ontario  M5J 2Z4
 
Attention:        Walied Soliman
Facsimile:         (416) 216-3930
 
(c)           If to Capital C Holdco, to:
 
340 King Street East, 5th Floor
Toronto, Ontario  M5A 1K8

Attention:        Tony Chapman
Facsimile:         (416) 777-0060
 
with a copy to (which shall not constitute notice):
 
Hughes, Dorsch, Garland, Coles LLP
365 Bay Street, Suite 400
Toronto, Ontario  M5H 2V1

Attention:         Michie T. Garland
Facsimile:          (416) 861-1147

(d)           If to the Cap C Principals, to:
 
Victoria Calverley
17455 Dufferin Street, R.R. #2
Newmarket, Ontario  L3Y 4V9
 
and
 
Tony Chapman
241 Dawlish Avenue
Toronto, Ontario  M4N 1J2

with a copy to (which shall not constitute notice):
 
Hughes, Dorsch, Garland, Coles LLP
365 Bay Street, Suite 400
Toronto, Ontario  M5H 2V1

Attention:         Michie T. Garland
Facsimile:          (416) 861-1147

Any party may change the address to which notices are to be sent by giving notice of such change of address to the other parties in the manner herein provided for giving notice.
 
 
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Section 8.9        Parties in Interest.  This Agreement may not be transferred, assigned, pledged or hypothecated by any party hereto, other than by operation of law.  Any purported transfer, assignment, pledge, or hypothecation (other than by operation of law) of this Agreement shall be void and ineffective.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.
 
Section 8.10      Severability.  In the event any provision of this Agreement is found to be void and unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as though the void or unenforceable part had been severed and deleted.
 
Section 8.11      Counterparts.  This Agreement may be executed in two or more counterparts or by facsimile transmission, all of which taken together shall constitute one instrument.
 
Section 8.12      Entire Agreement.  This Agreement, together with the Schedules and Exhibits hereto, constitutes the sole, exclusive and only agreements of the parties hereto pertaining to the subject matter hereof, contains all of the covenants, conditions and agreements between the parties, express or implied, whether by statute or otherwise, and sets forth the respective rights, duties and obligations of each party to the other party as of the date hereof. No oral understandings, oral statements, oral promises or oral inducements relating to the subject matter hereof exist.
 
Section 8.13      Amendments.  This Agreement may not be amended, supplemented or modified orally, but only by an agreement in writing signed by each of the parties hereto.
 
Section 8.14      Third Party Beneficiaries.  Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto and their respective successors and assigns as permitted under Section 8.9.
 
Section 8.15      Use of Terms.  Whenever the context so requires or permits, all references to the masculine herein shall include the feminine and neuter, all references to the neuter herein shall include the masculine and feminine, all references to the plural shall include the singular and all references to the singular shall include the plural.  Whenever used in this Agreement, the terms "Dollars" and "$" shall mean Canadian Dollars.
 
Section 8.16      "Liens" Defined.  With respect to any asset, a "Lien" shall mean (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (other than an operating lease) (or any financial lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
 
 
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Section 8.17      No Strict Construction; Representation by Counsel.  The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of law or contract interpretation that provides that in the case of ambiguity or uncertainty a provision should be construed against the draftsman will be applied against any party hereto.  The provisions of this Agreement shall be construed according to their fair meaning and neither for nor against any party hereto irrespective of which party caused such provisions to be drafted.  Each of the parties acknowledges that it has been represented by legal counsel in connection with the preparation and execution of this Agreement.
 
[Remainder of page intentionally left blank.]

 
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IN WITNESS WHEREOF, the parties hereto have executed this Limited Partnership Unit Purchase Agreement, on the day and year first above written.
 
 
MDC PARTNERS INC.
       
   
Per:
/s/ Mitchell Gendel
     
Name:    Mitchell Gendel
     
Title:      General Counsel

 
NEWPORT PARTNERS HOLDINGS LP, by its general partner NPY GP TRUST, by its trustee NEWPORT PARTNERS GP INC.
       
   
Per:
/s/ Adrian Montgomery
     
Name:    Adrian Montgomery
     
Title:      Vice President

 
CAP C LP HOLDCO INC.
   
   
Per:
/s/ Tony Chapman
     
Name:    Tony Chapman
     
Title:      President

 
2265178 ONTARIO LIMITED
   
   
Per:
/s/ Tony Chapman
     
Name:    Tony Chapman
     
Title:      Authorized Signatory
       
/s/
  
/s/ Tony Chapman
Witness
  
Tony Chapman
     
/s/
  
/s/ Victoria Calverley
Witness
  
Victoria Calverley
 
 
 
 
 EX-10.18.2 11 v212032_ex10-18x2.htm
Exhibit 10.18.2
   
LIMITED PARTNERSHIP UNIT PURCHASE AGREEMENT (13%)

LIMITED PARTNERSHIP UNIT PURCHASE AGREEMENT (this “Agreement”) dated as of November 30, 2010, by and among MDC PARTNERS INC., a Canadian corporation (the “Purchaser”), 2265178 Ontario Limited (“Capital C Holdco”), and TONY CHAPMAN, VICTORIA CALVERLEY, BENNETT KLEIN and TOM CLUNE (collectively, the “Capital C Principals” and each, a “Capital C Principal”).

WITNESSETH:

WHEREAS, Newport Holdco Partners Holding LP (“Newport”) and the Capital C Principals formed Capital C Partners LP ("Capital C LP") for the purpose of demerging the businesses of Capital C Communications LP ("Communications Holdco"), which consisted of the Capital C business (the "Capital C Business") and the Kenna business (see reorganization chart attached as Exhibit A to the Newport Purchase Agreement (the "Reorganization");

AND WHEREAS immediately prior to the execution and delivery of this Agreement, Newport, Communications Holdco, the Capital C Principals and the Kenna Principals consummated the transactions contemplated by the Reorganization.  In connection with such Reorganization, Newport and the Capital C Principals caused Communications Holdco to transfer all of the assets utilized as the Capital C Business and certain disclosed liabilities and obligations and the Capital C Business to Capital C LP, pursuant to an Assignment and Assumption Agreement (the "Conveyance Documents");

AND WHEREAS, immediately following the Reorganization, Newport held 67.13% of the partnership units of Capital C LP (the “67% Purchased Units”), and Purchaser purchased such 67% Purchased Units from Newport pursuant to a Limited Partnership Purchase Agreement dated the date hereof (the “Newport Purchase Agreement”), such that after giving effect to such purchase, Purchaser owned 67.13% of Capital C LP, Capital C Holdco owned 20% of Capital C LP and 2265179 Ontario Limited, a wholly owned subsidiary of Capital C Holdco (“2265179”) owned 12.86% of the partnership units of Capital C LP (the “13% Units”);

AND WHEREAS, the issued capital of 2265179 consists of 101 common shares (the “Purchased Shares”), all of which are legally and beneficially owned by Capital C Holdco;

AND WHEREAS, Capital C Holdco now desires to sell, and Purchaser desires to purchase, the Purchased Shares, such that after giving effect to such purchase, Purchaser will own 67.13% of Capital C LP directly and 12.87% of Capital C LP through ownership of 2265179 which owns the 13% Units, beneficially and of record, aggregating a 80.0% ownership interest in Capital C LP and Capital C Holdco will own 20% of Capital C LP;

AND WHEREAS simultaneous with the execution and delivery of this Agreement, the Purchaser, Capital C Holdco, the Capital C Principals and Capital C LP are executing and delivering an amended and restated limited partnership agreement in respect of Capital C LP (the “Capital C LP Agreement”);

 
 
 
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:
   
ARTICLE I
SALE OF THE PURCHASED SHARES

Section 1.1        Sale of the Purchased Shares.  Subject to the terms and conditions herein stated, Capital C Holdco agrees to sell, assign, transfer and deliver to the Purchaser on the Closing Date (as defined in Section 2.2), and the Purchaser agrees to purchase from Capital C Holdco on the Closing Date, the  Purchased Shares.
 
