MDC PARTNERS INC (Form: 10-Q, Received: 07/30/2010 15:14:18)

Washington, D.C. 20549

(Mark One)

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

For the quarterly period ended June 30, 2010

or

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

For the transition period from ______________ to ______________

Commission file number: 001-13178

MDC Partners Inc.

(Exact name of registrant as specified in its charter)

Canada		98-0364441
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

45 Hazelton Avenue Toronto, Ontario, Canada		M5R 2E3
(Address of principal executive offices)		(Zip Code)

(416) 960-9000

Registrant’s telephone number, including area code:

950 Third Avenue, New York, New York 10022

(646) 429-1800

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

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

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

Large accelerated Filer o		Accelerated filer x
Non-accelerated Filer o (Do not check if a smaller reporting company.)		Smaller reporting company o

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

Yes o No x

The numbers of shares outstanding as of July 28, 2010 were: 29,567,601 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. The information found on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this quarterly report on Form 10-Q.

MDC PARTNERS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2010 and 2009	2
	Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009	3
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2010 and 2009	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	45

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Reserved	46
Item 5.	Other Information	46
Item 6.	Exhibits	46
Signatures		47

Item 1. Financial Statements

MDC PARTNERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Revenue:
Services	$	169,989		$	134,882		$	306,171		$	261,620
Operating Expenses:
Cost of services sold		116,766			88,238			213,735			174,117
Office and general expenses		39,110			30,173			73,735			61,325
Depreciation and amortization		8,039			7,604			13,872			15,197
		163,915			126,015			301,342			250,639
Operating profit		6,074			8,867			4,829			10,981
Other Income (Expenses):
Other income (expense), net		(287	)		(2,541	)		(900	)		89
Interest expense		(8,425	)		(3,723	)		(15,453	)		(7,484	)
Interest income		57			70			78			272
		(8,655	)		(6,194	)		(16,275	)		(7,123	)
Income (loss) from continuing operations before income taxes, equity in affiliates		(2,581	)		2,673			(11,446	)		3,858
Income tax expense		552			1,608			801			2,223
Income (loss) from continuing operations before equity in affiliates		(3,133	)		1,065			(12,247	)		1,635
Equity in earnings (loss) of non-consolidated affiliates		(39	)		105			(143	)		198
Income (loss) from continuing operations		(3,172	)		1,170			(12,390	)		1,833
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes		(647	)		(108	)		(647	)		(361	)
Net income (loss)		(3,819	)		1,062			(13,037	)		1,472

Net income attributable to the noncontrolling interests		(1,986	)		(983	)		(2,954	)		(1,365	)

Net income (loss) attributable to MDC Partners Inc.	$	(5,805	)	$	79		$	(15,991	)	$	107

Income (loss) Per Common Share:
Basic and Diluted:
Income (loss) from continuing operations attributable to MDC Partners Inc. common shareholders	$	(0.19	)	$	0.01		$	(0.55	)	$	0.02
Discontinued operations attributable to MDC Partners Inc. common shareholders		(0.02	)		(0.00	)		(0.02	)		(0.01	)
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	(0.21	)	$	0.01		$	(0.57	)	$	0.01
Weighted Average Number of Common Shares Outstanding:
Basic		27,800,953			27,440,030			27,716,895			27,278,786
Diluted		27,800,953			27,684,194			27,716,895		27,278,786

Non cash stock-based compensation expense is included in the following line items above:
Cost of services sold	$	637		$	286		$	1,317		$	497
Office and general expenses		2,251			1,759			5,038			3,445
Total	$	2,888		$	2,045		$	6,355		$	3,942

See notes to the unaudited condensed consolidated financial statements.

MDC PARTNERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(thousands of United States dollars)

	June 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	47,454		$	51,926
Accounts receivable, less allowance for doubtful accounts of $2,280 and $2,034		146,346			118,211
Expenditures billable to clients		44,708			24,003
Other current assets		10,603			8,105
Total Current Assets		249,111			202,245
Fixed assets, at cost, less accumulated depreciation of $89,247 and $82,752		37,073			35,375
Investment in affiliates		1,385			1,547
Goodwill		415,541			301,632
Other intangibles assets, net		57,164			34,715
Deferred tax asset		12,546			12,542
Other assets		19,166			16,463
Total Assets	$	791,986		$	604,519
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY
Current Liabilities:
Accounts payable	$	88,721		$	77,450
Accruals and other liabilities		59,299			66,967
Advance billings		122,957			65,879
Current portion of long-term debt		1,502			1,456
Current portion of deferred acquisition consideration		23,640			30,645
Total Current Liabilities		296,119			242,397
Revolving credit facility		—			—
Long-term debt		284,640			216,490
Long-term portion of deferred acquisition consideration		40,328			—
Other liabilities		8,519			8,707
Deferred tax liabilities		8,989			9,051

Total Liabilities		638,595			476,645

Redeemable Noncontrolling Interests (Note 2)		34,626			33,728
Commitments, contingencies and guarantees (Note 13)
Shareholders’ Equity:
Preferred shares, unlimited authorized, none issued		—			—
Class A Shares, no par value, unlimited authorized, 27,818,986 and 27,566,815 shares issued in 2010 and 2009		220,029			218,532
Class B Shares, no par value, unlimited authorized, 2,503 shares issued in 2010 and 2009, each convertible into one Class A share		1			1
Additional paid-in capital		6,491			9,174
Accumulated deficit		(147,151	)		(131,160	)
Stock subscription receivable		(217	)		(341	)
Accumulated other comprehensive loss		(5,420	)		(5,880	)

MDC Partners Inc. Shareholders’ Equity		73,733			90,326
Noncontrolling Interests		45,032			3,820
Total Equity		118,765			94,146
Total Liabilities, Redeemable Noncontrolling Interests and Equity	$	791,986		$	604,519

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,
	2010			2009

Cash flows from operating activities:
Net income (loss)	$	(13,037	)	$	1,472
Net income attributable to the noncontrolling interests		(2,954	)		(1,365	)
Net income (loss) attributable to MDC Partners Inc.		(15,991	)		107
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes		(647	)		(361	)
Income (loss) attributable to MDC Partners Inc. from continuing operations		(15,344	)		468
Adjustments to reconcile net income (loss) attributable to MDC Partners Inc. from continuing operations to cash provided by (used in) operating activities
Depreciation		7,621			8,171
Amortization of intangibles		6,251			7,026
Non-cash stock-based compensation		5,287			3,511
Amortization of deferred finance charges and debt discount		862			661
Adjustment to deferred acquisition consideration		1,589			—
Gain on disposition of assets		(13	)		—
Deferred income taxes		(55	)		1,034
Loss (earnings) of non-consolidated affiliates		143			(198	)
Other non-current assets and liabilities		(1,039	)		3,303
Foreign exchange		498			920
Changes in working capital:
Accounts receivable		1,670			(11,191	)
Expenditures billable to clients		(8,418	)		(1,727	)
Prepaid expenses and other current assets		(1,031	)		1,021
Accounts payable, accruals and other liabilities		(16,508	)		7,474
Advance billings		16,023			1,248
Cash flows provided by (used in) continuing operating activities		(2,464	)		21,721
Discontinued operations		(269	)		(290	)
Net cash provided by (used in) operating activities		(2,733	)		21,431
Cash flows from investing activities:
Capital expenditures		(5,720	)		(2,087	)
Acquisitions, net of cash acquired		(57,476	)		(3,643	)
Proceeds (loss) from sale of assets		58			(56	)
Other investments		(99	)		(33	)
Profit distributions from affiliates		7			59
Cash Flows used in continuing investing activities		(63,230	)		(5,760	)
Discontinued operations		(710	)		—
Net cash used in investing activities		(63,940	)		(5,760	)
Cash flows from financing activities:
Proceeds from issuance of 11% Senior Notes		67,600			—
Proceeds from revolving credit facility		—			2,159
Repayment of long-term debt		(479	)		(897	)
Proceeds from stock subscription receivable		124			13
Proceeds from exercise options		51			—
Purchase of treasury shares		(896	)		(402	)
Deferred financing costs		(1,491	)		—
Payment of dividends		(2,781	)		—
Net cash provided by financing activities		62,128			873
Effect of exchange rate changes on cash and cash equivalents		73			59
Net increase (decrease) in cash and cash equivalents		(4,472	)		16,603
Cash and cash equivalents at beginning of period		51,926			41,331
Cash and cash equivalents at end of period	$	47,454		$	57,934

Supplemental disclosures:
Cash paid to noncontrolling partners	$	5,159		$	4,574
Cash income taxes paid	$	803		$	402
Cash interest paid	$	13,411		$	6,962
Dividends payable	$	208		$	—
Non-cash transactions:
Capital leases	$	274		$	288

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, 2009.

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 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.

Concentration of Credit Risk . The Company provides marketing communications services to clients who operate in most industry sectors. Credit is granted to qualified clients in the ordinary course of business. Due to the diversified nature of the Company’s client base, the Company does not believe that it is exposed to a concentration of credit risk; the Company did not have a client that accounted for more than 10% of the Company’s consolidated accounts receivable at June 30, 2010 and December 31, 2009. Furthermore, the Company did not have a client that accounted for more than 10% of the Company’s revenue for the three and six months ended June 30, 2010. However, one client accounted for 18% of revenue for the three and six months ended June 30, 2009.

Cash and Cash Equivalents. The Company’s cash equivalents are primarily comprised of investments in overnight interest-bearing deposits, commercial paper and money market instruments and other short-term investments with original maturity dates of three months or less at the time of purchase. The Company has a concentration risk in that there are cash deposits in excess of federally insured amounts. Included in cash and cash equivalents at June 30, 2010 and December 31, 2009, is approximately $71 and $67, respectively, of cash restricted as to withdrawal pursuant to a collateral agreement and a customer’s contractual requirements.

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2. Significant Accounting Policies – (continued)

Business Combinations. Valuation of acquired companies are based on a number of factors, including specialized know-how, reputation, competitive position and service offerings. Our acquisition strategy has been focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our various strategic business platforms to better serve our clients. Consistent with our acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed in 2010 and 2009 included an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior years, are derived using the performance of the acquired entity and are based on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period and changes in estimated value are recorded in results of operations. For the six months ended June 30, 2010 and 2009, $1,311 and nil, respectively, and for the three months ended June 30, 2010 and 2009, $977 and nil, respectively, related to changes in estimated value, have been charged to operations. In addition, certain acquisitions also include put/call obligations for additional equity ownership interests. The estimated value of these interests are recorded as Redeemable Noncontrolling Interests. As of January 1, 2009, the Company expenses acquisition related costs in accordance with the Accounting Standard’s Codification’s new guidance on acquisition accounting. For the three and six months ended June 30, 2010, $331 and $730, respectively, of acquisition related costs have been charged to operations. For the three and six months ended June 30, 2009, no acquisition related costs were charged to operating.

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

Redeemable Noncontrolling Interest . The minority interest shareholders of certain subsidiaries have the right to require the Company to acquire their ownership interest under certain circumstances pursuant to a contractual arrangement and the Company has similar call options under the same contractual terms. The amount of consideration under the put and call rights is not a fixed amount, but rather is dependent upon various valuation formulas and on future events, such as the average earnings of the relevant subsidiary through the date of exercise, the growth rate of the earnings of the relevant subsidiary through the date of exercise, etc. as described in Note 13.

The Company has recorded its put options as mezzanine equity at their current estimated redemption amounts. The Company accounts for the put options with a charge to noncontrolling interests to reflect the excess, if any, of the estimated exercise price over the estimated fair value of the noncontrolling interest shares at the date of the option being exercised. Changes in the estimated redemption amounts of the put options are adjusted at each reporting period with a corresponding adjustment to equity. These adjustments will not impact the calculation of earnings per share.

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2. Significant Accounting Policies – (continued)

The following table presents changes in Redeemable Noncontrolling Interests.

	Three Months Ended June 30, 2010			Six Months Ended June 30, 2010
Beginning Balance	$	29,868		$	33,728
Redemptions		(122	)		(1,407	)
Granted		2,506			3,782
Changes in redemption value		3,218			(1,015	)
Currency Translation Adjustments		(844	)		(462	)
Ending Balance as of June 30, 2010	$	34,626		$	34,626

Revenue Recognition

The Company’s revenue recognition policies are as required by the Revenue Recognition topics of the FASB Accounting Standards Codification, and accordingly, revenue is generally recognized as services are provided or upon delivery of the products when ownership and risk of loss has transferred to the customer, the selling price is fixed or determinable and collection of the resulting receivable is reasonably assured. The Company follows the Revenue Arrangements with Multiple Deliverables topic of the FASB Accounting Standards Codification issued. This topic addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities and how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. The Company recognizes revenue based on the contracted value of each multiple deliverable when delivered. The Company also follows the topic of the FASB Accounting Standards Codification Reporting Revenue Gross as a Principal versus Net as an Agent. This Issue summarized the EITF’s views on when revenue should be recorded at the gross amount billed because it has earned revenue from the sale of goods or services, or the net amount retained because it has earned a fee or commission. The Company also follows Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred, for reimbursements received for out-of-pocket expenses. This issue summarized the EITF’s views that reimbursements received for out-of-pocket expenses incurred should be characterized in the income statement as revenue. Accordingly, the Company has included in revenue such reimbursed expenses.

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

Non refundable retainer fees are generally recognized on a straight line basis over the term of the specific customer 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.

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2. Significant Accounting Policies – (continued)

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

A small portion of the Company’s contractual arrangements with customers includes performance incentive provisions, which allows the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. The Company recognizes the incentive portion of revenue under these arrangements when specific quantitative goals are 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 records revenue net of sales and other taxes due to be collected and remitted to governmental authorities.

Interest Expense . Interest expense primarily consists of the cost of borrowing on the revolving credit facility and the 11% Senior Notes. The Company uses the effective interest method to amortize the original issue discount and original issue premium on the 11% Senior Notes. At June 30, 2010 and December 31, 2009, $473 and $204 was amortized, respectively, net of amortized premium of $49 and nil, respectively. The Company amortizes deferred financing costs using the effective interest method over the life of the 11% Senior Notes and straight line over the life of the revolving credit facility. The total net deferred financing costs, included in Other Assets on the balance sheet, as of June 30, 2010 and December 31, 2009 were $10,712 and $9,790, net of accumulated amortization of $869 and $295, respectively. During the six months of 2010, the Company recorded $1,491 of deferred financing costs primarily relating to the 2010 additional debt issuance.

Stock-Based Compensation. Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed over the service period, that is the award’s vesting period. When awards are exercised, share capital is credited by the sum of the consideration paid together with the related portion previously credited to additional paid-in capital when compensation costs were charged against income or acquisition consideration.

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

Stock-based awards that are settled in cash or may be settled in cash at the option of employees are recorded as liabilities. The measurement of the liability and compensation cost for these awards is based on the fair value of the award, and is recorded into operating income over the service period, that is the vesting period of the award. Changes in the Company’s payment obligation prior to the settlement date are recorded as compensation cost in operating profit in the period of the change. The final payment amount for such awards is established on the date of the exercise of the award by the employee.

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

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

The Company has adopted the straight-line attribution method for determining the compensation cost to be recorded during each accounting period. However, awards based on performance conditions are recorded as compensation expense when the performance conditions are expected to be met.

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

During the six months ended June 30, 2010, the Company issued 990,096 restricted stock units and restricted stock shares (“RSUs”) to its employees and directors. The RSUs have an aggregate grant date fair value of $8,991 and generally vest on the third anniversary date with certain awards subjected to accelerated vesting based on the financial performance of the Company.

For the six months ended June 30, 2010, the Company has recorded a $1,469 charge relating to these equity incentive grants.

A total of 1,077,549 Class A shares of restricted stock, granted to employees as equity incentive awards, are included in the Company’s calculation of Class A shares outstanding as of June 30, 2010.

3 . Income (loss) Per Common Share

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Numerator
Numerator for basic income (loss) per common share - income (loss) from continuing operations	$	(3,172	)	$	1,170		$	(12,390	)	$	1,833
Net income attributable to the noncontrolling interests		(1,986	)		(983	)		(2,954	)		(1,365	)
Income (loss) attributable to MDC Partners Inc. common shareholders from continuing operations	$	(5,158	)	$	187		$	(15,344	)	$	468
Effect of dilutive securities		—			—			—			—
Numerator for diluted income (loss) per common share – income (loss) attributable to MDC Partners Inc. common shareholders from continuing operations	$	(5,158	)	$	187		$	(15,344	)	$	468
Denominator
Denominator for basic income (loss) per common share - weighted average common shares		27,800,953			27,440,030			27,716,895			27,278,786
Effect of dilutive securities:		—			244,164			—			—
Denominator for diluted income (loss) per common share - adjusted weighted shares		27,800,953			27,684,194			27,716,895			27,278,786
Basic income (loss) per common share from continuing operations attributable to MDC Partners Inc.	$	(0.19	)	$	0.01		$	(0.55	)	$	0.02
Diluted income (loss) per common share from continuing operations attributable to MDC Partners Inc.	$	(0.19	)	$	0.01		$	(0.55	)	$	0.02

During the three and six months ended June 30, 2010, options and other rights to purchase 5,824,866 shares of common stock, which includes 1,077,549 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.

During the three and six months ended June 30, 2009, the 8% convertible debentures, options and other rights to purchase 8,863,413 shares of common stock, which includes 615,472 shares of non-vested restricted stock, were outstanding but were not included in the computation of diluted income per common share because their effect would be antidilutive.

4. Acquisitions

Second Quarter 2010 Acquisitions

Effective May 6, 2010, the Company, through a wholly-owned subsidiary, purchased 75% of the total outstanding membership interests in Integrated Media Solutions, LLC (“IMS”), which expands the Company’s direct response marketing capabilities. At closing, the Company paid cash of $20,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2015 with final payments due in 2016, with a current estimated present value of $19,658. An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $9,081 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $44,598 representing the value of the assembled workforce. The fair value of the noncontrolling interest not acquired at the acquisition date was $13,219 based in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company. The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. The intangibles and goodwill are tax deductible.

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

During the quarter ended June 30, 2010, the Company completed a number of acquisitions. The Company purchased a 51% equity interest in Allison & Partners LLC (“Allison”), a 75% equity interest in Sloane & Company LLC (“Sloane”), and certain assets and liabilities of CSC – ADPLUS, LLC (d.b.a. Infolure) (“Infolure”). Allison is a full service public relations and corporate communications agency. Sloane is a communication firm focused on corporate positioning and communications, financial public relations and investor relations, and crisis and transactions communications. Infolure is a direct marketing firm. The purchase price paid for these acquisitions consisted of aggregate cash payments of $17,632 plus additional contingent payments of $15,795 that are based on actual results from 2010 to 2015 with final payments due in 2016. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $9,431 consisting primarily of customer lists and covenants not to compete, and goodwill of $36,286 representing the value of the assembled workforce. The identified intangibles will be amortized ranging from a five to seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. In addition, the Company has recorded $2,506, the present value of redeemable noncontrolling interests in relation to Sloane. The Sloane acquisition has put rights that could increase the Company’s ownership to 100% in 2015. The amounts paid and to be paid will be tax deductible.

First Quarter 2010 Acquisitions

Effective March 1, 2010, the Company, through a wholly-owned subsidiary, purchased 60% of the total outstanding membership interests in Team Holdings LLC (“Team”), which expands the Company’s experiential marketing capabilities. At closing, the Company paid cash of $11,000 plus additional contingent deferred acquisition consideration, based on actual results from 2010 to 2012 with final payments in 2013, with a current estimated present value of $12,656, and the Company paid a working capital true-up estimated at an additional $253 at March 31, 2010. An initial estimated allocation of the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $5,220 (consisting of primarily customer lists and a covenant not to compete) and goodwill of $32,830 representing the value of the assembled workforce. The fair value of the noncontrolling interest not acquired at the acquisition date was $15,771 based in the Company’s evaluation of the Company being acquired and the purchase price paid by the Company. The identified intangibles will be amortized up to a seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. In addition, the Company amended the purchase agreement to include additional deferred acquisition consideration, with a current present value of $3,071, with final payments due in 2012. The additional deferred acquisition consideration resulted in additional intangibles of $3,071. The intangibles and goodwill are tax deductible.

During the three months ended March 31, 2010, the Company completed a number of acquisitions and step-ups in ownership. The Company purchased a 76% equity interest in Communifx Partners LLC (“Communifx”), substantially all of the assets of Plaid Inc. (“Plaid”), an additional 15% equity interest in Fletcher Martin, LLC (“Fletcher Martin”), an additional 49% equity interest in Trend Core, LLC (“Trend Core”), and an additional 1% equity interest in HL Group Partners, LLC (“HL Group”). Communifx builds and manages large-scale customer database solutions to enable the planning, execution, and measurement of multi-channel marketing and advertising programs. Plaid is a marketing services business with a concentration in the digital communication and social media arena. The Company purchased the additional equity interests in Fletcher Martin and HL Group pursuant to the exercise of outstanding puts. The purchase price paid for these acquisitions and step-ups consisted of aggregate cash payments of $4,921 plus additional contingent payments of $580 that are based on actual results from 2010 to 2015 with final payments due in 2016. An allocation of the excess purchase consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $1,851 consisting primarily of customer lists and a covenant not to compete, and goodwill of $2,426 representing the value of the assembled workforce. The identified intangibles will be amortized up to a seven-year period in a manner represented by the pattern in which the economic benefits of the customer contracts/relationships are realized. In addition, the Company has recorded $710, the present value of redeemable noncontrolling interests in relation to Communifx. The Communifx acquisition has put/call rights that could increase the Company’s ownership to 100% in 2013. In relation to the step up acquisitions, the Company recorded an entry to reduce Redeemable Noncontrolling Interests by $1,116. The amount paid to the employee over fair value, $608, was recorded as a stock-based compensation charge. The Company recorded a reduction of additional paid-in capital of $1,029 representing the difference between the fair value of the shares and the value of the Redeemable Noncontrolling Interests. The amounts paid and to be paid will be tax deductible.

The actual adjustments that the Company will ultimately make in analyzing the allocation of purchase price to the fair value of the net assets acquired, will depend on a number of factors, including additional information available at such time, changes in market values, and changes in operation results between the date of the unaudited financial statements and the effective date of acquisition.

2009 Acquisitions

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

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4. Acquisitions – (continued)

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

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

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

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

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

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4. Acquisitions – (continued)

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

Pro forma Information

The following unaudited pro forma results of operations of the Company for the three and six months ended June 30, 2010 and 2009 assume that the acquisition of the operating assets of Team and IMS acquired as of the beginning of each year. These unaudited pro forma results are not necessarily indicative of either the actual results of operations that would have been achieved had the companies been combined during these periods, or are they necessarily indicative of future results of operations.

	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010			2009
Revenues	$	173,085		$	154,853	$	322,911		$	298,356
Net income (loss) attributable to MDC Partners Inc.	$	(5,236	)	$	1,493	$	(15,538	)	$	1,567
Income (loss) per common share:
Basic – net income (loss) attributable to MDC Partners Inc.	$	(0.19	)	$	0.05	$	(0.56	)	$	0.06
Diluted – net income (loss) attributable to MDC Partners Inc.	$	(0.19	)	$	0.05	$	(0.56	)	$	0.06

Net Income Attributable to MDC Partners Inc. and

Transfers (to) from the Noncontrolling Interest

	Three Months Ended June 30, 2010			Six Months Ended June 30, 2010
Net Loss attributable to MDC Partners Inc.	$	(5,805	)	$	(15,991	)
Transfers (to) from the noncontrolling interest
Decrease in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of Redeemable Noncontrolling Interests		(58	)		(1,696	)
Decrease in MDC Partners Inc. paid-in-capital from issuance of profits interests		—			(160	)
Net transfers (to) from noncontrolling interest	$	(58	)	$	(1,856	)
Change from net income attributable to MDC Partners Inc. and transfers (to) from noncontrolling interest	$	(5,863	)	$	(17,847	)

5. Accrued and Other Liabilities

At June 30, 2010 and December 31, 2009, accrued and other liabilities included amounts due to noncontrolling interest holders, for their share of profits, which will be distributed within the next twelve months of $3,411 and $4,058, respectively.

6. Discontinued Operations

In June 2010, the Company discontinued a start up called Fearless Progression LLC (“Fearless”). As a result, the Company wrote off its investment in Fearless of $710. The Company has classified this entity’s results as discontinued operations.

In December 2008, the Company entered into negotiations to sell certain remaining assets in Bratskeir to management. This transaction was completed in April 2009. As a result of this transaction, the Company has classified this entity’s results as discontinued operations. Bratskeir’s results of operations, net of income tax benefits, for the three and six months ended June 30, 2009 was a loss of $108 and $361, respectively.

Included in discontinued operations in the Company’s consolidated statements of operations for the three and six months ended June 30, were the following:

	Three Months Ended June 30, 2010			Three Months Ended June 30, 2009			Six Months Ended June 30, 2010			Six Months Ended June 30, 2009

Revenue	$	—		$	—		$	—		$	481
Operating loss	$	(808	)	$	(167	)	$	(979	)	$	(549	)
Other expense	$	—		$	—		$	—		$	—
Net loss from discontinued operations attributable to MDC Partners Inc., net of taxes	$	(647	)	$	(108	)	$	(647	)	$	(361	)

7. Comprehensive Loss

Total comprehensive loss and its components were:

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Net income (loss) for the period	$	(3,819	)	$	1,062		$	(13,037	)	$	1,472
Other comprehensive income, net of tax:
Foreign currency cumulative translation adjustment		(959	)		1,904		$	457			70
Comprehensive loss		(4,778	)		2,966			(12,580	)		1,542
Comprehensive income (loss) attributable to the noncontrolling interest		(1,985	)		(996	)		(2,951	)		(1,372	)
Comprehensive loss attributable to MDC Partners Inc.	$	(6,763	)	$	1,970		$	(15,531	)	$	170

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

Debt consists of:

	June 30, 2010			December 31, 2009

Revolving credit facility	$	—		$	—
11% Senior Notes due 2016		290,000			225,000
Original issue discount		(7,219	)		(10,291	)
Notes payable and other bank loans		1,800			1,800
		284,581			216,509
Obligations under capital leases		1,561			1,437
		286,142			217,946
Less:
Current portions		1,502			1,456
Long term portion	$	284,640		$	216,490

MDC Financing Agreement and Senior Notes

Issuance of 11% Senior Notes

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

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

The Company may, at its option, redeem the 11% Notes (including the additional notes) in whole at any time or in part, on and after November 1, 2013 at a redemption price of 105.500% of the principal amount thereof. If redeemed during the twelve-month period beginning on November 1, 2014, at a redemption price of 102.750% of the principal amount thereof or if redeemed during the twelve-month period beginning on or after November 1, 2015 at a redemption price of 100% of the principal amount thereof. Prior to November 1, 2013, the Company may, at its option, redeem some or all of the 11% Notes at a price equal to 100% of the principal amount of the Notes plus a “make whole” premium and accrued and unpaid interest. The Company may also redeem, at its option, prior to November 1, 2012, up to 35% of the 11% Notes with the proceeds from one or more equity offerings at a redemption price of 111% of the principal amount thereof. If the Company experiences certain kinds of changes of control (as defined in the Indenture), holders of the 11% Notes may require the Company to repurchase any 11% Notes held by them at a price equal to 101% of the principal amount of the 11% Notes plus accrued and unpaid interest. The indenture governing the 11% Notes contains certain events of default and restrictive covenants which are customary with respect to non-investment grade debt securities, including limitations on the incurrence of additional indebtedness, dividends, sales of assets and transactions with affiliates.

