MDC Partners Inc Annual Report 2007

FY2007 Annual Report · MDC Partners Inc
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                                                  “WHERE GREAT TALENT LIVES” 

2007 ANNUAL REPORT 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dear Fellow Shareholders:   

2007 marked the first year that MDC Partners operated as a pure play marketing communications 
firm.    We  delivered  record  operating  results  that  reflected  the  advantages  of  being  a  focused 
operator and not just a traditional holding company with disparate assets.  These results included 
industry leading organic revenue growth of 23.4% and adjusted MDC EBITDA growth of over 
45%  to  $47.7  million.    This  strong  growth  was  balanced  across  the  network  with  all  three 
reporting  segments  growing  more  than  20%,  and  highlights  the  depth  of  our  portfolio  and  the 
results of disciplined investment.  Over the past 18 months, we have invested substantially in the 
infrastructure  of  our  businesses,  including  significant  investments  in  digital  capabilities,  which 
we  believe  will  continue  to  position  us  well  in  2008  and  beyond.    During  the  year,  we  also 
generated  approximately  $66  million  of  net  new  business  revenues,  creating  excellent 
momentum heading into 2008 that has continued through the first quarter. 

As a pure play operator, MDC adopted the philosophy of “CCPCC” during 2007.  The goal of 
CCPCC is to work with our Partner firms to help them win new Clients; find new Companies to 
acquire;  attract  and  retain  People;  Cross  sell  and  refer  new  business  across  the  network;  and 
instill  a  Culture  that  produces  great  work  for  our  clients  and  drives  profitable  and  sustainable 
growth.  In order to execute on the mandates of CCPCC, we formed a Strategic Resource Center 
comprised of industry practitioners who will assist our Partners on a broad range of initiatives, 
from providing strategic advice about their business to working with them on pitch preparation.  
This team has been instrumental in ‘digitizing’ several of our firms who were underinvested in 
digital  services,  assisting  firms  in  recruiting  talent,  improving  the  profile  of  several  of  our 
Partners through public relations efforts, and fostering cross selling.  As a group, successful cross 
selling efforts contributed approximately $13 million to our revenues for the year and we expect 
to  continue  to  improve  upon  that  metric  next  year.    We  firmly  believe  that  this  initiative  will 
enable us to continue to drive industry leading growth for years to come.   

In 2008, it is clear that our industry faces an uncertain economy.  With only 1% share of the total 
US marketing spend, we believe that MDC’s growth will largely come from new business wins 
and  increased  market  share.    As  a  result,  we  believe  that  we  are  well  positioned  to  grow  in 
challenging economic conditions and outperform our competitors in the marketplace. 

Even as we have continued to expand the services that our corporate support center provides to 
our  Partner  firms,  I  am  pleased  to  report  that  we  have  been  able  to  simultaneously  reduce 
corporate  spending.    Through  the  implementation  of  shared  services  initiatives  and  the 
restructuring of our corporate group, we have been able to eliminate approximately $2 million of 
cash  costs  at  the  corporate  level  and  believe  that  opportunities  exist  for  continued efficiencies.  
This should add to our operating leverage as the business grows. 

 
 
 
 
 
 
 
 
While  we  focused  on  increasing  the  success  of  our  existing  businesses,  we  also  made  a  few 
strategic  acquisitions  during  the  year  and  acquired  majority  stakes  in  two  fast  growing, 
marketing  services  firms  -  HL  Group  and  Redscout.    HL  Group  is  a  public  relations  firm 
specializing  in  communications,  marketing  and  strategic  planning.    Redscout  is  a  brand-driven 
innovation firm.  As with all of our acquisitions, we believe that the addition of these new firms 
will enhance the value of the network as we leverage capabilities and service offerings across the 
Partner  group.    In  fact,  during  our  first  year  of  ownership,  both  HL  Group  and  Redscout  have 
referred a significant number of new business opportunities across the network.  In addition, we 
expect that both will contribute positively to growth and margin expansion.       

In  addition  to  these  two  strategic  acquisitions,  we  also  increased  our  ownership  interests  and 
strengthened our partnership with our two most successful and profitable Partner firms, Crispin 
Porter  +  Bogusky  and  Kirshenbaum  Bond  +  Partners.    We  believe  that  these  investments  will 
contribute significantly to our growth in 2008 and future years. 

During 2007, we were also able to restructure our balance sheet by refinancing our credit facility 
and simultaneously increasing our total borrowing capacity.  This new capacity will provide us 
with  increased  flexibility  to  invest  in  our  businesses  for  the  future,  as  well  as  to  add  new 
capabilities to our portfolio through selective acquisitions. 

In 2007, MDC Partners continued to re-invent itself as a different kind of holding company.  We 
took  significant  steps  to  ensure  that  we  are  maximizing  the  value  that  our  Strategic  Resource 
Center  delivers  to  our  Partners.   At  the  same  time,  by  retaining  and  attracting  great  talent,  our 
Partner firms were able to deliver record results as they outpaced the growth of the market and 
continued to expand margins.   

Looking  forward  to  2008,  we  expect  continued  growth  and  margin  expansion  from  our 
businesses.    We  continually  strive  to  evaluate  and  improve  our  own  performance  as  a 
management  team,  and  we  will  focus  on  managing  and  maximizing  free  cash  flow  generation 
during  the  year.    We  believe  that  at  the  end  of  the  day  free  cash  flow  is  the  most  compelling 
metric that will demonstrate the strength of our operations and drive value for our shareholders. 

We thank you for your support and look forward to a very successful 2008.  

Best regards, 

Miles S. Nadal 
Chairman and Chief Executive Officer 

 
 
 
 
 
 
 
 
 
 
 
 
Comparison of 5 Years’ Cumulative Total Return among MDC Partners, the S&P 500 Index and Peer Group  

Set  forth  below  is  a  line  graph  comparing  the  yearly  percentage  change  in  the  company’s  cumulative  total 
shareholder  return  for  the  last  five  years  to  that  of  the  Standard  &  Poor’s  500  Stock  Index  and  a  peer  group  of 
publicly  held  corporate  communications  and  marketing  holding  companies.    The  peer  group  consists  of  The 
Interpublic  Group  of  Companies,  Inc.,  Omnicom  Group,  Inc.  and  WPP  Group  plc.    The  graph  below  shows  the 
value at the end of each year of each $100 invested in our common stock, the S&P 500 Index and the peer group.  
The graph assumes the reinvestment of dividends.  Total shareholder return for the peer group is weighted according 
to market capitalization at the beginning of each annual period. 

MDC Partners Inc. 
Comparison of 5-Year Cumulative Total Return 

300.00

250.00

200.00

150.00

100.00

50.00

0.00

MDC Partners

S&P 500

Peer Group

2002

2003

2004

2005

2006

2007

MDC Partners
S&P 500
Peer Group

2002
100.00
100.00
100.00

2003
268.38
126.38
129.25

2004
251.76
137.75
130.81

2005
149.88
141.87
129.71

2006
173.30
161.20
166.05

2007
228.10
166.89
152.68

 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2007
Commission File Number 001 13178

MDC Partners Inc.

(Exact Name of Registrant as Speciﬁed in Its Charter)

Canada
(State or Other Jurisdiction of
Incorporation or Organization)

98 0364441
(I.R.S. Employer
Identiﬁcation Number)

45 Hazelton Avenue, Toronto, Ontario, M5R 2E3
(416) 960 9000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)

950 Third Avenue, New York, NY, 10022
(646) 429 1809
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

None

Name of Each Exchange on Which Registered

n/a

Securities Registered Pursuant to Section 12(g) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Class A Subordinate Voting Shares without par value

NASDAQ Toronto Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities Act.

Yes (cid:1) No (cid:2)

Indicate by check mark if the registrant is not required to ﬁle reports pursuant to Section 13 or Section 15(d) of the Act.

Yes (cid:1) No (cid:2)

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 (cid:2) No (cid:1)

Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in deﬁnitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. □

Indicate by check mark whether the registrant is a large accelerated ﬁler, an accelerated ﬁler, or a non-accelerated ﬁler. See

deﬁnition of ‘‘accelerated ﬁler and large accelerated ﬁler’’ in Rule 12b 2 of the Exchange Act.

(Check one):

Large accelerated ﬁler □

Accelerated ﬁler (cid:2)

Non-accelerated □

The aggregate market value of the shares of all classes of voting and non-voting common stock of the registrant held by
non-affiliates of the registrant on June 30, 2007 was approximately $201 million, computed upon the basis of the closing sales price
of the common stock on that date.

As of February 29, 2008, there were 27,059,117 outstanding shares of Class A subordinate voting shares without par value, and

2,503 outstanding shares of Class B multiple voting shares without par value, of the registrant.

MDC PARTNERS INC.

TABLE OF CONTENTS

PART I

Item 1.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A.

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B. Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . .

PART II

Market for Registrant’s Common Equity and Related Stockholder Matters . . . . . . . .

Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . .

Item 8.

Item 9.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9A.

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . .

Item 11.

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 12.

Security Ownership of Certain Beneﬁcial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.

Certain Relationships and Related Transactions, and Director Independence . . . . . . .

Item 14.

Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 15.

Exhibits and Financial Statements Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

2

7

10

10

10

10

11

13

14

37

38

85

85

86

87

88

88

88

88

90

91

i

References in this Annual Report on Form 10-K to ‘‘MDC Partners’’, ‘‘MDC’’, the ‘‘Company,’’ ‘‘we,’’

‘‘us’’ and ‘‘our’’ refer to MDC Partners Inc. and, unless the context otherwise requires or otherwise is
expressly stated, its subsidiaries.

All dollar amounts are stated in US dollars unless otherwise stated.

DOCUMENTS INCORPORATED BY REFERENCE

The following sections of the Proxy Statement for the Annual Meeting of Stockholders to be held on

May 30, 2008, are incorporated by reference in Parts I and III: ‘‘Election of Directors,’’ ‘‘Section 16(a)
Beneﬁcial Ownership Reporting Compliance,’’ ‘‘Compensation of Executive Officers,’’ ‘‘Report of the
Compensation Committee of the Board,’’ ‘‘Outstanding Shares,’’ ‘‘Transactions with MDC Partners Inc.’’ and
‘‘Appointment of Independent Accountants’’.

AVAILABLE INFORMATION

Information regarding the Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and any amendments to these reports, will be made available, free of charge, at
the Company’s website at http://www.mdc-partners.com, as soon as reasonably practicable after the Company
electronically ﬁles such reports with or furnishes them to the Securities and Exchange Commission (‘‘SEC’’).
Any document that the Company ﬁles with the SEC may also be read and copied at the SEC’s public refer-
ence room located at 100 F. Street, N.E., Washington, DC 20549. Please call the SEC at 1 (800) SEC-0330
for further information on the public reference room. The Company’s ﬁlings are also available to the public
from the SEC’s website at http://www.sec.gov.

The Company’s Code of Conduct, WhistleBlower Policy, and each of the charters for the Audit Commit-

tee, Human Resources & Compensation Committee and the Nominating and Corporate Governance
Committee, are available free of charge on the Company’s website at http://www.mdc-partners.com or by
writing to MDC Partners Inc., 950 Third Avenue, New York, NY 10022, Attention: Investor Relations.

ii

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements. The Company’s representatives may also make
forward-looking statements orally from time to time. Statements in this document that are not historical facts,
including statements about the Company’s beliefs and expectations, recent business and economic trends,
potential acquisitions, estimates of amounts for deferred acquisition consideration and ‘‘put’’ option rights,
constitute forward-looking statements. These statements are based on current plans, estimates and projections,
and are subject to change based on a number of factors, including those outlined in this section. Forward-
looking statements speak only as of the date they are made, and the Company undertakes no obligation to
update publicly any of them in light of new information or future events, if any.

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could

cause actual results to differ materially from those contained in any forward-looking statements. Such risk
factors include, but are not limited to, the following:

•

•

•

•

•

•

•

•

risks associated with effects of national and regional economic conditions;

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

the ﬁnancial success of the Company’s clients;

the Company’s ability to 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’’ options rights and deferred acquisition consideration;

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

foreign currency ﬂuctuations; and

risks arising from the Company’s historical stock option grant practices.

The Company’s business strategy includes ongoing efforts to engage in material acquisitions of ownership

interests in entities in the marketing communications services industry. The Company intends to ﬁnance these
acquisitions by using available cash from operations, from borrowings under its current Financing Agreement
and through incurrence of bridge or other debt ﬁnancing, either of which may increase the Company’s lever-
age 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 additional risk factors outlined in more
detail in this Annual Report on Form 10-K under the caption ‘‘Risk Factors’’ and in the Company’s other SEC
ﬁlings.

SUPPLEMENTARY FINANCIAL INFORMATION

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 manage-
ment and readers of this report in measuring the ﬁnancial performance and ﬁnancial condition of the
Company. 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.

1

Item 1. Business

MDC PARTNERS INC.

PART I

BUSINESS

MDC was formed by Certiﬁcate of Amalgamation effective December 19, 1986, pursuant to the Business

Corporations Act (Ontario). Effective December 19, 1986, MDC amalgamated with Branbury Explorations
Limited, and thereby became a public company operating under the name of MDC Corporation. On May 28,
1996, MDC changed its name to MDC Communications Corporation and, on May 29, 1999, it changed its
name to MDC Corporation Inc. On July 31, 2003, MDC acquired the remaining 26% of Maxxcom Inc.
(‘‘Maxxcom’’) that it did not already own, privatizing the now wholly-owned subsidiary and merging
Maxxcom’s corporate functions with MDC’s existing corporate functions. On January 1, 2004, MDC changed
its name to its current name, MDC Partners Inc., and on June 28, 2004, MDC was continued under Section
187 of the Canada Business Corporations Act. MDC’s registered and head office address is located at
45 Hazelton Avenue, Toronto, Ontario, M5R 2E3.

MDC is a leading provider of marketing communications services to customers globally. MDC has

operating units in the United States, Canada, Europe, Jamaica, Philippines and Mexico.

MDC’s subsidiaries provide a comprehensive range of marketing communications and consulting ser-

vices, including advertising, interactive marketing, direct marketing, database and customer relationship
management, sales promotion, corporate communications, market research, corporate identity, design and
branding and other related services.

Part I — Business

MDC’s strategy is to build, grow and acquire market-leading businesses that deliver innovative, value-
added marketing communications and strategic consulting services to their clients. MDC Partners strives to be
a partnership of best in class marketing communications and consulting companies whose strategic, creative
and innovative solutions are media-agnostic, challenge the status quo and achieve superior results for clients
and stakeholders.

MDC’s Corporate Group ensures that MDC is the most Partner-responsive marketing services network

through its strategic mandate to help Partner ﬁrms ﬁnd clients, tuck under acquisitions, and talent, as well as
cross-sell services and enhance their culture for innovation and growth. MDC ’s Corporate Group also works
directly with Partner ﬁrms to expand their offerings through new strategic services, as well as leverage the
collective expertise and scale of the partnership as a whole.

The MDC model is driven by three key elements:

Perpetual Partnership. The perpetual partnership creates ongoing alignment of interests to drive perfor-

mance. The perpetual partnership model functions by (1) identifying the ‘right’ Partners with a sustainable
differentiated position in the marketplace; (2) creating the ‘right’ Partnership structure generally by taking a
majority ownership position and leaving a substantial minority ownership position in the hands of operating
management to incentivize long-term growth; (3) providing access to more resources and leverage the
network’s, scale; and (4) delivering ﬁnancial results.

Entrepreneurialism. Entrepreneurial spirit is optimized by creating customized solutions to support and

grow our businesses.

Human and Financial Capital. The model balances accountability with ﬁnancial ﬂexibility to support

growth.

MDC operates through ‘‘Partner’’ companies within the following reportable segments:

Strategic Marketing Services (‘‘SMS’’)

The SMS segment generally consists of ﬁrms that offer a full suite of integrated marketing communica-
tion and consulting services, including advertising and media, interactive marketing, direct marketing, public

2

relations, corporate communications, market research, corporate identity and branding, and sales promotion to
national and global clients. The SMS segment is comprised of the following agencies: Allard Johnson; ACLC;
Colle + McVoy; Crispin Porter + Bogusky; Fletcher Martin; HL Group Partners; kirshenbaum bond +
partners; Mono Advertising; Redscout; VitroRobertson; Zig; and Zyman Group.

Customer Relationship Management (‘‘CRM’’)

The CRM segment, comprised of Accent Marketing Services, provides marketing services that interface

directly with the consumer of a client’s product or service. These services include the design, development
and implementation of a complete customer service and direct marketing initiative intended to acquire, retain
and develop each client’s customer base. This is accomplished primarily through sophisticated database man-
agement and analytical services and through customer care services using several domestic and two
foreign-based customer care facilities to regional, national and global clients.

Specialized Communication Services (‘‘SCS’’)

The SCS segment includes marketing services ﬁrms that are generally engaged to provide a single or a
few speciﬁc marketing services to regional, national and global clients. These ﬁrms provide niche solutions by
providing world class expertise in selected marketing services. The services they provide include advertising,
interactive marketing, sales promotion, direct marketing, media relations, design and branding, research, and
corporate communications. The SCS segment is comprised of the following agencies: Accumark
Communications, Bratskeir; Bruce Mau Design; Bryan Mills Iradesso; Company C; Computer Composition;
Hello Design; henderson bas; Ito Partners; Northstar Research Partners; Onbrand; Source Marketing;
TargetCom; Veritas Communications; and Yamamoto Moss Mackenzie.

Marketing Communications Equity and Cost Accounted Affiliates:

Adrenalina, LLC is accounted for under the equity method. Adrenalina is an agency focused on providing

marketing services to the Hispanic market, and its marketing disciplines include: media agnostic advertising,
retail and event marketing and consumer promotions. Cliff Freeman and Partners is accounted for under the
cost method. Cliff Freeman provides a range of advertising and marketing communication services.

Ownership Information

The following table includes certain information about MDC’s operating subsidiaries. The ‘‘Put and Call

Options’’ information represents existing contractual rights. Owners of interests in certain Marketing
Communications subsidiaries have the right in certain circumstances to require MDC to acquire additional
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 MDC to fund the related amounts during the periods
described in the accompanying notes. 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 MDC in the event such rights are exer-
cised is dependent on deﬁned 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. See also
‘‘Management’s Discussion and Analysis — Off-Balance Sheet Commitments — Put Rights of Subsidiaries’
Minority Shareholders’’ for further discussion.

Put options represent puts of ownership interests by other interest holders to MDC with reciprocal call
rights held by MDC for the same ownership interests with similar terms. The percentages shown represent the
potential ownership interest MDC could achieve in each company assuming that the remaining equity
holder(s) were to fully exercise their put option rights at the earliest opportunity.

3

MDC PARTNERS INC.

SCHEDULE OF CURRENT AND POTENTIAL MARKETING
COMMUNICATIONS COMPANY OWNERSHIP

% Owned at
12/31/07

Year of
Initial
Investment

Put/Call Options

2008

Thereafter

(See Notes)

Company

Consolidated:

Strategic Marketing Services
ACLC Inc . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allard Johnson Communications Inc.
. . . . . . . . .
Colle & McVoy, LLC . . . . . . . . . . . . . . . . . . . .
Crispin Porter & Bogusky, LLC . . . . . . . . . . . . .
Fletcher Martin, LLC . . . . . . . . . . . . . . . . . . . .
HL Group Partners, LLC . . . . . . . . . . . . . . . . .
kirshenbaum bond & partners, LLC . . . . . . . . . .
Mono Advertising, LLC . . . . . . . . . . . . . . . . . .
Redscout, LLC . . . . . . . . . . . . . . . . . . . . . . . .
Vitro Robertson, LLC . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zig Inc.
. . . . . . . . . . . . . . . . . . . .
Zyman Group, LLC.

Customer Relationship Management
Accent Marketing Services, LLC . . . . . . . . . . . .
Specialized Communication Services
Accumark Communications Inc. . . . . . . . . . . . . .
Bratskeir & Company, LLC . . . . . . . . . . . . . . . .
Bruce Mau Design Inc. . . . . . . . . . . . . . . . . . . .
Bryan Mills Iradesso Inc.
. . . . . . . . . . . . . . . . .
Company C Communications LLC . . . . . . . . . . .
. . . . . . . .
Computer Composition of Canada Inc.
Hello Design, LLC . . . . . . . . . . . . . . . . . . . . .
henderson bas partnership . . . . . . . . . . . . . . . . .
Ito Partners LLC . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Northstar Research Partners Inc.
Onbrand . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Source Marketing, LLC . . . . . . . . . . . . . . . . . .
TargetCom, LLC . . . . . . . . . . . . . . . . . . . . . . .
Veritas Communications Inc.
. . . . . . . . . . . . . . .
Yamamoto Moss Mackenzie . . . . . . . . . . . . . . .

90.0%
60.2%
95.0%
77.0%
85.0%
52.0%
100.0%
49.9%
60.0%
84.0%
50.1%
62.1%

1992
1992
1999
2001
1999
2007
2004
2004
2007
2004
2004
2005

—
80.1%
—
—
100.0%
—
—
—
—
—
—
—

93.7%

1999

99.5%

55.0%
85.0%
50.1%
62.8%
90.0%
100.0%
51.0%
65.0%
60.0%
72.4%
85.0%
80.0%
100.0%
64.1%
100.0%

1993
2000
2004
1989
2000
1988
2004
2004
2006
1998
1992
1998
2000
1993
2000

—
—
—
88.0%
—
—
—
100.0%
—
—
—
86.7%
—
72.3%
—

—

—

Note 1
Note 2
Note 3
Note 4

Note 5

Note 6
Note 7
Note 8
Note 9
Note 10

Note 11
Note12

Note 13
Note 14

Note 15

Note 16

Note 17

Note 18

Equity Accounted:
Adrenalina, LLC . . . . . . . . . . . . . . . . . . . . . . .

