UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
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(Mark
One)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the quarterly period ended June 30, 2007
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from ______________ to
______________
Commission
file number: 001-13178
MDC
Partners Inc.
(Exact
name of registrant as specified in its charter)
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Canada
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98-0364441
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(State
or other jurisdiction of
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(IRS
Employer Identification No.)
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incorporation
or organization)
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45
Hazelton Avenue
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Toronto,
Ontario, Canada
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M5R
2E3
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(Address
of principal executive offices)
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(Zip
Code)
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(416)
960-9000
Registrant’s
telephone number, including area code:
950
Third Avenue, New York, New York 10022
(646)
429-1809
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12(b)-2 of the Exchange Act
(check one)
|
Large
Accelerated Filer
o
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Accelerated
Filer
x
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Non-Accelerated
Filer
o
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
o
No
x
APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING
FIVE
YEARS:
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Act subsequent
to the distributions of securities under a plan confirmed by a
court. Yes
o
No
o
The
numbers of shares outstanding as of August 1, 2007
were: 25,373,980 Class A subordinate voting shares and 2,503
Class B multiple voting shares.
Website
Access to Company Reports
MDC
Partners Inc.’s internet website address is www.mdc-partners.com. The Company’s
annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, and any amendments to those reports filed or
furnished pursuant to section 13(a) or 15(d) of the Exchange Act, will
be made available free of charge through the Company’s website as soon as
reasonably practical after those reports are electronically filed with, or
furnished to, the Securities and Exchange Commission.
MDC
PARTNERS INC.
QUARTERLY
REPORT ON FORM 10-Q
TABLE
OF CONTENTS
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Page
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PART I.
FINANCIAL INFORMATION
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Item
1.
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Financial
Statements
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2
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Condensed
Consolidated Statements of Operations (unaudited) for the Three and
Six
Months Ended June 30, 2007 and 22006
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2
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Condensed
Consolidated Balance Sheets as of June 30, 2007 (unaudited) and
December 31, 2006
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3
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Condensed
Consolidated Statements of Cash Flows (unaudited) for the Six Months
Ended
June 30, 2007 and 2006
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4
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Notes
to Unaudited Condensed Consolidated Financial Statements
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5
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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19
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Item
3.
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Quantitative
and Qualitative Disclosures about Market Risk
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39
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Item
4.
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Controls
and Procedures
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39
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PART II.
OTHER INFORMATION
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Item
1.
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Legal
Proceedings
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40
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Item
1A.
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Risk
Factors
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Item
2.
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Unregistered
Sales of Equity and Use of Proceeds
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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Item
6.
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Exhibits
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Signatures
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Item
1. Financial Statements
MDC
PARTNERS INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(thousands
of United States dollars, except share and per share amounts)
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Three
Months Ended June 30,
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Six
Months Ended June 30,
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2007
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2006
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2007
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2006
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Revenue:
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Services
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$
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135,257
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$
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100,138
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$
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254,788
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$
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198,211
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Operating
Expenses:
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Cost
of services sold (1)
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87,817
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60,900
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166,372
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120,641
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Office
and general expenses (2)
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35,969
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31,185
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70,144
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61,007
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Depreciation
and amortization
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6,280
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5,118
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12,245
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11,900
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Goodwill
impairment
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—
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—
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4,475
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—
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130,066
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97,203
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253,236
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193,548
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Operating
profit
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5,191
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2,935
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1,552
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4,663
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Other
Income (Expense):
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Other
income (expense)
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(1,033
|
)
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509
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(1,767
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)
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1,073
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Interest
expense
|
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(3,768
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)
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(1,996
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)
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(6,491
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)
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(4,894
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)
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Interest
income
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1,075
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144
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1,228
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258
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(3,726
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)
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(1,343
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)
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(7,030
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)
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(3,563
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)
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Income/(loss)
from continuing operations before income taxes, equity in affiliates
and
minority interests
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1,465
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1,592
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(5,478
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)
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1,100
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Income
tax recovery
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1,292
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608
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3,780
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1,176
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Income/(loss)
from continuing operations before equity in affiliates and minority
interests
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2,757
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2,200
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(1,698
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)
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2,276
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Equity
in earnings of non-consolidated affiliates
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61
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227
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11
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501
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Minority
interests in income of consolidated subsidiaries
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(5,419
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)
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(3,434
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)
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(9,710
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)
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(8,185
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)
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Loss
from continuing operations
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(2,601
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)
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(1,007
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)
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(11,397
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)
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(5,408
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)
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Loss
from discontinued operations
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—
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(9,496
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)
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—
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(10,228
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)
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Net
Loss
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$
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(2,601
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)
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$
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(10,503
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)
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$
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(11,397
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)
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$
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(15,636
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)
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Loss
Per Common Share:
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Basic:
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Continuing
operations
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$
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(0.11
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)
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$
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(0.04
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)
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$
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(0.46
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)
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$
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(0.23
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)
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Discontinued
operations
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—
|
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|
(0.40
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)
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—
|
|
|
(0.43
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)
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Net
Loss
|
|
$
|
(0.11
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)
|
$
|
(0.44
|
)
|
$
|
(0.46
|
)
|
$
|
(0.66
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)
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Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Continuing
operations
|
|
$
|
(0.11
|
)
|
$
|
(0.04
|
)
|
$
|
(0.46
|
)
|
$
|
(0.23
|
)
|
|
Discontinued
operations
|
|
|
—
|
|
|
(0.40
|
)
|
|
—
|
|
|
(0.43
|
)
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|
Net
loss
|
|
$
|
(0.11
|
)
|
$
|
(0.44
|
)
|
$
|
(0.46
|
)
|
$
|
(0.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted
Average Number of Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
|
|
|
24,752,472
|
|
|
23,858,327
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24,514,954
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|
23,818,182
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Diluted
|
|
|
24,752,472
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23,858,327
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24,514,954
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23,818,182
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(1)
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|
Includes
non cash stock-based compensation of $245 and $277 and $503 and $2,841,
respectively, in each of the three month periods ended June 30, 2007
and
2006, and in each of the six month periods ended June 30, 2007 and
2006.
|
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(2)
|
|
Includes
non cash stock-based compensation of $1,308 and $1,530 and $2,966
and
$2,491, respectively, in each of the three month periods ended June
30,
2007 and 2006, and in each of the six month periods ended June 30,
2007
and 2006.
|
See
notes
to the unaudited condensed consolidated financial statements.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(thousands
of United States dollars)
|
|
|
June
30,
2007
|
|
December 31,
2006
|
|
|
|
|
(Unaudited)
|
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|
ASSETS
|
|
|
|
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Current
Assets:
|
|
|
|
|
|
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Cash
and cash equivalents
|
|
$
|
9,359
|
|
$
|
6,591
|
|
|
Accounts
receivable, less allowance for doubtful accounts of $1,334 and
$1,633
|
|
|
143,733
|
|
|
125,744
|
|
|
Expenditures
billable to clients
|
|
|
19,655
|
|
|
28,077
|
|
|
Prepaid
expenses
|
|
|
8,635
|
|
|
4,816
|
|
|
Other
current assets
|
|
|
3,913
|
|
|
1,248
|
|
|
Total
Current Assets
|
|
|
185,295
|
|
|
166,476
|
|
|
Fixed
assets, at cost, less accumulated depreciation of $57,652 and
$52,359
|
|
|
42,594
|
|
|
44,425
|
|
|
Investment
in affiliates
|
|
|
861
|
|
|
2,058
|
|
|
Goodwill
|
|
|
207,924
|
|
|
203,693
|
|
|
Other
intangibles assets, net
|
|
|
49,955
|
|
|
48,933
|
|
|
Deferred
tax asset
|
|
|
13,563
|
|
|
13,332
|
|
|
Other
assets
|
|
|
17,704
|
|
|
14,584
|
|
|
Total
Assets
|
|
$
|
517,896
|
|
$
|
493,501
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$
|
—
|
|
$
|
4,910
|
|
|
Revolving
credit facility
|
|
|
—
|
|
|
45,000
|
|
|
Accounts
payable
|
|
|
97,224
|
|
|
90,588
|
|
|
Accruals
and other liabilities
|
|
|
62,853
|
|
|
75,315
|
|
|
Advance
billings
|
|
|
52,039
|
|
|
51,804
|
|
|
Current
portion of long-term debt
|
|
|
704
|
|
|
1,177
|
|
|
Deferred
acquisition consideration
|
|
|
1,359
|
|
|
2,721
|
|
|
Total
Current Liabilities
|
|
|
214,179
|
|
|
271,515
|
|
|
Revolving
credit facility
|
|
|
22,215
|
|
|
—
|
|
|
Long-term
debt
|
|
|
62,162
|
|
|
5,754
|
|
|
Convertible
notes
|
|
|
42,238
|
|
|
38,613
|
|
|
Other
liabilities
|
|
|
6,239
|
|
|
5,512
|
|
|
Deferred
tax liabilities
|
|
|
1,148
|
|
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
348,181
|
|
|
322,534
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
48,125
|
|
|
46,553
|
|
|
Commitments,
contingencies and guarantees (Note 12)
|
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
Preferred
shares, unlimited authorized, none issued
|
|
|
—
|
|
|
—
|
|
|
Class A
Shares, no par value, unlimited authorized, 24,890,833 and 23,923,522
shares issued in 2007 and 2006
|
|
|
189,203
|
|
|
184,698
|
|
|
Class B
Shares, no par value, unlimited authorized, 2,502 shares issued in
2007
and 2006, each convertible into one Class A share
|
|
|
1
|
|
|
1
|
|
|
Share
capital to be issued, 41,747 shares at June 30, 2007
|
|
|
346
|
|
|
—
|
|
|
Additional
paid-in capital
|
|
|
27,421
|
|
|
26,216
|
|
|
Accumulated
deficit
|
|
|
(98,011
|
)
|
|
(86,614
|
)
|
|
Treasury
stock, at cost; 83,253 Class A shares at June 30, 2007
|
|
|
(660
|
)
|
|
—
|
|
|
Stock
subscription receivable
|
|
|
(373
|
)
|
|
(643
|
)
|
|
Accumulated
other comprehensive income
|
|
|
3,663
|
|
|
756
|
|
|
Total
Shareholders’ Equity
|
|
|
121,590
|
|
|
124,414
|
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
517,896
|
|
$
|
493,501
|
|
See
notes
to the unaudited condensed consolidated financial statements.
MDC
PARTNERS INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands
of United States dollars)
|
|
|
Six Months Ended June
30,
|
|
|
|
|
2007
|
|
2006
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,397
|
)
|
$
|
(15,636
|
)
|
|
Loss
from discontinued operations
|
|
|
—
|
|
|
(10,228
|
)
|
|
Loss
from continuing operations
|
|
|
(11,397
|
)
|
|
(5,408
|
)
|
|
Adjustments
to reconcile net loss from continuing operations to cash provided
by (used
in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
7,525
|
|
|
5,480
|
|
|
Amortization
of intangibles
|
|
|
4,720
|
|
|
6,420
|
|
|
Non-cash
stock-based compensation
|
|
|
3,030
|
|
|
4,851
|
|
|
Goodwill
impairment
|
|
|
4,475
|
|
|
—
|
|
|
Amortization
of deferred finance charges
|
|
|
1,659
|
|
|
824
|
|
|
Deferred
income taxes
|
|
|
(223
|
)
|
|
(2,504
|
)
|
|
Gain
on sale of assets
|
|
|
(1,784
|
)
|
|
—
|
|
|
Earnings
of non-consolidated affiliates
|
|
|
(11
|
)
|
|
(501
|
)
|
|
Foreign
exchange and other
|
|
|
4,466
|
|
|
(364
|
)
|
|
Changes
in non-cash working capital:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(15,851
|
)
|
|
(14,605
|
)
|
|
Expenditures
billable to clients
|
|
|
8,735
|
|
|
(6,873
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
(6,352
|
)
|
|
(944
|
)
|
|
Accounts
payable, accruals and other liabilities
|
|
|
(6,497
|
)
|
|
26,077
|
|
|
Advance
billings
|
|
|
(1,344
|
)
|
|
(846
|
)
|
|
Cash
flows provided by (used in) continuing operating
activities
|
|
|
(8,849
|
)
|
|
11,607
|
|
|
Discontinued
operations
|
|
|
—
|
|
|
1,604
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(8,849
|
)
|
|
13,211
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(7,464
|
)
|
|
(11,297
|
)
|
|
Acquisitions,
net of cash acquired
|
|
|
(10,730
|
)
|
|
(3,591
|
)
|
|
Proceeds
from sale of assets
|
|
|
7,544
|
|
|
557
|
|
|
Other
investments
|
|
|
(203
|
)
|
|
—
|
|
|
Distributions
received from non-consolidated affiliates
|
|
|
—
|
|
|
392
|
|
|
Discontinued
operations
|
|
|
—
|
|
|
(1,186
|
)
|
|
Net
cash used in investing activities
|
|
|
(10,853
|
)
|
|
(15,125
|
)
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Decrease
in bank indebtedness
|
|
|
(4,910
|
)
|
|
(2,799
|
)
|
|
Payments
under old revolving credit facility
|
|
|
(45,000
|
)
|
|
(2,000
|
)
|
|
Proceeds
from new revolving credit facility
|
|
|
22,215
|
|
|
—
|
|
|
Proceeds
from term loan
|
|
|
60,000
|
|
|
—
|
|
|
Repayment
of long-term debt
|
|
|
(5,550
|
)
|
|
(767
|
)
|
|
Deferred
financing costs
|
|
|
(3,813
|
)
|
|
—
|
|
|
Issuance
of share capital
|
|
|
514
|
|
|
385
|
|
|
Proceeds
from stock subscription receivable
|
|
|
270
|
|
|
150
|
|
|
Purchase
of treasury shares
|
|
|
(660
|
)
|
|
—
|
|
|
Discontinued
operations
|
|
|
—
|
|
|
(521
|
)
|
|
Net
cash provided by (used in) financing activities
|
|
|
23,066
|
|
|
(5,552
|
)
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(596
|
)
|
|
(275
|
)
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,768
|
|
|
(7,741
|
)
|
|
Cash
and cash equivalents at beginning of period
|
|
|
6,591
|
|
|
12,923
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
9,359
|
|
$
|
5,182
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
Cash
paid to minority partners
|
|
$
|
12,268
|
|
$
|
11,091
|
|
|
Cash
income taxes paid
|
|
$
|
1,046
|
|
$
|
859
|
|
|
Cash
interest paid
|
|
$
|
5,301
|
|
$
|
4,746
|
|
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
|
Share
capital issued on acquisitions
|
|
$
|
2,150
|
|
$
|
4,459
|
|
|
Capital
leases
|
|
$
|
1,510
|
|
$
|
—
|
|
|
Note
receivable exchanged for shares in subsidiary
|
|
$
|
—
|
|
$
|
1,155
|
|
See
notes
to the unaudited condensed consolidated financial statements.
MDC
PARTNERS INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(thousands
of United States dollars, unless otherwise stated)
1.
Basis of
Presentation
MDC
Partners Inc. (the “Company”) has prepared the unaudited condensed consolidated
interim financial statements included herein pursuant to the rules and
regulations of the United States Securities and Exchange Commission (the “SEC”).
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles (“GAAP”) of the United States of America (“US GAAP”) have been
condensed or omitted pursuant to these rules.
The
accompanying financial statements reflect all adjustments, consisting of
normally recurring accruals, which in the opinion of management are necessary
for a fair presentation, in all material respects, of the information contained
therein. Results of operations for interim periods are not necessarily
indicative of annual results.
These
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Annual Report on Form 10-K for
the year ended December 31, 2006.
On
November 14, 2006, the Company completed the sale of its Secure Products
International Group ("SPI") and accordingly has reclassified its 2006
financial results to reflect SPI as discontinued operations.
2.
Significant
Accounting Policies
The
Company’s significant accounting policies are summarized as
follows:
Principles
of Consolidation
.
The
accompanying condensed consolidated financial statements include the accounts
of
MDC Partners Inc. and its domestic and international controlled subsidiaries
that are not considered variable interest entities, and variable interest
entities for which the Company is the primary beneficiary. Intercompany balances
and transactions have been eliminated in consolidation.
Use
of Estimates.
The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities including goodwill,
intangible assets, valuation allowances for receivables and deferred tax assets,
and the reporting of variable interest entities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. The estimates are evaluated on an ongoing basis and estimates are based
on historical experience, current conditions and various other assumptions
believed to be reasonable under the circumstances. Actual results could differ
from those estimates.
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. Included in cash and cash equivalents at June
30,
2007 and December 31, 2006, is approximately $174 and $172, respectively,
of cash restricted as to its use by the Company.
Revenue
Recognition.
The
Company’s revenue recognition policies are in compliance with the SEC Staff
Accounting Bulletin 104, “Revenue Recognition” (“SAB 104”), and accordingly,
revenue is generally recognized when services are earned or upon delivery of
the
products when ownership and risk of loss has transferred to the customer, the
selling price is fixed or determinable and collection of the resulting
receivable is reasonably assured.
The
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 contract. Commission revenue is earned and recognized
upon
the placement of advertisements in various media when the Company has no further
performance obligations. Fixed fees for services are recognized upon completion
of the earnings process and acceptance by the client. Per diem fees are
recognized upon the performance of the Company’s services. In addition, for
certain service transactions, 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 achieved, or when the
Company’s clients determine performance against qualitative goals has been
achieved. In all circumstances, revenue is only recognized when collection
is
reasonably assured.
The
Company follows EITF No. 99-19, “Reporting Revenue Gross as a Principal versus
Net as an Agent” (“EITF 99-19). This Issue summarized the EITF’s views on when
revenue should be recorded at the gross amount billed because 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 businesses at times act as an
agent and records revenue equal to the net amount retained, when the fee or
commission is earned. The Company also follows EITF No. 01-14 for reimbursement
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.
Stock-Based
Compensation
.
The
fair value method is applied to all awards granted, modified or settled on
or
after January 1, 2003. Under the fair value method, compensation cost is
measured at fair value at the date of grant and is expensed over the service
period, that is the award’s vesting period. When awards are exercised, share
capital is credited by the sum of the consideration paid together with the
related portion previously credited to additional paid-in capital when
compensation costs were charged against income or acquisition consideration.
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.
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 subsequent to
vesting of the award and 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. Effective January 1, 2006, the Company adopted SFAS 123(R) and has
opted to use the modified prospective application transition method. Under
this
method the Company has not restated its prior financial statements. Instead,
the
Company applies SFAS 123(R) for new awards granted or modified after January
1,
2006, any portion of awards that were granted after December 15, 1994 and
have not vested as of January 1, 2006, and any outstanding liability
awards. 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.
Measurement
of compensation cost for awards that are outstanding and classified as equity,
at January 1, 2006, will be based on the original grant-date fair value
calculations of those awards. The Company 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.
On
June
1, 2007, the Company’s shareholders approved an additional 1,000,000 authorized
Class A shares to be added to the Company’s 2005 Stock Incentive Plan for a
total of 3,000,000 authorized Class A shares.
In
March
2007, the Company issued 165,114 Class A shares of financial
performance-based restricted stock, and 388,615 financial performance-based
restricted stock units, to its employees under the 2005 Stock Incentive Plan.
The Class A shares underlying each
grant
of
restricted stock or restricted stock units will vest at 66% based upon
achievement by the Company of specified financial performance criteria in 2007,
2008 and 2009. The remaining 34% will vest on the third anniversary date of
grant, subject to acceleration if certain financial performance targets are
achieved in 2007 and 2008. Based on the Company’s expected financial performance
in 2007, the Company currently believes that 34% of the 2007 financial
performance-based awards to employees will vest on March 15, 2008.
Accordingly, the Company will be recording a non-cash stock based compensation
charge of $1,957 from the date of grant through March 15,
2008.
For
the
six months ended June 30, 2007, the Company has recorded a $603 charge relating
to these equity incentive grants. The value of the awards was determined based
on the fair market value of the underlying stock on the date of grant. The
165,114 Class A shares of restricted stock granted to employees are
included in the Company’s calculation of Class A shares outstanding as of
June 30, 2007.
3.
Loss
Per Common Share
The
following table sets forth the computation of basic and diluted loss per common
share from continuing operations.
|
|
|
Three Months Ended June
30,
|
|
Six Months Ended June
30
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Numerator
for basic loss per common share - loss from continuing
operations
|
|
$
|
(2,601
|
)
|
$
|
(1,007
|
)
|
$
|
(11,397
|
)
|
$
|
(5,408
|
)
|
|
Effect
of dilutive securities:
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Numerator
for diluted loss per common share - loss from continuing operations
plus
assumed conversion
|
|
$
|
(2,601
|
)
|
$
|
(1,007
|
)
|
$
|
(11,397
|
)
|
$
|
(5,408
|
)
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic loss per common share - weighted average common
shares
|
|
|
24,752,472
|
|
|
23,858,327
|
|
|
24,514,954
|
|
|
23,818,182
|
|
|
Effect
of dilutive securities:
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Denominator
for diluted loss per common share - adjusted weighted shares and
assumed
conversions
|
|
|
24,752,472
|
|
|
23,858,327
|
|
|
24,514,954
|
|
|
23,818,182
|
|
|
Basic
loss per common share from continuing operations
|
|
$
|
(0.11
|
)
|
$
|
(0.04
|
)
|
$
|
(0.46
|
)
|
$
|
(0.23
|
)
|
|
Diluted
loss per common share from continuing operations
|
|
$
|
(0.11
|
)
|
$
|
(0.04
|
)
|
$
|
(0.46
|
)
|
$
|
(0.23
|
)
|
The
8%
convertible debentures, options and other rights to purchase 7,820,816
shares of common stock, which includes 1,001,729 shares of non-vested
restricted stock, were outstanding during the three and six months ended June
30, 2007, but were not included in the computation of diluted loss per common
share because their effect would be antidilutive. Similarly, during the three
and six months ended June 30, 2006, the 8% convertible debentures, options
and
other rights to purchase 8,928,870 shares of common stock, which includes
263,500 shares of non-vested restricted stock, were outstanding but were not
included in the computation of diluted loss per common share because their
effect would be antidilutive.
4.
Acquisitions
2007
Acquisitions
On
June
15, 2007, the Company acquired a 60% membership interest in Redscout, LLC
(“Redscout”). Redscout is a brand development and innovation consulting firm.
Redscout is expected to expand the Company’s strategic consultancy services
within the Strategic Marketing Services segment. The purchase price consisted
of
$3,860 in cash and $640 was paid in the form of 76,340 newly issued Class A
shares of the Company. In addition, the Company may be required to make
additional payments which are contingent on the results of Redscout’s operations
through December 2008. In addition, the Company incurred approximately $13
of
transaction related costs for a total purchase price of $4,513. The allocation
of the cost of the acquisition to the fair value of net assets acquired resulted
in intangible assets of $3,737 and is based on preliminary estimates of fair
values and certain assumptions that the Company believes are reasonable and
will
be adjusted in a subsequent period based upon the finalization of such estimates
and assumptions. The excess purchase price over the net assets acquired is
tax
deductible in future years.
On
May 1,
2007, the Company’s 70.1% owned subsidiary, Northstar Research Holdings USA LP,
acquired a 51% membership interest in Trend Core LLC (“TC”). TC is a
qualitative research firm with a specialty in the understanding of the merger
of
cultural trends and consumer needs with product innovation. TC is expected
to
expand the Company’s research capabilities within the Specialized Communication
Services segment. The purchase price consisted of $103 in cash and related
closing costs. In addition, the Company may be required to pay up to an
additional $900 in cash to the sellers if TC achieves specified financial
targets at certain specified times over the period
ending
April 30, 2011. The allocation of the cost of the acquisition to the fair value
of net assets acquired resulted in an amortizable
intangible
asset of approximately $96 based on preliminary estimates of fair values and
certain assumptions that the Company believes are reasonable and will be
adjusted in a subsequent period based upon the finalization of such estimates
and assumptions. The intangible is tax deductible in future years.
On
April
4, 2007, the Company acquired a 59% membership interest in HL Group Partners
LLC
(“HL”). The Company intends to use up to 8% of the membership
interests acquired for purposes of entering into a profits interest
arrangement with other key executives of HL, or “Gen II” management. Gen II
management will also have liquidity rights based on any appreciation of value
over the original purchase price attributable to the profits interest. HL
is a marketing strategy and corporate communications firm with a specialty
in
high end fashion and luxury goods. HL is expected to expand the Company’s
creative talent within the Strategic Marketing Services segment. The purchase
price consisted of $4,788 in cash, of which $4,468 was paid at closing and
$320
will be paid on April 4, 2008, and $1,000 was paid in the form of 128,550
newly-issued Class A shares of the Company. In addition, the Company incurred
transaction costs of approximately $25 for a total purchase price of $5,813.
The
allocation of the cost of the acquisition to the fair value of net assets
acquired resulted in amortizable intangible assets of $2,826 and goodwill of
$2,739 and is based on preliminary estimates of fair values and certain
assumptions that the Company believes are reasonable and will be adjusted in
a
subsequent period based upon the finalization of such estimates and assumptions.
The intangibles and goodwill are tax deductible in future years.
On
February 2, 2007, the Company, through its subsidiary Bryan Mills Group
Ltd. (“Bryan Mills”), acquired 100% of the issued and outstanding shares of
Iradesso Communications Corp., a Canadian financial communications firm. This
acquisition provides the Company an opportunity to expand its business, in
terms
of productive talent, service offerings and geographic presence. The purchase
price for this transaction included a cash payment equal to $342 and the
issuance of shares in Bryan Mills representing 11.85% of the equity ownership
in
Bryan Mills, valued at $815. The Company incurred transaction costs of $40
for a
total purchase price of $1,197. This cost has been assigned to an intangible
asset relating to the value of the new employment agreement with the former
owner of Iradesso Communications Corp. and will be amortized over a five year
term.
2006
Acquisitions
During
2006, the Company did not complete any material acquisitions. However, the
Company did complete the following transactions:
On
February 7, 2006, the Company purchased the remaining outstanding
membership interests of 12.33% of Source Marketing LLC (“Source”) pursuant to an
exercise of a put option notice delivered in October 2005. The purchase
price of $2,287 consisted of cash of $1,830 and the delivery of 1,063,516 shares
of LifeMed Media Inc. (“LifeMed”) valued at $457. The Company’s carrying value
of these LifeMed shares was $27, thus the Company recorded a gain on the
disposition of these shares of $430, which has been included in other
income.
On
February 15, 2006, Source issued 15% of its membership interests to certain
members of management. The purchase price for these membership interests was
$1,540, which consisted of $385 cash and recourse notes in an aggregate
principal amount equal to $1,155. In addition, the purchaser also received
a
fully vested option to purchase an additional 5% of Source at an exercise price
based upon the price paid above. This call option was exercised by the
management members in October 2006. An amended and restated LLC agreement was
entered into with these new members. The agreement also provides these members
with an option to put to the Company these membership interests from
December 2008-2012. During the quarter ended March 31, 2006, the
Company recorded a non-cash stock based compensation charge of $2,338 relating
to the price paid for the membership interests, which was less than the fair
value of such membership interests and the fair value of the option granted.
The
5% call option exercise resulted in a dilution loss of $626 and reduced the
Company’s equity ownership in Source down to 80%.
On
July 27, 2006, the Company settled a put option obligation for a fixed
amount equal to $1,492, relating to the purchase of 4.3% of additional equity
interests of Accent Marketing, LLC. The settlement of this put was satisfied
by
a cash payment of $424, plus the cancellation of an outstanding promissory
note
to the Company in a principal amount equal to $1,068. The purchase price was
allocated as follows: $403 to identified intangibles, amortized over eight
years
and the balance of $1,089 as additional goodwill. The goodwill and intangibles
are deductible for tax purposes. Following this transaction, the Company now
owns 93.7% of Accent Marketing, LLC.
On
November 14, 2006, the Company purchased an additional 20% interest in
Northstar Research Partners Inc. (“Northstar”) for $3,405 in cash, increasing
the Company’s ownership interest in Northstar to 70%. This transaction resulted
in an allocation of the purchase price to goodwill of $2,989 and identifiable
intangible assets of $415. In February 2007, Northstar acquired an additional
18% of Northstar Research (UK) Limited for approximately $27. This cost has
been
assigned to goodwill. Northstar now owns 82% of Northstar Research (UK)
Limited.
On
November 14, 2006, the Company through its subsidiary Zig Inc. purchased a
65% interest in Hadrian’s Wall Advertising, LLC for $550. Hadrian’s Wall
Advertising, LLC is a creative advertising firm that was acquired to facilitate
the expansion of the Zig Canada business into the US market. In addition the
Company purchased an additional 0.2% of Zig Inc. for cash of $18 and 30,000
of
the Company’s Stock Appreciation Rights (“SARs”), valued at $104 increasing the
Company’s ownership interest in Zig, Inc. to 50.1%. The purchase price was
allocated to goodwill of $18 and the value of the SARs was considered to be
compensation expense and will be amortized over the vesting period of the SARs.
Effective November 17, 2006, as a result of the additional share purchase,
the Company has consolidated Zig Inc., which had previously been accounted
for
under the equity method.
On
December 15, 2006, the Company and Accumark Communications Inc. amended its
operating agreement to eliminate certain minority rights. As a result of this
amendment, effective December 15, 2006, the Company has consolidated
Accumark Communications Inc., which had previously been accounted for under
the
equity method.
At
June
30, 2007 and December 31, 2006, accrued and other liabilities included amounts
due to minority interest holders, for their share of profits, which will be
distributed within the next twelve months of $8,497 and $11,129,
respectively.
In
August
2006, one of the entities in the Strategic Marketing Services segment closed
an
office on the West Coast. The Company incurred a charge to operations of $2,624
resulting primarily from lease termination costs and the write off of the
related leasehold improvements. The liability is expected to be paid out over
the next five years.
6.
Discontinued
Operations
In
June 2006, the Company’s Board of Directors made the decision to sell or
otherwise divest the Company’s Secure Paper Businesses and Secure Card
Businesses (collectively, “Secure Products International” or
“SPI”).
On
November 14, 2006, the Company completed its sale of SPI, resulting in net
proceeds of approximately $27,000. Consideration was received in the form of
cash of $20,000 and five additional annual payments of $1,000. In addition,
the
Company received a 7.5% equity interest in the newly formed entity acquiring
SPI. The Company had initially recorded the present value of the five additional
payments of $3,724 as Other Assets. In July 2007, the Company received an
accelerated payment of $2,000 representing amounts originally due in 2010 and
2011. As a result of the receipt of this payment, the Company recorded interest
income of $733 for the three and six months ended June 30, 2007. Also included
in Other Assets is the estimated value of the 7.5% equity interest received
of
$1,924. The results of operations of SPI during the three and six months ended
June 30, 2006 was a loss of $9,496 and $10,228, respectively. Included in such
losses is an impairment charge of approximately $7,900, which was based on
the
estimated net proceeds from the sale of SPI.
Based
on
the net proceeds and average borrowing rate, the Company has allocated interest
expense to discontinued operations of $348 and $664 for the three and six months
ended June 30, 2006, respectively.
Included
in discontinued operations in the Company’s consolidated statements of
operations for the three and six months ended June 30, 2006 was the
following:
|
|
|
Three
Months Ended June 30, 2006
|
|
Six
Months Ended June 30, 2006
|
|
|
Revenue
|
|
$
|
17,372
|
|
$
|
35,939
|
|
|
Depreciation
expense and impairment charge
|
|
$
|
9,065
|
|
$
|
10,189
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
$
|
(8,364
|
)
|
$
|
(8,740
|
)
|
|
Other
expense
|
|
$
|
(1,179
|
)
|
|
(1,463
|
)
|
|
Income
tax (expense) recovery
|
|
$
|
47
|
|
|
(25
|
)
|
|
Net
loss from discontinued
operations
|
|
$
|
(9,496
|
)
|
$
|
(10,228
|
)
|
7.
Comprehensive
Loss
Total
comprehensive loss and its components were:
|
|
|
Three Months Ended June
30,
|
|
Six
Months Ended June 30,
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
Net
loss for the period
|
|
$
|
(2,601
|
)
|
$
|
(10,503
|
)
|
$
|
(11,397
|
)
|
$
|
(15,636
|
)
|
|
Foreign
currency cumulative translation adjustment
|
|
$
|
2,371
|
|
$
|
1,379
|
|
$
|
2,907
|
|
$
|
1,254
|
|
|
Comprehensive
loss for the period
|
|
$
|
(230
|
)
|
$
|
(9,124
|
)
|
$
|
(8,490
|
)
|
$
|
(14,382
|
)
|
8.
Short-Term
Debt, Long-Term Debt and Convertible Debentures
Debt
consists of:
|
|
|
June
30,
2007
|
|
December 31,
2006
|
|
|
Short-term
debt
|
|
$
|
—
|
|
$
|
4,910
|
|
|
Revolving
credit facility
|
|
|
22,215
|
|
|
45,000
|
|
|
8%
convertible debentures (1)
|
|
|
42,238
|
|
|
38,613
|
|
|
Term
loan
|
|
|
60,000
|
|
|
—
|
|
|
Notes
payable and other bank loans
|
|
|
—
|
|
|
5,206
|
|
|
|
|
|
124,453
|
|
|
93,729
|
|
|
Obligations
under capital leases
|
|
|
2,866
|
|
|
1,725
|
|
|
|
|
|
127,319
|
|
|
95,454
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Revolving
credit facility
|
|
|
—
|
|
|
45,000
|
|
|
Short-term
debt
|
|
|
—
|
|
|
4,910
|
|
|
Current
portions
|
|
|
704
|
|
|
1,177
|
|
|
Long
term portion
|
|
$
|
126,615
|
|
$
|
44,367
|
|
Short-term
debt represents outstanding checks at the end of the reporting
periods.
(1)
The
8% convertible debentures are due and payable in Canadian dollars and as such
the balance due will fluctuate with foreign currency movements.
New
Financing Agreement
On
June
18, 2007, MDC Partners Inc. (the “Company”) and its material subsidiaries
entered into a new $185,000 senior secured financing agreement (the “Financing
Agreement”) with Fortress Credit, an affiliate of Fortress Investment
Group, as collateral agent and Wells Fargo Bank, as administrative agent, and a
syndicate of lenders. This facility replaced the Company’s existing $96,500
credit facility that was originally expected to mature on September 21, 2007.
Proceeds from the Financing Agreement were used to repay in full the outstanding
balances on the Company's existing credit facility. All of these repaid credit
facilities have been terminated.
The
new
Financing Agreement consists of a $55,000 revolving credit facility, a $60,000
term loan and a $70,000 delayed draw term loan. Borrowings under the Financing
Agreement will bear interest as follows: (a) LIBOR Rate Loans bear interest
at
applicable interbank rates and Reference Rate Loans bear 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. In addition, the Company
is required to pay a facility fee of 50 basis points.
The
new
Financing Agreement is guaranteed by the material subsidiaries of the Company
and matures on June 17, 2012. The Financing Agreement is subject to various
covenants, including a senior leverage ratio, fixed charges ratio, limitations
on debt incurrence, limitation on liens and limitation on dividends and other
payments.
At
June
30, 2007 and December 31, 2006, the aggregate amount of outstanding checks
(disclosed as “Short-term debt” in Current Liabilities on the balance sheet) was
zero and $4,910, respectively. At June 30, 2007, the unused portion of the
total
facility was $97,447.
The
Company has classified the revolving credit facility of the Financing Agreement
as a long term liability in accordance with EITF 95-22, “Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit Agreements
that
include both a Subjective Acceleration Clause and a Lock-Box Agreement”.
Management believes that no conditions have occurred that would result in
subjective acceleration by the lenders under the Financing Agreement, and
management believes that no such conditions will exist over the next twelve
months. The weighted average interest rate on the outstanding debt under the
Financing Agreement was 9.54% at June 30, 2007. The weighted average
interest rate on the prior credit facility was 8.13% at December 31,
2006.
As
of
June 30, 2007, and December 31, 2006, $6,250 and $2,414 of the consolidated
cash
position is held by subsidiaries, which, although available for the
subsidiaries’ use, does not represent cash that is available for use to reduce
the Company’s indebtedness.
8%
Convertible Unsecured Subordinated Debentures
On
June 28, 2005, the Company completed an offering in Canada of convertible
unsecured subordinated debentures amounting to C$45,000 ($36,723) (the
“Debentures”). The Debentures mature on June 30, 2010 and bear
interest at an annual rate of 8.00% payable semi-annually, in arrears, on June
30 and December 31 of each year. The Company did not have an effective
resale registration statement filed with the SEC on December 31, 2005, and
as a result the rate of interest increased by an additional 0.50% for the first
six month period following December 31, 2005. As of April 19, 2006,
the Company had an effective resale registration statement and as a result
the
interest rate returned to 8.0% effective July 1, 2006. Unless an event of
default has occurred and is continuing, the Company may elect, from time to
time, subject to applicable regulatory approval, to issue and deliver
Class A subordinate voting shares to the Debenture trustee in order to
raise funds to satisfy all or any part of the Company’s obligations to pay
interest on the Debentures in accordance with the indenture in which holders
of
the Debentures will be entitled to receive a cash payment equal to the interest
payable from the proceeds of the sale of such Class A subordinate voting
shares by the Debenture trustee.
The
Debentures are convertible at the holder’s option into fully-paid,
non-assessable and freely tradable Class A subordinate voting shares of the
Company, at any time prior to maturity or redemption, subject to the
restrictions on transfer, at a conversion price of C$14.00 ($13.14 as of June
30, 2007) per Class A subordinate voting share being a ratio of
approximately 71.4286 Class A subordinate voting shares per C$1,000.00
($939 as of June 30, 2007) principal amount of Debentures.
The
Debentures may not be redeemed by the Company on or before June 30,
2008. Thereafter, but prior to June 30, 2009, the Debentures may be
redeemed, in whole or in part from time to time, at a price equal to the
principal amount of the Debenture plus accrued and unpaid interest, provided
that the volume weighted average trading price of the Class A subordinate
voting shares on the Toronto Stock Exchange during a specified period is not
less than 125% of the conversion price. From July 1, 2009 until the
maturity of the Debentures, the Debentures may be redeemed by the Company at
a
price equal to the principal amount of the Debenture plus accrued and unpaid
interest, if any. The Company may elect to satisfy the redemption consideration,
in whole or in part, by issuing Class A subordinate voting shares of the
Company to the holders, the number of which will be determined by dividing
the
principal amount of the Debenture by 95% of the current market price of the
Class A subordinate voting shares on the redemption date. Upon the
occurrence of a change of control of the Company involving the acquisition
of
voting control or direction over 50% or more of the outstanding Class A
subordinate voting shares prior to June 30, 2008, the Company shall be
required to make an offer to purchase all of the then outstanding Debentures
at
a price equal to 100% of the principal amount thereof plus an amount equal
to
the interest payments not yet received on the Debentures calculated from the
date of the change of control to June 30, 2008, discounted at a
specified rate. Upon the occurrence of a change of control on or
after June 30, 2008, the Company shall be required to make an offer to
purchase all of the then outstanding Debentures at a price equal to 100% of
the
principal amount of the Debentures plus accrued and unpaid interest to the
purchase date.
9.
Shareholders’
Equity
During
the six months ended June 30, 2007, Class A share capital increased by
$4,505, as the Company issued 695,981 Class A shares related to the
exercise of stock options, vested restricted stock, and stock appreciation
right
awards. Additionally, during the six months ended June 30, 2007, the Company
issued 271,330 Class A shares, valued at $2,150 in connection with acquisitions
and the settlement of a deferred acquisition consideration payment. During
the
six months ended June 30, 2007 “Additional paid-in capital” increased by $1,205,
of which $3,030 related to an increase from stock-based compensation that was
expensed during the same period, offset by a decrease of $1,812 related to
the exercise of stock appreciation right awards and $13 related to the
resolution of a contingency based on the Company’s share price relating to a
previous acquisition.
In
March
2007, the Company purchased 83,253 Class A shares for $660 from employees in
connection with the required tax withholding resulting from the vesting of
restricted stock.
10.
Other
Income (Expense)
|
|
|
Three Months Ended June
30,
|
|
Six
Months Ended June 30,
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
Other
income (expense)
|
|
$
|
6
|
|
$
|
—
|
|
$
|
(161
|
)
|
$
|
128
|
|
|
Foreign
currency transaction gain (losses) (b)
|
|
|
(2,882
|
)
|
|
255
|
|
|
(3,441
|
)
|
|
300
|
|
|
Gain
on sale/recovery of assets (a)
|
|
|
1,843
|
|
|
254
|
|
|
1,835
|
|
|
645
|
|
|
|
|
$
|
(1,033
|
)
|
$
|
509
|
|
$
|
(1,767
|
)
|
$
|
1,073
|
|
(a)
On
April 17, 2007, the Company sold the plane that was acquired in connection
with
the Zyman acquisition for consideration equal to $6,368. In connection with
the
sale, the Company repaid the loan relating to the plane in an amount equal
to
$5,001 and recorded a gain on the sale of $1,846.
(b)
During the three and six months ended June 30, 2007, the Company has recorded
unrealized foreign currency transaction losses of approximately $2,489 and
$2,893, respectively, representing the weakening in US dollar compared to the
Canadian dollar primarily on its intercompany balances. For the three and six
months ended June 30, 2006, the Company had recorded unrealized foreign currency
transaction gains of approximately $441 and $498, respectively, representing
the
strengthening in the US dollar compared to the Canadian dollar primarily on
its
intercompany balances.
11.
Segmented
Information
During
the fourth quarter of 2006, the Company assessed its reportable operating
segments and reclassified Margeotes Fertitta Powell, LLC (“MFP”) from the
Strategic Marketing Services (“SMS”) segment to the Specialized Communication
Services segment, as MFP’s performance currently and for the foreseeable future
is not consistent with the performance of the operating units in the SMS
segment. The Company has recast its prior year disclosures to conform to the
current year presentation. The Company reports in three segments plus corporate.