ARTICLE II
PURCHASE PRICE AND CLOSING

Section 2.1        Purchase Price; Contingent Payments.  In full consideration for the purchase by the Purchaser of the 13% Purchased Units, the purchase price (the "Purchase Price") shall be calculated and paid by the Purchaser to Capital C Holdco, as set forth in this Section 2.1 below.

(a)        First Contingent Payment. Subject to clauses (h), (i) and (j) below, within five business days after the Annual Determination for calendar year 2010 and any adjustments thereto shall have become binding on the parties in accordance with the Capital C LP Agreement, the Purchaser shall pay to Capital C Holdco the First Contingent Payment ("FAP"), calculated as follows:

FAP = 36% x 2010 PBT

; provided, however, that for purposes of calculating the FAP, “2010 PBT” shall be calculated for the period commencing on the Closing Date and ending on December 31, 2010.

(b)       Second Contingent Payment. Subject to clauses (h), (i) and (j) below, within five business days after the Annual Determination for calendar year 2011 and any adjustments thereto shall have become binding on the parties in accordance with the Capital C LP Agreement, the Purchaser shall pay to Capital C Holdco the Second Contingent Payment ("SAP"), calculated as follows:

SAP = Applicable Percentage x 36% x 2011 PBT

 
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; provided, however, in the event that 2011 PBT were less than $3,400,000, then SAP shall equal (A) the excess, if any, of (i) 2011 PBT over (ii) $2,040,000, multiplied by (B) 90%, multiplied by (C) the Applicable Percentage;

provided further, however, in the event that 2011 PBT were greater than $4,000,000 (such excess, the “2011 Excess”), then the Purchaser shall pay to Capital C Holdco an additional payment calculated as follows: the Applicable Multiplier (as defined below) multiplied by the 2011 Excess (the “2011 Top-Up”).

(c)        Third Contingent Payment. Subject to clauses (h), (i) and (j) below, within five business days after the Annual Determination for calendar year 2012 and any adjustments thereto shall have become binding on the parties in accordance with the Capital C LP Agreement, the Purchaser shall pay to Capital C Holdco the Third Contingent Payment ("TAP"), calculated as follows:

TAP = Applicable Percentage x 36% x 2012 PBT

; provided, however, in the event that 2012 PBT were less than $3,400,000, then TAP shall equal (A) the excess, if any, of (i) 2012 PBT over (ii) 2,040,000, multiplied by (B) 90%, multiplied by (C) the Applicable Percentage;

provided further, however, in the event that (x) 2011 PBT minus (y) (i) SAP divided by the Applicable Percentage applicable to SAP divided by (ii) 90%, were less than $2,040,000, then for purposes of the calculations of TAP above, 2012 PBT shall be reduced by the amount of such shortfall;

provided further, however, in the event that (x) 2011 PBT minus (y) (i) SAP divided by the Applicable Percentage applicable to SAP divided by (ii) 90%, were greater than $2,040,000, and 2012 PBT were greater than $4,000,000 (such excess, the “2012 Excess”), then the Purchaser shall pay to Capital C Holdco an additional payment calculated as follows: the Applicable Multiplier multiplied by the 2012 Excess (the “2012 Top-Up”).
   
(d)        Fourth Contingent Payment. Subject to clauses (h), (i) and (j) below, within five business days after the Annual Determination for calendar year 2013 and any adjustments thereto shall have become binding on the parties in accordance with the Capital C LP Agreement, the Purchaser shall pay to Capital C Holdco the Fourth Contingent Payment ("FOAP"), calculated as follows:

FOAP = Applicable Percentage x 36% x 2013 PBT

; provided, however, in the event that 2013 PBT were less than $3,400,000, then FOAP shall equal (A) the excess, if any, of (i) 2013 PBT over (ii) 2,040,000, multiplied by (B) 90%, multiplied by (C) the Applicable Percentage;

 
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provided further, however, in the event that (x) the sum of 2011 PBT and 2012 PBT minus (y) (i) the sum of (A) SAP divided by the Applicable Percentage applicable to SAP and (B) TAP divided by the Applicable Percentage applicable to TAP divided by (ii) 90%, were less than $4,080,000, then for purposes of the calculations of FOAP above, 2013 PBT shall be reduced by the amount of such shortfall;

provided further, however, in the event that (x) the sum of 2011 PBT and 2012 PBT minus (y) (i) the sum of (A) SAP divided by the Applicable Percentage applicable to SAP and (B) TAP divided by the Applicable Percentage applicable to TAP divided by (ii) 90%, were greater than $4,080,000, and 2013 PBT were greater than $4,000,000 (such excess, the “2013 Excess”), then the Purchaser shall pay to Capital C Holdco an additional payment calculated as follows: the Applicable Multiplier multiplied by the 2013 Excess (the “2013 Top-Up”).

(e)        Fifth Contingent Payment.  Subject to clauses (h), (i) and (j) below, within five business days after the Annual Determination for calendar year 2014 and any adjustments thereto shall have become binding on the parties in accordance with the Capital C LP Agreement, the Purchaser shall pay to Capital C Holdco the Fifth Contingent Payment ("FIAP"), calculated as follows:

FIAP = Applicable Percentage x 36% x 2014 PBT

; provided, however, in the event that 2014 PBT were less than 3,400,000, then FIAP shall equal (A) the excess, if any, of (i) 2014 PBT over (ii) $2,040,000, multiplied by (B) 90%, multiplied by (C) the Applicable Percentage;

; provided further, however, in the event that (x) the sum of 2011 PBT, 2012 PBT and 2013 PBT minus (y) (i) the sum of (A) SAP divided by the Applicable Percentage applicable to SAP, (B) TAP divided by the Applicable Percentage applicable to TAP and (C) FOAP divided by the Applicable Percentage applicable to FOAP divided by (ii) 90%, were less than $6,120,000, then for purposes of the calculations of FIAP above, 2014 PBT shall be reduced by the amount of such shortfall;

provided further, however, in the event that (x) the sum of 2011 PBT, 2012 PBT and 2013 PBT minus (y) (i) the sum of (A) SAP divided by the Applicable Percentage applicable to SAP, (B) TAP divided by the Applicable Percentage applicable to TAP and (C) FOAP divided by the Applicable Percentage applicable to FOAP divided by (ii) 90%, were greater than $6,120,000, and 2014 PBT were greater than $4,000,000 (such excess, the “2014 Excess”), then the Purchaser shall pay to Capital C Holdco an additional payment calculated as follows: the Applicable Multiplier multiplied by the 2014 Excess (the “2014 Top-Up”).

(f)        Last Contingent Payment.  Subject to clauses (h), (i) and (j) below, within five business days after the Annual Determination for calendar year 2015 and any adjustments thereto shall have become binding on the parties in accordance with the Capital C LP Agreement, the Purchaser shall pay to Capital C Holdco the Last Contingent Payment ("LAP"), calculated as follows:

 
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LAP = Applicable Percentage x 36% x 2015 PBT

; provided, however, in the event that 2015 PBT were less than $3,400,000, then LAP shall equal (A) the excess, if any, of (i) 2015 PBT over (ii) $2,040,000, multiplied by (B) 90%, multiplied by (C) the Applicable Percentage;

; provided further, however, in the event that (x) the sum of 2011 PBT, 2012 PBT, 2013 PBT and 2014 PBT minus (y) (i) the sum of (A) SAP divided by the Applicable Percentage applicable to SAP, (B) TAP divided by the Applicable Percentage applicable to TAP, (C) FOAP divided by the Applicable Percentage applicable to FOAP and (D) FIAP divided by the Applicable Percentage applicable to FIAP, divided by (ii) 90%, were less than $8,160,000, then for purposes of the calculations of LAP above, 2015 PBT shall be reduced by the amount of such shortfall;

provided further, however, in the event that (x) the sum of 2011 PBT, 2012 PBT, 2013 PBT and 2014 PBT minus (y) (i) the sum of (A) SAP divided by the Applicable Percentage applicable to SAP, (B) TAP divided by the Applicable Percentage applicable to TAP, (C) FOAP divided by the Applicable Percentage applicable to FOAP and (D) FIAP divided by the Applicable Percentage applicable to FIAP, divided by (ii) 90%, were greater than $8,160,000, and 2015 PBT were greater than $4,000,000 (such excess, the “2015 Excess”), then the Purchaser shall pay to Capital C Holdco an additional payment calculated as follows: the Applicable Multiplier multiplied by the 2015 Excess (the “2015 Top-Up”).