49.9%

2007

Cost Accounted:
Cliff Freeman and Partners, LLC . . . . . . . . . . . .

19.9%

2004

Notes

(1) MDC has the right to increase its ownership in ACLC Inc. through acquisitions of incremental interests,

and the other interest holder has the right to put to MDC the same incremental interests, up to 95% of
this entity in 2010 and up to 100% in 2012.

(2)

In January 2008, 9.9% of Allard Johnson Communications Inc. was put to MDC.

4

(3) 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.

(4) MDC has the right to increase its ownership in Crispin Porter & Bogusky, LLC (‘‘CPB’’) through acqui-
sitions of incremental interests and the other interest holders have the right to put to MDC the same
incremental interest up to 94% of this entity in 2010 and up to 100% in 2012.

(5) MDC has the right to increase its ownership in HL Group Partners, LLC through acquisitions of incre-
mental interests, and the other interest holders have the right to put to MDC the same incremental
interests, up to 64% of this entity in 2012, up to 76% in 2013 and up to 88% in 2014.

(6) MDC has the right to increase its ownership in Mono Advertising, LLC through acquisitions of incre-
mental 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 59.9% in 2011, up to 64.9% in 2012, up to 69.9% in
2013 and up to 74.9% in 2014.

(7) 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.

(8) MDC has the right to increase its ownership in Vitro Robertson, LLC through acquisition of an incremen-
tal interest, and the other interest holder has the right to put to MDC the same incremental interest, up to
100% of this entity in 2011. MDC’s current economic interest is 100% of proﬁts as its priority return is
not expected to be exceeded.

(9) MDC has the right to increase its ownership in Zig Inc. through acquisition of an incremental interest,

and the other interest holders have the right to put to MDC the same incremental interest, up to 80% of
this entity in 2009.

(10) As of December 31, 2007, MDC’s economic interest in Zyman Group, LLC was 100% of proﬁts as its

priority return is not expected to be exceeded.

(11) 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%.

(12) MDC has the right to increase its economic ownership in Bratskeir & Company LLC through acquisi-
tions of incremental interests, and the other interest holders have the right to put to MDC the same
incremental interests, up to 90% of this entity in 2010, up to 93% in 2012, up to 97% in 2013 and up to
100% in 2014.

(13) MDC has the right to increase its ownership in Bryan Mills Iradesso, LLC 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.

(14) 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.

(15) MDC has the right to increase its ownership in Ito Partners 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 2011.

(16) MDC has the right to increase its ownership in Source Marketing, LLC through acquisitions of incremen-
tal interests, and the other interest holders have the right to put to MDC the same incremental interests
up 93.4% of this entity in 2010 and 100% in 2012.

(17) MDC has the right to increase its ownership in Veritas Communications Inc. through acquisitions of

5

incremental interests, and the other interest holders have the right to put to MDC the same incremental
interests, up to 75% of this entity in 2009, up to 78% in 2010, up to 86% in 2011 and up to 100% in
2012.

(18) 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.

Highlights Since January 1, 2007

Since January 1, 2007, the following signiﬁcant developments in MDC’s business have occurred.

On November 1, 2007, the Company acquired an additional 28% of Crispin Porter & Bogusky LLC,

(‘‘CPB’’) from certain minority holders. The purchase price consisted of a payment of approximately
$22.6 million in cash and the issuance of 514,025 newly-issued shares of the Company’s Class A shares
valued at approximately $5.5 million. Following this transaction, the Company’s ownership in CPB is 77%.

On October 18, 2007, the Company acquired the remaining 40% equity interest in kirshenbaum bond &

partners LLC, (‘‘KBP’’) from the founding partners. The purchase price consisted of an initial payment of
approximately $12.3 million in cash and the issuance of 269,389 newly-issued shares of the Company’s Class
A shares valued at approximately $2.9 million. In addition, the Company expects to pay contingent amounts
to the selling partners in 2009 and 2010, based on KBP’s ﬁnancial performance in 2008 and 2009.

On June 15, 2007, the Company acquired a 60% membership interest in Redscout, LLC (‘‘Redscout’’).

Redscout is a brand development and innovation consulting ﬁrm. The purchase price consisted of $4.0 million
in cash and $0.6 million was paid in the form of 76,340 newly issued Class A shares of the Company. Based
on Redscout’s results in 2007, the Company expects to make an additional cash payment of $1.3 million and
issue shares valued at $0.2 million during 2008. In addition, the Company may be required to make additional
payments which are contingent on the results of Redscout’s operations through December 2008.

On April 4, 2007, the Company acquired a 59% membership interest in HL Group Partners LLC (‘‘HL’’).

The Company intends to use up to 8% of the membership interests acquired for purposes of entering into a
proﬁts interest arrangement with other key executives of HL, or ‘‘Gen II’’ management. HL is a marketing
strategy and corporate communications ﬁrm with a specialty in high end fashion and luxury goods. The pur-
chase price consisted of $4.8 million in cash, of which $4.5 million was paid and $0.3 million will be paid on
April 4, 2008, and $1 million was paid in the form of 128,550 newly-issued Class A shares of the Company.

Financial Information Relating to Business Segments and Geographic Regions

For ﬁnancial information relating to (a) the Company’s Marketing Communications Businesses, and
(b) the geographic regions the businesses operate within, refer to Note 15 (Segmented Information) of the
notes to the consolidated ﬁnancial statements included in this Annual Report and to ‘‘Item 7. Management’s
Discussion and Analysis’’ for further discussion.

Competition

In the competitive, highly fragmented marketing and communications industry, the Company’s operating

companies compete for business with the operating subsidiaries of large global holding companies such as
Omnicom Group Inc., Interpublic Group of Companies, Inc., WPP Group plc, Publicis Group SA and Havas
Advertising. These global holding companies generally have greater resources than those available to MDC
and its subsidiaries, and such resources may enable them to aggressively compete with the Company’s market-
ing communications businesses. Each of MDC’s operating companies also faces competition from numerous
independent agencies that operate in multiple markets. MDC’s operating companies must compete with these
other companies to maintain existing client relationships and to obtain new clients and assignments. MDC’s
operating companies compete at this level by providing clients with marketing ideas and strategies that are
focused on increasing clients’ revenues and proﬁts. These existing and potential clients include multinational
corporations and national companies with mid-to-large sized marketing budgets. MDC also beneﬁts from
cooperation among the operating companies through referrals and the sharing of both services and expertise,
which enables MDC to service clients’ varied marketing needs.

6

A company’s ability to compete for new clients is affected in some instances by the policy, which many

advertisers and marketers impose, of not permitting their agencies to represent competitive accounts in the
same market. In the vast majority of cases, however, MDC’s consistent maintenance of separate, independent
operating companies has enabled MDC to represent competing clients across its network.

Industry Trends

Historically, advertising has been the primary service provided by the marketing communications indus-

try. However, as clients aim to establish one-to-one relationships with customers, and more accurately measure
the effectiveness of their marketing expenditures, specialized and digital communications services are consum-
ing a growing portion of marketing dollars. This is increasing the demand for a broader range of
non-advertising marketing communications services (i.e., direct marketing, sales promotion, interactive, etc).
The notion of a mass market audience is giving way to life-style segments, social events/networks, and
online/mobile communities, each segment requiring a different message and/or different, often non-traditional,
channels of communication. Global marketers now seek innovative ideas wherever they can ﬁnd them,
providing new opportunities for small to mid-sized communications companies.

Clients

The Company serves clients in virtually every industry and in many cases the same clients in various
locations. Representation of a client rarely means that MDC handles marketing communications for all brands
or product lines of the client in every geographical location. MDC’s agencies have written contracts with
many of their clients. As is customary in the industry, these contracts provide for termination by either party
on relatively short notice. See ‘‘Management’s Discussion and Analysis — Executive Overview’’ for a further
discussion of MDC’s arrangements with its clients.

During 2007, 2006 and 2005, the Company’s largest client, Sprint, accounted for approximately 16.3%,

16.0% and 14.7% of revenues, respectively. In addition, MDC’s ten largest clients (measured by revenue
generated) accounted for 38%, 42% and 36% of 2007, 2006 and 2005 revenues, respectively.

Employees

As of December 31, 2007, MDC and its subsidiaries had the following number of employees within its

reportable segments:

Segment

Strategic Marketing Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer Relationship Management
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialized Communication Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Total

1,636
4,318
581
26
6,561

See Management’s Discussion and Analysis for a discussion of the effect of cost of services sold on
MDC’s historical results of operations. Because of the personal service character of the marketing communica-
tions businesses, the quality of personnel is of crucial importance to MDC’s continuing success. MDC
considers its relations with employees to be satisfactory.

Effect of Environmental Laws

MDC believes it is substantially in compliance with all regulations concerning the discharge of materials
into the environment, and such regulations have not had a material effect on the capital expenditures or opera-
tions of MDC.

Item 1A. Risk Factors

The following factors could adversely affect the Company’s revenues, results of operations or ﬁnancial

condition. See also ‘‘Statement Regarding Forward-Looking Disclosure.’’

MDC competes for clients in highly competitive industries.

The Company operates in a highly competitive environment in an industry characterized by numerous
ﬁrms of varying sizes, with no single ﬁrm or group of ﬁrms having a dominant position in the marketplace.

7

Competitive factors include creative reputation, management, personal relationships, quality and reliability of
service and expertise in particular niche areas of the marketplace. In addition, because a ﬁrm’s principal asset
is its people, barriers to entry are minimal, and relatively small ﬁrms are, on occasion, able to take all or some
portion of a client’s business from a larger competitor.

While many of MDC’s client relationships are long-standing, companies put their advertising and market-
ing services businesses up for competitive review from time to time, including at times when clients enter into
strategic transactions. To the extent that the Company fails to maintain existing clients or attract new clients,
MDC’s business, ﬁnancial condition and operating results may be affected in a materially adverse manner.

MDC’s revenues are susceptible to declines as a result of general adverse economic developments.

The marketing communications services industry is cyclical and is subject to the negative effects of
economic downturns. MDC’s advertising and marketing services subsidiaries and affiliates are also exposed to
the risk of clients changing their business plans and/or reducing their marketing budgets. As a result, if the
U.S., Canadian and European economies continue to weaken, our businesses, ﬁnancial condition and operating
results are likely to be negatively affected.

The loss of lines of credit under our Financing Agreement could adversely affect MDC’s liquidity and our
ability to implement MDC’s acquisition strategy and fund any put options if exercised.

As of December 31, 2007, MDC had utilized approximately $120.4 million of its Financing Agreement

in the form of borrowings and letters of credit. MDC uses amounts available under the Financing Agreement,
together with cash ﬂow from operations, to fund its working capital needs, to fund the exercise of put option
obligations and to fund our strategy of making selective acquisitions of ownership interests in entities in the
marketing communications services industry.

The Company is currently in compliance with all of the terms and conditions of the Financing

Agreement, and management believes that the Company will be in compliance with covenants over the next
twelve months. If, however, events were to occur which result in MDC losing all or a substantial portion of
its available credit under the Financing Agreement, MDC would be required to seek other sources of liquidity.
In addition, if MDC were unable to replace this source of liquidity, then MDC’s ability to fund its working
capital needs and any contingent obligations with respect to put options would be materially adversely
affected.

MDC may not realize the beneﬁts it expects from past acquisitions or acquisitions MDC may make in the
future.

MDC’s business strategy includes ongoing efforts to engage in material acquisitions of ownership inter-
ests in entities in the marketing communications services industry. MDC intends to ﬁnance these acquisitions
by using available cash from operations and through incurrence of debt or bridge ﬁnancing, either of which
may increase its leverage ratios, or by issuing equity, which may have a dilutive impact on its existing share-
holders. At any given time MDC 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 MDC. 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 its securities.

The success of acquisitions or strategic investments depends on the effective integration of newly
acquired businesses into MDC’s current operations. Such integration is subject to risks and uncertainties,
including realization of anticipated synergies and cost savings, the ability to retain and attract personnel and
clients, the diversion of management’s attention from other business concerns, and undisclosed or potential
legal liabilities of the acquired company. MDC may not realize the strategic and ﬁnancial beneﬁts that it
expects from any of its past acquisitions, or any future acquisitions.

MDC’s business could be adversely affected if it loses key clients.

MDC’s strategy has been to acquire ownership stakes in diverse marketing communications businesses to

minimize the effects that might arise from the loss of any one client or executive. The loss of one or more

8

clients could materially affect the results of the individual operating companies and the Company as a whole.
Management succession at our operating units is very important to the ongoing results of the Company
because, as in any service business, the success of a particular agency is dependent upon the leadership of key
executives and management personnel. If key executives were to leave our operating units, the relationships
that MDC has with its clients could be adversely affected.

MDC’s ability to generate new business from new and existing clients may be limited.

To increase its revenues, MDC needs to obtain additional clients or generate demand for additional
services from existing clients. MDC’s ability to generate initial demand for its services from new clients and
additional demand from existing clients is subject to such clients’ and potential clients’ requirements, pre-
existing vendor relationships, ﬁnancial condition, strategic plans and internal resources, as well as the quality
of MDC’s employees, services and reputation and the breadth of its services. To the extent MDC cannot
generate new business from new and existing clients due to these limitations, it will limit MDC’s ability to
grow its business and to increase its revenues.

MDC’s business could be adversely affected if it loses or fails to attract key employees.

Employees, including creative, research, media, account and practice group specialists, and their skills

and relationships with clients, are among MDC’s most important assets. An important aspect of MDC’s com-
petitiveness is its ability to retain key employee and management personnel. Compensation for these key
employees is an essential factor in attracting and retaining them, and MDC may not offer a level of compen-
sation sufficient to attract and retain these key employees. If MDC fails to hire and retain a sufficient number
of these key employees, it may not be able to compete effectively.

MDC is exposed to the risk of client media account defaults.

The Company often incurs expenses on behalf of its clients in order to secure a variety of media time
and space, in exchange for which it receives a fee. The difference between the gross cost of the media and the
net revenue earned by us can be signiﬁcant. While MDC takes precautions against default on payment for
these services (such as advance billing of clients) and have historically had a very low incidence of default,
MDC is still exposed to the risk of signiﬁcant uncollectible receivables from our clients.

MDC’s results of operations are subject to currency ﬂuctuation risks.

Although MDC’s ﬁnancial results are reported in U.S. dollars, a portion of its revenues and operating
costs are denominated in currencies other than the US dollar. As a result, ﬂuctuations in the exchange rate
between the U.S. dollar and other currencies, particularly the Canadian dollar, may affect MDC’s ﬁnancial
results and competitive position.

MDC has identiﬁed, and corrected, improper practices relating to its historical option grant practice.

As disclosed in the Company’s Report on Form 8-K ﬁled on December 22, 2006, a Special Committee of
disinterested and independent directors, with the assistance of independent legal counsel, completed an internal
review of the Company’s historical option grant practice. In connection with this review, the Company has
corrected all historical option grants for which the exercise price did not correspond to the market price on the
date of the approval of the grant so that the exercise price is now the same as the market price on the date of
the approval. These adjustments were made pursuant to the self-correcting provisions in the Company’s option
plan. As previously disclosed, the Company does not intend nor expect to restate any ﬁnancial statements for
prior periods, and management does not expect any material impact on the Company’s ﬁnancial statements as
a result of the Special Committee’s review and conclusions.

Goodwill may become impaired.

We have recorded a signiﬁcant amount of goodwill in our consolidated ﬁnancial statements in accordance

with U.S. generally accepted accounting principles (‘‘U.S. GAAP’’ or ‘‘GAAP’’) resulting from our acquisi-
tion activities, which principally represents the specialized know-how of the workforce at the agencies we
have acquired. We annually test the carrying value of goodwill for impairment, as discussed in Note 2 to our

9

consolidated ﬁnancial statements. The estimates and assumptions about future results of operations and cash
ﬂows made in connection with the impairment testing could differ from future actual results of operations and
cash ﬂows. While we have concluded, for each year presented in our ﬁnancial statements, that our goodwill
relating to continuing operations is not impaired, future events could cause us to conclude that the asset values
associated with a given operation may become impaired. Any resulting impairment loss could materially
adversely affect our results of operations and ﬁnancial condition.

MDC is subject to regulations that could restrict its activities or negatively impact its revenues.

Advertising and marketing communications businesses are subject to government regulation, both domes-
tic and foreign. There has been an increasing tendency in the United States on the part of advertisers to resort
to litigation and self-regulatory bodies to challenge comparative advertising on the grounds that the advertising
is false and deceptive. Moreover, there has recently been an expansion of speciﬁc rules, prohibitions, media
restrictions, labeling disclosures and warning requirements with respect to advertising for certain products.
Representatives within government bodies, both domestic and foreign, continue to initiate proposals to ban the
advertising of speciﬁc products and to impose taxes on or deny deductions for advertising which, if
successful, may have an adverse effect on advertising expenditures and consequently MDC’s revenues.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

See the notes to the Company’s consolidated ﬁnancial statements included in this Annual Report for a
discussion of the Company’s lease commitments and the ‘‘Management’s Discussion and Analysis’’ for the
impact of occupancy costs on the Company’s operating expenses.

The Company maintains office space in many cities in the United States, Canada, and in the United

Kingdom, Jamaica, Philippines and Mexico. This space is primarily used for office and administrative pur-
poses by the Company’s employees in performing professional services. This office space is in suitable and
well-maintained condition for MDC’s current operations. All of the Company’s materially important office
space is leased from third parties with varying expiration dates. Certain of these leases are subject to rent
reviews or contain various escalation clauses and certain of our leases require our payment of various operat-
ing expenses, which may also be subject to escalation. In addition, leases related to the Company’s non-US
businesses are denominated in other than US dollars and are therefore subject to changes in foreign exchange
rates.

Item 3. Legal Proceedings

MDC’s operating entities are involved in legal proceedings of various types. While any litigation contains
an element of uncertainty, MDC 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 MDC.

Item 4. Submission of Matters to a Vote of Security Holders

MDC’s annual shareholders’ meeting has historically been held in the second quarter of the year. No

matters were submitted to a vote of security holders during the fourth quarter of 2007.

10

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market Information and Holders of Class A Subordinate Voting Shares

The principal United States market on which the Company’s Class A subordinate voting shares are traded

is the NASDAQ National Market (‘‘NASDAQ’’) (symbol: ‘‘MDCA’’), and the principal market in Canada is
The Toronto Stock Exchange (symbol: ‘‘MDZ.A’’). As of February 29, 2008, the approximate number of
holders of our Class A subordinate voting shares, including those whose shares are held in nominee name, was
2,800. Quarterly high and low sales prices per share of the Company’s Class A subordinate voting shares, as
reported by the NASDAQ composite and The Toronto Stock Exchange, respectively, for each quarter in the
years ended December 31, 2007 and 2006 are as follows:

Nasdaq National Market

Quarter Ended

High

Low

($ per Share)

March 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.50
9.60
9.00
8.06
9.47
9.11
11.18
11.52

6.06
7.75
6.80
6.79
7.02
7.59
8.61
8.31

The Toronto Stock Exchange

Quarter Ended

High

Low

(C $ per Share)

March 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.04
10.63
10.00
9.01
9.50
10.20
11.64
11.26

7.32
8.68
7.55
7.65
8.26
8.36
9.36
8.35

As of February 29, 2008, the last reported sale price of the Class A subordinate voting shares was $8.07

on NASDAQ and C$7.97 on the Toronto Stock Exchange.

Dividend Policy

MDC has not declared nor paid any dividends on its Class A subordinate voting shares since its incorpo-

ration in 1986. In addition, MDC’s Financing Agreement prohibits MDC from declaring and paying cash
dividends. Accordingly, it is expected that no dividends will be paid by MDC on the Class A subordinate
voting shares or the Class B shares in the foreseeable future. Any future payment of dividends will be deter-
mined by the board of directors of MDC Partners Inc. on the basis of MDC’s earnings, ﬁnancial requirements
and other relevant factors.

11

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information regarding securities issued under our equity compensation

plans as of December 31, 2007.

Number of
Securities to Be
Issued upon
Exercise of
Outstanding
Options and
Rights

Weighted
Average Exercise
Price of
Outstanding
Options and
Rights

Number of
Securities
Remaining
Available for
Future Issuance
(Excluding
Column (a))

(a)

(b)

(c)

Equity Compensation Plans:
Approved by stockholders:

Share options . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock appreciation rights
. . . . . . . . . . . . . . . . . .
Not approved by stockholders:

975,029
10,647(1)

$11.14
$11.33

1,111,622
1,047,894

None . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

—

(1) Based on December 31, 2007 closing Class A subordinate voting share price on the Toronto Stock

Exchange of C$9.65 ($9.74).

On May 26, 2005, the Company’s shareholders’ approved the 2005 Stock Incentive Plan, which provides

for the issuance of two million Class A shares. On June 1, 2007, the Company’s shareholders approved an
amendment to the 2005 Stock Incentive Plan, which increased the number of shares available for issuance to
three million Class A shares.

See also Note 13 of the Notes to the Consolidated Financial Statements included in this Annual Report.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

None

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities:

Shares — Class A subordinate voting shares

For the twelve months ended December 31, 2007, the Company made no open market purchases of its

Class A subordinate voting shares or its Class B shares. Pursuant to its Financing Agreement, the Company is
currently restricted from repurchasing its shares.

During 2007, the Company’s employees surrendered 83,253 Class A shares valued at $0.7 million in
connection with the required tax withholding resulting from the vesting of restricted stock. In addition, during
2007, the Company received 10,595 Class A shares valued at $0.1 million in connection with a partial repay-
ment of a note receivable from the Company’s Chief Executive Officer. These 93,848 Class A shares were
subsequently retired and no longer remain outstanding as of December 31, 2007.