In connection with these transactions, the Company wrote-off $323 of deferred financing costs relating to its prior convertible debentures in December 2009.

The fair value for the 11% Senior Notes was $308,050 as of June 30, 2010.

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

New Credit Facility

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

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

In connection with these transactions, the Company incurred a termination fee of $1,850 and wrote-off $2,240 of deferred financing costs relating to its prior Fortress Financing Agreement in December 2009.

The Company is currently in compliance with all of the terms and conditions of its WF Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with the covenants over the next twelve months. At June 30, 2010, the weighted average interest rate was 6.0%.

Prior Financing Agreement

The Prior Fortress Financing Agreement consisted of a $55,000 revolving credit facility, a $60,000 term loan and a $70,000 delayed draw term loan. Interest payable under the Financing Agreement was as follows: (a) LIBOR Rate Loans bear interest at applicable interbank rates and Reference Rate Loans bear interest at the rate of interest publicly announced by the Reference Bank in New York, New York, plus (b) a percentage spread ranging from 0% to a maximum of 4.75% depending on the type of loan and the Company’s Senior Leverage Ratio.

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

8% Convertible Unsecured Subordinated Debentures

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

The Company repaid the Debentures on November 26, 2009.

9.	Total Equity

During the six months ended June 30, 2010, Class A share capital increased by $1,497, as the Company issued 261,866 shares related to vested restricted stock, and 71,553 shares related to the exercise of outstanding stock appreciation rights and 5,350 related to the exercise of options. During the six months ended June 30, 2010, “Additional paid-in capital” decreased by $2,342 related to the vested restricted stock and stock appreciation rights, and $1,886 related to changes in ownership not resulting in change of control, and by $507 related to changes in put options (Note 2 and Note 13), and dividends accrued and paid of $2,989 offset by $5,039 related to an increase from stock-based compensation that was expensed during the same period.

In June 2010, the Company purchased and retired 86,598 Class A shares for $896 from employees in connection with the required tax withholding resulting from the vesting of shares of restricted stock and stock appreciation rights.

Total equity increased $24,619, which is comprised of a $41,212 increase in noncontrolling interests related to acquisitions, an increase in stock-based compensation of $5,039, a decrease in accumulated other comprehensive loss of $460 and an exercise of stock options of $50, a reduction of subscriptions receivable of $124, offset in part by a net loss attributable to MDC Partners of $15,991, dividends accrued and paid of $2,989, $1,886 related to changes in ownership not resulting in change of control, $896 of treasury stock purchases and changes in put options of $507.

10.	Fair Value Measurements

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

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

•

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

•

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

•

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

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

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

The following table presents changes in Deferred Acquisition Consideration.


	Fair Value Measurements Using Significant Unobservable Inputs
	(Level 3)


Beginning Balance as of January 1, 2010	$	30,645

Payments		(20,281	)
Grants		52,015
Redemption value adjustments		1,589

Ending Balance as of June 30, 2010	$	63,968

11.	Other Income (Expense)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Other income (expense)	$	—		$	(56	)	$	(6	)	$	(22	)
Foreign currency transaction gain (loss)		(231	)		(2,491	)		(907	)		116
Gain (loss) on sale of assets		(56	)		6			13			(5	)
	$	(287	)	$	(2,541	)	$	(900	)	$	89

12.	Segmented Information

As a result of changing client demand and the Company’s focus on driving return on marketing investment, the Company changed its segment reporting to conform it more closely with how the Chief Operating Decision Maker (“CODM”) and management are building and managing the Company’s business segments. This will simplify the Company’s financial reporting and make its results more consistent with the current manner of how the CODM and the Board of Directors view the business. The Company is focused on expanding its capabilities in database marketing and data analytics in order to position the Company for future business development efforts and revenue growth.

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12. Segmented Information

– (continued)

In order to position this strategic focus along the lines of how the CODM and management will base their business decisions, the Company has now reorganized its segment reporting. Decisions regarding allocation of resources are made and will be made based not only on the individual operating results of the subsidiaries but also on the overall performance of the reportable segments. These reportable segments are the aggregation of various reporting segments. The Company changed to the current presentation during the fourth quarter of 2009 and all prior periods have been recast.

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

•

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

•

The Performance Marketing Services segment includes our firms that provide consumer insights to satisfy the growing need for targetable, measurable solutions or cost effective means of driving return on marketing investment. These services interface directly with the consumer of a client’s product or service. Such services include the design, development, research and implementation of consumer service and direct marketing initiatives. Each of the entities within the Performance Marketing Services Group share similar economic characteristics specifically related to the nature of their respective services, the manner in which the services are provided, and the similarity of their respective customers. Due to the similarities in these businesses, the services provided to the customer exhibit similar long term financial performance and have been aggregated together.

The significant accounting polices of these segments are the same as those described in the summary of significant accounting policies included in the notes to the consolidated financial statements. The Company continues to evaluate its Corporate Group and the services provided by the Corporate Group to the operating segments. The Company has determined that additional amounts should be allocated to the operating segments based on additional services provided. The Company will continue to evaluate the services and amount of time spent directly on the operating segments business operations, and adjust accordingly.

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.

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

Three Months Ended June 30, 2010

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total

Revenue	$	106,980		$	63,009		$	—		$	169,989

Cost of services sold		71,436			45,330			—			116,766

Office and general expenses		20,929			12,634			5,547			39,110

Depreciation and amortization		4,238			3,707			94			8,039

Operating Profit/(Loss)		10,377			1,338			(5,641	)		6,074

Other Income (Expense):
Other expense, net											(287	)
Interest expense, net											(8,368	)

Loss from continuing operations before income taxes, equity in affiliates											(2,581	)
Income tax expense											552

Loss from continuing operations before equity in affiliates											(3,133	)
Equity in loss of non-consolidated affiliates											(39	)

Loss from continuing operations											(3,172	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(647	)

Net loss											(3,819	)

Net income attributable to the noncontrolling interests		(1,321	)		(665	)		—			(1,986	)
Net loss attributable to MDC Partners Inc.										$	(5,805	)

Non cash stock based compensation	$	1,078		$	399		$	1,411		$	2,888

Supplemental Segment Information:

Capital expenditures	$	1,361		$	1,429		$	168		$	2,958

Goodwill and intangibles	$	314,326		$	158,379		$	—		$	472,705

Total assets	$	456,637		$	270,215		$	65,134		$	791,986

Three Months Ended June 30, 2009

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services		Corporate			Total

Revenue	$	88,248		$	46,634	$	—		$	134,882

Cost of services sold		52,760			35,478		—			88,238

Office and general expenses		18,517			7,517		4,139			30,173

Depreciation and amortization		5,480			2,043		81			7,604

Operating Profit/(Loss)		11,491			1,596		(4,220	)		8,867

Other Income (Expense):
Other expense, net										(2,541	)
Interest expense, net										(3,653	)

Income from continuing operations before income taxes, equity in affiliates										2,673
Income tax expense										1,608

Income from continuing operations before equity in affiliates										1,065
Equity in earnings of non-consolidated affiliates										105

Income from continuing operations										1,170
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes										(108	)

Net income										1,062

Net income attributable to the noncontrolling interests		(978	)		(5)		—			(983	)
Net income attributable to MDC Partners Inc.									$	79

Non cash stock based compensation	$	371		$	184	$	1,490		$	2,045

Supplemental Segment Information:

Capital expenditures	$	676		$	540	$	41		$	1,257

Goodwill and intangibles	$	221,468		$	57,954	$	—		$	279,422

Total assets	$	357,067		$	120,464	$	66,749		$	544,280

Six Months Ended June 30, 2010

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total

Revenue	$	198,505		$	107,666		$	—		$	306,171

Cost of services sold		133,049			80,686			—			213,735

Office and general expenses		41,257			22,148			10,330			73,735

Depreciation and amortization		7,539			6,146			187			13,872

Operating Profit/(Loss)		16,660			(1,314	)		(10,517	)		4,829

Other Income (Expense):
Other expense, net											(900	)
Interest expense, net											(15,375	)

Loss from continuing operations before income taxes, equity in affiliates											(11,446	)
Income tax expense											801

Loss from continuing operations before equity in affiliates											(12,247	)
Equity in loss of non-consolidated affiliates											(143	)

Loss from continuing operations											(12,390	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(647	)

Net loss											(13,037	)

Net income attributable to the noncontrolling interests		(2,248	)		(706	)		—			(2,954	)
Net loss attributable to MDC Partners Inc.										$	(15,991	)

Non cash stock based compensation	$	2,831		$	765		$	2,759		$	6,355

Supplemental Segment Information:

Capital expenditures	$	2,966		$	2,463		$	291		$	5,720

Goodwill and intangibles	$	314,326		$	158,379		$	—		$	472,705

Total assets	$	456,637		$	270,215		$	65,134		$	791,986

Six Months Ended June 30, 2009

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services		Corporate			Total

Revenue	$	172,711		$	88,909	$	—		$	261,620

Cost of services sold		105,440			68,677		—			174,117

Office and general expenses		38,129			15,145		8,051			61,325

Depreciation and amortization		10,852			4,170		175			15,197

Operating Profit/(Loss)		18,290			917		(8,226	)		10,981

Other Income (Expense):
Other income, net										89
Interest expense, net										(7,212	)

Income from continuing operations before income taxes, equity in affiliates										3,858
Income tax expense										2,223

Income from continuing operations before equity in affiliates										1,635
Equity in earnings of non-consolidated affiliates										198

Income from continuing operations										1,833
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes										(361	)

Net Income										1,472

Net income attributable to the noncontrolling interests		(1,654	)		289					(1,365	)
Net income attributable to MDC Partners Inc.									$	107

Non cash stock based compensation	$	804		$	374	$	2,764		$	3,942

Supplemental Segment Information:

Capital expenditures	$	1,448		$	579	$	60		$	2,087

Goodwill and intangibles	$	221,468		$	57,954	$	—		$	279,422

Total assets	$	357,067		$	120,464	$	66,749		$	544,280

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,
2010	$	143,299	$	22,427	$	4,263	$	169,989
2009	$	114,897	$	18,974	$	1,011	$	134,882
Six Months Ended June 30,
2010	$	255,448	$	42,472	$	8,251	$	306,171
2009	$	222,938	$	36,539	$	2,143	$	261,620

13. Commitments, Contingencies and Guarantees

Deferred Acquisition Consideration. In addition to the consideration paid by the Company in respect of certain of its acquisitions at closing, additional consideration may be payable, or may be potentially payable based on the achievement of certain threshold levels of earnings. See Note 2 and Note 4.

Put Options. Owners of interests in certain subsidiaries have the right in certain circumstances to require the Company to acquire the remaining ownership interests held by them. The owners’ ability to exercise any such “put option” right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during the period 2010 to 2018. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.

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

Management estimates, assuming that the subsidiaries owned by the Company at June 30, 2010, 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 $29,860 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 $2,743 by the issuance of share capital. In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $10,425 only upon termination of such owner’s employment with the applicable subsidiary. The ultimate amount payable relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised.

Natural Disasters. Certain of the Company’s operations are located in regions of the United States and Caribbean which typically are subject to hurricanes. During the three and six months ended June 30, 2010 and 2009, these operations did not incur any costs related to damages resulting from hurricanes.

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

In connection with the 2003 sale of the Company’s investment in CDI, the amounts of indemnification guarantees were limited to the total sale price of approximately $84,000. For the remainder, the Company’s potential liability for these indemnifications are not subject to a limit as the underlying agreements do not always specify a maximum amount and the amounts are dependent upon the outcome of future contingent events.

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

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

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

Commitments. At June 30, 2010, the Company had issued $4,980 of undrawn outstanding letters of credit.

14. New Accounting Pronouncements

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

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

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

In January 2010, the FASB issued amended guidance to enhance disclosure requirements related to fair value measurements. The amended guidance for Level 1 and Level 2 fair value measurements is effective January 1, 2010. The amended guidance for Level 3 fair value measurements will be effective for January 1, 2011. The guidance requires disclosures of amounts and reasons for transfers in and out of Level 1 and Level 2 recurring fair value measurements as well as additional information related to activities in the reconciliation of Level 3 fair value measurements. The guidance expanded the disclosures related to the level of disaggregation of assets and liabilities and information about inputs and valuation techniques. The adoption of the guidance for Level 1 and Level 2 fair value measurements did not have a material impact on our unaudited Consolidated Financial Statements. The adoption of the guidance related to Level 3 fair value measurements will not have a significant impact on our Consolidated Financial Statements.

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

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

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

15. Subsequent Events

On July 30, 2010, the Company completed the acquisition of 60% of the equity interests in Relevent Partners LLC ( “ Relevent ” ) in exchange for a purchase price equal to approximately $11.4 million cash at closing, plus additional contingent payments that are based on actual financial results from 2010 to 2015. Relevent is a full service marketing, special events, production and promotions company that builds brands with consumers through experiential lifestyle, entertainment and relationship marketing programs. The acquisition of Relevent is expected to enhance MDC’s experiential marketing platform.

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

Unless otherwise indicated, references to the “Company” mean MDC Partners Inc. and its subsidiaries, and references to a fiscal year means the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal 2009 means the period beginning January 1, 2009, and ending December 31, 2009).

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

The following discussion focuses on the operating performance of the Company for the three and six months ended June 30, 2010 and 2009, and the financial condition of the Company as of June 30, 2010. 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, 2009 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 services 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 manage the business by monitoring several financial and non-financial performance indicators. The key indicators that we review focus on the areas of revenues and operating expenses and capital expenditures. Revenue growth is analyzed by reviewing the components and mix of the growth, including: growth by major geographic location; existing growth by major reportable segment (organic); growth from currency changes; and growth from acquisitions.

MDC conducts its businesses through the Marketing Communications Group. Within the Marketing Communications Group, there are two reportable operating segments: Strategic Marketing Services and Performance Marking Services. In addition, MDC has a “Corporate Group” which provides certain administrative, accounting, financial and legal functions. Through our operating “partners”, MDC provides advertising, consulting, customer relationship management, and specialized communication services to clients throughout the United States, Canada, Europe, and Jamaica.

The operating companies earn revenue from agency arrangements in the form of retainer fees or commissions; from short-term project arrangements in the form of fixed fees or per diem fees for services; and from incentives or bonuses. Additional information about revenue recognition appears in Note 2 of the Notes to the Condensed Consolidated Financial Statements.

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

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

We measure capital expenses as either maintenance or investment related. Maintenance capital expenses are primarily composed of general upkeep of our office facilities and equipment that are required to continue to operate our businesses. Investment capital expenses include expansion costs, the build out of new capabilities, technology or call centers, or other growth initiatives not related to the day to day upkeep of the existing operations. Growth capital expenses are measured and approved based on the expected return of the invested capital.

Certain Factors Affecting Our Business

Acquisitions and Dispositions . Our strategy includes acquiring ownership stakes in well-managed businesses with strong reputations in the industry. We engaged in a number of acquisition and disposal transactions during the 2009 to 2010 period, which affected revenues, expenses, operating income and net income. Additional information regarding material acquisitions is provided in Note 4 “Acquisitions” and information on dispositions is provided in Note 6 “Discontinued Operations” in the notes to the Condensed Consolidated Financial Statements.

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

Seasonality . Historically, with some exceptions, we generate the highest quarterly revenues during the fourth quarter in each year. The fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur.

Results of Operations:

For the Three Months Ended June 30, 2010

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	106,980		$	63,009		$	—		$	169,989

Cost of services sold		71,436			45,330			—			116,766

Office and general expenses		20,929			12,634			5,547			39,110

Depreciation and amortization		4,238			3,707			94			8,039

Operating Profit/(Loss)		10,377			1,338			(5,641	)		6,074

Other Income (Expense):
Other expense, net											(287	)
Interest expense, net											(8,368	)

Loss from continuing operations before income taxes, equity in affiliates											(2,581	)
Income tax expense											552

Loss from continuing operations before equity in affiliates											(3,133	)
Equity in loss of non-consolidated affiliates											(39	)

Loss from continuing operations											(3,172	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(647	)

Net loss											(3,819	)

Net income attributable to the noncontrolling interests		(1,321	)		(665	)		—			(1,986	)
Net loss attributable to MDC Partners Inc.										$	(5,805	)

Non cash stock based compensation	$	1,078		$	399		$	1,411		$	2,888

Results of Operations:

For the Three Months Ended June 30, 2009

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	88,248		$	46,634		$	—		$	134,882

Cost of services sold		52,760			35,478			—			88,238

Office and general expenses		18,517			7,517			4,139			30,173

Depreciation and amortization		5,480			2,043			81			7,604

Operating Profit/(Loss)		11,491			1,596			(4,220	)		8,867

Other Income (Expense):
Other expense, net											(2,541	)
Interest expense, net											(3,653	)

Income from continuing operations before income taxes, equity in affiliates											2,673
Income tax expense											1,608

Income from continuing operations before equity in affiliates											1,065
Equity in earnings of non-consolidated affiliates											105

Income from continuing operations											1,170
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(108	)

Net income											1,062

Net income (loss) attributable to the noncontrolling interests		(978	)		(5	)		—			(983	)
Net income attributable to MDC Partners Inc.										$	79

Non cash stock based compensation.	$	371		$	184		$	1,490		$	2,045

Results of Operations:

For the Six Months Ended June 30, 2010

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services			Corporate			Total
Revenue	$	198,505		$	107,666		$	—		$	306,171

Cost of services sold		133,049			80,686			—			213,735

Office and general expenses		41,257			22,148			10,330			73,735

Depreciation and amortization		7,539			6,146			187			13,872

Operating Profit/(Loss)		16,660			(1,314	)		(10,517	)		4,829

Other Income (Expense):
Other expense, net											(900	)
Interest expense, net											(15,375	)

Loss from continuing operations before income taxes, equity in affiliates											(11,446	)
Income tax expense											801

Loss from continuing operations before equity in affiliates											(12,247	)
Equity in loss of non-consolidated affiliates											(143	)

Loss from continuing operations											(12,390	)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes											(647	)

Net loss											(13,037	)

Net income attributable to the noncontrolling interests		(2,248	)		(706	)		—			(2,954	)
Net loss attributable to MDC Partners Inc.										$	(15,991	)

Non cash stock based compensation.	$	2,831		$	765		$	2,759		$	6,355

Results of Operations:

For the Six Months Ended June 30, 2009

(thousands of United States dollars)

	Strategic Marketing Services			Performance Marketing Services		Corporate			Total
Revenue	$	172,711		$	88,909	$	—		$	261,620

Cost of services sold		105,440			68,677		—			174,117

Office and general expenses		38,129			15,145		8,051			61,325

Depreciation and amortization		10,852			4,170		175			15,197

Operating Profit/(Loss)		18,290			917		(8,226	)		10,981

Other Income (Expense):
Other income, net										89
Interest expense, net										(7,212	)

Income from continuing operations before income taxes, equity in affiliates										3,858
Income tax expense										2,223

Income from continuing operations before equity in affiliates										1,635
Equity in earnings of non-consolidated affiliates										198

Income from continuing operations										1,833
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes										(361	)

Net income										1,472

Net income (loss) attributable to the noncontrolling interests		(1,654	)		289					(1,365	)
Net income attributable to MDC Partners Inc.									$	107

Non cash stock based compensation.	$	804		$	374	$	2,764		$	3,942

Three Months Ended June 30, 2010, Compared to Three Months Ended June 30, 2009

Revenue was $170.0 million for the quarter ended June 30, 2010, representing an increase of $35.1 million, or 26.0%, compared to revenue of $134.9 million for the quarter ended June 30, 2009. This revenue increase related primarily to acquisition growth of $25.3 million and organic growth of $7.2 million. In addition, a weakening of the US Dollar, primarily versus the Canadian dollar during the quarter ended June 30, 2010, resulted in increased revenues of $2.6 million.

The operating profit for the quarter ended June 30, 2010 was $6.1 million compared to operating profit of $8.9 million for the quarter ended June 30, 2009. The decrease in operating profit was primarily the result of an increase in corporate operating expenses of $1.4 million, a decrease in operating profit of $1.1 million in the Strategic Marketing Services segment and a decrease of $0.3 million within the Performance Marketing Services segment.

The loss from continuing operations attributable to MDC Partners Inc. for the second quarter of 2010 was $5.2 million, compared to income of $0.2 million in 2009. This decrease in income of $5.4 million was primarily the result of an increase in interest expense, net of $4.7 million, a decrease in operating profits of $2.8 million, and increase in net income attributable to noncontrolling interests of $1.0 million, a decrease from equity in earning of non-consolidated affiliates of $0.1 million. These amounts were offset by a decrease in other expense, net of $2.3 million and a decrease in income tax expense of $1.1 million.

Marketing Communications Group

Revenues in the second quarter of 2010 attributable to the Marketing Communications Group, which consists of two reportable segments — Strategic Marketing Services and Performance Marketing Services, were $170.0 million compared to $134.9 million in the second quarter of 2009, representing a year-over-year increase of 26.0%.

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

	Revenue
	$ 000’s		%
Quarter ended June 30, 2009	$	134,882		—
Organic		7,209		5.3	%
Acquisitions		25,340		18.8	%
Foreign exchange impact		2,558		1.9	%
Quarter ended June 30, 2010	$	169,989		26.0	%

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

	2010			2009
US		84	%		85	%
Canada		13	%		14	%
Other		3	%		1	%

The operating profit of the Marketing Communications Group decreased by approximately 10.5% to $11.7 million from $13.1 million. Operating margins decreased by 2.8% and were 6.9% for 2010 compared to 9.7% for 2009. The decrease in operating profit and operating margin was primarily attributable to an increase in direct costs (excluding staff costs) as a percentage of revenues from 14.4% in 2009 to 22.0% in 2010. Direct costs increased due to the requirement that certain costs be included in both revenue and direct costs due to the company acting as principle versus agent for certain client contracts. Total staff costs increased $12.0 million; however, as a percentage of revenue decreased from 59.2% in 2009 to 54.0% in 2010. General and administrative costs increased as a percentage of revenue from 19.3% in 2009 to 19.7% in 2010.

Strategic Marketing Services (“SMS”)

Revenues attributable to Strategic Marketing Services in the second quarter of 2010 were $107.0 million, compared to $88.2 million in the second quarter of 2009. The year-over-year increase of $18.7 million or 21.2% was attributable primarily to organic growth of $13.6 million as a result of net new business wins, and acquisition growth of $3.7 million. A weakening of the US dollar versus the Canadian dollar in 2010 compared to 2009 resulted in a $1.4 million increase in revenues from the division’s Canadian-based operations.

The operating profit of Strategic Marketing Services decreased by approximately 9.7% to $10.4 million in the second quarter of 2010 from $11.5 million in the second quarter of 2009. Operating margins decreased to 9.7% in 2010 from 13.0% in 2009. Operating profit and margin decreased due primarily to increased direct costs (excluding staff costs) as a percentage of revenue from 11.2% in 2009 to 19.4% in 2010. In addition, total staff costs increased $7.3 million; however, as a percentage of revenue decreased from 56.8% in 2009 to 53.8% in 2010. General and administrative costs decreased as a percentage of revenue from 21.0% in 2009 to 19.6% in 2010, due to the relatively fixed nature of these costs.

Performance Marketing Services

The Performance Marketing Services segment generated revenues of $63.0 million for the second quarter of 2010, an increase of $16.4 million, or 35.1% higher than revenues of $46.6 million in the second quarter of 2009. The year over year increase was attributed primarily to growth from acquisitions of $21.7 million. In addition, a weakening of the US dollar verses the Canadian dollar in 2010 compared to 2009 resulted in a $1.1 million increase in revenues from the division’s Canadian-based operations. These increases were offset by reduced revenue of $6.4 million as a result of the reduction and delays of client spending.

The operating profit of Performance Marketing Services decreased by $0.3 million in the second quarter of 2010 from $1.6 million in the second quarter of 2009 to $1.3 million in the second quarter of 2010. Total direct costs (excluding staff costs) increased $7.1 million and as a percentage of revenue increased from 20.7% in the second quarter of 2009 to 26.5% in the second quarter of 2010. General and administrative costs increased as a percentage of revenue from 16.1% in the second quarter of 2009 to 20.1% in the second quarter of 2010. The increase as a percentage of revenue was due to reduced organic revenues on relatively fixed costs within one of our operating units. Total staff costs as a percentage of revenue decreased from 63.7% in the second quarter of 2009 to 54.4% in the second quarter of 2010. Depreciation and amortization increased by $1.7 million due to the amortization of intangibles in connection with the 2010 acquisitions.

Corporate

Operating costs related to the Company’s Corporate operations totaled $5.6 million in the second quarter of 2010 compared to $4.2 million in the second quarter of 2009. This increase of $1.4 million was primarily related to increased compensation and related costs of $0.5 million, travel, promotional and related costs of $0.7 million, and professional and other costs of $0.2 million.