The segments are as follows:
|
|
·
|
The
Strategic
Marketing Services (“SMS”)
segment includes Crispin Porter & Bogusky, kirshenbaum bond +
partners, and Zyman Group LLC, among others. This segment consists
of
integrated marketing consulting services firms that offer a complement
of
marketing consulting services including advertising and media, marketing
communications including direct marketing, public relations, corporate
communications, market research, corporate identity and branding,
interactive marketing and sales promotion. Each of the entities within
SMS
share similar economic characteristics, specifically related to the
nature
of their respective services, the manner in which the services are
provided and the similarity of their respective customers. Due to
the
similarities in these businesses, they exhibit similar long term
financial
performance and have been aggregated
together.
|
|
|
·
|
The
Customer
Relationship Management (“CRM”)
segment provides marketing services that interface directly with
the
consumer of a client’s product or service. These services include the
design, development and implementation of a complete customer service
and
direct marketing initiative intended to acquire, retain and develop
a
client’s customer base. This is accomplished using several domestic and
two foreign-based customer contact
facilities.
|
|
|
·
|
The
Specialized
Communication Services (“SCS”)
segment includes all of the Company’s other marketing services firms that
are normally engaged to provide a single or a few specific marketing
services to regional, national and global clients. These firms provide
niche solutions by providing world class expertise in select marketing
services.
|
In
March 2007, due to continued operating and client losses, the Company ceased
MFP’s current operations and spun off a new operating business and as a result
incurred a goodwill impairment charge of $4,475. During the three and six months
ended June 30, 2007, the Company incurred operating losses, excluding the
goodwill impairment charge, of $2,276 and $3,439, respectively, relating to
MFP.
The
significant accounting policies 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
SCS
segment is an “Other” segment pursuant SFAS 131 “Disclosures about Segments of
an Enterprise and Related Information”.
Summary
financial information concerning the
Company
’
s
operating segments is shown in the following tables:
Three
Months Ended June 30, 2007
(thousands
of United States dollars)
|
|
|
Strategic
Marketing
Services
|
|
Customer
Relationship
Management
|
|
Specialized
Communication
Services
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
78,445
|
|
$
|
25,681
|
|
$
|
31,131
|
|
$
|
—
|
|
$
|
135,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
46,323
|
|
|
18,873
|
|
|
22,621
|
|
|
—
|
|
|
87,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expense
|
|
|
18,820
|
|
|
4,746
|
|
|
5,930
|
|
|
6,473
|
|
|
35,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,853
|
|
|
1,530
|
|
|
802
|
|
|
95
|
|
|
6,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
9,449
|
|
|
532
|
|
|
1,778
|
|
|
(6,568
|
)
|
|
5,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,033
|
)
|
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes, equity in affiliates
and
minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,465
|
|
|
Income
tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before equity in affiliates and minority
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,757
|
|
|
Equity
in earnings of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
Minority
interests in income of consolidated subsidiaries
|
|
|
(4,250
|
)
|
|
(13
|
)
|
|
(1,156
|
)
|
|
|
|
|
(5,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$
|
242
|
|
$
|
—
|
|
$
|
3
|
|
$
|
1,308
|
|
$
|
1,553
|
|
|
Capital
expenditures
|
|
$
|
1,828
|
|
$
|
1,080
|
|
$
|
798
|
|
$
|
121
|
|
$
|
3,827
|
|
|
Goodwill
and intangibles
|
|
$
|
186,925
|
|
$
|
29,517
|
|
$
|
41,437
|
|
$
|
—
|
|
$
|
257,879
|
|
|
Total
assets
|
|
$
|
330,559
|
|
$
|
67,233
|
|
$
|
101,841
|
|
$
|
18,263
|
|
$
|
517,896
|
|
Three
Months Ended June 30, 2006
(thousands
of United States dollars)
|
|
|
Strategic
Marketing
Services
|
|
Customer
Relationship
Management
|
|
Specialized
Communication
Services
|
|
Corporate
|
|
Total
|
|
|
|
|
(recasted)
|
|
|
|
(recasted)
|
|
|
|
|
|
|
Revenue
|
|
$
|
55,634
|
|
$
|
20,906
|
|
$
|
23,598
|
|
$
|
—
|
|
$
|
100,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
29,345
|
|
|
15,609
|
|
|
15,946
|
|
|
—
|
|
|
60,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expenses
|
|
|
16,131
|
|
|
3,859
|
|
|
4,875
|
|
|
6,320
|
|
|
31,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,493
|
|
|
1,125
|
|
|
437
|
|
|
63
|
|
|
5,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
6,665
|
|
|
313
|
|
|
2,340
|
|
|
(6,383
|
)
|
|
2,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509
|
|
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes, equity in affiliates
and
minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,592
|
|
|
Income
tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before equity in affiliates and minority
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
|
Equity
in earnings of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227
|
|
|
Minority
interests in income of consolidated subsidiaries
|
|
|
(2,723
|
)
|
|
(8
|
)
|
|
(703
|
)
|
|
—
|
|
|
(3,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,007
|
)
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(10,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$
|
271
|
|
$
|
6
|
|
$
|
—
|
|
$
|
1,530
|
|
$
|
1,807
|
|
|
Capital
expenditures
|
|
$
|
4,689
|
|
$
|
1,051
|
|
$
|
442
|
|
$
|
94
|
|
$
|
6,276
|
|
Six
Months Ended June 30, 2007
(thousands
of United States dollars)
|
|
|
Strategic
Marketing
Services
|
|
Customer
Relationship
Management
|
|
Specialized
Communication
Services
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
149,008
|
|
$
|
49,249
|
|
$
|
56,531
|
|
$
|
—
|
|
$
|
254,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
89,077
|
|
|
35,871
|
|
|
41,424
|
|
|
—
|
|
|
166,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expenses
|
|
|
36,327
|
|
|
9,205
|
|
|
11,522
|
|
|
13,090
|
|
|
70,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
7,597
|
|
|
3,080
|
|
|
1,383
|
|
|
185
|
|
|
12,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
Impairment
|
|
|
—
|
|
|
—
|
|
|
4,475
|
|
|
—
|
|
|
4,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
16,007
|
|
|
1,093
|
|
|
(2,273
|
)
|
|
(13,275
|
)
|
|
1,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,767
|
)
|
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes, equity in affiliates
and
minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,478
|
)
|
|
Income
tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before equity in affiliates and minority
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,698
|
)
|
|
Equity
in earnings of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
Minority
interests in income of consolidated subsidiaries
|
|
|
(7,966
|
)
|
|
(27
|
)
|
|
(1,717
|
)
|
|
—
|
|
|
(9,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(11,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$
|
491
|
|
$
|
5
|
|
$
|
7
|
|
$
|
2,966
|
|
$
|
3,469
|
|
|
Capital
expenditures
|
|
$
|
3,486
|
|
$
|
2,515
|
|
$
|
1,295
|
|
$
|
168
|
|
$
|
7,464
|
|
Six
Months Ended June 30, 2006
(thousands
of United States dollars)
|
|
|
Strategic
Marketing
Services
|
|
Customer
Relationship
Management
|
|
Specialized
Communication
Services
|
|
Corporate
|
|
Total
|
|
|
|
|
(recasted)
|
|
|
|
(recasted)
|
|
|
|
|
|
|
Revenue
|
|
$
|
112,525
|
|
$
|
39,812
|
|
$
|
45,874
|
|
$
|
—
|
|
$
|
198,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
58,388
|
|
|
29,407
|
|
|
32,846
|
|
|
—
|
|
|
120,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expenses
|
|
|
32,133
|
|
|
7,333
|
|
|
9,154
|
|
|
12,387
|
|
|
61,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
8,753
|
|
|
2,189
|
|
|
861
|
|
|
97
|
|
|
11,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
13,251
|
|
|
883
|
|
|
3,013
|
|
|
(12,484
|
)
|
|
4,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,073
|
|
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes, equity in affiliates
and
minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100
|
|
|
Income
tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before equity in affiliates and minority
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,276
|
|
|
Equity
in earnings of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
501
|
|
|
Minority
interests in income of consolidated subsidiaries
|
|
|
(6,676
|
)
|
|
(38
|
)
|
|
(1,471
|
)
|
|
—
|
|
|
(8,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,408
|
)
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(15,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$
|
491
|
|
$
|
12
|
|
$
|
2,338
|
|
$
|
2,491
|
|
$
|
5,332
|
|
|
Capital
expenditures
|
|
$
|
5,875
|
|
$
|
4,619
|
|
$
|
611
|
|
$
|
192
|
|
$
|
11,297
|
|
A
summary
of the Company’s revenue by geographic area, based on the location in which the
services originated, is set forth in the following table:
|
|
|
United
States
|
|
Canada
|
|
Other
|
|
Total
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
108,977
|
|
$
|
23,324
|
|
$
|
2,956
|
|
$
|
135,257
|
|
|
2006
|
|
$
|
84,905
|
|
$
|
14,587
|
|
$
|
646
|
|
$
|
100,138
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
207,331
|
|
$
|
42,007
|
|
$
|
5,450
|
|
$
|
254,788
|
|
|
2006
|
|
$
|
168,665
|
|
$
|
27,620
|
|
$
|
1,926
|
|
$
|
198,211
|
|
12.
Commitments, Contingencies and Guarantees
Put
Options.
Owners
of interests in certain subsidiaries have the right in certain circumstances
to
require the Company to acquire the remaining ownership interests held by them.
The owners’ ability to exercise any such “put option” right is subject to the
satisfaction of certain conditions, including conditions requiring notice in
advance of exercise. In addition, these rights cannot be exercised prior to
specified staggered exercise dates. The exercise of these rights at their
earliest contractual date would result in obligations of the Company to fund
the
related amounts during the period 2007 to 2013. It is not determinable, at
this
time, if or when the owners of these rights will exercise all or a portion
of
these rights.
The
amount payable by the Company in the event such rights are exercised is
dependent on various valuation formulas and on future events, such as the
average earnings of the relevant subsidiary through the date of exercise, the
growth rate of the earnings of the relevant subsidiary during that period,
and,
in some cases, the currency exchange rate at the date of payment.
Management
estimates, assuming that the subsidiaries owned by the Company at June 30,
2007,
perform over the relevant future periods at their trailing
twelve-months earnings levels, that these rights, if all exercised, could
require the Company, in future periods, to pay an aggregate amount of
approximately $134,346 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 $27,121 by the issuance of share capital.
The ultimate amount payable relating to these transactions will vary because
it
is dependent on the future results of operations of the subject businesses
and
the timing of when these rights are exercised.
Deferred
Acquisition Consideration.
In
addition to the consideration paid by the Company in respect of certain of
its
acquisitions at closing, additional consideration may be payable, or may be
potentially payable based on the achievement of certain threshold levels of
earnings. Should the current level of earnings be maintained by these acquired
companies, no additional consideration, in excess of the deferred acquisition
consideration reflected on the Company’s balance sheet at June 30, 2007, would
be expected to be owed in 2007.
Natural
Disasters.
Certain
of the Company’s operations are located in regions of the United States which
typically are subject to hurricanes. During the six months ended June 30, 2007
and 2006, 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, 2003
and 2006, the Company has provided customary representations and warranties
whose terms range in duration and may not be explicitly defined. The Company
has
also retained certain liabilities for events occurring prior to sale, relating
to tax, environmental, litigation and other matters. Generally, the Company
has
indemnified the purchasers in the event that a third party asserts a claim
against the purchaser that relates to a liability retained by the Company.
These
types of indemnification guarantees typically extend for a number of
years.
In
connection with the sale of the Company’s investment in Custom Direct Inc.
(“CDI”), the amounts of indemnification guarantees were limited to the total
sale price of approximately $84,000. For the remainder, the Company’s potential
liability for these indemnifications are not subject to a limit as the
underlying agreements do not always specify a maximum amount and the amounts
are
dependent upon the outcome of future contingent events.
Historically,
the Company has not made any significant indemnification payments under such
agreements and no amount has been accrued in the accompanying consolidated
financial statements with respect to these indemnification guarantees. The
Company continues to monitor the conditions that are subject to guarantees
and
indemnifications to identify whether it is probable that a loss has occurred,
and would recognize any such losses under any guarantees or indemnifications
in
the period when those losses are probable and estimable.
For
guarantees and indemnifications entered into after January 1, 2003, in
connection with the sale of SPI and the Company’s investment in CDI, the Company
has estimated the fair value of its liability, which was
insignificant.
Legal
Proceedings.
The
Company’s operating entities are involved in legal proceedings of various types.
While any litigation contains an element of uncertainty, the Company has no
reason to believe that the outcome of such proceedings or claims will have
a
material adverse effect on the financial condition or results of operations
of
the Company.
Commitments.
The
Company has commitments to fund $458 in two investment funds over a period
of up
to two years. At June 30, 2007, the Company has issued $5,338 of undrawn
outstanding letters of credit.
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 will continue to provide
services to the Company as its Chief Executive Officer. Mr. Nadal’s prior
services agreement with the Company was scheduled to expire on October 31,
2007,
subject to two-year annual renewals. If the Company were not going to enter
into
a new agreement with Mr. Nadal and did not intend to allow the prior agreement
to renew, it would have been required to give Mr. Nadal notice of such
non-renewal by April 30, 2007.
The
Services Agreement has a three-year term with automatic one-year extensions.
Pursuant to the Services Agreement, the base compensation for Mr. Nadal’s
services will continue through 2007 at the current rate of $950, with annual
increases of $25 in each of 2008 and 2009. The Services Agreement also provides
for an annual bonus with a targeted payout of up to 250% of the base
compensation. The Company will also make 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
equity incentives with a targeted grant-date value of up to 300% of the then
current base retainer.
As
an
incentive to enter into the Services Agreement, the Company paid a one-time
non-renewal fee of $3,500 upon execution of the Services Agreement, which has
been expensed during the second quarter of 2007. Mr. Nadal used a
portion of the proceeds of this fee to repay to the Company the $2,678 (C$3,000)
note receivable due on November 1, 2007 from Nadal Management, Inc. The Company
had previously reserved the principal amount of this note receivable; the
collection of this receivable will result in a one-time recovery of $2,678,
which is included in operating income in the second quarter of 2007. As a result
of the transaction above, operating income was adversely impacted by
$822.
13.
New
Accounting Pronouncements
In
June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. This Interpretation is effective
for fiscal years beginning after December 15, 2006, with earlier
application permitted. The Company has adopted this interpretation, the adoption
of which did not have a material effect on its financial
statements.
In
September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”. This
statement defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. This statement is
effective for all fiscal year beginning after November 15, 2007 and interim
periods within those fiscal years. Earlier application is encouraged. The
Company is currently evaluating the impact of this statement on its financial
statements.
In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). This statement permits
entities to choose to measure many financial instruments and certain other
items
at fair value. This statement expands the use of fair value measurement and
applies to entities that elect the fair value option. The fair value option
established by this Statement permits all entities to choose to measure eligible
items at fair value at specified election dates. SFAS 159 is effective as of
the
beginning of an entity’s first fiscal year that begins after November 15,
2007. The Company is currently evaluating the impact of this statement on its
financial statements.
On
July
23, 2007, the Company entered into a separation agreement and release with
its
former President and Chief Financial Officer. In connection with this agreement
and related matters, the Company will incur an estimated charge of approximately
$1,895 in the third quarter of 2007. This charge represents all costs and
expenses incurred as a consequence of this separation and for the hiring of
a
new Chief Financial Officer.
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Unless
otherwise indicated, references to the “Company” and “MDC” 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 2007 means the period beginning January 1, 2007,
and ending December 31, 2007).
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 growth” which means
growth in revenues from sources other than acquisitions or foreign exchange
impacts. These measures do not have a standardized meaning prescribed by US
GAAP
and, therefore, may not be comparable to similarly titled measures presented
by
other publicly traded companies, nor should they be construed as an alternative
to other titled measures determined in accordance with US GAAP.
The
following discussion focuses on the operating performance of the Company for
the
three and six months ended June 30, 2007 and 2006, and the financial condition
of the Company as of June 30, 2007. This analysis should be read in conjunction
with the interim condensed consolidated financial statements presented in this
interim report and the annual audited consolidated financial statements and
Management’s Discussion and Analysis presented in the Annual Report to
Shareholders for the year ended December 31, 2006 as reported on
Form 10-K. All amounts are in U.S. dollars unless otherwise
stated.
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. 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 three reportable operating segments:
Strategic Marketing Services (“SMS”), Customer Relationship Management (“CRM”)
and Specialized Communication Services (“SCS”). In addition, MDC has a
“Corporate Group” which provides certain administrative, accounting, financial
and legal functions. During the fourth quarter of 2006, the Company reclassified
Margeotes Fertitta Powell, LLC (“MFP”) from the SMS segment to the SCS segment
as MFP’s performance was not consistent with the other operating units of the
SMS group. All prior periods have been recast to conform to the current year
presentation.
Marketing
Communications Group
Through
its operating “partners”, MDC provides advertising, consulting and specialized
communication services to clients throughout the United States, Canada, Mexico,
Jamaica and Europe.
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 “Significant
Accounting Policies” 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.
MDC
management monitors these costs referred to above 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.
Certain
Factors Affecting Our Business
Acquisitions
and Dispositions
.
MDC’s strategy includes acquiring ownership stakes in well-managed businesses
with strong reputations in the industry. MDC has entered into acquisition and
disposal transactions during the 2006 to 2007 period, which affected revenues,
expenses, operating income and net income. Additional information regarding
acquisitions is provided in Note 4 “Acquisitions” and information on
dispositions is provided in Note 6 “Discontinued Operations” in the notes to the
consolidated financial statements.
Foreign
Exchange Fluctuations
.
MDC’s financial results and competitive position are primarily 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, the fourth quarter generates the highest
quarterly revenues in a year. The fourth quarter has historically been the
period in the year in which the highest volumes of media placements and retail
related consumer marketing occur.
Other
important factors that could affect our results of operations are set forth
in
“Item 1A Risk Factors” of the Company’s Form 10-K for the year ended
December 31, 2006.
Summary
of Key Transactions
Sale
of Secure Products International
On
November 14, 2006, MDC completed the sale of its Secure Products International
Group for consideration equal to approximately $27 million. Consideration was
received in the form of cash of $20 million and additional $1 million
annual payments over the next five years. In addition, MDC received a 7.5%
equity interest in the newly formed entity acquiring the Secure Products
International Group. During 2006, the Company recorded an impairment loss of
$19.5 million and a gain on a sale of $1.8 million. The results of operations
of
the Secure Products International Group have been included in discontinued
operations for the three and six months ended June 30, 2006.
Management
Services Agreement
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 will continue to provide
services to the Company as its Chief Executive Officer. Mr. Nadal’s prior
services agreement with the Company was scheduled to expire on October 31,
2007,
subject to two-year annual renewals. If the Company were not going to enter
into
a new agreement with Mr. Nadal and did not intend to allow the prior agreement
to renew, it would have been required to give Mr. Nadal notice of such
non-renewal by April 30, 2007.
The
Services Agreement has a three-year term with automatic one-year extensions.
Pursuant to the Agreement, the base compensation for Mr. Nadal’s services will
continue through 2007 at the current rate of $950,000, with annual increases
of
$25,000 in each of 2008 and 2009. The Services Agreement also provides for
an
annual bonus with a targeted payout of up to 250% of the base compensation.
The
Company will also make an annual cash payment of $500,000 in respect of
retirement benefits, employee health benefits and perquisites. In addition,
in
the discretion of the Compensation Committee, the Company may grant equity
incentives with a targeted grant-date value of up to 300% of the then current
base retainer.
As
an
incentive to enter into the Services Agreement, the Company paid a one-time
non-renewal fee of $3.5 million upon execution of the Services Agreement, which
has been expensed during the second quarter of 2007. Mr. Nadal used a
portion of the proceeds to repay to the Company the $2.7 million (C$3.0 million)
note receivable due on November 1, 2007 from Nadal Management, Inc. The Company
had previously reserved the principal amount of this note receivable; the
collection of this receivable will result in a one-time recovery of $2.7
million, which is included in operating income in the second quarter of 2007.
As
a result of the transaction above, operating income was adversely impacted
by
$0.8 million.
New
Financing Agreement
On
June
18, 2007, MDC Partners Inc. (the “Company”) and its material subsidiaries
entered into a new $185 million senior secured financing agreement (the
“Financing Agreement”) with Fortress Credit, an affiliate of Fortress
Investment Group, as collateral agent and Wells Fargo Bank, as administrative
agent, and a syndicate of lenders. This facility replaced the Company’s existing
$96.5 million credit facility that was originally expected to mature on
September 21, 2007. Proceeds from the Financing Agreement were used to repay
in
full the outstanding balances on the Company's existing credit facility. The
obligations repaid totaled approximately $73.7 million. All of these repaid
credit facilities have been terminated.
The
new
Financing Agreement consists of a $55 million revolving credit facility, a
$60
million term loan and a $70 million delayed draw term loan. Borrowings under
the
Financing Agreement will bear interest as follows: (a) LIBOR Rate Loans bear
interest at applicable interbank rates and Reference Rate Loans bear 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. In
addition, the Company is required to pay a facility fee of 50 basis points.
Results
of Operations:
For
the Three Months Ended June 30, 2007
(thousands
of United States dollars)
|
|
|
Strategic
Marketing
Services
|
|
Customer
Relationship
Management
|
|
Specialized
Communication
Services
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
78,445
|
|
$
|
25,681
|
|
$
|
31,131
|
|
$
|
—
|
|
$
|
135,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
46,323
|
|
|
18,873
|
|
|
22,621
|
|
|
—
|
|
|
87,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expenses
|
|
|
18,820
|
|
|
4,746
|
|
|
5,930
|
|
|
6,473
|
|
|
35,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,853
|
|
|
1,530
|
|
|
802
|
|
|
95
|
|
|
6,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
9,449
|
|
|
532
|
|
|
1,778
|
|
|
(6,568
|
)
|
|
5,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,033
|
)
|
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations before income taxes, equity in affiliates and minority
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,465
|
|
|
Income
tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations before equity in affiliates and minority
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,757
|
|
|
Equity
in earnings of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
Minority
interests in income of consolidated subsidiaries
|
|
|
(4,250
|
)
|
|
(13
|
)
|
|
(1,156
|
)
|
|
|
|
|
(5,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$
|
242
|
|
$
|
-
|
|
$
|
3
|
|
$
|
1,308
|
|
$
|
1,553
|
|
|
Capital
expenditures:
|
|
|
1,828
|
|
|
1,080
|
|
|
798
|
|
|
121
|
|
|
3,827
|
|
For
the Three Months Ended June 30, 2006
(thousands
of United States dollars)
|
|
|
Strategic
Marketing
Services
|
|
Customer
Relationship
Management
|
|
Specialized
Communication
Services
|
|
Corporate
|
|
Total
|
|
|
|
|
(recasted)
|
|
|
|
(recasted)
|
|
|
|
|
|
|
Revenue
|
|
$
|
55,634
|
|
$
|
20,906
|
|
$
|
23,598
|
|
$
|
—
|
|
$
|
100,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
29,345
|
|
|
15,609
|
|
|
15,946
|
|
|
—
|
|
|
60,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expenses
|
|
|
16,131
|
|
|
3,859
|
|
|
4,875
|
|
|
6,320
|
|
|
31,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
3,493
|
|
|
1,125
|
|
|
437
|
|
|
63
|
|
|
5,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
6,665
|
|
|
313
|
|
|
2,340
|
|
|
(6,383
|
)
|
|
2,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509
|
|
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes, equity in affiliates
and
minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,592
|
|
|
Income
tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before equity in affiliates and minority
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
|
Equity
in earnings of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227
|
|
|
Minority
interests in income of consolidated subsidiaries
|
|
|
(2,723
|
)
|
|
(8
|
)
|
|
(703
|
)
|
|
—
|
|
|
(3,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,007
|
)
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(10,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$
|
271
|
|
$
|
6
|
|
$
|
—
|
|
$
|
1,530
|
|
$
|
1,807
|
|
|
Capital
expenditures
|
|
$
|
4,689
|
|
$
|
1,051
|
|
$
|
442
|
|
$
|
94
|
|
|
6,276
|
|
Results
of Operations:
For
the Six Months Ended June 30, 2007
(thousands
of United States dollars)
|
|
|
Strategic
Marketing
Services
|
|
Customer
Relationship
Management
|
|
Specialized
Communication
Services
|
|
Corporate
|
|
Total
|
|
|
Revenue
|
|
$
|
149,008
|
|
$
|
49,249
|
|
$
|
56,531
|
|
$
|
—
|
|
$
|
254,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
89,077
|
|
|
35,871
|
|
|
41,424
|
|
|
—
|
|
|
166,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expenses
|
|
|
36,327
|
|
|
9,205
|
|
|
11,522
|
|
|
13,090
|
|
|
70,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
7,597
|
|
|
3,080
|
|
|
1,383
|
|
|
185
|
|
|
12,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
Impairment
|
|
|
—
|
|
|
—
|
|
|
4,475
|
|
|
—
|
|
|
4,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
16,007
|
|
|
1,093
|
|
|
(2,273
|
)
|
|
(13,275
|
)
|
|
1,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,767
|
)
|
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations before income taxes, equity in affiliates and minority
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,478
|
)
|
|
Income
tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations before equity in affiliates and minority
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,698
|
)
|
|
Equity
in earnings of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
Minority
interests in income of consolidated subsidiaries
|
|
|
(7,966
|
)
|
|
(27
|
)
|
|
(1,717
|
)
|
|
—
|
|
|
(9,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(11,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$
|
491
|
|
$
|
5
|
|
$
|
7
|
|
$
|
2,966
|
|
$
|
3,469
|
|
|
Capital
expenditures
|
|
|
3,486
|
|
|
2,515
|
|
|
1,295
|
|
|
168
|
|
|
7,464
|
|
Results
of Operations:
For
the Six Months Ended June 30, 2006
(thousands
of United States dollars)
|
|
|
Strategic
Marketing
Services
|
|
Customer
Relationship
Management
|
|
Specialized
Communication
Services
|
|
Corporate
|
|
Total
|
|
|
|
|
(recasted)
|
|
|
|
(recasted)
|
|
|
|
|
|
|
Revenue
|
|
$
|
112,525
|
|
$
|
39,812
|
|
$
|
45,874
|
|
$
|
—
|
|
$
|
198,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
58,388
|
|
|
29,407
|
|
|
32,846
|
|
|
—
|
|
|
120,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expenses
|
|
|
32,133
|
|
|
7,333
|
|
|
9,154
|
|
|
12,387
|
|
|
61,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
8,753
|
|
|
2,189
|
|
|
861
|
|
|
97
|
|
|
11,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
13,251
|
|
|
883
|
|
|
3,013
|
|
|
(12,484
|
)
|
|
4,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,073
|
|
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes, equity in affiliates
and
minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100
|
|
|
Income
tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before equity in affiliates and minority
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,276
|
|
|
Equity
in earnings of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
501
|
|
|
Minority
interests in income of consolidated subsidiaries
|
|
|
(6,676
|
)
|
|
(38
|
)
|
|
(1,471
|
)
|
|
—
|
|
|
(8,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,408
|
)
|
|
Loss
from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(15,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$
|
491
|
|
$
|
12
|
|
$
|
2,338
|
|
$
|
2,491
|
|
$
|
5,332
|
|
|
Capital
expenditures
|
|
$
|
5,875
|
|
$
|
4,619
|
|
$
|
611
|
|
$
|
192
|
|
$
|
11,297
|
|
Revenue
was $135.3 million for the second quarter of 2007, representing an increase
of
$35.1 million or 35.1%, compared to revenue of $100.1 million in the second
quarter of 2006. This revenue increase relates primarily to organic growth
of
$27.0 million, primarily resulting from net new business wins and additional
revenues from existing clients in the United States. In addition, there was
an
increase of $5.6 million related to the consolidation of three entities in
the
second quarter of 2007, that was previously accounted for on the equity method
of accounting in the second quarter of 2006. Acquisition related revenue growth
was $1.9 million. In addition, a weakening of the U.S. dollar versus the
Canadian dollar and British pound during the second quarter of 2007, as compared
to the second quarter of 2006, resulted in increased revenues of approximately
$0.5 million.
Operating
profit for the second quarter of 2007 was $5.2 million, compared to an operating
profit of $2.9 million for the same quarter of 2006. The increase in operating
profit was primarily the result of an operating profit of $9.4 million in the
Strategic Marketing Services segment, as compared to an operating profit of
$6.7
million in the prior year quarter. In addition, operating profit in the Customer
Relationship Management segment increased by $0.2 million to $0.5 million.
This was partially offset by a decrease in operating profit in the Specialized
Communication Services segment of $0.6 million and an increase in corporate
operating expenses of $0.2 million during the quarter ended June 30, 2007,
as
compared to the quarter ended June 30, 2006.
The
net
loss from continuing operations for the second quarter of 2007 increased from
$1.0 million in 2006 to $2.6 million in 2007. This increase in net loss was
primarily the result of an increase in other expenses of $1.5 million which
includes a $3.1 million increase in unrealized losses on foreign currency
transactions offset in part by an increase in the gain on the sale of assets
of
$1.6 million, increased minority interest of $2.0 million, additional interest
expense of $1.8 million, offset in part by increased operating profits of $2.3
million, additional interest income of $0.9 million and an additional income
tax
recovery of $0.7 million.
Marketing
Communications Group
Revenues
for the second quarter of 2007 attributable to Marketing Communications, which
consists of three reportable segments - Strategic Marketing Services (“SMS”),
Customer Relationship Management (“CRM”), and Specialized Communication Services
(“SCS”), were $135.3 million compared to $100.1 million in the second quarter of
2006, representing an increase of $35.1 million or 35.1%.
The
components of revenue growth for the Marketing Communications Group for
the second quarter of 2007, are shown in the following table:
|
|
|
Revenue
|
|
|
|
|
(in
thousands)
|
|
%
|
|
|
Three
months ended June 30, 2006
|
|
$
|
100,138
|
|
|
|
|
|
Organic
|
|
|
26,998
|
|
|
27.0
|
%
|
|
Acquisitions
|
|
|
1,944
|
|
|
2.0
|
%
|
|
Effect
of accounting change
|
|
|
5,629
|
|
|
5.6
|
%
|
|
Foreign
exchange impact
|
|
|
548
|
|
|
0.5
|
%
|
|
Three
months ended June 30, 2007
|
|
$
|
135,257
|
|
|
35.1
|
%
|
The
percentage of revenue by geographic region remained relatively consistent with
the prior year quarter and is demonstrated in the following table:
|
|
|
Revenue
|
|
|
|
|
Three Months Ended
June
30, 2007
|
|
Three Months Ended
June
30, 2006
|
|
|
US
|
|
|
81
|
%
|
|
85
|
%
|
|
Canada
|
|
|
17
|
%
|
|
14
|
%
|
|
UK
and other
|
|
|
2
|
%
|
|
1
|
%
|
The
operating profit of the Marketing Communications Group for the second quarter
of
2007 increased by approximately $2.5 million, or 26.2%, to $11.8 million from
$9.3 million. Operating margins were 8.7% for 2007 as compared to 9.3% for
the
second quarter of 2006. The decrease in operating margin was primarily related
to an increase in cost of services sold as a percentage of revenue from 60.8%
in
2006 to 64.9% in 2007. This was partially offset by a reduction in office and
general expenses as a percentage of revenues from 24.8% in 2006 to 21.8% in
2007.
Marketing
Communications Businesses
Strategic
Marketing Services (“SMS”)
Revenues
attributable to SMS for the second quarter of 2007 were $78.4 million compared
to $55.6 million in the second quarter of 2006. This increase of $22.8 million,
or 41.0%, included organic revenue growth of approximately $17.8 million
resulting from new client business wins which was partially offset by client
losses. In addition, revenue also increased by $2.9 million relating to
the consolidation of two entities, Zig Inc. and Mono Advertising, LLC previously
accounted for on the equity basis. Acquisition related revenue contributed
$1.9
million during the second quarter of 2007. In December 2005, one of the SMS’
businesses clients terminated their engagement, and as a result, that business
received $0.8 million in termination payments during the second quarter of
2006.
The
operating profit of SMS for the second quarter of 2007 was $9.4 million compared
to 2006 operating profit of $6.7 million. Operating margins remained consistent
and were 12.0% for the second quarter of 2007 and 2006. Excluding the receipt
of
the termination payment noted above, 2006 operating income would have been
$5.9
million with operating margins of 10.8%. Total staff costs as a percentage
of
revenue decreased from 56.6% in 2006 to 52.2% in 2007. Office and general
expenses (excluding staff costs) decreased as a percentage of revenue to 14.6%
from 17.8% in the prior year quarter. These margin increases were offset in
part
by an increase in reimbursed client related direct costs as a percentage of
revenue.
Customer
Relationship Management (“CRM”)
Revenues
reported by the CRM segment for the second quarter of 2007 were $25.7
million, an increase of $4.8 million or 22.8%, compared to $20.9 million
reported for the second quarter of 2006. This growth was entirely organic and
was due primarily to additional business from existing clients, in part as
a
result of opening three additional customer care centers during 2006, offset
by
the closure of one customer care center, in August 2006.
The
operating profit of CRM was approximately $0.5 million for the second quarter
of
2007 as compared to $0.3 million in the second quarter of 2006. Operating
margins were 2.1% for the second quarter of 2007 as compared to 1.5% in the
second quarter of 2006. The increase in operating margin was primarily due
to a
decrease in cost of services as a percentage of revenue resulting primarily
from
reduced employee turnover, which was partially offset by an increase of 0.6%
in
depreciation and amortization expense as a percentage of revenue.
Specialized
Communication Services (“SCS”)
SCS
generated revenues of $31.1 million for the second quarter of 2007, $7.5 million
or 31.9% higher than revenue of $23.6 million in the second quarter of 2006.
This was primarily due to organic revenue growth of $4.4 million as a result
of
new business wins offset by the closure of MFP. In addition, revenue increased
by $2.7 million relating to the consolidation of an entity, Accumark
Communications, Inc., previously accounted for on the equity basis. In addition,
a weakening of the U.S. dollar versus the Canadian dollar and British pound
during the second quarter of 2007, as compared to the second quarter of 2006,
resulted in increased revenues of approximately $0.4 million.
The
operating profit of SCS decreased by $0.5 million to $1.8 million in the second
quarter of 2007, from an operating profit of $2.3 million in the second quarter
of 2006. Operating margins were 5.7% for the second quarter of 2007, as compared
to 9.9% in the prior year period. Excluding the results of MFP, operating income
in 2007 would have been $4.1 million compared to $3.7 million in 2006. Operating
margins would have been 13.3% in 2007 compared to 17.5% in 2006. The decrease
in
operating margins results primarily from the timing of when expected client
projects will begin and increased reimbursed client related direct costs as
a
percentage of revenue offset by a reduction in total staff costs as a percentage
of revenue from 51.4% in 2006 to 47.5% in 2007.
Corporate
Operating
expenses for the second quarter of 2007 increased by $0.2 million to $6.6
million from $6.4 million in the prior year quarter. The increase in corporate
expenses is primarily due to the net $0.8 million impact of the management
services agreement non-renewal payment, offset by a decrease in non-cash stock
based compensation expense from $1.5 million in 2006 to $1.3 million in 2007,
a
decrease in cash compensation of $0.3 million, and a decrease in insurance
related costs of $0.1 million.
Net
Interest Expense
Net
interest expense for the three months ended June 30, 2007 was $2.7 million,
$0.8
million higher than the $1.9 million incurred during the same period of 2006.
Interest expense increased $1.8 million in the three months ended June 30,
2007
compared to the same period of 2006 due to the write-off of deferred financing
costs of $0.6 million relating to the Company’s prior credit facility, as well
as higher interest rates and higher average outstanding debt in 2007 relating
to
continuing operations. Interest income was $1.1 million for the three months
ended June 30, 2007 as compared to $0.1 million in the same period of 2006.
Interest income increased primarily due to interest income recognized from
the
acceleration of payments totaling $2.0 million received in July 2007 related
to
the sale of SPI, originally due to be received in 2010 and 2011.
Other
Income (Expense)
Other
expense was $1.0 million in the second quarter of 2007, as compared to other
income of $0.5 million in the second quarter of 2006. This $1.5 million decrease
in income was due primarily to foreign currency transaction losses of $2.9
million in 2007 as compared to transaction gains of $0.2 million in 2006, which
was offset in part by a gain on sale of assets of $1.8 million in 2007,
primarily related to the sale of a plane acquired in the Zyman acquisition,
compared to a gain on sale of assets of $0.3 million in 2006.
Income
Tax Recovery
The
income tax recovery recorded in the second quarter of 2007 was $1.3 million
as
compared to a $0.6 million income tax recovery recorded in the second quarter
of
2006. The Company’s 2007 and 2006 effective tax rate was substantially lower
than the statutory tax rate due to minority interest income which is not subject
to tax and non-deductible non-cash stock based compensation
charges.
The
Company’s US operating units are generally structured as limited liability
companies, which are treated as partnerships for tax purposes. The Company
is
only taxed on its share of profits, while minority interest holders are
responsible for taxes on their share of the operating units’
profits.
Minority
Interests
Minority
interest in income of consolidated subsidiaries was $5.4 million for the second
quarter of 2007, an increase of $2.0 million from the $3.4 million of minority
interest in income of consolidated subsidiaries incurred during the second
quarter of 2006. This increase was due primarily to an increase in profitability
in subsidiaries that are not owned 100% within the SMS and SCS operating
segments.
Discontinued
Operations
Loss
from
discontinued operations was $9.5 million for the second quarter of 2006 and
relates to the operations of SPI, which was sold in 2006. Included in the loss
was a $7.9 million impairment charge, which was based on the expected net
proceeds from the sale of SPI compared to the Company’s carrying value of
SPI.
Net
Loss
As
a
result of the foregoing, the net loss recorded for the second quarter of 2007
was $2.6 million, or a loss of $ (0.11) per diluted share, compared to the
net
loss of $10.5 million, or $ (0.44) per diluted share, reported for the second
quarter of 2006.
Six
Months Ended June 30, 2007 Compared to Six Months Ended June 30,
2006
Revenue
was $254.8 million for the first six months of 2007, representing an increase
of
$56.6 million or 28.5%, compared to revenue of $198.2 million in the first
six
months of 2006. This revenue increase relates primarily to organic growth of
$43.5 million, primarily resulting from net new business wins and additional
revenues from existing clients in the United States. There was also an increase
of $10.7 million related to the consolidation of three entities in the first
six
months of 2007 that were previously accounted for on the equity method of
accounting in the first six months of 2006. In addition, acquisitions accounted
for $1.9 million of the revenue increase, and a weakening of the U.S. dollar
versus the Canadian dollar and British pound during the first six months of
2007, as compared to the first six months of 2006, resulted in increased
revenues of approximately $0.5 million.
Operating
profit for the first six months of 2007 was $1.6 million, compared to an
operating profit of $4.7 million for the same period of 2006. The decrease
in
operating profit was primarily the result of an operating loss of $2.3 million
in the Specialized Communication Services segment as compared to an operating
profit of $3.0 million in the prior year period. This operating loss of $2.3
million in the SCS segment for the six months ended June 30, 2007 was due
primarily to a goodwill impairment charge of $4.5 million. In addition, included
in operating profits in 2006 was a termination payment of $5.3 million received
in connection with the loss of a significant client. Corporate operating
expenses increased by $0.8 million to $13.3 million during the six months ended
June 30, 2007 from $12.5 million during the six months ended June 30, 2006,
primarily due to the $0.8 million impact of the management services agreement
charge previously mentioned and increased non-cash stock based compensation
of
$0.5 million. This was offset by a decrease in cash compensation and benefits
of
$0.5 million.
The
net
loss from continuing operations for the first six months of 2007 increased
from
$5.4 million in 2006 to $11.4 million in 2007, primarily the result of the
decrease in operating income discussed above, increased other expenses of $2.8
million, which includes an increase in unrealized foreign currency transaction
losses of $3.7 million offset in part by an increase in the gain on the sale
of
assets of $1.2 million, increased interest expense of $1.6 million and increased
minority interest income of $1.5 million offset in part by additional interest
income of $1.0 million.
Marketing
Communications Group
Revenues
for the first six months of 2007 attributable to Marketing Communications,
which
consists of three reportable segments - Strategic Marketing Services (“SMS”),
Customer Relationship Management (“CRM”), and Specialized Communication Services
(“SCS”), were $254.8 million compared to $198.2 million in the first six months
of 2006, representing an increase of $56.6 million or 28.5%.
The
components of revenue growth for the Marketing Communications Group, for
the first six months of 2007 are shown in the following table:
|
|
|
Revenue
|
|
|
|
|
(in
thousands)
|
|
%
|
|
|
Six
months ended June 30, 2006
|
|
$
|
198,211
|
|
|
|
|
|
Organic
|
|
|
43,495
|
|
|
21.9
|
%
|
|
Acquisitions
|
|
|
1,944
|
|
|
1.0
|
%
|
|
Effect
of accounting change
|
|
|
10,668
|
|
|
5.4
|
%
|
|
Foreign
exchange impact
|
|
|
470
|
|
|
0.2
|
%
|
|
Six
months ended June 30, 2007
|
|
$
|
254,788
|
|
|
28.5
|
%
|
The
Marketing Communications Group had organic revenue growth of $43.5 million,
or
21.9%, for the first six months of 2007, primarily attributable to net new
business wins and additional revenues from existing clients, particularly in
the
United States. The consolidation of three entities in the first six months
of
2007, which were previously accounted for under the equity method of accounting
in the first six months of 2006, accounted for $10.7 million of the increase.
Acquisitions accounted for $1.9 million of revenue growth in the first six
months of 2007. In addition, a weakening of the U.S. dollar versus the Canadian
dollar and British pound during the first six months of 2007, as compared to the
first six months of 2006, resulted in increased revenues of approximately $0.5
million.