Transfer Agent and Registrar for Common Stock

The transfer agent and registrar for the Company’s common stock is CIBC Mellon Trust Company. CIBC

Mellon Trust Company operates a telephone information inquiry line that can be reached by dialing toll-free
1-800-387-0825 or 416-643-5500.

Correspondence may be addressed to:
MDC Partners Inc.
C/o CIBC Mellon Trust Company Corporate Trust Services
P.O. Box 7010 Adelaide Street
Postal Station Toronto, Ontario M5G 2M7

12

Item 6. Selected Financial Data

The following selected ﬁnancial data should be read in connection with Item 7 — ‘‘Management’s Dis-

cussion and Analysis of Financial Condition and Results of Operations’’ and the consolidated ﬁnancial
statements and notes that are included in this annual report on Form 10-K.

Years Ended December 31,

Operating Data
Revenues . . . . . . . . . . . . . . . . . .
Operating proﬁt . . . . . . . . . . . . . .
Income (loss) from continuing

operations . . . . . . . . . . . . . . . .
Stock-based compensation included
in income from operations . . . . .

Earnings (Loss) per Share
Basic
Continuing operations . . . . . . . . . .
Diluted
Continuing operations . . . . . . . . . .
Financial Position
Total assets . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . .
Fixed charge coverage ratio . . . . . .

2007

2006

2005
(Dollars in Thousands, Except per Share Data)

2004

2003

$547,319
$ 23,015

$412,207
$ 23,782

$349,824
$ 22,312

$234,094
3,968
$

$197,966
8,787
$

6,237

$ 28,449

8,388

$

6,182

$ (19,078)

$ (8,723)

$ (7,838)

$ 10,217

$

8,361

$

3,272

$

$

(0.76)

(0.76)

$

$

(0.37)

(0.37)

$

$

(0.34)

(0.34)

$

$

$

$

0.29

0.27

$520,698
$164,754
1.36

$493,501
$ 95,454
1.98

$507,315
$123,149
2.41

$437,341
$ 53,538
2.77

$

$

1.60

1.38

$321,539
$150,142
3.10

Several signiﬁcant factors that should be considered when comparing the annual results shown above are

as follows:

Year Ended December 31, 2007

During the year ended December 31, 2007, MDC incurred $7.2 million of primarily non cash unrealized

foreign exchange losses due to the weakening of the US dollar as compared to the Canadian dollar on its
intercompany balances that are denominated in the US dollar.

Effective December 31, 2007, two of the Company’s operating subsidiaries, Margeotes Fertitta Powell,
LLC (‘‘MFP’’) and Banjo Strategic Entertainment, LLC (‘‘Banjo’’), have been deemed discontinued opera-
tions. All periods have been restated to reﬂect these discontinued operations. See Note 10 of the notes to
consolidated ﬁnancial statements included herein.

Year Ended December 31, 2006

On November 14, 2006, MDC sold its Secure Products International Products division, and all periods

have been restated to reﬂect these discontinued operations. See Note 10 of the notes to consolidated ﬁnancial
statements included herein.

Year Ended December 31, 2005

On June 28, 2005, MDC completed an issuance in Canada of convertible unsecured subordinated deben-

tures amounting to $38.7 million as of December 31, 2005 (C$45.0 million) (the ‘‘Debentures’’). The
Debentures mature on June 30, 2010. The Debentures bear interest at an annual rate of 8.00% payable semi-
annually, in arrears, on June 30 and December 31 of each year, commencing December 31, 2005. Effective
January 1, 2006 until the date on which a registration statement for the resale of the Debentures is declared
effective by the SEC, the Debentures will bear interest at an annual rate of 8.50%, the registration statement
was declared effective during the second quarter of 2006. The Company’s interest rate was 8.5% until
June 30, 2006, at which time the rate was reduced to 8.0%.

13

On April 1, 2005, MDC, through a wholly-owned subsidiary, purchased 61.6% of the total outstanding
membership units of Zyman Group, LLC for a purchase price equal to $52.4 million paid in cash, plus the
issuance of 1,139,975 class A shares of MDC valued at approximately $11.2 million.

Year Ended December 31, 2004

During 2004, MDC sold its remaining 20% interest in Custom Direct, Inc. (‘‘CDI’’) with a resulting

reduction in long-term debt and a net gain of $15.0 million.

MDC acquired interests in several marketing communication businesses in 2004, which contributed

$56.1 million of revenue, $2.9 million of income from continuing operations and $120.6 million of assets.

Effective September 22, 2004, MDC consolidated Crispin Porter + Bogusky, LLC (‘‘CPB’’) as a variable

interest entity. Prior to that date, CPB had been accounted for on an equity basis since acquired by MDC in
2001. As a result of the change in accounting, from September 22, 2004, CPB contributed revenues of
$13.3 million and increased MDC’s assets by approximately $80.0 million.

Year Ended December 31, 2003

During 2003, MDC disposed of 80% of its interest in CDI and retired the remaining 10.5% senior subor-

dinated notes. The divestitures and debt repayment resulted in a gain of $42.1 million. CDI contributed
$48.5 million of revenue and $6.1 million of income from continuing operations in 2003.

Effective January 1, 2003, MDC prospectively adopted fair value accounting for stock based awards as

prescribed by SFAS No. 123 ‘‘Accounting for Stock-Based Compensation.’’

Item 7. 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 2007 means the period beginning January 1, 2007, and ending
December 31, 2007).

The Company reports its ﬁnancial results in accordance with generally accepted accounting principles

(‘‘GAAP’’) of the United States of America (‘‘US GAAP’’). However, the Company has included certain
non-US GAAP ﬁnancial measures and ratios, which it believes provide useful information to both manage-
ment 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 accor-
dance with US GAAP.

Executive Summary

The Company’s objective is to create shareholder value by building market-leading subsidiaries and
affiliates that deliver innovative, value-added marketing communications and strategic consulting to their
clients. Management believes that shareholder value is maximized with an operating philosophy of ‘‘Perpetual
Partnership’’ with proven committed industry leaders in marketing communications.

MDC manages the business by monitoring several ﬁnancial and non-ﬁnancial performance indicators.
The key indicators that we review focus on the areas of revenues and operating expenses. Revenue growth is
analyzed by reviewing the components and mix of the growth, including: growth by major geographic loca-
tion; existing growth by major reportable segment (organic); growth from currency changes; and growth from
acquisitions.

MDC conducts its businesses through the Marketing Communications Group. Within the Marketing
Communications Group, there are three reportable operating segments: Strategic Marketing Services (‘‘SMS’’),
Customer Relationship Management (‘‘CRM’’) and Specialized Communication Services (‘‘SCS’’). In addi-
tion, MDC has a ‘‘Corporate Group’’ which provides certain administrative, accounting, ﬁnancial and legal
functions.

14

Marketing Communications Businesses

Through its operating ‘‘partners’’, MDC provides advertising, consulting, customer relationship manage-

ment, and specialized communication services to clients throughout the United States, Canada, Mexico,
Europe, Jamaica and the Philippines.

The operating companies earn revenue from agency arrangements in the form of retainer fees or commis-

sions; 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
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 tend to ﬂuctuate in conjunction with changes in revenues, whereas office and general expenses
and depreciation and amortization, which are not directly related to servicing clients, tend to decrease as a
percentage of revenue as revenues increase because a signiﬁcant portion of these expenses are relatively ﬁxed
in nature.

Certain Factors Affecting Our Business

Acquisitions and Dispositions. MDC’s strategy includes acquiring ownership stakes in well-managed
businesses with strong reputations in the industry. MDC has entered into a number of acquisition and disposal
transactions during the 2005 to 2007 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 11 ‘‘Discontinued Operations’’ in the notes to the consolidated
ﬁnancial statements included in this Annual Report on Form 10-K.

Foreign Exchange Fluctuations. MDC’s ﬁnancial results and competitive position are primarily affected
by ﬂuctuations in the exchange rate between the US dollar and non-US dollars, primarily the Canadian dollar,
as described in Item 1A ‘‘Risk Factors — MDC’s results of operations are subject to currency ﬂuctuation
risks.’’ See also ‘‘Quantitative and Qualitative Disclosures About Market Risk — Foreign Exchange.’’ Further
information is provided in ‘‘Foreign Currency Translation’’ in Note 2 of the notes to consolidated ﬁnancial
statements included in this Annual Report on Form 10-K.

Seasonality. Historically, with some exceptions, the fourth quarter generates the highest quarterly rev-
enues in a year. The fourth quarter has historically been the period in the year in which the highest volumes
of media placements and retail related consumer marketing occur.

Other important factors that could affect our results of operations are set forth in ‘‘Item 1A Risk

Factors.’’

Year Ended December 31, 2007

New Financing Agreement

Summary of Key Transactions

On June 18, 2007, MDC and its material subsidiaries entered into a new $185 million senior secured
ﬁnancing agreement (the ‘‘Financing Agreement’’) with Fortress Credit, an affiliate of Fortress Investment
Group, as collateral agent and Wells Fargo Bank, as administrative agent, and a syndicate of lenders. This
facility replaced the Company’s existing $96.5 million credit facility that was originally expected to mature on
September 21, 2007. Proceeds from the Financing Agreement were used to repay in full the outstanding
balances on the Company’s existing credit facility. The obligations repaid totaled approximately $73.7 million.
All of these repaid credit facilities have been terminated.

The new Financing Agreement consists of a $55 million revolving credit facility, a $60 million term loan

and a $70 million delayed draw term loan. Borrowings under the Financing Agreement will bear interest as

15

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 Compa-
ny’s Senior Leverage Ratio. In addition, the Company is required to pay a facility fee of 50 basis points.

Step-Up Acquisitions in Key Partners

On November 1, 2007, the Company acquired an additional 28% of Crispin Porter & Bogusky LLC,

(‘‘CPB’’) from certain minority holders. The purchase price consisted of a payment of approximately
$22.6 million in cash and the issuance of 514,025 newly-issued shares of the Company’s Class A subordinated
voting stock valued at approximately $5.5 million. Following this transaction, the Company’s ownership in
CPB is 77%.

On October 18, 2007, the Company acquired the remaining 40% equity interest in kirshenbaum bond &
partners LLC (‘‘KBP’’). The purchase price consisted of an initial payment of approximately $12.3 million in
cash and the issuance of 269,389 newly-issued shares of the Company’s Class A subordinated voting stock
valued at approximately $2.9 million. In addition, the Company expects to pay contingent amounts to the
selling minority holder in 2009 and 2010, based on KBP’s ﬁnancial performance in 2007, 2008 and 2009.

Management Services Agreement

On April 27, 2007, the Company entered into a new Management Services Agreement (the ‘‘Services
Agreement’’) with Miles Nadal and with Nadal Management, Inc. to set forth the terms and conditions on
which Mr. Nadal will continue to provide services to the Company as its Chief Executive Officer. Mr. Nadal’s
prior services agreement with the Company was scheduled to expire on October 31, 2007, subject to two-year
annual renewals. If the Company were not going to enter into a new agreement with Mr. Nadal and did not
intend to allow the prior agreement to renew, it would have been required to give Mr. Nadal notice of such
non-renewal by April 30, 2007.

As an incentive to enter into the Services Agreement, the Company paid a one-time non-renewal fee of

$3.5 million upon execution of the Services Agreement, which was expensed during the second quarter of
2007. Mr. Nadal used a portion of the proceeds to repay to the Company the $2.7 million (C$3.0 million) note
receivable due on November 1, 2007 from Nadal Management, Inc. The Company had previously reserved the
principal amount of this note receivable; the collection of this receivable resulted in a one-time recovery of
$2.7 million, which was included in operating income in the year ended December 31, 2007. In addition,
during 2007, Mr. Nadal repaid an additional $0.5 million of other previously reserved notes receivable. As a
result of these transactions above, operating income was adversely impacted by $0.4 million during the year
ended December 31, 2007.

Separation Agreement

On July 23, 2007, the Company entered into a separation agreement and release with its former President

and Chief Financial Officer. In connection with this agreement and related matters, the Company incurred
charges of approximately $1.9 million during the year ended December 31, 2007. This charge represents all
costs and expenses incurred as a consequence of this separation.

Year Ended December 31, 2006

Sale of Secure Products International

On November 14, 2006, MDC completed the sale of its Secure Products International Group for consid-

eration equal to approximately $27 million. Consideration was received in the form of cash of $20 million and
additional $1 million annual payments over the next ﬁve years. In addition, MDC received a 7.5% equity
interest in the newly formed entity acquiring the Secure Products International Group. As of December 31,
2007, MDC received $3 million of these annual payments and a dividend distribution equal to $0.8 million.
During 2006, the Company recorded an impairment loss of $19.5 million and a gain on a sale of $1.8 million.
The results of operations of the Secure Products International Group have been included in discontinued
operations in 2006 and prior periods presented.

16

Year Ended December 31, 2005

Zyman Group Acquisition

On April 1, 2005, MDC, through a wholly-owned subsidiary, purchased approximately 61.6% of the total

outstanding membership units of Zyman Group, LLC (‘‘Zyman Group’’) for a purchase price equal to
$52.4 million in cash and 1,139,975 Class A shares of MDC.

During the ﬁrst ﬁve years following MDC’s acquisition of the Zyman Group, MDC’s allocation of proﬁts

of the Zyman Group may differ from its proportionate share of ownership. On an annual basis, the Company
receives a 20% priority return calculated based on its total investment in Zyman Group. Thereafter, based on
calculations set forth in the operating agreement of Zyman Group (the ‘‘LLC Agreement’’), the Company’s
share of remaining Zyman Group proﬁts in excess of a predetermined threshold, may be disproportionately
less than its equity ownership in Zyman Group. Speciﬁcally, on an annual basis, if Zyman operating results
exceed a deﬁned operating margin, the Company would be entitled to 25% of the excess margins in the ﬁrst
two years of the LLC Agreement and 30% of the excess margins in the following three years of the LLC
Agreement, rather than the Company’s equity portion of 61.6%. After the ﬁrst ﬁve years, the earnings of the
Zyman Group will be allocated in a proportion equal to the respective equity interests of the members.

Based on the Company’s investment in the Zyman Group, at December 31, 2007, the annual priority
return is expected to be equal to approximately $12.7 million, with the minority owners receiving the next
$7.9 million up to the ‘‘threshold’’ amount of $20.6 million. If proﬁts are insufficient to meet the Company’s
priority return during any of the ﬁrst ﬁve years, the Company will receive a catch-up payment through year
ﬁve equal to any shortfall from the prior year(s). Furthermore, if proﬁts do not reach the threshold amount
during the ﬁrst ﬁve years, the minority owners will be entitled to receive a catch-up payment through year
ﬁve equal to any shortfall from the prior year(s). Based on Zyman Group’s results for 2007, the Company
received less than its priority return from Zyman Group in 2007.

8% Convertible Debentures

MDC completed an issuance in Canada of convertible unsecured subordinated debentures amounting to

$38.7 million as of December 31, 2005 (C$45.0 million) (the ‘‘Debentures’’). The Debentures mature on
June 30, 2010. The Debentures bear interest at an annual rate of 8.00% payable semi-annually, in arrears, on
June 30 and December 31 of each year, commencing December 31, 2005. Because a registration statement for
resale of the Debentures was not declared effective on December 31, 2005, but rather during the second
quarter of 2006, the Company’s interest rate was 8.5% until June 30, 2006, at which time it was reduced
to 8%.

17

Results of Operations for the Years Ended December 31, 2007, 2006 and 2005 are presented below:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . . . .
Office and general expenses
. . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
Operating Proﬁt (Loss) . . . . . . . . . . . . . . .
Other Income (Expense):
. . . . . . . . . . . . . . . . . .
Other income, net
Foreign exchange loss
. . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . .
Income from continuing operations before
income taxes, equity in affiliates and
minority interest . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before

equity in affiliates and minority interests . .

Equity in earnings of non-consolidated

affiliates . . . . . . . . . . . . . . . . . . . . . . .
Minority interests in income of consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations
. . . . . . . .
Loss from discontinued operations . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . .

Revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . . . .
Office and general expenses
. . . . . . . . . . .
Depreciation and amortization . . . . . . . . . .
Operating Proﬁt (Loss) . . . . . . . . . . . . . . .
Other Income (Expense):
Other income, net
. . . . . . . . . . . . . . . . . .
Foreign exchange gain . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . .
Income from continuing operations before
income taxes, equity in affiliates and
minority interest . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before

equity in affiliates and minority interests . .

Equity in earnings of non-consolidated

affiliates . . . . . . . . . . . . . . . . . . . . . . .
Minority interests in income of consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations
. . . . . . . .
Loss from discontinued operations . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . .

Strategic
Marketing
Services

$313,813
186,993
76,884
20,321
$ 29,615

Customer
Relationship
Management

For the Year Ended December 31, 2007
Specialized
Communication
Services
(Thousands of United States Dollars)
$120,548
$
83,032
22,868
2,180
$ 12,468

—
—
22,149
257
$(22,406)

Corporate

$112,958
81,826
21,306
6,488
$ 3,338

$ (15,663)

$

(122)

$ (4,780)

$

—

$

5,194

$

91

$

489

$ 4,443

Strategic
Marketing
Services

$241,481
118,018
71,589
17,567
$ 34,307

Customer
Relationship
Management

Restated for Discontinued Operations
For the Year Ended December 31, 2006
Specialized
Communication
Services
(Thousands of United States Dollars)
$85,809
57,479
15,165
1,308
$11,857

—
—
$ 24,062
284
$(24,346)

Corporate

$84,917
61,419
16,531
5,003
$ 1,964

$ (13,077)

$

(73)

$ (3,565)

$

—

$

1,010

$

24

$ 2,339

$ 4,988

18

Total

$547,319
351,851
143,207
29,246
$ 23,015

3,065
(7,192)
(11,946)

6,942
5,620

1,322

165

(20,565)
(19,078)
(7,277)
$ (26,355)
$ 10,217

Total

$412,207
236,916
127,347
24,162
23,782

1,246
614
(10,698)

14,944
7,120

7,824

168

(16,715)
(8,723)
(24,816)
$ (33,539)
$ 8,361

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . . . . . . . . . . . . . .
Office and general expenses
. . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . .
Operating Proﬁt (Loss) . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Other Income (Expense):
Other income, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gain . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes,

equity in affiliates and minority interest

. . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before equity in affili-

ates and minority interests . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of non-consolidated affiliates . . . . . . . .
Minority interests in income of consolidated subsidiaries . .
. . . . . . . . . . . . . . . . . .
Loss from continuing operations
Loss from discontinued operations . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . .

Restated For Discontinued Operations
For the Year Ended December 31, 2005

Corporate

Customer
Relationship
Management

Specialized
Communica-
tion Services
(Thousands of United States Dollars)
$78,640
52,204
13,068
804
$12,564

$67,240
51,913
10,427
3,578
$ 1,322

$

25,138
362
$(25,500)

—

Strategic
Marketing
Services

$203,944
97,316
54,810
17,892
$ 33,926

$ (18,205)

$

(84)

$ (3,298)

$

—

$

519

$

81

$ —

$ 2,672

Total

$349,824
201,433
103,443
22,636
22,312

729
80
(7,526)

15,595
3,248

12,347
1,402
(21,587)
(7,838)
(111)
$ (7,949)
$ 3,272

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Revenue was $547.3 million for the year ended 2007, representing an increase of $135.1 million, or
32.8%, compared to revenue of $412.2 million for the year ended 2006. This increase relates primarily to
organic growth of $96.4 million, $19.8 million relating to the consolidation of three entities that were previ-
ously accounted for on the equity method and $12.7 million relating to acquisitions. In addition, a weakening
of the US Dollar, primarily versus the Canadian dollar during the year ended December 31, 2007, resulted in
increased revenues of $6.3 million.

Operating proﬁt for the year ended 2007 was $23.0 million, compared to $23.8 million for the year
ended 2006. The decrease in operating proﬁt was primarily the result of a decrease in operating proﬁt of
$4.7 million in the Strategic Marketing Services (‘‘SMS’’) segment, partially offset by increases in operating
proﬁts of $1.4 million and $0.6 million within the Customer Relationship Management (‘‘CRM’’) and Special-
ized Communication Services (‘‘SCS’’) segments, respectively. In addition, Corporate operating expenses
decreased by $1.9 million.

During 2007, certain members of corporate management were permanently assigned and actively

involved in the strategic planning of the various operating subsidiaries within each of the Marketing Commu-
nication business segments in an effort to maximize growth and proﬁtability. As a result, during the year
ended December 31, 2007, approximately $2.4 million, $0.3 million and $1.5 million of costs were allocated
to the SMS, CRM, and SCS segments, respectively. The operating results of each of the operating segments
are discussed in further details within Management’s Discussion and Analysis that follows.

The loss from continuing operations for 2007 was $19.1million, compared to $8.7 million in 2006. This
increase in net loss of $10.4 million was primarily the result of an increase in other expenses of $7.2 million,
which includes a $7.8 million increase in unrealized losses on foreign currency transactions, increased minor-
ity interest of $3.9 million, decreased operating proﬁts of $0.8 million, partially offset by reduced income
taxes of $1.5 million.

19

Marketing Communications Group

Revenues in 2007 attributable to the Marketing Communications Group, which consists of three report-

able segments — Strategic Marketing Services (‘‘SMS’’), Customer Relationship Management (‘‘CRM’’), and
Specialized Communication Services (‘‘SCS’’), were $547.3 million compared to $412.2 million in 2006,
representing a year-over-year increase of 32.8%.

The components of revenue growth for 2007 are shown in the following table:

Year ended December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . .
Organic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . .

Revenue

$000’s
$412,207
96,381
19,753
12,653
6,325
$547,319

%
—
23.4%
4.8%
3.1%
1.5%
32.8%

The geographic mix in revenues was relatively consistent between 2007 and 2006 and is demonstrated in

the following table:

US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UK and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2007

80%
17%
3%

2006

84%
14%
2%

The operating proﬁt of the Marketing Communications Group decreased by approximately 5.6% to
$45.4 million from $48.1 million. Operating margins decreased by 3.4% and were 8.3% for 2007 compared to
11.7% for 2006. The decrease in operating margin is primarily attributable to an increase in direct costs
(excluding staff costs) as a percentage of revenues from 20.9% of revenue in 2006 to 25.8% of revenue in
2007 due to an increase in reimbursed client related direct costs. In addition, staff costs as a percentage of
revenues increased from 45.7% in 2006 to 46.8% in 2007. This was offset in part by a decrease in occupancy
and administrative costs as a percentage of revenue from 14.1% in 2006 to 11.9% in 2007 and a decrease in
depreciation and amortization as a percentage of revenue from 5.8% in 2006 to 5.3% in 2007. Included in
operating proﬁts in 2006 was a termination payment of $5.3 million received in connection with the termina-
tion by a client of their engagement with a subsidiary of the Company.

Marketing Communications Businesses

Strategic Marketing Services (‘‘SMS’’)

Revenues attributable to SMS in 2007 were $313.8 million compared to $241.5 million in 2006. The

year-over-year increase of $72.3 million or 30.0% was attributable primarily to organic growth of
$49.9 million as a result of net new business wins, $11.7 million of the increase related to the acquisitions of
HL Group Partners and Redscout, LLC and $8.5 million related to the change in accounting for Zig Inc., and
Mono Advertising, LLC, from the equity method of accounting in 2006 to consolidating them in 2007 for the
full year. A weakening of the US dollar versus the Canadian dollar in 2007 compared to 2006 resulted in a
$2.1 million increase in revenues from the division’s Canadian-based operations.

The operating proﬁt of SMS decreased by approximately 13.7% to $29.6 million in 2007 from

$34.3 million in 2006, while operating margins decreased to 9.4% in 2007 from 14.2% in 2006. Excluding the
receipt of the termination payment noted above, 2006 operating proﬁt would have been $29.0 million with
operating margins of 12.3%. The decrease in margin is primarily related to an increase in direct costs (exclud-
ing staff costs) as a percentage of revenues from 5.5% of revenue in 2006 to 11.7% of revenue in 2007
primarily due to an increase in reimbursed client related direct costs. Operating margins also decreased in
2007 by 0.8% due to the allocation of $2.4 million relating to the reassignment of certain members of corpo-
rate management to entities within this segment. Total staff costs as a percentage of revenue increased from
54.4% in 2006 to 56.7% in 2007. Excluding the termination payment, staff costs as a percentage of revenue in

20

2006 would have been 55.6%. In addition, staff costs increased in 2007 due to a $4.2 million increase in
non-cash stock based compensation primarily as a result of a $2.6 million charge resulting from the acquisi-
tion of the remaining 40% equity interest in kirshenbaum bond + partners and other phantom equity plans at
certain partner ﬁrms. Office and general expenses increased due to additional occupancy and administrative
costs relating to the expansion of operations in Boulder, Colorado and expansions and office moves of other
partner ﬁrms but as a percentage of revenue occupancy and administrative costs decreased from 16.3% in
2006 to 13.3% in 2007. Depreciation and amortization represented 6.5% and 7.3% of revenues during 2007
and 2006, respectively, as certain intangibles resulting from the Zyman acquisition were fully amortized
during 2006. During 2007, amortization expense increased from a change in the estimated amortization rate of
customer lists.

Customer Relationship Management (‘‘CRM’’)

Revenues reported by the CRM segment in 2007 were $113.0 million, an increase of $28.1 million or
33.0% compared to the $84.9 million reported for 2006. This growth was entirely organic due primarily to
higher volumes from existing clients in part as a result of the opening of a new customer care center in
September 2007 and the opening of three additional customer care centers during 2006. Such growth was
offset by the closure of one customer care center in August 2006.

Operating proﬁt earned by CRM increased by approximately $1.3 million to $3.3 million for 2007 from
$2.0 million for the previous year. Operating margins were 3.0% for 2007 as compared to 2.3% in 2006. The
increase in margins is primarily due to a decrease in occupancy and administrative costs as a percentage of
revenue from 11.0% in 2006 to 9.4% in 2007.

Specialized Communication Services (‘‘SCS’’)

SCS generated revenues of $120.5 million for 2007, $34.7 million or 40.5% higher than revenues of

$85.8 million in 2006. The year-over-year increase was attributable primarily to organic growth of
$18.4 million as a result of net new business wins, $11.2 million relating to the change in accounting for
Accumark, Inc., from the equity method in 2006 to consolidating them in 2007 for the full year. A weakening
of the US dollar versus the Canadian dollar and British pound in 2007 compared to 2006 resulted in a
$4.2 million increase in revenues from the division’s Canadian and UK-based operations.

The operating proﬁt of SCS increased by $0.6 million to $12.5 million in 2007, from an operating proﬁt

of $11.9 in 2006, with operating margins of 10.3% in 2007 compared to 13.8% in 2006. Included in 2006 was
a non-cash stock based compensation charge of $2.3 million relating to the price paid for membership inter-
ests, which was less than fair value of such membership interests and the fair value of an option granted to
certain members of management of Source Marketing LLC (‘‘Source’’). Excluding the Source non-cash stock
based compensation charge, 2006 operating income would have been $14.2 million with operating margins of
16.5% compared to 10.3% in 2007. The decrease in operating margin in 2007 was due primarily to an
increase in direct costs as a percentage of revenues from 25.9% in 2006 to 31.0% in 2007, primarily due to an
increase in reimbursed client related direct costs. Operating margins also decreased in 2007 by 1.3% due to
the allocation of $1.5 million relating to the reassignment of certain members of corporate management to
entities within this segment. In addition, staff costs excluding the Source non-cash stock based compensation
charge as a percentage of revenue increased to 45.2% in 2007 from 43.9% in 2006. Including the Source
non-cash stock based compensation charge staff costs as a percentage of revenue in 2006 was 46.6%. This
increase is a result of the timing of when expected clients’ projects will begin, while maintaining the appropri-
ate staffing levels to properly service those projects.

Corporate

Operating costs related to the Company’s Corporate operations totaled $22.4 million in 2007 compared to

$24.3 million in 2006. During 2007, certain members of corporate management were permanently assigned
and actively involved in the strategic planning of the various operating subsidiaries within each of the Market-
ing Communication business segments in an effort to maximize growth and proﬁtability. As a result,
approximately $4.2 million of costs were allocated to the Marketing Communications segments. Excluding the
allocation of these costs, corporate operating costs increased by $2.3 million. This increase in corporate
expenses was a result of $1.9 million of costs associated with the Company’s separation agreement with its

21

former President and Chief Financial Officer and the hiring of a new CFO, and the net $0.4 million impact of
the renewal of the CEO management services agreement. In addition, non-cash stock based compensation
increased by $1.0 million. These increases were partially offset by a reduction in insurance and professional
fees in 2007.

Other Income, Net

Other income increased to $3.1 million in 2007 compared to $1.2 million in 2006. The 2007 income is

primarily comprised of a $1.8 million gain on the sale of the plane acquired in the Zyman acquisition, a
dividend payment of $0.8 million from the purchaser of the Secured Products Group, and the recovery of an
investment of $0.4 million. The 2006 income is comprised of gains on the sale of assets, the settlement in
June 2006, of the Company’s cross currency swap, the recovery of an investment offset in part by a loss on an
equity transaction of a subsidiary.

Foreign Exchange

The foreign exchange loss was $7.2 million for 2007 compared to the gain of $0.6 million recorded in

2006 and was due primarily to an unrealized loss due to a weakening in the US dollar during 2007 compared
to the Canadian dollar primarily on its US dollar denominated intercompany balances with its Canadian
subsidiaries. At December 31, 2006, the exchange rate was 1.17 Canadian dollars to one US dollar, compared
to 0.99 at the end of 2007.

Net Interest Expense

Net interest expense for 2007 was $11.9 million, an increase of $1.2 million over the $10.7 million net
interest expense incurred during 2006. Interest expense increased $2.4 million in 2007 due to higher interest
rates and higher average outstanding debt in 2007. Interest income was $1.7 million for 2007, as compared to
$0.5 million in 2006. This increase was primarily due to the interest income recognized from the acceleration
of payments received in July 2007 related to the sale of SPI, originally due to be received in 2010 and 2011.

Income Taxes

Income tax expense in 2007 was $5.6 million compared to an expense of $7.1 million for 2006. In 2007,

the Company’s effective tax rate was substantially higher than the statutory tax rate in 2007 due to non
deductible stock based compensation, and an increase in the Company’s valuation allowance offset in part by
minority interest charges. The Company’s effective tax rate was substantially higher than the statutory rate in
2006 because the Company increased its valuation allowance in an amount equal to the tax loss resulting from
the sale of SPI.

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

Equity in Affiliates

Equity in affiliates represents the income attributable to equity-accounted affiliate operations. For 2007
and 2006, income of $0.2 million was recorded. Included in 2006 is an impairment charge of $0.8 million
relating to the Company’s investment in Cliff Freeman.

Minority Interests

Minority interest expense was $20.6 million for 2007, up $3.9 million from the $16.7 million of minority

interest expense incurred during 2006. Such increase was primarily due to the increase in proﬁtability in the
subsidiaries within the SMS and SCS operating segments who are not 100% owned, offset in part by the
Company’s step-up in ownership of CPB and KBP.

Discontinued Operations

The loss from discontinued operations for 2007 was $7.3 million and is comprised of the operating
results of Margeotes Fertitta Powell, LLC (‘‘MFP’’) and Banjo Strategic Entertainment, LLC (‘‘Banjo’’). The
operations of these entities were discontinued during 2007.

22

In March 2007, due to continued operating and client losses, the Company ceased MFP’s current opera-

tions and spun off a new operating division, and as a result incurred a goodwill impairment charge of
$4.5 million. After reviewing the 2008 projections of the new operating division, the Company decided to
cease the operations of the new operating business as well. In addition, an additional intangible relating to an
employment contract of $0.6 million was deemed impaired and written off. The results of operations of MFP
and the new operating business, net of income tax beneﬁts, was a loss of $7.1 million in 2007 and a loss of
$6.0 million in 2006.

In December 2007, due to continued operating losses and the lack of new business wins, the Company

ceased Banjo’s operations. The results of operations of Banjo, net of income tax beneﬁts, was a loss
$0.2 million in 2007 and a loss of $0.1 million in 2006.

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

The loss from discontinued operations for 2006 amounted to $24.8 million and is comprised of

$18.7 million relating to SPI and $6.1 million relating to MFP and Banjo.

On November 14, 2006, the Company completed its sale of SPI, resulting in net proceeds of $27 million.

During 2006, the Company had previously recorded an impairment charge of $19.5 million relating to SPI’s
long lived assets to adjust them to fair market value. The sale of SPI resulted in a gain of $2.9 million
($1.8 million, net of taxes). The results of operations of SPI for 2006 resulted in a loss of $2.1 million.

Based on the net proceeds and average borrowing rate for each period, the Company has allocated inter-

est expense to discontinued operations of $1.4 million for the year ended 2006.

Net Income

As a result of the foregoing, the net loss recorded for 2007 was $26.3 million or a loss of $1.05 per

diluted share, compared to the net loss of $33.5 million or $1.40 per diluted share reported for 2006.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenue was $412.2 million for the year ended 2006, representing a $62.4 million or 17.8% increase
compared to revenue of $349.8 million for the year ended 2005. This increase relates primarily to organic
growth and acquisitions made during 2005.

Operating proﬁt for the year ended 2006 was $23.8 million, compared to $22.3 million for the year

ended 2005. The increase in operating proﬁt in 2006 was primarily the result of the increase in revenue, a
reduction in outside professional fees, a one time reversal of a liability relating to the termination of a prior
commitment of $1.9 million and a reduction in cost of services sold resulting from a change in estimate
relating to the elimination of potential liabilities of $1.7 million. This was partially offset by a $5.1 million
increase in stock-based compensation expense, a charge of $2.6 million relating to the closure of one of our
West Coast facilities, relating primarily to the net present value of lease termination costs, and additional
depreciation and amortization of $1.5 million.

The loss from continuing operations for 2006 increased from $7.8 million in 2005, to $8.7 million in

2006, as a result of the items described above.

Marketing Communications Group

Revenues in 2006 attributable to the Marketing Communications Group, which consists of three report-

able segments — Strategic Marketing Services (‘‘SMS’’), Customer Relationship Management (‘‘CRM’’), and
Specialized Communication Services (‘‘SCS’’), were $412.2 million compared to $349.8 million in 2005,
representing a year-over-year increase of 17.8%.

23

The components of revenue growth for 2006 are shown in the following table:

Year ended December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . .
Organic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions
Effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . .

Revenue

$000’s
$349,824
41,557
13,517
3,635
3,674
$412,207

%
—
11.9%
3.9%
1.0%
1.0%
17.8%

The Marketing Communications Group had organic revenue growth of $41.6 million or 11.9% in 2006,
primarily attributable to new business wins and additional revenues from existing clients, particularly in the
US. Acquisition related revenue was $13.5 million primarily as a result of the acquisition of the Zyman Group
in 2005. Additionally, revenue increased $3.6 million in 2006 as a result of the consolidation of Zig Inc.,
Mono Advertising, LLC and Accumark Communications, Inc., all previously accounted for under the equity
method of accounting during 2005. A weakening of the US dollar versus the Canadian dollar and UK pound
in 2006 compared to 2005 resulted in increased contributions from the division’s Canadian and UK-based
operations by approximately $3.7 million.

The geographic mix in revenues was consistent between 2006 and 2005 and is demonstrated in the

following table:

US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UK and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2006

84%
14%
2%

2005

83%
15%
2%

The operating proﬁt of the Marketing Communications Group increased by approximately 0.7% to
$48.1 million from $47.8 million, with operating margins of 11.7% for 2006 compared to 13.7% in 2005. The
2.0% decrease in operating margins was primarily reﬂective of an increase in staff costs as a percentage of
revenue to 45.7% in 2006 as compared to 44.0% in 2005. In addition, general and other operating costs
increased as a percentage of revenue from 13.4% in 2005 to 14.1% in 2006 primarily related to a charge for
the closure of one of our West Coast facilities.

Marketing Communications Businesses

Strategic Marketing Services (‘‘SMS’’)

Revenues attributable to SMS in 2006 were $241.5 million compared to $203.9 million in 2005. The

year-over-year increase of $37.6 million or 18.4% was attributable primarily to organic growth of
$22.4 million, $11.7 million relating to the 2005 acquisition of the Zyman Group, $2.1 million relating to the
change in accounting for Zig Inc., and Mono Advertising, LLC, both previously accounted for on the equity
method to consolidating them during 2006. In addition, a weakening of the US dollar versus the Canadian
dollar in 2006 compared to 2005 resulted in a $1.3 million increase in revenues from the division’s Canadian-
based operations. Organic growth for 2006 was approximately 10.9% primarily due to new business wins in
the US.

The operating proﬁt of SMS increased by approximately 1% to $34.3 million from $33.9 million in 2005,

while operating margins decreased to 14.2% for 2006 from 16.6% in 2005. These decreased proﬁts were
primarily reﬂective of an increase in total staff costs as a percentage of revenue from 52% in 2005 to 54% in
2006, a $2.6 million charge relating to the closure of one of our West Coast facilities, increased stock based
compensation of $0.5 million, offset in part by the increase in revenue, a one time reversal of a liability
relating to the termination of a prior commitment of $1.9 million and a reduction in cost of services sold
resulting from a change in estimate relating to the elimination of potential liabilities in the amount of
$1.7 million. The increase in staff costs results primarily from an increase in head count to service the
increase in the organic growth.

24

Customer Relationship Management (‘‘CRM’’)

Revenues reported by the CRM segment in 2006 were $84.9 million, an increase of $17.7 million or
26.3% compared to the $67.2 million reported for 2005. This growth was due primarily to higher volumes
from existing clients in part as a result of the opening of three additional customer care centers during 2006
offset by the closure of one customer care center.

Operating proﬁt earned by CRM increased by approximately $0.6 million to $1.9 million for 2006 from
$1.3 million for the previous year. Operating margins were 2.3% for 2006 as compared to 2.0% in 2005. The
increase was primarily the result of an increase in gross margins primarily from reduced costs incurred relat-
ing to the implementation of a new service contract with one of the segment’s large clients, partially offset by
increases in office and general expenses as a percentage of revenue and depreciation and amortization. These
increases resulted from the start up of three additional customer care centers during ﬁscal 2006.

Specialized Communication Services (‘‘SCS’’)

SCS generated revenues of $85.8 million for 2006, $7.2 million or 9.1% higher than 2005 revenues of

$78.6 million. Acquisitions accounted for an increase of approximately $1.8 million or 2.3%, $1.5 million or
1.9% of the increase related to the change for Accumark Communications, Inc. previously accounted for on
the equity method to consolidating that entity during 2006. Revenues of the division’s Canadian and UK-
based operations increased 3.0% compared to 2005 as a result of a weakening of the US dollar versus the
Canadian dollar and British pound.

The operating proﬁt of SCS decreased by approximately $0.7 million or 5.6% to $11.9 million from
$12.6 million in 2005 due primarily to an increase in stock based compensation of $2.3 million relating to the
price paid for membership interests, which was less than fair value of such membership interests and the fair
value of an option granted to certain members of management of Source Marketing LLC during the ﬁrst
quarter of 2006. In addition, depreciation and amortization increased by $0.5 million and occupancy and
administrative expenses as a percentage of revenue increased from 10.2% in 2005 to 11.0% in 2006 as a
result of expansions and office moves of certain partner ﬁrms.

Corporate

Operating costs related to the Company’s Corporate operations totaled $24.3 million in 2006 compared to

$25.5 million in 2005. This decrease was primarily due to a decrease in outside professional fees of
$4.5 million resulting from decreased costs relating to compliance costs associated with the Sarbanes-Oxley
legislation and a reduction in audit fees. These decreases were offset by an increase in staff costs of
$2.7 million relating primarily to an increase in non-cash stock based compensation of $2.3 million. Addi-
tional increases in insurance and occupancy costs relating to the establishment of a New York office in
December 2005 were offset in part in 2006 by decreases in recruitment costs.

Other Income, Net

Other income increased to $1.2 million in 2006 compared to $0.7 million in 2005. The 2006 income is

comprised of gains on the sale of assets, the settlement in June 2006, of the Company’s cross currency swap,
the recovery of an investment offset in part by a loss on an equity transaction of a subsidiary. The 2005
income is comprised of a recovery of an investment offset by losses on the sale of assets.

Foreign Exchange

The foreign exchange gain was $0.6 million for 2006 compared to the gain of $0.1 million recorded in

2005 and was due primarily to a weakening in the Canadian dollar compared to the US dollar on the US
dollar denominated balances of Canadian subsidiaries. At December 31, 2006, the exchange rate was 1.17
Canadian dollars to one US dollar, compared to 1.16 at the end of 2005.

Net Interest Expense

Net interest expense for 2006 was $10.7 million, an increase of $3.2 million over the $7.5 million net
interest expense incurred during 2005. This increase relates primarily to higher outstanding debt combined
with higher interest rates in 2006 due in part to the acquisition of the Zyman Group and the issuance of the
8% Debentures, in June 2005 (which accrued interest at 8.5% during the ﬁrst six months of 2006). Interest
income increased by $0.2 million during 2006 compared to 2005.

25

Income Taxes

Income tax expense in 2006 was $7.1 million compared to an expense of $3.2 million for 2005. The
Company’s effective tax rate was substantially higher than the statutary rate in 2006 because the Company
increased its valuation allowance in an amount equal to the tax loss resulting from the sale of SPI. In 2005,
the Company’s effective tax rate was substantially lower than the statutory tax rate due to non deductible
stock based compensation and to minority interest charges.

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

Equity in Affiliates

Equity in affiliates represents the income attributable to equity-accounted affiliate operations. For 2006,
income of $0.2 million was recorded, $1.2 million lower than the $1.4 million earned in 2005. This decrease
was primarily due to the consolidation of Zig Inc., Mono Advertising, LLC and Accumark Communications
Inc., which have been consolidated in the Company’s ﬁnancial statements during 2006, but was previously
accounted for under the equity method. In addition, during the fourth quarter of 2006, the Company recorded
an impairment charge of $0.8 million relating to its investment in Cliff Freeman.

Minority Interests

Minority interest expense was $16.7 million for 2006, down $4.9 million from the $21.6 million of
minority interest expense incurred during 2005, primarily due to the decrease in proﬁtability of the SMS
operating segment.

Discontinued Operations

The loss from discontinued operations for 2006 amounted to $24.8 million compared to $0.1 million in

2005. Discontinued operations is comprised of SPI, MFP, Banjo, Mr Smith Agency, Ltd. (‘‘Mr Smith’’) and a
variable interest entity whose operations had been consolidated by the Company, LifeMed Media, Inc.
(‘‘LifeMed’’).

In March 2007, due to continued operating and client losses, the Company ceased MFP’s current opera-

tions and spun off a new operating business. After reviewing the 2008 projections of the new operating
business the Company decided to cease the operations of the new operating business as well. The results of
operations of MFP and the new operating business, net of income tax beneﬁts, was a loss of $6.0 million in
2006 and a loss of $0.6 million in 2005.

In December 2007, due to continued operating losses and the lack of new business wins, the Company

ceased Banjo’s operations. The results of operations of Banjo, net of income tax beneﬁts, was a loss of
$0.1 million in 2006 and $0.6 million in 2005.