(g)        No Negative Payments.  In the event that the calculation of FAP, SAP, TAP, FOAP, FIAP or LAP, as the case may be, results in an amount which is less than zero, such Purchase Price component shall be deemed to be zero.

(h)        Additional Top-Up Payments. Capital C Holdco and/or management (to the extent management has either purchased or received from Capital C Holdco its equity interests) shall be eligible to receive the 2011 Top-Up, 2012 Top-Up, 2013 Top-Up, 2014 Top-Up or 2015 Top-Up (collectively, the “Top-Up Payments”) within thirty (30) days after the Annual Determination (as defined below) has been determined for each calendar year commencing in 2011 and continuing only during the period of time in which Capital C Holdco and/or management (to the extent management has either purchased or received from Capital C Holdco its equity interests) continues to own equity interests in Capital C LP.  For the purposes of calculating any Top-Up Payment, the “Applicable Multiplier” shall mean 10%; provided, however, that if at any time Capital C Holdco and/or management (to the extent management has either purchased or received from Capital C Holdco its equity interests) owns less than 20% of the limited partnership interests in Capital C LP, then the Applicable Multiplier shall be reduced on a pro rata basis to reflect such reduced equity holdings.

(i)         Payment of the Purchase Price; Limitations and Conditions Precedent to Contingent Payments and Top-Up Payments. Payment of each component of the Purchase Price and any Contingent Payment or Top-Up Payments that is required to be made under this Section 2.1 shall be made in Canadian dollars by the Purchaser by direct wire transfer to the account of Capital C Holdco, as set forth on Schedule 2.1 (or to such other account as Capital C Holdco may notify the Purchaser in writing).  Notwithstanding the foregoing provisions in this Section 2.1, the Purchaser shall not be obligated to pay any Contingent Payments or Top-Up Payments to Capital C Holdco unless and until (i) Capital C LP has Working Capital of at least the Working Capital Target for a continuous period of at least 6 months, (ii) Capital C LP has paid Capital C Holdco the Pre-Closing Undistributed Profit Amount in accordance with the Capital C LP Agreement and (iii) Capital C LP has sufficient cash on-hand to pay distributions due in accordance with the Capital C LP Agreement.

 
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(j)         Termination of Contingent Payments.  Upon the exercise and closing of a Call option or the consummation of a sale to a Prospective Purchaser (as such terms are defined in the Capital C LP Agreement) pursuant to the Capital C LP Agreement (collectively, a "Sale Event"), Capital C Holdco’s right to receive any Contingent Payments based upon PBT for the calendar year in which the applicable Sale Event occurred or for any calendar year(s) thereafter, shall cease, and the obligation of the Purchaser to pay to Capital C Holdco any such Contingent Payments shall terminate, contemporaneously with the applicable Sale Event.

2.2 
Definitions.

 
(i)
"Contingent Payments" shall mean the aggregate amount of the payments made in Sections 2.1(a) through (f).

 
(ii)
“Annual Determination” shall have the meaning ascribed to such term in the Capital C LP Agreement.

 
(iii)
"Applicable Percentage" shall mean, with respect to any Contingent Payment, a percentage equal to the result of (A) the quotient of (x) the average number of LP Units of Capital C LP owned by Capital C Holdco during the calendar year for which PBT is used to calculate such Contingent Payment (such average being determined as the quotient of (1) the sum of the products of the varying numbers of LP Units so owned by Capital C Holdco by the number of days in such year each such number was owned by Capital C Holdco, and (2) 365 or 366 days, as applicable for such year), divided by (y) the average total number of outstanding Class A Units and LP Units for such year (calculated on the same basis as provided in the parenthetical under (A)(x) above), divided by (B) 20%.

 
(iv)
"GAAP" shall mean United States generally accepted accounting principles consistently applied.

 
(v)
“Pre-Closing Undistributed Profit Amount” shall mean the amount of undistributed profits owed to the Capital C Principals from Communications Holdco immediately prior to the consummation of the Reorganization, which amount shall be determined as of the Closing Date in accordance with the Capital C LP Agreement and which amount is estimated at Closing to be equal to $627,000.

 
(vi)
"PBT" with respect to any year, shall mean the consolidated net income (loss) of Capital C LP before provision for any income taxes for such year, determined in accordance with GAAP; provided, however, that for purposes of calculating PBT for 2010, PBT shall be deemed to include the PBT of the Capital C Business for the period from the Closing Date through December 31, 2010.

 
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(vii)
“Working Capital” shall mean current assets minus current liabilities as determined in accordance with GAAP.

(viii)
“Working Capital Target” shall mean the sum of (x) $1,250,000 plus (b) the Pre-Closing Undistributed Profit Amount (to the extent not yet distributed in accordance with the Capital C LP Agreement).

Section 2.3        Closing.  The closing of the transactions contemplated by this Agreement (the "Closing") shall take place simultaneously with the execution and delivery of this Agreement on the date hereof, at the offices of MDC Partners Inc., 45 Hazelton Avenue, Toronto, Ontario, M5R 2E3, or by the exchange of documents and instruments by mail, courier, telecopy and wire transfer to the extent mutually acceptable to the parties hereto (such date is herein referred to as the "Closing Date").
                       
ARTICLE III
REPRESENTATIONS OF CAPITAL C HOLDCO AND THE CAPITAL C PRINCIPALS
                  
Capital C Holdco and the Capital C Principals, jointly and severally, represent and warrant to and with the Purchaser, as follows:

Section 3.1        Execution and Validity of Agreements.

3.1.1      Execution and Validity.  Capital C Holdco has the full legal right and capacity to enter into this Agreement and to perform its obligations hereunder.  This Agreement has been duly and validly executed and delivered by Capital C Holdco and, assuming due authorization, execution and delivery by the Purchaser, constitutes a legal, valid and binding obligation of Capital C Holdco, enforceable against Capital C Holdco in accordance with its terms.

3.1.2      No Restrictions.  There is no suit, action, claim, investigation or inquiry by any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of Canada, any foreign country or any domestic or foreign state, county, city or other political subdivision ("Governmental or Regulatory Authority"), and no legal, administrative or arbitration proceeding is pending or, to the Capital C Principals' knowledge, threatened against Capital C Holdco with respect to the execution, delivery and performance of this Agreement or the transactions contemplated hereby or any other agreement entered into by Capital C Holdco in connection with the transactions contemplated hereby.
 
 
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3.1.3      Non-Contravention; Approvals and Consents.  The execution, delivery and performance by the Capital C Principals and Capital C Holdco of their respective obligations under this Agreement and the Conveyance Documents and the consummation of the transactions contemplated hereby and thereby, will not (a) violate, conflict with or result in the breach of any provision of the declaration and limited partnership agreement (or other comparable documents) of Capital C LP or Capital C Holdco; (b) result in the violation by Capital C LP or Capital C Holdco of any Laws or Orders of any Governmental or Regulatory Authority, or (c) conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require Capital C LP or Capital C Holdco to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any Lien upon any of their respective assets or properties, or under any of the terms, conditions or provisions of any Contract to which Capital C LP or Capital C Holdco is a party or by which Capital C LP or Capital C Holdco or any of their respective assets or properties are or were bound.  Except as set forth in Schedule 3.2.10, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any contract to which Capital C LP or Capital C Holdco is a party, or by which their respective assets or properties were or are bound, for the execution and delivery of this Agreement or the Conveyance Documents, the performance by Capital C LP or Capital C Holdco of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby.

3.2        Proceeds of Purchase Price.  Capital C Holdco has not agreed or made any written or verbal commitment to give any employee of Capital C LP (or any family member or any affiliate of the employee of Capital C LP) any portion or share of the Purchase Price in the form of a bonus, gift, award, or any similar type of remuneration.  The Capital C Principals agree that, from and after the date hereof, no portion or proceeds of the Purchase Price shall be used to compensate or give to any employee of Capital C LP (or any family member of any employee of Capital C LP) a bonus, gift, award, or any similar type of remuneration.