The
percentage of revenue by geographic region remained relatively consistent with
the prior year six months and is demonstrated in the following table:
|
|
|
Revenue
|
|
|
|
|
Six Months Ended
June
30, 2007
|
|
Six Months Ended
June
30, 2006
|
|
|
US
|
|
|
81
|
%
|
|
85
|
%
|
|
Canada
|
|
|
17
|
%
|
|
14
|
%
|
|
UK
and other
|
|
|
2
|
%
|
|
1
|
%
|
The
operating profit of the Marketing Communications Group for the first six months
of 2007 decreased by approximately $2.3 million, or 13.5%, to $14.8 million
from
$17.1 million. Operating margins were 5.8% for 2007 as compared to 8.7% for
the
first six months of 2006. A goodwill impairment charge of $4.5 million accounted
for 1.8% of the decrease in operating margin. Included in operating profits
in
2006 was a termination payment of $5.3 million received in connection with
the
termination by a client of their engagement with a subsidiary of the Company
which had a positive impact on operating margins of 2.5% in 2006. Staff costs
as
a percentage of revenues (including the above noted termination payment)
decreased from 48.8% in 2006 to 47.8% in 2007. In addition, occupancy and
administrative costs increased due to the expansion of operations in Boulder,
Colorado and expansions and office moves of other business units as a percentage
of revenue occupancy and administrative costs decreased from 14.7% in 2006
to
13.3% in 2007.
Marketing
Communications Businesses
Strategic
Marketing Services (“SMS”)
Revenues
attributable to SMS for the first six months of 2007 were $149.0 million
compared to $112.5 million in the first six months of 2006. This increase of
$36.5 million or 32.4% included organic revenue growth of approximately $28.9
million resulting from new client business wins which was partially offset
by
client losses. In December 2005, one of the SMS’ businesses client’s
terminated their engagement, and as a result, that business received $5.3
million in termination payments during the first six months of 2006. In
addition, revenue also increased by $5.5 million relating to the consolidation
of two entities, Zig Inc. and Mono Advertising, LLC, previously accounted for
on
the equity basis. Acquisitions accounted for $1.9 million of revenue growth
in
the first six months of 2007.
The
operating profit of SMS for the first six months of 2007 and 2006 was $16.0
million and $13.3 million, respectively, while operating margins were 10.7%
for
the first six months of 2007 as compared to 11.8% in the first six months of
2006. The decrease in operating margin was primarily attributable to a
termination payment noted above. Excluding the receipt of this payment, 2006
operating profit would have been $8.0 million with operating margins of 7.5%.
Total staff costs as a percentage of revenue decreased from 56.1% in 2006 to
55.4% in 2007. Excluding the termination payment, staff costs as a percentage
of
revenue in 2006 would have been 58.8%. Office and general expenses increased
due
to additional occupancy and administrative costs relating to the expansion
of
operations in Boulder, Colorado and expansions and office moves of other
business units and as a percentage of revenue occupancy and administrative
costs
decreased from 17% in 2006 to 14.5% in 2007. Depreciation and amortization
decreased as certain intangibles resulting from the Zyman acquisition were
fully
amortized during 2006.
Customer
Relationship Management (“CRM”)
Revenues
reported by the CRM segment for the first six months of 2007 were $49.2
million, an increase of $9.4 million or 23.7% compared to the $39.8 million
reported for the first six months of 2006. This growth was entirely organic
and
was due primarily to additional business from existing clients, in part as
a
result of opening three additional customer care centers during 2006, offset
by
the closure of one customer care center, in August 2006.
The
operating profit of CRM was approximately $1.1 million for the first six months
of 2007 as compared to $0.9 million in 2006. Operating margins were 2.2% for
both the first six months of 2007 and 2006.
Specialized
Communication Services (“SCS”)
SCS
generated revenues of $56.5 million for the first six months of 2007, $10.7
million or 23.2% higher than revenue of $45.9 million in the first six months
of
2006. This increase was primarily due to revenue of $5.1 million relating to
organic growth as a result of new business wins offset by the loss of several
significant clients, primarily at MFP, and revenue of $5.1 million relating
to the consolidation of an entity, Accumark Communications, Inc., previously
accounted for on the equity basis. In addition, a weakening of the US dollar
versus the Canadian dollar and British pound during the first six months of
2007, as compared to the first six months of 2006, resulted in increased
revenues of approximately $0.4 million.
The
operating profit of SCS decreased by $5.3 million to an operating loss of $2.3
million in the first six months of 2007, from an operating profit of $3.0
million in the first six months of 2006. This decrease was due primarily to
a
goodwill impairment charge of $4.5 million offset by a non-cash stock based
compensation charge of $2.3 million relating to the price paid for membership
interests, which was less than fair value of such membership interests and
the
fair value of an option granted to certain members of management of Source
Marketing LLC during the first quarter of 2006. Excluding the operating results
of MFP and the related goodwill impairment, 2007 operating income would have
been $5.6 million with operating margins of 10.4%. Excluding the operating
results of MFP and the non-cash stock based compensation charge, 2006 operating
income would have been $7.0 million with operating margins of 17.6%. Staff
costs
excluding MFP and the non-cash stock based compensation charge as a percentage
of revenue increased to 46.0% in 2007 from 44.5% in 2006. The decrease in
operating margins and the increase in the staff cost ratio is primarily a result
of the timing of when expected client projects will begin. Additionally,
operating margins were negatively impacted by increased reimbursed client
related direct costs as a percentage of revenue.
Corporate
Operating
expenses for the first six months of 2007 increased by $0.8 million to $13.3
million from $12.5 million in the prior year period. The increase in corporate
expenses is primarily due to the $0.8 million impact of the renewal of
management services agreement previously mentioned. Non-cash stock based
compensation increased by $0.5 million, which was offset by a decrease in cash
compensation and benefits of $0.5 million.
Net
Interest Expense
Net
interest expense for the six months ended June 30, 2007 was $5.3 million, $0.6
million higher than the $4.6 million incurred during the same period of 2006.
Interest expense increased $1.6 million in the six months ended June 30, 2007
compared to the same period of 2006 due to the write-off of deferred financing
costs of $0.6 million relating to the Company’s prior credit facility, as well
as higher interest rates and higher average outstanding debt in 2007 relating
to
continuing operations. Interest income was $1.2 million for the six months
ended
June 30, 2007 as compared to $0.3 in the same period of 2006. This increase
was
primarily due to the interest income recognized from the acceleration of
payments totaling $2.0 million received in July 2007 related to the sale of
SPI,
originally due to be received in 2010 and 2011.
Other
Income (Expense)
Other
expense was $1.8 million in the first six months of 2007 from other income
of
$1.1 million in the first six months of 2006, due primarily to an increase
in
foreign currency transaction losses of $3.4 million in 2007 as compared to
transaction gains of $0.3 in 2006. In addition, during the six months ended
June
30, 2007, the Company recognized a gain on the sale of assets of $1.8 million,
primarily related to the sale of a plane acquired in the Zyman acquisition,
as
compared to a gain on the sale of assets of $0.6 million in 2006.
Income
Tax Recovery
The
income tax recovery recorded in the first six months of 2007 was $3.8 million
as
compared to $1.2 million in the first six months of 2006. The Company’s
effective tax rate was substantially lower than the statutory tax rate due
to
minority interest income which is not subject to tax and non-deductible non-cash
stock based compensation charges in both the 2007 and 2006 first
quarter.
The
Company’s US operating units are generally structured as limited liability
companies, which are treated as partnerships for tax purposes. The Company
is
only taxed on its share of profits, while minority interest holders are
responsible for taxes on their share of the profits.
Minority
Interests
Minority
interest in income of consolidated subsidiaries was $9.7 million for the first
six months of 2007, up $1.5 million from the $8.2 million of minority interest
in income of consolidated subsidiaries incurred during the first six months
of
2006, due primarily to an increase in profitability in the subsidiaries who
are
not 100% owned within the SMS and SCS operating segments.
Discontinued
Operations
Loss
from
discontinued operations was $10.2 million for the first six months of 2006
and
relates to the operations of SPI, which was sold in 2006. Included in the $10.2
million loss was a $7.9 million impairment charge which was based on the
expected net proceeds from the sale of SPI compared to the Company’s carrying
value of SPI.
Net
Loss
As
a
result of the foregoing, the net loss recorded for the first six months of
2007
was $11.4 million, or a loss of $ (0.46) per diluted share, compared to the
net
loss of $15.6 million, or $ (0.66) per diluted share, reported for the first
six
months of 2006.
Liquidity
and Capital Resources:
Liquidity
The
following table provides summary information about the Company’s liquidity
position:
|
|
|
As
of and for the six months ended
June
30, 2007
|
|
As
of and for the six months ended
June
30, 2006
|
|
As
of and for the year ended
December 31,
2006
|
|
|
|
|
(000’s)
|
|
(000’s)
|
|
(000’s)
|
|
|
Cash
and cash equivalents
|
|
$
|
9,359
|
|
$
|
5,182
|
|
$
|
6,591
|
|
|
Working
capital (deficit)
|
|
$
|
(28,884
|
)
|
$
|
(104,573
|
)
|
$
|
(105,039
|
)
|
|
Cash
(used in) provided by operating activities
|
|
$
|
(8,849
|
)
|
$
|
13,211
|
|
$
|
39,705
|
|
|
Cash
used in investing activities
|
|
$
|
(10,853
|
)
|
$
|
(15,125
|
)
|
$
|
(14,315
|
)
|
|
Cash
(provided by) used in financing activities
|
|
$
|
23,066
|
|
$
|
(5,552
|
)
|
$
|
(31,597
|
)
|
|
Long-term
debt to shareholders’ equity ratio
|
|
|
1.05
|
|
|
0.85
|
|
|
0.37
|
|
|
Fixed
charge coverage ratio
|
|
|
N/A
|
|
|
1.20
|
|
|
1.31
|
|
|
Fixed
charge coverage deficiency
|
|
$
|
5,478
|
|
|
N/A
|
|
|
N/A
|
|
As
of
June 30, 2007, and December 31, 2006, $6.3 million and $2.4 million of the
consolidated cash position was held by subsidiaries, which, although available
for the subsidiaries’ use, does not represent cash that is distributable as
earnings to MDC Partners for use to reduce its indebtedness.
Working
Capital
At
June
30, 2007, the Company had a working capital deficit of $28.9 million, compared
to a deficit of $105.0 million at December 31, 2006. The increase in
working capital is primarily due to seasonal shifts in the amounts billed to
clients, and paid to suppliers, primarily media outlets, as well as
classification of the revolving credit facility under the new Financing
Agreement as a long-term liability as of June 30, 2007 as compared to a
short-term liability at December 31, 2006.
Included
in current liabilities is the outstanding borrowings under the Company’s former
credit facility of $45.0 million as December 31, 2006. See Long-term Debt
below.
The
Company intends to maintain sufficient availability of funds under the new
Financing Agreement at any particular time to adequately fund such working
capital deficits should there be a need to do so from time to time.
Cash
Flows
Operating
Activities
Cash
flow
used in operations, including changes in non-cash working capital, for the
six
months ended June 30, 2007 was $8.8 million. This was attributable primarily
to
a net operating loss of $11.4 million, payments of accounts payable and accrued
liabilities, which resulted in a cash use from operations of $6.5 million,
an
increase in prepaid and other current assets of $6.4 million, an increase in
accounts receivable of $15.9 million and a decrease in advance billings of
$1.3
million. This use of cash was partially offset by depreciation and amortization,
a goodwill impairment charge and non-cash stock compensation of $21.4 million,
and a decrease in expenditures billable to clients of $8.7 million. Cash
provided by continuing operations was $11.6 million in the six months ended
June
30, 2006 and was primarily reflective of a net loss from continuing operations
of $5.4 million plus non-cash depreciation and amortization of $12.7 million,
non-cash stock based compensation of $4.9 million and cash flows from non-cash
working capital of $2.8 million, partially offset by $2.5 million in deferred
income taxes. Discontinued operations provided cash of $1.6 million in the
six
months ended June 30, 2006.
Investing
Activities
Cash
flows used in investing activities were $10.9 million for the six months ended
June 30, 2007, compared with $15.1 million in the six months ended June 30,
2006.
Expenditures
for capital assets in the six months ended June 30, 2007 were $7.5 million.
Of
this amount, $3.5 million was incurred by the SMS segment, $2.5 million was
incurred by the CRM segment and $1.3 million was incurred by the SCS segment.
These expenditures consisted
primarily
of computer equipment and leasehold improvements and $0.2 million related to
the
purchase of corporate assets, primarily software. In the six months ended June
30, 2006, capital expenditures totaled $11.3 million, of which $5.9 million
was
incurred by the SMS segment, $4.6 million was incurred by the CRM segment and
$0.6 million was incurred by the SCS segment, which expenditures consisted
primarily of leasehold improvements of computer and switching equipment and
$0.2
million related to the purchase of corporate assets.
Cash
flow
used in acquisitions was $10.7 million in the six months ended June 30, 2007,
and primarily related to the Company’s investments in the HL Group, Redscout,
Iradesso Communications Corp. and a payment for deferred acquisition
consideration. The Company also received proceeds from the sale of assets of
$7.5 million in 2007. In the six months ended June 30, 2006, cash flow used
in
acquisitions was $3.6 million and primarily related to the settlement of put
obligations and deferred acquisition consideration.
Distributions
received from non-consolidated affiliates amounted to $0.4 million for the
six
months ended June 30, 2006.
Discontinued
operations used cash of $1.2 million in 2006 relating to capital asset
purchases.
Financing
Activities
During
the six months ended June 30, 2007, cash flows provided by financing activities
amounted to $23.1 million, and primarily consisted of $82.2 million of proceeds
from the new Financing Agreement, which was partially offset by the $45.0
million repayment of the old credit facility, $10.5 million of net repayments
of
long-term debt and bank borrowings, and the payment of $3.8 million of deferred
financing costs relating to the new Financing Agreement. During the six months
ended June 30, 2006, cash flows used in financing activities amounted to $5.6
million, and consisted primarily of repayments of the prior credit facility
of
$2.0 million and repayments of long-term debt and bank borrowings of $3.6
million.
Discontinued
operations used cash of $0.5 million in 2006, relating to payments under capital
leases.
Long-Term
Debt
On
June
18, 2007, the Company and its material subsidiaries entered into a new $185
million senior secured financing agreement (the “Financing Agreement”) with
Fortress Credit, an affiliate of Fortress Investment Group, as collateral
agent and Wells Fargo Bank, as administrative agent, and a syndicate of lenders.
This facility replaced the Company’s existing $96.5 million credit facility that
was originally expected to mature on September 21, 2007. Proceeds from the
Financing Agreement were used to repay in full the outstanding balances on
the
Company's existing credit facility. The obligations repaid totaled approximately
$73.65 million. All of these repaid credit facilities have been
terminated.
This
new
Financing Agreement consists of a $55 million revolving credit facility, a
$60
million term loan and a $70 million delayed draw term loan. Borrowings under
the
Financing Agreement will bear interest as follows: (a) LIBOR Rate Loans bear
interest at applicable interbank rates and Reference Rate Loans bear 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. In
addition, the Company is required to pay a facility fee of 50 basis points.
The
new
Financing Agreement is guaranteed by the material subsidiaries of the Company
and matures on June 17, 2012. The Financing Agreement is subject to various
covenants, including a senior leverage ratio, fixed charges ratio, limitations
on debt incurrence, limitation on liens and limitation on dividends and other
payments.
Long-term
debt (including the current portion of long-term debt and the Financing
Agreement) as of June 30, 2007 was $127.3 million, an increase of $31.8 million
compared with the $95.5 million outstanding at December 31, 2006. The
increase was primarily the result of borrowings under the Financing Agreement
due primarily to seasonal shifts in the amounts billed to clients, and paid
to
suppliers, primarily media outlets and payments made for acquisitions and
deferred acquisition payments and an increase in the Company’s 8% convertible
debentures (payable in Canadian dollars) of $3.6 million due to the weakening
of
the US dollar compared to the Canadian dollar.
Pursuant
to the Financing Agreement, the Company must comply with certain financial
covenants including, among other things, covenants for (i) total debt
ratio, (ii) fixed charges ratio, (iii) minimum earnings before
interest, taxes and depreciation and amortization, and (iv) limitations on
capital expenditures, in each case as such term is specifically defined in
the
Financing Agreement. For the period ended June 30, 2007, the Company’s
calculation of each of these covenants, and the specific requirements under
the
Financing Agreement, respectively, were as follows:
|
|
|
June
30,
2007
|
|
|
Total
Senior Leverage Ratio
|
|
|
2.12
|
|
|
Maximum
per covenant
|
|
|
3.25
|
|
|
|
|
|
|
|
|
Fixed
Charges Coverage Ratio
|
|
|
1.88
|
|
|
Minimum
per covenant
|
|
|
1.20
|
|
|
|
|
|
|
|
|
Minimum
earnings before interest, taxes and depreciation and
amortization
|
|
$
|
41,855
|
|
|
Minimum
per covenant
|
|
$
|
30,000
|
|
|
|
|
|
|
|
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
Financing Agreement, as noncompliance with such covenants could have a material
adverse effect on the Company.
Capital
Resources
At
June
30, 2007 the Company had utilized approximately $87.6 million of its Financing
Agreement in the form of drawings and letters of credit. Cash and drawn
available bank credit facilities to support the Company’s future cash
requirements, as at June 30, 2007 was approximately $100.6 million.
The
Company expects to incur up to approximately $15.0 million of capital
expenditures during 2007. Such capital expenditures are expected to include
leasehold improvements 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 Financing Agreement and,
if
required, by raising additional funds through the incurrence of bridge or other
debt or the issuance of equity. Management believes that the Company’s cash flow
from operations and funds available under the Financing Agreement will be
sufficient to meet its ongoing working capital, capital expenditures and other
cash needs over the next eighteen months. If the Company has significant organic
growth, the Company may need to obtain additional financing in the form of
debt
and/or equity financing upon fluctuations in working capital.
Deferred
Acquisition 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 three-year period following
the acquisition date, and are based on achievement of certain thresholds of
future earnings and, in certain cases, also based on the rate of growth of
those
earnings. The contingent consideration is recorded as an obligation of the
Company when the contingency is resolved and the amount is reasonably
determinable. At June 30, 2007, there was $1.4 million of deferred consideration
included in the Company’s balance sheet. Based on the various assumptions as to
future operating results of the relevant entities, management estimates that
approximately $1.8 million of additional deferred purchase obligations could
be
triggered during 2007 or thereafter, including approximately $0.2 million which
may be paid in the form of issuance by the Company of its Class A shares.
The actual amount that the Company pays in connection with the obligations
may
differ materially from this estimate.
Off-Balance
Sheet Commitments
Put
Rights of Subsidiaries’ Minority Shareholders
Owners
of
interests in certain of the Marketing Communications Group subsidiaries have
the
right in certain circumstances to require the Company to acquire the remaining
ownership interests held by them. 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 of 2007 to 2013.
It is
not determinable, at this time, if or when the owners of these put option 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.
Management
estimates, assuming that the subsidiaries owned by the Company at June 30,
2007,
perform over the relevant future periods at their trailing twelve-month earnings
level, that these rights, if all exercised, could require the Company, in future
periods, to pay an aggregate amount of approximately $134.3 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 $27.1 million by the issuance of the Company’s Class A
subordinate voting shares. The Company intends to finance the cash portion
of
these contingent payment obligations using available cash from operations,
borrowings under its credit facility (and refinancings thereof) and, if
necessary, through incurrence of additional debt. The ultimate amount payable
and the incremental operating income in the future relating to these
transactions will vary because it is dependent on the future results of
operations of the subject businesses and the timing of when these rights are
exercised. Approximately $10.1 million of the estimated $134.3 million that
the
Company would be required to pay subsidiaries minority shareholders’ upon the
exercise of outstanding put option rights, relates to rights exercisable within
2007. 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 $22.6 million.
The
following table summarizes the potential timing of the consideration and
incremental operating income before depreciation and amortization based on
assumptions as described above.
|
Consideration
(4)
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
& Thereafter
|
|
Total
|
|
|
|
|
($
Millions)
|
|
|
Cash
|
|
$
|
9.1
|
|
$
|
30.1
|
|
$
|
13.5
|
|
$
|
35.0
|
|
$
|
19.5
|
|
$
|
107.2
|
|
|
Shares
|
|
|
1.0
|
|
|
7.9
|
|
|
4.0
|
|
|
9.5
|
|
|
4.7
|
|
|
27.1
|
|
|
|
|
$
|
10.1
|
|
$
|
38.0
|
|
$
|
17.5
|
|
$
|
44.5
|
|
$
|
24.2
|
|
$
|
134.3(1
|
)
|
|
Operating
income before depreciation and amortization to be
received(2)
|
|
$
|
3.0
|
|
$
|
9.2
|
|
$
|
1.8
|
|
$
|
3.4
|
|
$
|
5.2
|
|
$
|
22.6
|
|
|
Cumulative
operating income before depreciation and amortization(3)
|
|
$
|
3.0
|
|
$
|
12.2
|
|
$
|
14.0
|
|
$
|
17.4
|
|
|
22.6
|
|
|
(5
|
)
|
|
(1)
|
Of
this, approximately $43.3 million has been recognized in Minority
Interest
on the Company’s balance sheet as of September 22, 2004 in
conjunction with the consolidation of CPB as a variable interest
entity.
|
|
(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 estimated 2007 operating results. This amount represents amounts
to be
received 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.
|
|
|
Amounts
are not presented as they would not be meaningful due to multiple
periods
included.
|
Critical
Accounting Policies
The
following summary of accounting policies has been prepared to assist in better
understanding the Company’s consolidated financial statements and the related
management discussion and analysis. Readers are encouraged to consider this
information together with the Company’s consolidated financial statements and
the related notes to the consolidated financial statements as included in the
Company’s annual report on Form 10-K for a more complete understanding of
accounting policies discussed below.
Estimates
.
The preparation of the Company’s financial statements in conformity with
generally accepted accounting principles in the United States of America, or
“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
income tax assets, stock-based compensation, and the reporting of variable
interest entities at the date of the financial statements. The statements are
evaluated on an ongoing basis and estimates are based on historical experience,
current conditions and various other assumptions believed to be reasonable
under
the circumstances. Actual results can differ from those estimates, and it is
possible that the differences could be material.
Revenue
Recognition.
The
Company’s revenue recognition policies are in compliance with the SEC Staff
Accounting Bulletin 104, “Revenue Recognition” (“SAB 104”), and accordingly,
revenue is generally recognized when services are earned or upon delivery of
the
products when ownership and risk of loss has transferred to the customer, the
selling price is fixed or determinable and collection of the resulting
receivable is reasonably assured.
The
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 contract. Commission revenue is earned and recognized
upon
the placement of advertisements in various media when the Company has no further
performance obligations. Fixed fees for services are recognized upon completion
of the earnings process and acceptance by the client. Per diem fees are
recognized upon the performance of the Company’s services. In addition, for
certain service transactions, 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 achieved, or when the
Company’s clients determine performance against qualitative goals has been
achieved. In all circumstances, revenue is only recognized when collection
is
reasonably assured.
The
Company follows EITF No. 99-19, “Reporting Revenue Gross as a Principal versus
Net as an Agent” (“EITF 99-19). This Issue summarized the EITF’s views on when
revenue should be recorded at the gross amount billed because 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 businesses at times act as an
agent and records revenue equal to the net amount retained, when the fee or
commission is earned. The Company also follows EITF No. 01-14 for reimbursement
received of 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.
Acquisitions,
Goodwill and Other Intangibles
. A fair
value approach is used in testing goodwill for impairment under SFAS 142 to
determine if other than temporary impairment has occurred. One approach utilized
to determine fair values is a discounted cash flow methodology. When available
and as appropriate, comparative market multiples are used. Numerous estimates
and assumptions necessarily have to be made when completing a discounted cash
flow valuation, including estimates and assumptions regarding interest rates,
appropriate discount rates and capital structure. Additionally, estimates must
be made regarding revenue growth, operating margins, tax rates, working capital
requirements and capital expenditures. Estimates and assumptions also need
to be
made when determining the appropriate comparative market multiples to be used.
Actual results of operations, cash flows and other factors used in a discounted
cash flow valuation will likely differ from the estimates used and it is
possible that differences and changes could be material. The Company incurred
a
goodwill impairment charge of $4.5 million in 2007.
The
Company has historically made and expects to continue to make selective
acquisitions of marketing communications businesses. In making acquisitions,
the
price paid is determined by various factors, including service offerings,
competitive position, reputation and geographic coverage, as well as prior
experience and judgment. Due to the nature of advertising, marketing and
corporate communications services companies; the companies acquired frequently
have significant identifiable intangible assets, which primarily consist of
customer relationships. The Company has determined that certain intangibles
(trademarks) have an indefinite life, as there are no legal, regulatory,
contractual, or economic factors that limit the useful life.
A
summary
of the Company’s deferred acquisition consideration obligations, sometimes
referred to as earnouts, and obligations under put rights of subsidiaries’
minority shareholders to purchase additional interests in certain subsidiary
and
affiliate companies is set forth in the “Liquidity and Capital Resources”
section of this report. The deferred acquisition consideration obligations
and
obligations to purchase additional interests in certain subsidiary and affiliate
companies are primarily based on future performance. Contingent purchase price
obligations are accrued, in accordance with GAAP, when the contingency is
resolved and payment is determinable.
Allowance
for doubtful accounts
. Trade
receivables are stated less allowance for doubtful accounts. The allowance
represents estimated uncollectible receivables usually due to customers’
potential insolvency. The allowance 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 these factors could impact
the estimated valuation allowance and income tax expense.
Effective
January 1, 2006, the Company adopted SFAS 123(R) and has opted to use the
modified prospective application transition method. Under this method the
Company will not restate its prior financial statements. Instead, the Company
will apply SFAS 123(R) for new awards granted or modified after the adoption
of
SFAS 123(R), any portion of awards that were granted after December 15, 1994
and
have not vested as of January 1, 2006, and any outstanding liability
awards.
Variable
Interest Entities
. The
Company evaluates its various investments in entities to determine whether
the
investee is a variable interest entity and if so whether MDC is the primary
beneficiary. Such evaluation requires management to make estimates and judgments
regarding the sufficiency of the equity at risk in the investee and the expected
losses of the investee and may impact whether the investee is accounted for
on a
consolidated basis.
New
Accounting Pronouncements
In
June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. This Interpretation is effective
for fiscal years beginning after December 15, 2006, with earlier
application permitted. The Company has adopted this interpretation, the adoption
of which did not have a material effect on its financial
statements.
In
September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”. This
statement defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. This statement is
effective for all fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. Earlier application is encouraged.
The Company is currently evaluating the impact of this statement on its
financial statements.
In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). This statement permits
entities to choose to measure many financial instruments and certain other
items
at fair value. This statement expands the use of fair value measurement and
applies to entities that elect the fair value option. The fair value option
established by this Statement permits all entities to choose to measure eligible
items at fair value at specified election dates. SFAS 159 is effective as of
the
beginning of an entity’s first fiscal year that begins after November 15,
2007. The Company is currently evaluating the impact of this statement on its
financial statements.
Risks
and Uncertainties
This
document contains forward-looking statements. The Company’s representatives may
also make forward-looking statements orally from time to time. Statements in
this document that are not historical facts, including statements about the
Company’s beliefs and expectations, recent business and economic trends,
potential acquisitions, estimates of amounts for deferred acquisition
consideration and “put” option rights, constitute forward-looking statements.
These statements are based on current plans, estimates and projections, and
are
subject to change based on a number of factors, including those outlined in
this
section. Forward-looking statements speak only as of the date they are made,
and
the Company undertakes no obligation to update publicly any of them in light
of
new information or future events, if any.
Forward-looking
statements involve inherent risks and uncertainties. A number of important
factors could cause actual results to differ materially from those contained
in
any forward-looking statements. Such risk factors include, but are not limited
to, the following:
|
|
·
|
risks
associated with effects of national and regional economic
conditions;
|
|
|
·
|
the
Company’s ability to attract new clients and retain existing
clients;
|
|
|
·
|
the
financial success of the Company’s
clients;
|
|
|
·
|
the
Company’s ability to remain in compliance with its debt agreements and the
Company’s ability to finance its contingent payment obligations when due
and payable, including but not limited to those relating to “put” options
rights;
|
|
|
·
|
the
Company’s ability to retain and attract key
employees;
|
|
|
·
|
the
successful completion and integration of acquisitions which complement
and
expand the Company’s business
capabilities;
|
|
|
·
|
foreign
currency fluctuations; and
|
|
|
·
|
risks
arising from the Company’s historical stock option grant
practices.
|
The
Company’s business strategy includes ongoing efforts to engage in material
acquisitions of ownership interests in entities in the marketing communications
services industry. The Company intends to finance these acquisitions by using
available cash from operations and through incurrence of bridge or other debt
financing, either of which may increase the Company’s leverage ratios, or by
issuing equity, which may have a dilutive impact on existing shareholders
proportionate ownership. At any given time, the Company may be engaged in a
number of discussions that may result in one or more material acquisitions.
These opportunities require confidentiality and may involve negotiations that
require quick responses by the Company. Although there is uncertainty that
any
of these discussions will result in definitive agreements or the completion
of
any transactions, the announcement of any such transaction may lead to increased
volatility in the trading price of the Company’s securities.
Investors
should carefully consider these risk factors, the risk factors specified in
Item
1A of this Form 10-Q, and in the additional risk factors outlined in more detail
in the Company’s Annual Report on Form 10-K under the caption “Risk
Factors” and in the Company’s other SEC filings.
Item
3.
Quantitative
and Qualitative Disclosures about Market Risk
The
Company is exposed to market risk related to interest rates and foreign
currencies.
Debt
Instruments. At June 30, 2007, the Company’s debt obligations consisted of
amounts outstanding under a revolving credit facility and term loan. 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 Company’s
ability to obtain the required bank syndication commitments depends in part
on
conditions in the bank market at the time of syndication. Given the existing
level of debt of $82.2 million under the financing agreement, as of June 30,
2007, a 1.0% increase or decrease in the weighted average interest rate, which
was 9.54% during the three months ended June 30, 2007, would have an interest
impact of approximately $0.8 million annually.
Foreign
Exchange. The Company conducts business in five currencies, the US dollar,
the
Canadian dollar, Jamaican dollar, the Mexican Peso and the British Pound. Our
results of operations are subject to risk from the translation to the US dollar
of the revenue and expenses of our non-US operations. The effects of currency
exchange rate fluctuations on the translation of our results of operations
are
discussed in “Management’s Discussion and Analysis of Financial Condition and
Result of Operations”. For the most part, our revenues and expenses incurred
related to our non-US operations are denominated in their functional currency.
This minimizes the impact that fluctuations in exchange rates will have on
profit margins. The Company does not enter into foreign currency forward
exchange contracts or other derivative financial instruments to hedge the
effects of adverse fluctuations in foreign currency exchange rates.
Effective June 28,
2005, the Company entered into a cross currency swap contract (“Swap”), a form
of derivative, in order to mitigate the risk of currency fluctuations relating
to interest payment obligations. The Swap contract provides for a notional
amount of debt fixed at C$45.0 million and at $36.5 million, with the interest
rates fixed at 8% per annum for the Canadian dollar amount and fixed at 8.25%
per annum for the US dollar amount. On June 22, 2006, the Company settled
this Swap.
Item
4.
Controls
and Procedures
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 President and Chief Executive Officer (CEO) and our
Chief Accounting Officer and Interim Chief Financial Officer (CFO), who is
currently 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.
However, the Company’s disclosure controls and procedures are designed to
provide reasonable assurances of achieving the Company’s 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 as of June 30, 2007.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting
identified in connection with the foregoing evaluation that occurred during
the
first six months of 2007 that have materially affected, or are reasonably likely
to materially affect the Company’s internal control over financial
reporting.
Item
1.
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.
There
are
no material changes in the risk factors set forth in Part I, Item 1A of the
Company’s Annual Report on Form 10-K for the year-ended December 31,
2006.
(
a)
The information provided below describes various transactions occurring during
the second quarter of 2007 in which the Company issued shares of its
Class A subordinate voting shares (“Class A Shares”) that were not
registered under the Securities Act of 1933, as amended, (the “Securities
Act”).
|
|
(1)
|
On
April 4, 2007, the Company, through a wholly-owned subsidiary,
purchased 59% of the total outstanding membership units of HL Group
Partners LLC (“HL Group”). As part of this acquisition, the Company
paid approximately $4.4 million in cash and issued 128,550 of the
Company’s Class A Shares (valued at approximately $1 million on the
date of issuance). The Class A Shares were issued by the Company to
the sellers of HL Group without registration in reliance on
Section 4(2) under the Securities Act and Regulation D
thereunder, based on the sophistication of the sellers and their
status as
“accredited investors” within the meaning of Rule 501(a) of
Regulation D. Sellers of the HL Group had access to all the
documents filed by the Company with the
SEC.
|
|
|
(2)
|
In
April 2007, the Company issued 66,350 Class A Shares to the minority
equity holders of Hello Design, LLC. The Company initially acquired
51% of the equity interests in Hello Design in March 2004. The most
recent issuance of 66,350 Class A Shares represented a deferred
payment of the purchase price. The Class A Shares had a market value
of approximately $510,000 as of the date of issuance and were issued
by
the Company without registration in reliance on
Section 4(2) under the Securities Act and Regulation D
thereunder, based on the sophistication of the sellers and their
status as
“accredited investors” within the meaning of Rule 501(a) of
Regulation D. Sellers of Hello Design had access to all the
documents filed by the Company with the
SEC.
|
|
|
(3)
|
On
June 15, 2007, the Company, through a wholly-owned subsidiary, purchased
60% of the total outstanding membership units of Redscout LLC
(“Redscout”). As part of this acquisition, the Company paid
approximately $3.86 million in cash and issued 76,430 of the Company’s
Class A Shares (valued at approximately $640,000 on the date of
issuance). The Class A Shares were issued by the Company to the
seller of Redscout without registration in reliance on
Section 4(2) under the Securities Act and Regulation D
thereunder, based on the sophistication of the seller and its status
as an
“accredited investor” within the meaning of Rule 501(a) of
Regulation D. The Seller of Redscout had access to all the
documents filed by the Company with the
SEC.
|
|
|
(a)
|
This
item is answered in respect of the Annual and Special Meeting of
Shareholders held on June 1, 2007 (the “Annual
Meeting”).
|
|
|
(b)
|
No
response is required to Paragraph (b) because (i) proxies for
the meeting were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, as amended; (ii) there was no solicitation in
opposition to management’s nominees as listed in the proxy statement; and
(iii) all such nominees were
elected.
|
|
|
(c)
|
At
the Annual Meeting, the following number of shares were cast with
respect
to each matter voted upon:
|
At
the Annual Meeting, shareholder votes were cast for the election of management’s
nominees for Director as follows:
|
NOMINEE
|
|
FOR
|
|
WITHHELD
|
|
|
|
|
|
|
|
|
|
Steven
Berns
|
|
|
19,759,217
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
N. Davidson
|
|
|
19,759,217
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Kamerschen
|
|
|
19,759,217
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
|
Scott
Kauffman
|
|
|
19,759,217
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
|
Senator
Michael J.L. Kirby
|
|
|
19,759,217
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
|
Miles
S. Nadal
|
|
|
19,759,217
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
M. Pustil
|
|
|
19,759,217
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
|
Francois
R. Roy
|
|
|
19,759,217
|
|
|
1,802
|
|
Proposal
to approve the appointment of BDO Seidman, LLP as the Company’s independent
auditors for 2007:
|
FOR
|
|
WITHHELD
|
|
|
|
|
|
|
|
19,697,981
|
|
|
63,038
|
|
Proposal
to approve an amendment to the Company’s 2005 Stock Incentive Plan:
|
FOR
|
|
AGAINST
|
|
|
|
|
|
|
|
11,266,689
|
|
|
4,921,854
|
|
Item
6.
Exhibits
EXHIBIT INDEX
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
10.1
|
|
Amended
2005 Stock Incentive Plan of the Company, as approved and adopted
by the
shareholders of the Company at the 2007 Annual and Special Meeting
of
Shareholders on June 1, 2007.*
|
|
|
|
|
|
10.2
|
|
Management
Services Agreement relating to employment of Miles Nadal as Chief
Executive Officer of the Company, 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
|
|
Financing
Agreement by and among Maxxcom Inc. as Borrower, the Company and
its
Subsidiaries as Guarantors, various Lenders, Fortress Credit Corp.
as
Collateral Agent, and Wells Fargo Foothill, Inc. as Administrative
Agent,
dated June 18, 2007 (incorporated by reference to Exhibit 10.1 of
the
Company’s Current Report on Form 8-K filed on June 19,
2007).
|
|
|
|
|
|
10.4
|
|
Amendment
No. 11 dated as of April 4, 2007, to the Credit Agreement made September
22, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Form
8-K filed on April 10, 2007).
|
|
|
|
|
|
10.5
|
|
Amended
and Restated Employment Agreement, dated as of July 6, 2007, between
the
Company and Mitchell Gendel, as General Counsel & Corporate
Secretary.*
|
|
|
|
|
|
10.6
|
|
Amended
and Restated Employment Agreement, dated as of July 6, 2007, between
the
Company and Michael Sabatino, as Chief Accounting Officer.*
|
|
|
|
|
|
10.7
|
|
Employment
Agreement, dated as of July 19, 2007, between the Company and David
Doft,
as Chief Financial Officer (effective August 10,
2007).*
|
|
|
|
|
|
10.8
|
|
Separation
Agreement and Release, dated as of July 23, 2007, between the Company
and
Steven Berns.*
|
|
|
|
|
|
12
|
|
Statement
of computation of ratio of earnings to fixed charges*
|
|
|
|
|
|
31.1
|
|
Certification
by Chief Executive Officer pursuant to Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934 and
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
|
|
31.2
|
|
Certification
by the 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 the Chief Financial Officer pursuant to 18 USC. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
|
|
|
|
|
|
99.1
|
|
List
of the Company’s operating subsidiaries by reportable
segments.*
|
*
Filed
electronically herewith.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
MDC
PARTNERS INC.
|
|
|
|
|
|
|
|
|
|
/s/ Michael
Sabatino
|
|
|
|
Michael
Sabatino
Chief
Accounting Officer, Interim Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
August
7, 2007
|
|
|
|
EXHIBIT INDEX
|
Exhibit No.
|
|
Description
|
|
|
|
|
|
10.1
|
|
Amended
2005 Stock Incentive Plan of the Company, as approved and adopted
by the
shareholders of the Company at the 2007 Annual and Special Meeting
of
Shareholders on June 1, 2007.*
|
|
|
|
|
|
10.2
|
|
Management
Services Agreement relating to employment of Miles Nadal as Chief
Executive Officer of the Company, 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
|
|
Financing
Agreement by and among Maxxcom Inc. as Borrower, the Company and
its
Subsidiaries as Guarantors, various Lenders, Fortress Credit Corp.
as
Collateral Agent, and Wells Fargo Foothill, Inc. as Administrative
Agent,
dated June 18, 2007 (incorporated by reference to Exhibit 10.1 of
the
Company’s Current Report on Form 8-K filed on June 19,
2007).
|
|
|
|
|
|
10.4
|
|
Amendment
No. 11 dated as of April 4, 2007, to the Credit Agreement made September
22, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Form
8-K filed on April 10, 2007).
|
|
|
|
|
|
10.5
|
|
Amended
and Restated Employment Agreement, dated as of July 6, 2007, between
the
Company and Mitchell Gendel, as General Counsel & Corporate
Secretary.*
|
|
|
|
|
|
10.6
|
|
Amended
and Restated Employment Agreement, dated as of July 6, 2007, between
the
Company and Michael Sabatino, as Chief Accounting Officer.*
|
|
|
|
|
|
10.7
|
|
Employment
Agreement, dated as of July 19, 2007, between the Company and David
Doft,
as Chief Financial Officer (effective August 10,
2007).*
|
|
|
|
|
|
10.8
|
|
Separation
Agreement and Release, dated as of July 23, 2007, between the Company
and
Steven Berns.*
|
|
|
|
|
|
12
|
|
Statement
of computation of ratio of earnings to fixed charges*
|
|
|
|
|
|
31.1
|
|
Certification
by Chief Executive Officer pursuant to Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934 and
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
|
|
31.2
|
|
Certification
by the 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 the Chief Financial Officer pursuant to 18 USC. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
|
|
|
|
|
|
99.1
|
|
List
of the Company’s operating subsidiaries by reportable
segments.*
|
*
Filed
electronically herewith.
MDC
PARTNERS INC.
2005
STOCK INCENTIVE PLAN
(As
Amended on June 1, 2007)
1.
Purpose
of the Plan
This
MDC
Partners Inc. 2005 Stock Incentive Plan is intended to promote the interests
of
the Company and its shareholders by providing the employees and consultants
of
the Company and eligible non-employee directors of MDC Partners Inc., who are
largely responsible for the management, growth and protection of the business
of
the Company, with incentives and rewards to encourage them to continue in the
service of the Company. The Plan is designed to meet this intent by providing
such employees, consultants and eligible non-employee directors with a
proprietary interest in pursuing the long-term growth, profitability and
financial success of the Company.
2.
Definitions
As
used
in the Plan, the following definitions apply to the terms indicated
below:
(a)
“Board
of
Directors” means the Board of Directors of MDC Partners Inc.