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

On November 14, 2006, the Company completed its sale of SPI, resulting in net proceeds of $27 million.

During 2006, the Company had previously recorded an impairment charge of $19.5 million relating to SPI’s
long lived assets to adjust them to fair market value. The sale of SPI resulted in a gain of $2.9 million
($1.8 million, net of taxes). The results of operations of SPI for 2006 resulted in a loss of $2.1 million and
income of $0.6 million in 2005.

Based on the net proceeds and average borrowing rate for each period, the Company has allocated inter-

est expense to discontinued operations of $1.4 million and $1.1 million for the years ended 2006 and 2005,
respectively.

During July 2005, LifeMed completed a private placement issuing approximately 12.5 million shares at a

price of $0.4973 per share. LifeMed received net proceeds of approximately $6.2 million. Consequently, the
Company’s ownership interest in LifeMed was reduced to 18.3% from this transaction. As a result of the
equity transaction of LifeMed, the Company recorded an equity gain of $1.3 million. This gain represents the
Company’s recovery of previously recorded losses in excess of the Company’s original investment and the

26

losses recorded that were in excess of the minority shareholders original investment. The Company no longer
has any signiﬁcant continuing involvement in the management or operations of LifeMed, and has not partici-
pated in the purchase of signiﬁcant new equity offerings by LifeMed. Consequently, as of July 2005, the
Company no longer consolidates the operations of LifeMed, and commenced accounting for its remaining
investment in LifeMed on a cost basis and has reported the results of operations of LifeMed as discontinued
operations for all periods presented in the consolidated statement of operations. During February 2006, the
Company further reduced its ownership in LifeMed in connection with a put obligation relating to Source
Marketing LLC. The Company’s current ownership in LifeMed is 5.8%.

In November 2004, the Company’s management reached a decision to discontinue Mr. Smith due to its
unfavorable operating performance. Substantially all of the net assets of the discontinued business were sold
during the fourth quarter of 2004 with the disposition of all activities of Mr. Smith. The remaining sale of
assets was completed by the end of the second quarter of 2005. A gain of $0.4 million was recognized in the
second and third quarters of 2005 as a result of receivables previously written off being recovered and unse-
cured liabilities being written off on liquidation. No signiﬁcant one-time termination beneﬁts were incurred.
No further signiﬁcant charges are expected to be incurred.

Net Income

As a result of the foregoing, the net loss recorded for 2006 was $33.5 million or a loss of $1.40 per

diluted share, compared to the net loss of $7.9 million or $0.34 per diluted share reported for 2005.

Liquidity and Capital Resources

The following table provides information about the Company’s liquidity position:

Liquidity

2007

2006

2005

(In Thousands, Except for Long-Term Debt to
Shareholders’ Equity Ratio)

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . .
Working capital (deﬁcit)
. . . . . . . . . . . . . . . . . . . . .
Cash from operations . . . . . . . . . . . . . . . . . . . . . . .
Cash from investing . . . . . . . . . . . . . . . . . . . . . . . .
Cash from ﬁnancing . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt to shareholders’ equity ratio . . . . . . . .

$ 10,410
$(22,364)
$ 4,132
$(60,914)
$ 60,929
1.27

$
6,591
$(105,039)
$ 39,705
$ (14,315)
$ (31,597)
0.37

$ 12,923
$(99,935)
$ 4,670
$(67,404)
$ 52,316
0.81

As at December 31, 2007 and 2006, $3.5 million and $2.3 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 for use to reduce its indebtedness. It is the Company’s intent through
its cash management system to reduce outstanding borrowings under the Financing Agreement using available
cash.

Working Capital

At December 31, 2007, the Company had a working capital deﬁcit of $22.4 million compared to a deﬁcit

of $105.0 million at December 31, 2006. Working capital increased by $82.6 million primarily due to the
reﬁnancing of the Company’s existing Credit Facility and due to seasonal shifts in amounts collected from
clients and paid to suppliers, primarily media outlets. The Company includes amounts due to minority interest
holders, for their share of proﬁts, in accrued and other liabilities. During 2007, 2006 and 2005, the Company
made distributions to these minority interest holders of $25.0 million, $19.4 million and $17.6 million, respec-
tively. At December 31, 2007, $7.9 million remains outstanding to be distributed to minority interest holders
over the next twelve months.

The Company expects that available borrowings under its Financing Agreement, together with cash ﬂows

from operations, will be sufficient at any particular time to adequately fund working capital deﬁcits should
there be a need to do so from time to time.

27

Operating Activities

Cash ﬂow provided by continuing operations for 2007 was $4.0 million. This was attributable primarily

to a loss from continuing operations of $19.1 million, plus non-cash stock based compensation of
$9.1 million, depreciation and amortization of $31.6 million, foreign exchange of $7.3 million, deferred
income taxes of $5.3 million, a decrease in expenditures billable to clients of $8.6 million and a decrease in
other non-current assets and liabilities of $3.8 million. This was partially offset by decreases in accounts
payable, accruals and other current liabilities of $25.1 million and an increase in accounts receivable of
$12.7 million. Discontinued operations generated cash of $0.1 million.

Cash ﬂow provided by continuing operations for 2006 was $34.0 million. This was attributable primarily
to a loss from continuing operations of $8.7 million, plus non-cash stock based compensation of $7.4 million,
depreciation and amortization of $26.4 million, deferred income taxes of $4.9 million, an increase in accounts
payable, accruals and other liabilities of $35.4 million and an increase in advance billings of $15.9 million.
This was partially offset by increases in accounts receivable of $21.0 million and expenditures billable to
clients of $19.4 million. Discontinued operations provided cash of $5.7 million.

Cash ﬂow provided by continuing operations for 2005 was $1.9 million. This was attributable primarily

to the loss from continuing operations of $7.8 million, plus non-cash depreciation and amortization of
$23.9 million, non-cash stock-based compensation of $3.3 million, and a decrease in accounts receivable of
$9.0 million. This was partially offset by a decrease in accounts payable and accruals of $15.7 million and a
decrease in advance billings of $7.7 million. Discontinued operations provided cash of $2.8 million.

Investing Activities

Cash ﬂows used in investing activities were $60.9 million for 2007, compared with $14.3 million in

2006, and $67.4 million in 2005.

Cash used in acquisitions during 2007 was $47.6 million and was primarily attributed to cash paid in the
acquisition of equity interests in Crispin Porter & Bogusky of $22.6 million, kirshenbaum bond + partners of
$12.3 million, HL Group Partners of $4.3 million, net of cash acquired and Redscout of $3.7 million, net of
cash acquired.

The proceeds from dispositions in 2007 primarily relate to proceeds received from the sale of the plane

acquired in the Zyman acquisition.

Expenditures for capital assets in 2007 were $20.1 million. Of this amount, $9.0 million was incurred by
the SMS segment, $7.9 million was incurred by the CRM segment and $2.9 million was incurred by the SCS
segment. These expenditures consisted primarily of computer equipment, leasehold improvements, furniture
and ﬁxtures, and $0.2 million related to the purchase of corporate assets, primarily software.

In 2006, capital expenditures totaled $22.4 million, of which $9.2 million was incurred by the SMS
segment, $11.6 million was incurred by the CRM segment and $1.2 million was incurred by the SCS segment,
which expenditures consisted primarily of leasehold improvements, computer and switching equipment, and
$0.4 million related to the purchase of corporate assets.

Expenditures for capital assets in 2005 were $10.7 million. Of this amount, $5.8 million was incurred by

the SMS segment, $4.0 million was incurred by the CRM segment, $0.6 million was incurred by the SCS
segment and and $0.3 million related to the purchase of corporate assets.

During 2006, the Company received net proceeds of $16.4 million in connection with the sale of SPI and

used $7.2 million of cash to fund acquisitions, step-ups in ownership of certain partner ﬁrms and earnout
payments.

Cash ﬂow used in acquisitions of continuing operations was $55.0 million in 2005 and primarily related
to the purchase of the Zyman Group. For further details relating to the Company’s acquisitions, see Note 4 of
the Company’s consolidated ﬁnancial statements included in this Form 10-K.

28

Proﬁt distributions received from non-consolidated affiliates amounted to nil for 2007, compared to
$1.0 million for 2006 and $1.8 million in 2005. The decrease between 2007, 2006 and 2005 related primarily
to the consolidation in 2006 and 2007 of certain partner ﬁrms, which had been previously accounted for on
the equity method of accounting.

Discontinued operations used cash of nil and $2.7 million in 2007 and 2006, respectively, relating to

expenditures for capital assets. Discontinued operations used cash of $4.3 million in 2005 relating to capital
expenditures and acquisitions.

Financing Activities

During the year ended December 31, 2007, cash ﬂows provided by ﬁnancing activities amounted to
$60.9 million, and primarily consisted of $111.5 million of proceeds from the new Financing Agreement.
These proceeds were partially offset by the $45.0 million repayment of the old credit facility, $10.8 million of
net repayments of long-term debt and bank borrowings, and the payment of $3.9 million of deferred ﬁnancing
costs relating to the new Financing Agreement. The Company also received proceeds from a forgivable note
payable amounting to $3.3 million relating to the opening of a new customer care center. In addition, the
Company received $4.9 million of proceeds from the issuance of share capital resulting from the exercise of
stock options. Discontinued operations used cash of $0.1 million for payments under capital leases.

During 2006, the Company used cash of $31.6 million to repay borrowings under the Credit Facility and
payments under capital leases and other debt. Discontinued operations used cash of $3.3 million for payments
under capital leases.

During 2005, cash ﬂows provided by ﬁnancing activities amounted to $52.3 million, and consisted of

proceeds related to the issuance of $36.7 million of 8% convertible debentures and borrowings under the
Credit Facility used to fund the acquisition of the Zyman Group. Payments made of $6.6 million consist of
payments under capital leases, bank borrowings, and debt assumed in the Zyman Group acquisition. In addi-
tion, the Company incurred $3.3 million of ﬁnance costs related to both the convertible debentures and the
various amendments under the credit facility. Discontinued operations used cash for payments under capital
leases of $2.0 million.

Total Debt

On June 18, 2007, the Company and its material subsidiaries entered into a new $185 million senior
secured ﬁnancing agreement (the ‘‘Financing Agreement’’) with Fortress Credit, an affiliate of Fortress Invest-
ment Group, as collateral agent and Wells Fargo Bank, as administrative agent, and a syndicate of lenders.
This facility replaced the Company’s existing $96.5 million credit facility that was originally expected to
mature on September 21, 2007. Proceeds from the Financing Agreement were used to repay in full the out-
standing balances on the Company’s existing credit facility. The obligations repaid totaled approximately
$73.7 million. All of these repaid credit facilities have been terminated.

This new Financing Agreement consists of a $55 million revolving credit facility, a $60 million term loan

and a $70 million delayed draw term loan. Borrowings under the Financing Agreement will bear interest as
follows: (a) LIBOR Rate Loans bear interest at applicable interbank rates and Reference Rate Loans bear
interest at the rate of interest publicly announced by the Reference Bank in New York, New York, plus (b) a
percentage spread ranging from 0% to a maximum of 4.75% depending on the type of loan and the Compa-
ny’s Senior Leverage Ratio. In addition, the Company is required to pay a facility fee of 50 basis points. The
weighted average interest rate at December 31, 2007 was 9.22%.

The new Financing Agreement is guaranteed by the material subsidiaries of the Company and matures on

June 17, 2012. The Financing Agreement is subject to various covenants, including a senior leverage ratio,
ﬁxed charges ratio, limitations on debt incurrence, limitation on liens and limitation on dividends and other
payments.

Debt as of December 31, 2007 was $164.8 million, an increase of $69.3 million compared with the
$95.5 million outstanding at December 31, 2006, primarily as a result of borrowings under the Financing
Agreement to fund acquisitions and capital expenditures during 2007. At December 31, 2007, $64.6 million is
available under the Financing Agreement.

29

The Company is currently in compliance with all of the terms and conditions of its Financing Agreement,

and management believes, based on its current ﬁnancial projections, that the Company will be in compliance
with covenants over the next twelve months.

If the Company loses all or a substantial portion of its lines of credit under the Financing Agreement, it

will be required to seek other sources of liquidity. If the Company were unable to ﬁnd these sources of liquid-
ity, 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 Financing Agreement, the Company must comply with certain ﬁnancial covenants includ-

ing, among other things, covenants for (i) total debt ratio, (ii) ﬁxed charges ratio, (iii) minimum earnings
before interest, taxes and depreciation and amortization, and (iv) limitations on capital expenditures, in each
case as such term is speciﬁcally deﬁned in the Financing Agreement. For the period ended December 31,
2007, the Company’s calculation of each of these covenants, and the speciﬁc requirements under the Financ-
ing Agreement, respectively, were as follows:

Total Senior Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum per covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fixed Charges Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum per covenant

December 2007

2.11
3.25

2.23
1.20

Minimum earnings before interest, taxes, depreciation and amortization . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum per covenant

$57.7 million
$37.6 million

Capital Expenditures:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum per covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$15.6 million
$16.0 million

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

8% Convertible Unsecured Subordinated Debentures

On June 28, 2005, the Company completed a public offering in Canada of convertible unsecured subordi-

nated debentures amounting to $36.7 million (C$45.0 million) (the ‘‘Debentures’’). The Debentures will
mature on June 30, 2010. The Debentures will bear interest at an annual rate of 8.00% payable semi-annually,
in arrears, on June 30 and December 31 of each year, commencing December 31, 2005. Unless an event of
default has occurred and is continuing, the Company may elect, from time to time, subject to applicable
regulatory approval, to issue and deliver Class A subordinate voting shares to the Debenture trustee in order to
raise funds to satisfy all or any part of the Company’s obligations to pay interest on the Debentures in accor-
dance with the indenture in which event holders of the Debentures will be entitled to receive a cash payment
equal to the interest payable from the proceeds of the sale of such Class A subordinate voting shares by the
Debenture trustee.

The Debentures will be convertible at the holder’s option into fully-paid, non-assessable and freely

tradeable Class A subordinate voting shares of the Company, at any time prior to maturity or redemption,
subject to the restrictions on transfer, at a conversion price of $14.12 (C$14.00) per Class A subordinate
voting share being a ratio of approximately 71.4286 Class A subordinate voting shares per $1,009 (C$1,000)
principal amount of Debentures.

The Debentures may not be redeemed by the Company on or before June 30, 2008. Thereafter, but prior
to June 30, 2009, the Debentures may be redeemed, in whole or in part from time to time, at a price equal to
the principal amount of the Debenture plus accrued and unpaid interest, provided that the volume weighted
average trading price of the Class A subordinate voting shares on The Toronto Stock Exchange during a
speciﬁed period is not less than 125% of the conversion price. From July 1, 2009 until the maturity of the
Debentures, the Debentures may be redeemed by the Company at a price equal to the principal amount of the

30

Debenture plus accrued and unpaid interest, if any. The Company may elect to satisfy the redemption consid-
eration, in whole or part, by issuing Class A subordinate voting shares of the Company to the holders, the
number of which will be determined by dividing the principal amount of the Debenture by 95% of the current
market price of the Class A subordinate voting shares on the redemption date. Upon the occurrence of a
change of control of the Company involving the acquisition of voting control or direction over 50% or more
of the outstanding Class A subordinate voting shares prior to June 30, 2008, the Company shall be required to
make an offer to purchase all of the then outstanding Debentures at a price equal to 100% of the principal
amount thereof plus an amount equal to the interest payments not yet received on the Debentures calculated
from the date of the change of control to June 30, 2008, discounted at a speciﬁed rate. Upon the occurrence
of a change of control on or after June 30, 2008, the Company shall be required to make an offer to purchase
all of the then outstanding Debentures at a price equal to 100% of the principal amount of the Debentures
plus accrued and unpaid interest to the purchase date.

Disclosure of Contractual Obligations and Other Commercial Commitments

The following table provides a payment schedule of present and future obligations. Management antici-

pates that the obligations outstanding at December 31, 2007 will be repaid with new ﬁnancing, equity
offerings and/or cash ﬂow from operations (in thousands):

Contractual Obligations
Indebtedness . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . .
. . . . . . . . . . . . .
Operating leases
Deferred acquisition consideration .
Management services agreement
. .
Total contractual obligations . . . . .

Total
$162,081
2,673
94,118
2,511
3,338
$264,721

Payments Due by Period

Less than
1 Year

$

885
911
17,293
1,981
1,469
$22,539

1 − 3 Years
$46,595
1,420
30,550
280
1,869
$80,714

3 − 5 Years
$114,601
342
20,037
250
—
$135,230

After 5 Years
$ —
—
26,238
—
—
$26,238

The following table provides a summary of other commercial commitments (in thousands) at

December 31, 2007:

Other Commercial Commitments
Lines of credit . . . . . . . . . . . . . . .
Letters of credit . . . . . . . . . . . . . .
Total Other Commercial

Total
$ —
6,975

Payments Due by Period

Less than
1 Year
$ —
5,307

1 − 3 Years
$ —
1,668

3 − 5 Years
$—
—

After 5 Years
$—
—

Commitments

. . . . . . . . . . . . .

$6,975

$5,307

$1,668

$—

$—

For further detail on MDC’s long-term debt principal and interest payments, see Note 12 of the Compa-

ny’s consolidated ﬁnancial statements included in this Form 10-K. See also ‘‘Off-Balance Sheet Commitments’’
below.

Capital Resources

At December 31, 2007, the Company had utilized approximately $120.4 million of its Financing Agree-

ment in the form of drawings and letters of credit. Cash and undrawn available bank credit facilities to
support the Company’s future cash requirements at December 31, 2007 was approximately $71.5 million.

The Company expects to incur approximately $15 million of capital expenditures in 2008. Such capital

expenditures are expected to include leasehold improvements, furniture and ﬁxtures, and computer equipment
at certain of the Company’s operating subsidiaries. The Company intends to maintain and expand its business
using cash from operating activities, together with funds available under the Financing Agreement. Manage-
ment believes that the Company’s cash ﬂow from operations and funds available under the Financing
Agreement will be sufficient to meet its ongoing working capital, capital expenditures and other cash needs
over the next eighteen months. If the Company has growth through acquisitions, management expects that the
Company may need to obtain additional ﬁnancing in the form of debt and/or equity ﬁnancing.

31

Deferred Acquisition and Contingent Consideration (Earnouts)

Acquisitions of businesses by the Company include commitments to contingent deferred purchase consid-

eration payable to the seller. The contingent purchase obligations are generally payable annually over a
three-year period following the acquisition date, and are based on achievement of certain thresholds of future
earnings and, in certain cases, also based on the rate of growth of those earnings. The contingent consider-
ation is recorded as an obligation of the Company when the contingency is resolved and the amount is
reasonably determinable. At December 31, 2007, the deferred consideration relates to acquisitions in 2007 and
is presented on the Company’s balance sheet. Based on the various assumptions as to future operating results
of the relevant entities, including the October 2007 acquisition of the remaining 40% of KBP, management
estimates that approximately $23.4 million of additional deferred purchase obligations could be triggered
during 2008 or thereafter, including approximately $5.9 million which may be paid in the form of issuance by
the Company of its Class A shares. The actual amount that the Company pays in connection with the obliga-
tions may be materially different from this estimate.

Off-Balance Sheet Commitments

Put Rights of Subsidiaries’ Minority Shareholders

Owners of interests in certain of the Company’s subsidiaries have the right in certain circumstances to
require the Company to acquire the remaining ownership interests held by them. These rights are not free-
standing. The owners’ ability to exercise any such ‘‘put’’ 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 2008 to 2015.
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 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 December 31, 2007,
perform over the relevant future periods at their 2007 earnings levels, that these rights, if all exercised, could
require the Company, in future periods, to pay an aggregate amount of approximately $69.7 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 $11.8 million by the issuance of the Company’s
Class A Shares. In addition, the Company is obligated under similar put option rights to pay an aggregate
amount of approximately $8.5 million only upon termination of such owners employment with the applicable
subsidiary. 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 $12.1 million of the estimated $69.7 million that
the Company would be required to pay subsidiaries minority shareholders’ upon the exercise of outstanding
‘‘put’’ rights, relates to rights exercisable within the next twelve months. In January 2008, certain owners of
Allard Johnson put to the Company 9.9% of their ownership in Allard Johnson for approximately $2.3 million
in cash. See ‘‘Item 1A — Risk Factors.’’

The following table summarizes the potential timing of the consideration and incremental operating
income before depreciation and amortization based on assumptions as described above excluding certain put
option rights exercisable only pursuant to a termination of employment.

32

Cash . . . . . . . . . . . . . . . . . .
Shares . . . . . . . . . . . . . . . . .

Operating income before

depreciation and amortization
to be received(2)
. . . . . . . . .

Cumulative operating income
before depreciation and
amortization(3)

. . . . . . . . . .

Consideration(4)

2008

2009

2010

2011

$11.8
0.3
$12.1

$2.1
0.9
$3.0

($ Millions)

$26.3
6.5
$32.8

$2.0
1.1
$3.1

2012 &
Thereafter

Total

$15.7
3.0
$18.7

$57.9
11.8
$69.7(1)

$ 2.8

$0.6

$ 4.1

$1.6

$ 3.4

$12.5

$ 2.8

$3.4

$ 7.5

$9.1

12.5

(5)

(1) Of this, approximately $19.6 million has been recognized in Minority Interest on the Company’s balance
sheet in conjunction with the consolidation of CPB as a variable interest entity in 2004. As a result, the
net off-balance sheet commitment is $50.1 million.

(2) This ﬁnancial measure is presented because it is the basis of the calculation used in the underlying agree-
ments relating to the put rights and is based on actual 2007 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.