3.3        Limited Partnership Units and Purchased Shares Free and Clear of All Liens; No Options or Restrictions; Subsidiaries and Investments.  Immediately prior to the consummation of the transactions contemplated by this Agreement, (a) Capital C Holdco owns of record and beneficially has valid title to the Purchased Shares, and (b) 2265179 owns of record and beneficially has valid title to the 13% Units of Capital C LP, and such ownership, in each case, is free and clear or all Liens.  There are no outstanding subscriptions, options, warrants, rights (including "phantom stock rights"), calls, commitments, understandings, conversion rights, rights of exchange, plans or other agreements of any kind providing for the purchase, issuance or sale of any equity or ownership or proprietary interest of 2265179 or the 13% Units, or which grants any Person (other than 2265179 or the Capital C Principals) the right to share in the earnings of Capital C LP.  2265179 does not, directly or indirectly, own any equity interest in or have any voting rights with respect to any Person other than the 13% Units.  There are no outstanding subscriptions, options, rights, warrants, calls, commitments or arrangements of any kind to acquire any of the Purchased Shares or 13% Units and there are no agreements or understandings with respect to the sale or transfer of any of the Purchase Shares or 13% Units other than this Agreement. There is no suit, action, claim, investigation or inquiry by any Governmental or Regulatory Authority, and no legal, administrative or arbitration proceeding pending or, to the knowledge of Capital C Holdco or the Capital C Principals, threatened, against 2265179, Capital C Holdco or Capital C LP or any of the Purchased Shares or any of the 13% Units, with respect to the execution, delivery and performance of this Agreement or the Conveyance Documents or the transactions contemplated hereby or thereby or any other agreement entered into by Capital C Holdco in connection with the transactions contemplated hereby or thereby.

 
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Section 3.4        Brokers.  No broker, finder, agent or similar intermediary has acted on behalf of Capital C Holdco in connection with this Agreement or the transactions contemplated hereby, and no brokerage commissions, finder's fees or similar fees or commissions are payable by the Capital C Holdco or the Capital C Principals in connection therewith based on any agreement, arrangement or understanding with either of them.

Section 3.5  Reaffirmation of Representations and Warranties.  Capital C Holdco and the Capital C Principals hereby reaffirm and restate, to Purchaser, each of their respective representations and warranties set forth in Article III.C. of the Newport Purchase Agreement, which representations and warranties shall be true and correct as of the Closing Date.
 
ARTICLE IV
REPRESENTATIONS OF THE PURCHASER

The Purchaser represents, warrants and agrees to and with Capital C Holdco as follows:

Section 4.1        Existence and Good Standing.  The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the Province of Ontario with full corporate power and authority to own its property and to carry on its business all as and in the places where such properties are now owned or operated or such business is now being conducted.

Section 4.2        Execution and Validity of Agreement.  The Purchaser has the full corporate power and authority to make, execute, deliver and perform this Agreement and the transactions contemplated hereby.  The execution and delivery of this Agreement by the Purchaser and the consummation of the transactions contemplated hereby have been duly authorized by all required corporate action on behalf of the Purchaser.  This Agreement has been duly and validly executed and delivered by the Purchaser and, assuming due authorization, execution and delivery by Capital C Holdco and the Capital C Principals, constitutes the legal, valid and binding obligation of the Purchaser, enforceable against it in accordance with its terms.

Section 4.3        Litigation.  There is no action, suit, proceeding at law or in equity by any Person, or any arbitration or any administrative or other proceeding by or before (or to the knowledge of the Purchaser, any investigation by), any Governmental or Regulatory Authority pending or, to the knowledge of the Purchaser, threatened against the Purchaser or any of their respective properties or rights with respect to this Agreement.  The Purchaser is not subject to any Order entered in any lawsuit or proceeding with respect to this Agreement or the transactions contemplated hereby.
 
 
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Section 4.4        Non-Contravention; Approvals and Consents.  The execution, delivery and performance by the Purchaser of its obligations hereunder and the consummation of the transactions contemplated hereby will not (a) violate, conflict with or result in the breach of any provision of the certificate of incorporation and bylaws of the Purchaser, (b) result in the violation by the Purchaser of any Laws or Orders of any Governmental or Regulatory Authority applicable to the Purchaser or any of its assets or properties, or (c) result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, or require the Purchaser to obtain any consent, approval or action of, make any filing with or give any notice to, or result in or give to any Person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or, except for such Liens as may be created in connection with an MDC Financing (as defined in Section 6.1 hereof), result in the creation or imposition of any Lien upon any of the respective assets or properties of the Purchaser, under any of the terms, conditions or provisions of any Contract to which the Purchaser is a party or by which the Purchaser or any of its assets or properties are bound. No consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority or other Person is necessary or required under any of the terms, conditions or provisions of any Law or Order of any Governmental or Regulatory Authority or any Contract to which the Purchaser is a party or by which the Purchaser or any of its assets or properties are bound for the execution and delivery of this Agreement by the Purchaser, the performance by the Purchaser of its obligations hereunder or the consummation by the Purchaser of the transactions contemplated hereby

Section 4.5        Brokers.  No broker, finder, agent or similar intermediary has acted on behalf of the Purchaser in connection with this Agreement or the transactions contemplated hereby, and no brokerage commissions, finder's fees or similar fees or commissions are payable by the Purchaser in connection therewith based on any agreement, arrangement or understanding with either of them.

ARTICLE V
ACTIONS AT CLOSING

Simultaneously herewith:

Section 5.1       Tax Restructuring Proceedings. All proceedings to be taken in connection with the transactions contemplated by this Agreement, including, without limitation, the pre-closing transactions constituting the Reorganization, the Conveyance Documents and all documents incident thereto must be reasonably satisfactory in form and substance to the Purchaser and its counsel, and the Purchaser shall have received copies of all such documents and other evidences as it or its counsel reasonably requested in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith.

Section 5. 2       Certified Resolutions.  Capital C Holdco shall have delivered to the Purchaser a copy of the resolutions of authorizing the execution, delivery and performance of this Agreement and the Conveyance Documents and the transactions contemplated hereby and thereby, certified by one of its officers.

Section 5.3        Limited Partnership Agreement.  The Capital C Principals and the Purchaser shall have entered into the Amended and Restated Capital C LP Agreement.

 
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ARTICLE VI
OTHER AGREEMENTS

Section 6.1        MDC Financing.  Notwithstanding anything to the contrary contained in this Agreement, in consideration for the payment of the Purchase Price under Section 2.1 hereof and for other good and valuable consideration, the parties hereto hereby (i) agree that MDC Partners and/or one or more of its affiliates, in connection with its or any of its affiliates' current or future credit facilities, debt offerings (including, without limitation, senior, subordinated or mezzanine debt issued in a public offering or a Regulation S or Rule 144A private placement) or any other debt agreements, shall be entitled to: (w) pledge or grant a security interest in or otherwise have a lien placed upon the Purchaser's Limited Partnership Units; (x) pledge or grant a security interest in or to otherwise have a lien placed upon the assets and properties of Capital C LP, and/or their respective subsidiaries; (y) assign all of its rights, benefit, title and interest in Capital C LP and distributions therefrom, including, without limitation, all rights and claims pursuant to and under the Call and/or Sale Request (as such terms are defined in the applicable Limited Partnership Agreement) to or to an agent or representative on behalf of, its bank or lender or group of banks or group of lenders from time to time (as applicable and collectively, the "Lender"); and (z) have Capital C LP provide guarantees and such other ancillary security and related documentation as reasonably required by the Lender from time to time (the items in (w), (x), (y) and (z) being collectively referred to as an "MDC Financing"); and (ii) consent unconditionally to (x) the granting of all security and the execution of all documents required in connection with an MDC Financing and the enforcement thereof, where applicable, by the Lender; and (y) any transaction by which the Lender becomes the absolute legal and beneficial owner of any limited partnership Units which have been pledged or assigned to it.

Section 6.2        Equity Securities of Capital C Holdco.