(b)
“Change
in Control” means the occurrence of any of the following:
(i)
Any
Person becoming the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act, a “Beneficial Owner”) of twenty-five percent
(25%) or more of the combined voting power of MDC's then outstanding voting
securities (“Voting Securities”);
provided
,
however
that a
Change in Control shall not be deemed to occur by reason of an acquisition
of
Voting Securities directly from MDC or by (i) an employee benefit plan (or
a trust forming a part thereof) maintained by (A) MDC or any Person of
which a majority of its voting power or its voting equity securities or equity
interest is owned, directly or indirectly, by MDC (the “MDC Group”),
(B) any member of the MDC Group, or (C) any Person in connection with
a Non-Control Transaction (as such term is hereinafter defined);
(ii)
The
individuals who, as of April 1, 2005, are members of the Board of Directors
(the
"Incumbent Board"), cease for any reason to constitute at least two-thirds
of
the members of the Board of Directors;
provided
,
however
that if
the election, or nomination for election by MDC's shareholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of the Plan, be considered as a member
of
the Incumbent Board;
provided
,
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
an
actual or threatened solicitation of proxies or consents by or on behalf of
a
Person other than the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest;
or
(iii)
The
consummation of:
(A)
A
merger,
consolidation or reorganization with or into MDC or in which securities of
MDC
are issued, unless such merger, consolidation or reorganization is a
"Non-Control Transaction." A "Non-Control Transaction" is a merger,
consolidation or reorganization with or into MDC or in which securities of
MDC
are issued where:
(I)
the
stockholders of MDC, immediately before such merger, consolidation or
reorganization, own, directly or indirectly immediately following such merger,
consolidation or reorganization, at least sixty percent (60%) of the combined
voting power of the outstanding voting securities of the corporation resulting
from such merger or consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their ownership of the
Voting Securities immediately before such merger, consolidation or
reorganization,
(II)
the
individuals who were members of the Incumbent Board immediately prior to the
execution of the agreement providing for such merger, consolidation or
reorganization constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, or a corporation beneficially owning
a
majority of the voting securities of the Surviving Corporation,
(III)
no
Person
other than (1) any member of the MDC Group, (2) any employee benefit plan (or
any trust forming a part thereof) maintained immediately prior to such merger,
consolidation or reorganization by any member of the MDC Group, or (3) any
Person who, immediately prior to such merger, consolidation or reorganization
Beneficially Owns twenty-five percent (25%) or more of the then outstanding
Voting Securities, owns, directly or indirectly, twenty-five percent (25%)
or
more of the combined voting power of the Surviving Corporation's voting
securities outstanding immediately following such transaction;
(B)
A
complete liquidation or dissolution of the Company; or
(C)
The
sale
or other disposition of all or substantially all of the assets of the Company
to
any Person (other than a member of the MDC Group).
Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur solely because
any Person (the "Subject Person") becomes the Beneficial Owner of more than
the
permitted amount of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Company which, by reducing the number
of
Voting Securities outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner
of
any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then
a
Change in Control shall occur.
(c)
“Class
A
Shares” means MDC’s Class A subordinate voting shares, without par value, or any
other security into which such shares shall be changed pursuant to the
adjustment provisions of Section 10 of the Plan.
(d)
“Code”
means the Internal Revenue Code of 1986, as amended from time to
time.
(e)
“Committee”
means the Human Resources & Compensation Committee of the Board of Directors
or such other committee as the Board of Directors shall appoint from time to
time to administer the Plan and to otherwise exercise and perform the authority
and functions assigned to the Committee under the terms of the
Plan.
(f)
“Company”
means MDC and each of its Subsidiaries, collectively.
(g)
“Covered
Employee” means a Participant who at the time of reference is a “covered
employee” as defined in Code Section 162(m) and the regulations promulgated
under Code Section 162(m), or any successor statute.
(h)
“Director”
means a member of the Board of Directors who is not at the time of reference
an
employee of the Company.
(i)
“Exchange
Act” means the Securities Exchange Act of 1934, as amended.
(j)
“Fair
Market Value” means, with respect to a Class A Share, as of the applicable date
of determination (i) the closing sales price on the immediately preceding
business day of Class A Shares as reported on the principal securities exchange
on which such shares are then listed or admitted to trading or (ii) if not
so
reported, the average of the closing bid and ask prices on the immediately
preceding business day as reported on the National Association of Securities
Dealers Automated Quotation System or (iii) if not so reported, as furnished
by
any member of the National Association of Securities Dealers, Inc. selected
by
the Committee. In the event that the price of Class A Shares shall not be so
reported, the Fair Market Value of Class A Shares shall be determined by the
Committee in its absolute discretion.
(k)
“Incentive
Award” means an Option, SAR or Other Stock-Based Award granted to a Participant
pursuant to the terms of the Plan.
(l)
“MDC”
means MDC Partners Inc., a corporation established under the Canadian Business
Corporation Act, and any successor thereto.
(m)
“Option”
means a non-qualified stock option to purchase Class A Shares granted to a
Participant pursuant to Section 6.
(n)
“Other
Stock-Base Award” means an equity or equity-related award granted to a
Participant pursuant to Section 8.
(o)
“Participant”
means a Director, employee or consultant of the Company, including any person
or
company engaged to provide ongoing management or consulting services for the
Company and, at the discretion of any of the foregoing persons, and subject
to
any required regulatory approvals and conditions, a personal holding company
controlled by such person, who or which is eligible to participate in the Plan
and to whom one or more Incentive Awards have been granted pursuant to the
Plan
and, following the death of any such natural person, his successors, heirs,
executors and administrators, as the case may be.
(p)
“Performance-Based
Compensation” means compensation that satisfies the requirements of Section
162(m) of the Code for deductibility of remuneration paid to Covered
Employees.
(q)
“Performance
Measures” means such measures as are described in Section 9 on which performance
goals are based in order to qualify certain awards granted hereunder as
Performance-Based Compensation.
(r)
“Performance
Period” means the period of time during which the performance goals must be met
in order to determine the degree of payout and/or vesting with respect to an
Incentive Award that is intended to qualify as Performance-Based
Compensation.
(s)
“Permitted
Acceleration Event” means (i) with respect to any Incentive Award that is
subject to performance-based vesting, the full or partial vesting of such
Incentive Award based on satisfaction of the applicable performance-based
conditions, (ii) the occurrence of a Change in Control or an event described
in
Section 10(b), (c) or (d) or (iii) any termination of the employment of a
Participant, other than a termination for cause (as defined by the Committee)
or
voluntary termination prior to retirement (as defined by the
Committee).
(t)
“Person”
means a “person” as such term is used in Section 13(d) and 14(d) of the Exchange
Act.
(u)
“Plan”
means this MDC Partners Inc. 2005 Stock Incentive Plan, as it may be amended
from time to time.
(v)
“SAR”
means a stock appreciation right granted to a Participant pursuant to Section
7.
(w)
“Securities
Act” means the Securities Act of 1933, as amended.
(x)
“Subsidiary”
means any “subsidiary corporation” within the meaning of Section 424(f) of the
Code or any other entity that the Committee determines from time to time should
be treated as a subsidiary corporation for purposes of this Plan.
3.
Stock
Subject to the Plan
(a)
In
General
Subject
to adjustment as provided in Section 10 and the following provisions of this
Section 3, the maximum number of Class A Shares that may be covered by Incentive
Awards granted under the Plan shall not exceed 3,000,000 Class A Shares. Class
A
Shares issued under the Plan may be either authorized and unissued shares or
treasury shares, or both, at the discretion of the Committee.
For
purposes of the preceding paragraph, Class A Shares covered by Incentive Awards
shall only be counted as used to the extent they are actually issued and
delivered to a Participant (or such Participant’s permitted transferees as
described in the Plan) pursuant to the Plan. For purposes of clarification,
in
accordance with the preceding sentence if an Incentive Award is settled for
cash
or if Class A Shares are withheld to pay the exercise price of an Option or
to
satisfy any tax withholding requirement in connection with an Incentive Award
only the shares issued (if any), net of the shares withheld, will be deemed
delivered for purposes of determining the number of Class A Shares that are
available for delivery under the Plan. In addition, if Class A Shares are issued
subject to conditions which may result in the forfeiture, cancellation or return
of such shares to the Company, any portion of the shares forfeited, cancelled
or
returned shall be treated as not issued pursuant to the Plan. In addition,
if
Class A Shares owned by a Participant (or such Participant’s permitted
transferees as described in the Plan) are tendered (either actually or through
attestation) to the Company in payment of any obligation in connection with
an
Incentive Award, the number of shares tendered shall be added to the number
of
Class A Shares that are available for delivery under the Plan. In addition,
if
the Company uses cash received by the Company in payment of the exercise price
or purchase price in connection with any Incentive Award granted pursuant to
the
Plan to repurchase Class A Shares from any Person, the shares so repurchased
will be added to the aggregate number of shares available for delivery under
the
Plan. For purposes of the preceding sentence, Class A Shares repurchased by
the
Company shall be deemed to have been repurchased using such funds only to the
extent that such funds have actually been previously received by the Company
and
that the Company promptly designates in its books and records that such
repurchase was paid for with such funds. Class A Shares covered by Incentive
Awards granted pursuant to the Plan in connection with the assumption,
replacement, conversion or adjustment of outstanding equity-based awards in
the
context of a corporate acquisition or merger (within the meaning of NASD Rule
4350) shall not count as used under the Plan for purposes of this Section
3.
Subject
to adjustment as provided in Section 10, the maximum number of Class A Shares
that may be covered by Incentive Awards granted under the Plan to any single
Participant in any fiscal year of the Company shall not exceed 500,000 shares,
prorated on a daily basis for any fiscal year of the Company that is shorter
than 365 days.
(b)
Prohibition
on Substitutions and Repricings
In
no
event shall any new Incentive Awards be issued in substitution for outstanding
Incentive Awards previously granted to Participants, nor shall any repricing
(within the meaning of US generally accepted accounting practices or any
applicable stock exchange rule) of Incentive Awards issued under the Plan be
permitted at any time under any circumstances, in each case unless the
shareholders of the Company expressly approve such substitution or
repricing.
(c)
Annual
Limitation on Grants
.
The
Committee shall limit annual grants of equity awards under this Plan to
executive officers of the Company to an aggregate amount equal to not more
than
three percent (3%) of the number of issued and outstanding shares of the
Company’s capital stock at the beginning of the Company’s fiscal
year.
4.
Administration
of the Plan
The
Plan
shall be administered by a Committee of the Board of Directors consisting of
two
or more persons, each of whom qualify as non-employee directors (within the
meaning of Rule 16b-3 promulgated under Section 16 of the Exchange Act), and
as
“outside directors” within the meaning of Treasury Regulation Section
1.162-27(e)(3). The Committee shall, consistent with the terms of the Plan,
from
time to time designate those who shall be granted Incentive Awards under the
Plan and the amount, type and other terms and conditions of such Incentive
Awards. All of the powers and responsibilities of the Committee under the Plan
may be delegated by the Committee, in writing, to any subcommittee thereof.
In
addition, the Committee may from time to time authorize a committee consisting
of one or more Directors to grant Incentive Awards to persons who are not
“executive officers” of MDC (within the meaning of Rule 16a-1 under the Exchange
Act), subject to such restrictions and limitation as the Committee may specify.
In addition, the Board of Directors may, consistent with the terms of the Plan,
from time to time grant Incentive Awards to Directors.
The
Committee shall have full discretionary authority to administer the Plan,
including discretionary authority to interpret and construe any and all
provisions of the Plan and the terms of any Incentive Award (and any agreement
evidencing any Incentive Award) granted thereunder and to adopt and amend from
time to time such rules and regulations for the administration of the Plan
as
the Committee may deem necessary or appropriate. Without limiting the generality
of the foregoing, (i) the Committee shall determine whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment and (ii) the employment of a Participant with the
Company shall be deemed to have terminated for all purposes of the Plan if
such
person is employed by or provides services to a Person that is a Subsidiary
of
the Company and such Person ceases to be a Subsidiary of the Company, unless
the
Committee determines otherwise. Decisions of the Committee shall be final,
binding and conclusive on all parties.
On
or
after the date of grant of an Incentive Award under the Plan, the Committee
may
(i) accelerate the date on which any such Incentive Award becomes vested,
exercisable or transferable, as the case may be, (ii) extend the term of any
such Incentive Award, including, without limitation, extending the period
following a termination of a Participant’s employment during which any such
Incentive Award may remain outstanding, (iii) waive any conditions to the
vesting, exercisability or transferability, as the case may be, of any such
Incentive Award or (iv) provide for the payment of dividends or dividend
equivalents with respect to any such Incentive Award.
No
member
of the Committee shall be liable for any action, omission, or determination
relating to the Plan, and MDC shall indemnify and hold harmless each member
of
the Committee and each other director or employee of the Company to whom any
duty or power relating to the administration or interpretation of the Plan
has
been delegated against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Committee) arising out of any action, omission or determination relating to
the
Plan, unless, in either case, such action, omission or determination was taken
or made by such member, director or employee in bad faith and without reasonable
belief that it was in the best interests of the Company.
5.
Eligibility
The
Persons who shall be eligible to receive Incentive Awards pursuant to the Plan
shall be those Directors and employees of the Company, including any person
or
company engaged to provide ongoing management or consulting services for the
Company and, at the discretion of any of the foregoing persons, and subject
to
any required regulatory approvals and conditions, a personal holding company
controlled by such person, whom the Committee shall select from time to time.
All Incentive Awards granted under the Plan shall be evidenced by a separate
written agreement entered into by the Company and the recipient of such
Incentive Award.
6.
Options
The
Committee may from time to time grant Options, subject to the following terms
and conditions:
(a)
Exercise
Price
The
exercise price per Class A Share covered by any Option shall be not less than
100% of the Fair Market Value of a Class A Share on the date on which such
Option is granted.
(b)
Term
and Exercise of Options
(1)
Each
Option shall become vested and exercisable on such date or dates, during such
period and for such number of Class A Shares as shall be determined by the
Committee on or after the date such Option is granted;
provided
,
however
that no
Option shall be exercisable after the expiration of ten years from the date
such
Option is granted;
provided
,
further
that no
Option shall become exercisable earlier than one year after the date on which
it
is granted, other than upon the occurrence of a Permitted Acceleration Event;
and,
provided
,
further
,
that
each Option shall be subject to earlier termination, expiration or cancellation
as provided in the Plan or in the agreement evidencing such Option.
(2)
Each
Option may be exercised in whole or in part;
provided
,
however
that no
partial exercise of an Option shall be for an aggregate exercise price of less
than $1,000. The partial exercise of an Option shall not cause the expiration,
termination or cancellation of the remaining portion thereof.
(3)
An
Option
shall be exercised by such methods and procedures as the Committee determines
from time to time, including without limitation through net physical settlement
or other method of cashless exercise.
(4)
Options
may not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in
any manner other than by will or by the laws of descent or distribution and
may
be exercised, during the lifetime of a Participant, only by the
Participant.
(c)
Effect
of Termination of Employment or other Relationship
The
agreement evidencing the award of each Option shall specify the consequences
with respect to such Option of the termination of the employment, service as
a
director or other relationship between the Company and the Participant holding
the Option.
(d)
Effect
of Change in Control
Upon
the
occurrence of a Change in Control, each Option outstanding at such time shall
become fully and immediately vested and exercisable and shall remain exercisable
until its expiration, termination or cancellation pursuant to the terms of
the
Plan and the agreement evidencing such Option.
7.
Stock
Appreciation Rights
The
Committee may from time to time grant SARs, subject to the following terms
and
conditions:
(a)
Stand-Alone
and Tandem; Cash and Stock-Settled
SARs
may
be granted on a stand-alone basis or in tandem with an Option. Tandem SARs
may
be granted contemporaneously with or after the grant of the Options to which
they relate. SARs may be settled in Class A Shares or in cash.
(b)
Exercise
Price
The
exercise price per Class A Share covered by any SAR shall be not less than
100%
of the Fair Market Value of a Class A Share on the date on which such SAR is
granted;
provided
,
however
that the
exercise price of an SAR that is tandem to an Option and that is granted after
the grant of such Option may have an exercise price less than 100% of the Fair
Market Value of a Class A Share on the date on which such SAR is granted
provided that such exercise price is at least equal to the exercise price of
the
related Option.
(c)
Benefit
Upon Exercise
The
exercise of an SAR with respect to any number of Class A Shares prior to the
occurrence of a Change in Control shall entitle the Participant to (i) a cash
payment, for each such share, equal to the excess of (A) the Fair Market Value
of a Class A Share on the effective date of such exercise over (B) the per
share
exercise price of the SAR, (ii) the issuance or transfer to the Participant
of
the greatest number of whole Class A Shares which on the date of the exercise
of
the SAR have an aggregate Fair Market Value equal to such excess or (iii) a
combination of cash and Class A Shares in amounts equal to such excess, as
determined by the Committee. The exercise of an SAR with respect to any number
of Class A Shares upon or after the occurrence of a Change in Control shall
entitle the Participant to a cash payment, for each such share, equal to the
excess of (i) the greater of (A) the highest price per share of Class A Shares
paid in connection with such Change in Control and (B) the Fair Market Value
of
Class A Shares on the effective date of exercise over (ii) the per share
exercise price of the SAR. Such payment, transfer or issuance shall occur as
soon as practical, but in no event later than five business days, after the
effective date of exercise.
(d)
Term
and Exercise of SARs
(1)
Each
SAR
shall become vested and exercisable on such date or dates, during such period
and for such number of Class A Shares as shall be determined by the Committee
on
or after the date such SAR is granted;
provided
,
however
that no
SAR shall be exercisable after the expiration of ten years from the date such
SAR is granted;
provided
,
further
that no
SAR shall become exercisable earlier than one year after the date on which
it is
granted, other than upon the occurrence of a Permitted Acceleration Event;
and,
provided
,
further
,
that
each SAR shall be subject to earlier termination, expiration or cancellation
as
provided in the Plan or in the agreement evidencing such SAR.
(2)
Each
SAR
may, to the extent vested and exercisable, be exercised in whole or in part;
provided
,
however
that no
partial exercise of an SAR shall be for an aggregate exercise price of less
than
$1,000. The partial exercise of an SAR shall not cause the expiration,
termination or cancellation of the remaining portion thereof.
(3)
An
SAR
shall be exercised by such methods and procedures as the Committee determines
from time to time.
(4)
SARs
may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in
any
manner other than by will or by the laws of descent or distribution and may
be
exercised, during the lifetime of a Participant, only by the
Participant.
(5)
The
exercise with respect to a number of Class A Shares of an SAR granted in tandem
with an Option shall cause the immediate cancellation of the Option with respect
to the same number of shares. The exercise with respect to a number of Class
A
Shares of an Option to which a tandem SAR relates shall cause the immediate
cancellation of the SAR with respect to an equal number of shares.
(e)
Effect
of Termination of Employment or other Relationship
The
agreement evidencing the award of each SAR shall specify the consequences with
respect to such SAR of the termination of the employment, service as a director
or other relationship between the Company and Participant holding the
SAR.
(f)
Effect
of Change in Control
Upon
the
occurrence of a Change in Control, each SAR outstanding at such time shall
become fully and immediately vested and exercisable and shall remain exercisable
until its expiration, termination or cancellation pursuant to the terms of
the
Plan and the agreement evidencing such SAR.
8.
Other
Stock-Based Awards
The
Committee may grant equity-based or equity-related awards not otherwise
described herein in such amounts and subject to such terms and conditions as
the
Committee shall determine. Without limiting the generality of the preceding
sentence, each such Other Stock-Based Award may (i) involve the transfer of
actual Class A Shares to Participants, either at the time of grant or
thereafter, or payment in cash or otherwise of amounts based on the value of
Class A Shares, (ii) be subject to performance-based and/or service-based
conditions, (iii) be in the form of phantom stock, restricted stock, restricted
stock units, performance shares, or share-denominated performance units and
(iv)
be designed to comply with applicable laws of jurisdictions other than the
United States. Notwithstanding anything in this Section 8, no Other Stock-Based
Award shall vest or otherwise become payable earlier than three years following
the date on which it is granted, other than upon the occurrence of a Permitted
Acceleration Event.
9.
Performance
Measures
(a)
Performance
Measures
The
performance goals upon which the payment or vesting of any Incentive Award
(other than Options and SARs) to a Covered Employee that is intended to qualify
as Performance-Based Compensation depends shall relate to one or more of the
following Performance Measures: revenue growth, operating income, operating
cash
flow, net income, earnings per share, cash earnings per share, return on sales,
return on assets, return on equity, return on invested capital and total
shareholder return.
Performance
Periods may be equal to or longer than, but not less than, one fiscal year
of
the Company. Within 90 days after the beginning of a Performance Period, and
in
any case before 25% of the Performance Period has elapsed, the Committee shall
establish (a) performance goals and objectives for the Company for such
Performance Period, (b) target awards for each Participant, and (c) schedules
or
other objective methods for determining the applicable performance percentage
to
be applied to each such target award.
The
measurement of any Performance Measure(s) may exclude the impact of charges
for
restructurings, discontinued operations, extraordinary items, and other unusual
or non-recurring items, and the cumulative effects of accounting changes, each
as defined by generally accepted accounting principles and as identified in
the
Company’s audited financial statements, including the notes thereto. Any
Performance Measure(s) may be used to measure the performance of the Company
or
a Subsidiary as a whole or any business unit of the Company or any Subsidiary
or
any combination thereof, as the Committee may deem appropriate, or any of the
above Performance Measures as compared to the performance of a group of
comparator companies, or a published or special index that the Committee, in
its
sole discretion, deems appropriate.
Nothing
in this Section 9 is intended to limit the Committee’s discretion to adopt
conditions with respect to any Incentive Award that is not intended to qualify
as Performance-Based Compensation that relate to performance other than the
Performance Measures.
(b)
Committee
Discretion
In
the
event that the requirements of Section 162(m) and the regulations thereunder
change to permit Committee discretion to alter the Performance Measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder
approval.
10.
Adjustment
Upon Changes in Class A Shares
(a)
Shares
Available for Grants
In
the
event of any change in the number of Class A Shares outstanding by reason of
any
stock dividend or split, recapitalization, merger, consolidation, combination
or
exchange of shares or similar corporate change, the maximum aggregate number
of
Class A Shares with respect to which the Committee may grant Incentive Awards
and the maximum aggregate number of Class A Shares with respect to which the
Committee may grant Incentive Awards to any individual Participant in any year
shall be appropriately adjusted by the Committee. In the event of any change
in
the number of Class A Shares outstanding by reason of any other similar event
or
transaction, the Committee may, but need not, make such adjustments in the
number and class of Class A Shares with respect to which Incentive Awards may
be
granted as the Committee may deem appropriate.
(b)
Increase
or Decrease in Issued Shares Without Consideration
Subject
to any required action by the shareholders of MDC, in the event of any increase
or decrease in the number of issued Class A Shares resulting from a subdivision
or consolidation of Class A Shares or the payment of a stock dividend (but
only
on the Class A Shares), or any other increase or decrease in the number of
such
shares effected without receipt or payment of consideration by the Company,
the
Committee shall proportionally adjust the number of Class A Shares subject
to
each outstanding Incentive Award and the exercise price per Class A Share of
each such Incentive Award.
(c)
Certain
Mergers
Subject
to any required action by the shareholders of MDC, in the event that MDC shall
be the surviving corporation in any merger or consolidation (except a merger
or
consolidation as a result of which the holders of Class A Shares receive
securities of another corporation), each Incentive Award outstanding on the
date
of such merger or consolidation shall pertain to and apply to the securities
which a holder of the number of Class A Shares subject to such Incentive Award
would have received in such merger or consolidation.
(d)
Certain
Other Transactions
In
the
event of (i) a dissolution or liquidation of MDC, (ii) a sale of all or
substantially all of MDC’s assets, (iii) a merger or consolidation involving MDC
in which MDC is not the surviving corporation or (iv) a merger or consolidation
involving MDC in which MDC is the surviving corporation but the holders of
Class
A Shares receive securities of another corporation and/or other property,
including cash, the Committee shall, in its absolute discretion, have the power
to:
(i)
cancel, effective immediately prior to the occurrence of such event, each
Incentive Award (whether or not then exercisable), and, in full consideration
of
such cancellation, pay to the Participant to whom such Incentive Award was
granted an amount in cash, for each Class A Share subject to such Incentive
Award equal to the value, as determined by the Committee in its reasonable
discretion, of such Incentive Award, provided that with respect to any
outstanding Option or SAR such value shall be equal to the excess of (A) the
value, as determined by the Committee in its reasonable discretion, of the
property (including cash) received by the holder of Class A Shares as a result
of such event over (B) the exercise price of such Option or SAR; or
(ii)
provide for the exchange of each Incentive Award (whether or not then
exercisable or vested) for an incentive award with respect to, as appropriate,
some or all of the property which a holder of the number of Class A Shares
subject to such Incentive Award would have received in such transaction and,
incident thereto, make an equitable adjustment as determined by the Committee
in
its reasonable discretion in the exercise price of the incentive award, or
the
number of shares or amount of property subject to the incentive award or, if
appropriate, provide for a cash payment to the Participant to whom such
Incentive Award was granted in partial consideration for the exchange of the
Incentive Award.
(e)
Other
Changes
In
the
event of any change in the capitalization of MDC or corporate change other
than
those specifically referred to in paragraphs (b), (c) or (d), the Committee
may,
in its absolute discretion, make such adjustments in the number and class of
shares subject to Incentive Awards outstanding on the date on which such change
occurs and in such other terms of such Incentive Awards as the Committee may
consider appropriate to prevent dilution or enlargement of rights.
(f)
No
Other Rights
Except
as
expressly provided in the Plan, no Participant shall have any rights by reason
of any subdivision or consolidation of shares of stock of any class, the payment
of any dividend, any increase or decrease in the number of shares of stock
of
any class or any dissolution, liquidation, merger or consolidation of MDC or
any
other corporation. Except as expressly provided in the Plan, no issuance by
MDC
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number of Class A Shares subject to any Incentive
Award.
11.
Rights
as a Stockholder
No
person
shall have any rights as a stockholder with respect to any Class A Shares
covered by or relating to any Incentive Award granted pursuant to the Plan
until
the date of the issuance of a stock certificate with respect to such shares.
Except as otherwise expressly provided in Section 10 hereof, no adjustment
of
any Incentive Award shall be made for dividends or other rights for which the
record date occurs prior to the date such stock certificate is
issued.
12.
No
Special Employment Rights; No Right to Incentive Award
(a)
Nothing contained in the Plan or any Incentive Award shall confer upon any
Participant any right with respect to the continuation of his employment by
or
service to the Company or interfere in any way with the right of the Company
at
any time to terminate such employment or to increase or decrease the
compensation of the Participant from the rate in existence at the time of the
grant of an Incentive Award.
(b)
No
person shall have any claim or right to receive an Incentive Award hereunder.
The Committee’s granting of an Incentive Award to a Participant at any time
shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
13.
Securities
Matters
(a)
MDC
shall
be under no obligation to effect the registration pursuant to the Securities
Act
of any Class A Shares to be issued hereunder or to effect similar compliance
under any state laws. Notwithstanding anything herein to the contrary, MDC
shall
not be obligated to cause to be issued or delivered any certificates evidencing
Class A Shares pursuant to the Plan unless and until MDC is advised by its
counsel that the issuance and delivery of such certificates is in compliance
with all applicable laws, regulations of governmental authority and the
requirements of any securities exchange on which Class A Shares are traded
and
that the Participant has delivered all notices and documents required to be
delivered to the Company in connection therewith. The Committee may require,
as
a condition to the issuance and delivery of certificates evidencing Class A
Shares pursuant to the terms hereof, that the recipient of such shares make
such
covenants, agreements and representations, and that such certificates bear
such
legends, as the Committee deems necessary or desirable.
(b)
The
exercise of any Option granted hereunder shall only be effective at such time
as
counsel to MDC shall have determined that the issuance and delivery of Class
A
Shares pursuant to such exercise is in compliance with all applicable laws,
regulations of governmental authority and the requirements of any securities
exchange on which Class A Shares are traded. MDC may, in its sole discretion,
defer the effectiveness of an exercise of an Option hereunder or the issuance
or
transfer of Class A Shares pursuant to any Incentive Award pending or to ensure
compliance under federal or state securities laws. MDC shall inform the
Participant in writing of its decision to defer the effectiveness of the
exercise of an Option or the issuance or transfer of Class A Shares pursuant
to
any Incentive Award. During the period that the effectiveness of the exercise
of
an Option has been deferred, the Participant may, by written notice, withdraw
such exercise and obtain the refund of any amount paid with respect
thereto.
14.
Withholding
Taxes
(a)
Cash
Remittance
Whenever
Class A Shares are to be issued upon the exercise of an Option or the grant
or
vesting of an Incentive Award, MDC shall have the right to require the
Participant to remit to MDC in cash an amount sufficient to satisfy federal,
state and local withholding tax requirements, if any, attributable to such
exercise, grant or vesting prior to the delivery of any certificate or
certificates for such shares or the effectiveness of the lapse of such
restrictions. In addition, upon the exercise or settlement of any Incentive
Award in cash, MDC shall have the right to withhold from any cash payment
required to be made pursuant thereto an amount sufficient to satisfy the
federal, state and local withholding tax requirements, if any, attributable
to
such exercise or settlement.
(b)
Stock
Remittance
At
the
election of the Participant, subject to the approval of the Committee, when
Class A Shares are to be issued upon the exercise, grant or vesting of an
Incentive Award, the Participant may tender to MDC a number of Class A Shares
that have been owned by the Participant for at least six months (or such other
period as the Committee may determine) having a Fair Market Value at the tender
date determined by the Committee to be sufficient to satisfy the federal, state
and local withholding tax requirements, if any, attributable to such exercise,
grant or vesting but not greater than such withholding obligations. Such
election shall satisfy the Participant’s obligations under Section 14(a) hereof,
if any.
(c)
Stock
Withholding
At
the
election of the Participant, subject to the approval of the Committee, when
Class A Shares are to be issued upon the exercise, grant or vesting of an
Incentive Award, MDC shall withhold a number of such shares having a Fair Market
Value at the exercise date determined by the Committee to be sufficient to
satisfy the federal, state and local withholding tax requirements, if any,
attributable to such exercise, grant or vesting but not greater than such
withholding obligations. Such election shall satisfy the Participant’s
obligations under Section 14(a) hereof, if any.
15.
Amendment
or
Termination of the Plan
The
Board
of Directors may at any time suspend or discontinue the Plan or revise or amend
it in any respect whatsoever;
provided
,
however
,
that
without approval of the shareholders no revision or amendment shall except
as
provided in Section 10 hereof, (i) increase the number of Class A Shares that
may be issued under the Plan or (ii) materially modify the requirements as
to
eligibility for participation in the Plan. Nothing herein shall restrict the
Committee’s ability to exercise its discretionary authority hereunder pursuant
to Section 4 hereof, which discretion may be exercised without amendment to
the
Plan. No action hereunder may, without the consent of a Participant, reduce
the
Participant’s rights under any previously granted and outstanding Incentive
Award. Nothing herein shall limit the right of the Company to pay compensation
of any kind outside the terms of the Plan.
16.
No
Obligation to Exercise
The
grant
to a Participant of an Option or SAR shall impose no obligation upon such
Participant to exercise such Option or SAR.
17.
Transfers
Upon Death
Upon
the
death of a Participant, outstanding Incentive Awards granted to such Participant
may be exercised only by the executors or administrators of the Participant’s
estate or by any person or persons who shall have acquired such right to
exercise by will or by the laws of descent and distribution. No transfer by
will
or the laws of descent and distribution of any Incentive Award, or the right
to
exercise any Incentive Award, shall be effective to bind MDC unless the
Committee shall have been furnished with (a) written notice thereof and with
a
copy of the will and/or such evidence as the Committee may deem necessary to
establish the validity of the transfer and (b) an agreement by the transferee
to
comply with all the terms and conditions of the Incentive Award that are or
would have been applicable to the Participant and to be bound by the
acknowledgements made by the Participant in connection with the grant of the
Incentive Award.
18.
Expenses
and Receipts
The
expenses of the Plan shall be paid by MDC. Any proceeds received by MDC in
connection with any Incentive Award will be used for general corporate
purposes.
19.
Governing
Law
The
Plan
and the rights of all persons under the Plan shall be construed and administered
in accordance with the laws of the State of New York, without regard to its
conflict of law principles, except to the extent that the application of New
York law would result in a violation of the Canadian Business Corporation
Act.
22.
Effective
Date and Term of Plan
The
Plan
was adopted by the Board of Directors on April 28, 2005, subject to the approval
of the Plan by the shareholders of MDC, and was amended following approval
of
such amendment by the shareholders of MDC on June 1, 2007. No grants may be
made
under the Plan after April 28, 2015.
Execution
Copy
AMENDED
AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT
dated as
of July 6, 2007 (this “
Agreement
”)
by and
between
MDC
PARTNERS INC.,
a
corporation existing under the laws of Canada (the “
Company
”),
and
MITCHELL
GENDEL
(the
“
Executive
”).
W
I T N E S S E T H:
WHEREAS,
the
Company and the Executive are parties to an employment agreement between the
Executive and the Company dated November 17, 2004 (the “
Original
Employment Agreement
”),
pursuant to which served as a “General Counsel” of the Company;
WHEREAS,
the
parties wish to amend and restate the Original Employment Agreement on the
terms
and conditions hereinafter set forth;
NOW,
THEREFORE
,
in
consideration of the premises and other good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto agree as
follows:
1
.
Employment
The
Company agrees to continue to employ the Executive during the Term specified
in
paragraph 2, and the Executive agrees to accept such continued employment,
upon
the terms and conditions hereinafter set forth.
2
.
Term
Subject
to the provisions contained in paragraphs 6 and 7, the Executive's employment
by
the Company shall continue for a term expiring on the close of business on
May
31, 2010 (the “
Initial
Term
”);
provided, however, the term of the Executive’s employment by the Company shall
continue for additional one-year periods thereafter unless and until either
party shall give to the other 30 days advance written notice of expiration
of
the term (a “
Notice
of Termination
”)
(the
Initial Term and the period, if any, thereafter, during which the Executive’s
employment shall continue are collectively referred to as the “
Term
”).
Any
Notice of Termination given under this paragraph 2 shall specify the date of
termination. The Company shall have the right at any time during such 30 day
notice period, to relieve the Executive of his offices, duties and
responsibilities and to place him on a paid leave-of-absence status, provided
that during such notice period the Executive shall remain a full-time employee
of the Company and shall continue to receive his then current salary
compensation, bonus and other benefits as provided in this Agreement. The date
on which the Executive ceases to be employed by the Company, regardless of
the
reason therefor, is referred to in this Agreement as the “
Date
of Termination.”
3
.
Duties
and Responsibilities
(
a
)
Title
.
During
the Term, the Executive shall have the position of General Counsel and Corporate
Secretary of the Company.
(
b
)
Duties
.
The
Executive shall report directly to the Company’s President or such other person
with the role and responsibilities of such executive (the "
MDC
Executive
"),
at
such times and in such detail as the MDC Executive shall reasonably require.
The
Executive shall perform such duties consistent with his position as General
Counsel, including the following:
|
|
(i)
|
Chief
legal counsel in overseeing all legal matters for the Company (as
the
ultimate parent company and public holding company) and its subsidiaries,
including general corporate, securities and corporate governance
matters;
|
|
|
(ii)
|
Chief
legal counsel for all corporate transactional matters, including
completing M&A and divestiture initiatives for the Company and its
subsidiaries, as may be identified by the MDC
Executive;
|
|
|
(iii)
|
Legal
oversight of operations of individual business units, which shall
include
providing partner firms with legal support;
and
|
|
|
(iv)
|
Legal
support for corporate finance matters, including completing capital
raisings for the Company and its
subsidiaries.
|
(
c
)
Scope
of Employment
.
The
Executive's employment by the Company as described herein shall be full-time
and
exclusive, and during the Term, the Executive agrees that he will (i) devote
all
of his business time and attention, his reasonable best efforts, and all his
skill and ability to promote the interests of the Company; and (ii) carry
out his duties in a competent manner and serve the Company faithfully and
diligently under the direction of the MDC Executive. Notwithstanding the
foregoing, the Executive shall be permitted to (A) upon prior written consent
of
the MDC Executive, serve on the board of directors of two companies unaffiliated
with the Company; provided that such companies are not engaged in any activity
which is competitive with the Company or its subsidiaries and affiliates
(collectively, the “
MDC
Group
”),
and
(B) engage in charitable and civic activities and manage his personal passive
investments, provided that such passive investments are not in a company which
transacts business with the Company or its affiliates or engages in business
competitive with that conducted by the Company (or, if such company does
transact business with the Company, or does engage in a competitive business,
it
is a publicly held corporation and the Executive's participation is limited
to
owning less than 1% of its outstanding shares), and further provided that such
activities (individually or collectively) do not materially interfere with
the
performance of his duties or responsibilities under this Agreement.
(d)
Office
Location
.
During
the Term, the Executive's services hereunder shall be performed at the offices
of the Company, which shall be within a twenty five (25) mile radius of New
York, NY, subject to necessary travel requirements to the Company’s offices in
Toronto, Canada and other MDC Group company locations in order to carry out
his
duties in connection with his position hereunder.
4
.
Compensation
(a)
Base
Salary
.
As
compensation for his services hereunder, during the Term, the Company shall
pay
the Executive in accordance with its normal payroll practices, an annualized
base salary of $325,000 for the period through May 31, 2008, and thereafter
at
an annualized rate of $350,000, subject to periodic review by the Human
Resources & Compensation Committee of the Board of Directors of the Company
(the “
Compensation
Committee
”)
to
determine appropriate increases, if any, in accordance with the Company’s
practices and policies for other senior executives (“
Base
Salary
”).
(b)
Annual
Discretionary Bonus
.
During
the Term, in respect of all calendar years beginning January 1, 2007, the
Executive shall be eligible to receive an annual discretionary bonus in an
amount equal to up to 75% of the then current Base Salary, based upon criteria
determined by the MDC Executive and the Compensation Committee, which criteria
shall include the Executive’s performance, the overall financial performance of
the Company and such other factors as the MDC Executive and the Compensation
Committee shall deem reasonable and appropriate (the “
Annual
Discretionary Bonus
”).
The
MDC Executive shall communicate the criteria for the Annual Discretionary Bonus
to the Executive within a reasonable period of time after such criteria have
been established. The Annual Discretionary Bonus will be paid in accordance
with
the Company’s normal bonus payment procedures.
(c)
MDC
Stock Appreciation Rights.
As of
the date of this Agreement, the parties acknowledge that the Executive has
been
awarded 50,000 Stock Appreciation Rights (the “
Existing
SARs
”)
pursuant to the Company’s Stock Appreciation Rights Plan (as amended from time
to time, the “
SAR
Plan
”)
in
accordance with and subject to the terms and conditions of separate SARs
agreements entered into between the Company and the Executive (the “
Existing
SAR
Agreements
”).
(d)
Participation
in Equity Incentive Programs
.
The
Executive shall also be eligible to ongoing participation in all current and
future equity incentive plans of the Company, including but not limited to
potential awards of stock options, stock appreciation rights and/or awards
of
restricted shares of the Company.
5.
Expenses;
Fringe Benefits
(
a
)
Expenses
.
The
Company agrees to pay or to reimburse the Executive for all reasonable,
ordinary, necessary and documented business or entertainment expenses incurred
during the Term in the performance of his services hereunder in accordance
with
the policy of the Company as from time to time in effect. The Executive, as
a
condition precedent to obtaining such payment or reimbursement, shall provide
to
the Company any and all statements, bills or receipts evidencing the travel
or
out-of-pocket expenses for which the Executive seeks payment or reimbursement,
and any other information or materials, as the Company may from time to time
reasonably require.
(b)
Benefit
Plans
.
During
the Term, the Executive and, to the extent eligible, his dependents, shall
be
eligible to participate in and receive all benefits under any group health
plans, welfare benefit plans and programs (including without limitation,
disability, group life (including accidental death and dismemberment) and
business travel insurance plans and programs) provided by the Company to its
senior executives and, without duplication, its employees generally, subject,
however, to the generally applicable eligibility and other provisions of the
various plans and programs in effect from time to time.
(c)
Retirement
Plans
.
During
the Term, the Executive shall be eligible to participate in all retirement
plans
and programs (including without limitation any profit sharing plan) provided
by
the Company to its senior executives generally and, without duplication, its
employees generally, subject, however, to the generally applicable eligibility
and other provisions of the various plans and programs in effect from time
to
time. In addition, during the Term, the Executive shall be eligible to receive
fringe benefits and perquisites in accordance with the plans, practices,
programs and policies of the Company from time to time in effect which are
made
available to the senior executives of the Company generally and, without
duplication, to its employees generally.
(d)
Vacation
.
The
Executive shall be entitled to four weeks vacation in accordance with the
Company's policies, with no right of carry over, to be taken at such times
as
shall not materially interfere with the Executive's fulfillment of his duties
hereunder, and shall be entitled to as many holidays, sick days and personal
days as are in accordance with the Company's policy then in effect generally
for
its employees.
6
.
Termination
(
a
)
Termination
for Cause
.
The
Company, by direction of the Compensation Committee, the Board of Directors
or
the MDC Executive, shall be entitled to terminate the Term and to discharge
the
Executive for “
Cause
”
effective upon the giving of written notice to the Executive. For purposes
of
this Agreement, the term “Cause” shall mean:
(
i
)
the
Executive's failure or refusal to materially perform his duties and
responsibilities as set forth in paragraph 3 hereof (other than as a result
of a
Disability (as defined in paragraph 6(d) hereof), provided that the Executive
or
a representative on his behalf has provided notice to the Company not more
than
20 days following the onset of Executive’s illness or physical or mental
incapacity or disability) or abide by the reasonable directives of the MDC
Executive, or the failure of the Executive to devote all of his business time
and attention exclusively to the business and affairs of the Company in
accordance with the terms hereof, in each case if such failure or refusal is
not
cured (if curable) within 20 days after written notice thereof to the Executive
by the Company;
(
ii
)
the
willful and unauthorized misappropriation of the funds or property of the
Company;
(
iii
)
the
use
of alcohol or illegal drugs, interfering with the performance of the Executive's
obligations under this Agreement, continuing after written warning;
(
iv
)
the
conviction in a court of law of, or entering a plea of guilty or no contest
to,
any felony or any crime involving moral turpitude, dishonesty or
theft;
(
v
)
the
material nonconformance with the Company's policies against racial or sexual
discrimination or harassment, which nonconformance is not cured (if curable)
within 10 days after written notice to the Executive by the
Company;
(
vi
)
the
commission in bad faith by the Executive of any act which materially injures
or
could reasonably be expected to materially injure the reputation, business
or
business relationships of the Company;
(
vii
)
the
resignation by the Executive on his own initiative (other than pursuant to
a
termination by the Executive for "Good Reason" (as defined in paragraph 6(b)
hereof);
(viii)
any
breach (not covered by any of the clauses (i) through (vii) above) of paragraphs
8, 9, 11 and 24, if such breach is not cured (if curable) within 20 days after
written notice thereof to the Executive by the Company.