Guarantees

In connection with certain dispositions of assets and/or businesses in 2001 and 2003, as well as the 2006
sale of SPI, the Company has provided customary representations and warranties whose terms range in dura-
tion 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 indemni-
ﬁed 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 several years.

In connection with the sale of the Company’s investment in CDI, the amounts of indemniﬁcation guaran-

tees are limited to the total sale price of approximately $84 million. 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 provision 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 and the sale of SPI, the Company has estimated the fair value of its liability to
be insigniﬁcant.

Transactions with Related Parties

CEO Services Agreement

On April 27, 2007, the Company entered into a new Management Services Agreement (the ‘‘Services
Agreement’’) with Miles Nadal and with Nadal Management, Inc. to set forth the terms and conditions on
which Mr. Nadal will continue to provide services to the Company as its Chief Executive Officer. Mr. Nadal’s

33

prior services agreement with the Company was scheduled to expire on October 31, 2007, subject to two-year
annual renewals. If the Company were not going to enter into a new agreement with Mr. Nadal and did not
intend to allow the prior agreement to renew, it would have been required to give Mr. Nadal notice of such
non-renewal by April 30, 2007.

As an incentive to enter into the Services Agreement, the Company paid a one-time non-renewal fee of
$3.5 million upon execution of the Services Agreement, which has been expensed during the second quarter of
2007. Mr. Nadal used a portion of the proceeds to repay to the Company the $2.7 million (C$3.0 million) note
receivable due on November 1, 2007 from Nadal Management, Inc. In addition, during 2007 and in accor-
dance with this new Services Agreement, Mr. Nadal repaid an additional $0.5 million of loans due to the
Company.

At December 31, 2007, outstanding loans due from Nadal Management to the Company, with no stated

maturity date, amounted to C$6.4 million ($6.4 million), which have been reserved for in the Company’s
accounts.

Trapeze Media

In 2000, the Company purchased 1,600,000 shares in Trapeze Media Limited (‘‘Trapeze’’) for

$0.2 million. At the same time, the Company’s CEO purchased 4,280,000 shares of Trapeze for $0.6 million,
the Company’s former Chief Financial Officer and a Managing Director of the Company each purchased
50,000 Trapeze shares for $7,000 and a Board Member of the Company purchased 75,000 shares of Trapeze
for $10,000. In 2001, the Company purchased an additional 1,250,000 shares for $0.2 million, and the Com-
pany’s CEO purchased 500,000 shares for $0.1 million. In 2002, the Company’s CEO purchased 3,691,930
shares of Trapeze for $0.5 million. All of these purchases were made at identical prices (i.e., C$0.20/unit).

During 2007 and 2006, Trapeze provided services to certain partner ﬁrms of MDC, and the total amount

of such services provided was $0.4 million and $0.3 million, respectively.

The Company’s Board of Directors, through its Audit Committee, has reviewed and approved these

transactions.

Critical Accounting Policies

The following summary of accounting policies has been prepared to assist in better understanding the
Company’s consolidated ﬁnancial statements and the related management discussion and analysis. Readers are
encouraged to consider this information together with the Company’s consolidated ﬁnancial statements and the
related notes to the consolidated ﬁnancial statements as included in the Company’s annual report on Form
10-K for a more complete understanding of accounting policies discussed below.

Estimates. The preparation of the Company’s ﬁnancial statements in conformity with generally accepted

accounting principles in the United States of America, or ‘‘GAAP’’, requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities includ-
ing goodwill, intangible assets, valuation allowances for receivables and deferred income tax assets,
stock-based compensation, and the reporting of variable interest entities at the date of the ﬁnancial statements.
The statements are evaluated on an ongoing basis and estimates are based on historical experience, current
conditions and various other assumptions believed to be reasonable under the circumstances. Actual results
can differ from those estimates, and it is possible that the differences could be material.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with the SEC Staff Accounting Bulletin
104, ‘‘Revenue Recognition’’ (‘‘SAB 104’’), and accordingly, revenue is generally recognized when services
are earned or upon delivery of the products when ownership and risk of loss has transferred to the customer,
the selling price is ﬁxed or determinable and collection of the resulting receivable is reasonably assured.

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

34

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 recog-
nized 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 perfor-
mance against qualitative goals has been achieved. In all circumstances, revenue is only recognized when
collection is reasonably assured.

The Company follows EITF No. 99-19, ‘‘Reporting Revenue Gross as a Principal versus Net as an
Agent’’ (‘‘EITF 99-19). This Issue summarized the EITF’s views on when revenue should be recorded at the
gross amount billed because revenue has been earned from the sale of goods or services, or the net amount
retained because a fee or commission has been earned. The Company’s 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 EITF No. 01-14 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.

Acquisitions, Goodwill and Other Intangibles. A fair value approach is used in testing goodwill for
impairment under SFAS 142 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 cus-
tomer relationships. The Company has determined that certain intangibles (trademarks) have an indeﬁnite life,
as there are no legal, regulatory, contractual, or economic factors that limit the useful life.

A summary of the Company’s deferred acquisition consideration obligations, sometimes referred to as

earnouts, and obligations under put rights of subsidiaries’ minority shareholders to purchase additional inter-
ests in certain subsidiary and affiliate companies is set forth in the ‘‘Liquidity and Capital Resources’’ section
of this report. The deferred acquisition consideration obligations and obligations to purchase additional inter-
ests in certain subsidiary and affiliate companies are primarily based on future performance. Contingent
purchase price obligations are accrued, in accordance with GAAP, when the contingency is resolved and
payment is determinable.

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

35

Income Tax Valuation Allowance. The Company records a valuation allowance against deferred income

tax assets when management believes it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. Management considers factors such as the reversal of deferred income
tax liabilities, projected future taxable income, the character of the income tax asset, tax planning strategies,
changes in tax laws and other factors. A change to these factors could impact the estimated valuation allow-
ance and income tax expense.

Stock-based Compensation

The fair value method is applied to all awards granted, modiﬁed or settled on or after January 1, 2003.

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

Effective January 1, 2006, the Company adopted SFAS 123(R) and has opted to use the modiﬁed pro-

spective application transition method. Under this method the Company will not restate its prior ﬁnancial
statements. Instead, the Company will apply SFAS 123(R) for new awards granted or modiﬁed after the
adoption of SFAS 123(R), any portion of awards that were granted after December 15, 1994 and have not
vested as of January 1, 2006, and any outstanding liability awards.

Variable Interest Entities. The Company evaluates its various investments in entities to determine
whether the investee is a variable interest entity and if so whether MDC is the primary beneﬁciary. Such
evaluation requires management to make estimates and judgments regarding the sufficiency of the equity at
risk in the investee and the expected losses of the investee and may impact whether the investee is accounted
for on a consolidated basis.

New Accounting Pronouncements

The following recent pronouncements were issued by the Financial Accounting Standards Board

(‘‘FASB’’):

In June 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB Interpretation No. 48,
‘‘Accounting for Uncertainty in Income Taxes’’. This Interpretation clariﬁes the accounting for uncertainty in
income taxes recognized in an enterprise’s ﬁnancial statements in accordance with FASB Statement No. 109,
‘‘Accounting for Income Taxes’’. This Interpretation is effective for ﬁscal years beginning after December 15,
2006, with earlier application permitted. The adoption of this interpretation did not have a material effect on
its ﬁnancial statements.

Effective in Future Periods

In September 2006, FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’. This statement deﬁnes fair

value, establishes a framework for measuring fair value and expands disclosures about fair value measure-
ments. This statement is effective for all ﬁscal year beginning after November 15, 2007 and interim periods
within those ﬁscal years. Earlier application is encouraged. The Company is currently evaluating the impact of
this new statement on our ﬁnancial statements.

In February 2007, FASB issued SFAS No. 159, ‘‘The Fair Value Option for Financial Assets and Finan-

cial Liabilities’’ (‘‘SFAS 159’’). This statement permits entities to choose to measure many ﬁnancial
instruments and certain other items at fair value. This statement expands the use of fair value measurement
and applies to entities that elect the fair value option. The fair value option established by this Statement
permits all entities to choose to measure eligible items at fair value at speciﬁed election dates. SFAS 159 is
effective as of the beginning of an entity’s ﬁrst ﬁscal year that begins after November 15, 2007. The Company
is currently evaluating the impact of this new statement on our ﬁnancial statements.

36

In December 2007, FASB issued SFAS No. 141R ‘‘Business Combination’’ (‘‘SFAS 141R’’). This revised

statement retains some fundamental concepts of the current standard, including the acquisition method of
accounting (known as the ‘‘purchase method’’ in Statement 141) for all business combinations but SFAS 141R
broadens the deﬁnitions of both businesses and business combinations, resulting in the acquisition method
applying to more events and transactions. This statement also requires the acquirer to recognize the identiﬁ-
able assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair
values. SFAS 141R will require both acquisition-related costs and restructuring costs to be recognized sepa-
rately from the acquisition and be expensed as incurred. In addition, acquirers will record contingent
consideration at fair value on the acquisition date as either a liability or equity. Subsequent changes in fair
value will be recognized in the income statement for any contingent consideration recorded as a liability.
SFAS 141R is to be applied prospectively for ﬁnancial statements issued for ﬁscal years beginning on or after
December 15, 2008. Early application is prohibited. The Company is currently evaluating the impact of this
new statement on its ﬁnancial statements.

In December 2007, FASB issued SFAS No. 160 ‘‘Non-controlling Interests in Consolidated Financial
Statements’’ (SFAS 160’’). This statement amends ARB No. 51 Consolidated Financial Statements, to now
require the classiﬁcation of noncontrolling (minority) interests and dispositions of noncontrolling interests as
equity within the consolidated ﬁnancial statements. The income statement will now be required to show net
income/loss with and without adjustments for noncontrolling interests. SFAS 160 is to be applied prospec-
tively for ﬁnancial statements issued for ﬁscal years beginning on or after December 15, 2008 and interim
periods within those years. However, this statement requires companies to apply the presentation and disclo-
sure requirements retrospectively to comparative ﬁnancial statements. Early application is prohibited. The
Company is currently evaluating the impact of this new statement on its ﬁnancial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk related to interest rates and foreign currencies.

Debt Instruments: At December 31, 2007, the Company’s debt obligations consisted of amounts out-
standing under its Financing Agreement. This facility bears interest at variable rates based upon the Eurodollar
rate, US bank prime rate and, US base rate, at the Company’s option. The Company’s ability to obtain the
required bank syndication commitments depends in part on conditions in the bank market at the time of
syndication. Given the existing level of debt of $113.4 million, as of December 31, 2007, a 1.0% increase or
decrease in the weighted average interest rate, which was 9.22% at December 31, 2007, would have an inter-
est impact of approximately $1.1 million annually.

Foreign Exchange: The Company conducts business in ﬁve currencies, the US dollar, the Canadian

dollar, Jamaican dollar, the Mexican Peso and the British Pound. Our results of operations are subject to risk
from the translation to the US dollar of the revenue and expenses of our non-US operations. The effects of
currency exchange rate ﬂuctuations on the translation of our results of operations are discussed in the ‘‘Man-
agement’s Discussion and Analysis of Financial Condition and Result of Operations’’ and in Note 2 of our
consolidated ﬁnancial statements. For the most part, our revenues and expenses incurred related to our non-US
operations are denominated in their functional currency. This minimizes the impact that ﬂuctuations in
exchange rates will have on proﬁt margins. The Company does not enter into foreign currency forward
exchange contracts or other derivative ﬁnancial instruments to hedge the effects of adverse ﬂuctuations in
foreign currency exchange rates.

Effective June 28, 2005, the Company entered into a cross-currency swap contract (‘‘Swap’’), a form of
derivative, in order to mitigate the risk of currency ﬂuctuations relating to interest payment obligations. The
Swap contract provides for a notional amount of debt ﬁxed at C$45.0 million and at $36.5 million, with the
interest rates ﬁxed at 8% per annum for the Canadian dollar amount and ﬁxed at 8.25% per annum for the US
dollar amount. On June 22, 2006, the Company settled this swap and recorded a gain of $0.2 million.

37

Item 8. Financial Statements and Supplementary Data

MDC PARTNERS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements:
Reports of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Three Years Ended December 31, 2007 . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2007. . . . . . . . . .
Consolidated Statements of Shareholders’ Equity for the Three Years Ended December 31, 2007 . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statement Schedules:
Schedule II — Valuation and Qualifying Accounts for the Three Years Ended December 31, 2007 . .

Page

39
41
42
43
45
47

90

38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
MDC Partners, Inc.
New York, New York

We have audited the accompanying consolidated balance sheets of MDC Partners, Inc. and subsidiaries as

of December 31, 2007 and 2006 and the related consolidated statements of operations, shareholders’ equity,
and cash ﬂows for the years then ended. These ﬁnancial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these ﬁnancial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assur-
ance about whether the ﬁnancial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements, assessing the
accounting principles used and signiﬁcant estimates made by management, as well as evaluating the overall
ﬁnancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material
respects, the ﬁnancial position of MDC Partners, Inc. and subsidiaries at December 31, 2007 and 2006, and
the results of its operations and its cash ﬂows for the years ended in conformity with accounting principles
generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), MDC Partners, Inc. and subsidiaries’ internal control over ﬁnancial reporting as of
December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commissions (COSO) and our report dated March 7,
2008 expressed an unqualiﬁed opinion thereon.

/s/ BDO Seidman, LLP

New York, New York
March 7, 2008

39

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
MDC Partners Inc.:

We have audited the accompanying consolidated statements of operations, shareholders’ equity and cash

ﬂows for the year ended December 31, 2005 of MDC Partners Inc. and subsidiaries (‘‘the Company’’). In
connection with our audit of the consolidated ﬁnancial statements, we also have audited the ﬁnancial state-
ment schedules II for the year ended December 31, 2005. These consolidated ﬁnancial statements and
ﬁnancial statement schedules are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated ﬁnancial statements and ﬁnancial statement schedules based on our
audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight

Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assur-
ance about whether the ﬁnancial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements. An audit also
includes assessing the accounting principles used and signiﬁcant estimates made by management, as well as
evaluating the overall ﬁnancial statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material
respects, the results of its operations, shareholder’s equity, and its cash ﬂows for the year ended December 31,
2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related
ﬁnancial statement schedules for the year ended December 31, 2005, when considered in relation to the basic
consolidated ﬁnancial statements taken as a whole, present fairly, in all material respects, the information set
forth therein.

/s/ KPMG LLP

Toronto, Canada
March 15, 2006, except as to Note 10, which is as of March 7, 2008

40

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of United States Dollars, Except Share and per Share Amounts)

Years Ended December 31,

2007

2006

2005

Revenue:

Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

547,319

$

412,207

$

349,824

Operating Expenses:

Cost of services sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .

Operating Proﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Income (Expenses)

Gain on sale of assets and other . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gain, (loss) . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations before income taxes, equity

in affiliates and minority interests. . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before equity in affiliates and
minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of non consolidated affiliates . . . . . . . . . . . .
Minority interests in income of consolidated subsidiaries . . . . . .
Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Loss Per Common Share:
Basic and diluted

351,851
143,207
29,246
524,304
23,015

3,065
(7,192)
(13,672)
1,726
(16,073)

6,942
5,620

1,322
165
(20,565)
(19,078)
(7,277)
(26,355) $

236,916
127,347
24,162
388,425
23,782

1,246
614
(11,238)
540
(8,838)

14,944
7,120

7,824
168
(16,715)
(8,723)
(24,816)
(33,539)

Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(0.76) $
(0.29)
(1.05) $

(0.37)
(1.03)
(1.40)

201,433
103,443
22,636
327,512
22,312

729
80
(7,777)
251
(6,717)

15,595
3,248

12,347
1,402
(21,587)
(7,838)
(111)
(7,949)

(0.34)
(0.00)
(0.34)

$

$

$

Weighted Average Number of Common Shares Outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25,000,582
25,000,582

23,875,286
23,875,286

23,298,795
23,298,795

Non cash stock-based compensation expense is included in the following line items above:

Cost of services sold . . . . . . . . . . . . . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,245
5,972
$10,217

$3,373
4,988
$8,361

$ 578
2,694
$3,272

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

41

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Thousands of United States Dollars)

Current Assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance for doubtful accounts of $1,357 and

$1,633 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures billable to clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Bank debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance billings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred acquisition consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments, contingencies and guarantees (Note 17)
Shareholders’ Equity:

Preferred shares, unlimited authorized, none issued. . . . . . . . . . . . . . . . . . .
Class A Shares, no par value, unlimited authorized, 26,235,932 and

December 31,

2007

2006

$ 10,410

$

6,591

135,260
19,409
5,937
2,422
173,438
47,440
1,434
217,726
55,399
9,175
16,086
$ 520,698

$

—
—
65,839
74,668
50,988
1,796
2,511
195,802
1,901
115,662
45,395
8,267
819
367,846
24,919

125,744
28,077
4,816
1,248
166,476
44,425
2,058
203,693
48,933
13,332
14,584
$493,501

$ 4,910
45,000
90,588
75,315
51,804
1,177
2,721
271,515
—
5,754
38,613
5,512
1,140
322,534
46,553

—

—

23,923,522 shares issued in 2007 and 2006, respectively . . . . . . . . . . . . .

207,958

184,698

Class B Shares, no par value, unlimited authorized, 2,503 and 2,502 shares

issued in 2007 and 2006, respectively, convertible into one Class A share . .
Share capital to be issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock subscription receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .

1
214
26,743
(112,969)
(357)
6,343
127,933
$ 520,698

1
—
26,216
(86,614)
(643)
756
124,414
$493,501

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

42

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of United States Dollars)

Cash ﬂows from operating activities:

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss from continuing operations to cash

provided by operating activities:
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and write-off of deferred ﬁnance charges. . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on disposition of assets . . . . . . . . . . . . . . . . . . . . . . . .
Earnings of non consolidated affiliates . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets and liabilities . . . . . . . . . . . . . . . . . . . . .
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in non-cash working capital

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures billable to clients. . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . .
Accounts payable, accruals and other current liabilities . . . . . . . . . .
Advance billings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows from continuing operating activities . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . .

Cash ﬂows from investing activities:

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from sale of business . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired. . . . . . . . . . . . . . . . . . . . . . . . .
Proﬁt distributions from non consolidated affiliates . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows from ﬁnancing activities:

Increase (decrease) in bank indebtedness . . . . . . . . . . . . . . . . . . . .
(Repayments) proceeds under old revolving credit facility . . . . . . . .
Proceeds from term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from new credit facility . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of convertible notes . . . . . . . . . . . . . . . . . .
Proceeds from notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred ﬁnancing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,

2007

2006

2005

$(26,355) $(33,539)
(24,816)
(8,723)

(7,277)
(19,078)

$ (7,949)
(111)
(7,838)

9,088
14,638
14,608
2,330
5,253
(1,691)
(165)
3,754
7,278

(12,712)
8,635
(1,160)
(25,083)
(1,662)
4,033
99
4,132

(20,072)
—
8,270
(47,648)
—
(1,464)
—
(60,914)

(4,910)
(45,000)
111,500
1,901
—
3,250
(5,843)
(3,946)

7,360
13,251
10,911
2,213
4,861
—
(168)
(2,617)
(2,157)

(21,045)
(19,416)
(1,817)
35,435
15,897
33,985
5,720
39,705

(22,398)
16,407
656
(7,230)
940
—
(2,690)
(14,315)

1,171
(28,506)
—
—
—
—
(1,477)
—

3,272
9,226
13,410
1,305
34
128
(1,402)
(2,968)
887

9,013
528
(421)
(15,652)
(7,666)
1,856
2,814
4,670

(10,712)
—
—
(55,046)
1,796
848
(4,290)
(67,404)

(2,287)
27,501
—
—
36,723
—
(4,330)
(3,316)

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

43

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS − (continued)
(Thousands of United States Dollars)

Years Ended December 31,

2007

2006

2005

Subsidiary issuance of share capital . . . . . . . . . . . . . . . . . . . . . . .
Issuance of share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) ﬁnancing activities. . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . .

—
4,893
(769)
(147)
60,929
(328)
3,819
6,591
$10,410

385
177
—
(3,347)
(31,597)
(125)
(6,332)
12,923
$ 6,591

Supplemental disclosures:

Cash paid to minority partners . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash transactions:
Share capital issued, or to be issued, on acquisitions . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note receivable exchanged for shares of subsidiary . . . . . . . . . . . . .
Notes and equity received on sale business . . . . . . . . . . . . . . . . . .

$25,033
$ 1,216
$14,085

$ 19,359
$ 1,459
$ 9,920

$ 4,459
$10,302
1,351
$ 1,756
$
$ 1,540
125
$ — $ 5,648

—
31
—
(2,006)
52,316
697
(9,721)
22,644
$12,923

$17,559
918
$
$ 5,762

$14,794
$ 1,467
$
122
$ —

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

44

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Thousands of United States Dollars)

2007

2006

2005

Number of
Shares

Amount

Number of
Shares

Amount

Number of
Shares

Amount

Class A Shares
Balance at beginning of year . . . 23,923,522
Stock appreciation rights

$184,698

23,437,615

$178,589

21,937,871

$164,064

exercised . . . . . . . . . . . . . . .
Share options exercised. . . . . . .
Shares acquired and cancelled . .
Shares issued as acquisition

350,264
592,000
(93,848)

4,948
4,993
(770)

99,844
30,400
—

830
820
—

—
5,258
—

—
31
—

consideration . . . . . . . . . . . .

988,394

10,088

30,058

250

1,139,975

11,257

Shares issued as deferred

108,097

acquisition consideration . . . .
Shares issued on privatization of
3
Maxxcom . . . . . . . . . . . . . .
Issuance of restricted stock . . . .
367,500
Balance at end of year . . . . . . . 26,235,932

856

315,247

4,209

354,511

3,237

—
3,145
$207,958

10,358
—
23,923,522

—
—
$184,698

—
—
23,437,615

—
—
$178,589

Class B Shares
Balance at beginning of year . . .
Shares converted to Class B

shares . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . .

Share Capital to Be Issued
Balance at beginning of year . . .
Shares to be issued as deferred

acquisition consideration . . . .

Shares issued as deferred

acquisition consideration . . . .
Balance at end of year . . . . . . .

Additional Paid-In Capital
Balance at beginning of year . . .
Stock-based compensation . . . . .
Acquisition contingency

payment . . . . . . . . . . . . . . .

Warrants granted to service

providers . . . . . . . . . . . . . . .
Share appreciation rights plan . .
Share options exercised. . . . . . .
Issuance of restricted stock . . . .
Share appreciation rights

exercised . . . . . . . . . . . . . . .
Balance at end of year . . . . . . .

2,502

$

1
2,503

$

$

$

1

—
1

—

214

—
214

$ 26,216
9,088

(82)

—
—
(364)
(3,145)

(4,970)
$ 26,743

2,502

$

—
2,502

1

—
1

2,502

—
2,502

$

1

—
1

$

4,209

$

3,909

—

(4,209)
—

$

$ 20,028
7,395

(377)

—
—
—
—

300

—
4,209

$

$ 17,113
775

—

—
2,140
—
—

(830)
$ 26,216

—
$ 20,028

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

45

MDC PARTNERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY − (continued)
(Thousands of United States Dollars)

2007

2006

2005

Number of
Shares

Amount

Number of
Shares

Amount

Number of
Shares

Amount

Accumulated Deﬁcit
Balance at beginning of year . . .
Distribution to minority

shareholder . . . . . . . . . . . . .
Loss for the year . . . . . . . . . . .
Balance at end of year . . . . . . .

Stock Subscription Receivable
Balance at beginning of year . . .
Exercise of stock options. . . . . .
Receipts for exercise of stock

options . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . .

Accumulated Other

Comprehensive Income
(Loss)

Balance at beginning of year . . .
Foreign currency translation

adjustments . . . . . . . . . . . . .
Balance at end of year . . . . . . .
Total Shareholders’ Equity . . .

$ (86,614)

—
(26,355)
$(112,969)

$

$

(643)
—

286
(357)

$

756

5,587
6,343
$ 127,933

$ (53,075)

—
(33,539)
$ (86,614)

$

$

—
(674)

31
(643)

2,966

(2,210)
756
$124,414

$ (45,083)

(43)
(7,949)
$ (53,075)

$

$

—
—

—
—

$

3,147

(181)
2,966
$152,718

The accompanying notes to the consolidated ﬁnancial statements are an integral part of these statements.

46

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

1. Basis of Presentation

MDC Partners Inc. (the ‘‘Company’’) has prepared the consolidated ﬁnancial statements included herein
pursuant to the rules and regulations of the United States Securities and Exchange Commission (the ‘‘SEC’’)
and in accordance with generally accepted accounting principles (‘‘GAAP’’) of the United States of America
(‘‘US GAAP’’).

Nature of Operations

MDC Partners Inc., formerly MDC Corporation Inc., is incorporated under the laws of Canada. The
Company commenced using the name MDC Partners Inc. on November 1, 2003 and legally changed its name
through amalgamation with a wholly-owned subsidiary on January 1, 2004. The Company’s operations are in
primarily one business group — Marketing Communications. The business group operates primarily in the
United States (‘‘US’’), Canada and in the United Kingdom. See Note 15, ‘‘Segment Information’’, for further
description of the one business group and MDC’s reportable segments.

2. Signiﬁcant Accounting Policies

The Company’s signiﬁcant accounting policies are summarized as follows:

Principles of Consolidation. The accompanying consolidated ﬁnancial statements include the accounts

of MDC Partners Inc. 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 on consolidation.

Use of Estimates. The preparation of ﬁnancial statements in conformity with US GAAP requires man-
agement to make estimates and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities including goodwill, intangible assets, valuation allowances for receivables and deferred
tax assets, and the reporting of variable interest entities at the date of the ﬁnancial statements and the reported
amounts of revenue and expenses during the reporting period. The estimates are evaluated on an ongoing
basis and estimates are based on historical experience, current conditions and various other assumptions
believed to be reasonable under the circumstances. Actual results could differ from those estimates.

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; however, one client accounted for approximately 13% of the Company’s consoli-
dated accounts receivable as of December 31, 2007. This client also accounted for 16.3%, 16.0% and 14.7%
of revenue for the years ended December 31, 2007, 2006 and 2005, respectively.

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 of credit risk in that there are cash deposits in excess of federally insured amounts. Included in
cash and cash equivalents at December 31, 2007 and 2006 is $63 and $172, respectively of cash restricted as
to withdrawal pursuant to a collateral agreement and a customer’s contractual requirement.

Allowance for Doubtful Accounts. Trade receivables, exclusive of sales tax are stated at invoiced
amounts less allowances for doubtful accounts. The allowances represent estimated uncollectible receivables
associated with potential customer defaults usually due to customers’ potential insolvency. The allowances
include amounts for certain customers where a risk of default has been speciﬁcally identiﬁed. The assessment
of the likelihood of customer defaults is based on various factors, including the length of time the receivables
are past due, historical experience and existing economic conditions.

47

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)

Expenditures Billable to Clients. Expenditures billable to clients consist principally of outside vendors

costs incurred on behalf of clients when providing advertising, marketing and corporate communications
services to clients that have not been invoiced. Such amounts are invoiced to clients at various times over the
course of the production process.

Fixed Assets. Fixed assets are stated at cost, net of accumulated depreciation. Buildings are depreciated

on a declining balance basis over the estimated useful lives of 20 to 25 years. Computers, furniture and ﬁx-
tures are depreciated on a straight-line basis over periods of 3 to 7 years. Machinery and equipment are
depreciated on a straight-line basis over periods of 3 to 10 years. Leasehold improvements are depreciated on
a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset.
Repairs and maintenance costs are expensed as incurred.

Impairment of Long-lived Assets.

In accordance with SFAS, No. 144, ‘‘Accounting for the Impairment
or Disposal of Long-lived Assets,’’ (‘‘SFAS No. 144’’) a long-lived asset or asset group is tested for recover-
ability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.
When such events occur, the Company compares the sum of the undiscounted cash ﬂows expected to result
from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset
or asset group. If this comparison indicates that there is an impairment, the amount of the impairment is
typically calculated using discounted expected future cash ﬂows where observable fair values are not readily
determinable. The discount rate applied to these cash ﬂows is based on the Company’s weighted average cost
of capital, risk adjusted where appropriate.

Equity Method Investments. The equity method is used to account for investments in entities in which

the Company has an ownership interest of less than 50% and has signiﬁcant inﬂuence, or joint control by
contractual arrangement with all parties having an equity interest, over the operating and ﬁnancial policies of
the affiliate or has an ownership interest of greater than 50% however the substantive participating rights of
the minority interest shareholders preclude the Company from exercising unilateral control over the operating
and ﬁnancial policies of the affiliate. The Company’s investments accounted for using the equity method
includes Adrenalina, 49.9% owned by the Company, and a 50% undivided interest in a real estate joint ven-
ture. The Company’s management periodically evaluates these investments to determine if there has been a
decline in value that is other than temporary. During 2006, the Company also accounted for Zig, Inc., Mono
Advertising, LLC and Accumark Communications Inc. on the equity method; however, as a result of changes
in their operating agreements, and/or ownership structure, the Company has consolidated these entities as of
December 31, 2006.

Cost Method Investments. The Company’s cost-based investments at December 31, 2007 were primarily

comprised of various interests in limited partnerships and companies where the Company does not exercise
signiﬁcant inﬂuence over the operating and ﬁnancial policies of the investee. The total net cost basis of these
investments, which are included in Other Assets on the balance sheet, as of December 31, 2007 and 2006 was
$3,783 and $2,896, respectively. These investments are periodically evaluated to determine if there have been
any other than temporary declines below book value. A variety of factors are considered when determining if
a decline in fair value below book value is other than temporary, including, among others, the ﬁnancial condi-
tion and prospects of the investee, as well as the Company’s investment intent. In addition, the Company has
a 7.5% interest in newly formed entity which purchased the Secured Products International Group. See
Note 10.

Goodwill and Indeﬁnite Lived Intangibles.

In accordance with SFAS No. 142, ‘‘Goodwill and Other

Intangible Assets’’ (‘‘SFAS No 142’’), goodwill and indeﬁnite life intangible assets (trademarks) acquired as a
result of a business combination which are not subject to amortization are tested for impairment annually, and
more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is

48

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)

recognized to the extent that the carrying amount exceeds the asset’s fair value. For goodwill, this determina-
tion is made at the reporting unit level and consists of two steps. First, the Company determines the fair value
of a reporting unit and compares it to its carrying amount. Fair value is determined based on earnings mul-
tiples of each subsidiary. Second, if the carrying amount of a reporting unit exceeds its fair value, an
impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the
implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair
value of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS
No. 141, ‘‘Business Combinations’’. The residual fair value after this allocation is the implied fair value of the
reporting unit goodwill. Impairment losses, where applicable, will be charged to operating proﬁt. The Com-
pany identiﬁes certain intangible assets (trademarks) as indeﬁnite life if there are no legal, regulatory,
contractual or economic factors that limit the useful life. If the carrying amount of an indeﬁnite life intangible
exceeds its fair value, an impairment loss is recognized for the excess.

Deﬁnite Lived Intangible Assets.

In accordance with SFAS No. 142, acquired intangibles, are subject to

amortization over their useful lives. The method of amortization selected reﬂects the pattern in which the
economic beneﬁts of the speciﬁc intangible asset is consumed or otherwise used up. If that pattern cannot be
reliably determined, a straight-line amortization method is used over the estimated useful life. Intangible assets
that are subject to amortization are reviewed for potential impairment in accordance with SFAS 144 at least
annually or whenever events or circumstances indicate that carrying amounts may not be recoverable. See also
Note 8.

Deferred Taxes. The Company uses the asset and liability method of accounting for income taxes.
Deferred income taxes are provided for the temporary difference between the ﬁnancial reporting basis and tax
basis of the Company’s assets and liabilities. Deferred tax beneﬁts result principally from recording certain
expenses in the ﬁnancial statements that are not currently deductible for tax purposes and from differences
between the tax and book basis of assets and liabilities recorded in connection with acquisitions. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. Deferred tax liabilities result principally
from deductions recorded for tax purposes in excess of that recorded in the ﬁnancial statements. The effect of
changes in tax rates is recognized in the period the rate change is enacted.

Variable Interest Entities. The Company evaluates its various investments in entities to determine
whether the investee is a variable interest entity and if so whether MDC is the primary beneﬁciary. Such
evaluation requires management to make estimates and judgments regarding the sufficiency of the equity at
risk in the investee and the expected losses of the investee and may impact whether the investee is accounted
for on a consolidated basis.

Minority Interest. The Company accounts for minority interest in two accounts, long term minority
interest and short term minority interest. Long term minority interest represents the minority holders share of
equity in the related subsidiaries that is not expected to be distributed in the near term. Short term minority
interest represents the minority holders share of current year proﬁts that are expected to be distributed within
the next twelve months.

Guarantees. Guarantees issued or modiﬁed by the Company to third parties after January 1, 2003 are
generally recognized, at the inception or modiﬁcation of a guarantee, as a liability for the obligations it has
undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term
of the guarantee in the event that the speciﬁed triggering events or conditions occur. The initial measurement
of that liability is the fair value of the guarantee. The recognition of the liability is required even if it is not
probable that payments will be required under the guarantee. The Company’s liability associated with guaran-
tees is not signiﬁcant. (See Note 17)

49

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)

Revenue Recognition

The Company’s revenue recognition policies are in compliance with the SEC Staff Accounting Bulletin
104, ‘‘Revenue Recognition’’ (‘‘SAB 104’’), and accordingly, revenue is generally recognized 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.

In November 2002, EITF Issue No. 00-21, ‘‘Revenue Arrangements with Multiple Deliverables’’ (‘‘EITF

00-21 was issued. EITF 00-21’’) 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 arrange-
ment involving multiple deliverables contains more than one unit of accounting. EITF 00 21 is effective for
revenue arrangements entered into in ﬁscal periods beginning after June 15, 2003. Also, in July 2000, the
EITF of the Financial Accounting Standards Board released Issue No. 99-19, ‘‘Reporting Revenue Gross as a
Principal versus Net as an Agent’’ (‘‘EITF 99-19’’). This Issue summarized the EITF’s views on when revenue
should be recorded at the gross amount billed because it has earned revenue from the sale of goods or ser-
vices, or the net amount retained because it has earned a fee or commission. The Company also follows EITF
No. 01-14 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 recog-
nized 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 Advanced Billings.

A small portion of the Company’s contractual arrangements with customers includes performance incen-
tive 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.

Cost of Services Sold. Costs of services sold do not include depreciation charges for related ﬁxed assets.

Stock-Based Compensation

The fair value method is applied to all awards granted, modiﬁed or settled on or after January 1, 2003.

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

50

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)

its historical volatility derived over the expected term of the award, to determine the volatility factor used in
determining the fair value of the award. The Company uses the ‘‘simpliﬁed’’ method to determine the term of
the award.

Stock-based awards that are settled in cash or may be settled in cash at the option of employees are
recorded as liabilities. The measurement of the liability and compensation cost for these awards is based on
the fair value of the award, and is recorded into operating income over the service period, that is the vesting
period of the award. Changes in the Company’s payment obligation 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 com-
pensation 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.

The fair value of the stock options and similar awards at the grant date were estimated using the Black-

Scholes option-pricing model with the following weighted average assumptions for each of the following
years:

Expected dividend . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Risk-free interest rate
. . . . . . . . . . . .
Expected option life in years
Weighted average fair value of options granted

Years Ended December 31,

2007

2006

2005

0%
0%
65.6% − 66.7%
40%
4.95% − 5.0% 4.57% − 4.95% 2.9% − 3.9%

0%
32.2% − 40%

7.5
$5.75

5.75 − 7
$4.50

3.16
$2.56

Effective January 1, 2006, the Company adopted SFAS 123(R) and has opted to use the modiﬁed pro-
spective application transition method. Under this method the Company has not restated its prior ﬁnancial
statements. Instead, the Company applies SFAS 123(R) for new awards granted or modiﬁed after the adoption
of SFAS 123(R), any portion of awards that were granted after December 15, 1994 and have not vested as of
January 1, 2006, and any outstanding liability awards. It is the Company’s policy for issuing shares upon the
exercise of an equity incentive award to verify the amount of shares to be issued, as well as the amount of
proceeds to be collected (if any) and delivery of new shares to the exercising party.

Measurement of compensation cost for awards that are outstanding and classiﬁed as equity, at January 1,

2006, will be based on the original grant-date fair value calculations of those awards. The Company had
previously adopted SFAS 123 and as such has been expensing the fair value of all awards issued after
January 1, 2003. For all previously issued awards, the Company has been providing pro-forma disclosure for
such awards. Upon the adoption of SFAS 123(R), the Company expenses the fair value of the awards granted
prior to January 1, 2003. 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 adoption of SFAS 123(R) did not have a material effect on the Company’s ﬁnancial position or results of
operations.

51

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 table below summarizes the pro forma effect, had the Company adopted the fair value method of
accounting for stock options and similar instruments for awards issued prior to 2003 and prior to the adoption
of SFAS 123(R).

Year Ended
December 31,
2005
$(7,949)

683
$(8,632)
$ (0.34)
$ (0.37)

Net loss as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value costs, net of income tax, of stock-based employee compensation awards issued

prior to 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss, pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per share, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per share, pro forma

Pension Costs. Several of the Company’s US and Canadian subsidiaries offer employees access to
certain deﬁned contribution pension programs. Under the deﬁned contribution plans, these subsidiaries, in
some cases, make annual contributions to participants’ accounts which are subject to vesting. The Company’s
contribution expense pursuant to these plans was $1,131, $1,476 and $1,144 for the years ended December 31,
2007, 2006 and 2005, respectively.

Earnings per Common Share. Basic earnings per share is based upon the weighted average number of
common shares outstanding during each period, including the ‘‘Share capital to be issued’’ as reﬂected in the
Shareholders’ Equity on the balance sheet. Diluted earnings per share is based on the above, plus, if dilutive,
common share equivalents, which include outstanding options, warrants, stock appreciation rights, restricted
stock units and convertible notes.

Sale of Subsidiary Interests. The Company records dilution gains and losses on sales of certain subsid-

iary interests as a component of the statement operations as other income (expense).

Foreign Currency Translation. The Company’s ﬁnancial statements were prepared in accordance with
the requirements of SFAS No. 52, ‘‘Foreign Currency Translation’’ (‘‘SFAS 52’’). The functional currency of
the Company is the Canadian dollar and it has decided to use US dollars as its reporting currency for consoli-
dated reporting purposes. All of the Company’s subsidiaries use their local currency as their functional
currency in accordance with SFAS 52. Accordingly, the currency impacts of the translation of the balance
sheets of the Company’s non-US dollar based subsidiaries to US dollar statements are included as cumulative
translation adjustments in accumulated other comprehensive income. Cumulative translation adjustments are
not included in net earnings unless they are actually realized through a sale or upon complete or substantially
complete liquidation of the Company’s net investment in the foreign operation. The balance sheets of non-US
dollar based subsidiaries are translated at the period end rate. The income statements of non-US dollar based
subsidiaries are translated at average exchange rates for the period.

Gains and losses arising from the Company’s foreign currency transactions are reﬂected in net earnings
other than those unrealized gains or losses arising on the translation of certain intercompany foreign currency
transactions that are of a long-term nature (that is settlement is not planned or anticipated in the future) and
which are included as cumulative translation adjustments in accumulated other comprehensive income.

Derivative Financial Instruments. The Company follows SFAS No. 133, ‘‘Accounting for Derivative
Instruments and Hedging Activities’’ (‘‘SFAS 133’’). SFAS 133 establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative instruments embedded in other con-
tracts and debt instruments) be recorded in the balance sheet as either an asset or liability measured at its fair
value. The accounting for the change in fair value of the derivative depends on whether the instrument quali-
ﬁes for and has been designated as a hedging relationship and on the type of hedging relationship. There are
three types of hedging relationships: a cash ﬂow hedge, a fair value hedge and a hedge of foreign currency

52

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)

exposure of a net investment in a foreign operation. The designation is based upon the exposure being hedged.
Derivatives that are not hedges, or become ineffective hedges, must be adjusted to fair value through earnings.

Effective June 28, 2005, the Company entered into a cross currency swap contract (‘‘Swap’’), a form of

derivative. The Swap contract provides for a notional amount of debt ﬁxed at $45,000 Canadian dollars
(‘‘C$’’) and at $36,452, with the interest rates ﬁxed at 8% per annum for the Canadian dollar amount and
ﬁxed at 8.25% per annum for the US dollar amount. Consequently, under the terms of this Swap, semi-
annually, the Company will receive interest of C$1,800 and will pay interest of $1,503 per annum. On
June 22, 2006, the Company settled this swap for its fair value of $357, which resulted in a gain of $192 for
the year ended December 31, 2006 and is included in other income.

Put Options. 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 arrange-
ment 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 valua-
tion 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 17.

The Company accounts for the put options with a charge to minority interest expense to reﬂect the
excess, if any, of the estimated exercise price over the estimated fair value of the minority shares at the date
of the option being exercised. No recognition is given to any increase in value of the put option if the esti-
mated exercise price is less than the estimated fair value of the minority interest shares. The estimated
exercise price is determined based on deﬁned criteria pursuant to each arrangement. The commitment is
calculated at each reporting period based on the earliest contractual exercise date. The estimated fair value of
the minority interest shares is based on an overall enterprise value determined by a multiple of historical and
projected future earnings.

3. Earnings (Loss) per Common Share

The following table sets forth the computation of basic and diluted earnings (loss) per common share

from continuing operations for the years ended December 31:

2007

2006

2005

Numerator
Numerator for diluted earnings (loss) per common share –
income (loss) from continuing operations plus assumed
conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

Denominator
Denominator for basic earnings (loss) per common share –

(19,078) $

(8,723)

$

(7,838)

weighted average common shares . . . . . . . . . . . . . . . . . . . .

25,000,582

23,875,286

23,298,795

Effect of dilutive securities:
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock options, warrants, and stock appreciation rights .
Employee restricted stock units . . . . . . . . . . . . . . . . . . . . . . .
Dilutive potential common shares
. . . . . . . . . . . . . . . . . . . .
Denominator for diluted earnings (loss) per common share –

—
—
—
—

—
—
—
—

—
—
—
—

adjusted weighted shares and assumed conversions . . . . . . . .

25,000,582

23,875,286

23,298,795

Basic earnings (loss) per common share from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(0.76) $

(0.37)

Diluted earnings (loss) per common share from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(0.76) $

(0.37)

$

$

(0.34)

(0.34)

53

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

3. Earnings (Loss) per Common Share − (continued)

At December 31, 2007, 2006 and 2005 convertible notes, warrants, options and other rights to purchase
6,929,101, 8,504,707 and 6,667,015 shares of common stock, respectively, were not included in the computa-
tion of diluted loss per common share because doing so would have had an antidilutive effect.