(a)         As long as Capital C Holdco beneficially owns any equity interests in Capital C LP, no Capital C Principals shall sell or in any other way transfer, assign, distribute, pledge, encumber or otherwise dispose of any of the equity securities of Capital C Holdco or permit Capital C Holdco to issue any additional equity securities, other than (i) transfers among the Capital C Principals, (ii) transfers to Capital C employees or (iii) the issuance of shares to Capital C LP employees, in each case only with the prior written consent of MDC Partners.

(b)         From and after the Closing, Capital C Holdco covenants and agrees that it shall not, directly or indirectly (i) authorize, create, issue, amend or modify any equity interests (whether common or preferred), subscriptions, options, warrants, rights (including "phantom equity rights"), calls, commitments, understandings, conversion rights, rights of exchange, plans or other agreements of any kind, providing for the purchase, issuance or sale of any membership interests, profits interests, capital interests or equity interests of any kind in Capital C Holdco; or (ii) provide compensation to any employee of Capital C LP or any subsidiary, if any, except to the extent such employee was entitled or eligible to receive such compensation at the time of, and as a result of, the Closing.  Capital C Holdco further covenants and agrees that it shall not, directly or indirectly modify or amend Capital C Holdco's Articles of Incorporation (as amended through the Closing Date), a copy of each of which is attached hereto, without the prior written consent of MDC Partners.

 
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ARTICLE VII
SURVIVAL; INDEMNITY

Section 7.1       Survival.  Notwithstanding any right of any party hereto fully to investigate the affairs of any other party, and notwithstanding any knowledge of facts determined or determinable pursuant to such investigation or right of investigation, each party hereto shall have the right to rely fully upon the representations, warranties, covenants and agreements of the other parties contained in this Agreement and the Schedules, if any, furnished by any other party pursuant to this Agreement, or in any certificate or document delivered at the Closing by any other party.  Subject to the limitations set forth in Section 7.6, the respective representations, warranties, covenants and agreements of Capital C Holdco, the Capital C Principals and the Purchaser contained in this Agreement shall survive the Closing.

Section 7.2        Obligation of Capital C Holdco and the Capital C Principals to Indemnify.
 
7.2.1      General Indemnity.  Subject to the limitations contained in Sections 7.6.1 and 7.6.2, Capital C Holdco and the Capital C Principals hereby agree, jointly and severally, to indemnify the Purchaser and its affiliates, stockholders, officers, directors, employees, agents, representatives and successors, permitted assignees of the Purchaser and their affiliates (individually, a "Purchaser Indemnified Party" and collectively, the "Purchaser Indemnified Parties") against, and to protect, save and keep harmless the Purchaser Indemnified Parties from, and to pay on behalf of or reimburse the Purchaser Indemnified Parties as and when incurred for, any and all liabilities (including liabilities for Taxes), obligations, losses, damages, penalties, demands, claims, actions, suits, judgments, settlements, penalties, interest, out-of-pocket costs, expenses and disbursements (including reasonable costs of investigation, and reasonable attorneys', accountants' and expert witnesses' fees) of whatever kind and nature (collectively, "Losses"), that may be imposed on or incurred by any Purchaser Indemnified Party as a consequence of, in connection with, incident to, resulting from or arising out of or in any way related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or representation contained in Article III hereof or in any certificate delivered by Capital C Holdco or the Capital C Principals at the Closing or otherwise in connection herewith; (b) any action, demand, proceeding, investigation or claim by any third party (including any Governmental or Regulatory Authority) against or affecting any Purchaser Indemnified Party which may give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations and warranties of Capital C Holdco or the applicable Capital C Principals contained in Article III hereof or in any certificate delivered by Capital C Holdco or the applicable Capital C Principals at the Closing or otherwise in connection herewith; (c) any breach or failure by Capital C Holdco or the applicable Capital C Principals to comply with, perform or discharge any obligation, agreement or covenant by Capital C Holdco or the Capital C Principals contained in this Agreement; or (d) any liability or obligation or any assertion against any Purchaser Indemnified Party, arising out of or relating, directly or indirectly, to any Excluded Asset or any Retained Liability (as such terms are defined in the Conveyance Documents) or other liability arising, in whole or in part, out of the conduct of the business of Communications Holdco or any of its subsidiaries or successors, if any, prior to the Closing except for the Assumed Liabilities (as such term is defined in the Conveyance Documents).

 
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7.2.2      Losses.  The term "Losses" as used in this Article VII is not limited to matters asserted by third parties against any Purchaser Indemnified Party but includes Losses incurred or sustained by a Purchaser Indemnified Party in the absence of Third Party Claims (as defined in Section 7.4.2 hereof).

Section 7.3        Obligation of the Purchaser to Indemnify.  Subject to the limitations set forth in Section 7.6.3 hereof, the Purchaser hereby agrees to indemnify Capital C Holdco, Capital C and the Capital C Principals (individually a "Company Indemnified Party" and collectively, the "Company Indemnified Parties") against, and to protect, save and keep harmless the Company Indemnified Parties from, and to pay on behalf of or reimburse the Company Indemnified Parties as and when incurred for, any and all Losses that may be imposed on or incurred by the Company Indemnified Parties as a consequence of, in connection with, incident to, resulting from or arising out of or in any way related to or by virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or representation of the Purchaser contained in Article IV hereof or in any certificate delivered by the Purchaser at the Closing; or (b) any action, demand, proceeding, investigation or claim by any third party (including any Governmental or Regulatory Authority) against or affecting any Company Indemnified Party which may give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations and warranties of the Purchaser contained in Article IV hereof or in any certificate delivered by the Purchaser at the Closing; or (c) any breach or failure by the Purchaser to comply with, perform or discharge any obligation, agreement or covenant by the Purchaser contained in this Agreement.

Section 7.4        Indemnification Procedures.

7.4.1      Non-Third Party Claims.

(a)         In the event that any Person entitled to indemnification under this Agreement (an "Indemnified Party") asserts a claim for indemnification which does not involve a Third Party Claim (as defined in Section 7.4.2) (a "Non-Third Party Claim"), against which a Person is required to provide indemnification under this Agreement (an "Indemnifying Party"), the Indemnified Party shall give written notice to the Indemnifying Party (the "Non-Third Party Claim Notice"), which Non-Third Party Claim Notice shall (i) describe the claim in reasonable detail, and (ii) indicate the amount (estimated, if necessary, and to the extent feasible) of the Losses that have been or may be suffered by the Indemnified Party.
 
 
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(b)         The Indemnifying Party may acknowledge and agree by written notice (the "Non-Third Party Acknowledgement of Liability") to the Indemnified Party to satisfy the Non-Third Party Claim within 30 days of receipt of the Non-Third Party Claim Notice.  In the event that the Indemnifying Party disputes the Non-Third Party Claim, the Indemnifying Party shall provide written notice of such dispute (the "Non-Third Party Dispute Notice") to the Indemnified Party within 30 days of receipt of the Non-Third Party Claim Notice (the "Non-Third Party Dispute Period"), setting forth a reasonable basis of such dispute.  In the event that the Indemnifying Party shall fail to deliver the Non-Third Party Acknowledgement of Liability or Non-Third Party Dispute Notice within the Non-Third Party Dispute Period, the Indemnifying Party shall be deemed to have acknowledged and agreed to pay the Non-Third Party Claim in full and to have waived any right to dispute the Non-Third Party Claim.  Once the Indemnifying Party has acknowledged and agreed to pay any Non-Third Party Claim pursuant to this Section 7.4.1, or once any dispute under this Section 7.4.1 has been finally resolved in favor of indemnification by a court or other tribunal of competent jurisdiction, subject to the provisions of Section 7.6.1, the Indemnifying Party shall pay the amount of such Non-Third Party Claim to the Indemnified Party within 10 days of the date of acknowledgement or resolution, as the case may be, to such account and in such manner as is designated in writing by the Indemnified Party.