Any
notice required to be given by the Company pursuant to clause (i), (v) or (viii)
above shall specify the nature of the claimed breach and the manner in which
the
Company requires such breach to be cured (if curable). In the event that the
Executive is purportedly terminated for Cause and the arbitrator appointed
pursuant to paragraph 18 determines that Cause as defined herein was not
present, then such purported termination for Cause shall be deemed a termination
without Cause pursuant to paragraph 6(c) and the Executive's rights and remedies
will be governed by paragraph 7(b), in full satisfaction and in lieu of any
and
all other or further remedies the Executive may have under this
Agreement.
(
b
)
Termination
for Good Reason
.
Provided that a Cause event has not occurred and has not been cured (if
curable), the Executive shall be entitled to terminate this Agreement and the
Term hereunder for Good Reason (as defined below) at any time during the Term
by
written notice to the Company not more than 20 days after the occurrence of
the
event constituting such Good Reason. For purposes of this Agreement,
“
Good
Reason
”
shall
be limited to (i) a breach by the Company of a material provision of this
Agreement, which breach remains uncured (if curable) for a period of 20 days
after written notice of such breach from the Executive to the Company (such
notice to specify the nature of the claimed breach and the manner in which
the
Executive requires such breach to be cured), (ii) the Company’s failure to pay
any compensation or benefits, as set forth in paragraphs 4 or 5, which action
is
not reversed within 10 days after written notice of the breach from the
Executive to the Company, (iii) a material diminution of the Executive’s duties
and responsibilities as set forth in paragraph 3, without his prior written
consent, which breach remains uncured (if curable) for a period of 20 days
after
written notice of such breach from the Executive to the Company (such notice
to
specify the nature of the claimed breach and the manner in which the Executive
requires such breach to be cured). In the event that the Executive purportedly
terminates his employment for Good Reason and the arbitrator appointed pursuant
to paragraph 18 determines that Good Reason as defined herein was not present,
then such purported termination for Good Reason shall be deemed a termination
for Cause pursuant to paragraph 6(a)(vii) and the Executive’s rights and
remedies will be governed by paragraph 7(a), in full satisfaction and in lieu
of
any and all other or further remedies the Executive may have under this
Agreement.
(
c
)
Termination
without Cause
.
The
Company, by direction of the Board or the MDC Executive, shall have the right
at
any time during the Term to terminate the employment of the Executive without
Cause by giving written notice to the Executive setting forth a Date of
Termination.
(
d
)
Termination
for Death or Disability
.
In the
event of the Executive's death, the Date of Termination shall be the date of
the
Executive's death. In the event the Executive shall be unable to perform his
duties hereunder by virtue of illness or physical or mental incapacity or
disability (from any cause or causes whatsoever) in substantially the manner
and
to the extent required hereunder prior to the commencement of such disability
and the Executive shall fail to perform such duties for periods aggregating
120
days, whether or not continuous, in any continuous period of 360 days (such
causes being herein referred to as “
Disability
”),
the
Company shall have the right to terminate the Executive's employment hereunder
as at the end of any calendar month during the continuance of such Disability
upon at least 30 days' prior written notice to him.
7
.
Effect
of Termination of Employment
.
(
a
)
Termination
by the Company for Cause; by the Executive without Good Reason; by Death or
Disability; or pursuant to a Notice of Termination delivered by the Executive
pursuant to paragraph 2 above
.
In the
event of the termination of the employment of the Executive (1) by the Company
for Cause; (2) by the Executive without Good Reason; (3) by reason of death
or
Disability pursuant to paragraph 6(d); or (4) pursuant to a Notice of
Termination delivered by the Executive pursuant to paragraph 2 above, the
Executive shall be entitled to the following, subject to any appropriate
offsets, as permitted by applicable law, for debts or money due and payable
by
the Executive to the Company or an affiliate thereof (collectively,
“
Offsets
”):
(
i
)
unpaid
Base Salary through, and any unpaid reimbursable expenses outstanding as of,
the
Date of Termination;
(ii)
all
benefits, if any, that had accrued to the Executive through the Date of
Termination under the plans and programs described in paragraphs 5(b) and (c)
above, or any other applicable plans and programs in which he participated
as an
employee of the Company, in the manner and in accordance with the terms of
such
plans and programs; it being understood that any and all rights that the
Executive may have to severance payments by the Company shall be determined
and
solely based on the terms and conditions of this Agreement and not based on
the
Company's severance policy then in effect, if any; and
(iii)
notwithstanding
anything to the contrary in any of the Existing SAR Agreements, the Executive
will be entitled to exercise all Existing SARs which are vested as at the time
of the Date of Termination under this section 7(a) for a period ending on a
date
which is the earlier of: (i) three (3) months from the Date of Termination
and
(ii) the expiration of such Existing SARs.
In
the
event of termination of the employment of Executive in the circumstances
described in this paragraph 7(a), except as expressly provided in this
paragraph, the Company shall have no further liability to the Executive or
the
Executive's heirs, beneficiaries or estate for damages, compensation, benefits,
severance or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment
or
cessation of employment with the Company, provided that the foregoing shall
not
apply to any outstanding indemnification obligations of the Company in respect
of the Executive’s good faith actions in his capacity as a member, director or
officer thereof arising on or prior to the Date of Termination (“
Outstanding
Indemnification Obligations
”).
(
b
)
Termination
by the Company without Cause; by the Company pursuant to a Notice of Termination
delivered pursuant to paragraph 2 above; or by the Executive for Good
Reason
.
In the
event of a termination (1) by the Company without Cause; (2) by the Executive
for Good Reason; or (3) by the Company pursuant to a Notice of Termination
delivered pursuant to paragraph 2 above, the Executive shall be entitled to
the
following payments and benefits, subject to any Offsets:
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(i)
|
a
severance payment (the “
Severance Amount
”)
in an amount equal to the product of one (1) multiplied by the Executive’s
“Total Remuneration”, plus an amount equal to one (1) month’s Base Salary
for each calendar year in which Executive was employed by the Company
up
to a maximum of six (6) months. For purposes of this Agreement,
“
Total
Remuneration
”
shall mean the sum of the Executive’s current Base Salary, plus the
highest annual discretionary bonus earned by the Executive in the
three
(3) years ending December 31 of the year immediately preceding the
Date of
Termination. The Severance Amount described in this Section 7(b)(i),
less
applicable withholding of any tax amounts, shall be paid by the Company
to
the Executive not later than 10 business days after the applicable
Date of
Termination.
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(ii)
|
his
Annual Discretionary Bonus with respect to the calendar year prior
to the
Date of Termination, when otherwise payable, but only to the extent
not
already paid;
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(iii)
|
eligibility
for a pro-rata portion of his Annual Discretionary Bonus with respect
to
the calendar year in which the Date of Termination occurs, when otherwise
payable, (such pro-rata amount to be equal to the product of (A)
the
amount of the Annual Discretionary Bonus for such calendar year,
times (B)
a fraction, (x) the numerator of which shall be the number of calendar
days commencing January 1 of such year and ending on the Date of
Termination, and (y) the denominator of which shall equal
365;
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(iv)
|
unpaid
Base Salary through, and any unpaid reimbursable expenses outstanding
as
of, the Date of Termination;
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(v)
|
all
benefits, if any, that had accrued to the Executive through the Date
of
Termination under the plans and programs described in paragraphs
5(b) and
(c) above, or any other applicable benefit plans and programs in
which the
Executive participated as an employee of the Company, in the manner
and in
accordance with the terms of such plans and programs; it being understood
that any and all rights that the Executive may have to severance
payments
by the Company shall be determined and solely based on the terms
and
conditions of this Agreement (without duplication) and not based
on the
Company's severance policy then in effect, if
any;
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(vi)
|
continued
participation on the same basis in the plans and programs set forth
in
paragraph 5(b) and to the extent permitted under applicable law,
paragraph
5(c) (such benefits collectively called the "
Continued
Plans
")
in which the Executive was participating on the Date of Termination
(as
such Continued Plans are from time to time in effect at the Company)
for a
period to end on the earlier of (A) the one-year anniversary of the
Date
of Termination and (B) the date on which the Executive is eligible
to
receive coverage and benefits under the same type of plan of a subsequent
employer; provided, however, if the Executive is precluded from continuing
his participation in any Continued Plan, then the Company will be
obligated to pay him the economic equivalent of the benefits provided
under the Continued Plan in which he is unable to participate, for
the
period specified above, it being understood that the economic equivalent
of a benefit foregone shall be deemed the lowest cost in the Province
of
Ontario that would be incurred by the Executive in obtaining such
benefit
himself on an individual basis;
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(vii)
|
notwithstanding
anything to the contrary in any of the Existing SAR Agreements, if
the
Executive is terminated pursuant to this paragraph 7(b), any and
all
unvested Existing SARS shall be deemed to have vested immediately
prior to
the Date of Termination; and
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(viii)
|
notwithstanding
anything to the contrary in any of the Existing SAR Agreements, the
Executive will be entitled to exercise all Existing SARs which are
vested
(or deemed to be vested pursuant to paragraph 7(b)(vii)) as at the
time of
the Date of Termination under this section 7(b) for a period ending
on a
date which is the earlier of: (i) three (3) months from the Date
of
Termination and (ii) the expiration of such Existing SARs.
|
In
the
event of termination of this Agreement in the circumstances described in this
paragraph 7(b), except as expressly provided in this paragraph, the Company
shall have no further liability to the Executive or the Executive’s heirs,
beneficiaries or estate for damages, compensation, benefits, severance or other
amounts of whatever nature, directly or indirectly, arising out of or otherwise
related to this Agreement and the Executive’s employment or cessation of
employment with the Company, provided that the foregoing shall not apply to
any
Outstanding Indemnification Obligations.
The
Executive shall be under no duty to mitigate damages hereunder. The making
of
any severance payments and providing the other benefits as provided in this
paragraph 7(b) is conditioned upon the Executive signing and not revoking a
separation agreement in the form attached hereto as
Exhibit
A
(the
"
Separation
Agreement
")
.
In
the
event the Executive breaches any provisions of the Separation Agreement or
the
provisions of paragraph 8 of this Agreement, in addition to any other remedies
at law or in equity available to it, the Company may cease making any further
payments and providing the other benefits provided for in this paragraph 7(b),
without affecting its rights under this Agreement or the Separation
Agreement.
(
c
)
Termination
by the Company without Cause; by the Executive for Good Reason; or by the
Company pursuant to a Notice of Termination delivered pursuant to paragraph
2
above, following a Change of Control
.
If
within one (1) year after the closing date of any Change of Control transaction,
the Executive’s employment is terminated: (1) by the Company without Cause; (2)
by the Executive for Good Reason; or (3) by the Company pursuant to a Notice
of
Termination delivered pursuant to paragraph 2 above, the Executive shall be
entitled to the following payments and benefits, subject to any
Offsets:
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(i)
|
a
severance payment (the “
Change
in Control Severance Amount
”)
in an amount equal to the product of 1.5 multiplied by the Executive’s
Total Remuneration. The Change in Control Severance Amount described
in
this Section 7(c)(i), less applicable withholding of any tax amounts,
shall be paid by the Company to the Executive not later than 10 business
days after the applicable Date of
Termination.
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(ii)
|
his
Annual Discretionary Bonus with respect to the calendar year prior
to the
Date of Termination, when otherwise payable, but only to the extent
not
already paid;
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(iii)
|
eligibility
for a pro-rata portion of his Annual Discretionary Bonus with respect
to
the calendar year in which the Date of Termination occurs, when otherwise
payable, (such pro-rata amount to be equal to the product of (A)
the
amount of the Annual Discretionary Bonus for such calendar year,
times (B)
a fraction, (x) the numerator of which shall be the number of calendar
days commencing January 1 of such year and ending on the Date of
Termination, and (y) the denominator of which shall equal
365;
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(iv)
|
unpaid
Base Salary through, and any unpaid reimbursable expenses outstanding
as
of, the Date of Termination;
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(v)
|
all
benefits, if any, that had accrued to the Executive through the Date
of
Termination under the plans and programs described in paragraphs
5(b) and
(c) above, or any other applicable benefit plans and programs in
which the
Executive participated as an employee of the Company, in the manner
and in
accordance with the terms of such plans and programs; it being understood
that any and all rights that the Executive may have to severance
payments
by the Company shall be determined and solely based on the terms
and
conditions of this Agreement (without duplication) and not based
on the
Company's severance policy then in effect, if
any;
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(vi)
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continued
participation on the same basis in the Continued Plans in which the
Executive was participating on the Date of Termination (as such Continued
Plans are from time to time in effect at the Company) for a period
to end
on the earlier of (A) the one-year anniversary of the Date of Termination
and (B) the date on which the Executive is eligible to receive coverage
and benefits under the same type of plan of a subsequent employer;
provided, however, if the Executive is precluded from continuing
his
participation in any Continued Plan, then the Company will be obligated
to
pay him the economic equivalent of the benefits provided under the
Continued Plan in which he is unable to participate, for the period
specified above, it being understood that the economic equivalent
of a
benefit foregone shall be deemed the lowest cost in the Province
of
Ontario that would be incurred by the Executive in obtaining such
benefit
himself on an individual basis;
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(vii)
|
notwithstanding
anything to the contrary in any of the Existing SAR Agreements, if
the
Executive is terminated pursuant to this paragraph 7(c), any and
all
unvested Existing SARS shall be deemed to have vested immediately
prior to
the Date of Termination; and
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(viii)
|
notwithstanding
anything to the contrary in any of the Existing SAR Agreements, the
Executive will be entitled to exercise all Existing SARs which are
vested
(or deemed to be vested pursuant to paragraph 7(c)(vii)) as at the
time of
the Date of Termination under this section 7(c) for a period ending
on a
date which is the earlier of: (i) three (3) months from the Date
of
Termination and (ii) the expiration of such Existing SARs.
|
For
the
purposes of this Agreement, a “
Change
of Control
”
shall
be limited to the closing of a transaction which results in (i) any person(s)
or
company(ies) acting jointly or in concert owning, directly or indirectly, equity
of the Company representing greater than 50% of the voting power of the
Company's outstanding securities, or (ii) the Company selling all or
substantially all of its assets (in each instance other than any transfer by
the
Company or any of its affiliates of their respective interest in the Company
to
another wholly-owned subsidiary of another MDC Group company).
In
the
event of termination of this Agreement in the circumstances described in this
paragraph 7(c), except as expressly provided in this paragraph, the Company
shall have no further liability to the Executive or the Executive's heirs,
beneficiaries or estate for damages, compensation, benefits, severance or other
amounts of whatever nature, directly or indirectly, arising out of or otherwise
related to this Agreement and the Executive's employment or cessation of
employment with the Company, provided that the foregoing shall not apply to
any
Outstanding Indemnification Obligations.
The
Executive shall be under no duty to mitigate damages hereunder. The making
of
any severance payments and providing the other benefits as provided in this
paragraph 7(c) is conditioned upon the Executive signing and not revoking a
Separation Agreement. In the event the Executive breaches any provisions of
the
Separation Agreement or the provisions of paragraph 8 of this Agreement, in
addition to any other remedies at law or in equity available to it, the Company
may cease making any further payments and providing the other benefits provided
for in this paragraph 7(c), without affecting its rights under this Agreement
or
the Separation Agreement.
The
Company represents and warrants to the Executive that the provisions set forth
in Sections 7(a)(iii), 7(b)(vii), 7(b)(viii), 7(c)(vii) and 7(c)(viii) of this
Agreement, have been approved by the Company’s Compensation
Committee.
8
.
Non-Solicitation/Non-Servicing
Agreement and Protection of Confidential Information
(
a
)
Non-Solicitation/Non-Servicing.
The
parties hereto agree that the covenants given in this paragraph 8 are being
given incident to the agreements and transactions described herein, and that
such covenants are being given for the benefit of the Company. Accordingly,
the
Executive acknowledges (i) that the business and the industry in which the
Company competes is highly competitive; (ii) that as a key executive of the
Company he has participated in and will continue to participate in the servicing
of current clients and/or the solicitation of prospective clients, through
which, among other things, the Executive has obtained and will continue to
obtain knowledge of the "know-how" and business practices of the Company, in
which matters the Company has a substantial proprietary interest; (iii) that
his
employment hereunder requires the performance of services which are special,
unique,
extraordinary
and intellectual in character, and his position with the Company places and
placed him in a position of confidence and trust with the clients and employees
of the Company; and (iv) that his rendering of services to the clients of the
Company necessarily required and will continue to require the disclosure to
the
Executive of confidential information (as defined in paragraph 8(b) hereof)
of
the Company. In the course of the Executive's employment with the Company,
the
Executive has and will continue to develop a personal relationship with the
clients of the Company and a knowledge of those clients' affairs and
requirements, and the relationship of the Company with its established clientele
will therefore be placed in the Executive's hands in confidence and trust.
The
Executive consequently agrees that it is a legitimate interest of the Company,
and reasonable and necessary for the protection of the confidential information,
goodwill and business of the Company, which is valuable to the Company, that
the
Executive make the covenants contained herein and that the Company would not
have entered into this Agreement unless the covenants set forth in this
paragraph 8 were contained in this Agreement. Accordingly, the Executive agrees
that during the period that he is employed by the Company and for a period
of
eighteen (18) months thereafter (such period being referred to as the
"
Restricted
Period
"),
he
shall not, as an individual, employee, consultant, independent contractor,
partner, shareholder, or in association with any other person, business or
enterprise, except on behalf of the Company, directly or indirectly, and
regardless of the reason for his ceasing to be employed by the
Company:
(i)
attempt
in any manner to solicit or accept from any client business of the type
performed by the Company or to persuade any client to cease to do business
or to
reduce the amount of business which any such client has customarily done or
is
reasonably expected to do with the Company, whether or not the relationship
between the Company and such client was originally established in whole or
in
part through the Executive’s efforts; or
(ii)
employ
as
an employee or retain as a consultant any person, firm or entity who is then
or
at any time during the preceding twelve months was an employee of or exclusive
consultant to the Company, or persuade or attempt to persuade any employee
of or
exclusive consultant to the Company to leave the employ of the Company or to
become employed as an employee or retained as a consultant by any person, firm
or entity other than the Company; or
(iii)
render
to
or for any client any services of the type which are rendered by the
Company.
As
used
in this paragraph 8, the term "
Company
"
shall
include any subsidiaries of the Company and the term "
client
"
shall
mean (1) anyone who is a client of the Company on the Date of Termination,
or if
the Executive's employment shall not have terminated, at the time of the alleged
prohibited conduct (any such applicable date being called the "
Determination
Date
");
(2)
anyone who was a client of the Company at any time during the one year period
immediately preceding the Determination Date; (3) any prospective client to
whom
the Company had made a new business presentation (or similar offering of
services) at any time during the one year period immediately preceding the
Date
of Termination; and (4) any prospective client to whom the Company made a new
business presentation (or similar offering of services) at any time within
six
months after the Date of Termination (but only if initial discussions between
the Company and such prospective client relating to the rendering of services
occurred prior to the Date of Termination, and only if the Executive
participated in or supervised such discussions). For purposes of this clause,
it
is agreed that a general mailing or an incidental contact shall not be deemed
a
"new business presentation or similar offering of services" or a "discussion".
In addition, "client" shall also include any clients of other companies
operating within the MDC group of companies to whom the Executive rendered
services (including supervisory services) at any time during the six-month
period prior to the Determination Date. In addition, if the client is part
of a
group of companies which conducts business through more than one entity,
division or operating unit, whether or not separately incorporated (a
"
Client
Group
"),
the
term "client" as used herein shall also include each entity, division and
operating unit of the Client Group where the same management group of the Client
Group has the decision making authority or significant influence with respect
to
contracting for services of the type rendered by the Company.
(
b
)
Confidential
Information
.
In the
course of the Executive's employment with the Company (and its predecessor),
he
has acquired and will continue to acquire and have access to confidential or
proprietary information about the Company and/or its clients, including but
not
limited to, trade secrets, methods, models, passwords, access to computer files,
financial information and records, computer software programs, agreements and/or
contracts between the Company and its clients, client contacts, client
preferences, creative policies and ideas, advertising campaigns, creative and
media materials, graphic design materials, sales promotions and campaigns,
sales
presentation materials, budgets, practices, concepts, strategies, methods of
operation, financial or business projections of the Company and information
about or received from clients and other companies with which the Company does
business. The foregoing shall be collectively referred to as "
confidential
information
".
The
Executive is aware that the confidential information is not readily available
to
the public and accordingly, the Executive also agrees that he will not at any
time (whether during the Term or after termination of this Agreement), disclose
to anyone (other than his counsel in the course of a dispute arising from the
alleged disclosure of confidential information or as required by law) any
confidential information, or utilize such confidential information for his
own
benefit, or for the benefit of third parties. The Executive agrees that the
foregoing restrictions shall apply whether or not any such information is marked
"confidential" and regardless of the form of the information. The term
"confidential information" does not include information which (i) is or becomes
generally available to the public other than by breach of this provision or
(ii)
the Executive learns from a third party who is not under an obligation of
confidence to the Company or a client of the Company. In the event that the
Executive becomes legally required to disclose any confidential information,
he
will provide the Company with prompt notice thereof so that the Company may
seek
a protective order or other appropriate remedy and/or waive compliance with
the
provisions of this paragraph 8(b) to permit a particular disclosure. In the
event that such protective order or other remedy is not obtained, or that the
Company waives compliance with the provisions of this paragraph 8(b) to permit
a
particular disclosure, the Executive will furnish only that portion of the
confidential information which he is legally required to disclose and, at the
Company's expense, will cooperate with the efforts of the Company to obtain
a
protective order or other reliable assurance that confidential treatment will
be
accorded the confidential information. The Executive further agrees that all
memoranda, disks, files, notes, records or other documents, whether in
electronic form or hard copy (collectively, the "
material
")
compiled by him or made
available
to him during his employment with the Company (whether or not the material
constitutes or contains confidential information), and in connection with the
performance of his duties hereunder, shall be the property of the Company and
shall be delivered to the Company on the termination of the Executive's
employment with the Company or at any other time upon request. Except in
connection with the Executive's employment with the Company, the Executive
agrees that he will not make or retain copies or excerpts of the material;
provided that the Executive shall be entitled to retain his personal
files.
(
c
)
Remedies
.
If the
Executive commits or threatens to commit a breach of any of the provisions
of
paragraphs 8(a) or (b), the Company shall have the right to have the provisions
of this Agreement specifically enforced by the arbitrator appointed under
paragraph 18 or by any court having jurisdiction without being required to
post
bond or other security and without having to prove the inadequacy of the
available remedies at law, it being acknowledged and agreed that any such breach
or threatened breach will cause irreparable injury to the Company and that
money
damages will not provide an adequate remedy to the Company. In addition, the
Company may take all such other actions and remedies available to it under
law
or in equity and shall be entitled to such damages as it can show it has
sustained by reason of such breach.
(
d
)
Acknowledgements
.
The
parties acknowledge that (i) the type and periods of restriction imposed in
the
provisions of paragraphs 8(a) and (b) are fair and reasonable and are reasonably
required in order to protect and maintain the proprietary interests of the
Company described above, other legitimate business interests and the goodwill
associated with the business of the Company; (ii) the time, scope and other
provisions of this paragraph 8 have been specifically negotiated by
sophisticated commercial parties, represented by legal counsel, and are given
as
an integral part of the transactions contemplated by this Agreement; and (iii)
because of the nature of the business engaged in by the Company and the fact
that clients can be and are serviced by the Company wherever they are located,
it is impractical and unreasonable to place a geographic limitation on the
agreements made by the Executive herein. The Executive specifically acknowledges
that his being restricted from soliciting and servicing clients and prospective
clients as contemplated by this Agreement will not prevent him from being
employed or earning a livelihood in the type of business conducted by the
Company. If any of the covenants contained in paragraphs 8(a) or (b), or any
part thereof, is held to be unenforceable by reason of it extending for too
great a period of time or over too great a geographic area or by reason of
it
being too extensive in any other respect, the parties agree (x) such covenant
shall be interpreted to extend only over the maximum period of time for which
it
may be enforceable and/or over the maximum geographic areas as to which it
may
be enforceable and/or over the maximum extent in all other respects as to which
it may be enforceable, all as determined by the court or arbitration panel
making such determination and (y) in its reduced form, such covenant shall
then
be enforceable, but such reduced form of covenant shall only apply with respect
to the operation of such covenant in the particular jurisdiction in or for
which
such adjudication is made. Each of the covenants and agreements contained in
this paragraph 8 (collectively, the "
Protective
Covenants
")
is
separate, distinct and severable. All rights, remedies and benefits expressly
provided for in this Agreement are cumulative and are not exclusive of any
rights, remedies or benefits provided for by law or in this Agreement, and
the
exercise of any remedy by a party hereto shall not be deemed an election to
the
exclusion of any other remedy (any such
claim
by
the other party being hereby waived). The existence of any
claim,
demand, action or cause of action of the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the
enforcement by the Company of each Protective Covenant. The unenforceability
of
any Protective Covenant shall not affect the validity or enforceability of
any
other Protective Covenant or any other provision or provisions of this
Agreement.
(e)
Notification
of Restrictive Covenants
.
Prior
to accepting employment with any person, firm or entity during the Restricted
Period, the Executive shall notify the prospective employer in writing of his
obligations pursuant to this paragraph 8 and shall simultaneously provide a
copy
of such notice to the Company (it being agreed by the Company that such
notification required under this paragraph 8(e) shall not be deemed a breach
of
the confidentiality provisions of this Agreement).
(f)
Tolling
.
The
temporal duration of the non-solicitation/non-servicing covenants set forth
in
this Agreement shall not expire, and shall be tolled, during any period in
which
the Executive is in violation of any of the non-solicitation/non-servicing
covenants set forth herein, and all restrictions shall automatically be extended
by the period of the Executive's violation of any such
restrictions.
9
.
Intellectual
Property
During
the Term, the Executive will disclose to the Company all ideas, inventions
and
business plans developed by him during such period which relate directly or
indirectly to the business of the Company, including without limitation, any
design, logo, slogan, advertising campaign or any process, operation, product
or
improvement which may be patentable or copyrightable. The Executive agrees
that
all patents, licenses, copyrights, tradenames, trademarks, service marks,
planning, marketing and/or creative policies and ideas, advertising campaigns,
promotional campaigns, media campaigns, budgets, practices, concepts,
strategies, methods of operation, financial or business projections, designs,
logos, slogans and business plans developed or created by the Executive in
the
course of his employment hereunder, either individually or in collaboration
with
others, will be deemed works for hire and the sole and absolute property of
the
Company. The Executive agrees, that at the Company's request and expense, he
will take all steps necessary to secure the rights thereto to the Company by
patent, copyright or otherwise.
10
.
Enforceability
The
failure of any party at any time to require performance by another party of
any
provision hereunder shall in no way affect the right of that party thereafter
to
enforce the same, nor shall it affect any other party's right to enforce the
same, or to enforce any of the other provisions in this Agreement; nor shall
the
waiver by any party of the breach of any provision hereof be taken or held
to be
a waiver of any subsequent breach of such provision or as a waiver of the
provision itself.
11
.
Assignment
The
Company and the Executive agree that the Company shall have the right to assign
this Agreement in connection with any asset assignment of all or substantially
all of the Company’s assets, stock sale, merger, consolidation or other
corporate reorganization involving the Company and, accordingly, this Agreement
shall inure to the benefit of, be binding upon and may be enforced by, any
and
all successors and such assigns of the Company. The Company and Executive agree
that Executive's rights and obligations under this Agreement are personal to
the
Executive, and the Executive shall not have the right to assign or otherwise
transfer his rights or obligations under this Agreement, and any purported
assignment or transfer shall be void and ineffective, provided that the rights
of the Executive to receive certain benefits upon death as expressly set forth
under paragraph 7(a) of this Agreement shall inure to the Executive’s estate and
heirs. The rights and obligations of the Company hereunder shall be binding
upon
and run in favor of the successors and assigns of the Company.
12
.
Modification
This
Agreement may not be orally canceled, changed, modified or amended, and no
cancellation, change, modification or amendment shall be effective or binding,
unless in writing and signed by the parties to this Agreement, and approved
in
writing by the MDC Executive.
13
.
Severability;
Survival
In
the
event any provision or portion of this Agreement is determined to be invalid
or
unenforceable for any reason, in whole or in part, the remaining provisions
of
this Agreement shall nevertheless be binding upon the parties with the same
effect as though the invalid or unenforceable part had been severed and deleted
or reformed to be enforceable. The respective rights and obligations of the
parties hereunder shall survive the termination of the Executive's employment
to
the extent necessary to the intended preservation of such rights and
obligations, specifically paragraphs 7, 8, 9, 10, 11, 12, 13, 14, 15, 18, 23
and
24.
14.
Notice
Any
notice, request, instruction or other document to be given hereunder by any
party hereto to another party shall be in writing and shall be deemed effective
(a) upon personal delivery, if delivered by hand, or (b) three days after the
date of deposit in the mails, postage prepaid if mailed by certified or
registered mail, or (c) on the next business day, if sent by prepaid overnight
courier service or facsimile transmission (if electronically confirmed), and
in
each case, addressed as follows:
If
to
the Executive
:
Mr.
Mitchell Gendel
500
E 83
rd
Street, Apt
18E
New
York, NY 10028
If
to
the Company
:
c/o
MDC
Partners Inc.
950
Third
Avenue
New
York,
NY 10022
Attention:
Chief Financial Officer
Fax:
(212) 937-4365
Any
party
may change the address to which notices are to be sent by giving notice of
such
change of address to the other party in the manner herein provided for giving
notice.
15.
Applicable
Law
This
Agreement shall be governed by, enforced under, and construed in accordance
with
the laws of the State of New York, NY applicable therein.
16.
No
Conflict
The
Executive represents and warrants that he is not subject to any agreement,
instrument, order, judgment or decree of any kind, or any other restrictive
agreement of any character, which would prevent him from entering into this
Agreement or which would be breached by the Executive upon his performance
of
his duties pursuant to this Agreement.
17.
Entire
Agreement
This
Agreement and the documents referenced herein represent the entire agreement
between the Company and the Executive with respect to the employment of the
Executive by the Company, and all prior agreements (including, without
limitation, the Original Employment Agreement), plans and arrangements relating
to the employment of the Executive by the Company are nullified and superseded
hereby.
18.
Arbitration
(
a
)
The
parties hereto agree that any dispute, controversy or claim arising out of,
relating to, or in connection with this Agreement (including, without
limitation, any claim regarding or related to the interpretation, scope, effect,
enforcement, termination, extension, breach, legality, remedies and other
aspects of this Agreement or the conduct and communications of the parties
regarding this Agreement and the subject matter of this Agreement) shall be
settled in private by arbitration pursuant to the
Arbitrations
Act
(Ontario) in Toronto, Ontario by a single arbitrator selected by the parties
or,
if the parties cannot agree, by a single arbitrator appointed by the Ontario
Superior Court of Justice. The arbitrator may grant injunctions or other relief
in such dispute or controversy. All awards of the arbitrator shall be binding
and non-appealable. Judgment upon the award of the arbitrator may be entered
in
any court having jurisdiction. The arbitrator shall apply Ontario law to the
merits of any dispute or claims, without reference to the rules of conflicts
of
law applicable therein. Suits to compel or enjoin arbitration or to determine
the applicability or legality of arbitration shall be brought in
the
Ontario Superior Court of Justice in the City of Toronto. Notwithstanding the
foregoing, no party to this Agreement shall be precluded from applying to a
proper court for injunctive relief by reason of the prior or subsequent
commencement of an arbitration proceeding as herein provided. No party or
arbitrator shall disclose in whole or in part to any other person, firm or
entity any confidential information submitted in connection with the arbitration
proceedings, except to the extent reasonably necessary to assist counsel in
the
arbitration or preparation for arbitration of the dispute. Confidential
Information may be disclosed to (i) attorneys, (ii) parties, and (iii) outside
experts requested by either party’s counsel to furnish technical or expert
services or to give testimony at the arbitration proceedings, subject, in the
case of such experts, to execution of a legally binding written statement that
such expert is fully familiar with the terms of this provision, agree to comply
with the confidentiality terms of this provision, and will not use any
confidential information disclosed to such expert for personal or business
advantage.
(
b
)
The
Executive has read and understands this paragraph 18. The Executive understands
that by signing this Agreement, the Executive agrees to submit any claims
arising out of, relating to, or in connection with this Agreement, or the
interpretation, validity, construction, performance, breach or termination
thereof, or his employment or the termination thereof, to binding arbitration,
and that this arbitration provision constitutes a waiver of the Executive’s
right to a jury trial and relates to the resolution of all disputes relating
to
all aspects of the employer/employee relationship.
(
c
)
To
the
extent that any part of this paragraph 18 is found to be legally unenforceable
for any reason, that part shall be modified or deleted in such a manner as
to
render this paragraph 18 (or the remainder of this paragraph 18) legally
enforceable and as to ensure that except as otherwise provided in clause (a)
of
this paragraph 18, all conflicts between the Company and the Executive shall
be
resolved by neutral, binding arbitration. The remainder of this paragraph 18
shall not be affected by any such modification or deletion but shall be
construed as severable and independent. If a court finds that the arbitration
procedures of this paragraph 18 are not absolutely binding, then the parties
hereto intend any arbitration decision to be fully admissible in evidence,
given
great weight by any finder of fact, and treated as determinative to the maximum
extent permitted by law.
19.
Headings
The
headings contained in this Agreement are for reference purposes only, and shall
not affect the meaning or interpretation of this Agreement.
20.
Withholdings
The
Company may withhold from any amounts payable under this Agreement such federal,
state or local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
21.
Counterparts
This
Agreement may be executed in two counterparts or by facsimile transmission,
both
of which taken together shall constitute one instrument.
22.
No
Strict Construction
The
language used in this Agreement will be deemed to be the language chosen by
the
Company and the Executive 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.
23.
Publicity
Subject
to the provisions of the next sentence, no party to this Agreement 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 Company and the Executive. Notwithstanding the foregoing, the
foregoing provision shall not apply to the extent that the Company is required
to make any announcement relating to or arising out of this Agreement by virtue
of applicable securities laws or other stock exchange rules, or any announcement
by any party pursuant to applicable law or regulations.
24.
Non-
Disparagement
Following
the date hereof, the Executive and the Company shall each use their reasonable
best efforts not to disparage, criticize or make statements to the detriment
of
the other.
*
*
*
*
*
IN
WITNESS WHEREOF,
the
parties have executed this Amended and Restated Employment Agreement as of
the
day and year first above written.
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MDC
PARTNERS INC.
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By:
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Mitchell
Gendel
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Exhibit
A to Employment Agreement
__________
[Insert Date]
Mitchell
Gendel
Re:
Separation
Agreement and General Release
Dear
___________
:
1.
Your
employment with MDC Partners Inc. (the "
Company
")
pursuant to the Employment Agreement between the Company and you dated ____
2007
(the "
Employment
Agreement
"),
or
otherwise, shall terminate effective on the close of business on (the
"
Termination
Date
").
You
hereby confirm your removal as of the Termination Date from any position you
held as an employee, officer, Director or Manager of the Company or any Company
operating within the MDC Group of companies (the “
Group
”).
2.
The
Company agrees to pay you severance compensation and benefits in accordance
with
the applicable clause of paragraph 7 of the Employment Agreement.
3.
You
shall
submit to the Company your reimbursement request in accordance with Company
policy for any unpaid business or entertainment expenses incurred by you through
the Termination Date in respect of which you are entitled to be reimbursed
under
Company policy.
4.
From
and
after the Termination Date, except for such rights under this Agreement or
the
Employment Agreement, you shall no longer be entitled to receive any further
payments, compensation or other monies (including severance compensation) from
the Company or any of its affiliates or to receive any of the benefits or
participate in any benefit plan or program of the Company or any of its
affiliates, including without limitation, any salary payment, bonus payment,
severance payment, salary continuation payment, accrued vacation or unused
personal days and expense reimbursements or other benefits referred to in the
Employment Agreement.
5.
You
hereby acknowledge and affirm your obligations under the provisions of paragraph
8 of the Employment Agreement.
6.
Notwithstanding
your termination of employment as provided in this Agreement, the parties hereto
agree that the provisions of paragraphs 8 through 24 of the Employment Agreement
shall survive such termination to the extent necessary to the intended
preservation of the rights and obligations set forth in such
paragraphs.
7.
(a)
You,
for
yourself, your heirs,
executors,
administrators,
agents,
representatives, successors and assigns, hereby irrevocably and unconditionally
release the Company and its affiliates, and each of their respective employees,
shareholders, agents, officers, directors, attorneys, representatives,
successors and assigns of the Company and its affiliates (collectively, the
"
Releasees
"),
from
any and all
charges,
complaints, claims, liabilities, obligations, promises, agreements, causes
of
action, rights, costs, losses, debts and expenses of any nature whatsoever,
known or unknown, (collectively, the “
Claims
”),
which
you, your heirs, executors, administrators,
representatives,
successors and assigns ever had, now have or hereafter may have (either directly
or indirectly, derivatively or in any other representative capacity) by reason
of any matter, fact or cause whatsoever from the beginning of time to the date
of this Agreement, including without limitation, any and all claims
based
upon or arising out of your Employment Agreement, your employment with the
Company or your termination of employment with the Company; provided, however,
the foregoing shall not apply to or release any of your rights under the terms
of this agreement, or any existing rights which by their express terms survive
the termination of the Employment Agreement (collectively, the
“Outstanding
Rights”
).
(b)
You
represent that you have not filed or permitted to be filed against the Company
(or the other Releasees), individually or collectively, any lawsuits and you
covenant and agree that you will not do so at any time hereafter with respect
to
the subject matter of this Agreement and claims released pursuant to this
Agreement (including, without limitation, any claims relating to the termination
of your employment), except as may be necessary to enforce this Agreement or
any
of the Outstanding Rights, to obtain benefits described in or granted under
this
Agreement or any of the Outstanding Rights, or to seek a determination of the
validity of the waiver of your rights under applicable law.
(c)
You
agree
to cooperate on a reasonable basis with the Company and its counsel in
connection with any investigations, administrative proceedings or litigation
relating to any matter in which you were involved or of which you had knowledge
as a result of your employment with the Company.
(d)
You
agree
that you will not encourage or voluntarily cooperate with any other current
or
former employee of the Company (or their affiliates) or any other potential
plaintiff, to commence any legal action or make any claim against the Company
(or any affiliate) in respect of such person’s employment or termination of
employment with or by the Company (or any affiliate thereof) or
otherwise.
(e)
You
agree
that on and after the Termination Date you will not apply or seek employment
with the Company or any of its affiliates at any location or facility, and
you
hereby waive and release any right to be considered for such
employment.
(f)
This
Agreement does not constitute an admission by the Company of any violation
of
any federal, state, or local law or any contractual or other obligations, or
of
any wrongdoing whatsoever.
8.
For
good
and valuable consideration, the Company, on its behalf and on behalf of each
of
its affiliates and their respective successors and assigns, hereby irrevocably
and unconditionally release you from any and all Claims which any of them ever
had, now have or hereafter may have (either directly or indirectly, derivatively
or in any other representative capacity) by reason of any matter, fact or cause
from the beginning of time to the date of this Agreement arising out of your
performance of duties as an employee or officer of the Company or another member
of the Group or your termination of employment with the Company, except if
a
Claim arises out of your fraudulent conduct, your misappropriation or
embezzlement of funds, or any other unlawful conduct; provided, however, the
foregoing release shall not apply to or release any rights of the Company under
the terms of this Agreement.
9.
You
agree
to keep secret and strictly confidential the existence of this Agreement and
further agree not to disclose, make known, discuss or relay any information
concerning this Agreement, or any of the discussions regarding the terms of
this
Agreement, leading up to the execution of it, to anyone other than your tax
advisor, accountant, attorney, spouse or members of your immediate family,
provided that any such party to whom you make such disclosure agrees to keep
such information confidential and not disclose it to others. The foregoing
shall
also not prohibit disclosure (i) as may be ordered by any regulatory agency
or court or as required by other lawful process, or (ii) as may be
necessary for the prosecution of claims relating to the performance or
enforcement of this Agreement or (iii) as may become generally available to
the
public other than by breach of this provision or (iv) you learn from a third
party who is not under an obligation of confidence to the Company.
10.
In
the
event of a breach of the terms of this Agreement by any party, the non-breaching
party shall be entitled to all damages allowed under applicable law.
11.
(a)
As
used
in this Agreement (i) "
affiliate
"
of any
Person (as defined below) 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, and (ii) a "
Person
"
shall
mean or include an individual, a company, a limited liability company, a
corporation or any other form of business entity.
(b)
All
prior
negotiations and discussions between the parties with respect to the subject
matter hereof are merged into this Agreement. No representations by or on behalf
of any party were made or relied upon except as set forth herein. This Agreement
may not be changed, amended or modified, except by a writing signed by the
party
affected by such change, amendment or modification.
(c)
In
the
event any provision of this Agreement is found to be void and unenforceable
by a
court or other tribunal of competent jurisdiction, the remaining provisions
of
this Agreement shall nevertheless be binding upon the parties hereto with the
same effect as though the void or unenforceable part had been severed and
deleted or reformed to be enforceable.
(d)
The
failure of any party at any time to require performance by another party of
any
provision hereunder shall in no way affect the right of that party thereafter
to
enforce the same, nor shall it affect any other party's right to enforce the
same, or to enforce any of the other provisions in this Agreement; nor shall
the
waiver by any party of the breach of any provision hereof be taken or held
to be
a waiver of any subsequent breach of such provision or as a waiver of the
provision itself. This Agreement shall be binding upon, and inure to the benefit
of, you and your heirs, executors, administrators, successors and assignors,
and
MDC Partners, the Company and their respective successors and assignors.