Other Income, Net

Other income (expense) decreased to an expense of $0.3 million in the second quarter of 2010 compared to an expense of $2.5 million in the second quarter of 2009. The 2010 expense was primarily comprised of a foreign exchange loss of $0.3 million, compared to a loss of $2.5 million recorded in 2009. Specifically, this unrealized loss was due primarily to the weakening in the US dollar during 2010 and 2009 compared to the Canadian dollar primarily on its US dollar denominated intercompany balances with its Canadian subsidiaries compared to December 31, 2009.

Net Interest Expense

Net interest expense for the second quarter of 2010 was $8.4 million, an increase of $4.7 million over the $3.7 million of net interest expense incurred during the second quarter of 2009. Interest expense increased in 2010 due to higher average outstanding debt in 2010, relating to the 11% senior notes issued in October 2009 and May 2010. Interest income was nominal in the second quarter of 2010 and 2009.

Income Taxes

Income tax expense was $1.6 million in the second quarter of 2009 compared to income tax expense of $0.6 million for the second quarter of 2010. The Company’s effective tax rate in 2010 and 2009 was substantially higher than the statutory rate due to noncontrolling interest charges, offset by non-deductible stock based compensation. In addition, the 2010 effective tax rate was higher due to losses in certain tax jurisdictions where the benefits are not expected to be realized.

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

Equity in Affiliates

Equity in affiliates represents the income (losses) attributable to equity-accounted affiliate operations. For the second quarter of 2010 the loss was nominal compared to the second quarter of 2009 income of $0.1 million which was recorded.

Noncontrolling Interests

Net income attributable to the noncontrolling interests was $2.0 million for the second quarter of 2010, an increase of $1.0 million from the $1.0 million of noncontrolling interest expense incurred during the second quarter of 2009, primarily due to increased profitability of certain entities which are not wholly owned.

Discontinued Operations Attributable to MDC Partners Inc.

The loss of $0.6 million, net of an income tax benefit of $0.3 million from discontinued operations in 2010, resulted from the operating results and write-off of our investment of Fearless, which was discontinued in the second quarter of 2010.

The loss, net of an income tax benefit of $0.1 million from discontinued operations in 2009, resulted from the operating results of Clifford/Bratskeir Public Relations LLC (“Bratskeir”), which was discontinued in 2008 with the completion of the sale of Bratskeir’s remaining assets in April 2009.

As a result, the Company has classified these operations as discontinued.

Net Income (loss) attributable to MDC Partners Inc .

As a result of the foregoing, the net loss attributable to MDC Partners Inc. recorded for the second quarter of 2010 was $5.8 million or a loss of $0.21 per diluted share, compared to a nominal net income attributable to MDC Partners Inc. or $0.01 per diluted share reported for the second quarter of 2009.

Six Months Ended June 30, 2010, Compared to Six Months Ended June 30, 2009

Revenue was $306.2 million for the six months ended June 30, 2010, representing an increase of $44.6 million, or 17.0%, compared to revenue of $261.6 million for the six months ended June 30, 2009. This revenue increase related primarily to acquisition growth of $31.6 million and organic growth of $6.8 million. In addition, a weakening of the US Dollar, primarily versus the Canadian dollar during the six months ended June 30, 2010, resulted in increased revenues of $6.2 million.

The operating profit for 2010 was $4.8 million, compared to operating profit of $11.0 million for 2009. The decrease in operating profit was primarily the result of a decrease in operating profit of $2.3 million in the Performance Marketing Services segment and a decrease of $1.6 million within the Strategic Marketing Services segment. In addition, Corporate operating expenses increased by $2.3 million.

The loss from continuing operations attributable to MDC Partners Inc. for the first six months of 2010 was $15.3 million, compared to income of $0.5 million in 2009. This decrease in income of $15.8 million was primarily the result of a decrease in operating profits of $6.2 million, and an increase in interest expense, net of $8.2 million, and an increase in net income attributable to noncontrolling interests of $1.6 million, a decrease in other income, net of $1.0 million. These amounts were offset by a decrease in income tax expense of $1.4 million.

Marketing Communications Group

Revenues in 2010 attributable to the Marketing Communications Group, which consists of two reportable segments — Strategic Marketing Services and Performance Marketing Services, were $306.2 million compared to $261.6 million in 2009, representing a year-over-year increase of 17.0%.

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

	Revenue
	$ 000’s		%
Six months ended June 30, 2009	$	261,620		—
Organic		6,818		2.6	%
Acquisitions		31,578		12.1	%
Foreign exchange impact		6,155		2.3	%
Six months ended June 30, 2010	$	306,171		17.0	%

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

	2010			2009
US		83	%		85	%
Canada		14	%		14	%
Other		3	%		1	%

The operating profit of the Marketing Communications Group decreased by approximately 20.1% to $15.3 million in 2010 from $19.2 million in 2009. Operating margins decreased by 2.3% and were 5.0% for 2010 compared to 7.3% for 2009. The decrease in operating profit and operating margin was primarily attributable to an increase in direct costs (excluding staff costs) as a percentage of revenues from 13.6% in 2009 to 19.9% in 2010. Direct costs increased due to the requirement that certain costs be included in both revenue and direct costs due to the Company acting as principle versus agent for certain client contracts. Total staff costs increased $16.7 million; however, as a percentage of revenue decreased from 61.5% in 2009 to 58.0% in 2010. General and administrative costs increased slightly as a percentage of revenue from 20.4% in 2009 to 20.7% in 2010.

Strategic Marketing Services (“SMS”)

Revenues attributable to Strategic Marketing Services in the first six months of 2010 were $198.5 million, compared to $172.7 million in 2009. The year-over-year increase of $25.8 million or 14.9% was attributable primarily to organic growth of $18.6 million as a result of net new business wins, and acquisition growth of $3.7 million. A weakening of the US dollar versus the Canadian dollar in 2010 compared to 2009 resulted in a $3.6 million increase in revenues from the division’s Canadian-based operations.

The operating profit of Strategic Marketing Services decreased by approximately 8.9% to $16.7 million in 2010 from $18.3 million in 2009. Operating margins decreased to 8.4% in 2010 from 10.6% in 2009. Operating profit and margin decreased due primarily to increased direct costs (excluding staff costs) as a percentage of revenue from 11.0% in 2009 to 16.6% in 2010. In addition, total staff costs increased $13.2 million; however, as percentages of revenue decreased from 58.7% in 2009 to 57.7% in 2010. General and administrative costs decreased as a percentage of revenue from 22.1% in 2009 to 20.8% in 2010, due to the relatively fixed nature of these costs. Depreciation and amortization decreased $3.3 million, due to certain intangibles being fully amortized by the end of 2009.

Performance Marketing Services

The Performance Marketing Services segment generated revenues of $107.7 million for 2010, an increase of $18.8 million, or 21.1% higher than revenues of $88.9 million in 2009. The year over year increase was attributed primarily to growth from acquisitions of $27.9 million. In addition, a weakening of the US dollar verses the Canadian dollar in 2010 compared to 2009 resulted in a $2.6 million increase in revenues from the division’s Canadian-based operations. These increases were offset by reduced revenue of $11.7 million as a result of the reduction and delays of client spending.

The Performance Marketing Services incurred an operating loss of $1.3 million, a decrease of $2.3 million in 2010, from a profit of $1.0 million in 2009. Operating loss margins were 1.2% in 2010 from an operating profit margin of 1.0% in 2009. Direct costs (excluding staff costs) increased as a percentage of revenue from 18.6% in 2009 to 25.9% in 2010. General and administrative costs increased as a percentage of revenue from 17.0% in the first six months of 2009 to 20.6% in the first six months of 2010. The increase as a percentage of revenue was due to reduced organic revenues on relatively fixed costs within one of our operating unites. Total staff costs increased $3.4 million; however, decreased as a percentage of revenue from 67.0% in 2009 to 58.5% in 2010, as the Company reduced costs in connection with the reduction of organic revenues. Depreciation and amortization increased by $2.0 million due to the amortization of intangibles in connection with the 2010 acquisitions.

Corporate

Operating costs related to the Company’s Corporate operations totaled $10.5 million in 2010 compared to $8.2 million in 2009. This increase of $2.3 million was primarily related to increased compensation and related costs of $0.5 million, travel, promotional and related costs of $1.0 million, professional and other costs of $0.6 million, and the timing of donations of $0.2 million.

Other Income, Net

Other income (expense) decreased to an expense of $0.9 million in 2010 compared to an income of $0.1 million in 2009. The 2010 expense was primarily comprised of a foreign exchange loss of $0.9 million, compared to a gain of $0.1 million recorded in 2009. Specifically, this unrealized loss was due primarily to the weakening in the US dollar during 2010 and 2009 compared to the Canadian dollar primarily on its US dollar denominated intercompany balances with its Canadian subsidiaries compared to December 31, 2009.

Net Interest Expense

Net interest expense for 2010 was $15.4 million, an increase of $8.2 million over the $7.2 million of net interest expense incurred during 2009. Interest expense increased in 2010 due to higher average outstanding debt in 2010, relating to the 11% senior notes issued in October 2009 and May 2010. Interest income was nominal in 2010 compared to $0.2 million in 2009.

Income Taxes

Income tax expense was $2.2 million in 2009 compared to income tax expense of $0.8 million for 2010. The Company’s effective tax rate in 2010 and 2009 was substantially higher than the statutory rate due to noncontrolling interest charges, offset by non-deductible stock based compensation. In addition, the 2010 effective tax rate was higher due to losses in certain tax jurisdictions where the benefits are not expected to be realized.

Equity in Affiliates

Equity in affiliates represents the income (losses) attributable to equity-accounted affiliate operations. For 2010 a loss of $0.1 million compared to 2009 income of $0.2 million was recorded.

Noncontrolling Interests

Net income attributable to the noncontrolling interests was $3.0 million for 2010, an increase of $1.6 million from the $1.4 million of noncontrolling interest expense incurred during 2009, primarily due to increased profitability of certain entities which are not wholly owned.

Discontinued Operations Attributable to MDC Partners Inc.

The loss, net of an income tax benefit of $0.4 million from discontinued operations in 2009, resulted from the operating results of Clifford/Bratskeir Public Relations LLC (“Bratskeir”), which was discontinued in 2008 with the completion of the sale of Bratskeir’s remaining assets in April 2009.

As a result, the Company has classified these operations as discontinued.

Net Income (loss) attributable to MDC Partners Inc.

As a result of the foregoing, the net loss attributable to MDC Partners Inc. recorded for 2010 was $16.0 million or a loss of $0.57 per diluted share, compared to a net income attributable to MDC Partners Inc. of $0.1 million or $0.01 per diluted share reported for 2009.

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, 2010			As of and for the six months ended June 30, 2009			As of and for the year ended December 31, 2009
	(000’s)			(000’s)			(000’s)
Cash and cash equivalents	$	47,454		$	57,934		$	51,926
Working capital (deficit)	$	(47,008	)	$	(29,229	)	$	(40,152	)
Cash from operations	$	(2,733	)	$	21,431		$	59,903
Cash from investing	$	(63,940	)	$	(5,760	)	$	(66,199	)
Cash from financing	$	62,128		$	873		$	20,037
Long-term debt to total equity ratio		2.41			1.92			2.31
Fixed charge coverage ratio		N/A			1.38			N/A
Fixed charge deficiency	$	11,439			N/A		$	3,350

As of June 30, 2010, and December 31, 2009, $6.4 million and $14.1 million, respectively, 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. It is the Company’s intent through its cash management system to reduce outstanding borrowings under the WF Credit Agreement by using available cash.

Working Capital

At June 30, 2010, the Company had a working capital deficit of $47.0 million compared to a deficit of $40.2 million at December 31, 2009. The decrease in working capital was primarily due to seasonal shifts in the amounts collected from clients, and paid to suppliers, primarily media outlets and improvements made in the Company’s billing and collecting practices. The Company includes amounts due to noncontrolling interest holders, for their share of profits, in accrued and other liabilities. At June 30, 2010, $3.4 million remained outstanding to be distributed to noncontrolling interest holders over the next twelve months.

The Company intends to maintain sufficient cash or availability of funds under its Credit 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 continuing operations, including changes in non-cash working capital, for the six months ended June 30, 2010 was $2.5 million. This was attributable primarily to a net operating loss from continuing operations attributable to MDC Partners of $15.3 million, payments of accounts payable and accrued liabilities, which resulted in cash use from operations of $16.5 million, an increase in expenditures billable to clients of $8.4 million and an increase in prepaid expenses and other current assets of $1.0 million. This use of cash was partially offset by depreciation and amortization and non-cash stock compensation of $20.0 million, an increase of advance billings to clients of $16.0 million, decrease in accounts receivable of $1.7 million, and adjustments to deferred acquisition consideration of $1.6 million. Discontinued operations attributable to MDC Partners used cash of $0.3 million in the six months ended June 30, 2010.

Cash flow provided by continuing operations, including changes in non-cash working capital, for the six months ended June 30, 2009 was $21.7 million. This was attributable primarily to income from continuing operations attributable to MDC Partners of $0.5 million, depreciation and amortization and non-cash stock compensation of $19.4 million, and an increase in accounts payable, accruals, advance billings to clients and other non-current assets and liabilities of $12.0 million. This cash provided by continuing operations was partially offset by an increase in accounts receivable of $11.2 million and an increase in expenditures billable to clients of $1.7 million. Discontinued operations attributable to MDC Partners used cash of $0.3 million in the six months ended June 30, 2009.

Investing Activities

Cash flows used in investing activities were $63.9 million for the six months ended June 30, 2010 compared with $5.8 million in the six months ended June 30, 2009.

In the six months ended June 30, 2010, capital expenditures totaled $5.7 million, of which $3.0 million was incurred by the Strategic Marketing Services segment and $2.5 million was incurred by the Performance Marketing Services segment. These expenditures consisted primarily of computer equipment and furniture and fixtures. Expenditures for capital assets in the six months ended June 30, 2009 were $2.1 million. Of this amount, $1.5 million was incurred by the Strategic Marketing Services segment and $0.6 million was incurred by the Performance Marketing services Segment. These expenditures consisted primarily of computer equipment and leasehold improvements.

In the six months ended June 30, 2010, cash flow used for acquisitions was $57.5 million of which $35.4 million was paid in the acquisition of equity interests in Team, Communifx, IMS, Sloane, Allison, Infolure, and Plaid, and $22.1 million was paid related to the settlement of deferred acquisition consideration. Cash flow used in acquisitions was $3.6 million in the six months ended June 30, 2009 and related to the settlement of put options and earn-out payments.

Financing Activities

During the six months ended June 30, 2010, cash flows provided by financing activities amounted to $62.1 million, and consisted primarily from proceeds of $67.6 million relating to the additional issuance of 11% Senior Notes, offset by, payment of dividends of $2.8, payment of deferred financing costs of $1.5 million, repayments of long-term debt of $0.5 million and the purchase of treasury shares for income tax withholding requirements of $0.9 million. During the six months ended June 30, 2009, cash flows provided by financing activities amounted to $0.9 million, and primarily consisted of borrowings under the old Financing Agreement of $2.2 million, repayments of long-term debt of $0.9 million and the purchase of treasury shares for income tax withholding requirements of $0.4 million.

Total Debt

11% Senior Notes Due 2016

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold $225 million aggregate principal amount of 11% Senior Notes due 2016 (the “11% Notes”). The 11% Notes bear interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable semiannually in arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11% Notes will mature on November 1, 2016, unless earlier redeemed or repurchased. The Company received net proceeds before expenses of $209 million which included an original issue discount of approximately 4.7% or $10.5 million and underwriter fees of $5.6 million. The 11% Notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933, as amended. The Company used the net proceeds of this offering to repay the outstanding balance and terminate its prior Fortress Financing Agreement consisting of repayments of $130 million of term loans, a $70 million delayed draw term loan, and $9.7 million outstanding on the $55 million revolving credit facility. The Company also used the net proceeds to redeem its outstanding 8% C$45 million convertible debentures.

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

The Company may, at its option, redeem the 11% Notes (including the additional notes) in whole at any time or in part from time to time, on and after November 1, 2013 at a redemption price of 105.5% of the principal amount thereof. If redeemed during the twelve-month period beginning on November 1, 2014, the Company must pay a redemption price of 102.75% of the principal amount thereof. If redeemed during the twelve-month period beginning on November 1, 2015, the Company must pay a redemption price of 100% of the principal amount thereof. Prior to November 1, 2013, the Company may, at its option, redeem some or all of the 11% Notes at a price equal to 100% of the principal amount of the Notes plus a “make whole” premium and accrued and unpaid interest. The Company may also redeem, at its option, prior to November 1, 2012, up to 35% of the 11% Notes with the proceeds from one or more equity offerings at a redemption price of 111% of the principal amount thereof. If the Company experiences certain kinds of changes of control (as defined in the Indenture), holders of the 11% Notes may require the Company to repurchase any 11% Notes held by them at a price equal to 101% of the principal amount of the 11% Notes plus accrued and unpaid interest. The indenture governing the 11% Notes contains certain events of default and restrictive covenants which are customary with respect to non-investment grade debt securities, including limitations on the incurrence of additional indebtedness, dividends, sales of assets and transactions with affiliates.

New Credit Agreement

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

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

Debt as of June 30, 2010 was $286.1 million, an increase of $68.2 million compared with the $217.9 million outstanding at December 31, 2009, primarily as a result of the additional issuance of $65 million 11% notes. At June 30, 2010, $70.0 million was available under the WF Credit Agreement.

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

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

Pursuant to the WF Credit Agreement, the Company must comply with certain financial covenants including, among other things, covenants for (i) total debt ratio, (ii) fixed charges ratio, and (iii) minimum earnings before interest, taxes and depreciation and amortization, in each case as such term is specifically defined in the Credit Facility. For the period ended June 30, 2010, the Company’s calculation of each of these covenants, and the specific requirements under the Credit Facility, respectively, were as follows:

	June 30, 2010
Total Senior Leverage Ratio		(0.46	)
Maximum per covenant		2.0

Fixed Charges Ratio		2.95
Minimum per covenant		1.25

Earnings before interest, taxes, depreciation and amortization	$	77.6 million
Minimum per covenant	$	71.0 million

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

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 six-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, for acquisitions prior to January 1, 2009. Based on various assumptions, all deferred consideration estimates based on future operating results of the relevant entities are recorded on the Company’s balance sheet at June 30, 2010. The actual amount that the Company pays in connection with the obligations may differ materially from this estimate. The Accounting Standards Codification’s revised guidance on business combinations now requires that contingent purchase obligations are recorded as a liability and included in the original acquisition accounting. At June 30, 2010, there was $60.6 million of deferred consideration included in the Company’s balance sheet.

Other-Balance Sheet Commitments

Put Rights of Subsidiaries’ Noncontrolling Shareholders

Owners of interests in certain of the 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 2010 to 2018. 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, 2010, 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 $29.9 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 $2.8 million by the issuance of the Company’s Class A subordinate voting shares. In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $10.4 million only upon termination of such owner’s employment with such applicable subsidiary. The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under its Financing Agreement (and refinancings thereof) and, if necessary, through incurrence of additional debt. The ultimate amount payable and the incremental operating income in the future relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised. Approximately $6.3 million of the estimated $29.9 million that the Company would be required to pay subsidiaries noncontrolling shareholders upon the exercise of outstanding put option rights, relates to rights exercisable within the next twelve months. Upon the settlement of the total amount of such put options, the Company estimates that it would receive incremental operating income before depreciation and amortization of $8.5 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)	2010		2011		2012		2013		2014 & Thereafter		Total
	($ Millions)
Cash	$	6.0	$	2.0	$	7.8	$	3.0	$	8.3	$	27.1
Shares		0.3		0.8		0.6		0.7		0.4		2.8
	$	6.3	$	2.8	$	8.4	$	3.7	$	8.7	$	29.9	(1)
Operating income before depreciation and amortization to be received(2)	$	2.1	$	0.9	$	1.6	$	1.5	$	2.4	$	8.5
Cumulative operating income before depreciation and amortization(3)	$	2.1	$	3.0	$	4.6	$	6.1		8.5	$		(5)

(1)	This amount has been recognized in Redeemable Noncontrolling Interests on the Company’s balance sheet.

(2)

This financial measure is presented because it is the basis of the calculation used in the underlying agreements relating to the put rights and is based on actual 2009 and first quarter 2010 operating results. This amount represents amounts to be received commencing in the year the put is exercised.

(3)	Cumulative operating income before depreciation and amortization represents the cumulative amounts to be received by the company.

(4)	The timing of consideration to be paid varies by contract and does not necessarily correspond to the date of the exercise of the put.

(5)	Amounts are not presented as they would not be meaningful due to multiple periods included.

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’s 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

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

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

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.

Business Combinations . Valuation of acquired companies are based on a number of factors, including specialized know-how, reputation, competitive position and service offerings. Our acquisition strategy has been to focus on acquiring the expertise of an assembled workforce in order to continue building upon the core capabilities of our various strategic business platforms to better serve our clients. Consistent with our acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed in 2009 include an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior years, are derived using the performance of the acquired entity and are based on pre-determined formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are remeasured at each reporting period. Changes in estimated value are recorded in results of operations. There were no adjustments for remeasurement for the year ended December 31, 2009. In addition, certain acquisitions also include put/call obligations for additional equity ownership interests. The estimated value of these interests are recorded as Redeemable Noncontrolling Interests. As of January 1, 2009, the Company expenses acquisition related costs in accordance with the Accounting Standard’s Codification’s new guidance on acquisition accounting. For the three and six months ended June 30, 2010, $331 and $730 and nil, respectively, of acquisition related costs have been changed to operations. For the three and six months ended June 30, 2009, no acquisition related costs were charged to operations.

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

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

Stock-based Compensation . The fair value method is applied to all awards granted, modified or settled. Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed over the service period, that is the award’s vesting period. When awards are exercised, share capital is credited by the sum of the consideration paid together with the related portion previously credited to additional paid-in capital when compensation costs were charged against income or acquisition consideration. Stock-based awards that are settled in cash or may be settled in cash at the option of employees are recorded as liabilities. The measurement of the liability and compensation cost for these awards is based on the fair value of the award, and is recorded into operating income over the service period, that is the vesting period of the award. Changes in the Company’s payment obligation are revalued each period and recorded as compensation cost over the service period in operating income.

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

New Accounting Pronouncements

In April 2010, the FASB issues ASU 2010-17, “Revenue Recognition-Milestone Method.” ASU 20110-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The amendments in ASU 2010-17 are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption will not have an impact on our financial statements.

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

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

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

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

In March 2008, the FASB issued guidance relating to “Disclosures about Derivative Instruments and Hedging Activities (previously in SFAS No. 161 and currently included in ACS 815-10-65),” which requires enhanced disclosures for derivative and hedging activities. The additional disclosures became effective beginning with our first quarter of 2009. Early adoption is permitted. The adoption of this statement did not have a material effect on our financial statements.

In November 2008, the EITF issued guidance on Equity Method Investment Accounting Considerations, which is effective for the Company on January 1, 2009. This standard addresses the impact that revised Guidance on Business Combinations and Noncontrolling Interests might have on the accounting for equity method investments, including how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefinite lived intangible asset of an equity method investment should be performed and how to account for a change in an investment from the equity method to the cost method. The adoption of this guidance did not have an impact on our financial statements.

In April 2008, the FASB issued revised guidance on the topic of Determination of the Useful Life of Intangible Assets. The revised guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible. The intent of this revision is to improve the consistency between the useful life of a recognized intangible asset under previous guidance, and the period of expected cash flows used to measure the fair value of the asset. These changes were effective for fiscal years beginning after December 15, 2008 and are to be applied prospectively to intangible assets acquired subsequent to its effective date. Accordingly, we adopted these provisions on January 1, 2009. The impact that this adoption may have on our financial position and results of operations will depend on the nature and extent of any intangible assets acquired subsequent to its effective date.

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 severe effects of national and regional economic downturn;

•

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

•

the financial success of the Company’s clients;

•

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

•

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

•

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

•

foreign currency fluctuations.

The Company’s business strategy includes ongoing efforts to engage in material acquisitions of ownership interests in entities in the marketing communications services industry. The Company intends to finance these acquisitions by using available cash from operations, from borrowings under its current Financing Agreement 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, and the risk factors outlined in more detail in the Company’s 2009 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, 2010, the Company’s debt obligations consisted of amounts outstanding under its WF Credit Agreement and Senior Notes. The Senior Notes bear a fixed 11% interest rate. The WF Credit Agreement 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 nil, as of June 30, 2010, a 1.0% increase or decrease in the weighted average interest rate, which was 6.0% at June 30, 2010, would have a nominal interest impact.

Foreign Exchange: The Company conducts business in four currencies, the US dollar, the Canadian dollar, Jamaican dollar and the British Pound. Our results of operations are subject to risk from the translation to the US dollar of the revenue and expenses of our non-US operations. The effects of currency exchange rate fluctuations on the translation of our results of operations are discussed in the “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.

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

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 Chief Executive Officer (CEO) and Chief Financial Officer (CFO), who is our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. 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, 2010.

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 second quarter of 2010 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

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.

Item 1A. Risk Factors

There are no material changes in the risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Reserved

Item 5 . Other Information

On July 29, 2010, the Company entered into an amendment of the Management Services Agreement with Miles Nadal and Nadal Management, Inc., pursuant to which Mr. Nadal serves as the Company’s Chief Executive Officer. Pursuant to this amendment, the annual retainer fee (base compensation) for Mr. Nadal’s services was increased to $1.5 million. In addition, the parties amended the existing terms of a special Cdn $10 million contingent bonus award to provide that such bonus would be payable to Mr. Nadal upon the sooner to occur (i) the average market price of the Company’s Class A shares exceeding Cdn $30 per share during any twenty consecutive trading days; or (ii) a upon a change of control of the Company.

Item 6. Exhibits

The exhibits required by this item are listed on the Exhibit Table.

SIGNATURES

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

MDC PARTNERS INC.

/s/ Michael Sabatino

Michael Sabatino

Senior Vice President, Chief Accounting Officer

July 30, 2010

EXHIBIT INDEX

Exhibit No.		Description

3.1		Articles of Amalgamation, dated July 1, 2010.*

4.1		First Supplemental Indenture, dated as of May 14, 2010, to the Indenture, dated as of October 23, 2009, among the Company, the Note Guarantors and The Bank of New York Mellon, as trustee, including the form of 11% Senior Notes due 2016 (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on May 14, 2010).

