MDC Partners Inc.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- application for relief from the requirement to obtain separate minority approval for each of filer's subordinate voting shares and multiple voting share -- multiple voting shares represent less than 1% of the aggregate voting rights -- classes intended to be identical, but for voting rights -- no difference of interest between holders of each class of shares in connection with the proposed transaction, different class are not affected in a differing manner -- safeguards include fairness opinion -- applicable corporate statute and filer's constating documents provide that shareholders will vote as a single class other than in certain circumstances which are not present in connection with the proposed transaction.

Applicable Legislative Provisions

National Instrument 61-101 Protection of Minority Security Holders in Special Transaction, ss. 8.1(1) and 9.1(2).

April 29, 2021

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the "Jurisdiction") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF MDC PARTNERS INC. (the "Filer")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Filer, pursuant to section 9.1 of Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions ("MI 61-101"), from the requirement in subsection 8.1(1) of MI 61-101 to obtain minority approval for the Transaction (as defined below) from the holders of every class of affected securities of the Filer, in each case voting separately as a class (the "Exemption Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation validly existing under the Canada Business Corporations Act and is in good standing.

2. The Filer's head office is located at One World Trade Center, 65th Floor, New York, New York 10007, and its registered and records office is 33 Draper Street, Toronto, Ontario, M5V 2M3.

3. The Filer is a reporting issuer in each of the provinces of Canada, and its Class A Subordinate Voting Shares are listed for trading on the NASDAQ National Market (the "Nasdaq") under the symbol "MDCA". The Filer is not in default of any requirement of the securities legislation in any of the jurisdictions in which it is a reporting issuer.

4. The authorized share capital of the Filer consists of:

(a) an unlimited number of class A shares, carrying one vote per share (the "Subordinate Voting Shares");

(b) an unlimited number of class B shares, carrying twenty votes per share (the "Multiple Voting Shares"); and

(c) an unlimited number of preference shares, issuable in series, including (i) 5,000 Series 1 preference shares, (ii) 700,000 Series 2 preference shares, (iii) an unlimited number of Series 3 preference shares, (iv) 95,000 Series 4 preference shares, (v) an unlimited number of Series 5 preference shares, (vi) 50,000 Series 6 preference shares, and (vii) an unlimited number of Series 7 preference shares.

Except as required by law, the preferred shares of the Filer are not entitled to receive notice of or to attend any meetings of shareholders of the Filer or to vote at any such meeting but are entitled to receive notice of meetings of shareholders of the Filer called to authorize the dissolution of the Filer or the sale of its undertaking or a substantial part thereof. The preferred shares of the Filer are not listed or posted for trading on any stock exchange and are convertible in certain instances into Subordinate Voting Shares.

5. As of March 23, 2021, the issued and outstanding share capital of the Filer (the "Filer Shares") consists of:

(a) 73,309,337 Subordinate Voting Shares;

(b) 3,743 Multiple Voting Shares;

(c) 95,000 Series 4 preference shares; and

(d) 50,000 Series 6 preference shares.

6. As of March 23, 2021, the issued and outstanding Subordinate Voting Shares and Multiple Voting Shares represent approximately 99.898% and 0.001%, respectively, of the aggregate voting rights attached to the outstanding Filer Shares.

7. The Multiple Voting Shares were created as part of the Filer's go-public transaction in 1986 to give the Filer's founder and then current Chairman and Chief Executive Officer, Miles Nadal, an ability to control the voting direction of the Filer while retaining a significantly lower proportion of the Filer's equity. On February 26, 2004, Miles Nadal converted 444,968 Multiple Voting Shares (being all of his Multiple Voting Shares and representing 99% of the issued and outstanding Multiple Voting Shares) into Subordinate Voting Shares on a one-for-one basis. On July 21, 2015, Miles Nadal resigned as Chairman and Chief Executive Officer of the Filer. By November 25, 2015, Miles Nadal had sold all of his Subordinate Voting Shares. The Filer has no contact with the 87 registered holders (including those whose shares are held in nominee name) who own the remaining 3,743 Multiple Voting Shares, and most of the Multiple Voting Shares are not regularly represented or voted at shareholder meetings.

8. The holders of the Subordinate Voting Shares and Multiple Voting Shares have the same rights and obligations, and no holder of Filer Shares is entitled to any privilege, priority, or preference in relation to any other such holder, subject to the following:

(a) The Subordinate Voting Shares are listed on the NASDAQ under the symbol "MDCA". The Multiple Voting Shares are not listed or posted for trading on any stock exchange.