IN
WITNESS WHEREOF
,
the
parties hereto have set their hands as of the date first above set
forth.
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MDC
Partners Inc.
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By:
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Name:
Title:
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Mitchell
Gendel
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Dated:
_________________________
Execution
Copy
AMENDED
AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT
dated as
of July 6, 2007 (this “
Agreement
”)
by and
between
MDC
PARTNERS INC.,
a
corporation existing under the laws of Canada (the “
Company
”),
and
MICHAEL
SABATINO
(the
“
Executive
”).
W
I T N E S S E T H:
WHEREAS,
the
Company and the Executive are parties to an employment agreement between the
Executive and the Company dated April 1, 2005 (the “
Original
Employment Agreement
”),
pursuant to which served as a “Chief Accounting Officer” of the Company;
WHEREAS,
the
parties wish to amend and restate the Original Employment Agreement on the
terms
and conditions hereinafter set forth;
NOW,
THEREFORE
,
in
consideration of the premises and other good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto agree as
follows:
1
.
Employment
The
Company agrees to continue to employ the Executive during the Term specified
in
paragraph 2, and the Executive agrees to accept such continued employment,
upon
the terms and conditions hereinafter set forth.
2
.
Term
Subject
to the provisions contained in paragraphs 6 and 7, the Executive's employment
by
the Company shall continue for a term expiring on the close of business on
May
31, 2010 (the “
Initial
Term
”);
provided, however, the term of the Executive’s employment by the Company shall
continue for additional one-year periods thereafter unless and until either
party shall give to the other 30 days advance written notice of expiration
of
the term (a “
Notice
of Termination
”)
(the
Initial Term and the period, if any, thereafter, during which the Executive’s
employment shall continue are collectively referred to as the “
Term
”).
Any
Notice of Termination given under this paragraph 2 shall specify the date of
termination. The Company shall have the right at any time during such 30 day
notice period, to relieve the Executive of his offices, duties and
responsibilities and to place him on a paid leave-of-absence status, provided
that during such notice period the Executive shall remain a full-time employee
of the Company and shall continue to receive his then current salary
compensation, bonus and other benefits as provided in this Agreement. The date
on which the Executive ceases to be employed by the Company, regardless of
the
reason therefor, is referred to in this Agreement as the “
Date
of Termination.”
3
.
Duties
and Responsibilities
(
a
)
Title
.
During
the Term, the Executive shall have the position of Chief Accounting Officer
of
the Company.
(
b
)
Duties
.
The
Executive shall report directly to the Company’s Chief Financial Officer or such
other person with the role and responsibilities of such executive (the
"
MDC
Executive
"),
at
such times and in such detail as the MDC Executive shall reasonably require.
The
Executive shall perform such duties consistent with his position as Senior
Vice
President and Chief Accounting Officer or as may be directed by the Chief
Financial Officer of the Company, including the following:
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(i)
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Budgeting
and financial reporting, including preparing financial statements
and
related reports for filing with the Securities and Exchange
Commission;
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(ii)
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Assist
the Chief Financial Officer in managing treasury and IT functions
for the
Company; and
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(iii)
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Assist
the Chief Financial Officer in working with the Company’s internal audit
department to ensure compliance with the requirements of the
Sarbanes-Oxley Act of 2002, as
amended.
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(
c
)
Scope
of Employment
.
The
Executive's employment by the Company as described herein shall be full-time
and
exclusive, and during the Term, the Executive agrees that he will (i) devote
all
of his business time and attention, his reasonable best efforts, and all his
skill and ability to promote the interests of the Company; and (ii) carry
out his duties in a competent manner and serve the Company faithfully and
diligently under the direction of the MDC Executive. Notwithstanding the
foregoing, the Executive shall be permitted to (A) upon prior written consent
of
the MDC Executive, serve on the board of directors of two companies unaffiliated
with the Company; provided that such companies are not engaged in any activity
which is competitive with the Company or its subsidiaries and affiliates
(collectively, the “
MDC
Group
”),
and
(B) engage in charitable and civic activities and manage his personal passive
investments, provided that such passive investments are not in a company which
transacts business with the Company or its affiliates or engages in business
competitive with that conducted by the Company (or, if such company does
transact business with the Company, or does engage in a competitive business,
it
is a publicly held corporation and the Executive's participation is limited
to
owning less than 1% of its outstanding shares), and further provided that such
activities (individually or collectively) do not materially interfere with
the
performance of his duties or responsibilities under this Agreement.
(d)
Office
Location
.
During
the Term, the Executive's services hereunder shall be performed at the offices
of the Company, which shall be within a twenty five (25) mile radius of New
York, NY, subject to necessary travel requirements to the Company’s offices in
Toronto, Canada and other MDC Group company locations in order to carry out
his
duties in connection with his position hereunder.
4
.
Compensation
(a)
Base
Salary
.
As
compensation for his services hereunder, during the Term, the Company shall
pay
the Executive in accordance with its normal payroll practices, an annualized
base salary of $300,000 for the period through May 31, 2008, and thereafter
at
an annualized rate of $325,000, subject to periodic review by the Human
Resources & Compensation Committee of the Board of Directors of the Company
(the “
Compensation
Committee
”)
to
determine appropriate increases, if any, in accordance with the Company’s
practices and policies for other senior executives (“
Base
Salary
”).
(b)
Annual
Discretionary Bonus
.
During
the Term, in respect of all calendar years beginning January 1, 2007, the
Executive shall be eligible to receive an annual discretionary bonus in an
amount equal to up to 75% of the then current Base Salary, based upon criteria
determined by the MDC Executive and the Compensation Committee, which criteria
shall include the Executive’s performance, the overall financial performance of
the Company and such other factors as the MDC Executive and the Compensation
Committee shall deem reasonable and appropriate (the “
Annual
Discretionary Bonus
”).
The
MDC Executive shall communicate the criteria for the Annual Discretionary Bonus
to the Executive within a reasonable period of time after such criteria have
been established. The Annual Discretionary Bonus will be paid in accordance
with
the Company’s normal bonus payment procedures.
(c)
MDC
Stock Appreciation Rights.
As of
the date of this Agreement, the parties acknowledge that the Executive has
been
awarded 50,000 Stock Appreciation Rights (the “
Existing
SARs
”)
pursuant to the Company’s Stock Appreciation Rights Plan (as amended from time
to time, the “
SAR
Plan
”)
in
accordance with and subject to the terms and conditions of separate SARs
agreements entered into between the Company and the Executive (the “
Existing
SAR
Agreements
”).
(d)
Participation
in Equity Incentive Programs
.
The
Executive shall also be eligible to ongoing participation in all current and
future equity incentive plans of the Company, including but not limited to
potential awards of stock options, stock appreciation rights and/or awards
of
restricted shares of the Company.
5.
Expenses;
Fringe Benefits
(
a
)
Expenses
.
The
Company agrees to pay or to reimburse the Executive for all reasonable,
ordinary, necessary and documented business or entertainment expenses incurred
during the Term in the performance of his services hereunder in accordance
with
the policy of the Company as from time to time in effect. The Executive, as
a
condition precedent to obtaining such payment or reimbursement, shall provide
to
the Company any and all statements, bills or receipts evidencing the travel
or
out-of-pocket expenses for which the Executive seeks payment or reimbursement,
and any other information or materials, as the Company may from time to time
reasonably require.
(b)
Benefit
Plans
.
During
the Term, the Executive and, to the extent eligible, his dependents, shall
be
eligible to participate in and receive all benefits under any group health
plans, welfare benefit plans and programs (including without limitation,
disability, group life (including accidental death and dismemberment) and
business travel insurance plans and programs) provided by the Company to its
senior executives and, without duplication, its employees generally, subject,
however, to the generally applicable eligibility and other provisions of the
various plans and programs in effect from time to time.
(c)
Retirement
Plans
.
During
the Term, the Executive shall be eligible to participate in all retirement
plans
and programs (including without limitation any profit sharing plan) provided
by
the Company to its senior executives generally and, without duplication, its
employees generally, subject, however, to the generally applicable eligibility
and other provisions of the various plans and programs in effect from time
to
time. In addition, during the Term, the Executive shall be eligible to receive
fringe benefits and perquisites in accordance with the plans, practices,
programs and policies of the Company from time to time in effect which are
made
available to the senior executives of the Company generally and, without
duplication, to its employees generally.
(d)
Vacation
.
The
Executive shall be entitled to four weeks vacation in accordance with the
Company's policies, with no right of carry over, to be taken at such times
as
shall not materially interfere with the Executive's fulfillment of his duties
hereunder, and shall be entitled to as many holidays, sick days and personal
days as are in accordance with the Company's policy then in effect generally
for
its employees.
6
.
Termination
(
a
)
Termination
for Cause
.
The
Company, by direction of the Compensation Committee, the Board of Directors
or
the MDC Executive, shall be entitled to terminate the Term and to discharge
the
Executive for “
Cause
”
effective upon the giving of written notice to the Executive. For purposes
of
this Agreement, the term “Cause” shall mean:
(
i
)
the
Executive's failure or refusal to materially perform his duties and
responsibilities as set forth in paragraph 3 hereof (other than as a result
of a
Disability (as defined in paragraph 6(d) hereof), provided that the Executive
or
a representative on his behalf has provided notice to the Company not more
than
20 days following the onset of Executive’s illness or physical or mental
incapacity or disability) or abide by the reasonable directives of the MDC
Executive, or the failure of the Executive to devote all of his business time
and attention exclusively to the business and affairs of the Company in
accordance with the terms hereof, in each case if such failure or refusal is
not
cured (if curable) within 20 days after written notice thereof to the Executive
by the Company;
(
ii
)
the
willful and unauthorized misappropriation of the funds or property of the
Company;
(
iii
)
the
use
of alcohol or illegal drugs, interfering with the performance of the Executive's
obligations under this Agreement, continuing after written warning;
(
iv
)
the
conviction in a court of law of, or entering a plea of guilty or no contest
to,
any felony or any crime involving moral turpitude, dishonesty or
theft;
(
v
)
the
material nonconformance with the Company's policies against racial or sexual
discrimination or harassment, which nonconformance is not cured (if curable)
within 10 days after written notice to the Executive by the
Company;
(
vi
)
the
commission in bad faith by the Executive of any act which materially injures
or
could reasonably be expected to materially injure the reputation, business
or
business relationships of the Company;
(
vii
)
the
resignation by the Executive on his own initiative (other than pursuant to
a
termination by the Executive for "Good Reason" (as defined in paragraph 6(b)
hereof);
(viii)
any
breach (not covered by any of the clauses (i) through (vii) above) of paragraphs
8, 9, 11 and 24, if such breach is not cured (if curable) within 20 days after
written notice thereof to the Executive by the Company.
Any
notice required to be given by the Company pursuant to clause (i), (v) or (viii)
above shall specify the nature of the claimed breach and the manner in which
the
Company requires such breach to be cured (if curable). In the event that the
Executive is purportedly terminated for Cause and the arbitrator appointed
pursuant to paragraph 18 determines that Cause as defined herein was not
present, then such purported termination for Cause shall be deemed a termination
without Cause pursuant to paragraph 6(c) and the Executive's rights and remedies
will be governed by paragraph 7(b), in full satisfaction and in lieu of any
and
all other or further remedies the Executive may have under this
Agreement.
(
b
)
Termination
for Good Reason
.
Provided that a Cause event has not occurred and has not been cured (if
curable), the Executive shall be entitled to terminate this Agreement and the
Term hereunder for Good Reason (as defined below) at any time during the Term
by
written notice to the Company not more than 20 days after the occurrence of
the
event constituting such Good Reason. For purposes of this Agreement,
“
Good
Reason
”
shall
be limited to (i) a breach by the Company of a material provision of this
Agreement, which breach remains uncured (if curable) for a period of 20 days
after written notice of such breach from the Executive to the Company (such
notice to specify the nature of the claimed breach and the manner in which
the
Executive requires such breach to be cured), (ii) the Company’s failure to pay
any compensation or benefits, as set forth in paragraphs 4 or 5, which action
is
not reversed within 10 days after written notice of the breach from the
Executive to the Company, (iii) a material diminution of the Executive’s duties
and responsibilities as set forth in paragraph 3, without his prior written
consent, which breach remains uncured (if curable) for a period of 20 days
after
written notice of such breach from the Executive to the Company (such notice
to
specify the nature of the claimed breach and the manner in which the Executive
requires such breach to be cured). In the event that the Executive purportedly
terminates his employment for Good Reason and the arbitrator appointed pursuant
to paragraph 18 determines that Good Reason as defined herein was not present,
then such purported termination for Good Reason shall be deemed a termination
for Cause pursuant to paragraph 6(a)(vii) and the Executive’s rights and
remedies will be governed by paragraph 7(a), in full satisfaction and in lieu
of
any and all other or further remedies the Executive may have under this
Agreement.
(
c
)
Termination
without Cause
.
The
Company, by direction of the Board or the MDC Executive, shall have the right
at
any time during the Term to terminate the employment of the Executive without
Cause by giving written notice to the Executive setting forth a Date of
Termination.
(
d
)
Termination
for Death or Disability
.
In the
event of the Executive's death, the Date of Termination shall be the date of
the
Executive's death. In the event the Executive shall be unable to perform his
duties hereunder by virtue of illness or physical or mental incapacity or
disability (from any cause or causes whatsoever) in substantially the manner
and
to the extent required hereunder prior to the commencement of such disability
and the Executive shall fail to perform such duties for periods aggregating
120
days, whether or not continuous, in any continuous period of 360 days (such
causes being herein referred to as “
Disability
”),
the
Company shall have the right to terminate the Executive's employment hereunder
as at the end of any calendar month during the continuance of such Disability
upon at least 30 days' prior written notice to him.
7
.
Effect
of Termination of Employment
.
(
a
)
Termination
by the Company for Cause; by the Executive without Good Reason; by Death or
Disability; or pursuant to a Notice of Termination delivered by the Executive
pursuant to paragraph 2 above
.
In the
event of the termination of the employment of the Executive (1) by the Company
for Cause; (2) by the Executive without Good Reason; (3) by reason of death
or
Disability pursuant to paragraph 6(d); or (4) pursuant to a Notice of
Termination delivered by the Executive pursuant to paragraph 2 above, the
Executive shall be entitled to the following, subject to any appropriate
offsets, as permitted by applicable law, for debts or money due and payable
by
the Executive to the Company or an affiliate thereof (collectively,
“
Offsets
”):
(
i
)
unpaid
Base Salary through, and any unpaid reimbursable expenses outstanding as of,
the
Date of Termination;
(ii)
all
benefits, if any, that had accrued to the Executive through the Date of
Termination under the plans and programs described in paragraphs 5(b) and (c)
above, or any other applicable plans and programs in which he participated
as an
employee of the Company, in the manner and in accordance with the terms of
such
plans and programs; it being understood that any and all rights that the
Executive may have to severance payments by the Company shall be determined
and
solely based on the terms and conditions of this Agreement and not based on
the
Company's severance policy then in effect, if any; and
(iii)
notwithstanding
anything to the contrary in any of the Existing SAR Agreements, the Executive
will be entitled to exercise all Existing SARs which are vested as at the time
of the Date of Termination under this section 7(a) for a period ending on a
date
which is the earlier of: (i) three (3) months from the Date of Termination
and
(ii) the expiration of such Existing SARs.
In
the
event of termination of the employment of Executive in the circumstances
described in this paragraph 7(a), except as expressly provided in this
paragraph, the Company shall have no further liability to the Executive or
the
Executive's heirs, beneficiaries or estate for damages, compensation, benefits,
severance or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment
or
cessation of employment with the Company, provided that the foregoing shall
not
apply to any outstanding indemnification obligations of the Company in respect
of the Executive’s good faith actions in his capacity as a member, director or
officer thereof arising on or prior to the Date of Termination (“
Outstanding
Indemnification Obligations
”).
(
b
)
Termination
by the Company without Cause; by the Company pursuant to a Notice of Termination
delivered pursuant to paragraph 2 above; or by the Executive for Good
Reason
.
In the
event of a termination (1) by the Company without Cause; (2) by the Executive
for Good Reason; or (3) by the Company pursuant to a Notice of Termination
delivered pursuant to paragraph 2 above, the Executive shall be entitled to
the
following payments and benefits, subject to any Offsets:
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(i)
|
a
severance payment (the “
Severance Amount
”)
in an amount equal to the product of one (1) multiplied by the Executive’s
“Total Remuneration”. The Severance Amount described in this Section
7(b)(i), less applicable withholding of any tax amounts, shall be
paid by
the Company to the Executive not later than 10 business days after
the
applicable Date of Termination.
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(ii)
|
his
Annual Discretionary Bonus with respect to the calendar year prior
to the
Date of Termination, when otherwise payable, but only to the extent
not
already paid;
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(iii)
|
eligibility
for a pro-rata portion of his Annual Discretionary Bonus with respect
to
the calendar year in which the Date of Termination occurs, when otherwise
payable, (such pro-rata amount to be equal to the product of (A)
the
amount of the Annual Discretionary Bonus for such calendar year,
times (B)
a fraction, (x) the numerator of which shall be the number of calendar
days commencing January 1 of such year and ending on the Date of
Termination, and (y) the denominator of which shall equal
365;
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(iv)
|
unpaid
Base Salary through, and any unpaid reimbursable expenses outstanding
as
of, the Date of Termination;
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(v)
|
all
benefits, if any, that had accrued to the Executive through the Date
of
Termination under the plans and programs described in paragraphs
5(b) and
(c) above, or any other applicable benefit plans and programs in
which the
Executive participated as an employee of the Company, in the manner
and in
accordance with the terms of such plans and programs; it being understood
that any and all rights that the Executive may have to severance
payments
by the Company shall be determined and solely based on the terms
and
conditions of this Agreement (without duplication) and not based
on the
Company's severance policy then in effect, if
any;
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(vi)
|
continued
participation on the same basis in the plans and programs set forth
in
paragraph 5(b) and to the extent permitted under applicable law,
paragraph
5(c) (such benefits collectively called the "
Continued
Plans
")
in which the Executive was participating on the Date of Termination
(as
such Continued Plans are from time to time in effect at the Company)
for a
period to end on the earlier of (A) the one-year anniversary of the
Date
of Termination and (B) the date on which the Executive is eligible
to
receive coverage and benefits under the same type of plan of a subsequent
employer; provided, however, if the Executive is precluded from continuing
his participation in any Continued Plan, then the Company will be
obligated to pay him the economic equivalent of the benefits provided
under the Continued Plan in which he is unable to participate, for
the
period specified above, it being understood that the economic equivalent
of a benefit foregone shall be deemed the lowest cost in the Province
of
Ontario that would be incurred by the Executive in obtaining such
benefit
himself on an individual basis;
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(vii)
|
notwithstanding
anything to the contrary in any of the Existing SAR Agreements, if
the
Executive is terminated pursuant to this paragraph 7(b), any and
all
unvested Existing SARS shall be deemed to have vested immediately
prior to
the Date of Termination; and
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(viii)
|
notwithstanding
anything to the contrary in any of the Existing SAR Agreements, the
Executive will be entitled to exercise all Existing SARs which are
vested
(or deemed to be vested pursuant to paragraph 7(b)(vii)) as at the
time of
the Date of Termination under this section 7(b) for a period ending
on a
date which is the earlier of: (i) three (3) months from the Date
of
Termination and (ii) the expiration of such Existing SARs.
|
In
the
event of termination of this Agreement in the circumstances described in this
paragraph 7(b), except as expressly provided in this paragraph, the Company
shall have no further liability to the Executive or the Executive’s heirs,
beneficiaries or estate for damages, compensation, benefits, severance or other
amounts of whatever nature, directly or indirectly, arising out of or otherwise
related to this Agreement and the Executive’s employment or cessation of
employment with the Company, provided that the foregoing shall not apply to
any
Outstanding Indemnification Obligations.
The
Executive shall be under no duty to mitigate damages hereunder. The making
of
any severance payments and providing the other benefits as provided in this
paragraph 7(b) is conditioned upon the Executive signing and not revoking a
separation agreement in the form attached hereto as
Exhibit
A
(the
"
Separation
Agreement
")
.
In
the
event the Executive breaches any provisions of the Separation Agreement or
the
provisions of paragraph 8 of this Agreement, in addition to any other remedies
at law or in equity available to it, the Company may cease making any further
payments and providing the other benefits provided for in this paragraph 7(b),
without affecting its rights under this Agreement or the Separation
Agreement.
(
c
)
Termination
by the Company without Cause; by the Executive for Good Reason; or by the
Company pursuant to a Notice of Termination delivered pursuant to paragraph
2
above, following a Change of Control
.
If
within one (1) year after the closing date of any Change of Control transaction,
the Executive’s employment is terminated: (1) by the Company without Cause; (2)
by the Executive for Good Reason; or (3) by the Company pursuant to a Notice
of
Termination delivered pursuant to paragraph 2 above, the Executive shall be
entitled to the following payments and benefits, subject to any
Offsets:
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(i)
|
a
severance payment (the “
Change
in Control Severance Amount
”)
in an amount equal to the product of 1.5 multiplied by the Executive’s
Total Remuneration. For purposes of this Agreement, “
Total
Remuneration
”
shall mean the sum of the Executive’s current Base Salary, plus the
highest annual discretionary bonus earned by the Executive in the
three
(3) years ending December 31 of the year immediately preceding the
Date of
Termination. The Change in Control Severance Amount described in
this
Section 7(c)(i), less applicable withholding of any tax amounts,
shall be
paid by the Company to the Executive not later than 10 business days
after
the applicable Date of Termination.
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(ii)
|
his
Annual Discretionary Bonus with respect to the calendar year prior
to the
Date of Termination, when otherwise payable, but only to the extent
not
already paid;
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(iii)
|
eligibility
for a pro-rata portion of his Annual Discretionary Bonus with respect
to
the calendar year in which the Date of Termination occurs, when otherwise
payable, (such pro-rata amount to be equal to the product of (A)
the
amount of the Annual Discretionary Bonus for such calendar year,
times (B)
a fraction, (x) the numerator of which shall be the number of calendar
days commencing January 1 of such year and ending on the Date of
Termination, and (y) the denominator of which shall equal
365;
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(iv)
|
unpaid
Base Salary through, and any unpaid reimbursable expenses outstanding
as
of, the Date of Termination;
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(v)
|
all
benefits, if any, that had accrued to the Executive through the Date
of
Termination under the plans and programs described in paragraphs
5(b) and
(c) above, or any other applicable benefit plans and programs in
which the
Executive participated as an employee of the Company, in the manner
and in
accordance with the terms of such plans and programs; it being understood
that any and all rights that the Executive may have to severance
payments
by the Company shall be determined and solely based on the terms
and
conditions of this Agreement (without duplication) and not based
on the
Company's severance policy then in effect, if
any;
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(vi)
|
continued
participation on the same basis in the Continued Plans in which the
Executive was participating on the Date of Termination (as such Continued
Plans are from time to time in effect at the Company) for a period
to end
on the earlier of (A) the one-year anniversary of the Date of Termination
and (B) the date on which the Executive is eligible to receive coverage
and benefits under the same type of plan of a subsequent employer;
provided, however, if the Executive is precluded from continuing
his
participation in any Continued Plan, then the Company will be obligated
to
pay him the economic equivalent of the benefits provided under the
Continued Plan in which he is unable to participate, for the period
specified above, it being understood that the economic equivalent
of a
benefit foregone shall be deemed the lowest cost in the Province
of
Ontario that would be incurred by the Executive in obtaining such
benefit
himself on an individual basis;
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(vii)
|
notwithstanding
anything to the contrary in any of the Existing SAR Agreements, if
the
Executive is terminated pursuant to this paragraph 7(c), any and
all
unvested Existing SARS shall be deemed to have vested immediately
prior to
the Date of Termination; and
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(viii)
|
notwithstanding
anything to the contrary in any of the Existing SAR Agreements, the
Executive will be entitled to exercise all Existing SARs which are
vested
(or deemed to be vested pursuant to paragraph 7(c)(vii)) as at the
time of
the Date of Termination under this section 7(c) for a period ending
on a
date which is the earlier of: (i) three (3) months from the Date
of
Termination and (ii) the expiration of such Existing SARs.
|
For
the
purposes of this Agreement, a “
Change
of Control
”
shall
be limited to the closing of a transaction which results in (i) any person(s)
or
company(ies) acting jointly or in concert owning, directly or indirectly, equity
of the Company representing greater than 50% of the voting power of the
Company's outstanding securities, or (ii) the Company selling all or
substantially all of its assets (in each instance other than any transfer by
the
Company or any of its affiliates of their respective interest in the Company
to
another wholly-owned subsidiary of another MDC Group company).
In
the
event of termination of this Agreement in the circumstances described in this
paragraph 7(c), except as expressly provided in this paragraph, the Company
shall have no further liability to the Executive or the Executive's heirs,
beneficiaries or estate for damages, compensation, benefits, severance or other
amounts of whatever nature, directly or indirectly, arising out of or otherwise
related to this Agreement and the Executive's employment or cessation of
employment with the Company, provided that the foregoing shall not apply to
any
Outstanding Indemnification Obligations.
The
Executive shall be under no duty to mitigate damages hereunder. The making
of
any severance payments and providing the other benefits as provided in this
paragraph 7(c) is conditioned upon the Executive signing and not revoking a
Separation Agreement. In the event the Executive breaches any provisions of
the
Separation Agreement or the provisions of paragraph 8 of this Agreement, in
addition to any other remedies at law or in equity available to it, the Company
may cease making any further payments and providing the other benefits provided
for in this paragraph 7(c), without affecting its rights under this Agreement
or
the Separation Agreement.
The
Company represents and warrants to the Executive that the provisions set forth
in Sections 7(a)(iii), 7(b)(vii), 7(b)(viii), 7(c)(vii) and 7(c)(viii) of this
Agreement, have been approved by the Company’s Compensation
Committee.
8
.
Non-Solicitation/Non-Servicing
Agreement and Protection of Confidential Information
(
a
)
Non-Solicitation/Non-Servicing.
The
parties hereto agree that the covenants given in this paragraph 8 are being
given incident to the agreements and transactions described herein, and that
such covenants are being given for the benefit of the Company. Accordingly,
the
Executive acknowledges (i) that the business and the industry in which the
Company competes is highly competitive; (ii) that as a key executive of the
Company he has participated in and will continue to participate in the servicing
of current clients and/or the solicitation of prospective clients, through
which, among other things, the Executive has obtained and will continue to
obtain knowledge of the "know-how" and business practices of the Company, in
which matters the Company has a substantial proprietary interest; (iii) that
his
employment hereunder requires the performance of services which are special,
unique, extraordinary and intellectual in character, and his position with
the
Company places and placed him in a position of confidence and trust with the
clients and employees of the Company; and (iv) that his rendering of services
to
the clients of the Company necessarily required and will continue to require
the
disclosure to the Executive of confidential information (as defined in paragraph
8(b) hereof) of the Company. In the course of the Executive's employment with
the Company, the Executive has and will continue to develop a personal
relationship with the clients
of
the
Company and a knowledge of those clients' affairs and requirements, and the
relationship of the Company with its established clientele will therefore be
placed in the Executive's hands in confidence and trust. The Executive
consequently agrees that it is a legitimate interest of the Company, and
reasonable and necessary for the protection of the confidential information,
goodwill and business of the Company, which is valuable to the Company, that
the
Executive make the covenants contained herein and that the Company would not
have entered into this Agreement unless the covenants set forth in this
paragraph 8 were contained in this Agreement. Accordingly, the Executive agrees
that during the period that he is employed by the Company and for a period
of
eighteen (18) months thereafter (such period being referred to as the
"
Restricted
Period
"),
he
shall not, as an individual, employee, consultant, independent contractor,
partner, shareholder, or in association with any other person, business or
enterprise, except on behalf of the Company, directly or indirectly, and
regardless of the reason for his ceasing to be employed by the
Company:
(i)
attempt
in any manner to solicit or accept from any client business of the type
performed by the Company or to persuade any client to cease to do business
or to
reduce the amount of business which any such client has customarily done or
is
reasonably expected to do with the Company, whether or not the relationship
between the Company and such client was originally established in whole or
in
part through the Executive’s efforts; or
(ii)
employ
as
an employee or retain as a consultant any person, firm or entity who is then
or
at any time during the preceding twelve months was an employee of or exclusive
consultant to the Company, or persuade or attempt to persuade any employee
of or
exclusive consultant to the Company to leave the employ of the Company or to
become employed as an employee or retained as a consultant by any person, firm
or entity other than the Company; or
(iii)
render
to
or for any client any services of the type which are rendered by the
Company.
As
used
in this paragraph 8, the term "
Company
"
shall
include any subsidiaries of the Company and the term "
client
"
shall
mean (1) anyone who is a client of the Company on the Date of Termination,
or if
the Executive's employment shall not have terminated, at the time of the alleged
prohibited conduct (any such applicable date being called the "
Determination
Date
");
(2)
anyone who was a client of the Company at any time during the one year period
immediately preceding the Determination Date; (3) any prospective client to
whom
the Company had made a new business presentation (or similar offering of
services) at any time during the one year period immediately preceding the
Date
of Termination; and (4) any prospective client to whom the Company made a new
business presentation (or similar offering of services) at any time within
six
months after the Date of Termination (but only if initial discussions between
the Company and such prospective client relating to the rendering of services
occurred prior to the Date of Termination, and only if the Executive
participated in or supervised such discussions). For purposes of this clause,
it
is agreed that a general mailing or an incidental contact shall not be deemed
a
"new business presentation or similar offering of services" or a "discussion".
In addition, "client" shall also include any clients of other companies
operating within the MDC group of companies to whom the Executive rendered
services (including supervisory services) at any time during the six-month
period prior to the Determination Date. In addition, if the client is part
of a
group of companies which conducts business through more than one entity,
division or operating unit, whether or not separately incorporated (a
"
Client
Group
"),
the
term "client" as used herein shall also include each entity, division and
operating unit of the Client Group where the same management group of the Client
Group has the decision making authority or significant influence with respect
to
contracting for services of the type rendered by the Company.
(
b
)
Confidential
Information
.
In the
course of the Executive's employment with the Company (and its predecessor),
he
has acquired and will continue to acquire and have access to confidential or
proprietary information about the Company and/or its clients, including but
not
limited to, trade secrets, methods, models, passwords, access to computer files,
financial information and records, computer software programs, agreements and/or
contracts between the Company and its clients, client contacts, client
preferences, creative policies and ideas, advertising campaigns, creative and
media materials, graphic design materials, sales promotions and campaigns,
sales
presentation materials, budgets, practices, concepts, strategies, methods of
operation, financial or business projections of the Company and information
about or received from clients and other companies with which the Company does
business. The foregoing shall be collectively referred to as "
confidential
information
".
The
Executive is aware that the confidential information is not readily available
to
the public and accordingly, the Executive also agrees that he will not at any
time (whether during the Term or after termination of this Agreement), disclose
to anyone (other than his counsel in the course of a dispute arising from the
alleged disclosure of confidential information or as required by law) any
confidential information, or utilize such confidential information for his
own
benefit, or for the benefit of third parties. The Executive agrees that the
foregoing restrictions shall apply whether or not any such information is marked
"confidential" and regardless of the form of the information. The term
"confidential information" does not include information which (i) is or becomes
generally available to the public other than by breach of this provision or
(ii)
the Executive learns from a third party who is not under an obligation of
confidence to the Company or a client of the Company. In the event that the
Executive becomes legally required to disclose any confidential information,
he
will provide the Company with prompt notice thereof so that the Company may
seek
a protective order or other appropriate remedy and/or waive compliance with
the
provisions of this paragraph 8(b) to permit a particular disclosure. In the
event that such protective order or other remedy is not obtained, or that the
Company waives compliance with the provisions of this paragraph 8(b) to permit
a
particular disclosure, the Executive will furnish only that portion of the
confidential information which he is legally required to disclose and, at the
Company's expense, will cooperate with the efforts of the Company to obtain
a
protective order or other reliable assurance that confidential treatment will
be
accorded the confidential information. The Executive further agrees that all
memoranda, disks, files, notes, records or other documents, whether in
electronic form or hard copy (collectively, the "
material
")
compiled by him or made available to him during his employment with the Company
(whether or not the material constitutes or contains confidential information),
and in connection with the performance of his duties hereunder, shall be the
property of the Company and shall be delivered to the Company on the termination
of the Executive's employment with the Company or at any other time upon
request. Except in connection with the Executive's employment with the Company,
the Executive agrees that he will not make or retain copies or excerpts of
the
material; provided that the Executive shall be entitled to retain his personal
files.
(
c
)
Remedies
.
If the
Executive commits or threatens to commit a breach of any of the provisions
of
paragraphs 8(a) or (b), the Company shall have the right to have the provisions
of this Agreement specifically enforced by the arbitrator appointed under
paragraph 18 or by any court having jurisdiction without being required to
post
bond or other security and without having to prove the inadequacy of the
available remedies at law, it being acknowledged and agreed that any such breach
or threatened breach will cause irreparable injury to the Company and that
money
damages will not provide an adequate remedy to the Company. In addition, the
Company may take all such other actions and remedies available to it under
law
or in equity and shall be entitled to such damages as it can show it has
sustained by reason of such breach.
(
d
)
Acknowledgements
.
The
parties acknowledge that (i) the type and periods of restriction imposed in
the
provisions of paragraphs 8(a) and (b) are fair and reasonable and are reasonably
required in order to protect and maintain the proprietary interests of the
Company described above, other legitimate business interests and the goodwill
associated with the business of the Company; (ii) the time, scope and other
provisions of this paragraph 8 have been specifically negotiated by
sophisticated commercial parties, represented by legal counsel, and are given
as
an integral part of the transactions contemplated by this Agreement; and (iii)
because of the nature of the business engaged in by the Company and the fact
that clients can be and are serviced by the Company wherever they are located,
it is impractical and unreasonable to place a geographic limitation on the
agreements made by the Executive herein. The Executive specifically acknowledges
that his being restricted from soliciting and servicing clients and prospective
clients as contemplated by this Agreement will not prevent him from being
employed or earning a livelihood in the type of business conducted by the
Company. If any of the covenants contained in paragraphs 8(a) or (b), or any
part thereof, is held to be unenforceable by reason of it extending for too
great a period of time or over too great a geographic area or by reason of
it
being too extensive in any other respect, the parties agree (x) such covenant
shall be interpreted to extend only over the maximum period of time for which
it
may be enforceable and/or over the maximum geographic areas as to which it
may
be enforceable and/or over the maximum extent in all other respects as to which
it may be enforceable, all as determined by the court or arbitration panel
making such determination and (y) in its reduced form, such covenant shall
then
be enforceable, but such reduced form of covenant shall only apply with respect
to the operation of such covenant in the particular jurisdiction in or for
which
such adjudication is made. Each of the covenants and agreements contained in
this paragraph 8 (collectively, the "
Protective
Covenants
")
is
separate, distinct and severable. All rights, remedies and benefits expressly
provided for in this Agreement are cumulative and are not exclusive of any
rights, remedies or benefits provided for by law or in this Agreement, and
the
exercise of any remedy by a party hereto shall not be deemed an election to
the
exclusion of any other remedy (any such claim by the other party being hereby
waived). The existence of any claim, demand, action or cause of action of the
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company
of
each Protective Covenant. The unenforceability of any Protective Covenant shall
not affect the validity or enforceability of any other Protective Covenant
or
any other provision or provisions of this Agreement.
(e)
Notification
of Restrictive Covenants
.
Prior
to accepting employment with any person, firm or entity during the Restricted
Period, the Executive shall notify the prospective employer in writing of his
obligations pursuant to this paragraph 8 and shall simultaneously provide a
copy
of such notice to the Company (it being agreed by the Company that such
notification required under this paragraph 8(e) shall not be deemed a breach
of
the confidentiality provisions of this Agreement).
(f)
Tolling
.
The
temporal duration of the non-solicitation/non-servicing covenants set forth
in
this Agreement shall not expire, and shall be tolled, during any period in
which
the Executive is in violation of any of the non-solicitation/non-servicing
covenants set forth herein, and all restrictions shall automatically be extended
by the period of the Executive's violation of any such
restrictions.
9
.
Intellectual
Property
During
the Term, the Executive will disclose to the Company all ideas, inventions
and
business plans developed by him during such period which relate directly or
indirectly to the business of the Company, including without limitation, any
design, logo, slogan, advertising campaign or any process, operation, product
or
improvement which may be patentable or copyrightable. The Executive agrees
that
all patents, licenses, copyrights, tradenames, trademarks, service marks,
planning, marketing and/or creative policies and ideas, advertising campaigns,
promotional campaigns, media campaigns, budgets, practices, concepts,
strategies, methods of operation, financial or business projections, designs,
logos, slogans and business plans developed or created by the Executive in
the
course of his employment hereunder, either individually or in collaboration
with
others, will be deemed works for hire and the sole and absolute property of
the
Company. The Executive agrees, that at the Company's request and expense, he
will take all steps necessary to secure the rights thereto to the Company by
patent, copyright or otherwise.
10
.
Enforceability
The
failure of any party at any time to require performance by another party of
any
provision hereunder shall in no way affect the right of that party thereafter
to
enforce the same, nor shall it affect any other party's right to enforce the
same, or to enforce any of the other provisions in this Agreement; nor shall
the
waiver by any party of the breach of any provision hereof be taken or held
to be
a waiver of any subsequent breach of such provision or as a waiver of the
provision itself.
11
.
Assignment
The
Company and the Executive agree that the Company shall have the right to assign
this Agreement in connection with any asset assignment of all or substantially
all of the Company’s assets, stock sale, merger, consolidation or other
corporate reorganization involving the Company and, accordingly, this Agreement
shall inure to the benefit of, be binding upon and may be enforced by, any
and
all successors and such assigns of the Company. The Company and Executive agree
that Executive's rights and obligations under this Agreement are personal to
the
Executive, and the Executive shall not have the right to assign or otherwise
transfer his rights or obligations under this Agreement, and any purported
assignment or transfer shall be void and ineffective, provided that the rights
of the Executive to receive certain benefits upon death as expressly set forth
under paragraph 7(a) of this Agreement shall inure to the Executive’s estate and
heirs. The rights and obligations of the Company hereunder shall be binding
upon
and run in favor of the successors and assigns of the Company.
12
.
Modification
This
Agreement may not be orally canceled, changed, modified or amended, and no
cancellation, change, modification or amendment shall be effective or binding,
unless in writing and signed by the parties to this Agreement, and approved
in
writing by the MDC Executive.
13
.
Severability;
Survival
In
the
event any provision or portion of this Agreement is determined to be invalid
or
unenforceable for any reason, in whole or in part, the remaining provisions
of
this Agreement shall nevertheless be binding upon the parties with the same
effect as though the invalid or unenforceable part had been severed and deleted
or reformed to be enforceable. The respective rights and obligations of the
parties hereunder shall survive the termination of the Executive's employment
to
the extent necessary to the intended preservation of such rights and
obligations, specifically paragraphs 7, 8, 9, 10, 11, 12, 13, 14, 15, 18, 23
and
24.
14.
Notice
Any
notice, request, instruction or other document to be given hereunder by any
party hereto to another party shall be in writing and shall be deemed effective
(a) upon personal delivery, if delivered by hand, or (b) three days after the
date of deposit in the mails, postage prepaid if mailed by certified or
registered mail, or (c) on the next business day, if sent by prepaid overnight
courier service or facsimile transmission (if electronically confirmed), and
in
each case, addressed as follows:
If
to
the Executive
:
Mr.
Michael Sabatino
[address]
If
to
the Company
:
c/o
MDC
Partners Inc.
950
Third
Avenue
New
York,
NY 10022
Attention:
Chief Financial Officer
Fax:
(212) 937-4365
Any
party
may change the address to which notices are to be sent by giving notice of
such
change of address to the other party in the manner herein provided for giving
notice.
15.
Applicable
Law
This
Agreement shall be governed by, enforced under, and construed in accordance
with
the laws of the State of New York, NY applicable therein.
16.
No
Conflict
The
Executive represents and warrants that he is not subject to any agreement,
instrument, order, judgment or decree of any kind, or any other restrictive
agreement of any character, which would prevent him from entering into this
Agreement or which would be breached by the Executive upon his performance
of
his duties pursuant to this Agreement.
17.
Entire
Agreement
This
Agreement and the documents referenced herein represent the entire agreement
between the Company and the Executive with respect to the employment of the
Executive by the Company, and all prior agreements (including, without
limitation, the Original Employment Agreement), plans and arrangements relating
to the employment of the Executive by the Company are nullified and superseded
hereby.
18.
Arbitration
(
a
)
The
parties hereto agree that any dispute, controversy or claim arising out of,
relating to, or in connection with this Agreement (including, without
limitation, any claim regarding or related to the interpretation, scope, effect,
enforcement, termination, extension, breach, legality, remedies and other
aspects of this Agreement or the conduct and communications of the parties
regarding this Agreement and the subject matter of this Agreement) shall be
settled in private by arbitration pursuant to the
Arbitrations
Act
(Ontario) in Toronto, Ontario by a single arbitrator selected by the parties
or,
if the parties cannot agree, by a single arbitrator appointed by the Ontario
Superior Court of Justice. The arbitrator may grant injunctions or other relief
in such dispute or controversy. All awards of the arbitrator shall be binding
and non-appealable. Judgment upon the award of the arbitrator may be entered
in
any court having jurisdiction. The arbitrator shall apply Ontario law to the
merits of any dispute or claims, without reference to the rules of conflicts
of
law applicable therein. Suits to compel or enjoin arbitration or to determine
the applicability or legality of arbitration shall be brought in the Ontario
Superior Court of Justice in the City of Toronto. Notwithstanding the foregoing,
no party to this Agreement shall be precluded from applying to a proper court
for injunctive relief by reason of the prior or subsequent commencement of
an
arbitration proceeding as herein provided. No party or arbitrator shall disclose
in whole or in part to any other person, firm or entity any confidential
information submitted in connection with the arbitration proceedings, except
to
the extent reasonably necessary to assist counsel in the arbitration or
preparation for arbitration of the dispute. Confidential Information may be
disclosed to (i) attorneys, (ii) parties, and (iii) outside experts requested
by
either party’s counsel to furnish technical or expert services or to give
testimony at the arbitration proceedings, subject, in the case of such experts,
to execution of a legally binding written statement that such expert is fully
familiar with the terms of this provision, agree to comply with the
confidentiality terms of this provision, and will not use any confidential
information disclosed to such expert for personal or business
advantage.