10.1		Amendment to Management Services Agreement relating to the employment of Miles Nadal as Chief Executive Officer, dated July 30, 2010. *

10.2.1		Amendment No. 1, dated July 29, 2010, to the Membership Interest Purchase Agreement dated as of March 1, 2010 by and among MDC Acquisition Inc., WWG, LLC, Todd Graham, Kevin Berg, Vincent Parinello, Daniel K. Gregory, Stephen Groth and Sean M. O’Toole.*

10.2.2		Amendment No. 1, dated July 29, 2010, to the Amended and Restated Limited Liability Company Agreement of The Arsenal LLC (f/k/a Team Holdings LLC) dated as of March 1, 2010 by and among The Arsenal LLC, MDC Acquisition Inc., WWG, LLC and WWG2, LLC.*

10.3		Amendment No. 1, dated July 29, 2010, to the Membership Unit Purchase Agreement dated as of April 30, 2010 by and among MF+P Acquisition Co., Integrated Media Solutions, LLC, Robert Ingram, Desiree DuMont and Ron Corvino.*

10.4		Purchase Agreement, dated as of May 11, 2010, among the Company, the Note Guarantors and Goldman, Sachs & Co., as representative of the initial purchasers named therein (incorporated by reference to Exhibit 1.1 to the Company's Form 8-K filed on May 14, 2010).

10.5		Exchange and Registration Rights Agreement, dated as of May 14, 2010, among the Company, the Note Guarantors and Goldman, Sachs & Co., as representative of the initial purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 14, 2010).

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 Chief Financial Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

99.1		Schedule of ownership by operating subsidiary.*

* Filed electronically herewith.

Exhibit 3.1

Form 9

Canada Business

Corporations

Act

ARTICLES OF AMALGAMATION

1. Name of the amalgamated corporation

MDC PARTNERS INC.

2. The province or territory in Canada where the registered office is to be situated (do not indicate the full address)

Province of Ontario

3. The classes and any maximum number of shares that the corporation is authorized to issue:

The annexed Schedule I is incorporated in this form.

4. Restrictions, if any, on share transfers

None

5. Minimum and maximum number of directors (for a fixed number of directors, please indicate the same number in both boxes)

minimum: 3 maximum: 20

6. Restrictions, if any, on business the corporation may carry on

There are no restrictions on the business the Corporation may carry on or the powers of the Corporation may exercise.

7. Other provisions, if any:

The annexed Schedule II is incorporated in this form.

8. The amalgamation has been approved pursuant to that section or subsection of the Act which is indicated as follows:

o 183 x 184(1) o 184(2)

9. Declaration: I hereby certify that I am a director or an officer of the corporation.

Name of amalgamating corporations	Corporation No.	Signature

MDC PARTNERS INC.	424713-2	Mitchell Gendel

MAXXCOM INC.	757323-5	Mitchell Gendel

Schedule I

3. The classes and any maximum number of shares that the Corporation is authorized to issue

Description	Maximum Number of Shares

Class A Subordinate Voting shares	Unlimited

Class B shares	Unlimited

Preference shares, issuable in series	Unlimited

Series 1 preference shares	5,000.00

Series 2 preference shares	700,000.00

Series 3 preference shares	Unlimited

The preferences, rights, conditions, restrictions, limitations and prohibitions attaching to the Preference Shares, Class A Subordinate Voting Shares and the Class B Shares be and the same are hereby as follows:

1.00 THE PREFERENCE SHARES

1.01 The Preference Shares may at any time or from time to time be issued in one or more series, each series to consist of such number of shares as may, before the issue thereof, be determined by the board of directors of the Corporation. The directors shall by resolution fix, from time to time, before the issue of any series of Preference Shares, the designation, preferences, rights, restrictions, conditions, limitations, priorities as to payment of dividends and/or distribution on liquidation, dissolution or winding up, or prohibitions attaching thereto including, without limiting the generality of the foregoing, the provisions of a purchase fund, the right of the Corporation to purchase such shares for cancellation, the rate of preferential dividends, the dates of payment thereof, the date or dates from which any such preferential dividends shall accrue, redemption rights including purchase or redemption price, terms and conditions of redemption, conversion rights and any sinking fund or other provisions, and authorize the issuance thereof.

1.02 The directors before the issue of any Preference Shares of a series shall file with the Director (the "Director") appointed under the Canada Business Corporations Act or any successor statute of Canada which is from time to time in force (the "Act"), Articles of Amendment designating such series and specifying the number, designation, preferences, rights, restrictions, conditions, limitations, priorities as to payment of dividends and/or distribution on liquidation, dissolution or winding up, and prohibitions attached thereto, and shall obtain a certificate from the Director with respect thereto.

1.03 Notwithstanding the foregoing, the board of directors shall be authorized to change the rights, privileges, restrictions and conditions attached to any unissued or (if otherwise permitted by law) any issued series of Preference Shares. In such case, the directors shall file with the Director, Articles of Amendment giving effect to such change and shall obtain a certificate from the Director with respect thereto.

1.04 The Preference Shares of each series shall be entitled to preference over the Class A Subordinate Voting Shares, the Class B Shares and any other shares ranking junior to the Preference Shares with respect to priority in payment of dividends and in the distribution of assets in the event of liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs, and may also be given such other preferences over the Class A Subordinate Voting Shares, the Class B Shares and any other shares ranking junior to the Preference Shares as may be determined with respect to the respective series authorized to be issued.

1.05 The holders of the Preference Shares shall not be entitled as such, except as required by law, to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting, but shall be entitled to receive notice of meetings of shareholders of the Corporation called for the purpose of authorizing the dissolution of the Corporation or the sale of its undertaking or a substantial part thereof.

2.00 SERIES 1 PREFERENCE SHARES

The first series of the Preference Shares of the Corporation shall consist of Five Thousand (5,000) shares, designated as the "Series 1 Preference Shares" (the "Series 1 Shares"), with each such share having a stated value of $1,000. In addition to the rights, conditions, restrictions and prohibitions attaching to the Preference Shares of the Corporation as a class, the Series 1 Shares shall have attached thereto the rights, conditions, restrictions and prohibitions hereinafter set forth:

2.01 Definitions

In this Article 2.01, unless there is something in the subject matter or context inconsistent therewith:

(a) "Applicable Conversion Price" means the applicable conversion price per Class A Subordinate Voting Share for which Class A Subordinate Voting Shares may be issued upon the conversion of Series 1 Shares during each of the following periods:

Period	Applicable
	Conversion Price
March 1, 1989 to February 28, 1990	$ 0.5405
March 1, 1990 to February 28, 1991	$ 0.5405
March 1, 1991 to February 29, 1992	$ 0.5896
March 1, 1992 to February 28, 1993	$ 0.7142

or such other dollar amount per Class A Subordinate Voting Share for which Class A Subordinate Voting Shares shall be issued upon the conversion of Series 1 Shares in accordance with Article 2.05 hereof.

(b) "Automatic Conversion Price" means $0.7142 per Class A Subordinate Voting Share which is the price for which Class A Subordinate Voting Shares shall be issued upon the conversion of Series 1 Shares in accordance with Section 2.04(b) hereof, or such other dollar amount per Class A Subordinate Voting Share for which Class A Subordinate Voting Shares shall be issued upon the automatic conversion of Series 1 Shares in accordance with Article 2.05 hereof;

(c) "business day" means a day other than a Saturday, a Sunday or any other day that is a statutory or civic holiday in the place where the Corporation's registered office is located, and in the event that any day on which any dividend on the Series 1 Shares is payable or by which any other action is required or permitted to be taken pursuant to these provisions is not a business day, then such dividend shall be payable or such other action shall be required or permitted to be taken on the next succeeding day that is a business day;

(d) "Class A Subordinate Voting Shares" means the Class A Subordinate Voting Shares in the capital of the Corporation;

(e) "Current Market Price" of the Class A Subordinate Voting Shares at any date means the weighted average of the closing prices per share for board lot sales of Class A Subordinate Voting Shares for the 30 consecutive trading days immediately prior to the Dividend Payment Date or Automatic Conversion Date whichever is applicable, on The Toronto Stock Exchange (provided that if on any day in such 30 day period no closing price per share for the Class A Subordinate Voting Shares is reported on by such exchange for such day, the average of the reported closing bid and asking prices on such exchange on such day shall be deemed to be the closing price per share for the Class A Subordinate Voting Shares for such day), or if the Class A Subordinate Voting Shares are not then listed on The Toronto Stock Exchange, then, on such stock exchange on which the Class A Subordinate Voting Shares are listed as may be selected for such purpose by the directors or, if the Class A Subordinate Voting Shares are not listed on any stock exchange, then on such over-the counter market as may be selected for such purpose by the directors;

(f) "Dividend Payment Date" means the date of issue of the Series 1 Shares and each anniversary thereof;

(g) "Dividend Payment Period" means the period beginning on a Dividend Payment Date and ending on the day before the next subsequent Dividend Payment Date;

(h) "Redemption Amount" with respect to any Series 1 Share means the amount provided for in Section 2.06(b).

2.02 Dividends.

(a) The holders of the Series 1 Shares shall have the right to receive, and the Corporation shall pay thereon as and when declared by the directors, either cash dividends or stock dividends, at the option of the Corporation, as follows:

(i) if cash dividends, by the payment of fixed, cumulative, preferential, cash dividends at the rate (subject to Section 2.02(c) below) of $60 per share per annum payable in annual instalments on each Dividend Payment Date. Cash dividends on the Series 1 Shares shall not accrue. Cheques of the Corporation drawn on a Canadian chartered bank and payable at par at any branch in Canada of such bank shall be issued in respect of such dividends to the holders of the Series 1 Shares entitled thereto. The mailing of such cheques shall satisfy and discharge all liability of the Corporation for such dividends to the extent of the amount represented thereby (plus any tax required to be withheld therefrom) unless such cheques are not paid on due presentation; or

(ii) if stock dividends, by the issuance of fully paid and non-assessable Class A Subordinate Voting Shares of the Corporation valued (subject to Section 2.02(c) below) at $60 per share per annum, payable in annual instalments on each Dividend Payment Date. Stock dividends on the Series 1 Shares shall not accrue. The number of Class A Subordinate Voting Shares to be issued to any holder thereof shall be equal to the number obtained by multiplying $60 by the number of Series 1 Shares held by each registered holder of Series 1 Shares and by dividing the product by the greater of:

(a) the Applicable Conversion Price on the business day immediately prior to the Applicable Dividend Payment Date; and

(b) the Current Market Price.

Where a fraction of a Class A Subordinate Voting Share would otherwise be issuable, the Corporation shall in lieu thereof adjust such fractional interest by the payment by cheque (rounded to the nearest cent) of an amount equivalent to the value of such fractional interest computed on the basis of the greater of the Applicable Conversion Price on the business day immediately prior to the applicable Dividend Payment Date or the Current Market Price.

Any monies to be paid in cash pursuant to this Section 2.02(a) which is represented by a cheque which has not been presented for payment within six years after it was issued or that otherwise remains unclaimed for a period of six years from the date on which it was declared to be payable and set apart for payment shall be forfeited to the Corporation.

(b) The amount of the accrued dividend for any period which is less than a full Dividend Payment Period with respect to any Series 1 Share:

(i) which is redeemed pursuant to Article 2.06 hereof;

(ii) which is converted pursuant to Article 2.04 hereof; or

(iii) where assets of the Corporation are distributed to the holders of the Series 1 Shares pursuant to Article 2.08 hereof;

shall be equal to the amount (rounded to the nearest cent) calculated by multiplying $60 by a fraction of which the numerator is the number of days in such Dividend Payment Period that such Series 1 Share has been outstanding (including the Dividend Payment Date at the beginning of such Dividend Payment Period if such share was outstanding on that date and excluding the Dividend Payment Date at the end of such Dividend Payment Period if such share was outstanding on that date or the date on which such dividend becomes payable, as the case may be) and of which the denominator is 365 (or 366 days in the event of a leap year) and shall be payable on the next Dividend Payment Date.

(c) Notwithstanding the foregoing, on March 1, 1991 only, the cash or stock dividends, if any, paid by the Corporation hereunder shall be satisfied in the case of cash dividends, by the payment of fixed, cumulative, preferential, cash dividends at the rate of $70 per share per annum, or in the case of stock dividends, by the issuance of fully paid and non-assessable Class A Subordinate Voting Shares of the Corporation valued at $70 per share per annum. All of the calculations contained in this Article 2.02 shall be adjusted, mutatis mutandis, to reflect this increased dividend rate.

2.03 Conversion at the Option of the Holder

(a) A holder of Series 1 Shares shall have the right, at his option, to convert all or any lesser number of his Series 1 Shares into fully paid and non-assessable Class A Subordinate Voting Shares on the basis of one Series 1 Share for that number of Class A Subordinate Voting Shares obtained by dividing 1,000 by the Applicable Conversion Price.

(b) The conversion right herein provided for may be exercised by notice in writing given to the transfer agent for the Series 1 Shares at any office where a register of transfers for Series 1 Shares is maintained or to the Secretary of the Corporation at the registered office of the Corporation, if there is no registrar and transfer agent for the Series 1 Shares, accompanied by the certificate or certificates representing the Series 1 Shares in respect of which the holder thereof desires to exercise such right of conversion. The notice shall be signed by such holder and shall specify the number of Series 1 Shares which the holder desires to have converted and the name or names in which the shares resulting from such conversion are to be registered. If less than all of the Series 1 Shares represented by any certificate or certificates accompanying any such notice are to be converted, the holder shall be entitled to receive a new certificate without charge representing the Series 1 Shares comprised in the certificate or certificates surrendered as aforesaid which are not to be converted. Upon the conversion of any Series 1 Shares there shall be no payment or adjustment by the Corporation or by any holder of Series 1 Shares on account of any dividends either on the Series 1 Shares so converted or on the Class A Subordinate Voting Shares into which the Series 1 Shares are converted other than as provided for in Section 2.02(b) hereof. On any conversion of Series 1 Shares the share certificates representing shares resulting therefrom shall be issued in the name of the registered holder of the Series 1 Shares converted or, subject to payment by the registered holder of any stock transfer or other applicable taxes, in such name or names as such registered holder may direct in writing (either in the notice above referred to or otherwise).

(c) The right of a registered holder of Series 1 Shares to convert the same into Class A Subordinate Voting Shares shall be deemed to have been exercised, and the registered holder of the Series 1 Shares to be converted (or any person or persons in whose name or names such registered holder of Series 1 Shares shall have directed the shares to be issued) shall be deemed to have become a holder of record of shares of the Class A Subordinate Voting Shares for all purposes on the date of surrender of the certificates representing the Series 1 Shares to be converted, together with the notice in writing referred to in Section 2.03(b), notwithstanding any delay in the delivery of the certificates representing the Class A Subordinate Voting Shares into which such Series 1 Shares have been converted.

2.04 Deemed Conversion

(a) For purposes of this Article 2.04:

(i) "person" means any person, firm, corporation, partnership, trust, association or any other business or legal entity whatsoever;

(ii) "Qualified Holder" means: (i) Greyvest Canada Inc. or an Affiliate thereof; and (ii) the Corporation, any Affiliate thereof or any employees, officers or directors of the Corporation or such Affiliate;

(iii) "Affiliate" means an "affiliated body corporate" as defined in the Canada Business Corporations Act as of the date hereof.

(b) (i) Notwithstanding anything contained in Article 2.3 hereof a holder of Series 1 Shares shall have the right to convert all, but not less than all of his Series 1 Shares into fully paid and non-assessable Class A Subordinate Voting Shares and such right shall be and is hereby deemed to have been exercised by such holder, in the event that on March 1, 1991 or at the end of each successive 6 month period thereafter (an "Automatic Conversion Date") the Current Market Price of the Class A Subordinate Voting Shares is equal to $0.70 per share or more, on the basis of one Series 1 Share for that number of Class A Subordinate Voting Shares obtained by dividing 1,000 by the Automatic Conversion Price.

(ii) Notwithstanding the foregoing, a holder of Series 1 Shares shall have the right to convert all, but not less than all of his Series 1 Shares into fully paid and non-assessable Class A Subordinate Voting Shares and such right shall be and is hereby deemed to have been exercised by such holder on March 1, 1993, on the basis of one Series 1 Share for that number of Class A Subordinate Voting Shares obtained by dividing 1,000 by the Automatic Conversion Price.

(c) (i) In the event that any holder of Series 1 Shares transfers any of his Series 1 Shares to a person who is not a Qualified Holder, such person shall have the right to convert all, but not less than all of the Series 1 Shares so transferred into fully paid and non-assessable Class A Subordinate Voting Shares and such right shall be and is hereby deemed to have been exercised by such person, on the basis of one Series 1 Share for that number of Class A Subordinate Voting Shares obtained by dividing 1,000 by the Applicable Conversion Price.

(ii) If, at any time, any holder of Series 1 Shares ceases to be a Qualified Holder, such holder shall have the right to convert all, but not less than all of the Series 1 Shares so transferred into fully paid and non-assessable Class A Subordinate Voting Shares and such right shall be and is hereby deemed to have been exercised by such holder, on the basis of one Series 1 Share for that number of Class A Subordinate Voting Shares obtained by dividing 1,000 by the Applicable Conversion Price.

(d) In the event of the conversion of the Series 1 Shares into Class A Subordinate Voting Shares pursuant to the provisions of this Article 2.04, the certificates representing the Series 1 Shares so converted shall forthwith be surrendered by the holders thereof to the registrar and transfer agent for the Class A Subordinate Voting Shares at its principal office in Toronto or to the Secretary of the Corporation at the registered office of the Corporation, if there is no registrar and transfer agent for the Series 1 Shares, in exchange for certificates representing the Class A Subordinate Voting Shares into which such Series 1 Shares were converted. If less than all the Series 1 Shares represented by any certificate are converted, a new certificate for the balance shall be issued at the expense of the Corporation. In the event that the certificates representing the Series 1 Shares are not surrendered for conversion pursuant to this Section 2.04(d), such Series 1 Shares shall, as of the date of such conversion, not be considered to be outstanding and shall be deemed to have been cancelled and no further right shall accrue to the holder of such Series 1 Shares, save and except for the right to receive that number of Class A Subordinate Voting Shares properly issuable to such holder in accordance with this Article 2.04.

2.05 Adjustment of the Applicable Conversion Price and the Automatic Conversion Price in Certain Events

(a) In the event that the Corporation shall:

(i) subdivide or change its outstanding Class A Subordinate Voting Shares into a greater number of Class A Subordinate Voting Shares, or

(ii) reduce, combine or consolidate its outstanding Class A Subordinate Voting Shares into a smaller number of shares, or

(iii) declare a dividend or make a distribution of Class A Subordinate Voting Shares or securities convertible into Class A Subordinate Voting Shares to all or substantially all the holders of its outstanding Class A Subordinate Voting Shares by way of a stock dividend (other than an issue of Class A Subordinate Voting Shares or securities convertible into Class A Subordinate Voting Shares by way of a stock dividend or dividend reinvestment plan to shareholders pursuant to their exercise of options to receive dividends in the form of shares in lieu of cash dividends declared payable by the Corporation on its Class A Subordinate Voting Shares), (any of such events being hereinafter referred to as a "Class A Subordinate Voting Share Reorganization"), the Applicable Conversion Price and the Automatic Conversion Price (each of which in this Article 2.05 shall hereinafter be referred to as the "Conversion Price") in effect at the time of the record date for such Class A Subordinate Voting Share Reorganization shall be proportionately adjusted so that the holder of any Series 1 Share deposited for conversion after such time shall be entitled to receive the number of Class A Subordinate Voting Shares which he would have been entitled to receive had such Series 1 Shares been converted immediately prior to such time.

(b) If the Corporation shall fix a record date for the issuance of options, rights or warrants to all or substantially all the holders of its Class A Subordinate Voting Shares entitling them (for a period expiring within 45 days after such record date) to subscribe for or purchase Class A Subordinate Voting Shares (or securities convertible into or exchangeable for Class A Subordinate Voting Shares) at a price per Class A Subordinate Voting Share (or having a conversion or exchange price per Class A Subordinate Voting Share) less than 90% of the Current Market Price of a Class A Subordinate Voting Share on such record date, the Conversion Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Conversion Price in effect on such record date by a fraction, of which the numerator shall be the total number of Class A Subordinate Voting Shares outstanding on such record date plus a number of Class A Subordinate Voting Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Class A Subordinate Voting Shares so offered (or the aggregate price of the convertible or exchangeable securities so offered) by such Current Market Price per Class A Subordinate Voting Share and of which the denominator shall be the total number of Class A Subordinate Voting Shares outstanding on such record date plus the total number of additional Class A Subordinate Voting Shares offered for subscription or purchase (or into which the convertible or exchangeable securities so offered are convertible or exchangeable, as the case may be) . Class A Subordinate Voting Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that such options, rights or warrants are not so issued or such options, rights or warrants are not exercised prior to the expiration thereof, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect based upon the number of Class A Subordinate Voting Shares (or securities convertible or exchangeable into Class A Subordinate Voting Shares), if any, actually delivered upon the exercise of such options, rights or warrants.

(c) If the Corporation shall fix a record date for the making of a distribution to all or substantially all the holders of its Class A Subordinate Voting Shares:

(i) of any shares of any class not included in the definition of Class A Subordinate Voting Shares as contained in the constating documents of the Corporation; or

(ii) of evidences of indebtedness; or

(iii) of assets (excluding cash dividends paid in the ordinary course, distributions referred to in paragraph (iii) of Section 2.05(a) and stock dividends to holders of Class A Subordinate Voting Shares who exercise an option pursuant to a stock dividend plan to receive equivalent dividends in shares or under a dividend reinvestment plan in lieu of receiving cash dividends paid in the ordinary course); or

(iv) of options, rights or warrants (excluding those referred to in Section 2.05(b); the Conversion Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Conversion Price in effect on such record date by a fraction, of which the numerator shall be the total number of Class A Subordinate Voting Shares outstanding on such record date multiplied by the Current Market Price of a Class A Subordinate Voting Share on such record date, less the fair market value (as determined by the directors, whose determination shall be conclusive) of said shares or evidences of indebtedness or assets or options, rights or warrants so distributed, and of which the denominator shall be the total number of Class A Subordinate Voting Shares outstanding on such record date multiplied by such Current Market Price of a Class A Subordinate Voting Share. Class A Subordinate Voting Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that such distribution is not so made, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect based upon the said shares or evidences of indebtedness or assets or options, rights or warrants actually distributed.

(d) No adjustments of the Conversion Price shall be made pursuant to paragraph (iii) of Section 2.05(a) or pursuant to Section 2.05(b) or 2.05 (c) if the holders of the Series 1 Shares are permitted to participate in such dividend or distribution on the Class A Subordinate Voting Shares or in the issue of such options, rights, warrants or such distribution as the case may be, as though and to the same effect as if they had converted their Series 1 Shares into Class A Subordinate Voting Shares prior to the record date for such dividend or distribution or the issue of such options, rights or warrants or such distribution, as the case may be.

(e) In any case in which this Article 2.05 shall require that an adjustment shall become effective immediately after a record date for an event referred to herein, the Corporation may defer until the occurrence of such event issuing to the holder of any Series 1 Shares converted after such record date and before the occurrence of such event the additional Class A Subordinate Voting Shares issuable upon such conversion by reason of the adjustment required by such event in addition to the Class A Subordinate Voting Shares issuable upon such conversion before giving effect to such adjustment; provided, however, that the Corporation shall deliver to such holder an appropriate instrument evidencing such holder's rights to receive such additional Class A Subordinate Voting Shares upon the occurrence of the event requiring such adjustment.

(f) In the case of any reclassification of, or other change in, the outstanding Class A Subordinate Voting Shares not otherwise mentioned herein, the Conversion Price shall be adjusted in such manner as the directors determine to be appropriate on a basis consistent with this Article 2.05.

(g) If any question shall at any time arise with respect to adjustments in the Conversion Price or with respect to the amount of any cash payment made in lieu of issuing a fractional Class A Subordinate Voting Share, such question shall be determined by the Treasurer of the Corporation, whose determination shall be confirmed by the auditors of the Corporation, and thereupon shall become conclusive.

(h) Forthwith after the occurrence of any adjustment in the Conversion Price pursuant to this Article 2.05, the Corporation shall file with the registrar and transfer agent of the Corporation for the Series 1 Shares a certificate certifying as to the amount of such adjustment and, in reasonable detail, the event requiring and the manner of computing such adjustment. The Corporation shall also at such time give written notice to the holders of the Series 1 Shares of the Conversion Price following such adjustment.

(i) No adjustment in the Conversion Price shall be required:

(i) in respect of the issue of Class A Subordinate Voting Shares or securities convertible into Class A Subordinate Voting Shares pursuant to any stock option or purchase plan for officers or employees of the Corporation or any of its subsidiaries; or

(ii) unless such adjustment would require an increase or decrease of at least one percent in the Conversion Price; provided, however, that any adjustments which by reason of this paragraph (ii) of Section 2.05(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.

2.06 Redemption at the Option of the Corporation

(a) Subject to the provisions of applicable law, the Corporation may, at its option, redeem at any time all or from time to time any lesser number of the Series 1 Shares then outstanding on payment of the Redemption Amount provided in Section 2.06(b) hereof. If less than all of the outstanding Series 1 Shares are to be redeemed, the Series 1 Shares to be redeemed shall be selected by lot, in single shares in such manner as the directors in their sole discretion shall determine.

(b) The price at which any Series 1 Share is redeemable from time to time shall be $1,000 per Series 1 Share. Upon the redemption of any Series 1 Shares there shall be no payment or adjustment by the Corporation on account of any dividends on the Series 1 Shares so redeemed other than as provided for in Section 2.02(b) hereof.

(c) (i) Notice of redemption of Series 1 Shares shall be given by the Corporation not less than 10 days prior to the day fixed for redemption to each registered holder of Series 1 Shares to be redeemed. Accidental failure or omission to give such notice to one or more of such holders shall not affect the validity of such redemption. Such notice shall set out the Redemption Amount, the date fixed for redemption, the place or places of redemption and, in the case of partial redemption, the number of the holder's shares to be redeemed.

