Item 1.01 Entry Into a Material Definitive Agreements.
Amendment to Credit Agreement
On March 12, 2019 (the
“
Effective Date
”), MDC Partners Inc. (the “
Company
”), Maxxcom Inc. (a subsidiary of the Company)
(“
Maxxcom
”) and each of their subsidiaries party thereto entered into an amendment (the “
Amendment
”)
to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended, the “
Credit Agreement
”),
among the Company, Maxxcom, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent (“
Wells
Fargo
”), and the lenders from time to time party thereto.
The Amendment provides
financial covenant relief by increasing the total leverage ratio applicable on each testing date after the Amendment Effective
Date through the period ending December 31, 2020 from 5.5:1.0 to 6.25:1.0. The total leverage ratio applicable on each testing
date after December 31, 2020 will revert to 5.5:1.0.
In addition, the Company
is permitted to apply a portion of the net cash proceeds of the Kingsdale Sale (as defined below) that is not otherwise required
to be applied to any payments of outstanding Advances (as defined in the Credit Agreement) to the prepayment, redemption, defeasance,
purchase or other acquisition of the Company’s senior unsecured debt so long as the Company shall have, prior to such application,
received at least $100,000,000 in cash from gross proceeds of either (i) the incurrence by Maxxcom of debt (the terms and conditions
of which are subject to Wells Fargo’s approval) or (ii) an issuance of equity interests of the Company which is not otherwise
prohibited by the terms of the Credit Agreement. The foregoing condition has been satisfied by The Stagwell Group investment disclosed
below.
As market conditions warrant,
the Company may from time to time seek to purchase its 6.50% Senior Notes due 2024 in privately negotiated or open market transactions,
by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing its indebtedness, any
purchase made by the Company may be funded by the net proceeds from any asset dispositions or the use of cash on its balance sheet.
The amounts involved in any such purchase transactions, individually or in the aggregate, may be material.
In connection with the
Amendment, Maxxcom provided to Wells Fargo irrevocable notice, effective upon the Effective Date, of its election to reduce the
Revolver Commitments (as defined in the Credit Agreement) from $325,000,000 to $250,000,000.
The foregoing summary description
of the Amendment to the Credit Agreement is qualified in its entirety by reference to the full text of each agreement. The Amendment
is filed as Exhibit 10.1 hereto and incorporated by reference herein.
Investment by The Stagwell Group
On March 14,
2019, the Company entered into a securities purchase agreement (the “
Purchase Agreement
”) with Stagwell
Agency Holdings LLC, an affiliate of The Stagwell Group (the “
Purchaser
”), pursuant to which the Company
agreed to issue and sell to the Purchaser, and the Purchaser agreed to purchase, (i) 14,285,714 newly issued Class A
subordinate voting shares (“
Class A Shares
”) for an aggregate purchase price in cash of $50 million
and (ii) 50,000 newly authorized and issued Series 6 convertible preference shares (the “
Preference
Shares
”) for an aggregate purchase price in cash of $50 million, subject to the terms and conditions set forth in
the Purchase Agreement. Unless otherwise specified, all references to dollar amounts herein are to United States dollars. The
transaction closed on March 14, 2019, in accordance with the terms and conditions set forth in the Purchase Agreement.
Issuance and Sale of Class A Shares
The newly issued
Class A Shares were issued and sold in exchange for $3.50 per share, or $50 million in the aggregate.
Issuance and Sale of Preference Shares
The terms of the Preference
Shares are set forth in the articles of amendment of the Company (the “
Articles of Amendment
”). Pursuant to
the terms thereof and subject to the termination of waiting periods under the Hart-Scott Rodino Antitrust Improvements Act of 1976,
as amended, or other applicable law, certain holders of the Preference Shares have the right to convert their Preference Shares,
in whole or in part at any time and from time to time, into a number of Class A Shares equal to the then-applicable liquidation
preference divided by the applicable conversion price at such time (the “
Conversion Price
”). The initial liquidation
preference of each Preference Share will be $1,000. The initial Conversion Price will be $5.00 per Preference Share, subject to
customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average
anti-dilution protection for certain issuances of equity or equity-linked securities.