(
b
)
The
Executive has read and understands this paragraph 18. The Executive understands
that by signing this Agreement, the Executive agrees to submit any claims
arising out of, relating to, or in connection with this Agreement, or the
interpretation, validity, construction, performance, breach or termination
thereof, or his employment or the termination thereof, to binding arbitration,
and that this arbitration provision constitutes a waiver of the Executive’s
right to a jury trial and relates to the resolution of all disputes relating
to
all aspects of the employer/employee relationship.
(
c
)
To
the
extent that any part of this paragraph 18 is found to be legally unenforceable
for any reason, that part shall be modified or deleted in such a manner as
to
render this paragraph 18 (or the remainder of this paragraph 18) legally
enforceable and as to ensure that except as otherwise provided in clause (a)
of
this paragraph 18, all conflicts between the Company and the Executive shall
be
resolved by neutral, binding arbitration. The remainder of this paragraph 18
shall not be affected by any such modification or deletion but shall be
construed as severable and independent. If a court finds that the arbitration
procedures of this paragraph 18 are not absolutely binding, then the parties
hereto intend any arbitration decision to be fully admissible in evidence,
given
great weight by any finder of fact, and treated as determinative to the maximum
extent permitted by law.
19.
Headings
The
headings contained in this Agreement are for reference purposes only, and shall
not affect the meaning or interpretation of this Agreement.
20.
Withholdings
The
Company may withhold from any amounts payable under this Agreement such federal,
state or local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
21.
Counterparts
This
Agreement may be executed in two counterparts or by facsimile transmission,
both
of which taken together shall constitute one instrument.
22.
No
Strict Construction
The
language used in this Agreement will be deemed to be the language chosen by
the
Company and the Executive 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.
23.
Publicity
Subject
to the provisions of the next sentence, no party to this Agreement 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 Company and the Executive. Notwithstanding the foregoing, the
foregoing provision shall not apply to the extent that the Company is required
to make any announcement relating to or arising out of this Agreement by virtue
of applicable securities laws or other stock exchange rules, or any announcement
by any party pursuant to applicable law or regulations.
24.
Non-
Disparagement
Following
the date hereof, the Executive and the Company shall each use their reasonable
best efforts not to disparage, criticize or make statements to the detriment
of
the other.
*
*
*
*
*
IN
WITNESS WHEREOF,
the
parties have executed this Amended and Restated Employment Agreement as of
the
day and year first above written.
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MDC
PARTNERS INC.
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By:
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Michael
Sabatino
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Exhibit
A to Employment Agreement
__________
[Insert
Date]
Michael
Sabatino
Re:
Separation
Agreement and General Release
Dear
_
_________
:
1.
Your
employment with MDC Partners Inc. (the "
Company
")
pursuant to the Employment Agreement between the Company and you dated ____
2007
(the "
Employment
Agreement
"),
or
otherwise, shall terminate effective on the close of business on (the
"
Termination
Date
").
You
hereby confirm your removal as of the Termination Date from any position you
held as an employee, officer, Director or Manager of the Company or any Company
operating within the MDC Group of companies (the “
Group
”).
2.
The
Company agrees to pay you severance compensation and benefits in accordance
with
the applicable clause of paragraph 7 of the Employment Agreement.
3.
You
shall
submit to the Company your reimbursement request in accordance with Company
policy for any unpaid business or entertainment expenses incurred by you through
the Termination Date in respect of which you are entitled to be reimbursed
under
Company policy.
4.
From
and
after the Termination Date, except for such rights under this Agreement or
the
Employment Agreement, you shall no longer be entitled to receive any further
payments, compensation or other monies (including severance compensation) from
the Company or any of its affiliates or to receive any of the benefits or
participate in any benefit plan or program of the Company or any of its
affiliates, including without limitation, any salary payment, bonus payment,
severance payment, salary continuation payment, accrued vacation or unused
personal days and expense reimbursements or other benefits referred to in the
Employment Agreement.
5.
You
hereby acknowledge and affirm your obligations under the provisions of paragraph
8 of the Employment Agreement.
6.
Notwithstanding
your termination of employment as provided in this Agreement, the parties hereto
agree that the provisions of paragraphs 8 through 24 of the Employment Agreement
shall survive such termination to the extent necessary to the intended
preservation of the rights and obligations set forth in such
paragraphs.
7.
(a)
You,
for
yourself, your heirs,
executors,
administrators,
agents,
representatives, successors and assigns, hereby irrevocably and unconditionally
release the Company and its affiliates, and each of their respective employees,
shareholders, agents, officers, directors, attorneys, representatives,
successors and assigns of the Company and its affiliates (collectively, the
"
Releasees
"),
from
any and all
charges,
complaints, claims, liabilities, obligations, promises, agreements, causes
of
action, rights, costs, losses, debts and expenses of any nature whatsoever,
known or unknown, (collectively, the “
Claims
”),
which
you, your heirs, executors, administrators,
representatives,
successors and assigns ever had, now have or hereafter may have (either directly
or indirectly, derivatively or in any other representative capacity) by reason
of any matter, fact or cause whatsoever from the beginning of time to the date
of this Agreement, including without limitation, any and all claims
based
upon or arising out of your Employment Agreement, your employment with the
Company or your termination of employment with the Company; provided, however,
the foregoing shall not apply to or release any of your rights under the terms
of this agreement, or any existing rights which by their express terms survive
the termination of the Employment Agreement (collectively, the
“Outstanding
Rights”
).
(b)
You
represent that you have not filed or permitted to be filed against the Company
(or the other Releasees), individually or collectively, any lawsuits and you
covenant and agree that you will not do so at any time hereafter with respect
to
the subject matter of this Agreement and claims released pursuant to this
Agreement (including, without limitation, any claims relating to the termination
of your employment), except as may be necessary to enforce this Agreement or
any
of the Outstanding Rights, to obtain benefits described in or granted under
this
Agreement or any of the Outstanding Rights, or to seek a determination of the
validity of the waiver of your rights under applicable law.
(c)
You
agree
to cooperate on a reasonable basis with the Company and its counsel in
connection with any investigations, administrative proceedings or litigation
relating to any matter in which you were involved or of which you had knowledge
as a result of your employment with the Company.
(d)
You
agree
that you will not encourage or voluntarily cooperate with any other current
or
former employee of the Company (or their affiliates) or any other potential
plaintiff, to commence any legal action or make any claim against the Company
(or any affiliate) in respect of such person’s employment or termination of
employment with or by the Company (or any affiliate thereof) or
otherwise.
(e)
You
agree
that on and after the Termination Date you will not apply or seek employment
with the Company or any of its affiliates at any location or facility, and
you
hereby waive and release any right to be considered for such
employment.
(f)
This
Agreement does not constitute an admission by the Company of any violation
of
any federal, state, or local law or any contractual or other obligations, or
of
any wrongdoing whatsoever.
8.
For
good
and valuable consideration, the Company, on its behalf and on behalf of each
of
its affiliates and their respective successors and assigns, hereby irrevocably
and unconditionally release you from any and all Claims which any of them ever
had, now have or hereafter may have (either directly or indirectly, derivatively
or in any other representative capacity) by reason of any matter, fact or cause
from the beginning of time to the date of this Agreement arising out of your
performance of duties as an employee or officer of the Company or another member
of the Group or your termination of employment with the Company, except if
a
Claim arises out of your fraudulent conduct, your misappropriation or
embezzlement of funds, or any other unlawful conduct; provided, however, the
foregoing release shall not apply to or release any rights of the Company under
the terms of this Agreement.
9.
You
agree
to keep secret and strictly confidential the existence of this Agreement and
further agree not to disclose, make known, discuss or relay any information
concerning this Agreement, or any of the discussions regarding the terms of
this
Agreement, leading up to the execution of it, to anyone other than your tax
advisor, accountant, attorney, spouse or members of your immediate family,
provided that any such party to whom you make such disclosure agrees to keep
such information confidential and not disclose it to others. The foregoing
shall
also not prohibit disclosure (i) as may be ordered by any regulatory agency
or court or as required by other lawful process, or (ii) as may be
necessary for the prosecution of claims relating to the performance or
enforcement of this Agreement or (iii) as may become generally available to
the
public other than by breach of this provision or (iv) you learn from a third
party who is not under an obligation of confidence to the Company.
10.
In
the
event of a breach of the terms of this Agreement by any party, the non-breaching
party shall be entitled to all damages allowed under applicable law.
11.
(a)
As
used
in this Agreement (i) "
affiliate
"
of any
Person (as defined below) 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, and (ii) a "
Person
"
shall
mean or include an individual, a company, a limited liability company, a
corporation or any other form of business entity.
(b)
All
prior
negotiations and discussions between the parties with respect to the subject
matter hereof are merged into this Agreement. No representations by or on behalf
of any party were made or relied upon except as set forth herein. This Agreement
may not be changed, amended or modified, except by a writing signed by the
party
affected by such change, amendment or modification.
(c)
In
the
event any provision of this Agreement is found to be void and unenforceable
by a
court or other tribunal of competent jurisdiction, the remaining provisions
of
this Agreement shall nevertheless be binding upon the parties hereto with the
same effect as though the void or unenforceable part had been severed and
deleted or reformed to be enforceable.
(d)
The
failure of any party at any time to require performance by another party of
any
provision hereunder shall in no way affect the right of that party thereafter
to
enforce the same, nor shall it affect any other party's right to enforce the
same, or to enforce any of the other provisions in this Agreement; nor shall
the
waiver by any party of the breach of any provision hereof be taken or held
to be
a waiver of any subsequent breach of such provision or as a waiver of the
provision itself. This Agreement shall be binding upon, and inure to the benefit
of, you and your heirs, executors, administrators, successors and assignors,
and
MDC Partners, the Company and their respective successors and assignors.
IN
WITNESS WHEREOF
,
the
parties hereto have set their hands as of the date first above set
forth.
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MDC
Partners Inc.
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By:
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Michael
Sabatino
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Dated:
_________________________
Execution
Copy
EMPLOYMENT
AGREEMENT
AGREEMENT
dated as
of July 19, 2007 (this “
Agreement
”)
by and
between
MDC
PARTNERS INC.,
a
corporation existing under the laws of Canada (the “
Company
”),
and
DAVID
DOFT
(the
“
Executive
”).
W
I T N E S S E T H:
WHEREAS,
the
Company wishes to employ the Executive and the Executive wishes to accept such
employment, upon the terms and conditions hereinafter set forth;
NOW,
THEREFORE
,
in
consideration of the premises and other good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto agree as
follows:
1
.
Employment
The
Company agrees to employ the Executive during the Term specified in paragraph
2,
and the Executive agrees to accept such employment, upon the terms and
conditions hereinafter set forth.
2
.
Term
Subject
to the provisions contained in paragraphs 6 and 7, the Executive's employment
by
the Company shall commence on August 10, 2007 and shall continue for a term
expiring on the close of business on July 31, 2010 (the “
Initial
Term
”);
provided, however, the term of the Executive’s employment by the Company under
this Agreement shall automatically renew for additional one-year periods
thereafter unless and until either party shall give to the other 45 days advance
written notice of expiration of any such term (a “
Notice
of Termination
”)
(the
Initial Term and the period, if any, thereafter, during which the Executive’s
employment shall continue are collectively referred to as the “
Term
”).
Any
Notice of Termination given under this paragraph 2 shall specify the date of
termination. The Company shall have the right at any time during such 45 day
notice period, to relieve the Executive of his offices, duties and
responsibilities and to place him on a paid leave-of-absence status, provided
that during such notice period the Executive shall remain a full-time employee
of the Company and shall continue to receive his then current salary
compensation, bonus and other benefits as provided in this Agreement. The date
on which the Executive ceases to be employed by the Company, regardless of
the
reason therefore, is referred to in this Agreement as the “
Date
of Termination.”
3
.
Duties
and Responsibilities
(
a
)
Title
.
During
the Term, the Executive shall have the position of Chief Financial Officer
of
the Company.
(
b
)
Duties
.
The
Executive shall report solely and directly to the Board of Directors of the
Company (the "
Board
")
and
the Chief Executive Officer of the Company (the “
CEO
”),
at
such times and in such detail as it or he shall reasonably require. The
Executive shall perform such executive and managerial duties, and shall only
have authorities and responsibilities, consistent with his position as
designated in paragraph 3(a) in a corporation of the size and nature of the
Company, and as may reasonably be assigned to him from time to time by or under
authority of the Board and/or the CEO. The Executive shall be invited to attend
and participate at Board meetings from time to time during the Term
(
c
)
Scope
of Employment
.
The
Executive's employment by the Company as described herein shall be full-time
and
exclusive, and during the Term, the Executive agrees that he will (i) devote
substantially all of his business time and attention, his reasonable best
efforts, and all his skill and ability to promote the interests of the Company;
and (ii) carry out his duties in a competent manner and serve the Company
faithfully and diligently under the direction of the CEO. Notwithstanding the
foregoing, the Executive shall be permitted to (A) upon prior written consent
of
the CEO (which shall not be unreasonably withheld), serve on the board of
directors of two companies unaffiliated with the Company; provided that such
companies are not engaged in any activity which is competitive with the Company
or its subsidiaries and affiliates (collectively, the “
MDC
Group
”),
and
(B) engage in charitable and civic activities and manage his personal passive
investments, provided that such passive investments are not in a company which
transacts business with the Company or its affiliates or engages in business
directly competitive with that conducted by the Company (or, if such company
does transact business with the Company, or does engage in a directly
competitive business, it is a publicly held corporation and the Executive's
participation is limited to owning less than 1% of its outstanding shares),
and
further provided that such activities (individually or collectively) do not
materially interfere with the performance of his duties or responsibilities
under this Agreement.
(d)
Office
Location
.
During
the Term, the Executive's services hereunder shall be performed at the offices
of the Company, which shall be within a twenty five (25) mile radius of New
York, NY, subject to necessary travel requirements to the Company’s offices in
Toronto, Canada and other MDC Group company locations in order to carry out
his
duties in connection with his position hereunder.
4
.
Compensation
(a)
Base
Salary
.
As
compensation for his services hereunder, during the Term, the Company shall
pay
the Executive in accordance with its normal payroll practices, an annualized
base salary of $300,000, subject to periodic review by the Human Resources
&
Compensation Committee of the Board of Directors of the Company (the
“
Compensation
Committee
”)
to
determine appropriate increases (but not decreases), if any, in accordance
with
the Company’s practices and policies for other senior executives (including any
such increase, if any, “
Base
Salary
”).
The
initial review by the Compensation Committee of Executive’s Base Salary shall
occur at the first regularly-scheduled Compensation Committee meeting following
the first anniversary of Executive’s first date of employment, but in no event
later than February 1, 2009.
(b)
Sign-on
Bonus
.
On or
prior to September 10, 2007, and provided that Executive remains a full-time
employee of the Company at such time, the Company shall pay the Executive a
lump-sum cash sign-on bonus in an amount equal to $50,000 (the “
Sign-on
Bonus
”).
(c)
Calendar
Year 2007 Cash Bonus
.
In
respect of calendar year 2007 only, the Executive shall receive a minimum cash
bonus in the amount of $150,000, to be paid on or prior to March 31, 2008 (the
“
2007
Cash Bonus
”),
subject to the Executive’s continued employment with the Company through the
bonus payment date.
(d)
Annual
Discretionary Bonus
.
During
the Term, in respect of all calendar years beginning with January 1, 2008,
the
Executive shall be eligible to receive an annual discretionary bonus with a
target of 100% of the Base Salary, as determined by the CEO and the Compensation
Committee in accordance with the terms and conditions of the Company’s annual
incentive plan, based upon the Executive’s performance, the overall financial
performance of the Company and such other factors as the MDC CEO and the Board
shall deem, in consultation with Executive, reasonable and appropriate (the
"
Annual
Discretionary Bonus
"),
to be
paid in accordance with the Company’s normal bonus payment procedures and at the
same time
other
senior executives of the Company are paid their annual incentive
awards
.
The
Annual Discretionary Bonus will be paid 50% in cash, and 50% in the form of
the
Company’s Class A subordinate voting shares (or substantially equivalent
shares), which shares may be issued subject to time or performance-based vesting
restrictions, or some combination of the two in accordance with the Company’s
annual incentive plan.
(e)
Restricted
Stock
.
Upon
the commencement of his employment with the Company, the Executive shall receive
an award of 35,000 restricted shares of the Company’s
Class
A
subordinate voting
shares
(“
MDC
Restricted Stock
”)
,
in
accordance with and subject to the terms and conditions of a separate restricted
stock agreement (the "
MDC
Restricted Stock Agreement
")
to be
executed and delivered by the Executive and the Company.
(f)
Participation
in Equity Incentive Programs
.
During
the Term, the Executive shall also be eligible to participate in all current
and
future equity incentive plans of the Company available to its senior executives,
including but not limited to potential awards of stock options, stock
appreciation rights and/or awards of restricted shares of the
Company.
5.
Expenses;
Fringe Benefits
(
a
)
Expenses
.
The
Company agrees to pay or to reimburse the Executive for all reasonable,
ordinary, necessary and documented business or entertainment expenses incurred
during the Term in the performance of his services hereunder in accordance
with
the policy of the Company as from time to time in effect. The Executive, as
a
condition precedent to obtaining such payment or reimbursement, shall provide
to
the Company any and all statements, bills or receipts evidencing the travel
or
out-of-pocket expenses for which the Executive seeks payment or reimbursement,
and any other information or materials, as the Company may from time to time
reasonably require.
(b)
Benefit
Plans
.
During
the Term, the Executive and, to the extent eligible, his dependents, shall
be
eligible to participate in and receive all benefits under any group health
plans, welfare benefit plans and programs (including without limitation,
medical, dental, hospitalization, vision, disability, group life (including
accidental death and dismemberment) and business travel insurance plans and
programs) provided by the Company to its senior executives and, without
duplication, its employees generally, subject, however, to the generally
applicable eligibility and other provisions of the various plans and programs
in
effect from time to time.
(c)
Retirement
Plans
.
During
the Term, the Executive shall be eligible to participate in all retirement
plans
and programs (including without limitation any profit sharing, pension, 401(k),
savings, estate preservation and other retirements plans or programs) provided
by the Company to its senior executives based in the United States generally
and, without duplication, its employees based in the United States generally,
subject, however, to the generally applicable eligibility and other provisions
of the various plans and programs in effect from time to time. In addition,
during the Term, the Executive shall be eligible to receive fringe benefits
and
perquisites in accordance with the plans, practices, programs and policies
of
the Company from time to time in effect which are made available to the senior
executives of the Company generally and, without duplication, to its employees
generally.
(d)
Vacation
.
The
Executive shall be entitled to four weeks paid vacation in accordance with
the
Company's policies, with no right of carry over, to be taken at such times
as
shall not materially interfere with the Executive's fulfillment of his duties
hereunder, and shall be entitled to as many holidays, sick days and personal
days as are in accordance with the Company's policy then in effect generally
for
its employees and/or other senior executives.
(e)
Car
Allowance and other Perquisites
.
During
the Term, the Company will provide the Executive with an annual allowance of
$25,000 (the “
Perquisite
Allowance
”)
to
cover the costs of (i) leasing, insuring, garaging and maintaining an automobile
for use in the business of the Company, (ii) the monthly dues, fees and other
charges at a club of the Executive’s choice (including, but not limited to, any
additional charges incurred relating to the Company’s business), and (iii) the
costs of other perquisites, which Perquisite Allowance shall be paid in
accordance with the Company’s normal payroll practices. In addition, the Company
shall pay the costs related to a reasonable number of continuing education
classes relating to the Executive’s duties at the Company, as the same may be
approved in advance by the CEO or the Board.
(f)
Legal
Expenses
.
The
Company shall pay or reimburse the Executive for the reasonable legal fees
and
expenses incurred by the Executive in connection with the negotiation of this
Agreement, against submission of invoices for such legal fees, not to exceed
$20,000.
6
.
Termination
(
a
)
Termination
for Cause
.
The
Company, by direction of the Compensation Committee, the Board of Directors
or
the CEO, shall be entitled to terminate the Term and to discharge the Executive
for “
Cause
”
in
accordance with this Section 6. For purposes of this Agreement, the term “Cause”
shall be limited to:
(
i
)
the
Executive's willful failure or refusal to materially perform his duties and
responsibilities as set forth in paragraph 3 hereof (other than as a result
of a
Disability (as defined in paragraph 6(d) hereof), provided that the Executive
or
a representative on his behalf has provided notice to the Company not more
than
20 days following the onset of Executive’s illness or physical or mental
incapacity or disability) or abide by the reasonable directives of the CEO,
or
the failure of the Executive to devote all of his business time and attention
exclusively to the business and affairs of the Company in accordance with the
terms hereof, in each case if such failure or refusal is not cured (if curable)
within 20 days after written notice thereof to the Executive by the
Company;
(
ii
)
the
willful and unauthorized misappropriation of the funds or property of the
Company;
(
iii
)
the
use
of alcohol or illegal drugs, interfering with the performance of the Executive's
obligations under this Agreement, continuing after receipt of written warning
from the Company;
(
iv
)
the
conviction in a court of law of, or entering a plea of guilty or no contest
to,
any felony or any crime involving moral turpitude, material dishonesty or
theft;
(
v
)
the
material nonconformance with the Company's policies against racial or sexual
discrimination or harassment, which nonconformance is not cured (if curable)
within 10 days after written notice to the Executive by the
Company;
(
vi
)
the
commission in bad faith by the Executive of any act which materially injures
or
could reasonably be expected to materially injure the reputation, business
or
business relationships of the Company;
(
vii
)
the
resignation by the Executive on his own initiative (other than pursuant to
a
termination by the Executive for "Good Reason" (as defined in paragraph 6(b)
hereof), which shall not be deemed a breach of this Agreement; and
(viii)
any
breach (not covered by any of the clauses (i) through (vii) above) of paragraphs
8, 9, 11 and 25, if such breach is not cured (if curable) within 20 days after
written notice thereof to the Executive by the Company.
Any
notice required to be given by the Company pursuant to clause (i), (iii), (v),
(vi) or (viii) above shall specify the nature of the claimed breach and the
manner in which the Company requires such breach to be cured (if curable).
In
the event that the Executive is purportedly terminated for Cause and the
arbitrator appointed pursuant to paragraph 18 determines that Cause as defined
herein was not present, then such purported termination for Cause shall be
deemed a termination without Cause pursuant to paragraph 6(c) and the
Executive's rights and remedies will be governed by paragraph 7(b).
(
b
)
Termination
for Good Reason
.
Provided that a Cause event has not occurred and has not been cured (if
curable), the Executive shall be entitled to terminate this Agreement and the
Term hereunder for Good Reason (as defined below) at any time during the Term
by
written notice to the Company not more than 45 days after Executive’s actual
knowledge of the occurrence of the event constituting such Good Reason. For
purposes of this Agreement, “
Good
Reason
”
shall
be limited to (i) a material breach by the Company of a material provision
of
this Agreement, which breach remains uncured (if curable) for a period of 20
days after written notice of such breach from the Executive to the Company
(such
notice to specify the nature of the claimed breach and the manner in which
the
Executive requires such breach to be cured), (ii) a reduction in Executive’s
then current Base Salary or target bonus opportunity as a percentage of Base
Salary, (iii) a material diminution of the Executive’s title, duties or
responsibilities as set forth in paragraph 3, without his prior written consent,
which breach remains uncured (if curable) for a period of 20 days after written
notice of such breach from the Executive to the Company (such notice to specify
the nature of the claimed breach and the manner in which the Executive requires
such breach to be cured); (iv) a change in the reporting structure so that
Executive reports to someone other than the Board or the CEO; or (v) relocation
of the Executive’s principal office to a location more than 25 miles outside New
York, NY. In the event that the Executive purportedly terminates his employment
for Good Reason and the arbitrator appointed pursuant to paragraph 18 determines
that Good Reason as defined herein was not present, then such purported
termination for Good Reason shall be deemed a termination for Cause pursuant
to
paragraph 6(a)(vii) and the Executive’s rights and remedies will be governed by
paragraph 7(a).
(
c
)
Termination
without Cause
.
The
Company, by direction of the Board or the CEO, shall have the right at any
time
during the Term to terminate the employment of the Executive without Cause
by
giving thirty (30) days advance written notice to the Executive setting forth
a
Date of Termination.
(
d
)
Termination
for Death or Disability
.
In the
event of the Executive's death, the Date of Termination shall be the date of
the
Executive's death. In the event the Executive shall be unable to perform his
duties hereunder by virtue of illness or physical or mental incapacity or
disability (from any cause or causes whatsoever)
as
determined by a medical doctor selected by the Executive and the
Company,
in
substantially the manner and to the extent required hereunder prior to the
commencement of such disability and the Executive shall fail to perform such
duties for periods aggregating 150 days, whether or not continuous, in any
continuous period of 360 days (such causes being herein referred to as
“
Disability
”),
the
Company shall have the right to terminate the Executive's employment hereunder
as at the end of any calendar month during the continuance of such Disability
upon at least 30 days' prior written notice to him.
7
.
Effect
of Termination of Employment
.
(
a
)
Termination
by the Company for Cause; by the Executive without Good Reason; by Death or
Disability; or pursuant to a Notice of Termination delivered by the Executive
pursuant to paragraph 2 above
.
In the
event of the termination of the employment of the Executive (1) by the Company
for Cause; (2) by the Executive without Good Reason; (3) by reason of death
or
Disability pursuant to paragraph 6(d); or (4) pursuant to a Notice of
Termination delivered by the Executive pursuant to paragraph 2 above, the
Executive shall be entitled to the following;
(
i
)
unpaid
Base Salary and Perquisite Allowance through, and any unpaid reimbursable
expenses outstanding as of, the Date of Termination; and
(ii)
all
benefits, if any, that had accrued to the Executive through the Date of
Termination under the plans and programs described in paragraphs 5(b) and (c)
above, or any other applicable plans and programs in which he participated
as an
employee of the Company, in the manner and in accordance with the terms of
such
plans and programs; it being understood that any and all rights that the
Executive may have to severance payments by the Company shall be determined
and
solely based on the terms and conditions of this Agreement and not based on
the
Company's severance policy then in effect, if any.
In
the
event of termination of the employment of Executive in the circumstances
described in this paragraph 7(a), except as expressly provided in this
paragraph, the Company shall have no further liability to the Executive or
the
Executive's heirs, beneficiaries or estate for damages, compensation, benefits,
severance or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment
or
cessation of employment with the Company, provided that the foregoing shall
not
apply to any outstanding indemnification or directors & officers insurance
obligations of the Company in respect of the Executive’s good faith actions in
his capacity as a member, director, employee or officer thereof arising on
or
prior to the Date of Termination (“
Outstanding
Indemnification Obligations
”).
All
outstanding equity awards shall be governed by the terms of the applicable
plan,
program or arrangement of the Company and the relevant equity award
documents.
(
b
)
Termination
by the Company without Cause; by the Company pursuant to a Notice of Termination
delivered pursuant to paragraph 2 above; or by the Executive for Good
Reason
.
In the
event of a termination (1) by the Company without Cause; (2) by the Executive
for Good Reason; or (3) by the Company pursuant to a Notice of Termination
delivered pursuant to paragraph 2 above, the Executive shall be entitled to
the
following payments and benefits:
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(i)
|
a
severance payment (the “
Severance Amount
”)
in an amount equal to the product of one (1) multiplied by the Executive’s
“Total Remuneration”, plus an amount equal to two (2) month’s Base Salary
for each calendar year in which Executive was employed by the Company
up
to a maximum of six (6) months. For purposes of this Agreement,
“
Total
Remuneration
”
shall mean the sum of the
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|
|
Executive’s
current Base Salary and Perquisite Allowance, plus the highest annual
discretionary bonus earned by the Executive in the three (3) years
ending
December 31 of the year immediately preceding the Date of Termination.
In
the event Executive’s employment is terminated hereunder prior
to the payment of the first annual discretionary bonus, the Severance
Amount shall be calculated using the target award as described in Section
4(d) above. The Severance Amount described in this Section 7(b)(i),
less
applicable withholding of any tax amounts, shall be paid by the Company
to
the Executive not later than 10 business days after the applicable
Date of
Termination; provided, that, if at the Date of Termination, the Executive
is a “specified employee” within the meaning of Section 409A of the
Internal Revenue Code of 1986 (as amended), and if required to comply
with
Section 409A of the Internal Revenue Code of 1986 (as amended), then
such
payment shall not be made within 10 business days after the Date of
Termination but shall instead be made within 10 business days following
the six-month anniversary of the Date of
Termination.
|
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(ii)
|
his
Annual Discretionary Bonus (or 2007 Cash Bonus, if applicable) with
respect to the calendar year prior to the Date of Termination, when
otherwise payable to active participants in the discretionary bonus
plan
(which in no event will be later than two and one-half months following
the end of the preceding calendar year), but only to the extent not
already paid;
|
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|
(iii)
|
a
pro-rata portion of his Annual Discretionary Bonus with respect to
the
calendar year in which the Date of Termination occurs, when otherwise
payable to active participants in the discretionary bonus plan, (which
in
no event will be later than two and one-half months following the
end of
the preceding calendar year), (such pro-rata amount to be equal to
the
product of (A) the amount of the Annual Discretionary Bonus for such
calendar year, times (B) a fraction, (x) the numerator of which shall
be
the number of calendar days commencing January 1 of such year and
ending
on the Date of Termination, and (y) the denominator of which shall
equal
365;
|
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(iv)
|
unpaid
Base Salary and Perquisite Allowance through, and any unpaid reimbursable
expenses outstanding as of, the Date of
Termination;
|
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(v)
|
all
benefits, if any, that had accrued to the Executive through the Date
of
Termination under the plans and programs described in paragraphs
5(b) and
(c) above, or any other applicable benefit plans and programs in
which the
Executive participated as an employee of the Company, in the manner
and in
accordance with the terms of such plans and programs; it being understood
that any and all rights that the Executive may have to severance
payments
by the Company shall be determined and solely based on the terms
and
conditions of this Agreement (without duplication) and not based
on the
Company's severance policy then in effect, if any;
and
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(vi)
|
continued
participation on the same basis in the plans and programs set forth
in
paragraph 5(b) and to the extent permitted under applicable law,
paragraph
5(c) (such benefits collectively called the "
Continued
Plans
")
in which the Executive was participating on the Date of Termination
(as
such Continued Plans are from time to time in effect at the Company)
for a
period to end on the earlier of (A) the one-year anniversary of the
Date
of Termination and (B) the date on which the Executive is eligible
to
receive coverage and benefits under the same type of plan of a subsequent
employer.
|
In
the
event of termination of this Agreement in the circumstances described in this
paragraph 7(b), except as expressly provided in this paragraph, the Company
shall have no further liability to the Executive or the Executive’s heirs,
beneficiaries or estate for damages, compensation, benefits, severance or other
amounts of whatever nature, directly or indirectly, arising out of or otherwise
related to this Agreement and the Executive’s employment or cessation of
employment with the Company, provided that the foregoing shall not apply to
any
Outstanding Indemnification Obligations.
The
Executive shall be under no duty to mitigate damages hereunder. The making
of
any severance payments and providing the other benefits as provided in this
paragraph 7(b) is conditioned upon the Executive signing and not revoking a
separation agreement substantially in the form attached hereto as
Exhibit
A
(the
"
Separation
Agreement
")
.
(
c
)
Termination
by the Company without Cause; by the Executive for Good Reason; or by the
Company pursuant to a Notice of Termination delivered pursuant to paragraph
2
above, following a Change of Control
.
If
within one (1) year after the closing date of any Change of Control transaction,
the Executive’s employment is terminated: (1) by the Company without Cause; (2)
by the Executive for Good Reason; or (3) by the Company pursuant to a Notice
of
Termination delivered pursuant to paragraph 2 above, the Executive shall be
entitled to the following payments and benefits:
|
|
(i)
|
a
severance payment (the “
Change
in Control Severance Amount
”)
in an amount equal to the product of 1.5 multiplied by the Executive’s
Total Remuneration. The Change in Control Severance Amount described
in
this Section 7(c)(i), less applicable withholding of any tax amounts,
shall be paid by the Company to the Executive not later than 10 business
days after the applicable Date of Termination; provided, that, if
at the
Date of Termination, the Executive is a “specified employee” within the
meaning of Section 409A of the Internal Revenue Code of 1986(as amended),
and if required to comply with Section 409A of the Internal Revenue
Code
of 1986 (as amended), then such payment shall not be made within
10
business days after the Date of Termination but shall instead be
made
within 10 business days following the six-month anniversary of the
Date of
Termination.
|
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(ii)
|
his
Annual Discretionary Bonus with respect to the calendar year prior
to the
Date of Termination, when otherwise payable to active participants
in the
discretionary bonus plan (which in no event will be later than two
and
one-half months following the end of the preceding calendar year),
but
only to the extent not already paid;
|
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(iii)
|
a
pro-rata portion of his Annual Discretionary Bonus with respect to
the
calendar year in which the Date of Termination occurs, when otherwise
payable to active participants in the discretionary bonus plan (which
in
no event will be later than two and one-half months following the
end of
the preceding calendar year), (such pro-rata amount to be equal to
the
product of (A) the amount of the Annual Discretionary Bonus for such
calendar year, times (B) a fraction, (x) the numerator of which shall
be
the number of calendar days commencing January 1 of such year and
ending
on the Date of Termination, and (y) the denominator of which shall
equal
365;
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(iv)
|
unpaid
Base Salary and Perquisite Allowance through, and any unpaid reimbursable
expenses outstanding as of, the Date of
Termination;
|
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(v)
|
all
benefits, if any, that had accrued to the Executive through the Date
of
Termination under the plans and programs described in paragraphs
5(b) and
(c) above, or any other applicable benefit plans and programs in
which the
Executive participated as an employee of the Company, in the manner
and in
accordance with the terms of such plans and programs; it being understood
that any and all rights that the Executive may have to severance
payments
by the Company shall be determined and solely based on the terms
and
conditions of this Agreement (without duplication) and not based
on the
Company's severance policy then in effect, if
any;
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(vi)
|
continued
participation on the same basis in the Continued Plans in which the
Executive was participating on the Date of Termination (as such Continued
Plans are from time to time in effect at the Company) for a period
to end
on the earlier of (A) the one-year anniversary of the Date of Termination
and (B) the date on which the Executive is eligible to receive coverage
and benefits under the same type of plan of a subsequent employer;
provided, however, if the Executive is precluded from continuing
his
participation in any Continued Plan (other than any Continued Plan
that is
terminated by the Company on or after the Date of Termination), then
the
Company will be obligated to pay him the economic equivalent of the
benefits provided under the Continued Plan in which he is unable
to
participate, for the period specified
above.
|
For
the
purposes of this Agreement, a “
Change
of Control
”
shall
be limited to the closing of a transaction which results in (i) any person(s)
or
company(ies) acting jointly or in concert owning, directly or indirectly, equity
of the Company representing greater than 50% of the voting power of the
Company's outstanding securities, or (ii) the Company selling all or
substantially all of its assets (in each instance other than any transfer by
the
Company or any of its affiliates of their respective interest in the Company
to
another wholly-owned subsidiary of another MDC Group company).
In
the
event of termination of this Agreement in the circumstances described in this
paragraph 7(c), except as expressly provided in this paragraph, the Company
shall have no further liability to the Executive or the Executive's heirs,
beneficiaries or estate for damages, compensation, benefits, severance or other
amounts of whatever nature, directly or indirectly, arising out of or otherwise
related to this Agreement and the Executive's employment or cessation of
employment with the Company, provided that the foregoing shall not apply to
any
Outstanding Indemnification Obligations.
The
Executive shall be under no duty to mitigate damages hereunder. The making
of
any severance payments and providing the other benefits as provided in this
paragraph 7(c) is conditioned upon the Executive signing and not revoking a
Separation Agreement.
8
.
Non-Solicitation/Non-Servicing
Agreement and Protection of Confidential Information
(
a
)
Non-Solicitation/Non-Servicing.
The
parties hereto agree that the covenants given in this paragraph 8 are being
given incident to the agreements and transactions described herein, and that
such covenants are being given for the benefit of the Company. Accordingly,
the
Executive acknowledges (i) that the business and the industry in which the
Company competes is highly competitive; (ii) that as a key executive of the
Company he has participated in and will continue to participate in the servicing
of current clients and/or the solicitation of prospective clients, through
which, among other things, the Executive has obtained and will continue to
obtain knowledge of the "know-how" and business practices of the Company, in
which matters the Company has a substantial proprietary interest; (iii) that
his
employment hereunder requires the performance of services which are special,
unique, extraordinary and intellectual in character, and his position with
the
Company places and placed him in a position of confidence and trust with the
clients and employees of the Company; and (iv) that his rendering of services
to
the clients of the Company necessarily required and will continue to require
the
disclosure to the Executive of confidential information (as defined in paragraph
8(b) hereof) of the Company. In the course of the Executive's employment with
the Company, the Executive has and will continue to develop a personal
relationship with the clients of the Company and a knowledge of those clients'
affairs and requirements, and the relationship of the Company with its
established clientele will therefore be placed in the Executive's hands in
confidence and trust. The Executive consequently agrees that it is a legitimate
interest of the Company, and reasonable and necessary for the protection of
the
confidential
information,
goodwill
and business of the Company, which is valuable to the Company, that the
Executive make the covenants contained herein and that the Company would not
have entered into this Agreement unless the covenants set forth in this
paragraph 8 were contained in this Agreement. Accordingly, the Executive agrees
that during the period that he is employed by the Company and for a period
of
fifteen (15) months thereafter (such period being referred to as the
"
Restricted
Period
"),
he
shall not, as an individual, employee, consultant, independent contractor,
partner, shareholder, or in association with any other person, business or
enterprise, except on behalf of the Company, directly or indirectly, and
regardless of the reason for his ceasing to be employed by the
Company:
(i)
attempt
in any manner to solicit or accept from any client business of the type
performed by the Company or to persuade any client to cease to do business
or to
reduce the amount of business which any such client has customarily done or
is
reasonably expected to do with the Company, whether or not the relationship
between the Company and such client was originally established in whole or
in
part through the Executive’s efforts; or
(ii)
employ
as
an employee or retain as a consultant any person, firm or entity who is then
or
at any time during the preceding twelve months was an employee of or exclusive
consultant to the Company, or persuade or attempt to persuade any employee
of or
exclusive consultant to the Company to leave the employ of the Company or to
become employed as an employee or retained as a consultant by any person, firm
or entity other than the Company; or
(iii)
render
to
or for any client any services of the type which are rendered by the
Company.
As
used
in this paragraph 8, the term "
Company
"
shall
include any subsidiaries of the Company and the term "
client
"
shall
mean (1) anyone who is a client of the Company on the Date of Termination,
or if
the Executive's employment shall not have terminated, at the time of the alleged
prohibited conduct (any such applicable date being called the "
Determination
Date
");
(2)
anyone who was a client of the Company at any time during the one year period
immediately preceding the Determination Date; (3) any prospective client to
whom
the Company had made a new business presentation (or similar offering of
services) at any time during the one year period immediately preceding the
Date
of Termination; and (4) any prospective client to whom the Company made a new
business presentation (or similar offering of services) at any time within
six
months after the Date of Termination (but only if initial discussions between
the Company and such prospective client relating to the rendering of services
occurred prior to the Date of Termination, and only if the Executive
participated in or supervised such discussions). For purposes of this clause,
it
is agreed that a general mailing or an incidental contact shall not be deemed
a
"new business presentation or similar offering of services" or a "discussion".
In addition, "client" shall also include any clients of other companies
operating within the MDC group of companies to whom the Executive rendered
services (including supervisory services) at any time during the six-month
period prior to the Determination Date. In addition, if the client is part
of a
group of companies which conducts business through more than one entity,
division or operating unit, whether or not separately incorporated (a
"
Client
Group
"),
the
term "client" as used herein shall also include each entity, division and
operating unit of the Client Group where the same management group of the Client
Group has the decision making authority or significant influence with respect
to
contracting for services of the type rendered by the Company.
Anything
herein to the contrary notwithstanding, it shall not be a breach of
Section
8(a)(i)
if any such client had a relationship with any subsequent employer that
pre-existed Executive working for such employer
.
(
b
)
Confidential
Information
.
In the
course of the Executive's employment with the Company (and its predecessor),
he
has acquired and will continue to acquire and have access to confidential or
proprietary information about the Company and/or its clients, including but
not
limited to, trade secrets, methods, models, passwords, access to computer files,
financial information and records, computer software programs, agreements and/or
contracts between the Company and its clients, client contacts, client
preferences, creative policies and ideas, advertising campaigns, creative and
media materials, graphic design materials, sales promotions and campaigns,
sales
presentation materials, budgets, practices, concepts, strategies, methods of
operation, financial or business projections of the Company and information
about or received from clients and other companies with which the Company does
business. The foregoing shall be collectively referred to as "
confidential
information
".
