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Item 1.01
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Entry into a Material
Definitive Agreement.
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On February 14, 2017, MDC Partners Inc.
(the “
Company
”) entered into a securities purchase agreement (the “
Purchase Agreement
”) with
Broad Street Principal Investments, L.L.C., an affiliate of The Goldman Sachs Group Inc. (the “
Purchaser
”),
pursuant to which the Company has agreed to issue and sell to the Purchaser, and the Purchaser has agreed to purchase, 95,000 newly
authorized Series 4 convertible preference shares (the “
Preference Shares
”) for an aggregate purchase price
in cash of $95.0 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 closing of the transaction is expected to occur in the
first quarter of 2017, subject to the conditions set forth in the Purchase Agreement.
Preference Shares
The terms of the Preference Shares shall be
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 shall have the right to convert their Preference Shares, in whole
at any time and from time to time, and in part at any time and from time to time after the ninetieth day following the original
issuance date of the Preference Shares, into a number of Class A subordinate voting shares of the Company (the “
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 $10.00 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 will 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 will be 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 will not be convertible into Class A Shares if upon conversion the holder 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 5 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
In connection with the closing of the transaction,
the Company will increase the size of its Board of Directors (the “
Board
”) and appoint one nominee designated
by the Purchaser to the Board. The Purchaser nominee will be Bradley J. Gross, a managing director of Goldman Sachs. For so long
as the Purchaser has the right to nominate a director to the Board, the Company has agreed to include such person in its slate
of nominees for election to the Board and to use its reasonable best efforts to cause the election of such nominee. The Purchaser’s
right to nominate a director 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 three-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 if, immediately
after such acquisition, the Purchaser (together with its affiliates) would beneficially hold in the aggregate more than 19.9% of
the aggregate voting power of the Company, (c) transfer any 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 two-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 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 Class
A Shares held by the Purchaser.
Additional Matters
The Purchase Agreement contains customary representations,
warranties and covenants by the parties. The Purchase Agreement also includes customary closing and termination provisions for
the benefit of the Company and the Purchaser. There can be no assurance that the closing contemplated by the Purchase Agreement
will occur, or will occur in a timely manner.
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, the closing of the issuance thereunder and/or as of such other date or dates as
may be specified in 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 attached hereto as Exhibit 10.1 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.
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Item 3.02
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Unregistered Sale of Securities.
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On February 14, 2017, the Company entered
into the Purchase Agreement, pursuant to which it agreed to sell the Preference Shares to the Purchaser in a private placement
in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the “
Securities
Act
”), provided by Section 4(a)(2) of the Securities Act. The Company will rely on this exemption from registration
based in part on representations made by the Purchaser in the Purchase Agreement.
The information contained in Item 1.01
of this Current Report on Form 8-K is incorporated herein by reference.