(ii) On and after the date fixed for redemption, the Corporation shall pay or cause to be paid the Redemption Amount to or to the order of the holders of the Series 1 Shares redeemed on presentation and surrender at the place or one of the places of redemption of the respective certificates representing such shares, and the holders of the Series 1 Shares called for redemption shall cease to be entitled to dividends or to exercise any of the rights of holders in respect thereof unless payment of the Redemption Amount shall not be made in accordance with the foregoing provisions, in which case the rights of the holders shall remain unimpaired.

(iii) The Corporation shall have the right at any time after giving notice of redemption to deposit the Redemption Amount of the Series 1 Shares thereby called for redemption, or such part thereof as at the time of deposit has not been claimed by the shareholders entitled thereto, in any Canadian chartered bank or trust company in Canada specified in the notice of redemption or in a subsequent notice to the holders of the shares in respect of which the deposit is made, in a special account for the holders of such shares, and upon such deposit being made or upon the date fixed for redemption, whichever is the later, the Series 1 Shares in respect of which such deposit shall have been made shall be deemed to be redeemed and the rights of each holder thereof shall be limited to receiving, without interest, his proportionate part of the Redemption Amount so deposited upon presentation and surrender of the certificates representing his shares so redeemed. Any interest on such deposit shall belong to the Corporation.

(iv) If less than all the Series 1 Shares represented by any certificate shall be redeemed, a new certificate for the balance shall be issued without charge to the holder.

2.07 Cancellation of Series 1 Shares

Series 1 Shares purchased, redeemed or otherwise acquired by the Corporation shall be cancelled.

2.08 Dissolution

On the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or other distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs, the holders of the Series 1 Shares shall be entitled to receive in lawful money of Canada an amount equal to the Redemption Amount per share.

2.09 Notices, etc.

(a) Any notice or other communication from the Corporation herein provided for shall be sufficiently given if delivered or if sent by ordinary unregistered mail, postage prepaid, personal delivery or by telecopier, or, in the case of a notice of redemption, by prepaid registered mail, personal delivery or by telecopier, to the holders of the Series 1 Shares at their respective addresses and telecopy numbers appearing on the books of the Corporation or, in the event of the address of any such holders not so appearing, then at the last address or telecopy number of such holder known to the Corporation. Accidental failure to give any such notice or other communication to one or more holders of the Series 1 Shares shall not affect the validity of the notices or other communications properly given or any action taken pursuant to such notice or other communication but, upon such pursuant to such notice or other communication but, upon such failure being discovered, the notice or other communication, as the case may be, shall be sent forthwith to such holder or holders.

(b) If there exists any actual or apprehended disruption of mail services in any province in which there are holders of Series 1 Shares whose addresses appear on the books of the Corporation to be in such province, notice shall be given to the holders in such province by means of personal delivery or telecopier only.

(c) Notice given by mail, personal delivery or telecopier shall be deemed to be given on the day upon which it is mailed, delivered or telecopied as the case may be.

2.10 Modification

The rights, conditions, restrictions and prohibitions attaching to the Series 1 Shares may not be deleted, varied, altered or amended without the prior approval of at least 66 2/3% of the votes cast at a meeting of the holders of the Series 1 Shares, in addition to any other approval or authorization required by applicable law.

2.11 Approval by Holders of Series 1 Shares

The approval of the holders of the Series 1 Shares with respect to any and all matters referred to herein or any other matter requiring the consent of such holders may, subject to applicable law, be given in writing by the holders of all of the Series 1 Shares for the time being outstanding or by resolution duly passed and carried by not less than 2/3 of the votes cast on a ballot at a meeting of the holders of the Series 1 Shares duly called and held for the purpose of considering the subject matter of such resolution and at which meeting holders of not less than 20% of the Series 1 Shares then outstanding are present in person or represented by proxy; provided, however, that if at any such meeting, when originally held, the holders of at least 20% of the Series 1 Shares then outstanding are not present in person or represented by proxy within thirty minutes after the time fixed for the meeting, then the meeting shall be adjourned to such date, being not less than 15 days later, and at such time and place as may be fixed by the Chairman of such meeting and at such adjourned meeting the holders of the Series 1 Shares present in person or represented by proxy, whether or not they hold 20% of the Series 1 Shares then outstanding, may transact the business for which the meeting was originally called, and the resolution duly passed and carried by not less than 2/3 of the votes cast on a ballot at such adjourned meeting shall constitute the approval of the holders of the Series 1 Shares hereinbefore mentioned. Notice of any such original meeting of the holders of the Series 1 Shares shall be given not less than 21 days nor more than 50 days prior to the date fixed for such meeting and shall specify in general terms the purpose for which the meeting is called. No notice of any such adjourned meeting need be given unless such meeting is adjourned by one or more adjournments for an aggregate of 30 days or more from the date of such original meeting, in which later case notice of the adjourned meeting shall be given in a manner prescribed for the original meeting as aforesaid. The formalities to be observed with respect to the giving of notice of any such original or adjourned meeting and the conduct thereof shall be those from time to time prescribed in the constating documents of the Corporation with respect to meeting of shareholders.

2.12 Voting Rights

The holders of the Series 1 Shares shall not be entitled as such, except as required by law, to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting but shall be entitled to receive notice of meetings of shareholders of the Corporation called for the purpose of authorizing the dissolution of the Corporation or the sale of its undertaking or a substantial part thereof.

3.00 SERIES 2 PREFERENCE SHARES

The second series of the Preference Shares of the Corporation shall consist of Seven Hundred Thousand (700,000) shares designated as the "Series 2 Preference Shares" (the "Series 2 Shares"), with each such share having a redemption value of One Dollar ($1.00). In addition to the rights, conditions, restrictions and prohibitions attaching to the Preference Shares of the Corporation as a class, the Series 2 Shares shall have attached thereto the rights, conditions, restrictions and prohibitions hereinafter set forth:

3.01 Definitions

(a) In this Article 3.01, unless there is something in the subject matter or context inconsistent therewith:

(i) "Affiliate" means an "affiliated body corporate" as defined in the Canada Business Corporations Act as of the date hereof.

(ii) "Annual Limit" means an amount equal to:

(a) 300,000 Series 2 Shares on the first Retraction Date; and

(b) 100,000 Series 2 Shares on each subsequent Retraction Date.

(iii) "Board of Directors" means the board of directors of the Corporation, as such is constituted, from time to time;

(iv) "business day" means a day other than a Saturday, a Sunday or any other day that is a statutory or civic holiday in the place where the Corporation's registered office is located, and in the event that any day on which any dividend on the Series 2 Shares is payable or by which any other action is required or permitted to be taken pursuant to these provisions is not a business day, then such dividend shall be payable or such other action shall be required or permitted to be taken on the next succeeding day that is a business day;

(v) "Dividend Payment Date" means May 31, 1990, 1991, 1992, 1993 and 1994;

(vi) "Dividend Payment Period" means the period beginning on a Dividend Payment Date and ending on the day before the next subsequent Dividend Payment Date;

(vii) "Redemption Price" with respect to any Series 2 Share means the price set out in section 3.04(b) at which such share is redeemable at the option of the Corporation pursuant to Article 3.04 hereof ;

(viii) "Retraction Date" means May 31 of 1990, 1991, 1992, 1993, and 1994;

(ix) "Retraction Price" with respect to any Series 2 Share means the price set out in Section 3.03(a) at which such share is redeemable at the option of the holder thereof pursuant to Article 3.03 hereof.

3.02 Dividends

(a) (i) The holders of the Series 2 Shares shall have the right to receive, and the Corporation shall pay thereon as and when declared by the directors, fixed, cumulative, preferential, cash dividends at the rate of $0.095 per share per annum payable in annual instalments on each Dividend Payment Date. Dividends on the Series 2 Shares shall accrue from and including the date of issue thereof or from and including the last Dividend Payment Date in respect of which dividends have been paid or made available for payment, whichever is the later. Cheques of the Corporation drawn on a Canadian chartered bank and payable at par at any branch in Canada of such bank shall be issued in respect of such dividends to the holders of the Series 2 Shares entitled thereto. The mailing of such cheques shall satisfy and discharge all liability of the Corporation for such dividends to the extent of the amount represented thereby (plus any tax required to be withheld therefrom) unless such cheques are not paid on due presentation.

(ii) Any monies to be paid in cash pursuant to this Section 3.02 which is represented by a cheque which has not been presented for payment within six years after it was issued or that otherwise remains unclaimed for a period of six years from the date on which it was declared to be payable and set apart for payment shall be forfeited to the Corporation.

(b) The amount of the accrued dividend for any period which is less than a full Dividend Payment Period with respect to any Series 2 Share:

(i) which is redeemed at the option of the holder pursuant to Article 3.03 hereof;

(ii) which is redeemed at the option of the Corporation pursuant to Article 3.04 hereof; or

(iii) where assets of the Corporation are distributed to the holders of the Series 2 Shares pursuant to Article 3.06 hereof;

shall be equal to the amount (rounded to the nearest cent) calculated by multiplying $0.095 by a fraction of which the numerator is the number of days in such Dividend Payment Period that such Series 2 Share has been outstanding (including the Dividend Payment Date at the beginning of such Dividend Payment Period if such share was outstanding on that date and excluded the Dividend Payment Date at the end of such Dividend Payment Period if such share was outstanding on that date or the date on which such dividend becomes payable, as the case may be) and of which the denominator is 365 (or 366 days in the event of a leap year) and shall be payable in the event that such shares are redeemed pursuant to Articles 3.03 or 3.04 hereof, on the date of such redemption, or in the event that the assets of the Corporation are distributed to the holders of the Series 2 Shares pursuant to Article 3.06 hereof, on the date of such distribution.

3.03 Redemption at the Option of the Holder

(a) Subject to the provisions of, Section 3.03(e), Article 3.06 and the provisions of applicable law, a holder of Series 2 Shares may, at his option, require the Corporation to redeem such number of the Series 2 Shares (not to exceed the Annual Limit) owned by that holder on the Retraction Dates at a price per share of One Dollar ($1.00) plus all accrued and unpaid dividends thereon which for such purpose shall be treated as accruing from day to day up to but not including the applicable Retraction Date, the whole constituting the Retraction Price.

(b) A holder who elects to require the Corporation to redeem any Series 2 Shares of that holder shall, prior to the close of business on the business day which is 30 days prior to the applicable Retraction Date, deposit the certificate or certificates representing the Series 2 Shares which that holder requires to have redeemed with the Secretary of the Corporation at the Corporation's registered office and shall, at the time of such deposit, evidence his election by duly completing and depositing concurrently with the deposit of certificates referred to above a notice of election in the form to be provided for that purpose by the Corporation.

(c) To the extent permitted by applicable law and subject to the Annual Limit, the Corporation shall redeem on each Retraction Date the number of Series 2 Shares which have been deposited and with respect to which the holders have evidenced their election as aforesaid by paying the Retraction Price to or to the order of the holders of the Series 2 Shares redeemed. Such payment shall be made by cheque of the Corporation drawn on a Canadian chartered bank and payable at par at any branch in Canada of such bank, and the mailing of such cheque shall satisfy and discharge all liability of the Corporation for the Retraction Price to the extent of the amount represented thereby (plus any tax required to be and deducted or withheld therefrom) unless such cheque is not paid on due presentation. The Series 2 Shares in respect of which such payment is made shall be deemed to have been redeemed on the applicable Retraction Date and the holders thereof shall cease to be entitled to dividends or to exercise any of the rights of holders in respect thereof unless payment of the Retraction Price shall not be made in accordance with the foregoing provisions in which case the rights of the holders shall remain unimpaired.

(d) In addition to those rights of redemption conferred upon the holder of Series 2 Shares set out elsewhere in this Article 3.03, in the event that the Corporation:

(i) sells all or substantially all of the common shares owned in the capital of Jeffrey Elliott Communications Inc. to a person other than an Affiliate of the Corporation;

(ii) sells all or substantially all of the assets and undertaking of Jeffrey Elliott Communications Inc. to a person other than an Affiliate of the Corporation, the holder of Series 2 Shares may, at its option but subject to Section 3.03(f) hereof, require the Corporation to redeem such number of the Series 2 Shares owned by that holder on the date of such event at a price per share of One Dollar ($1.00) plus all accrued and unpaid dividends thereon which for such purpose shall be treated as accruing from day to day up to, but not including, the date of such event, the whole constituting the Retraction Price.

(e) If the redemption by the Corporation of all Series 2 Preference Shares required to be redeemed on a Retraction Date pursuant to this Article 3.03 would, in the sole discretion of the Board of Directors, be contrary to applicable law, the Corporation shall redeem only the maximum number of Series 2 Shares (rounded to the next lower multiple of 1,000 shares) which the Board of Directors determine the Corporation is then permitted to redeem. Such redemptions will be made pro rata (disregarding fractions or shares) according to the number of Series 2 Shares deposited for redemption by each such holder and the Corporation shall issue new share certificates representing the Series 2 Shares not redeemed by the Corporation. If the directors have acted in good faith in making any such determination, neither the Corporation nor the Board of Directors thereof shall have any liability in respect thereof in the event that any such determination is inaccurate.

(f) If, pursuant to Section 3.03(e), the Corporation fails to redeem on a Retraction Date all Series 2 Shares otherwise required to be redeemed by it on such date the holders of any Series 2 Shares which the Corporation has so failed to redeem may elect to leave the certificates representing such shares on deposit with the Secretary of the Corporation at the Corporation's registered office and the Corporation shall redeem in accordance with Article 3.04 but at the Retraction Price on each Dividend Payment Date thereafter the number of such Series 2 Shares so left on deposit (rounded, except for the final redemption of any number of shares less than 1,000, to the next lower multiple of 1,000 shares) which the Board of Directors determine, in their sole discretion, that the Corporation is then permitted to redeem (subject to the Annual Limit) until all such Series 2 Shares so left on deposit have been redeemed.

(g) The inability of the Corporation to effect a redemption in accordance with the provisions hereof on a Retraction Date or subsequent Dividend Payment Date shall not affect or limit the obligation of the Corporation to pay any dividends accrued or accruing on the Series 2 Shares from time to time not redeemed and remaining outstanding.

(h) If less than all the Series 2 Shares represented by any certificate shall be redeemed, a new certificate for the balance shall be issued without charge to the holder.

(i) The election of any holder to require the Corporation to redeem any Series 2 Shares shall be irrevocable upon receipt by the Secretary of the Corporation of the certificates for the shares to be redeemed, unless payment of the Retraction Price shall not be made in accordance with the provisions of Section 3.03(c), in which case the rights of the holders shall remain unimpaired.

3.04 Redemption at the Option of the Corporation

(a) Subject to the provisions of applicable law, the Corporation may, at its option, redeem at any time all or from time to time any lesser number of the Series 2 Shares then outstanding on payment of the Redemption Price provided in Section 3.04(b) hereof. If less than all of the outstanding Series 2 Shares are to be redeemed, the Series 2 Shares to be redeemed shall be selected by lot, in single shares in such manner as the Board of Directors, in their sole discretion, shall determine.

(b) The price at which any Series 2 Share is redeemable from time to time shall be One Dollar ($1.00) per Series 2 Share plus all accrued and unpaid dividends thereon which, for such purpose, shall be treated as accruing from day to day up to but not including the applicable date of redemption. Upon the redemption of any Series 2 Shares there shall be no payment or adjustment by the Corporation on account of any dividends on the Series 2 Shares so redeemed other than as provided for in Section 3.02(b) hereof.

(c) (i) Notice of redemption of Series 2 Shares shall be given by the Corporation not less than 10 days prior to the day fixed for redemption to each registered holder of Series 2 Shares to be redeemed. Accidental failure or omission to give such notice to one or more of such holders shall not affect the validity of such redemption. Such notice shall set out the Redemption Price, the date fixed for redemption, the place or places of redemption and, in the case of partial redemption, the number of the holder's shares to be redeemed.

(ii) On and after the date fixed for redemption, the Corporation shall pay or cause to be paid the Redemption Price to or to the order of the holders of the Series 2 Shares redeemed on presentation and surrender at the place or one of the places of redemption of the respective certificates representing such shares, and the holders of the Series 2 Shares called for redemption shall cease to be entitled to dividends or to exercise any of the rights of holders in respect thereof unless payment of the Redemption Price shall not be made in accordance with the foregoing provisions, in which case the rights of the holders shall remain unimpaired.

(iii) The Corporation shall have the right at any time after giving notice of redemption to deposit the Redemption Price of the Series 2 Shares thereby called for redemption, or such part thereof as at the time of deposit has not been claimed by the shareholders entitled thereto, in any Canadian chartered bank or trust company in Canada specified in the notice of redemption or in a subsequent notice to the holders of the shares in respect of which the deposit is made, in a special account for the holders of such shares, and upon such deposit being made or upon the date fixed for redemption, whichever is the later, the Series 2 Shares in respect of which such deposit shall have been made shall be deemed to be redeemed and the rights of each holder thereof shall be limited to receiving, without interest, his proportionate part of the Redemption Price so deposited upon presentation and surrender of the certificates representing his shares so redeemed. Any interest on such deposit shall belong to the Corporation.

(iv) If less than all the Series 2 Shares represented by any certificate shall be redeemed, a new certificate for the balance shall be issued without charge to the holder.

3.05 Cancellation of Series 2 Shares

Series 2 Shares purchased, redeemed or otherwise acquired by the Corporation shall be cancelled.

3.06 Dissolution

On the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or other distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs, the holders of the Series 2 Shares shall be entitled to receive in lawful money of Canada an amount equal to the Redemption Price per share.

3.07 Notices, etc.

(a) Any notice or other communication from the Corporation herein provided for shall be sufficiently given if delivered or if sent by ordinary mail, postage prepaid, personal delivery or by telecopier, or, in the case of a notice of redemption or exchange, by prepaid registered mail, personal delivery or by telecopier, to the holders of the Series 2 Shares at their respective addresses and telecopy numbers appearing on the books of the Corporation or, in the event of the address of any such holders not so appearing, then at the last address or telecopy number of such holder known to the Corporation. Accidental failure to give any such notice or other communication to one or more holders of the Series 2 Shares shall not affect the validity of the notices or other communications properly given or any action taken pursuant to such notice or other communication but, upon such failure being discovered, the notice or other communication, as the case may be, shall be sent forthwith to such holder or holders.

(b) If there exists any actual or apprehended disruption of mail services in any province in which there are holders of Series 2 Shares whose addresses appear on the books of the Corporation to be in such province, notice shall be given to the holders in such province by means of personal delivery or telecopier only.

(c) Notice given by mail, personal delivery or telecopier shall be deemed to have been received when delivered or telecopied or, if mailed, seventy-two (72) hours after 12:01 a.m. on the day following the day of mailing thereof.

3.08 Modification

The rights, conditions, restrictions and prohibitions attaching to the Series 2 Shares may not be deleted, varied, altered or amended without the prior approval of at least 66 2/3% of the votes cast at a meeting of the holders of the Series 2 Shares, in addition to any other approval or authorization required by applicable law.

3.09 Approval by Holders of Series 2 Shares

The approval of the holders of the Series 2 Shares with respect to any and all matters referred to herein or any other matter requiring the consent of such holders may, subject to applicable law, be given in writing by the holders of all of the Series 2 Shares for the time being outstanding or by resolution duly passed and carried by not less than 2/3 of the votes cast on a ballot at a meeting of the holders of the Series 2 Shares duly called and held for the purpose of considering the subject matter of such resolution and at which meeting holders of not less than 20% of the Series 2 Shares then outstanding are .present in person or represented by proxy; provided, however, that if at any such meeting, when originally held, the holders of at least 20% of the Series 2 Shares then outstanding are not present in person or represented by proxy within thirty minutes after the time fixed for the meeting, then the meeting shall be adjourned to such date, being not less than 15 days later, and at such time and place as may be fixed by the Chairman of such meeting and at such adjourned meeting the holders of the Series 2 Shares present in person or represented by proxy, whether or not they hold 20% of the Series 2 Shares then outstanding, may transact the business for which the meeting was originally called, and the resolution duly passed and carried by not less than 2/3 of the votes cast on a ballot at such adjourned meeting shall constitute the approval of the holders of the Series 2 Shares hereinbefore mentioned. Notice of any such original meeting of the holders of the Series 2 Shares shall be given not less than 21 days nor more than 50 days prior to the date fixed for such meeting and shall specify in general terms the purpose for which the meeting is called. No notice of any such adjourned meeting need be given unless such meeting is adjourned by one or more adjournments for an aggregate of 30 days or more from the date of such original meeting, in which later case notice of the adjourned meeting shall be given in a manner prescribed for the original meeting as aforesaid. The formalities to be observed with respect to the giving of notice of any such original or adjourned meeting and the conduct thereof shall be those from time to time prescribed in the constating documents of the Corporation with respect to meetings of shareholders.

3.10 Voting Rights.

The holders of the Series 2 Shares shall not be entitled as such, except as required by law, to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting but shall be entitled to receive notice of meetings of shareholders of the Corporation called for the purpose of authorizing the dissolution of the Corporation or the sale of its undertaking or a substantial part thereof.

4.00 CLASS A SUBORDINATE VOTING SHARES

4.01 The holders of the Class A Subordinate Voting Shares shall be entitled to receive notice of, to attend and speak at and to vote at, any meeting of the shareholders of the Corporation, other than a meeting of the holders of another class as such or the holders of series of shares of another class as such, and at such meeting shall have one (1) vote for each Class A Subordinate Voting Share held.

4.02 Subject to any provisions of the Act and to applicable securities laws and the by-laws, regulations or policies of any stock exchange upon which the Class A Subordinate Voting Shares may then be listed, all or any part of the Class A Subordinate Voting Shares which are then outstanding shall be purchaseable for cancellation by the Corporation at any time, in the open market, by private contract or otherwise, at the lowest price at which, in the opinion of the directors, such shares are obtainable.

4.03 The Class A Subordinate Voting Shares shall not be redeemable by the Corporation.

4.04 If the Act would in effect require in the absence of this clause 4.04 that an amendment to the Articles of the Corporation to delete or vary any preference, right, condition, restriction, limitation or prohibition attaching to any of the Class A Subordinate Voting Shares, or to create special shares ranking in priority to or on a parity with the Class A Subordinate Voting Shares, be confirmed in writing by the holders of 100% or any lesser percentage of the then outstanding Class A Subordinate Voting Shares, then in lieu of such confirmation in writing such confirmation may be given by at least two-thirds of the votes cast at a meeting of the holders of the Class A Subordinate Voting Shares duly called for that purpose, and at such meeting each holder of Class A Subordinate Voting Shares shall be entitled to one vote for each Class A Subordinate Voting Share held.

4.05 The holders of the Class A Subordinate Voting Shares shall not have any right to vote separately upon any proposal to amend the Articles of the Corporation to:

(a) increase any maximum number of authorized shares of and class or series having rights or privileges equal or superior to the Class A Subordinate Voting Shares; or

(b) create a new class of shares equal or superior to the Class A Subordinate Voting Shares; except to such extent as may from time to time be required by the Act.

4.06 (a) For the purposes of this clause 4.06:

(i) "affiliate" has the meaning assigned by the Securities Act (Ontario) as amended from time to time;

(ii) "associate" has the meaning assigned by the Securities Act (Ontario) as amended from time to time;

(iii) "Conversion Period" means the period of time commencing on the eighth day after the Offer Date and terminating on the Expiry Date;

(iv) "Converted Shares" means Class B Shares resulting from the conversion of Class A Subordinate Voting Shares into Class B Shares pursuant to paragraph (2) of this clause 4.06;

(v) "Exclusionary Offer" means an offer to purchase Class B Shares that:

(a) must, by reason of applicable securities legislation or the requirements of a stock exchange on which the Class B Shares are listed, be made to all or substantially all holders of Class B Shares who are in a province of Canada to which the requirement applies; and

(b) is not made concurrently with an offer to purchase Class A Subordinate Voting Shares that is identical to the offer to purchase Class B Shares in terms of price per share and percentage of outstanding shares to be taken up exclusive of shares owned immediately prior to the offer by the Offeror, and in all other material respects, and that has no condition attached other than the right not to take up and pay for shares tendered if no shares are tendered pursuant to the offer for Class B Shares, and for the purposes of this definition, if an offer to purchase Class B Shares is not an Exclusionary Offer as defined above but would be an Exclusionary Offer if it were not for sub-clause (b), the varying of any term of such offer shall be deemed to constitute the making of a new offer unless an identical variation concurrently is made to the corresponding offer to purchase Class A Subordinate Voting Shares;

(vi) "Expiry Date" means the last date upon which holders of Class B Shares may accept an Exclusionary Offer;

(vii) "Offer Date" means the date on which an Exclusionary Offer is made;

(viii) "Offeror" means a person or company that makes an offer to purchase Class B Shares (the "bidder"), and includes any associate or affiliate of the bidder or any person or company that is disclosed in the offering document to be acting jointly or in concert with the bidder; and

(ix) "transfer agent" means the transfer agent for the time being of the Class B Shares.

(b) Subject to subparagraph (e) of this clause 4.06, if an Exclusionary Offer is made, each outstanding Class A Subordinate Voting Share shall be convertible into one Class B Share at the option of the holder during the Conversion Period. The conversion right may be exercised by notice in writing given to the transfer agent accompanied by the share certificate or certificates representing the Class A Subordinate Voting Shares which the holder desires to convert, and such notice shall be executed by such holder, or by his attorney duly authorized in writing, and shall specify the number of Class A Subordinate Voting Shares which the holder desires to have converted. The holder shall pay any governmental or other tax imposed on or in respect of such conversion. Upon receipt by the transfer agent of such notice and share certificate or certificates, the Corporation shall issue a share certificate representing fully paid Class B Shares as above prescribed and in accordance with paragraph (d) of this clause 4.06. If less than all of the Class A Subordinate Voting Shares represented by any share certificate are to be converted, the holder shall be entitled to receive a new share certificate representing in the aggregate the number of Class A Subordinate Voting Shares represented by the original share certificate which are not to be converted.