The Preference Shares have
a liquidation preference that accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the issuance
date of the Preference Shares (the “
Issue Date
”). Holders of the Preference Shares are entitled to dividends
in an amount equal to any dividends that would have been payable on the Class A Shares issuable upon conversion of the Preference
Shares. The Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of the Issue
Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125% of the then-applicable
Conversion Price or (ii) after the fifth anniversary of the Issue Date, if the closing trading price of the Class A Shares over
a specified period prior to conversion is at least equal to the then-applicable Conversion Price.
Following certain change
in control transactions of the Company in which holders of Preference Shares are not entitled to receive cash or qualifying listed
securities with a value at least equal to the liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled
to cash dividends on the liquidation preference at an increasing rate (beginning at 7%), and (ii) the Company will have a right
to redeem the Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their
as-converted value.
Subject to
certain limitations, the Preference Shares are not convertible into Class A Shares to the extent upon conversion the holder
and its affiliates will beneficially hold more than 19.9% of the Company’s outstanding common shares or voting power.
In the event that such restrictions would prevent the conversion of any Preference Shares, such Preference Shares will be
converted into a separate newly authorized series of convertible preference shares of the Company, the Series 7 convertible
preference shares (the “
Alternative Preference Shares
”), at the same conversion rate at which the
Preference Shares would convert into Class A Shares. The Alternative Preference Shares, in turn, are convertible into Class A
Shares on a one-to-one basis, subject to certain conversion rate adjustments.
Preference Shares or Alternative
Preference Shares will not entitle their holders to vote in the election of directors and, other than as required by applicable
law, holders of the Preference Shares will not have voting rights.
Purchase Agreement
Board Representation
The Company
agreed (x) to appoint Mark Penn to the Board as the initial purchaser designee effective on March 18, 2019 and (y) to appoint
to the Board as an additional purchaser designee another individual, selected by the Purchaser and who qualifies as
an “independent director” under the rules of NASDAQ, effective within ten business days after such selection, and
to take all necessary action at the effective time of such appointment to increase the size of the Board by one. The
Purchaser shall have the right to nominate at each meeting of shareholders at which individuals will be elected members of
the Board a total of two nominees of the Purchaser (including any of the two initial appointees who are re-nominated), one of whom must
qualify as an “independent director” under the rules of NASDAQ. For so long as the Purchaser has the right to
nominate a director to the Board, the Company has agreed to include such persons in its slate of nominees for election to the
Board and to use its reasonable best efforts to cause the election of such nominees. The Purchaser’s right to nominate
two directors will end when the Purchaser ceases to beneficially own Class A Shares representing at least 10% of the
aggregate voting power of the outstanding Class A Shares, assuming exercise, conversion or exchange of all outstanding
securities that are exercisable, convertible or exchangeable for or into Class A Shares, without regard to any limitation or
restriction on exercise, conversion or exchange, and without regard to issuances of additional securities after closing other
than in connection with management equity incentives (the “
Minimum Ownership Threshold
”).
Standstill and Voting
Obligations
Pursuant to the Purchase
Agreement, the Purchaser has agreed, subject to certain exceptions, that until the one-year anniversary of the Issue Date or an
earlier change in control of the Company, the Purchaser will not, among other things, subject to various exceptions: (a) make,
or in any way participate in any “proxy contest” or other solicitation of proxies, (b) acquire any securities of the
Company, (c) transfer any Common Shares, Preference Shares, Alternative Preference Shares or Class A Shares to any third party
who, together with its affiliates, is (or will become upon consummation of such sale, transfer or other disposition) a beneficial
owner of 12.5% or more of the aggregate voting power of the Company’s common shares, (d) effect or seek to effect any
tender or exchange offer, merger or other business combination involving the Company or its securities, or (e) call or seek
to call any meeting of shareholders of the Company or other referendum or consent solicitation. In addition, subject to certain
exceptions, the Purchaser has agreed during such standstill period to vote any Class A Shares beneficially owned by it in accordance
with the recommendations of the Board at each meeting of shareholders of the Company or pursuant to any action by written consent.