7.4.2      Third-Party Claims.

(a)         In the event that any Indemnified Party asserts a claim for indemnification or receives notice of the assertion of any claim or of the commencement of any action or proceeding by any Person who is not a party to this Agreement or an affiliate of a party to this Agreement in respect of which such Indemnified Party is entitled to indemnification by an Indemnifying Party under this Agreement (a "Third Party Claim"), the Indemnified Party shall give written notice to the Indemnifying Party (the "Third Party Claims Notice") within 20 days after asserting or learning of such Third Party Claim (or within such shorter time as may be necessary to give the Indemnifying Party a reasonable opportunity to respond to such claim), together with a statement specifying the basis of such Third Party Claim.  The Third Party Claim Notice shall (i) describe the claim in reasonable detail, and (ii) indicate the amount (estimated, if necessary, and to the extent feasible) of the Losses that have been or may be suffered by the Indemnified Party. The Indemnifying Party must provide written notice to the Indemnified Party that it is either (i) assuming responsibility for the Third Party Claim or (ii) disputing the claim for indemnification against it (the "Indemnification Notice")  The Indemnification Notice must be provided by the Indemnifying Party to the Indemnified Party within 15 days after receipt of the Third Party Claims Notice or within such shorter time as may be necessary to give the Indemnified Party a reasonable opportunity to respond to such Third Party Claim (the "Indemnification Notice Period").

(b)         If the Indemnifying Party provides an Indemnification Notice to the Indemnified Party within the Indemnification Notice Period that it assumes responsibility for the Third Party Claim (the "Defense Notice"), the Indemnifying Party shall conduct at its expense the defense against such Third Party Claim in its own name, or if necessary in the name of the Indemnified Party.  The Defense Notice shall specify the counsel the Indemnifying Party will appoint to defend such claim ("Defense Counsel"); provided, however, that the Indemnified Party shall have the right to approve the Defense Counsel, which approval shall not be unreasonably withheld or delayed, except that such approval may be withheld if the defense is to be in the name of the Indemnified Party.  In the event that the Indemnifying Party fails to give the Indemnification Notice within the Indemnification Notice Period, the Indemnified Party shall have the right to conduct the defense and to compromise and settle such Third Party Claim without the prior consent of the Indemnifying Party and subject to the provisions of Section 7.6.1, the Indemnifying Party will be liable for all costs, expenses, settlement amounts or other Losses paid or incurred in connection therewith.

 
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(c)          In the event that the Indemnifying Party provides in the Indemnification Notice that it disputes the claim for indemnification against it, the Indemnified Party shall have the right to conduct the defense and to compromise and settle such Third Party Claim, without the prior consent of the Indemnifying Party. Once such dispute has been finally resolved in favor of indemnification by a court or other tribunal of competent jurisdiction or by mutual agreement of the Indemnified Party and Indemnifying Party, subject to the provisions of Section 7.6.1, the Indemnifying Party shall within 10 days of the date of such resolution or agreement, pay to the Indemnified Party all Losses paid or incurred by the Indemnified Party in connection therewith.

(d)          In the event that the Indemnifying Party delivers an Indemnification Notice pursuant to which it elects to conduct the defense of the Third Party Claim, the Indemnifying Party shall be entitled to have the exclusive control over the defense of the Third Party Claim and the Indemnified Party will cooperate in good faith with and make available to the Indemnifying Party such assistance and materials as it may reasonably request, all at the expense of the Indemnifying Party.  The Indemnified Party shall have the right at its expense to participate in the defense assisted by counsel of its own choosing.  The Indemnifying Party will not settle the Third Party Claim or cease to defend against any Third Party Claim as to which it has delivered an Indemnification Notice (as to which it has assumed responsibility for the Third Party Claim), without the prior written consent of the Indemnified Party, which consent will not be unreasonably withheld or delayed; provided, however, such consent may be withheld if, among other reasons, as a result of such settlement or cessation of defense, (i) injunctive relief or specific performance would be imposed against the Indemnified Party, or (ii) such settlement or cessation would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder.

(e)          If an Indemnified Party refuses to consent to a bona fide offer of settlement which the Indemnifying Party wishes to accept, which provides for a full release of the Indemnified Party and its affiliates relating to the Third Party Claims underlying the offer of settlement and solely for a monetary payment, the Indemnified Party may continue to pursue such matter, free of any participation by the Indemnifying Party, at the sole expense of the Indemnified Party. In such an event, the obligation of the Indemnifying Party shall be limited to the amount of the offer of settlement which the Indemnified Party refused to accept plus the reasonable costs and expenses of the Indemnified Party incurred prior to the date the Indemnifying Party notified the Indemnified Party of the offer of settlement.

(f)          Notwithstanding clause (d) above, the Indemnifying Party shall not be entitled to control, but may participate in, and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of (x) that part of any Third Party Claim that (i) seeks a temporary restraining order, a preliminary or permanent injunction or specific performance against the Indemnified Party, (ii) involves criminal allegations against the Indemnified Party or (iii) may lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and (y) the entire Third Party Claim if such Third Party Claim would impose liability on the part of the Indemnified Party in an amount which is greater than the amount as to which the Indemnified Party is entitled to indemnification under this Agreement.

 
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(g)          A failure by an Indemnified Party to give timely, complete or accurate notice as provided in this Section 7.4 will not affect the rights or obligations of any party hereunder except and only to the extent that, as a result of such failure, any party entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise directly and materially damaged as a result of such failure to give timely notice.

Section 7.5        Right of Offset.  Without limiting any other rights or remedies available to it, the Purchaser shall be entitled to offset any claim for indemnity made pursuant to Section 7.2 and in accordance with Section 7.4, against any Contingent Payment or Top-Up Payment due to Capital C Holdco, subject to an aggregate limit of $2,750,000; provided, however, the Purchaser may only exercise such right of offset in respect of claims relating to Losses actually incurred by a Purchaser Indemnified Party (in which case the amount of such offset shall be the amount of such actual Loss) or claims actually asserted by a third party (in which case the amount of the offset shall not exceed the Purchaser's good faith estimate of the amount of indemnifiable Losses that will ultimately be payable to a Purchaser Indemnified Party in respect of such claims).

Section 7.6        Limitations On and Other Matters Regarding Indemnification

7.6.1      Indemnity Cushion and Cap.  Subject to Section 7.6.5, neither Capital C Holdco nor the Principals shall have any liability to any Purchaser Indemnified Party with respect to Losses arising out of any of the matters referred to in Section 7.2 until such time as the amount of such liability shall exceed $100,000 in the aggregate (in which case Capital C Holdco and the Capital C Principals shall be liable for all Losses).  Notwithstanding anything to the contrary herein, subject to Section 7.6.5 below, the maximum aggregate liability of Capital C Holdco and the Capital C Principals for indemnity payments under Section 7.2.1 shall be an aggregate amount equal to the sum of (A) $750,000 plus (B) $2,750,000 of the Contingent Payments and the Top-Up Payments paid or payable pursuant to this Agreement.

7.6.2      Termination of Indemnification Obligations of Capital C Holdco and the Capital C Principals.  Subject to Section 7.6.5, the obligation of Capital C Holdco and the Capital C Principals to indemnify under Section 7.2 hereof shall terminate on March 31, 2012, except as to matters as to which the Purchaser Indemnified Party has made a claim for indemnification on or prior to such date, in which case the right to indemnification with respect thereto shall survive the expiration of such period until such claim for indemnification is finally resolved and any obligations with respect thereto are fully satisfied.

7.6.3      Termination of Indemnification Obligations of the Purchaser; Purchaser Indemnity Cap.  The obligation of the Purchaser to indemnify under Section 7.3 hereof shall terminate on March 31, 2012, except as to matters as to which Capital C Holdco or the Capital C Principals have made a claim for indemnification on or prior to such date, in which case the right to indemnification with respect thereto for such party shall survive the expiration of such period until such claim for indemnification is finally resolved and any obligations with respect thereto are fully satisfied.  Notwithstanding anything to the contrary herein, the maximum aggregate liability of the Purchaser for indemnity payments under this Agreement to the Company Indemnified Parties shall be an aggregate amount equal to $2,750,000.

 
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7.6.4      Treatment.  Any indemnity payments by an Indemnifying Party to an Indemnified Party under this Article VIII shall be treated by the parties as an adjustment to the Purchase Price.