The
Executive is aware that the confidential information is not readily available
to
the public and accordingly, the Executive also agrees that, other than in the
ordinary course of lawfully performing his duties for the Company, he will
not
at any time (whether during the Term or after termination of this Agreement),
disclose to anyone (other than his counsel in the course of a dispute arising
from the alleged disclosure of confidential information or as required by law)
any confidential information, or utilize such confidential information for
his
own benefit, or for the benefit of third parties. The Executive agrees that
the
foregoing restrictions shall apply whether or not any such information is marked
"confidential" and regardless of the form of the information. The term
"confidential information" does not include information which (i) is or becomes
generally available to the public other than by breach of this provision or
(ii)
the Executive learns from a third party who is not under an obligation of
confidence to the Company or a client of the Company. In the event that the
Executive becomes legally required to disclose any confidential information,
he
will provide the Company with prompt notice thereof so that the Company may
seek
a protective order or other appropriate remedy and/or waive compliance with
the
provisions of this paragraph 8(b) to permit a particular disclosure. In the
event that such protective order or other remedy is not obtained, or that the
Company waives compliance with the provisions of this paragraph 8(b) to permit
a
particular disclosure, the Executive will furnish only that portion of the
confidential information which he is legally required to disclose and, at the
Company's expense, will cooperate with the efforts of the Company to obtain
a
protective order or other reliable assurance that confidential treatment will
be
accorded the confidential information. The Executive further agrees that all
memoranda, disks, files, notes, records or other documents, whether in
electronic form or hard copy (collectively, the "
material
")
compiled by him or made available to him during his employment with the Company
(whether or not the material constitutes or contains confidential information),
and in connection with the performance of his duties hereunder, shall be the
property of the Company and shall be delivered to the Company on the termination
of the Executive's employment with the Company or at any other time upon
request. Except in connection with the Executive's employment with the Company,
the Executive agrees that he will not make or retain copies or excerpts of
the
material; provided that the Executive shall be entitled to retain his personal
files.
(
c
)
Remedies
.
If the
Executive commits or threatens to commit a breach of any of the provisions
of
paragraphs 8(a) or (b), the Company shall have the right to have the provisions
of this Agreement specifically enforced by the arbitrator appointed under
paragraph 18 or by any court having jurisdiction without being required to
post
bond or other security and without having to prove the inadequacy of the
available remedies at law, it being acknowledged and agreed that any such breach
or threatened breach will cause irreparable injury to the Company and that
money
damages will not provide an adequate remedy to the Company. In addition, the
Company may take all such other actions and remedies available to it under
law
or in equity and shall be entitled to such damages as it can show it has
sustained by reason of such breach.
(
d
)
Acknowledgements
.
The
parties acknowledge that (i) the type and periods of restriction imposed in
the
provisions of paragraphs 8(a) and (b) are fair and reasonable and are reasonably
required in order to protect and maintain the proprietary interests of the
Company described above, other legitimate business interests and the goodwill
associated with the business of the Company; (ii) the time, scope and other
provisions of this paragraph 8 have been specifically negotiated by
sophisticated commercial parties, represented by legal counsel, and are given
as
an integral part of the transactions contemplated by this Agreement; and (iii)
because of the nature of the business engaged in by the Company and the fact
that clients can be and are serviced by the Company wherever they are located,
it is impractical and unreasonable to place a geographic limitation on the
agreements made by the Executive herein. The Executive specifically acknowledges
that his being restricted from soliciting and servicing clients and prospective
clients as contemplated by this Agreement will not prevent him from being
employed or earning a livelihood in the type of business conducted by the
Company. If any of the covenants contained in paragraphs 8(a) or (b), or any
part thereof, is held to be unenforceable by reason of it extending for too
great a period of time or over too great a geographic area or by reason of
it
being too extensive in any other respect, the parties agree (x) such covenant
shall be interpreted to extend only over the maximum period of time for which
it
may be enforceable and/or over the maximum geographic areas as to which it
may
be enforceable and/or over the maximum extent in all other respects as to which
it may be enforceable, all as determined by the court or arbitration panel
making such determination and (y) in its reduced form, such covenant shall
then
be enforceable, but such reduced form of covenant shall only apply with respect
to the operation of such covenant in the particular jurisdiction in or for
which
such adjudication is made. Each of the covenants and agreements contained in
this paragraph 8 (collectively, the "
Protective
Covenants
")
is
separate, distinct and severable. All rights, remedies and benefits expressly
provided for in this Agreement are cumulative and are not exclusive of any
rights, remedies or benefits provided for by law or in this Agreement, and
the
exercise of any remedy by a party hereto shall not be deemed an election to
the
exclusion of any other remedy (any such claim by the other party being hereby
waived). The existence of any claim, demand, action or cause of action of the
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company
of
each Protective Covenant. The unenforceability of any Protective Covenant shall
not affect the validity or enforceability of any other Protective Covenant
or
any other provision or provisions of this Agreement.
(e)
Notification
of Restrictive Covenants
.
Prior
to accepting employment with any person, firm or entity during the Restricted
Period, the Executive shall notify the prospective employer in writing of his
obligations pursuant to this paragraph 8 and shall simultaneously provide a
copy
of such notice to the Company (it being agreed by the Company that such
notification required under this paragraph 8(e) shall not be deemed a breach
of
the confidentiality provisions of this Agreement).
(f)
Tolling
.
The
temporal duration of the non-solicitation/non-servicing covenants set forth
in
this Agreement shall not expire, and shall be tolled, during any period in
which
the Executive is in violation of any of the non-solicitation/non-servicing
covenants set forth herein, and all restrictions shall automatically be extended
by the period of the Executive's violation of any such
restrictions.
9
.
Intellectual
Property
During
the Term, the Executive will disclose to the Company all ideas, inventions
and
business plans developed by him during such period which relate directly or
indirectly to the business of the Company, including without limitation, any
design, logo, slogan, advertising campaign or any process, operation, product
or
improvement which may be patentable or copyrightable. The Executive agrees
that
all patents, licenses, copyrights, tradenames, trademarks, service marks,
planning, marketing and/or creative policies and ideas, advertising campaigns,
promotional campaigns, media campaigns, budgets, practices, concepts,
strategies, methods of operation, financial or business projections, designs,
logos, slogans and business plans developed or created by the Executive in
the
course of his employment hereunder, either individually or in collaboration
with
others, will be deemed works for hire and the sole and absolute property of
the
Company. The Executive agrees that at the Company's request and expense, he
will
take all steps necessary to secure the rights thereto to the Company by patent,
copyright or otherwise, at the Company’s sole expense.
10
.
Enforceability
The
failure of any party at any time to require performance by another party of
any
provision hereunder shall in no way affect the right of that party thereafter
to
enforce the same, nor shall it affect any other party's right to enforce the
same, or to enforce any of the other provisions in this Agreement; nor shall
the
waiver by any party of the breach of any provision hereof be taken or held
to be
a waiver of any subsequent breach of such provision or as a waiver of the
provision itself.
11
.
Assignment
The
Company and the Executive agree that the
Company shall have the right to assign this Agreement in connection with any
asset assignment of all or substantially all of the Company’s assets, stock
sale, merger, consolidation or other corporate reorganization involving the
Company and, accordingly, this Agreement shall inure to the benefit of, be
binding upon and may be enforced by, any and all successors and such assigns
of
the Company, provided that the assignee or transferee is the successor to all
or
substantially all of the assets of the Company and assumes the liabilities,
obligations and duties of the Company under this Agreement, either contractually
or as a matter of law. The Company and Executive agree that Executive's rights
and obligations under this Agreement are personal to the Executive, and the
Executive shall not have the right to assign or otherwise transfer his rights
or
obligations under this Agreement, and any purported assignment or transfer
shall
be void and ineffective, provided that the rights of the Executive to receive
certain benefits upon death as expressly set forth under paragraph 7(a) of
this
Agreement shall inure to the Executive’s estate and heirs. The rights and
obligations of the Company hereunder shall be binding upon and run in favor
of
the successors and assigns of the Company.
12
.
Modification
This
Agreement may not be orally canceled, changed, modified or amended, and no
cancellation, change, modification or amendment shall be effective or binding,
unless in writing and signed by the parties to this Agreement, and approved
in
writing by the CEO.
13
.
Severability;
Survival
In
the
event any provision or portion of this Agreement is determined to be invalid
or
unenforceable for any reason, in whole or in part, the remaining provisions
of
this Agreement shall nevertheless be binding upon the parties with the same
effect as though the invalid or unenforceable part had been severed and deleted
or reformed to be enforceable. The respective rights and obligations of the
parties hereunder shall survive the termination of the Executive's employment
to
the extent necessary to the intended preservation of such rights and
obligations, specifically paragraphs 7, 8, 9, 10, 11, 12, 13, 14, 15, 18, 23
and
24.
14.
Notice
Any
notice, request, instruction or other document to be given hereunder by any
party hereto to another party shall be in writing and shall be deemed effective
(a) upon personal delivery, if delivered by hand, or (b) three days after the
date of deposit in the mails, postage prepaid if mailed by certified or
registered mail, or (c) on the next business day, if sent by prepaid overnight
courier service or facsimile transmission (if electronically confirmed), and
in
each case, addressed as follows:
If
to
the Executive
:
Mr.
David
Doft, at his last address listed in the Company’s records
with
a
copy to
:
Thompson
Wigdor & Gilly LLP
350
Fifth Avenue, Suite 5720
New
York, New York 10118
Attn:
Andrew S. Goodstadt, Esq.
Fax:
212-239-9001
If
to
the Company
:
c/o
MDC
Partners Inc.
950
Third
Avenue
New
York,
NY 10022
Attention:
General Counsel
Fax:
(212) 937-4365
Any
party
may change the address to which notices are to be sent by giving notice of
such
change of address to the other party in the manner herein provided for giving
notice.
15.
Applicable
Law
This
Agreement shall be governed by, enforced under, and construed in accordance
with
the laws of the State of New York without regard to its conflicts of law
principles.
16.
Representations
and Warranties
The
Executive represents and warrants that he is not subject to any agreement,
instrument, order, judgment or decree of any kind, or any other restrictive
agreement of any character, which would prevent him from entering into this
Agreement or which would be breached by the Executive upon his performance
of
his duties pursuant to this Agreement.
The
Company represents and warrants that (i) the execution, delivery and
performance of this Agreement by the Company has been fully and validly
authorized by all necessary corporate action, and (ii) the officer signing
this Agreement on behalf of the Company is duly authorized to do
so..
17.
Entire
Agreement
This
Agreement and the documents referenced herein represent the entire agreement
between the Company and the Executive with respect to the employment of the
Executive by the Company, and all prior agreements (including, without
limitation, the Original Employment Agreement), plans and arrangements relating
to the employment of the Executive by the Company are nullified and superseded
hereby.
18.
Arbitration
(
a
)
The
parties hereto agree that any dispute, controversy or claim arising out of,
relating to, or in connection with this Agreement (including, without
limitation, any claim regarding or related to the interpretation, scope, effect,
enforcement, termination, extension, breach, legality, remedies and other
aspects of this Agreement or the conduct and communications of the parties
regarding this Agreement and the subject matter of this
Agreement)
shall be settled in private by
binding
arbitration
,
to
be
held
in
the
Borough of Manhattan in New York City, in accordance with the Commercial
Arbitration Rules (and not the National Rules for the Resolution of Employment
Disputes) of the American Arbitration Association and this Section 18.
Judgment
upon the award
rendered
by
the
arbitrator
(s)
may be
entered in any court having jurisdiction
thereof.
Pending the resolution of any arbitration proceeding, the Executive (and his
beneficiaries) shall continue to receive all payments and benefits due under
this Agreement or otherwise
.
No
party or arbitrator shall disclose in whole or in part to any other person,
firm
or entity any confidential information submitted in connection with the
arbitration proceedings, except to the extent reasonably necessary to assist
counsel in the arbitration or preparation for arbitration of the dispute.
Confidential Information may be disclosed to (i) attorneys, (ii) parties, and
(iii) outside experts requested by either party’s counsel to furnish technical
or expert services or to give testimony at the arbitration proceedings, subject,
in the case of such experts, to execution of a legally binding written statement
that such expert is fully familiar with the terms of this provision, agree
to
comply with the confidentiality terms of this provision, and will not use any
confidential information disclosed to such expert for personal or business
advantage.
(
b
)
The
Executive has read and understands this paragraph 18. The Executive understands
that by signing this Agreement, the Executive agrees to submit any claims
arising out of, relating to, or in connection with this Agreement, or the
interpretation, validity, construction, performance, breach or termination
thereof, or his employment or the termination thereof, to binding arbitration,
and that this arbitration provision constitutes a waiver of the Executive’s
right to a jury trial and relates to the resolution of all disputes relating
to
all aspects of the employer/employee relationship.
(
c
)
To
the
extent that any part of this paragraph 18 is found to be legally unenforceable
for any reason, that part shall be modified or deleted in such a manner as
to
render this paragraph 18 (or the remainder of this paragraph 18) legally
enforceable and as to ensure that except as otherwise provided in clause (a)
of
this paragraph 18, all conflicts between the Company and the Executive shall
be
resolved by neutral, binding arbitration. The remainder of this paragraph 18
shall not be affected by any such modification or deletion but shall be
construed as severable and independent. If a court finds that the arbitration
procedures of this paragraph 18 are not absolutely binding, then the parties
hereto intend any arbitration decision to be fully admissible in evidence,
given
great weight by any finder of fact, and treated as determinative to the maximum
extent permitted by law.
19.
Headings
The
headings contained in this Agreement are for reference purposes only, and shall
not affect the meaning or interpretation of this Agreement.
20.
Withholdings
The
Company may withhold from any amounts payable under this Agreement such federal,
state or local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
21.
Counterparts
This
Agreement may be executed in two counterparts or by facsimile transmission,
both
of which taken together shall constitute one instrument.
22.
No
Strict Construction
The
language used in this Agreement will be deemed to be the language chosen by
the
Company and the Executive 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.
23.
Publicity
Subject
to the provisions of the next sentence, no party to this Agreement 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 Company and the Executive. Notwithstanding the foregoing, the
foregoing provision shall not apply to the extent that the Company is required
to make any announcement relating to or arising out of this Agreement by virtue
of applicable securities laws or other stock exchange rules, or any announcement
by any party pursuant to applicable law or regulations.
24.
Indemnification
and Liability Insurance.
The
Company agrees to continue and maintain a directors’ and officers’ liability
insurance policy covering the Executive at a level, and on terms and conditions,
no less favorable to him than the coverage the Company provides other
similarly-situated executives until such time as suits against the Executive
are
no longer permitted by law, and the Company agrees to indemnify the Executive
to
the fullest extent permitted by the Company’s Bylaws.
25.
Non-
Disparagement
Following
the date hereof, the Executive and the Company shall each use their reasonable
best efforts not to publicly disparage, criticize or make statements to the
detriment of the other. Notwithstanding the foregoing, nothing in this paragraph
shall prevent any person from (a) responding publicly to incorrect, disparaging
or derogatory public statements to the extent reasonably necessary to correct
or
refute such public statement, or (b) making any truthful statement to the extent
required
by
order
of a court or other body having jurisdiction or required by law.
.
*
*
*
*
*
IN
WITNESS WHEREOF,
the
parties have executed this Employment Agreement as of the day and year first
above written.
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MDC
PARTNERS INC.
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By:
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David
Doft
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Exhibit
A to Employment Agreement
__________
[Insert
Date]
David
Doft
Re:
Separation
Agreement and General Release
Dear
___________
:
1.
Your
employment with MDC Partners Inc. (the "
Company
")
pursuant to the Employment Agreement between the Company and you dated ____
2007
(the "
Employment
Agreement
"),
or
otherwise, shall terminate effective on the close of business on (the
"
Termination
Date
").
You
hereby confirm your removal as of the Termination Date from any position you
held as an employee, officer, Director or Manager of the Company or any Company
operating within the MDC Group of companies (the “
Group
”).
2.
The
Company agrees to pay you severance compensation and benefits in accordance
with
the applicable clause of paragraph 7 of the Employment Agreement.
3.
You
shall
submit to the Company your reimbursement request in accordance with Company
policy for any unpaid business or entertainment expenses incurred by you through
the Termination Date in respect of which you are entitled to be reimbursed
under
Company policy.
4.
From
and
after the Termination Date, except for such rights under this Agreement or
the
Employment Agreement, you shall no longer be entitled to receive any further
payments, compensation or other monies (including severance compensation) from
the Company or any of its affiliates or to receive any of the benefits or
participate in any benefit plan or program of the Company or any of its
affiliates, including without limitation, any salary payment, bonus payment,
severance payment, salary continuation payment, accrued vacation or unused
personal days and expense reimbursements or other benefits referred to in the
Employment Agreement.
5.
You
hereby acknowledge and affirm your obligations under the provisions of paragraph
8 of the Employment Agreement.
6.
Notwithstanding
your termination of employment as provided in this Agreement, the parties hereto
agree that the provisions of paragraphs 8 through 24 of the Employment Agreement
shall survive such termination to the extent necessary to the intended
preservation of the rights and obligations set forth in such
paragraphs.
7.
(a)
You,
for
yourself, your heirs,
executors,
administrators,
agents,
representatives, successors and assigns, hereby irrevocably and unconditionally
release the Company and its affiliates, and each of their respective employees,
officers, directors (
provided
,
however, that any such release in favor of such employees, officers and
directors shall be limited to their corporate capacities in connection with
the
Company), successors and assigns of the Company and its affiliates
(collectively, the "
Releasees
"),
from
any and all
charges,
complaints, claims, liabilities, obligations, promises, agreements, causes
of
action, rights, costs, losses, debts and expenses of any nature whatsoever,
known or unknown, (collectively, the “
Claims
”),
which
you, your heirs, executors, administrators,
representatives,
successors and assigns ever had, now have or hereafter may have (either directly
or indirectly, derivatively or in any other representative capacity) by reason
of any matter, fact or cause whatsoever from the beginning of time to the date
of this Agreement, including without limitation, any and all claims
based
upon or arising out of your Employment Agreement, your employment with the
Company or your termination of employment with the Company; provided, however,
the foregoing shall not apply to or release any of your rights under the terms
of this agreement, any rights to indemnification as an officer or director
of
the Company or any existing rights which by their express terms survive the
termination of the Employment Agreement (collectively, the
“Outstanding
Rights”
).
(b)
You
represent that you have not filed or permitted to be filed against the Company
(or the other Releasees), individually or collectively, any lawsuits and you
covenant and agree that you will not do so at any time hereafter with respect
to
the subject matter of this Agreement and claims released pursuant to this
Agreement (including, without limitation, any claims relating to the termination
of your employment), except as may be necessary to enforce this Agreement or
any
of the Outstanding Rights, to obtain benefits described in or granted under
this
Agreement or any of the Outstanding Rights, or to seek a determination of the
validity of the waiver of your rights under applicable law.
(c)
You
agree
to cooperate on a reasonable basis with the Company and its counsel in
connection with any investigations, administrative proceedings or litigation
relating to any matter in which you were involved or of which you had knowledge
as a result of your employment with the Company. The Company shall promptly
reimburse you for all costs and expenses reasonably incurred by you in
connection with rendering assistance to the Company in connection with this
Section 7(c), including without limitation reasonable fees and disbursements
of
separate counsel of your choice if appropriate. Such expenses shall be
reimbursed promptly after the Executive’s submission to the Company of
statements in such reasonable detail as the Company may require.
(d)
You
agree
that you will not encourage or voluntarily cooperate with any other current
or
former employee of the Company (or their affiliates) or any other potential
plaintiff, to commence any legal action or make any claim against the Company
(or any affiliate) in respect of such person’s employment or termination of
employment with or by the Company (or any affiliate thereof) or
otherwise.
(e)
You
agree
that on and after the Termination Date you will not apply or seek employment
with the Company or any of its affiliates at any location or facility, and
you
hereby waive and release any right to be considered for such
employment.
(f)
This
Agreement does not constitute an admission by either party of any violation
of
any federal, state, or local law or any contractual or other obligations, or
of
any wrongdoing whatsoever.
8.
For
good
and valuable consideration, the Company, on its behalf and on behalf of each
of
its affiliates and their respective successors and assigns, hereby irrevocably
and unconditionally release you from any and all Claims which any of them ever
had, now have or hereafter may have (either directly or indirectly, derivatively
or in any other representative capacity) by reason of any matter, fact or cause
from the beginning of time to the date of this Agreement arising out of your
performance of duties as an employee or officer of the Company or another member
of the Group or your termination of employment with the Company, except if
a
Claim arises out of your fraudulent conduct, your misappropriation or
embezzlement of funds, or any other unlawful conduct; provided, however, the
foregoing release shall not apply to or release any rights of the Company under
the terms of this Agreement.
9.
You
agree
to keep secret and strictly confidential the existence of this Agreement and
further agree not to disclose, make known, discuss or relay any information
concerning this Agreement, or any of the discussions regarding the terms of
this
Agreement, leading up to the execution of it, to anyone other than your tax
advisor, accountant, attorney, spouse or members of your immediate family,
provided that any such party to whom you make such disclosure agrees to keep
such information confidential and not disclose it to others. The foregoing
shall
also not prohibit disclosure (i) as may be ordered by any regulatory agency
or court or as required by other lawful process, or (ii) as may be
necessary for the prosecution of claims relating to the performance or
enforcement of this Agreement or (iii) as may become generally available to
the
public other than by breach of this provision or (iv) you learn from a third
party who is not under an obligation of confidence to the Company.
10.
In
the
event of a breach of the terms of this Agreement by any party, the non-breaching
party shall be entitled to all damages allowed under applicable law.
11.
(a)
As
used
in this Agreement (i) "
affiliate
"
of any
Person (as defined below) 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, and (ii) a "
Person
"
shall
mean or include an individual, a company, a limited liability company, a
corporation or any other form of business entity.
(b)
All
prior
negotiations and discussions between the parties with respect to the subject
matter hereof are merged into this Agreement. No representations by or on behalf
of any party were made or relied upon except as set forth herein. This Agreement
may not be changed, amended or modified, except by a writing signed by the
party
affected by such change, amendment or modification.
(c)
In
the
event any provision of this Agreement is found to be void and unenforceable
by a
court or other tribunal of competent jurisdiction, the remaining provisions
of
this Agreement shall nevertheless be binding upon the parties hereto with the
same effect as though the void or unenforceable part had been severed and
deleted or reformed to be enforceable.
(d)
The
failure of any party at any time to require performance by another party of
any
provision hereunder shall in no way affect the right of that party thereafter
to
enforce the same, nor shall it affect any other party's right to enforce the
same, or to enforce any of the other provisions in this Agreement; nor shall
the
waiver by any party of the breach of any provision hereof be taken or held
to be
a waiver of any subsequent breach of such provision or as a waiver of the
provision itself. This Agreement shall be binding upon, and inure to the benefit
of, you and your heirs, executors, administrators, successors and assignors,
and
MDC Partners, the Company and their respective successors and assignors.
IN
WITNESS WHEREOF
,
the
parties hereto have set their hands as of the date first above set
forth.
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MDC
Partners Inc.
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By:
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Name:
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David
Doft
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Dated:
_________________________
Execution
Copy
July
23,
2007
Mr.
Steven Berns
c/o
MDC
Partners Inc.
950
Third
Avenue
New
York,
N.Y. 10022
Re:
Separation
Agreement, General Release and Age
Discrimination
in Employment Act Release
Dear
Mr.
Berns:
1.
Your
employment with MDC Partners Inc. (the “
Company”
)
pursuant to the Employment Agreement between the Company and you dated August
25, 2004, as amended on March 6, 2006 (the “
Employment
Agreement”
),
shall
terminate effective as of the close of business on July 23, 2007 (the
“
Termination
Date”
).
You
hereby confirm the cessation of your employment as of the Termination Date
from
any position you held as an employee, officer, or Manager of the Company or
any
Company operating within the MDC Group of companies (the “
Group
”).
This
Agreement will become effective on the Effective Date (as defined in paragraph
12 hereof) only if
not
revoked
by you as permitted under paragraph 12 hereof.
2.
The
Company agrees to pay you the following severance compensation and benefits
in
accordance with and in full satisfaction of its obligations under paragraph
7(b)
of the Employment Agreement:
(a)
a
cash payment in the aggregate amount of one million one hundred fifty thousand
dollars ($1,150,000), subject to applicable withholding taxes, which represents
your Base Salary and Perquisite Allowance that would otherwise have been payable
to you during the 24 Month Severance Period (as such term is defined in
paragraph 7(b)(i) of the Employment Agreement) if your employment with the
Company had continued during such period, which cash paym
en
t
will be paid to you as follows: (i) two hundred eighty seven thousand five
hundred ($287,500), which you and the Company believe in good faith qualifies
as
“involuntary separation pay” within the meaning of Section 409A of the Internal
Revenue Code of 1986 (as amended), will be paid to you in a lump sum on the
Effective Date and (ii) eight hundred sixty two thousand five hundred ($862,500)
will be paid to you in approximately equal installments in accordance with
the
Company’s customary payroll practices as in effect on the Termination Date,
commencing on the six-month anniversary of the Termination Date (the
“
Severance
Commencement Date
”)
and
continuing through the eighteenth month following the Severance Commencement
Date, unless earlier terminated in accordance with the provisions of paragraph
7(b) of the Employment Agreement;
(b)
a
pro-rata portion of your annual discretionary bonus with respect to 2007, which
will be paid to you in 2008 on the date such bonus would otherwise have been
paid to you had your employment with the Company continued (such pro-rata amount
to be equal to the product of (A) the amount of the annual discretionary bonus
for 2007, times (B) a fraction, (x) the numerator of which is 205, which is
the
number of calendar days commencing January 1 of 2007 and ending on the
Termination Date, and (y) the denominator of which is 365);
(c)
any
unpaid reimbursable expenses outstanding as of the Date of Termination, plus
those expenses referred to in paragraph 3 below, to be paid within thirty (30)
days of your request for reimbursement and/or payment;
(d)
all
benefits, if any, that had accrued to you through the Date of Termination under
the plans and programs described in paragraphs 5(b) and (c) of your Employment
Agreement, or any other applicable benefit plans and programs in which you
participated as an employee of the Company, in the manner and in accordance
with
the terms of such plans and programs; it being understood that any and all
rights that you may have to severance payments by the Company shall be
determined and solely based on the terms and conditions of the Employment
Agreement and not based on the Company's severance policy then in effect, if
any;
(e)
continued
participation on the same basis in the plans and programs set forth in paragraph
5(b) and to the extent permitted under applicable law, paragraph 5(c) of your
Employment Agreement (such benefits collectively called the “
Continued
Plans
”)
in
which you were participating on the Termination Date (as such Continued Plans
are from time to time in effect at the Company), until the earlier of (x) the
second anniversary of the Termination Date or (y) the date, or dates, you are
eligible to receive coverage and benefits under the same type of plan of a
subsequent employer (either such date, the “
Benefit
Termination Date;
provided,
however, if you are precluded from continuing your participation in any
Continued Plan, then the Company will pay you quarterly in arrears the economic
equivalent of the benefits provided under the Continued Plan in which you are
unable to participate, for the period specified above, plus an amount equal
to
the tax, if any, payable by you thereon, it being understood that the economic
equivalent of a benefit foregone shall be deemed the lowest cost in the State
of
New York that would be incurred by you in obtaining such benefit yourself on
an
individual basis;
(f)
you
will
be entitled to such vesting and acceleration of shares of MDC Restricted Stock,
MDC Stock Options and MDC SARs as is specified in accordance with the terms
and
conditions of each respective MDC Partners Inc. Restricted Stock Unit Agreement
dated as of August 25, 2004 (the “
RSU
Agreement
”),
Memorandum of Agreement dated as of August 25, 2004 (also referred to as the
“
MDC
Stock Option Agreement
”),
and
MDC Partners Inc. Stock Appreciation Rights Agreement dated as of August 25,
2004 (the “SARs Agreement”). Schedule 1 to this Agreement sets forth the number
of shares and exercise price (in U.S. dollars) of each outstanding Option and
SAR held by you as of the Termination Date. For purposes of clarification,
you
and the Company agree that with respect to the Financial Performance-Based
Restricted Shares granted to you in 2006, the number of full months of service
completed by you prior to the Termination Date for the relevant service period
is nineteen (19) and with respect to the Financial Performance-Based Restricted
Shares granted to you in 2007, the number of full months of service competed
by
you prior to the Termination Date for the relevant service period is seven
(7).
On the Effective Date, you will receive a cash payment equal to the value of
17,000 Shares (as such term is defined in the RSU Agreement), with such value
determined in accordance with the valuation methodology set forth in Section
5
of the RSU Agreement, except that “Nasdaq” will be substituted for all
references to the “Toronto Stock Exchange” and the date this Agreement is signed
by both parties (July 23, 2007),
will
be
substituted for all references to the “Release Date”, such payment subject to
applicable withholding taxes, to be issued to you under the RSU Agreement as
the
offer and sale to you of those Shares has not been registered with the U.S.
Securities and Exchange Commission by the Company; and
(g)
To
the
extent permitted by the terms of the policy, the Company will cooperate with
you
to permit you to transfer the life insurance policy referred to in Section
14 of
the Employment Agreement, provided that there is no cost incurred by the Company
in connection with such transfer.
3.
Within
sixty (60) days of the Effective Date you shall submit to the Company your
reimbursement request in accordance with Company policy for any unpaid business
or entertainment expenses incurred by you through the Termination Date in
respect of which you are entitled to be reimbursed under Company policy referred
to in paragraph 2(c) above. The Company will also reimburse you for your legal
fees and expenses incurred in connection with the termination of your employment
and the negotiation of this Agreement, up to a maximum of $40,000, subject
to
applicable withholding taxes.
4.
From
and
after the Termination Date, except for such rights under this Agreement, you
shall no longer be entitled to receive any further payments, compensation or
other monies (including severance compensation) from the Company or any of
its
affiliates or to receive any of the benefits or participate in any benefit
plan
or program of the Company or any of its affiliates, including without
limitation, any salary payment, bonus payment, severance payment, salary
continuation payment, accrued vacation or unused personal days and expense
reimbursements or other benefits referred to in the Employment Agreement.
5.
You
hereby acknowledge and affirm your obligations under the provisions of paragraph
8 of the Employment Agreement.
6.
Notwithstanding
your termination of employment as provided in this Agreement, the parties hereto
agree that the provisions of paragraphs 8 through 26 of the Employment Agreement
shall survive such termination.
7.
(a)
You,
for
yourself, your heirs,
executors,
administrators,
agents,
representatives, successors and assigns, hereby irrevocably and unconditionally
release the Company and its affiliates, and each of their respective employees,
shareholders, agents, officers, directors, attorneys, representatives,
successors and assigns of the Company and its affiliates (collectively, the
"
Releasees
"),
from
any and all
charges,
complaints, claims, liabilities, obligations, promises, agreements, causes
of
action, rights, costs, losses, debts and expenses of any nature whatsoever,
known or unknown, (collectively, “
Claims
”),
which
you, your heirs, executors, administrators,
representatives,
successors and assigns ever had, now have or hereafter may have (either directly
or indirectly, derivatively or in any other representative capacity) by reason
of any matter, fact or cause whatsoever from the beginning of time to the date
of this Agreement, including without limitation, any and all claims
based
upon or arising out of your Employment Agreement, your employment with the
Company or your termination of employment with the Company
.
This
release of claims includes all claims arising under Title VII of the Civil
Rights Act of 1964,
the
Civil Rights Act of 1991, the Age Discrimination in Employment Act
(“
ADEA
”),
the Americans with Disabilities Act, the Family and Medical Leave Act, the
New
York Executive Law, the New York City Human Rights Law, and all other labor
and
anti-discrimination laws and any other purported restriction on an employer’s
right to terminate the employment of an employee. This release also covers
any
claims alleging personal damages, wrongful discharge, or any other claim,
including those based on contract or tort, whether founded in common law or
otherwise.
This
release shall not apply or release any claims with respect to any of your rights
arising or preserved under the terms of this Agreement or your rights to
indemnification as an officer and director of the Company.
(b)
You
represent that you have not filed or permitted to be filed against the Company
(or the other Releasees), individually or collectively, any lawsuits and you
covenant and agree that you will not do so at any time hereafter with respect
to
the subject matter of this Agreement and claims released pursuant to this
Agreement (including, without limitation, any claims relating to the termination
of your employment), except as may be necessary to enforce this Agreement,
to
obtain benefits described in or granted under this Agreement, or to seek a
determination of the validity of the waiver of your rights under the
ADEA.
(c)
You
agree
to cooperate with the Company and its counsel in connection with any
investigations, administrative proceedings or litigation relating to any matter
in which you were involved or of which you had knowledge as a result of your
employment with the Company in accordance with paragraph 24(c) of the Employment
Agreement. The Company reaffirms its obligations under said paragraph 24(c).
(d)
You
agree
that you will not encourage or voluntarily cooperate with any other current
or
former employee of the Company (or their affiliates) or any other potential
plaintiff, to commence any legal action or make any claim against the Company
(or any affiliate) in respect of such person’s employment or termination of
employment with or by the Company (or any affiliate thereof) or
otherwise.
(e)
You
agree
that on and after the Termination Date you will not apply or seek employment
with the Company or any of its affiliates at any location or facility, and
you
hereby waive and release any right to be considered for such
employment.
(f)
This
Agreement does not constitute an admission by the Company or you of any
violation of any federal, state, or local law or any contractual or other
obligations, or of any wrongdoing whatsoever.
(g)
To
the
extent permitted by the terms of the current directors’ and officers’ liability
policy (as it may be renewed from time to time), the Company will continue
to
cover you under its current directors’ and officers’ (D&O) liability
insurance policy as long as there is no additional cost incurred by the Company
in connection with such continued coverage; provided, that, in no event will
such continued coverage extend beyond six (6) years following the Termination
Date.
8.
For
good
and valuable consideration, the Company, on its behalf and on behalf of each
of
its affiliates and their respective successors and assigns, hereby irrevocably
and unconditionally release you from any and all Claims which any of them ever
had, now have or hereafter may have (either directly or indirectly, derivatively
or in any other representative capacity) by reason of any matter, fact or cause
from the beginning of time to the date of this Agreement arising out of your
performance of duties as an employee or officer of the Company or another member
of the Group or your termination of employment with the Company, except if
a
Claim arises out of your fraudulent conduct, your misappropriation or
embezzlement of funds, or any other unlawful conduct; provided, however, the
foregoing release shall not apply to or release any rights of the Company under
the terms of this Agreement.
9.
Intentionally
Omitted
.
10.
In
the
event of a breach of the terms of this Agreement by any party as determined
by
the arbitrator and/or court of competent jurisdiction described in paragraph
19
of the Employment Agreement, the non-breaching party shall be entitled to all
damages allowed under applicable law as awarded by such arbitrator and/or court.
11.
(a)
As
used
in this Agreement (i) "
affiliate
"
of any
Person (as defined below) 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, and (ii) a "
Person
"
shall
mean or include an individual, a company, a limited liability company, a
corporation or any other form of business entity.
(b)
All
prior
negotiations and discussions between the parties with respect to the subject
matter hereof are merged into this Agreement. No representations by or on behalf
of any party were made or relied upon except as set forth herein. This Agreement
may not be changed, amended or modified, except by a writing signed by the
party
affected by such change, amendment or modification.
(c)
The
Company may withhold from any amounts payable under this Agreement such federal,
state or local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(d)
In
the
event any provision of this Agreement is found to be void and unenforceable
by a
court or other tribunal of competent jurisdiction, the remaining provisions
of
this Agreement shall nevertheless be binding upon the parties hereto with the
same effect as though the void or unenforceable part had been severed and
deleted or reformed to be enforceable.
(e)
This
Agreement will be governed by and construed in accordance with the laws of
the
State of New York without application of conflict of law
provisions.
(f)
The
failure of any party at any time to require performance by another party of
any
provision hereunder shall in no way affect the right of that party thereafter
to
enforce the same, nor shall it affect any other party's right to enforce the
same, or to enforce any of the other provisions in this Agreement; nor shall
the
waiver by any party of the breach of any provision hereof be taken or held
to be
a waiver of any subsequent breach of such provision or as a waiver of the
provision itself. This Agreement shall be binding upon, and inure to the benefit
of, you and your heirs, executors, administrators, successors and assigns,
and
MDC Partners, the Company and their respective successors and assigns.
12.
You
acknowledge that you have read this Agreement in its entirety, fully understand
its meaning and are executing this Agreement voluntarily and of your own free
will with full knowledge of its significance. You acknowledge and warrant that
you have had the opportunity to consider for 21 days the terms and provisions
of
this Agreement and that you have been advised by the Company to consult with
an
attorney prior to executing this Agreement. You shall have the right to revoke
this Agreement for a period of seven (7) days following your execution of this
Agreement by giving written notice of such revocation to the Company in
accordance with the notice provision set forth in the Employment Agreement.
This
Agreement shall not become effective until the eighth day following your
execution of it
(the
“Effective
Date”
).
Accordingly,
if you revoke this Agreement as permitted herein, this Agreement shall become
null and void ab initio.
IN
WITNESS WHEREOF
,
the
parties hereto have set their hands as of the date first above set
forth.
|
|
|
|
|
|
MDC
Partners Inc.
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
Title:
|
|
|
|
|
|
Steven
Berns
|
Dated:
_________________________
July
23,
2007
Board
of
Directors
MDC
Partners Inc.
950
Third
Avenue
New
York,
NY 10022
Re:
Resignation
The
undersigned hereby resigns as a director of the Board of Directors of MDC
Partners Inc., and all of its affiliates, effective as of the date
hereof.
|
|
|
|
|
|
|
|
|
Very
truly yours,
|
|
|
|
|
|
|
Steven
Berns
|
Exhibit 12
Statement
of Computation of Ratio of Earnings to Fixed Charges
|
|
|
Six
Months Ended
June
30,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
(000’s)
|
|
(000’s)
|
|
|
Earnings:
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(11,397
|
)
|
$
|
(5,408
|
)
|
|
Additions:
|
|
|
|
|
|
|
|
|
Income
taxes (recovery)
|
|
|
(3,780
|
)
|
|
(1,176
|
)
|
|
Minority
interest in income of consolidated subsidiaries
|
|
|
9,710
|
|
|
8,185
|
|
|
Fixed
charges, as shown below
|
|
|
9,389
|
|
|
7,480
|
|
|
Distributions
received from equity-method investees
|
|
|
—
|
|
|
392
|
|
|
|
|
|
15,319
|
|
|
14,881
|
|
|
Subtractions:
|
|
|
|
|
|
|
|
|
Equity
in income of investees
|
|
|
11
|
|
|
501
|
|
|
Minority
interest in earnings of consolidated subsidiaries that have not incurred
fixed charges
|
|
|
—
|
|
|
—
|
|
|
|
|
|
11
|
|
|
501
|
|
|
Earnings
as adjusted
|
|
|
3,911
|
|
|
8,972
|
|
|
Fixed
charges:
|
|
|
|
|
|
|
|
|
Interest
on indebtedness, expensed or capitalized
|
|
|
4,832
|
|
|
4,070
|
|
|
Amortization
of debt discount and expense and premium on indebtedness, expensed
or
capitalized
|
|
|
1,659
|
|
|
824
|
|
|
Interest
within rent expense
|
|
|
2,898
|
|
|
2,586
|
|
|
Total
fixed charges
|
|
$
|
9,389
|
|
$
|
7,480
|
|
|
Ratio
of earnings to fixed charges
|
|
|
N/A
|
|
|
1.20
|
|
|
Dollar
amount deficiency
|
|
$
|
5,478
|
|
$
|
N/A
|
|
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 quarterly report on Form 10-Q for the quarter
ended June 30, 2007 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:
August 7, 2007
|
By:
|
/s/ MILES
S. NADAL
|
|
|
Miles
S. Nadal
|
|
|
Title:
Chairman, President and Chief Executive
Officer
|
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,
Michael Sabatino, certify that:
|
|
1.
|
I
have reviewed this quarterly report on Form 10-Q for the quarter
ended June 30, 2007 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:
August 7, 2007
|
By:
|
/s/
MICHAEL SABATINO
|
|
|
Michael
Sabatino
|
|
|
Title: Senior
Vice President, Chief Accounting Officer and
Interim
Chief Financial Officer
|
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the
Sarbanes-Oxley
Act of 2002
In
connection with the quarterly report of MDC Partners Inc. (the “Company”) on
Form 10-Q for the quarter ended June 30, 2007, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Miles S. Nadal,
Chairman, President 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 August 7, 2007
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ MILES S. NADAL
|
|
|
|
|
|
Miles
S. Nadal
|
|
|
|
|
|
Title:
Chairman, President and Chief Executive Officer
|
|
|
|
Exhibit 32.2
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the
Sarbanes-Oxley
Act of 2002
In
connection with the quarterly report of MDC Partners Inc. (the “Company”) on
Form 10-Q for the quarter ended June 30, 2007, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Michael Sabatino,
Senior Vice President, Chief Accounting Officer and Interim Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge, that:
|
|
(1)
|
The
Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended;
and
|
|
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
|
Dated
as of August 7, 2007
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ MICHAEL SABATINO
|
|
|
|
|
|
Michael
Sabatino
|
|
|
|
|
|
Title: Senior
Vice President, Chief Accounting Officer
and
Interim
Chief Financial Officer
|
|
|
|
Exhibit 99.1
MDC
Partners Inc.
Agencies
by Segment
|
Strategic
Marketing
Services
|
|
Customer
Relationship
Management
|
|
Specialized
Communication Services
|
|
Allard
Johnson
|
|
Accent
|
|
Accumark
Communications
|
|
Ito
Partners
|
|
ACLC
|
|
|
|
Banjo
|
|
Margeotes
Fertitta Powell
|
|
Colle
+ McVoy
|
|
|
|
Bratskeir
|
|
Northstar
Research Partners
|
|
Crispin
Porter + Bogusky
|
|
|
|
Bruce
Mau Design
|
|
Onbrand
|
|
Fletcher
Martin
|
|
|
|
Bryan
Mills Group
|
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Source
Marketing
|
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HL
Group
|
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Chinnici
Direct
|
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TargetCom
|
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Mono
Advertising
|
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Computer
Composition
|
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Veritas
|
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kirshenbaum
bond + partners
|
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Hello
Design
|
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We
Are Gigantic
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Redscout
|
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henderson
bas
|
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Yamamoto
Moss Mackenzie
|
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VitroRobertson
|
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IHC
|
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Zig
|
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Zyman
Group
|
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