Participation Rights
Pursuant to the Purchase
Agreement, the Company has agreed, subject to certain exceptions, that until the Purchaser ceases to meet the Minimum Ownership
Threshold, the Purchaser will have the option to purchase its
pro rata
share of any proposed issuance by the Company of
any common shares or preference shares of the Company.
Transfer Restrictions
Pursuant to the Purchase
Agreement, prior to the one-year anniversary of the Issue Date or an earlier change in control, the Purchaser may not transfer
or enter into an agreement that transfers the economic consequences of ownership of the newly issued Class A Shares, the Preference
Shares, or any Class A Shares or Alternative Preference Shares issuable or issued upon conversion of any of the Preference Shares,
subject to certain exceptions specified in the Purchase Agreement.
Consent Rights and Qualifying
Transactions
Pursuant to the Purchase
Agreement, the Company has agreed with the Purchaser, subject to certain exceptions, not to become party to certain change in control
transactions other than a qualifying transaction in which holders of Preference Shares are entitled to receive cash or qualifying
listed securities with a value at least equal to the then-applicable liquidation preference plus accrued and unpaid dividends.
The Purchaser has agreed to vote (to the extent a voting right applies) and provide other support for any such qualifying transaction.
The Company has agreed to provide a gross-up to the Purchaser for certain withholding taxes that may arise in connection with certain
dividends upon redemption of the Preference Shares following certain change in control transactions other than qualifying transactions.
Registration Rights
The Purchase Agreement
provides the Purchaser with certain registration and piggyback registration rights for the Preference Shares, Alternative Preference
Shares and certain Class A Shares held by the Purchaser.
Restricted Persons Procedures
Pursuant
to the Purchase Agreement, the Purchaser and the Company have agreed with each other to adopt and maintain appropriate policies
and procedures in order to prevent any disclosure or dissemination of competitively sensitive information to any person who is
serving as a director, officer, employee or other representative of the Company or its subsidiaries, including Mark Penn, and with
respect to participation of such persons in investment or acquisition activity of the Purchaser and its affiliates and the Company
and its subsidiaries.
Additional Matters
The Purchase Agreement
contains customary representations, warranties and covenants by the parties.
The foregoing description
of the Purchase Agreement has been included to provide investors with information regarding its terms. It is not intended to provide
any factual information about the parties to the agreement or the Company’s business. The Purchase Agreement contains representations
and warranties that the parties made solely for the benefit of each other. These representations and warranties (i) may be
intended not as statements of fact, but rather as a way of allocating risk to one of the parties if those statements prove to be
inaccurate, (ii) may apply materiality standards different from what may be viewed as material to investors and shareholders,
and (iii) were made only as of the date of the Purchase Agreement. Moreover, information concerning the subject matter of
such representations and warranties may change after the date of the Purchase Agreement, which information may or may not be fully
reflected in the Company’s public disclosures. Investors and shareholders are urged not to rely on such representations and
warranties as characterizations of the actual state of facts or circumstances regarding the Company at this time or any other time.
The description contained
herein of the Purchase Agreement, the Preference Shares and the Alternative Preference Shares is qualified in its entirety by reference
to the terms of the Purchase Agreement, which is filed as Exhibit 10.2 hereto and is incorporated herein by reference, and the
Articles of Amendment, which includes the terms of the Preference Shares and the Alternative Preference Shares, a form of which
is attached to the Purchase Agreement and which is filed as Exhibit 3.1 hereto.