7.6.5      Exceptions.  Each of the limitations set forth above in this Section 7.6 shall in no event (a) apply to any Losses incurred by a Purchaser Indemnified Party which relate, directly or indirectly, to (i) any fraudulent acts committed by Capital C Holdco or the Principals; (ii) any breach of a representation or warranty contained in Sections 3.1 or 3.3 or any other provision hereof relating to Taxes, (iii) any indemnification obligation under Sections 7.2.1(c) or 7.2.1(d)  and (iv) the obligations of Capital C Holdco and the Capital C Principals set forth in Section 8.1 to pay certain expenses; or (b) apply to any Losses incurred by a Company Indemnified Party which relate, directly or indirectly, to (i) any fraudulent acts committed by the Purchaser; (ii) any indemnification obligation under Section 7.3(c); and (iii) the Purchaser's obligations set forth in Section 8.1 to pay certain expenses.

7.6.6      Control by MDC Partners. All decisions and determinations to be made by the Purchaser and/or a Purchaser Indemnified Party under this Article VII shall be made by MDC Partners in the name of and on behalf of the Purchaser and/or such other Purchaser Indemnified Party.
 
ARTICLE VIII
MISCELLANEOUS

Section 8.1        Expenses.  Except as otherwise provided in this Agreement, the Purchaser, on the one hand, and the Capital C Principals, Capital C Holdco and Communications Holdco, on the other hand, shall pay its or his own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel, financial advisors and accountants.

Section 8.2        Governing Law; Service of Process and Consent to Jurisdiction. The interpretation and construction of this Agreement, and all matters relating hereto (including, without limitation, the validity or enforcement of this Agreement), shall be governed by the laws of the Province of Ontario and the laws of Canada applicable therein.

Section 8.3        "Person" Defined.  "Person" shall mean and include an individual, a company, a joint venture, a corporation (including any non-profit corporation), an estate, an association, a trust, a general or limited partnership, a limited liability company, a limited liability partnership, an unincorporated organization and a government or other department or agency thereof.

 
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Section 8.4        "Knowledge" Defined.  Where any representation and warranty contained in this Agreement is expressly specified by reference to the knowledge of Capital C Holdco or any Capital C Principals, such term shall be limited to the actual knowledge of the executive officers of Capital C Holdco, Capital C and the Capital C Principals (if not an individual), and unless otherwise stated, such knowledge that would have been discovered by the executive officers of Capital C Holdco, Capital C or the applicable Capital C Principals after reasonable inquiry.  Where any representation and warranty contained in this Agreement is expressly specified by reference to the knowledge of the Purchaser, as the case may be, such term shall be limited to the actual knowledge of the executive officers of such entity and unless otherwise stated, such knowledge that would have been discovered by such executive officers after reasonable inquiry.

Section 8.5        "Affiliate" Defined.  As used in this Agreement, an "affiliate" of any Person, shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with such Person.

Section 8.6        Captions.  The Article and Section captions used herein are for reference purposes only, and shall not in any way affect the meaning or interpretation of this Agreement.

Section 8.7        Publicity.  Subject to the provisions of the next sentence, no party to this Agreement shall, and Capital C Holdco and the Capital C Principals shall use their reasonable efforts to ensure that no representative of either of them shall, issue any press release or other public document or make any public statement relating to this Agreement or the matters contained herein without obtaining the prior approval of the Purchaser.  Notwithstanding the foregoing, the foregoing provision shall not apply to the extent that MDC Partners is required to make any announcement relating to or arising out of this Agreement by virtue of the securities laws of the United States or Canada or the rules and regulations promulgated thereunder or other rules of the NASDAQ Stock Market, Toronto Stock Exchange or the United States Securities and Exchange Commission or any announcement by any party or the Company pursuant to applicable law or regulations.

Section 8.8        Notices.  Unless otherwise provided herein, any notice, request, instruction or other document to be given hereunder by any party to any other party shall be in writing and shall be deemed to have been given (a) upon personal delivery, if delivered by hand or courier, (b) three days after the date of deposit in the mails, postage prepaid, or (c) the next business day if sent by a prepaid overnight courier service, and in each case at the respective addresses set forth below or such other address as such party may have fixed by notice:

If to the Purchaser, addressed to:

c/o MDC Partners Inc.
45 Hazelton Avenue
Toronto, Ontario
Canada M5R 2E3
Attention:  Gavin Swartzman

with a copy to:

c/o MDC Partners Inc.
950 Third Avenue
New York, New York 10022
Attention:  General Counsel
 
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If to Capital C Holdco, to:

340 King Street East, 5th Floor
Toronto, Ontario  M5A 1K8
Attention:          Tony Chapman
Facsimile:          (416) 777-006

with a copy to (which shall not constitute notice):
 
Hughes, Dorsch, Garland, Coles LLP
365 Bay Street, Suite 400
Toronto, Ontario  M5H 2V1
Attention:          Michie T. Garland
Facsimile:          (416) 861-1147
 
If to the Capital C Principals, to:

Victoria Calverley
17455 Dufferin Street, R.R. #2
Newmarket, Ontario  L3Y 4V9

and

Tony Chapman
241 Dawlish Avenue
Toronto, Ontario  M4N 1J2

with a copy to (which shall not constitute notice):
 
Hughes, Dorsch, Garland, Coles LLP
365 Bay Street, Suite 400
Toronto, Ontario  M5H 2V1
Attention:           Michie T. Garland
Facsimile:           (416) 861-1147

Any party may change the address to which notices are to be sent by giving notice of such change of address to the other parties in the manner herein provided for giving notice.

Section 8.9        Parties in Interest.  This Agreement may not be transferred, assigned, pledged or hypothecated by any party hereto, other than by operation of law.  Any purported such transfer, assignment, pledge, or hypothecation (other than by operation of law) shall be void and ineffective.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns.

 
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Section 8.10     Severability.  In the event any provision of this Agreement is found to be void and unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as though the void or unenforceable part had been severed and deleted.

Section 8.11      Counterparts.  This Agreement may be executed in two or more counterparts or by facsimile transmission, all of which taken together shall constitute one instrument.

Section 8.12      Entire Agreement.  This Agreement, together with the Schedules and Exhibits hereto, constitutes the sole, exclusive and only agreements of the parties hereto pertaining to the subject matter hereof, contains all of the covenants, conditions and agreements between the parties, express or implied, whether by statute or otherwise, and sets forth the respective rights, duties and obligations of each party to the other party as of the date hereof. No oral understandings, oral statements, oral promises or oral inducements exist.

Section 8.13      Amendments.  This Agreement may not be amended, supplemented or modified orally, but only by an agreement in writing signed by each of the parties hereto.

Section 8.14      Third Party Beneficiaries.  Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto and their respective successors and assigns as permitted under Section 8.9, except the Purchaser Indemnified Parties as provided in Article VII hereof and with respect to the provisions of Section 7.6.6, MDC Partners.

Section 8.15      Use of Terms.  Whenever the context so requires or permits, all references to the masculine herein shall include the feminine and neuter, all references to the neuter herein shall include the masculine and feminine, all references to the plural shall include the singular and all references to the singular shall include the plural.  Whenever used in this Agreement, the terms "Dollars" and "$" shall mean Canadian Dollars.

Section 8.16      "Liens" Defined.  With respect to any asset, a "Lien" shall mean (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (other than an operating lease) (or any financial lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

Section 8.17      No Strict Construction; Representation by Counsel.  The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of law or contract interpretation that provides that in the case of ambiguity or uncertainty a provision should be construed against the draftsman will be applied against any party hereto.  The provisions of this Agreement shall be construed according to their fair meaning and neither for nor against any party hereto irrespective of which party caused such provisions to be drafted.  Each of the parties acknowledges that it has been represented by an attorney in connection with the preparation and execution of this Agreement.
 
*                      *                      *                      *
 
20
 
 
IN WITNESS WHEREOF, the parties hereto have executed this Limited Partnership Unit Purchase Agreement, on the day and year first above written.

   
MDC PARTNERS INC.
     