(b) Each Multiple Voting Share is convertible at any time at the option of the holder into one Subordinate Voting Share. Each Subordinate Voting Share is convertible at the option of the holder into one Multiple Voting Share after the occurrence of certain events related to an offer to purchase all of the Multiple Voting Shares.

(c) In the event of the liquidation, dissolution, or winding-up of the Filer, whether voluntary or involuntary or in the event of any other distribution of assets of the Filer among its shareholders for the purpose of winding up its affairs, subject to the preferential payment of the amounts required to be paid under and respect of any preferred shares ranking in priority, the holders of Multiple Voting Shares are entitled to participate pari passu with the holders of Subordinate Voting Shares in an amount equal to the amount of such distribution per Subordinate Voting Share.

(d) Any dividend declared on the Subordinate Voting Shares shall be declared and paid at the same time in an equal or greater amount per Subordinate Voting Share than dividends declared and paid in respect of the Multiple Voting Shares.

(e) Pursuant to the articles of the Filer, for purposes of the take-over bid and issuer bid provisions under National Instrument 62-104 -- Take-Over Bids and Issuer Bids, the Subordinate Voting Shares and the Multiple Voting Shares shall be treated as and are deemed to constitute one class of voting securities and the published market for the Multiple Voting Shares shall be deemed to be the published market for the Subordinate Voting Shares.

9. By their terms, the Multiple Voting Shares and Subordinate Voting Shares were intended to be identical, but for their voting rights outlined in Paragraph 4. No holder of Multiple Voting Shares has any reasonable expectation to the contrary.

10. Stagwell Media LP ("Stagwell") is a Delaware limited partnership and an affiliate of The Stagwell Group LLC, ("The Stagwell Group") a private equity firm focused on investments in marketing, which holds 19.9% of the issued and outstanding Subordinate Voting Shares and 100% of the Series 6 preferred shares. Mark Penn serves as the president and managing partner of The Stagwell Group as well as the Chairman and Chief Executive Officer of the Filer. The Stagwell Group is the general partner of Stagwell.

Exemption Sought

11. On December 21, 2020, the Filer entered into a transaction agreement (the "Transaction Agreement") with Stagwell providing for the combination of the Filer with the subsidiaries of Stagwell that own and operate a portfolio of marketing services companies (the "Stagwell Entities"). The combination between the Filer and the Stagwell Entities will be effected using an "Up-C" partnership structure. Through a series of steps and transactions (collectively, the "Transactions"), including the domestication of the Filer to a Delaware corporation (from and after the domestication, "MDC Delaware") and the merger of MDC Delaware with one of its indirect wholly-owned subsidiaries (the "MDC Merger"), MDC Delaware will become a direct subsidiary (from and after the merger, "OpCo") of a newly-formed, Delaware-organized, Nasdaq-listed corporation ("New MDC"). Following the MDC Merger, (i) OpCo will convert into a limited liability company that will hold MDC's operating assets and to which Stagwell will contribute the equity interests of the Stagwell Entities (the "Stagwell Contribution") in exchange for 216,250,000 common membership interests of OpCo (the "Stagwell OpCo Units"), and (ii) Stagwell will contribute to New MDC an aggregate amount of cash equal to $100 in exchange for shares of a new class C series of voting-only common stock (the "New MDC Class C Stock") equal in number to the Stagwell OpCo Units. On a pro forma basis, without giving effect to any outstanding preference shares of the Filer, the existing holders of the Filer's Subordinate Voting Shares and Multiple Voting Shares would receive interests equal to approximately 26% of the combined company (with holders of Multiple Voting Shares receiving shares entitled to twenty votes per share), and Stagwell would be issued New MDC Class C Stock equivalent to approximately 74% of the voting rights of the combined company and exchangeable, together with Stagwell OpCo Units, into Subordinate Voting Shares of New MDC on a one-for-one basis at Stagwell's election. Broad Street Principal Investments, L.L.C., an affiliate of Goldman Sachs & Co. L.L.C. ("Broad Street"), holds 95,000 (100%) of the Series 4 preferred shares of the Filer and consented to the Transactions subject to certain amendments to the terms of the Series 4 preference shares.