(c) An election by a holder of Class A Subordinate Voting Shares to exercise the conversion right provided for in paragraph (b) of this clause 4.06 shall be deemed to also constitute an irrevocable election by such holder to deposit the Converted Shares pursuant to the Exclusionary Offer (subject to such holder's right to subsequently withdraw the shares from the offer) and to exercise the right to convert into Class A Subordinate Voting Shares all Converted Shares in respect of which such holder exercises his right of withdrawal from the Exclusionary Offer or which are not otherwise ultimately taken up under the Exclusionary Offer. Any conversion into Class A Subordinate Voting Shares, pursuant to such deemed election, of Converted Shares in respect of which the holder exercises his right of withdrawal from the Exclusionary Offer shall become effective at the time such right of withdrawal is exercised. If the right of withdrawal is not exercised, any conversion into Class A Subordinate Voting Shares pursuant to such deemed election shall become effective,

(i) in respect of an Exclusionary Offer which is completed, immediately following the time by which the Offeror is required by applicable securities legislation to take up and pay for all shares to be acquired by the Offeror under the Exclusionary Offer; and

(ii) in respect of an Exclusionary Offer which is abandoned or withdrawn, at the time at which the Exclusionary Offer is abandoned or withdrawn.

(d) No share certificates representing Converted Shares shall be delivered to the holders of the shares before such shares are deposited pursuant to the Exclusionary Offer; the transfer agent, on behalf of the holders of the Converted Shares, shall deposit pursuant to the Exclusionary Offer a certificate or certificates representing the Converted Shares. Upon completion of the offer, the transfer agent shall deliver to the holders entitled thereto all consideration paid by the Offeror pursuant to the offer. If Converted Shares are converted into Class A Subordinate Voting Shares pursuant to paragraph (c) of this clause 4.06, the transfer agent shall deliver to the holders entitled thereto share certificates representing the Class A Subordinate Voting Shares resulting from the conversion. The Corporation shall make all arrangements with the transfer agent necessary or desirable to give effect to this subparagraph.

(e) Subject to paragraph (f) of this clause 4.06, the conversion right provided for in sub-paragraph (b) of this clause 4.06 shall not come into effect if:

(i) prior to the time at which the Exclusionary Offer is made there is delivered to the transfer agent and to the Secretary of the Corporation a certificate or certificates signed by or on behalf of one or more shareholders of the Corporation owning in the aggregate, as at the time the Exclusionary Offer is made, more than 50% of the then outstanding Class B Shares, exclusive of shares owned immediately prior to the Exclusionary Offer by the Offeror, which certificate or certificates shall confirm, in the case of each such shareholder, that such shareholder shall not:

(a) accept any Exclusionary Offer without giving the transfer agent and the Secretary of the Corporation written notice of such acceptance or intended acceptance at least seven days prior to the Expiry Date;

(b) make any Exclusionary Offer;

(d) transfer any Class B Shares, directly or indirectly, during the time at which any Exclusionary Offer is outstanding without giving the transfer agent and the Secretary of the Corporation written notice of such transfer or intended transfer at least seven days prior to the Expiry Date, which notice shall state, if known to the transferor, the names of the transferees and the number of Class B Shares transferred or to be transferred to each transferee; or

(ii) within seven days after the Offer Date there is delivered to the transfer agent and to the Secretary of the Corporation a certificate or certificates signed by or on behalf of one or more shareholders of the Corporation owning in the aggregate more than 50% of the then outstanding Class B Shares, exclusive of shares owned immediately prior to the Exclusionary Offer by the Offeror, which certificate or certificates shall confirm, in the case of each such shareholder:

(a) the number of Class B Shares owned by the shareholder;

(b) that such shareholder is not making the offer and is not an associate or affiliate of, or acting jointly or in concert with, the person or company making the offer;

(c) that such shareholder shall not accept the offer, including any varied form of the offer, without giving the transfer agent and the Secretary of the Corporation written notice of such acceptance or intended acceptance at least seven days prior to the Expiry Date; and

(d) that such shareholder shall not transfer any Class B Shares, directly or indirectly, prior to the Expiry Date without giving the transfer agent and the Secretary of the Corporation written notice of such transfer or intended transfer at least seven days prior to the Expiry Date, which notice shall state, if known to the transferor, the names of the transferees and the number of Class B Shares transferred or to be transferred to each transferee if this information is known to the transferor.

(f) If a notice referred to in sub-clause e (i)(a), e (i)(d), (e)(ii)(c) or e (ii)(d) of this clause 4.06 is given and the conversion right provided for in paragraph (b) of this clause 4.06 has not come into effect, the transfer agent shall either forthwith upon receipt of the notice or forthwith after the seventh day following the Offer Date, whichever is later, make a determination as to whether there are subsisting certifications that comply with either sub-clause e (i) or e (ii) of this clause 4.06 from shareholders of the Corporation who own in the aggregate more than 50% of the then outstanding Class B Shares, exclusive of shares owned immediately prior to the offer by the Offeror. For the purposes of this determination the transaction that is the subject of such notice shall be deemed to have taken place at the time of the determination, and the shares that are the subject of such notice shall be deemed to have been transferred to a person or company from whom the transfer agent had not received such a certification unless the transfer agent is otherwise advised either by such notice or by the transferee in writing. If the transfer agent determines that there are not such subsisting certifications, paragraph (e) of this clause 4.06 shall cease to apply and the conversion right provided for in paragraph (b) of this clause 4.06 shall be in effect for the remainder of the Conversion Period.

(g) As soon as reasonably possible after the seventh, day after the Offer Date, the Corporation shall send to each holder of Class A Subordinate Voting Shares a notice advising the holders as to whether they are entitled to convert their Class A Subordinate Voting Shares into Class B Shares and the reasons therefor. If such notice disclosed that they are not so entitled but if subsequently determined that they are so entitled by virtue of paragraph (f) of this clause 4.06 or otherwise, the Corporation shall forthwith send another notice to them advising them of that fact and the reasons therefor.

(h) If a notice referred to in paragraph (g) of this clause 4.06 discloses that the conversion right has come into effect, the notice shall:

(i) include a description of the procedure to be followed to effect the conversion and to have the Converted Shares tendered under the offer;

(ii) include the information set out in paragraph (c) of this clause 4.06; and

(iii) be accompanied by a copy of the offer and all other material sent to holders of Class B Shares in respect of the offer, and as soon as reasonably possible after any additional material, including a notice of variation, is sent to the holders of Class B Shares in respect of the offer, the Corporation shall send a copy of such additional material to each holder of Class A Subordinate Voting Shares.

(i) Prior to or forthwith after sending any notice referred to in paragraph (g) of this clause 4.06, the Corporation shall cause a press release to be issued to a Canadian national news ticker service, describing the contents of the notice.

5.00 CLASS B SHARES

5.01 The holders of the Class B Shares shall be entitled to receive notice of, and to attend and speak at and vote at, any meeting of the shareholders of the Corporation, other than a meeting of the holders of shares of another class as such or of the holders of a series of shares of another class as such, and at such meeting shall have twenty (20) votes for each Class B Share held.

5.02 Subject to any provisions of the Act and to applicable securities laws and the by-laws, regulations or policies of the stock exchange upon which the Class B Shares may then be listed, all or any part of the Class B Shares which are then outstanding shall be purchaseable for cancellation by the Corporation at any time, in the open market, by private contract or otherwise, at the lowest price at which, in the opinion of the directors, such shares are obtainable.

5.03 The Class B Shares shall not be redeemable by the Corporation.

5.04 If the Act would in effect require in the absence of this clause 5.04 that an amendment to the Articles of the Corporation to delete or vary any preference, right, condition, restriction, limitation or prohibition attaching to any of the Class B Shares, or to create special shares ranking in priority to or on a parity with the Class B Shares, be confirmed in writing by the holders of 100% or any lesser percentage of the then outstanding Class B Shares, then in lieu of such confirmation in writing such confirmation may be given by at least two-thirds of the votes cast at a meeting of the holders of the Class B Shares duly called for that purpose, and at such meeting each holder of Class B Shares shall be entitled to one vote for each Class B Share held.

5.05 The holders of the Class B Shares shall not have any right to vote separately upon any proposal to amend the Articles of the Corporation to:

(a) increase any maximum number of authorized shares of a class or series having rights or privileges equal or superior to the Class B Shares; or

(b) create a new class of shares equal or superior to the Class B Shares;

except to such extent as may from time to time be required by the Act.

5.06 Each Class B Share shall be convertible at any time, at the option of the holder thereof, into a Class A Subordinate Voting Share, on the basis of one Class A Subordinate Voting Share for each Class B Share so converted. The holder of Class B Shares desiring to convert such Class B Shares into Class A Subordinate Voting Shares on the basis aforesaid shall deliver to the transfer agent for the time being of the Class A Subordinate Voting Shares the share certificate or share certificates representing the Class B Shares which the holder desires to so convert accompanied by a written notice duly executed by such holder or his attorney duly authorized in writing, which notice shall state that such holder elects to convert the Class B Shares represented by such share certificate or share certificates into Class A Subordinate Voting Shares in accordance with the provisions hereof and which notice shall further state the name or names (with addresses) in which the share certificate or certificates for Class A Subordinate Voting Shares issuable on such conversion shall be issued, and if any of the Class A Subordinate Voting Shares into which such Class B Shares are to be converted are to be issued to a person or persons other than the holder of such Class B Shares, there shall be paid to such transfer agent, for the account of the Corporation, any transfer taxes which may properly be payable. If any share certificate or share certificates representing any of the Class A Subordinate Voting Shares issuable on conversion are directed to be issued to any person other than the holder of such Class B Shares, the signature of such holder shall be guaranteed by a Canadian chartered bank or such other financial institution as such transfer agent may require. Such holder shall, in addition, comply with such other reasonable requirements as such transfer agent may prescribe. As promptly as practicable after the receipt of such notice of election to convert, the payment of such transfer tax (if any), the delivery of such share certificate or share certificates and compliance with all reasonable requirements of the transfer agent as aforesaid, the Corporation shall cause the transfer agent for the Class A Subordinate Voting Shares to issue and deliver in accordance with such notice of election to convert a share certificate or share certificates representing the number of Class A Subordinate Voting Shares into which such Class B Shares have been converted in accordance with the provisions of this clause 5.06. Such conversion shall be deemed to have been made immediately prior to the close of business on the date on which all conditions precedent to the conversion of such Class B Shares have been fulfilled and the person or persons in whose name or names any share certificate or share certificates for Class A Subordinate Voting Shares shall be issuable shall be deemed to have become on the said date the holder or holders of record of the Class B Shares represented thereby; provided, however, that if the transfer books of the Corporation for Class B Shares shall be closed on the said date, the Corporation shall not be required to issue Class A Subordinate Voting Shares upon such conversion until the date on which such transfer books shall be re-opened and such person or persons shall not be deemed to have become the holder or holders of record of such Class A Subordinate Voting Shares until the said date on which such transfer books shall be re-opened. There shall be no payment or adjustment on account of any unpaid dividends on the Class B Shares converted or on account of any dividends on the Class A Subordinate Voting Shares resulting from such conversion. In the event that part only of the Class B Shares represented by any share certificate shall be converted, a share certificate for the remainder of the Class B Shares represented by the said share certificate shall be delivered to the holder converting without charge.

6.00 DIVIDENDS AND DISTRIBUTION RIGHTS OF THE CLASS A SUBORDINATE VOTING SHARES AND CLASS B SHARES

6.01 (a) All dividends which are declared in any year in the discretion of the directors on all of the Class A Subordinate Voting Shares shall be declared and paid at the same time in an equal or, in the discretion of the directors, a greater amount per share than those dividends declared in respect of all of the Class B Shares at the time outstanding. All dividends which are declared in any year, in the discretion of the directors, on all of the Class B Shares shall be declared and paid at the same time in an equal or, in the discretion of the directors, a lesser amount per share than those declared in respect of all of the Class A Subordinate Voting Shares outstanding.

(b) If any stock dividend is declared on Class A Subordinate Voting Shares, such dividend may be paid in Class A Subordinate Voting Shares or in Class B Shares, or partly in one class and partly in the other, if stock dividends in equal or, in the discretion of the directors, lesser amounts per share are declared at the same time on the Class B Shares and are payable in either Class A Subordinate Voting Shares or in Class B Shares, or partly in one class and partly in the other, regardless of which class the stock dividend was paid on Class A Subordinate Voting Shares. If any stock dividend is declared on Class B Shares, such dividend may be paid in Class A Subordinate Voting Shares or in Class B Shares, or partly in one class and partly in the other, if stock dividends in equal or, in the discretion of the directors, greater amounts per share are paid at the same time on the Class A Subordinate Voting Shares and are payable in either Class A Subordinate Voting Shares or in Class B Shares, or partly in one class and partly in the other, regardless of which class the stock dividend was paid on Class B Shares.

(c) All distributions other than dividends (including, without limiting the generality of the foregoing, any distribution of rights, warrants or options to purchase securities of the Corporation), and all such distributions which may at any time or from time to time be authorized or made:

(i) in respect of the Class A Subordinate Voting Shares, shall be authorized and made at the same time in equal, or in the discretion of the directors, greater quantities or amounts per share than on all Class B Shares then outstanding without preference or distinction; and

(ii) in respect of the Class B Shares, shall be authorized and made at the same time in equal or in the discretion of the directors, lesser quantities or amounts per share than on all Class A Subordinate Voting Shares then outstanding without preference or distinction.

7.00 SUBDIVISIONS, CONSOLIDATIONS, RECLASSIFICATIONS WINDING UP AND LIQUIDATION, ETC.

7.01 No subdivision, consolidation, reclassification or other change of the Class A Subordinate Voting Shares or the Class B Shares shall be made unless at the time an equivalent or comparable subdivision, consolidation, reclassification or change is made with respect to all of the Class A Subordinate Voting Shares and Class B Shares which are then outstanding.

7.02 In any case where a fraction of a Class A Subordinate Voting Share or a Class B Share would otherwise be issuable on a subdivision, consolidation, reclassification or change of one or more Class A Subordinate Voting Shares or Class B Shares, the Corporation shall in lieu thereof adjust such fractional interest by the payment by cheque (to the nearest cent) of an amount related or equivalent to the then current market value of such fractional interest computed on the basis of the last board lot sale price (or the last bid price, if there has been no board lot sale) for the Class A Subordinate Voting Shares on The Toronto Stock Exchange (or if the Class A Subordinate Voting Shares are not listed on The Toronto Stock Exchange, on such stock exchange in Canada on which the Class A Subordinate Voting Shares are listed or traded as may be selected for such purpose by the directors of the Corporation) on the business day on which such stock exchange was open next preceding the date of such subdivision, consolidation, reclassification or change.

7.03 In the event of the liquidation, dissolution or winding up of the Corporation or other distribution of the assets of the Corporation amongst its shareholders for the purposes of winding up its affairs, all of the property and assets of the Corporation available for distribution to the shareholders of the Corporation shall, after providing for preferential payment of the amounts required to be paid under and in respect of any Preference Shares or series thereof ranking in priority, shall be paid or distributed in equal amounts per share on all Class A Subordinate Voting Shares and Class B Shares at the time outstanding without preference or distinction and the holders thereof shall as such participate on a share for share basis equally therein.

8.00 PROVISIONS RELATING TO CLASS A SUBORDINATE VOTING SHARES AND CLASS B SHARES

8.01 The articles of the Corporation hereby provide that, for the purposes of the take-over bid and issuer bid provisions of the Securities Act (Ontario) and the regulations thereunder), both as amended from time to time,

(a) the Class A Subordinate Voting Shares and Class B Shares shall be treated as and are hereby deemed to constitute, one class of voting securities, and

(b) the published market for such one class of voting securities shall be deemed to be the published market of the Class A Subordinate Voting Shares. For greater certainty, the provisions of this Section 8.01 shall have no application in the event of a purchase of Class B Shares at a price per share not in excess of the aggregate of (i) the "market price" per share (at the time of such purchase) determined in accordance with the provisions of the Securities Act (Ontario) (and the regulations thereunder) (both as amended or replaced from time to time) plus (ii) reasonable brokerage fees or other commissions calculated on a per share basis. For greater certainty, "market price" as at the date of these articles is defined in Section 163(3) of the Regulation to the Securities Act (Ontario).

8.02 In any case where a fraction of a Class A Subordinate voting Share or a Class B Share would otherwise be issuable on consolidation, subdivision and change of one or more common shares, the Corporation shall in lieu thereof adjust such fractional interest by the payment by cheque (to the nearest cent) of any amount equivalent to the value of such fractional interest computed on the basis of $0.025 per common share.

PROVISIONS ATTACHING TO THE

SERIES 3 PREFERENCE SHARES

CYBERSIGHT- MDC EXCHANGEABLE PREFERENCE SHARES

The third series of Preference Shares of the Corporation shall consist of an unlimited number of Series 3 Preference Shares designated as the "Cybersight-MDC Exchangeable Preference Shares" (the "Exchangeable Shares"). The Exchangeable Shares shall have the following rights, privileges, restrictions and conditions:

1. INTERPRETATION

1.1 For the purposes of these share provisions:

"Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") as applied to any Person, means the possession by another Person, directly or indirectly, of the power to direct or cause the direction of the management and policies of that first mentioned Person whether through the ownership of voting securities, by contract or otherwise.

"Board of Directors" means the board of directors of the Corporation.

"Business Day" means any day on which commercial banks are open for business in New York, New York and Toronto, Ontario other than a Saturday, a Sunday or a day observed as a holiday in Toronto, Ontario under the laws of the Province of Ontario or the federal laws of Canada or in New York, New York under the laws of the State of New York or the federal laws of the United States of America.

"CAC" means CyberSight Acquisition Co., Inc., a corporation existing under the laws of the State of Delaware, and any successor corporation thereto.

"CAC Dividend Declaration Date" means the date on which the board of directors of CAC declares any dividend on the CAC Shares.

"CAC Shares" mean the shares of common stock, par value U.S. $0.01 per share, in the capital of CAC, and any other securities into which such shares may be changed, including shares into which CAC Shares may be changed consequent upon an amalgamation, merger, reorganization or other transaction affecting the CAC Shares and "CAC Share" means any of the CAC Shares.

"Canadian Dollar Equivalent" means in respect of an amount expressed in a foreign currency (the "Foreign Currency Amount") at any date the product obtained by multiplying:

(a) the Foreign Currency Amount by,

(b) the noon spot exchange rate on such date for such foreign currency expressed in Canadian dollars as reported by the Bank of Canada or, in the event such spot exchange rate is not available, such spot exchange rate on such date to such foreign currency expressed in Canadian dollars as may be deemed by the Board of Directors to be appropriate for such purpose.

"Common Shares" means, collectively, the Class A Subordinate Voting Shares and the Class B Multiple Voting Shares in the capital of the Corporation.

"Corporation" means MDC Partners Inc., a corporation governed by the Canada Business Corporations Act.

"Current Market Price" means, in respect of a CAC Share on any date, the Canadian Dollar Equivalent of the average of the closing bid and ask prices of CAC Shares during a period of 20 consecutive trading days ending not more than three trading days before such date on the principal stock exchange or automated quotation system in Canada or the United States on which the CAC Shares are then listed, or, if the CAC Shares are not then listed on any stock exchange or automated quotation system, then the Current Market Price of a CAC Share shall be determined by a qualified third party independent valuator as selected by the Board of Directors in its sole discretion provided that any such selection, opinion or determination by the Board of Directors shall be conclusive and binding.

"Exchange Date" means the date on which a holder of Exchangeable Shares exchanges his or her Exchangeable Shares for CAC Shares in accordance with the requirements of Article 6 of these share provisions.

"Exchange Notice" has the meaning ascribed thereto in section 6.1 of these share provisions.

"Exchange Right" has the meaning ascribed thereto in section 6.1 of these share provisions.

"Exchangeable Shares" mean the Series 3 non-voting exchangeable preference shares in the capital of the Corporation designated as the "CyberSight-MDC Exchangeable Preference Shares" having the rights, privileges, restrictions and conditions set forth herein.

"Liquidation Amount" has the meaning ascribed thereto in section 5.1 of these share provisions.

"Liquidation Date" has the meaning ascribed thereto in section 5.1 of these share provisions.

"Person" includes any individual, firm, partnership, joint venture, venture capital fund, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporation, unincorporated association or organization, government body, syndicate or other entity, whether or not having legal status.

"Preference Shares" means the issued and outstanding preference shares in the capital of the Corporation.

"Support Agreement" means that certain Exchangeable Share support and voting trust agreement between the Corporation, CAC and Griffiths McBurney & Partners to be entered into in connection with a private placement of the Exchangeable Shares in Canada.

"Transfer Agent" means CIBC Mellon Trust Company or such other Person as may from time to time be appointed by the Corporation as the registrar and transfer agent for the Exchangeable Shares.

2. RANKING OF EXCHANGEABLE SHARES

2.1 Other than the rights specifically provided for in Article 3 and Article 5 of these share provisions and as required under applicable law, the Exchangeable Shares shall have no rights to receive any payment of dividends which may be declared payable by the Corporation from time to time or to participate in the distribution of assets of the Corporation in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of Corporation, among its shareholders for the purpose of winding up its affairs.

3. DIVIDENDS

3.1 Subject to section 3.2 below, a holder of an Exchangeable Share shall be entitled to receive and the Board of Directors shall, subject to applicable law, on each CAC Dividend Declaration Date, declare a dividend on each Exchangeable Share:

(a) in the case of a cash dividend declared on the CAC Shares, in an amount in cash for each Exchangeable Share in U.S. dollars, or the Canadian Dollar Equivalent thereof on the CAC Dividend Declaration Date, in each case, equal to the cash dividend declared on each CAC Share;

(b) in the case of a stock dividend declared on the CAC Shares to be paid in CAC Shares, in such number of Exchangeable Shares for each Exchangeable Share as is equal to the number of CAC Shares to be issued as a dividend on each CAC Share: or

(c) in the case of a dividend declared on the CAC Shares in property other than cash or CAC Shares, in such type and amount of property for each Exchangeable Share as is the same as or economically equivalent to (to be determined by the Board of Directors as contemplated by section 3.5 hereof) the type and amount of property declared as a dividend on each CAC Share.

Such dividends shall be paid out of money, assets or property of the Corporation properly applicable to the payment of dividends, or out of authorized but unissued shares of the Corporation, as applicable.

3.2 In the case of a stock dividend declared on the CAC Shares to be paid in CAC Shares, in lieu of declaring the stock dividend contemplated by section 3.1(b) on the Exchangeable Shares, the Board of Directors may, in its discretion and subject to applicable law, subdivide, redivide or change (the "subdivision") each issued and unissued Exchangeable Share on the basis that each Exchangeable Share before the subdivision becomes a number of Exchangeable Shares as is equal to the sum of (i) one (1) CAC Share and (ii) the number of CAC Shares to be paid as a stock dividend on each CAC Share. In such instance, and notwithstanding any other provision hereof, such subdivision shall become effective on the effective date specified in section 3.4 hereof without any further act or formality on the part of the Board of Directors or of the holders of Exchangeable Shares. For greater certainty, no approval of the holders of Exchangeable Shares to an amendment to the articles of the Corporation shall be required to give effect to such subdivision.

3.3 Cheques of the Corporation payable at par at any branch of the bankers of the Corporation shall be issued in respect of any cash dividends contemplated by section 3.1 (a) hereof and the sending of such a cheque to each holder of an Exchangeable Share shall satisfy the cash dividend represented thereby unless the cheque is not paid on presentation. Subject to applicable law, certificates registered in the name of the registered holder of Exchangeable Shares shall be issued or transferred in respect of any stock dividends contemplated by section 3.1(b) hereof or any subdivision of shares contemplated by section 3.2 hereof and the sending of such a certificate to each holder of an Exchangeable Share shall satisfy the stock dividend or share subdivision represented thereby. Such other type and amount of property in respect of any dividends contemplated by section 3.1(c) hereof shall be issued, distributed or transferred by the Corporation in such manner as it shall determine and the issuance, distribution or transfer thereof by the Corporation to each holder of an Exchangeable Share shall satisfy the dividend represented thereby. No holder of an Exchangeable Share shall be entitled to recover by action or other legal process against the Corporation any dividend that is represented by a cheque that has not been duly presented to the Corporation's bankers for payment or that otherwise remains unclaimed for a period of six years from the date on which such dividend was payable.

3.4 The record date for the determination of the holders of Exchangeable Shares entitled to receive payment of, and the payment date for, any dividend declared on the Exchangeable Shares under section 3.1 hereof shall be the same dates as the record date and payment date, respectively, for the corresponding dividend declared on the CAC Shares. The record date for the determination of the holders of Exchangeable Shares entitled to receive Exchangeable Shares in connection with any subdivision of Exchangeable Shares under section 3.2 hereof and the effective date of such subdivision shall be the same dates as the record date and payment date, respectively, for the corresponding stock dividend declared on CAC Shares.

3.5 The Board of Directors shall determine, in good faith, the economic equivalent for the purposes of the share provisions, and each such determination shall be conclusive and binding on the Corporation and its shareholders. In making each such determination, the following factors shall, without excluding other factors determined by the Board of Directors to be relevant, be considered by the Board of Directors:

(a) in the case of any stock dividend or other distribution payable in CAC Shares, the number of such shares issued in proportion to the number of CAC Shares previously outstanding;

(b) in the case of the issuance or distribution of any rights, options or warrants to subscribe for or purchase CAC Shares (or securities exchangeable for or convertible into or carrying rights to acquire CAC Shares), the relationship between the exercise price of each such right, option or warrant and the Current Market Price of a CAC Share;

(c) in the case of the issuance or distribution of any other form of property (including without limitation any shares or securities of CAC of any class other than CAC Shares, any rights, options or warrants other than those referred to in section 3.5(b) above, any evidences of indebtedness of CAC or any assets of CAC), the relationship between the fair market value (as determined by the Board of Directors) of such property to be issued or distributed with respect to each outstanding CAC Share and the Current Market Price of a CAC Share; and

(d) in all such cases, the general taxation consequences of the relevant event to holders of Exchangeable Shares to the extent that such consequences may differ from the taxation consequences to holders of CAC Shares as a result of differences between taxation laws of Canada and the United States (except for any differing consequences arising as a result of differing marginal taxation rates and without regard to the individual circumstances of holders of Exchangeable Shares).