   
By:
/s/ Mitchell Gendel
   
Name:  Mitchell Gendel
   
Title:   General Counsel
     
   
2265178 ONTARIO LIMITED
     
   
By:
/s/ Tony Chapman
   
Name:  Tony Chapman
   
Title:    Authorized Officer
     
/s/
  
/s/ Tony Chapman
Witness
  
Tony Chapman
     
/s/
  
/s/ Victoria Calverley
Witness
  
Victoria Calverley
     
/s/
  
/s/ Bennett Klein
Witness
  
Bennett Klein
     
/s/
  
/s/ Tom Clune
Witness
  
Tom Clune
     
 
 
21
 
EX-12 12 v212032_ex12.htm
Exhibit 12
Statement of Computation of Ratio of Earnings to Fixed Charges

   
Twelve Months Ended
December 31,
  
    
2010
    
2009
    
2008
    
2007
    
2006
  
Earnings:
                              
Income (Loss) from continuing operations attributable to MDC Partners Inc.
   $ (12,946 )   $ (16,805 )   $ 10,338     $ (18,007 )   $ (8,244 )
                                         
Additions:
                                        
Income taxes (recovery)
     (165 )     8,536       2,397       6,081       7,332  
Noncontrolling interest in earnings of consolidated subsidiaries
     10,074       5,566       8,300       20,474       16,715  
Fixed charges, as shown below
     39,506       27,413       20,549       19,018       15,993  
Distributions received from equity-method investees
     638       198       440       —       940  
      50,053       41,713       31,686       45,573       40,980  
                                         
Subtractions:
                                        
Equity in income (loss) of investees
     866       (8 )     349       165       168  
Noncontrolling interest in earnings of consolidated subsidiaries that have not incurred fixed charges
     —       —       —       —       —  
      866       (8 )     349       165       168  
Earnings as adjusted
     36,241       24,916       41,675       27,401       32,568  
Fixed charges:
                                        
Interest on indebtedness, expensed or capitalized
     31,351       18,057       13,650       11,471       9,077  
Amortization of debt discount and expense and premium on indebtedness, expensed or capitalized
     2,136       4,041       1,348       2,330       2,213  
Interest within rent expense
     6,019       5,315       5,551       5,217       4,703  
                                         
Total fixed charges
   $ 39,506     $ 27,413     $ 20,549       19,018       15,993  
Ratio of earnings to fixed charges
     N/A       N/A       2.03       1.44       2.04  
Dollar amount deficiency
   $ 3,265       2,497       N/A       N/A       N/A  
   
 
 
 
 
  EX-21 13 v212032_ex21.htm
Exhibit 21

MDC PARTNERS INC.
SUBSIDIARIES OF THE REGISTRANT
 
HOLDING COMPANIES
  
Jurisdiction of
Name
  
Incorporation/Formation
     
Hello Acquisition Inc.
  
Delaware
KBP Holdings LLC
  
Delaware
Maxxcom Inc.
  
Delaware
Maxxcom (Nova Scotia) Corp.
  
Nova Scotia
Maxxcom (USA) Holdings Inc.
  
Delaware
Maxxcom (USA) Finance Company
  
Delaware
MDC Acquisition Inc.
  
Delaware
MDC Corporate (US) Inc.
  
Delaware
MDC/CPB Holdings Inc. (f/k/a CPB Acquisition Inc.)
  
Delaware
MDC/KBP Acquisition Inc.
  
Delaware
MF+P Acquisition Co.
  
Delaware
TC Acquisition Inc.
  
Delaware
ZG Acquisition Inc.
  
Delaware
     
OPERATING COMPANIES
  
Jurisdiction of
Name
  
Incorporation/Formation
     
656712 Ontario Limited (d/b/a “Onbrand”)
  
Ontario
6degrees Integrated Communications Inc. (f/k/a Accumark Communications Inc.)
  
Ontario
72andSunny Partners LLC
  
Delaware
939 GP Inc.
  
Ontario
Accent Marketing Services, L.L.C.
  
Delaware
Adrenalina LLC
  
Delaware
Allison & Partners LLC
  
Delaware
Anomaly Partners LLC
  
Delaware
Ashton-Potter Canada Inc.
  
Ontario
Attention Partners LLC
  
Delaware
Bruce Mau Design Inc.
  
Ontario
Bryan Mills Iradesso Corp.
  
Ontario
Capital C Partners LP
  
Ontario
Communifx Partners LLC
  
Delaware
Company C Communications LLC
  
Delaware
Clifford/Bratskeir Public Relations LLC
  
Delaware
Colle & McVoy LLC
  
Delaware
Computer Composition of Canada Inc.
  
Ontario
Crispin Porter & Bogusky LLC
  
Delaware
Dotglu, LLC
  
Delaware
Hello Design, LLC
  
California
henderson bas partnership
  
Ontario
HL Group Partners LLC
  
Delaware
Hudson and Sunset Media LLC (f/k/a Shout Media LLC)
  
Delaware
Integrated Media Solutions Partners LLC
  
Delaware
Kbs+p Atlanta LLC (f/k/a Fletcher Martin LLC)
  
Delaware
Kbs+p Canada Inc. (f/k/a Allard Johnson Communications Inc.)
  
Ontario
Kenna Communications LP
  
Ontario
Kirshenbaum Bond Senecal & Partners LLC
  
Delaware
Kirshenbaum Bond & Partners West, LLC
  
Delaware
Kwittken PR LLC
  
Delaware
MDC Travel Inc.
  
Delaware
Mono Advertising LLC
  
Delaware
Northstar Research Partners Inc.
  
Ontario
Northstar Research Partners (USA) LLC
  
Delaware
Redscout LLC
  
Delaware
Relevent Partners LLC
  
Delaware
Skinny NYC LLC
  
Delaware
Sloane & Company LLC
  
Delaware
Source Marketing, LLC
  
New York
TargetCom, LLC
  
Delaware
The Arsenal LLC (f/k/a Team Holdings LLC)
  
Delaware
Veritas Communications Inc.
  
Ontario
VitroRobertson LLC
  
Delaware
Yamamoto Moss Mackenzie Inc.
  
Delaware
Crispin Porter + Bogusky Canada Inc. (f/k/a Zig Inc.)
  
Ontario
Zyman Group, LLC
  
Delaware
 
 
 
 
EX-23 14 v212032_ex23.htm Unassociated Document
Exhibit 23

Consent of Independent Registered Public Accounting Firm

MDC Partners Inc.
New York, New York
Toronto, Canada

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-159831) of MDC Partners Inc. and subsidiaries, of our reports dated March 14, 2011, relating to the consolidated financial statements and financial statement Schedule II, and the effectiveness of MDC Partners Inc. and subsidiaries’ internal control over financial reporting which appear in this Form 10-K.

BDO USA, LLP
New York, New York

March 14, 2011
 
 
 
 
 
 EX-31.1 15 v212032_ex31-1.htm Unassociated Document

Exhibit 31.1

Certification Pursuant to Rules 13a-14(a) and 15d-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Miles S. Nadal, certify that:

 
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2010 of MDC Partners Inc.;

 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
 
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
 
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: March 14, 2011
   /s/ Miles S. Nadal
   
By:  Miles S. Nadal
   
Title:
Chairman, Chief Executive
     
Officer, and President
 
 
 
EX-31.2 16 v212032_ex31-2.htm Unassociated Document

Exhibit 31.2

Certification Pursuant to Rules 13a-14(a) and 15d-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David Doft, certify that:

 
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2010 of MDC Partners Inc.;

 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2011
   /s/ David Doft
   
By:    David Doft
   
Title: Chief Financial Officer
 
 
 
EX-32.1 17 v212032_ex32-1.htm Unassociated Document

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 annual report of MDC Partners Inc. (the “Company”) on Form 10-K for fiscal year ended December 31, 2010, 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 March 14, 2011

/s/ Miles S. Nadal    
By:
Miles S. Nadal
    
Title:
Chairman, Chief Executive
    
 
Officer and President
    

This certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906, or other documents authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
 
 
EX-32.2 18 v212032_ex32-2.htm Unassociated Document
 
Exhibit 32.2
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of MDC Partners Inc. (the “Company”) on Form 10-K for fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Doft, 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

 
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 March 14, 2011

/s/ David Doft    
By:
David Doft
    
Title:
Chief Financial Officer
    

This certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906, or other documents authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.