12. The Transaction is a "business combination" as such term is defined in MI 61-101 and is therefore subject to the applicable requirements of MI 61-101. Such requirements include, among other things, obtaining approval for the Transaction by a majority of votes cast by the holders of each class of Filer Shares, excluding the votes attached to Filer Shares beneficially owned, or over which control or direction is exercised, by any party specified in subsection 8.1(2) of MI 61-101 (the "Disinterested Shareholders"), at a shareholder meeting held by the Filer. The Disinterested Shareholders include a majority of the holders of Subordinate Voting Shares and Multiple Voting Shares. Mark Penn, Stagwell, Broad Street, Bradley Gross, a director of the Filer and Managing Director of Goldman Sachs & Co L.L.C. and each of their affiliates are considered interested parties, as such term is defined in MI 61-101. Mark Penn, Stagwell, and their affiliates hold 14,922,359 (19.9%) of the Subordinate Voting Shares and 50,000 (100%) of the Series 6 preferred shares. Bradley Gross, Broad Street, and their affiliates hold 95,000 (100%) of the Series 4 preferred shares. No holders of the Multiple Voting Shares will be excluded from the vote of the Disinterested Shareholders, as none of the holders of the Multiple Voting Shares constitute an interested party in accordance with MI 61-101.

13. The approval of the Transaction is subject to several mechanisms to ensure that the collective interests of the holders of Filer Shares are protected, including the following:

(a) the creation of a special committee composed of independent directors (the "Special Committee") whose mandate included reviewing the terms and conditions of the Transaction. In fulfilling its mandate, the Special Committee retained the services of independent legal and financial advisors. The Special Committee unanimously recommended to the Filer's board of directors that the Transaction be approved;

(b) the Filer will prepare and deliver to its shareholders an information circular (the "Information Circular") in accordance with applicable securities law requirements that provide shareholders with detailed information to enable them to make an informed decision in respect of the Transaction;

(c) the Special Committee obtained a fairness opinion from each of Moelis & Company and Canaccord Genuity Corp. (the "Fairness Opinions"), respectively, stating that, as of the date of the respective opinions and subject to the assumptions, limitations, and qualifications on which such opinions are based, the consideration to be paid by the Filer for the Stagwell Entities pursuant to the Transaction Agreement is fair, from a financial point of view to the holders of the Subordinate Voting Shares and such Fairness Opinions will be included in the Information Circular;

(d) the board of directors of the Filer has obtained a formal valuation prepared by Canaccord Genuity Corp., an independent and qualified valuator in accordance with MI 61-101 that will be included in the Information Circular;

(e) the approval of the Transaction by the majority of votes cast by the Disinterested Shareholders voting together as a single class (each Subordinate Voting Share carrying one vote and each Multiple Voting Share carrying twenty votes); and

(f) a right of dissent to the benefit of Disinterested Shareholders;

(together, the "Safeguard Measures").

14. The Board and the Special Committee are of the view that the Safeguard Measures are the optimal mechanisms to ensure that the public interest is well protected and that holders of the Filer Shares are treated fairly and in accordance with their voting and economic entitlements under the Filer's constating documents.

15. There is no requirement under the CBCA for separate class votes with respect to the approval of the Transaction.

16. The Filer has determined that pursuant to sections 4.05 and 5.05 under its certificate of amalgamation dated July 1, 2013, there is no requirement to hold separate class votes with respect to the approval of the Transaction.

17. Absent the granting of the Exemption Sought, the holders of Multiple Voting Shares would be in a position to veto the Transaction pursuant to section 8.1(1) of MI 61-101 while only holding 0.001% of the voting rights (and even less of an economic interest) attaching to the outstanding Filer Shares, which would provide disproportionate importance to one class of Filer Shares over another and frustrate the reasonable expectations of the holders of the Filer Shares. Allowing the holders of Multiple Voting Shares to have a minority vote on a class basis under MI 61-101 would be prejudicial to the Filer's interests and could result in unfairness to the Disinterested Shareholders.

18. The Filer will comply with all the requirements of MI 61-101, other than the requirement to hold a separate vote by class with regards to the Multiple Voting Shares and the Subordinate Voting Shares. Instead, the Filer proposes that the holders of the Multiple Voting Shares and the Subordinate Voting Shares vote as if they were a single class, subject to ensuring that each Multiple Voting Share provides the holder thereof with twenty votes, and each Subordinate Voting Share provides the holder thereof with one vote.

19. The Filer is of the view that granting the Exemption Sought will not be detrimental or otherwise affect the protection afforded to holders of Filer Shares.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

a) a special meeting of the holders of Filer Shares is held for the Disinterested Shareholders of the Filer to consider and, if deemed advisable, approve the Transaction, such approval to be obtained with the Disinterested Shareholders of the Filer voting together as a single class of the Filer; and

b) the Information Circular is prepared and delivered by the Filer to its shareholders in accordance with applicable securities law requirements and discloses that the Filer has obtained the Exemption Sought.