4. CERTAIN RESTRICTIONS

4.1 Subject to Section 4.2 below, so long as any of the Exchangeable Shares are outstanding, the Corporation shall not at any time without the approval of the holders of the Exchangeable Shares given as specified in section 10.2 of these share provisions:

(a) pay any dividends on the Common Shares or any other shares ranking junior to the Exchangeable Shares, other than stock dividends payable in Common Shares or any such other shares ranking junior to the Exchangeable Shares, as the case may be;

(b) redeem or purchase or make any capital distribution in respect of the Common Shares or any other shares ranking junior to the Exchangeable Shares;

(c) issue any Exchangeable Shares other than (i) pursuant to any shareholder rights plan adopted by the Corporation, (ii) by way of stock dividend to the holders of such Exchangeable Shares contemplated by section 3 hereof, or (iii) by way of any subdivision of Exchangeable Shares; or

(d) issue any shares of the Corporation ranking superior to the Exchangeable Shares other than by way of stock dividends to the holders of such Exchangeable Shares.

4.2 The restrictions in subparagraphs 4.1(a) to 4.1(c) above shall not apply if all declared dividends on the outstanding Exchangeable Shares have been paid.

5. DISTRIBUTION ON LIQUIDATION

5.1 In the event of the liquidation, dissolution or winding-up of the Corporation or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs, each Exchangeable Share, subject to applicable law, shall be automatically exchanged with CAC on the effective date (the "Liquidation Date") of such liquidation, dissolution or winding-up, but before any distribution of any part of the assets of the Corporation among the holders of the Common Shares or any other shares ranking junior to the Exchangeable Shares, for one CAC Share, together with any declared and unpaid dividends on each such Exchangeable Share held by such holder on any dividend record date which occurred prior to the Liquidation Date (the "Liquidation Amount").

5.2 On or promptly after the Liquidation Date, the Corporation shall cause CAC to deliver to the holders of the Exchangeable Shares the Liquidation Amount for each such Exchangeable Share upon presentation and surrender of the certificates representing such Exchangeable Shares, together with such other documents and instruments as may be required to effect a transfer and cancellation of Exchangeable Shares under the Canada Business Corporations Act and the by-laws of the Corporation and such additional documents and instruments as the Transfer Agent, CAC or the Corporation may reasonably require, at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation by notice to the holders of the Exchangeable Shares.

5.3 Payment of the total Liquidation Amount for such Exchangeable Shares shall be made by delivery to each holder, at the address of the holder recorded in the securities register of the Corporation for the Exchangeable Shares or by holding for pick-up by the holder at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation by notice to the holders of Exchangeable Shares, on behalf of the Corporation of certificates representing CAC Shares (which shares shall be duly issued as fully paid and non-assessable and shall be free and clear of any lien, claim or encumbrance) and a cheque of the Corporation payable at par at any branch of the bankers of the Corporation in respect of the remaining portion, if any, of the total Liquidation Amount (in each case less any amounts withheld on account of tax required to be deducted and withheld therefrom) (without interest).

5.4 On and after the Liquidation Date, the holders of the Exchangeable Shares shall cease to be holders of such Exchangeable Shares and shall not be entitled to exercise any of the rights of holders in respect thereof, other than the right to receive their proportionate part of the total Liquidation Amount, unless payment of the total Liquidation Amount for such Exchangeable Shares shall not be made upon presentation and surrender of share certificates in accordance with the foregoing provisions, in which case the rights of the holders shall remain unaffected until the total Liquidation Amount has been paid in the manner hereinbefore provided.

5.5 The Corporation shall have the right at any time after the Liquidation Date to deposit or cause to be deposited the total Liquidation Amount in respect of the Exchangeable Shares represented by certificates that have not at the Liquidation Date been surrendered by the holders thereof in a custodial account with any chartered bank or trust company in Canada. Upon such deposit being made, the rights of the holders of Exchangeable Shares after such deposit shall be limited to receiving their proportionate part of the total Liquidation Amount (in each case less any amounts withheld on account of tax required to be deducted and withheld therefrom) (without interest) for such Exchangeable Shares so deposited, against presentation and surrender of the said certificates held by them, respectively, in accordance with the foregoing provisions. Upon such payment or deposit of the total Liquidation Amount, the holders of the Exchangeable Shares shall thereafter be considered and deemed for all purposes to be holders of the CAC Shares delivered to them or the custodian on their behalf.

5.6 After the Corporation has satisfied its obligations to pay or cause to be paid to the holders of the Exchangeable Shares the Liquidation Amount per Exchangeable Share pursuant to section 5.1 of these share provisions, such holders shall not be entitled to share in any further distribution of the assets of the Corporation.

6. EXCHANGE RIGHTS

6.1 A holder of Exchangeable Shares shall be entitled at any time and otherwise upon compliance with the provisions of this Article 6 (the "Exchange Right"), to exchange all or any portion of the Exchangeable Shares registered in the name of such holder for: (i) one CAC Share for each Exchangeable Share presented and surrendered by the holder; together with (ii) the full amount of all declared and unpaid dividends on any such Exchangeable Share in respect of any dividend record date which occurred prior to the Exchange Date, which dividends shall be paid by the Corporation. To exercise its Exchange Right, a holder of Exchangeable Shares shall present and surrender at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation by notice to the holders of Exchangeable Shares the certificate or certificates representing the Exchangeable Shares which the holder desires to exchange for CAC Shares, together with such other documents and instruments as may be required to effect a transfer of Exchangeable Shares under the respective by-laws of the Corporation and CAC and the provisions of applicable laws and such additional documents and instruments as the Transfer Agent, CAC or the Corporation may reasonably require, together with a duly executed statement (the "Exchange Notice") in the form of Schedule "A" hereto or in such other form as may be acceptable to the Corporation:

(a) specifying that the holder desires to exchange all or any number of the Exchangeable Shares specified therein represented by such certificate or certificates (the "Exchanged Shares"); and

(b) stating the date on which the holder desires that the Exchange Date occur, provided that such date shall be not less than 10 Business Days nor more than 15 Business Days after the date on which the Exchange Notice is received by the Corporation and further provided that, in the event that no such Business Day is specified by the holder in the Exchange Notice, the Exchange Date shall be deemed to be the 15th Business Day after the date on which the Exchange Notice is received by the Corporation.

6.2 Upon receipt by the Corporation or the Transfer Agent in the manner specified in section 6.1 hereof of a certificate or certificates representing the number of Exchangeable Shares which the holder desires to exchange, together with an Exchange Notice and provided that the Exchange Notice is not revoked by the holder in the manner specified in section 6.6, the Corporation shall cause CAC to issue and deliver to the holder the CAC Shares issuable in exchange for the Exchanged Shares effective at the close of business on the Exchange Date, provided that all declared and unpaid dividends for which the record date has occurred prior to the Exchange Date shall be paid by the Corporation to the holder on the scheduled payment date for such dividends. If only a part of the Exchangeable Shares represented by any certificate is exchanged by a holder thereof, a new certificate for the balance of such Exchangeable Shares shall be issued to the holder at the expense of the Corporation.

6.3 The Corporation shall cause CAC to deliver or shall cause the Transfer Agent to deliver to the relevant holder, at the address of the holder recorded in the securities register of the Corporation for the Exchangeable Shares or at the address specified in the holder's Exchange Notice or by holding for pick-up by the holder at the registered office of the Corporation or at any office of the Transfer Agent as may be specified by the Corporation by notice to the holders of Exchangeable Shares, certificates representing the CAC Shares (which shares shall be duly issued as fully paid and non-assessable and shall be free and clear of any lien, claim or encumbrance) registered in the name of the holder or in such other name as the holder may request and, if applicable, on or before the payment date therefor, the Corporation shall deliver to the holder a cheque payable at par at any branch of the bankers of the Corporation representing the aggregate of any declared and unpaid dividend in respect of the Exchanged Shares, less any amounts withheld on account of tax required to be deducted and withheld therefrom (without interest), and such delivery of such certificate and cheque by or on behalf of the Corporation, by CAC or by the Transfer Agent (as applicable), shall be deemed to be payment of and shall satisfy and discharge all liability in respect of the exercise of the Exchange Right, to the extent that the same is represented by such share certificates and cheque (plus any tax deducted and withheld therefrom and remitted to the proper tax authority).

6.4 On and after the close of business on the Exchange Date, the holder of the Exchanged Shares shall cease to be a holder of such Exchanged Shares and shall not be entitled to exercise any of the rights of a holder in respect thereof, unless upon presentation and surrender of certificates in accordance with the foregoing provisions, registration and delivery of the CAC Share certificate and the Corporation's cheque (if any) shall not be made as provided in section 6.3, in which case the rights of such holder shall remain unaffected until such registrations and deliveries have been made in the manner hereinbefore provided. On and after the close of business on the Exchange Date, provided that presentation and surrender of certificates and delivery of the CAC Share certificates and the Corporation's cheque (if any) has been made in accordance with the foregoing provisions, the holder of the Exchanged Shares shall thereafter be considered and deemed for all purposes to be a holder of the CAC Shares delivered to it.

6.5 Notwithstanding any other provision of this Article 6, the Corporation shall not be obligated to cause CAC to issue and deliver a CAC Share in exchange for any Exchanged Shares specified by a holder in an Exchange Notice to the extent that the issuance and delivery by CAC of such CAC Shares in exchange for Exchanged Shares would be contrary to solvency requirements or other provisions of applicable laws. In any such event, the Corporation shall cause CAC to issue CAC Shares in exchange for the maximum number of Exchanged Shares which the Board of Directors (or the board of directors of CAC, as applicable) determine that CAC is, on the Exchange Date, permitted under applicable laws to issue, which shall be selected as nearly as may be pro rata (disregarding fractions) in proportion to the total number of Exchanged Shares tendered for exchange by each holder thereof and the Corporation shall issue to each holder of Exchanged Shares a new certificate, at the expense of the Corporation, representing the Exchanged Shares which are not exchanged pursuant to section 6.2 hereof. The Corporation shall notify the holder at least two Business Days prior to the Exchange Date as to the number of Exchanged Shares which will not be exchanged.

6.6 A holder of Exchanged Shares may, by notice in writing given to the Corporation before the close of business on the Business Day immediately preceding the Exchange Date, withdraw its Exchange Notice, in which event such Exchange Notice shall be null and void.

7. AUTOMATIC REDEMPTION BY CORPORATION FOLLOWING EXCHANGE

7.1 Immediately upon completion of any exchange of the Exchangeable Shares pursuant to the provisions of Article 6 of these share provisions, the Exchanged Shares so acquired by CAC shall be automatically redeemed by the Corporation for an amount of cash equal to the paid-up capital thereon.

8. PURCHASE FOR CANCELLATION

8.1 Subject to applicable law and the articles of the Corporation, the Corporation may at any time and from time to time purchase for cancellation all or any part of the outstanding Exchangeable Shares at a price not exceeding the amount paid-up thereon by tender to all the holders of record of Exchangeable Shares then outstanding or through the facilities of any stock exchange on which the Exchangeable Shares are listed or quoted at a price per share not exceeding the amount paid up thereon, together with an amount equal to all declared and unpaid dividends thereon for which the record date has occurred prior to the date of purchase. If in response to an invitation for tenders under the provisions of this section 8.1, more Exchangeable Shares are tendered at a price or prices acceptable to the Corporation than the Corporation is prepared to purchase, the Exchangeable Shares to be purchased by the Corporation shall be purchased as nearly as may be pro rata according to the number of shares tendered by each holder who submits a tender to the Corporation, provided that when shares are tendered at different prices, the pro rating shall be effected (disregarding fractions) only with respect to the shares tendered at the price at which more shares were tendered than the Corporation is prepared to purchase after the Corporation has purchased all the shares tendered at lower prices. If part only of the Exchangeable Shares represented by any certificate shall be purchased, a new certificate for the balance of such shares shall be issued at the expense of the Corporation.

9. VOTING RIGHTS

9.1 Except as required by applicable law and by Article 10, section 11.1 and section 11.2 hereof, the holders of the Exchangeable Shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting.

10. AMENDMENT AND APPROVAL

10.1 The rights, privileges, restrictions and conditions attaching to the Exchangeable Shares may be added to, changed or removed but only with the approval of the holders of the Exchangeable Shares given as hereinafter specified.

10.2 Any approval given by the holders of the Exchangeable Shares to add to, change or remove any right, privilege, restriction or condition attaching to the Exchangeable Shares or any other matter requiring the approval or consent of the holders of the Exchangeable Shares shall be deemed to have been sufficiently given if it shall have been given in accordance with applicable law subject to a minimum requirement that such approval be evidenced by resolution passed by not less than two-thirds of the votes cast on such resolution at a meeting of holders of Exchangeable Shares (disregarding the votes attaching to any Exchangeable Shares held or beneficially owned by the Corporation and its Affiliates) duly called and held at which the holders of at least 25% of the outstanding Exchangeable Shares at that time are present or represented by proxy; provided that if at any such meeting the holders of at least 25% of the outstanding Exchangeable Shares at that time are not present or represented by proxy within one-half hour after the time appointed for such meeting, then the meeting shall be adjourned to such date not less than five (5) days thereafter and to such time and place as may be designated by the Chairman of such meeting. At such adjourned meeting the holders of Exchangeable Shares present or represented by proxy thereat whether or not representing at least 25% of the outstanding Exchangeable Shares at that time may transact the business for which the meeting was originally called and a resolution passed thereat by the affirmative vote of not less than two-thirds of the votes cast on such resolution (disregarding the votes attaching to any Exchangeable Shares held or beneficially owned by the Corporation and its Affiliates) at such meeting shall constitute the approval or consent of the holders of the Exchangeable Shares.

11. RECIPROCAL CHANGES, ETC. IN RESPECT OF CAC Shares.

11.1 Each holder of an Exchangeable Share acknowledges that the Support Agreement provides, in part, that CAC will not without the prior approval of the Corporation and the prior approval of the holders of the Exchangeable Shares given in accordance with section 10.2 of these share provisions:

(a) issue or distribute CAC Shares (or securities exchangeable for or convertible into or carrying rights to acquire CAC Shares) to the holders of all or substantially all of the then outstanding CAC Shares by way of stock dividend or other distribution, other than an issue of CAC Shares (or securities exchangeable for or convertible into or carrying rights to acquire CAC Shares) to holders of CAC Shares who exercise an option to receive dividends in CAC Shares (or securities exchangeable for or convertible into or carrying rights to acquire CAC Shares) in lieu of receiving cash dividends;

(b) issue or distribute rights, options or warrants to the holders of all or substantially all of the then outstanding CAC Shares entitling them to subscribe for or to purchase CAC Shares (or securities exchangeable for or convertible into or carrying rights to acquire CAC Shares); or

(i) shares or securities of CAC of any class other than CAC Shares (other than shares convertible into or exchangeable for or carrying rights to acquire CAC Shares);

(ii) rights, options or warrants other than those referred to in subsection 11.1(b) above;

(iii) evidences of indebtedness of CAC: or

(iv) assets of CAC, unless the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of indebtedness or other assets is issued or distributed by the Corporation simultaneously to holders of the Exchangeable Shares.

11.2 Each holder of an Exchangeable Share acknowledges that the Support Agreement further provides, in part, that CAC will not without the prior approval of the Corporation and the prior approval of the holders of the Exchangeable Shares given in accordance with section 10.2 of these share provisions:

(a) subdivide, redivide or change the then outstanding CAC Shares into a greater number of CAC Shares:

(b) reduce, combine, consolidate or change the then outstanding CAC Shares into a lesser number of CAC Shares: or

(c) reclassify or otherwise change the CAC Shares or effect an amalgamation, merger, reorganization or other transaction affecting the CAC Shares, unless the same or an economically equivalent change shall simultaneously be made to, or in the rights of the holders of, the Exchangeable Shares. The Support Agreement further provides, in part, that the aforesaid provisions of the Support Agreement shall not be changed without the approval of the holders of the Exchangeable Shares given in accordance with section 10.2 of these share provisions.

12. ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT

12.1 The Corporation will take all such actions and do all such things as shall be necessary or advisable to perform and comply with and to ensure performance and compliance by CAC and the Corporation with all provisions of the Support Agreement applicable to CAC and the Corporation, respectively, in accordance with the terms thereof including, without limitation, taking all such actions and doing all such things as shall be necessary or advisable to enforce to the fullest extent possible for the direct benefit of the Corporation all rights and benefits in favour of the Corporation under or pursuant to such agreement.

12.2 The Corporation shall not propose, agree to or otherwise give effect to any amendment to, or waiver or forgiveness of its rights or obligations under, the Support Agreement without the approval of the holders of the Exchangeable Shares given in accordance with section 10.2 of these share provisions other than such amendments, waivers and/or forgiveness as may be necessary or advisable for the purposes of:

(a) adding to the covenants of the other parties to such agreement for the protection of the Corporation or the holders of the Exchangeable Shares thereunder;

(b) making such provisions or modifications not inconsistent with such agreement as may be necessary or desirable with respect to matters or questions arising thereunder which, in the good faith opinion of the Board of Directors, it may be expedient to make, provided that the Board of Directors shall be of the good faith opinion, after consultation with counsel, that such provisions and modifications will not be prejudicial to the interests of the holders of the Exchangeable Shares; or

(c) making such changes in or corrections to such agreement which, on the advice of counsel to the Corporation, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error contained therein, provided that the Board of Directors shall be of the good faith opinion, after consultation with counsel, that such changes or corrections will not be prejudicial to the interests of the holders of the Exchangeable Shares.

13. LEGEND; CALL RIGHTS

13.1 The certificates evidencing the Exchangeable Shares shall contain or have affixed thereto a legend in form and on terms approved by the Board of Directors, with respect to the Support Agreement (including the provisions with respect to the voting rights, exchange right and automatic redemption thereunder).

14. NOTICES

14.1 Any notice, request or other communication to be given to the Corporation by a holder of Exchangeable Shares shall be in writing and shall be valid and effective if given by mail (postage prepaid) or by telecopy or by delivery to the registered office of the Corporation and addressed to the attention of the Executive Vice President, Corporate Development. Any such notice, request or other communication, if given by mail, telecopy or delivery, shall only be deemed to have been given and received upon actual receipt thereof by the Corporation.

14.2 Any presentation and surrender by a holder of Exchangeable Shares to the Corporation or the Transfer Agent of certificates representing Exchangeable Shares in connection with the liquidation, dissolution or winding-up of the Corporation or the exchange of Exchangeable Shares shall be made by ordinary mail (postage prepaid) or by delivery to the registered office of the Corporation or to such office of the Transfer Agent as may be specified by the Corporation, in each case, addressed to the attention of the Executive Vice President, Corporate Development of the Corporation. Any such presentation and surrender of certificates shall only be deemed to have been made and to be effective upon actual receipt thereof by the Corporation or the Transfer Agent, as the case may be. Any such presentation and surrender of certificates made by ordinary mail shall be at the sole risk of the holder mailing the same.

14.3 Any notice, request or other communication to be given to a holder of Exchangeable Shares by or on behalf of the Corporation shall be in writing and shall be valid and effective if given by mail (postage prepaid) or by delivery to the address of the holder recorded in the securities register of the Corporation or, in the event of the address of any such holder not being so recorded, then at the last known address of such holder. Any such notice, request or other communication, if given by mail, shall be deemed to have been given and received on the third Business Day following the date of mailing and, if given by delivery, shall be deemed to have been given and received on the date of delivery. Accidental failure or omission to give any notice, request or other communication to one or more holders of Exchangeable Shares shall not invalidate or otherwise alter or affect any action or proceeding to be taken by the Corporation pursuant thereto.

14.4 If the Corporation determines that mail service is or is threatened to be interrupted at the time when the Corporation is required or elects to give any notice to the holders of Exchangeable Shares hereunder, the Corporation shall, notwithstanding the provisions hereof, give such notice by means of publication in The Globe and Mail, national edition, or any other English language daily newspaper or newspapers of general circulation in Canada and in a French language daily newspaper of general circulation in the Province of Quebec, once in each of two successive weeks, and notice so published shall be deemed to have been given on the latest date on which the first publication has taken place. If, by reason of any actual or threatened interruption of mail service due to strike, lock-out or otherwise, any notice to be given to the Corporation would be unlikely to reach its destination in a timely manner, such notice shall be valid and effective only if delivered personally to the Corporation in accordance with section 14.1 or 14.2, as the case may be.

SCHEDULE "A"

EXCHANGE NOTICE

To: MDC Partners Inc. (the "Corporation")

This notice is given pursuant to Article 6 of the provisions (the "Share Provisions") attaching to the Exchangeable Shares of the Corporation represented by this certificate and all capitalized words and expressions used in this notice that are defined in the Share Provisions have the meanings ascribed to such words and expressions in such Share Provisions.

The undersigned hereby notifies the Corporation that the undersigned desires to exchange, in accordance with Article 6 of the Share Provisions:

[ ] all share(s) represented by this certificate; or

[ ] ____________________________share(s) only.

(Insert Number of Exchanged Shares)

The undersigned hereby notifies the Corporation that the Exchange Date shall be ____________________, 20__.

NOTE: The Exchange Date must be a Business Day and must not be less than 10 Business Days nor more than 15 Business Days after the date upon which this notice is received by the Corporation. If no such Business Day is specified above, the Exchange Date shall be deemed to be the 15th Business Day after the date on which this notice is received by the Corporation.

This exchange notice may be revoked and withdrawn by the undersigned only by notice in writing given to the Corporation at any time before the close of business on the Business Day immediately preceding the Exchange Date.

The undersigned hereby represents and warrants to the Corporation that the undersigned:

[ ] is

(select one)

[ ] is not

a non-resident of Canada for purposes of the Income Tax Act (Canada). The undersigned acknowledges that in the absence of an indication that the undersigned is not a non-resident of Canada, withholding on account of Canadian tax may be made from amounts payable to the undersigned on the exchange of the Exchanged Shares. The undersigned also agrees to complete IRS Form W-8BEN in respect of the exchange in the form provided by the Corporation prior to the Exchange Date

The undersigned hereby represents and warrants to the Corporation that the undersigned has good title to, and owns, the share(s) represented by this certificate to be acquired by the Corporation, free and clear of all liens, claims and encumbrances.

(Date) (Signature of Shareholder) (Guarantee of Shareholder)

[ ] Please check box if the securities and any cheque(s) resulting from the exchange of the Exchanged Shares are to be held for pick-up by the shareholder from the Transfer Agent, failing which the securities and any cheque(s) will be mailed to the last address of the shareholder as it appears on the share register.

NOTE: This panel must be completed and this certificate, together with such additional documents as the Transfer Agent may require, must be deposited with the Transfer Agent. The securities and any cheque(s) resulting from the exchange of the Exchanged Shares will be issued and registered in, and made payable to, respectively, the name of the shareholder as it appears on the register of the Corporation and the securities and any cheque(s) resulting from such exchange will be delivered to such shareholder as indicated above, unless the form appearing immediately below is duly completed.

Date: _______________________

Name of Person in Whose Name Securities or Cheque(s) Are to be Registered, Issued or Delivered (please print): _________________________

Street Address or P.O. Box: __________________________________________________

Signature of Shareholder: ____________________________________________________

City, Province and Postal Code: ______________________________________________

Signature Guaranteed by: _____________________________________________________

NOTE: If this exchange notice is for less than all of the shares represented by this certificate, a certificate representing the remaining Exchangeable Share(s) of the Corporation represented by this certificate will be issued and registered in the name of the shareholder as it appears on the shareholders register of the Corporation, unless the Share Transfer Power on the share certificate is duly completed in respect of such share(s).

Schedule II


7 – Other provisions, if any	Autres dispositions, s’il ya lieu

1. The directors may from time to time, in such amounts and on such terms as they deem expedient:

(a) borrow money on the credit of the Corporation;

(b) issue, sell or pledge debt obligations (including bonds, debentures, notes or other similar obligations, secured or unsecured) of the Corporation;

(c) charge, mortgage, hypothecate or pledge all or any of the currently owned or subsequently acquired real or personal, movable or immovable, property of the Corporation, including book debts, rights, powers, franchises and undertaking, to secure any debt obligations or money borrowed, or other debt or liability of the Corporation.

The directors may from time to time delegate to such one or more of the directors and officers of the Corporation as may be designated by the directors all or any of the powers conferred on the directors above to such extent and in such manner as the directors shall determine with respect to each such delegation.

2. The actual number of directors within the minimum and maximum number set out in paragraph 5 may be determined from time to time by resolution of the directors. Any vacancy among the directors as so determined may be filled by resolution of the directors.

3. Shareholder meetings may be held at any place within Canada or the United States with a population of not less than 500,000.

4. The directors may appoint one or more directors, who shall hold office for a term expiring not later than the close of the next annual meeting of the shareholders, but the total number of directors so appointed may not exceed one third of the number of directors elected at the previous annual meeting of Shareholders.

5. Except in the case of any class or series of shares of the Corporation listed on a stock exchange the Corporation shall have a lien on the shares registered in the name of a shareholder or the shareholder ’ s personal representative for a debt of that shareholder to the Corporation, including any amount unpaid on the date on which the Corporation was continued under the Canada Business Corporations Act, in respect of a share issued by the Corporation.

Exhibit 10.1

AMENDMENT TO MANAGEMENT SERVICES AGREEMENT

This Amendment to Management Services Agreement (the “ Amendment ”) amends that certain Management Services Agreement dated as of April 27, 2007 (the “ Services Agreement ”), by and between MDC PARTNERS, INC. (formerly MDC Communications Corporation), a corporation existing under the laws of Canada (the “ Company ”), NADAL MANAGEMENT, INC. (formerly Stallion Investments Limited), a corporation in which Miles Nadal is the sole shareholder (“ NMI ”), and MILES NADAL (the “ Executive ”).

WHEREAS, NMI and the Executive provide services to the Company pursuant to the terms and conditions of the Services Agreement;

WHEREAS, the Executive and the Company are parties to that certain letter agreement dated April 11, 2005 pursuant to which a bonus may become payable to the Executive in accordance with the terms thereof (the “ Bonus Agreement ”);

WHEREAS, the parties hereto desire to amend the Services Agreement and to amend and supersede the Bonus Agreement as set forth herein;

NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties contained herein, the parties hereby agree that the Services Agreement and the Bonus Agreement shall be amended by the following, effective as of April 27, 2010, and that the Services Agreement, as hereby amended, shall continue in full force and effect as of the date of this amendment:

1. By replacing Section 4(a) of the Services Agreement in its entirety with the following:

“ Annual Retainer Fee. As compensation for the services hereunder provided by NMI during the Term, the Company shall pay to NMI, on a monthly basis in arrears, an annual retainer fee (the “ Annual Retainer Fee ”) of $1,500,000 per annum, or such greater amount as may be approved by the Human Resources & Compensation Committee of the Board after June 1, 2015 (the “ Compensation Committee ”).”

2.	By inserting the following as a new Section 4(f) of the Services Agreement, in respect of the parties’ respective rights and obligations under the Bonus Agreement, which Bonus Agreement shall be of no force and effect as of the date of this Amendment:

“ Additional Management Incentive Payment Opportunity. The Company shall provide to NMI (or, at the option of NMI, the Executive or NMI’s successor) a management incentive payment in an amount equal to Cdn $10 million upon the first to occur of (i) the average market price per share of MDC Partners’ Class A Subordinate Voting shares exceeding Cdn $30 per share during any twenty consecutive trading days (measured as of the close of trading on each applicable date); or (ii) a Change of Control (as defined in Section 7 of this Agreement). Notwithstanding the foregoing, such bonus amount shall only be provided if one of the foregoing occurs while Executive is employed by the Company (directly or through a management services agreement) or thereafter but prior to the third anniversary of the date on which the Executive is no longer employed by the Company (directly or through a management services agreement) for any reason, whether by death, retirement, resignation or termination by the Company. In addition to, and without affecting the obligations of NMI and the Executive under, the Loan prepayment provisions of Section 4(d) hereof, the “after-tax amount” (as determined in accordance with such Section 4(d)) of any bonus payment made pursuant to this Section 4(f) shall first be applied to repay in full the principal balance of the Loans due to the Company, and shall be made promptly following the receipt of such payment under this Section 4(f).”

IN WITNESS WHEREOF, the parties have executed this Amendment as of July 30, 2010.

MDC Partners Inc.

By:	/s/
Name:
Title:

Nadal Management, Inc.

By:	/s/
Name:
Title:

Miles Nadal

/s/
Miles Nadal

Nadal Financial Corporation

(solely for purposes of the loan prepayment provisions in Item 2 of this Amendment)

By:	/s/
Name:
Title:

Exhibit 10.2.1

AMENDMENT NO. 1 TO

MEMBERSHIP INTEREST PURCHASE AGREEMENT

This AMENDMENT NO. 1 dated July 29, 2010 (this “ Amendment ”) to the MEMBERSHIP INTEREST PURCHASE AGREEMENT dated as of March 1, 2010 (as amended, the “ Purchase Agreement ”), by and among MDC ACQUISITION INC. , a Delaware corporation (the " Purchaser "), WWG, LLC , a Florida limited liability company (" WWG "), TODD GRAHAM (" Graham "), KEVIN BERG (" Berg "), VINCENT PARINELLO (" Parinello "), DANIEL K. GREGORY (" Gregory "), STEPHEN GROTH (" Groth "), and SEAN M. O'TOOLE (" O'Toole "; and together with Graham, Berg, Parinello, Gregory and Groth, collectively, the " Principals ", and individually a " Principal ").

W I T N E S S E T H :

WHEREAS, pursuant to the Purchase Agreement, the Purchaser purchased all of WWG’s Class A Units (the “ Purchased Interests ”) in the Company, representing a 60% equity interest in the Company;

WHEREAS , the parties hereto desire to amend the Purchase Agreement as hereinafter set forth and agree to certain other matters contained herein;

NOW, THEREFORE , in consideration of the mutual covenants and agreements set forth in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:

1. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement.

2. Section 2.1.1 of the Purchase Agreement is hereby amended by changing the lettering of subsections (i), (j) and (k) to be (j), (k) and (l), respectively, and adding a new subsection (i) immediately following subsection (h) as follows:

“(i) Extra Payments . (A) The Purchaser shall pay to WWG an amount equal to $986,250 in respect of the calendar year associated with FAP, such payment to be made in 2 installments, the first equal to $657,500 on July 1, 2010 (the “ First Extra Payment ”) and the second equal to $328,750 on or before October 1, 2010 and (B) the Purchaser shall pay to WWG an amount equal to $1,315,000 in respect of the calendar years associated with SAP or TAP, as the case may be, such payments to be made in 4 equal installments of $328,750 on or before the first Business Day of each calendar quarter of the calendar years associated with SAP or TAP, as the case may be (each payment under (A) and (B), an " Extra Payment ", and collectively, the " Extra Payments ").”

Receipt of the First Extra Payment is hereby acknowledged by WWG.

3. Section 2.1.1(l) of the Purchase Agreement is hereby amended to add the phrase “the Extra Payments,” immediately before the word “FAP” in the second sentence of such Section.

4. Section 2.1.2 of the Purchase Agreement is hereby amended by striking the “and” in clause (xvi), renumbering clause (xvii) as (xix), and adding new clauses (xvii) and (xviii) immediately following clause (xvi) as follows:

“(xvii) for each calendar year in respect of which an Extra Payment is required to be made under Section 2.1.1, PBT shall be reduced by an amount equal to the Extra Payment made in respect of such calendar year;

(xviii) PBT for each of 2010 and 2011 shall, if applicable, be increased by an amount equal to the Applicable Reduction Amount (as defined in the Operating Agreement) in respect of such calendar year; provided, however, any such increase shall in no event be greater that the amount of reduction to PBT for such calendar year described in clause (xvii) above; and”

5. As used in the Purchase Agreement, the term “Agreement” shall mean the Purchase Agreement, as from time to time amended (including, without limitation, this Amendment). Except as set forth above, the Purchase Agreement, as amended herein, shall remain in full force and force without further modification.

6. This Amendment may be executed in one or more counterparts, and each such counterpart shall be deemed an original instrument, but all such counterparts taken together shall constitute but one agreement. Facsimile signatures shall constitute an original.

* * * *

IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Purchase Agreement, on the day and year first above written.

	MDC ACQUISITION INC.

	By:
		Name:
		Title:

	WWG, LLC

	By:
		Name:
		Title:


	Todd Graham


	Kevin Berg


	Vincent Parinello


	Daniel K. Gregory


	Stephen Groth


	Sean M. O’Toole

Exhibit 10.2.2

AMENDMENT NO. 1 TO

AMENDED AND RESTATED OPERATING AGREEMENT

This AMENDMENT NO. 1 dated July 29, 2010 (this “ Amendment ”) to the AMENDED AND RESTATED OPERATING AGREEMENT (the “ Operating Agreement ”) of THE ARSENAL LLC, a Delaware limited liability company formerly known as TEAM Holdings LLC (the “ Company ”) dated as of March 1, 2010, is made and entered into by and among the Company, MDC ACQUISITION INC. , a Delaware corporation (“ MDC Holdco ”), WWG, LLC, a Florida limited liability company (“ WWG ”), and WWG2, LLC , a Florida limited liability company (" WWG2 ").

W I T N E S S E T H :

WHEREAS , the parties hereto desire to amend the Operating Agreement as hereinafter set forth and agree to certain other matters contained herein;

WHEREAS , WWG, WWG2 and MDC Holdco are members of the Company having sufficient authority under Sections 4.1 and 14.4 of the Operating Agreement to cause the amendments contained herein;

1. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Operating Agreement.

2. Article VIII of the Operating Agreement is hereby amended by adding a new Section 8.2 immediately following Section 8.1, as follows:

“Section 8.2. Use of Company as Administrator of Certain Payments . If permitted by applicable law, the Members agree that the Company may administer the payment of amounts to certain members of WWG in connection with the payment to WWG of the Extra Payments (as defined in the Purchase Agreement) (including collection of tax withholding, making appropriate governmental filings, and remittance of all payroll and other related taxes to the appropriate governmental authorities) provided that WWG shall have paid to the Company in advance all amounts to be paid by the Company.”

3. Section 10.4(a) of the Operating Agreement is hereby amended such that when determining each of the First Class B Payment, Second Class B Payment and Final Class B Payment, the value determined by operation of Section 10.4(a) in the Operating Agreement without giving effect to this Amendment shall, in each case, be further reduced by the Reduction Amount.

4. Section 10.4(e) of the Operating Agreement is hereby amended by adding new clauses (xix) and (xx) immediately following clause (xviii) to include the following definitions:

“(xix) " Reduction Amount " shall mean the sum of (i) if Daniel Gregory’s employment with the Company is terminated prior to December 31, 2012, the result of (x) $1,017,500, multiplied by (y) a fraction, the numerator of which is the number of days in the period commencing on his Date of Termination and ending on December 31, 2012, and the denominator of which is the number of days in the period commencing April 1, 2010 and ending on December 31, 2012, (ii) if Todd Graham’s employment with the Company is terminated prior to December 31, 2012, the result of (x) $1,237,500, multiplied by (y) a fraction, the numerator of which is the number of days in the period commencing on his Date of Termination and ending on December 31, 2012, and the denominator of which is the number of days in the period commencing April 1, 2010 and ending on December 31, 2012, (iii) if Sean O’Toole’s employment with the Company is terminated prior to December 31, 2012, the result of (x) $811,250, multiplied by (y) a fraction, the numerator of which is the number of days in the period commencing on his Date of Termination and ending on December 31, 2012, and the denominator of which is the number of days in the period commencing April 1, 2010 and ending on December 31, 2012 and (iv) if Stephen Groth’s employment with the Company is terminated prior to December 31, 2012, the result of (x) $550,000, multiplied by (y) a fraction, the numerator of which is the number of days in the period commencing on his Date of Termination and ending on December 31, 2012, and the denominator of which is the number of days in the period commencing April 1, 2010 and ending on December 31, 2012.

(xx) “ Applicable Reduction Amount ” shall mean, with respect to any calendar year, the portion of the Reduction Amount attributable to such calendar year.”

5. Section 10.4(e)(xiii) of the Operating Agreement is hereby amended by deleting the word “and” following clause (16), replacing the period following clause (17) with a semicolon, and adding two new clauses (18) and (19) immediately following clause (17) to read as follows:

“(18) for each calendar year in respect of which an Extra Payment (as defined in the Purchase Agreement) is required to be made under the Purchase Agreement, PBT shall be reduced by an amount equal to the Extra Payment made in respect of such calendar year; and

(19) PBT for each of 2010, 2011 and 2012 shall, if applicable, be increased by an amount equal to the Applicable Reduction Amount in respect of such calendar year; provided, however, any such increase shall in no event be greater that the amount of reduction to PBT for such calendar year described in clause (18) above.”

4. Section 13.1 of the Operating Agreement is hereby amended by replacing the existing definition of “GAAP PBT” with the following:

“" GAAP PBT " shall mean, for any calendar (or partial) year, the consolidated net income (loss) of the Company and its subsidiaries (if any) before provision for all federal, state and local income taxes for such period, determined in accordance with GAAP less (A) (i) with respect to calendar year 2010, $986,250 or (ii) with respect to calendar years 2011 or 2012, $1,315,000; plus (B) if applicable, the Applicable Reduction Amount in respect of such calendar (or partial) year; provided, however, for calendar year 2010, GAAP PBT shall be calculated from and after the Effective Time through December 31, 2010.”

6. As used in the Operating Agreement, the term “Agreement” shall mean the Operating Agreement, as from time to time amended (including, without limitation, this Amendment). Except as set forth above, the Operating Agreement, as amended herein, shall remain in full force and force without further modification.

7. This Amendment may be executed in one or more counterparts, and each such counterpart shall be deemed an original instrument, but all such counterparts taken together shall constitute but one agreement. Facsimile signatures shall constitute an original.

* * * *

IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Operating Agreement, as of the day and year first above written.

	MDC ACQUISITION INC.

	By:
		Name:
		Title:

	WWG, LLC

	By:
		Name:
		Title:

	WWG2, LLC

	By:
		Name:
		Title:

	THE ARSENAL LLC

	By:
		Name:
		Title:

Exhibit 10.3

AMENDMENT NO. 1 TO

MEMBERSHIP INTEREST PURCHASE AGREEMENT

This AMENDMENT NO. 1 dated July 29, 2010 (this “ Amendment ”) to the Membership Interest Purchase Agreement dated May 6, 2010 (as amended, the “ Purchase Agreement ”), by and among MF + P ACQUISITION CO. , a Delaware corporation (the " Purchaser "), INTEGRATED MEDIA SOLUTIONS, LLC , a New York limited liability company (" IMS Holdco "), ROBERT INGRAM (" Ingram "), DESIREE DU MONT (" Desiree ") and, RON CORVINO (" Ron "; and together with Ingram and Desiree, individually a " Principal " and collectively, the " Principals ").

W I T N E S S E T H :

WHEREAS, pursuant to the Purchase Agreement, the Purchaser purchased all of IMS Holdco’s Class A Units (the “ Purchased Interests ”) in the Company, representing a 75% equity interest in the Company;

WHEREAS , the parties hereto desire to amend the Purchase Agreement as hereinafter set forth and agree to certain other matters contained herein;

1. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement.

2. Section 2.1.1(c) of the Purchase Agreement is hereby amended and restated as follows:

“(c) Top-Up Payments . The Purchaser shall pay to IMS Holdco the following top-up payments (the " Top-Up Payments "):

(i) Provided that the Company achieves Billings (as defined below) for 2010 of not less than $10,000,000, on or prior to the first anniversary of the Closing, the Purchaser shall pay (the “ Initial Top-Up Payment ”) to IMS Holdco an amount equal to $3,533,333 (the " Initial Top-Up Amount "); provided , however , in the event that on or before December 31, 2010 changes in United States federal long-term capital gains tax rates are enacted, which will result in an increase in 2011 federal long-term capital gains rates over 2010 federal long-term capital gains rates (the difference between such rates being referred to herein as the " LTG Rate Increase "), then, at the election of IMS Holdco (which election must be made by IMS Holdco in writing and received by the Purchaser no later than December 20, 2010), such payment shall be made on or prior to December 31, 2010, provided (A) the Purchaser can determine to its satisfaction that Billings for 2010 will be at least $10,000,000 and (B) that the Initial Top-Up Amount shall be reduced by an amount equal to the product of (x) the Initial Top-Up Amount times (y) ½ of the LTG Rate Increase. By way of example, if 2011 federal long-term capital gains rates are increased from 15% to 25%, then the LTG Rate Increase shall be equal to 10%, and, if a payment prior to December 31, 2010 is elected by IMS Holdco, the Initial Top-Up Amount shall be reduced by 5%;

(ii) Provided that the Company achieves Billings for 2011 of not less than $10,000,000, or aggregate Billings for 2010 and 2011 of not less than $20,000,000, on or prior to the second anniversary of the Closing, an amount equal to $3,733,333 (the “ Second Top-Up Payment ”);

(iii) Provided that the Company achieves Billings for 2012 of not less than $10,000,000 or aggregate Billings for 2010, 2011 and 2012 of not less than $30,000,000, on or prior to the third anniversary of the Closing, an amount equal to $3,933,334 (the “ Third Top-Up Payment ”).

In the event that aggregate Billings for 2010 and 2011 shall be at least $20,000,000, but the Initial Top-Up Payment shall not have been earned based on 2010 Billings, IMS Holdco shall be entitled to receive the Initial Top-Up Payment at the time the Second Top-Up Payment is paid. In the event that aggregate Billings for 2010, 2011 and 2012 shall be at least $30,000,000, but either the Initial Top-Up Payment or the Second Top-Up Payment shall not have previously been earned, IMS Holdco shall be entitled to receive any such unpaid Initial Top-Up Payment or Second Top-Up Payment at the time the Third Top-Up Payment is paid. In no event shall the aggregate Top-Up Payments exceed $11,200,000. For purposes of this Section 2.1.1(c), “Billings” for any calendar year shall mean the total amount billed by the Company to its clients in respect of such calendar year.”

3. Section 2.1.1(l) of the Purchase Agreement is hereby amended to add the phrase “the Top-Up Payments,” immediately before the phrase “the Extra Payments” in the second sentence of such Section.

4. As used in the Purchase Agreement, the term “Agreement” shall mean the Purchase Agreement, as from time to time amended (including, without limitation, this Amendment). Except as set forth above, the Purchase Agreement, as amended herein, shall remain in full force and force without further modification.

5. This Amendment may be executed in one or more counterparts, and each such counterpart shall be deemed an original instrument, but all such counterparts taken together shall constitute but one agreement. Facsimile signatures shall constitute an original.

* * * *

IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Purchase Agreement, on the day and year first above written.

	MF + P ACQUISITION CO.

	By:
		Name:
		Title:

	INTEGRATED MEDIA SOLUTIONS, LLC

	By:
		Name:
		Title:


	Robert Ingram


	Desiree Du Mont


	Ron Corvino

Exhibit 12

Statement of Computation of Ratio of Earnings to Fixed Charges

	Six Months Ended June 30,
	2010			2009
	(000’s)			(000’s)
Earnings:
Income (loss) from continuing operations attributable to MDC Partners Inc.	$	(15,344	)	$	468
Additions:
Income tax expense		801			2,223
Noncontrolling interest in income of consolidated subsidiaries		2,954			1,365
Fixed charges, as shown below		18,182			10,245
Distributions received from equity-method investees		7			—
		21,944			13,833
Subtractions:
Equity in income (loss) of investees		(143	)		198
Noncontrolling interest in earnings of consolidated subsidiaries that have not incurred fixed charges		—			—
		(143	)		198

Earnings as adjusted	$	6,743		$	14,103
Fixed charges:
Interest on indebtedness, expensed or capitalized		14,591			6,823
Amortization of debt discount and expense and premium on indebtedness, expensed or capitalized		862			661
Interest within rent expense		2,729			2,761
Total fixed charges	$	18,182		$	10,245
Ratio of earnings to fixed charges		N/A			1.38
Fixed charge deficiency		11,439			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:

I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2010 of MDC Partners Inc.;

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;

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;

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:

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;

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;

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

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

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):

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

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: July 30, 2010	/s/ MILES S. NADAL
	By:	Miles S. Nadal
	Title:	Chairman, Chief Executive Officer and President

Exhibit 31.2

Certification Pursuant to Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section

302 of the Sarbanes-Oxley Act of 2002

I, David B. Doft, certify that:

I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2010 of MDC Partners Inc.;

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: July 30, 2010	/s/ DAVID B. DOFT
	By:	David B. Doft
	Title:	Chief Financial Officer

Exhibit 32.1

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

Sarbanes-Oxley Act of 2002

In connection with the quarterly report of MDC Partners Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2010, 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 July 30, 2010


/s/ MILES S. NADAL
By:	Miles S. Nadal
Title:	Chairman, Chief Executive Officer and President

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, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David B. Doft, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1)

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

(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 July 30, 2010


/s/ DAVID B. DOFT
By:	David B. Doft
Title:	Chief Financial Officer

Exhibit 99.1

MDC PARTNERS INC.

SCHEDULE OF CURRENT AND POTENTIAL MARKETING

COMMUNICATIONS COMPANY OWNERSHIP

				Year of
	% Owned at			Initial
Company	6/30/10			Investment	Put/Call Options
					2010			Thereafter
					(See Notes)
Consolidated:
Strategic Marketing Services
Allard Johnson Communications Inc.		74.0	%	1992		89.0	%	Note 1
Allison & Partners LLC		51.0	%	2010		—		Note 2
Attention Partners LLC		51.0	%	2009		—		Note 3
Bruce Mau Design Inc.		50.1	%	2004		—
Colle & McVoy, LLC		95.0	%	1999		—		Note 4
Crispin Porter & Bogusky, LLC		100.0	%	2001		—
Company C Communications LLC		90.0	%	2000		—		Note 5
Fletcher Martin, LLC		85.0	%	1999		100.0	%	Note 6
Hello Design, LLC		49.0	%	2004		—
henderson bas partnership		65.0	%	2004		100.0	%
HL Group Partners, LLC		65.9	%	2007		—		Note 7
kirshenbaum bond senecal & partners, LLC		100.0	%	2004		—
Mono Advertising, LLC		49.9	%	2004		54.9	%	Note 8
Redscout, LLC		60.0	%	2007		—		Note 9
Sloane Partners LLC		70.0	%	2010				Note 10
Skinny NYC, LLC		50.1	%	2008		—		Note 11
Veritas Communications Inc.		64.1	%	1993		78.4	%	Note 12
Vitro Robertson, LLC		77.0	%	2004		—		Note 13
Yamamoto Moss Mackenzie, Inc.		100.0	%	2000		—
Zig Inc.		76.1	%	2004		88.4	%	Note 14
Zyman Group, LLC		94.1	%	2005		—		Note 15
Performance Marketing Services
Accent Marketing Services, LLC		100.0	%	1999		—
Accumark Communications Inc.		55.0	%	1993		61.7	%	Note 16
Bryan Mills Iradesso Corp.		62.8	%	1989		88.2	%	Note 17
Communifx Partners, LLC		71.2	%	2010		—		Note 18
Computer Composition of Canada Inc.		100.0	%	1988		—
Integrated Media Solutions Partners LLC		75.0	%	2010		—		Note 19
Northstar Research Partners Inc.		70.0	%	1998		—		Note 20
656712 Ontario Limited (d.b.a. Onbrand)		89.0	%	1992		—
Shout Media LLC		51.0	%	2010		—
Source Marketing, LLC		83.0	%	1998		—		Note 21
TargetCom, LLC		100.0	%	2000		—		Note 22
The Arsenal LLC (a.k.a.Team Holdings LLC)		60.0	%	2010		—		Note 23
Equity Accounted:
Adrenalina, LLC		49.9	%	2007		—		Note 24

Notes

(1)	MDC has the right to increase its ownership interest in Allard Johnson Communications Inc. through acquisition of an incremental interest, and the other holders have the right to put to MDC the same incremental interest up to 89% of this entity in 2010 and 100% only upon termination.

(2)	MDC has the right to increase its ownership interest in Allison & Partners LLC through acquisition of an incremental interest, and other holders have the right to put only upon termination to MDC the same incremental interest up to 100% of this entity.

(3)

Attention Partners LLC is owned by HL Group Partners, LLC. HL Group Partners, LLC has the right to increase its ownership in Attention Partners, LLC through acquisitions of incremental interests, and the other interest holders has the right to put to HL Group Partners, LLC the same incremental interests up to 100% only upon termination.

(4)	MDC has the right to increase its economic ownership in Colle & McVoy, LLC through acquisition of an incremental interest, and the other interest holder has the right to put to MDC the same incremental interest, up to 100% of this entity in 2012.

(5)

MDC has the right to increase its economic ownership in Company C Communications, LLC through acquisition of an incremental interest, and the other interest holder has the right to put to MDC the same incremental interest, up to 100% of this entity in 2012. Effective October 1, 2008, Company C is operated as a division of kirshenbaum bond & partners, LLC.

(6)	Effective January 1, 2010, MDC acquired the remaining 15% membership interest; however, in conjunction with the step-up in Trendcore, which was merged into Fletcher Martin, LLC, a 15% profits interests was issued.

(7)

MDC has the right to increase its ownership in HL Group Partners, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 72.4% of this entity in 2012, up to 82.62% in 2013 and up to 93.73% in 2014. Effective January 25, 2010, MDC acquired an additional 1% membership interest in HL Group Partners, LLC.

(8)

MDC has the right to increase its ownership in Mono Advertising, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 54.9% of this entity in 2010, up to 60.0% in 2011, up to 65.0% in 2012, up to 70.0% in 2013 and up to 75.0% in 2014.

(9)	MDC has the right to increase its ownership in Redscout, LLC through acquisition of an incremental interest, and the other interest holder has the right to put to MDC the same incremental interest, up to 80% of this entity in 2012.

(10)	MDC has the right to increase its ownership interest in Sloane Partners LLC through acquisition of incremental interests, and other interest holders have the right to put to Sloane Partners LLC the same incremental interests up to 100% in 2015.

(11)

MDC has the right to increase its ownership in Skinny NYC, LLC through acquisition of incremental interests, and the other interest holders have the right to put to MDC the same incremental interest, up to 60.1% of this entity in 2014, up to 70.1% of this entity in 2015 and up to 80.1% of this entity in 2016.

(12)

MDC has the right to increase its ownership in Veritas Communications Inc. through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 78.4% of this in 2010, up to 81.5% in 2011, up to 95.1% in 2012 and up to 100% in 2013.

(13)	MDC has the right to increase its ownership in Vitro Robertson, LLC through acquisition of an incremental interest, and the other interest holder has the right to put to MDC the same incremental interest, up to 95% of this entity in 2011, up to 97.5% in 2012 and up to 100% in 2013.

(14)	MDC has the right to increase its ownership in Zig Inc. through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interest, up to 88.4% of this entity in 2010, and up to 90.45% of this entity in 2012.

(15)	As of March 31, 2010, MDC’s economic interest in Zyman Group, LLC was 100% of profits as its priority return is not expected to be exceeded. In January 2009, Zyman Group, LLC has become an operating division of kirshenbaum bond & partners, LLC.

(16)

MDC has the right to increase its ownership in Accumark Communications Inc. through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests up to 61.7% of this entity in 2010, up to 68.3% in 2011 and up to 75.0% in 2012. MDC’s current economic interest is 42%.

(17)	MDC has the right to increase its ownership in Bryan Mills Iradesso, Corp. through acquisition of an incremental interest, and the other interest holders have the right to put to MDC the same incremental interest, up to 100% of this entity in 2012.

(18)	MDC has the right to increase its ownership in Communifx Partners, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 100% of this entity in 2013.

(19)	MDC has the right to increase its ownership interest in Integrated Media Solutions Partners LLC through acquisitions of incremental interests, up to 100% of this entity in 2015.

(20)	MDC has the right to increase its ownership in Northstar Research Partners Inc. through acquisitions of incremental interests, and the other holders have the right to put to MDC the same incremental interests, up to 100% of this entity in 2013.

(21)	MDC has the right to increase its ownership in Source Marketing, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests up 87.1% of this entity in 2011 and 91.3% in 2012 and 100% in 2013.

(22)	Effective January 1, 2009, Targetcom LLC is operating as a division of Accent Marketing Services, LLC.

(23)	MDC has the right to increase its ownership in Team Holdings, LLC, through acquisition of an incremental interest, up to 100% of this entity in 2013.

(24)	MDC has the right to increase its ownership in Adrenalina, LLC through acquisitions of incremental interests, and the other interest holders have the right to put to MDC the same incremental interests, up to 61% of this entity in 2013, up to 72% in 2014 and up to 82% in 2015.