4. Acquisitions

2007 Acquisitions

On November 1, 2007, the Company acquired an additional 28% of Crispin Porter & Bogusky LLC,
(‘‘CPB’’) from certain minority holders resulting in the Company’s current ownership of 77%. The purchase
price consisted of a payment of approximately $22,561 in cash and the issuance of 514,025 newly-issued
shares of the Company’s Class A subordinated voting stock valued at approximately $5,546. For accounting
purposes, the value of the Company’s Class A shares issued as consideration was calculated based on the price
of the Company’s Class A shares over a period two days before and after the November 1, 2007 announce-
ment date. This acquisition represented an accelerated exercise of the Company’s existing call option that was
otherwise exercisable in December 2007 and in April 2008. Prior to the transaction, the Company consolidated
CPB as a Variable Interest Entity (‘‘VIE’’). As a result of this step acquisition, the Company now consolidates
CPB as a majority owned subsidiary. The allocation of the excess purchase consideration of this acquisition to
the fair value of net assets acquired resulted in 100% or $4,637 of the excess consideration being allocated to
identiﬁable intangible assets. Approximately $2,000 represents customer backlog and is being amortized over a
ﬁve month period and the balance of $2,637 represents customer relationships and is being amortized over a
ﬁve year period. These intangibles are tax deductible in future years as well as $23,471 of intangibles which
have been previously recorded in connection with the VIE accounting.

On October 18, 2007, the Company acquired the remaining 40% equity interest in KBP Holdings LLC,

(‘‘KBP’’) from KBP Management Partners LLC (‘‘Minority Holder’’). The purchase price consisted of an
initial payment of approximately $12,255 in cash and the issuance of 269,389 newly-issued shares of the
Company’s Class A subordinated voting stock valued at approximately $2,901. For accounting purposes, the
value of the Company’s Class A shares issued as consideration was calculated based on the price of the Com-
pany’s Class A shares on the date of the acquisition. In addition, the Company expects to pay a contingent
amount to the Minority Holder in 2009 and 2010, based on KBP’s ﬁnancial performance in 2008 and 2009.
These additional contingent payments will be calculated in accordance with KBP’s existing limited liability
company agreement. In connection with this acquisition, certain key executives of KBP agreed to extend the
terms of their existing employment agreements and received grants of restricted stock of the Company valued
at $234 in the aggregate. These equity grants vest over a three year period. This acquisition represented an
accelerated exercise of the Company’s existing call option that was otherwise exercisable in 2008. The alloca-
tion of the excess purchase consideration of this acquisition to the fair value of net assets acquired resulted in
100% or $14,482 of the excess consideration being allocated to identiﬁable intangible assets. Approximately
$2,711 represents customer backlog and is being amortized over a six and one-half month period and the
balance of $11,771 represents customer relationships and the amortization rate is expected to be 30%, 25%,
20%, 15% and 10% in years one through ﬁve, respectively. The value of the restricted stock grants will be
amortized over a three year period. In addition, the Company incurred a non-cash stock based compensation
charge of approximately $2,603 resulting from a portion of the purchase price being paid by the Minority
Holder to certain employees of KBP pursuant to an existing phantom equity plan between those employees
and the Minority Holder. A similar type of charge will be incurred if and when any contingent payments are
made in 2009 and 2010. The intangibles are tax deductible in future years.

On August 17, 2007, the Company purchased an additional 16% of the equity interests of VitroRobertson

LLC (‘‘Vitro’’) resulting in the Company’s current ownership of 84%. This 16% represents one of the
founders’ remaining equity interest in Vitro. This founder initially had a put option right to the Company for
this 16%, which was to become exercisable in 2011. However, the Company agreed to purchase this 16% for

54

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)

an initial payment of $650, together with the potential of two additional payments of $75 each based upon
client retention targets. The allocation of the cost of the acquisition to the fair value of net assets acquired
resulted in identiﬁable intangible assets of $200 and goodwill of $375. The identiﬁable intangibles will be
amortized on a straight line basis over ﬁve years. The intangibles and goodwill are tax deductible in future
years.

On June 15, 2007, the Company acquired a 60% membership interest in Redscout, LLC (‘‘Redscout’’).

Redscout is a brand development and innovation consulting ﬁrm. Redscout is expected to expand the Compa-
ny’s strategic consultancy services within the Strategic Marketing Services segment. The purchase price
consisted of $4,021 in cash and $641 was paid in the form of 76,340 newly issued Class A shares of the
Company. In addition, the Company may be required to make additional payments which are contingent on
the results of Redscout’s operations through December 2008. As of December 31, 2007, the Company will be
required to make additional payments of $1,500 of which approximately $213 may be paid in the form of
Class A shares. At December 31, 2007, this amount has been accrued in deferred acquisition consideration. In
addition, the Company incurred approximately $35 of transaction related costs for a total purchase price of
$4,697. The allocation of the cost of the acquisition to the fair value of net assets acquired resulted in amor-
tizable intangible assets of $1,275 and goodwill of $2,706 and is based on estimates of fair values and certain
assumptions that the Company believes are reasonable. The intangibles and goodwill are tax deductible in
future years.

On May 1, 2007, the Company’s 70.1% owned subsidiary, Northstar Research Holdings USA LP,
acquired a 51% membership interest in Trend Core LLC (‘‘TC’’). TC is a qualitative research ﬁrm with a
specialty in the understanding of the merger of cultural trends and consumer needs with product innovation.
TC is expected to expand the Company’s research capabilities within the Specialized Communication Services
segment. The purchase price consisted of $103 in cash and related closing costs. In addition, the Company
may be required to pay up to an additional $900 in cash to the sellers if TC achieves speciﬁed ﬁnancial
targets at certain speciﬁed times over the period ending April 30, 2011. The allocation of the cost of the
acquisition to the fair value of net assets acquired resulted in an amortizable intangible asset of approximately
$96 based on estimates of fair values and certain assumptions that the Company believes are reasonable. The
intangible is tax deductible in future years.

On April 4, 2007, the Company acquired a 59% membership interest in HL Group Partners LLC (‘‘HL’’).

The Company intends to use up to 8% of the membership interests acquired for purposes of entering into a
proﬁts interest arrangement with other key executives of HL, or ‘‘Gen II’’ management. Gen II management
will also have liquidity rights based on any appreciation of value over the original purchase price attributable
to the proﬁts interest. HL is a marketing strategy and corporate communications ﬁrm with a specialty in high
end fashion and luxury goods. HL is expected to expand the Company’s creative talent within the Strategic
Marketing Services segment. The purchase price consisted of $4,813 in cash, of which $4,493 was paid and
$320 will be paid on April 4, 2008, and $1,000 was paid in the form of 128,550 newly-issued Class A shares
of the Company. In addition, the Company incurred transaction costs of approximately $30 for a total pur-
chase price of $5,843. The allocation of the cost of the acquisition to the fair value of net assets acquired
resulted in amortizable intangible assets of $2,154 and goodwill of $3,442 and is based on estimates of fair
values and certain assumptions that the Company believes are reasonable. The intangibles and goodwill are
tax deductible in future years.

55

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)

2006 Acquisitions

During 2006, the Company did not complete any material acquisitions, however the Company did com-

plete the following transactions:

On February 7, 2006, the Company purchased the remaining outstanding membership interests of 12.33%

of Source Marketing LLC (‘‘Source’’) pursuant to an exercise of a put option notice delivered in
October 2005. The purchase price of $2,287 consisted of cash of $1,830 and the delivery of 1,063,516 shares
of LifeMed Media Inc. (‘‘LifeMed’’) valued at $457. The Company’s carrying value of these LifeMed shares
was $27, thus the Company recorded a gain on the disposition of these shares of $430, which has been
included in other income.

On February 15, 2006, Source issued 15% of its membership interests to certain members of manage-

ment. The purchase price for these membership interests was $1,540, which consisted of $385 cash and
recourse notes in an aggregate principal amount equal to $1,155. In addition, the purchaser also received a
fully vested option to purchase an additional 5% of Source at an exercise price equal to the price paid above.
The option is exercisable any time prior to December 31, 2010. An amended and restated LLC agreement was
entered into with these new members. The agreement also provides these members with an option to put to
the Company these membership interests from December 2008-2012. As a result of the above transactions, the
Company now owns 85% of Source. During the quarter ended March 31, 2006, the company recorded a
non-cash stock based compensation charge of $2,338 relating to the price paid for the membership interests
which was less than the fair value of such membership interests and the fair value of the option granted. On
October 1, 2006, the options noted above were exercised. This exercise resulted in a dilution loss of $626 and
reduced the Company’s ownership down to 80%.

On July 1, 2006, the Company and Mono Advertising, LLC amended its operating agreement to elimi-

nate certain limitations that the Company had on its ability to exercise control of Mono Advertising, LLC.
Effective July 1, 2006 the Company has consolidated Mono Advertising, LLC which had previously been
accounted for under the equity method.

On July 27, 2006, the Company settled a put option obligation for a ﬁxed amount equal to $1,492,
relating to the purchase of 4.3% of additional equity interests of Accent Marketing, LLC. The settlement of
this put was satisﬁed by a cash payment of $424, plus the cancellation of an outstanding promissory note to
the Company in a principal amount equal to $1,068. The purchase price was allocated as follows: $403 to
identiﬁed intangibles, amortized over eight years and the balance of $1,089 as additional goodwill. The good-
will and intangibles are deductible for tax purposes. Including this transaction, the Company now owns 93.7%
of Accent Marketing, LLC.

On November 14, 2006, the Company purchased an additional 20% interest in Northstar Research Part-

ners Inc. for $3,405 in cash. This transaction resulted in an allocation of the purchase price to goodwill of
$2,989 and identiﬁable intangible assets of $415. The goodwill and intangibles are deductible for tax
purposes.

On November 14, 2006, the Company through its subsidiary Zig Inc. purchased a 65% interest in

Hadrian’s Wall Advertising, LLC for $550. Hadrian’s Wall Advertising, LLC is a creative advertising ﬁrm that
was acquired to facilitate the expansion of the Zig Canada business into the US market. In addition the Com-
pany purchased an additional 0.2% of Zig Inc. for cash of $18 and 30,000 of the Company’s Stock
Appreciation Rights, valued at $104. The purchase price was allocated to goodwill of $18 and the value of the
SAR’s was considered to be compensation expense and will be amortized over the vesting period of the
SAR’s. Effective November 17, 2006, as a result of the additional share purchase, the Company has consoli-
dated Zig Inc. which had previously been accounted for under the equity method.

56

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 15, 2006, the Company and Accumark Communications Group Inc. amended its operating

agreement to eliminate certain minority rights. As a result of this amendment, effective December 15, 2006,
the Company has consolidated Accumark Communications Inc. which had previously been accounted for
under the equity method.

2005 Acquisitions

Zyman Group

On April 1, 2005, the Company, through a wholly-owned subsidiary, purchased approximately 61.6% of
the total outstanding membership units of Zyman Group, LLC (‘‘Zyman Group’’) for purchase price consider-
ation of $52,389 in cash and 1,139,975 Class A shares of the Company, valued at $11,257 based on the share
price on or about the announcement date. Related transaction costs of approximately $977 were also incurred.
In addition, the Company may be required to pay up to an additional $12,000 to the sellers if Zyman Group
achieves speciﬁed ﬁnancial targets for the twelve month period ending June 30, 2006 and/or June 30, 2007.
These targets were not achieved.

In connection with the Zyman Group acquisition, the Company, Zyman Group and the other unitholders

of Zyman Group entered into a new Limited Liability Company Agreement (the ‘‘LLC Agreement’’). The
LLC Agreement sets forth certain economic, governance and liquidity rights with respect to Zyman Group.
Zyman Group initially has seven managers, four of whom were appointed by the Company. Pursuant to the
LLC Agreement, the Company will have the right to purchase, and may have an obligation to purchase, for a
combination of cash and shares, additional membership units of Zyman Group from the other members of
Zyman Group, in each case, upon the occurrence of certain events or during certain speciﬁed time periods.

The Zyman Group name is well recognized for strategic marketing consulting and as such was acquired

by the Company for its assembled workforce to enhance the creative talent within the Company’s Strategic
Marketing Service segment of businesses.

The Zyman Group acquisition was accounted for as a purchase business combination. The purchase price

of the net assets acquired in this transaction is $64,622. The ﬁnal allocation of the cost of the acquisition to
the fair value of net assets acquired and minority interests is as follows:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets and other assets
Goodwill (tax deductible)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses and other liabilities
. . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest at carrying value
Total cost of the acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,653
6,734
7,785
45,349
20,143
(7,475)
(8,524)
(5,043)
$64,622

Identiﬁable intangible assets of $20,143 are comprised primarily of customer relationships and related

backlog and trademarks. The allocation of the purchase price to assets acquired and liabilities assumed is
based upon estimates of fair values and certain assumptions that the Company believes are reasonable under
the circumstances. The Company’s consolidated ﬁnancial statements include Zyman Group’s results of opera-
tions subsequent to its acquisition on April 1, 2005.

During the ﬁrst ﬁve years following the Company’s acquisition of the Zyman Group, the Company’s
allocation of proﬁts of the Zyman Group may differ from its proportionate share of ownership. On an annual
basis, the Company receives a 20% priority return calculated based on its total investment in Zyman Group.

57

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)

Thereafter, based on calculations set forth in the operating agreement of Zyman Group (the ‘‘LLC Agree-
ment’’), the Company’s share of remaining Zyman Group proﬁts in excess of the annual ‘‘threshold’’ amount
of $20,600 may be disproportionately less than its equity ownership in Zyman Group. Speciﬁcally, on an
annual basis, if Zyman operating results exceed a deﬁned operating margin, the Company would be entitled to
25% of the excess margins in the ﬁrst two years of the LLC Agreement and 30% of the excess margins in the
following three years of the LLC Agreement, rather than the Company’s equity portion of 61.6%. After the
ﬁrst ﬁve years, the earnings of the Zyman Group will be allocated in a proportion equal to the respective
equity interests of the members.

Based on the Company’s investment in the Zyman Group, at December 31, 2007, the annual priority
return continues to be equal to approximately $12,700, with the minority owners receiving the next $7,900 up
to the threshold amount. If proﬁts are insufficient to meet the Company’s priority return during any of the ﬁrst
ﬁve years, the Company will receive a catch-up payment through year ﬁve equal to any shortfall from the
prior year(s). Furthermore, if proﬁts do not reach the threshold amount during the ﬁrst ﬁve years, the minority
owners will be entitled to receive a catch-up payment through year ﬁve equal to any shortfall from the prior
year(s). The short fall payments are subject to the actual results of operations and are not guaranteed pay-
ments. Based on Zyman Group’s results for 2007 and 2006, the Company received less than its priority return
from Zyman Group.

Neuwirth

On December 1, 2005, the Company, through its subsidiary Northstar Research Partners (USA) LLC

(‘‘NS LLC’’), purchased the business of Neuwirth Research, Inc. (‘‘Neuwirth’’) for purchase price consider-
ation of $450 in cash, a 20% equity interest in NS LLC valued at $225 based on the estimated market value
of NS LLC on or about the announcement date, and 48,391 of the Company’s Class A shares valued at $300.
Related transaction costs of approximately $100 were also incurred. In addition, the Company was required to
pay up to an additional $625 in cash to the seller if the acquired Neuwirth business achieves speciﬁed ﬁnan-
cial targets for the year ended December 31, 2005 and/or December 31, 2006. As of March 31, 2006, the
Company determined that these targets were achieved and, accordingly, the $625 payment obligation was
settled by the Company’s issuance of 30,058 Class A shares stock valued at $250 and cash of $375.

In connection with the Neuwirth acquisition, the Company and seller entered into agreements related to

governance and certain put option rights with respect to the seller’s 20% equity interest in NS LLC which
becomes 50% exercisable in 2010 and 100% exercisable in 2015.

Neuwirth is a recognized market research ﬁrm and was acquired by the Company for its list of blue chip
clients and synergies with NS LLC existing business. This acquisition is part of the Specialized Communica-
tions Services segment of businesses.

The Neuwirth acquisition was accounted for as a purchase business combination. The allocation of the

cost of the acquisition to the fair value of net assets acquired is as follows:

Accounts receivable and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets and other assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses and other liabilities
. . . . . . . . . . . . . . . . . . .
Total cost of the acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 492
50
1,680
(522)
$1,700

Identiﬁable intangible assets, consisting of an employment agreement, estimated to be $1,680, are being
amortized on a straight-line basis over ten years. The allocation of the purchase price to assets acquired and
liabilities assumed is based upon estimates of fair values and certain assumptions that the Company believes

58

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)

are reasonable under the circumstances. The Company’s consolidated ﬁnancial statements include Neuwirth’s
results of operations subsequent to its acquisition on December 1, 2005.

Powell

On July 25, 2005, the Company, through its subsidiary Margeotes Fertitta Powell, LLC, (‘‘MFP’’) pur-
chased the business of Powell, LLC (‘‘Powell’’) for purchase price consideration of $332 in cash and a 5%
equity interest in MFP valued at $400 based on the estimated market value of MFP on or about the announce-
ment date. The issuance of equity interests by MFP resulted in a loss of $103 on the dilution of the
Company’s equity interest in its subsidiary. Related transaction costs of approximately $20 were also incurred.
In addition, in August 2006, the Company paid an additional $300 in cash to the seller. Effective 2007, MFP
was discontinued. See Note 10.

The Powell acquisition was accounted for as a purchase business combination. The allocation of the cost

of the acquisition to the fair value of net assets acquired is as follows:

Accounts receivable and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets and other assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses and other liabilities
Total cost of the acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

32
31
1,130
(141)
$1,052

Identiﬁable intangible assets, consisting of an employment agreement, estimated to be $1,130, are being
amortized on a straight-line basis over ﬁve years. The allocation of the purchase price to assets acquired and
liabilities assumed is based upon estimates of fair values and certain assumptions that the Company believes
are reasonable under the circumstances. The Company’s consolidated ﬁnancial statements include Powell’s
results of operations subsequent to its acquisition on July 25, 2005.

Other Acquisitions and Transactions

On July 31, 2005, the Company acquired a further 20% equity interest in its existing subsidiary MFP
pursuant to the exercise of a put obligation under the existing purchase agreement with a minority interest
holder. The purchase price of $1,740 which includes $15 of acquisition costs was paid in cash. Of the pur-
chase price, $500 was allocated to customer relationship intangible assets and $1,240 was allocated to
goodwill. The allocation of the purchase price to assets acquired and liabilities assumed is based upon certain
assumptions that the Company believes are reasonable under the circumstances. As a result of this acquisition,
and the Powell transaction discussed above, the Company retains a 95% equity interest in MFP.

On September 1, 2005, the Company, through a consolidated variable interest entity, Crispin Porter +
Bogusky, LLC (‘‘CPB’’), purchased 20% of the total outstanding membership units of Fuse Project, LLC
(‘‘Fuseproject’’) for purchase price consideration of $750 in cash and an additional $400, which was paid
during the quarter ended March 31, 2006. Fuseproject is a design ﬁrm acquired by CPB to complement its
creative offerings. The Fuseproject acquisition was accounted for using the equity method as CPB has signiﬁ-
cant inﬂuence over the operations of Fuseproject. The purchase price of the net assets acquired in this
transaction is $1,150. The allocation of the cost of the acquisition to the fair value of the net assets acquired
resulted in a portion being attributed to intangible assets valued at $40 and $1,090 consisting of goodwill. The
allocation of the purchase price to assets acquired and liabilities assumed is based upon estimates of fair
values and certain assumptions that the Company believes are reasonable under the circumstances. The Com-
pany’s consolidated ﬁnancial statements include Fuseproject’s results of operations in equity in earnings of
non-consolidated affiliates subsequent to its acquisition on September 1, 2005.

During August 2005, Bryan Mills Group Ltd., (‘‘BMG’’) a subsidiary whose operations are consolidated

by the Company, completed the acquisition of 450 shares from a minority shareholder at a price of $515.00

59

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)

per share, for a total purchase price of $232. This resulted in the Company’s ownership interest in BMG
increasing to 71.2% from 68.0%. Also as a result of the equity transaction by BMG, the Company recorded
goodwill of $146.

During the quarter ended March 31, 2005, the Company contributed $125 of cash as additional paid in
capital to its existing consolidated subsidiary, Banjo Strategies Entertainment LLC. There was no change in
the Company’s ownership interest. This resulted in a loss on dilution of $61 and is reﬂected in the Company’s
consolidated statement of operations. During the quarter ended June 30, 2005, the Company acquired further
equity interests in the existing consolidated subsidiaries of Allard Johnson Communications Inc. (0.3%) and
Banjo Strategies Entertainment LLC (7.2%). In aggregate, the Company paid $143 in cash for these incremen-
tal ownership interests. During the quarter ended September 30, 2005, the Company acquired a further 0.7%
equity interest in the existing consolidated subsidiary, Allard Johnson Communications Inc., for $148. Effec-
tive on December 31, 2007, Banjo’s operations were discontinued. See Note 10.

Proforma Information

The following unaudited pro forma results of operations of the Company for the years ended
December 31, 2007, 2006 and 2005 assume that the acquisition of the operating assets of the signiﬁcant
businesses acquired during 2007 and 2005 had occurred on January 1st of the respective year in which the
business was acquired and for the comparable period. During 2006, there were no signiﬁcant businesses
acquired. These unaudited pro forma results are not necessarily indicative of either the actual results of opera-
tions that would have been achieved had the companies been combined during these periods, or are they
necessarily indicative of future results of operations. These unaudited pro forma results for the years Decem-
ber 31, 2007 and 2006, include in each of the years, an adjustment for the non-cash stock based compensation
charge of $2,603 resulting from the KBP acquisition.

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss per common share:
Basic − net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted − net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended
December 31,
2007
$547,319
$ (26,478)

Year Ended
December 31,
2006
$412,207
$ (38,840)

Year Ended
December 31,
2005
$364,210
$ (2,998)

$
$

(1.03)
(1.03)

$
$

(1.58)
(1.58)

$
$

(0.13)
(0.13)

5. Fixed Assets

The following is a summary of the ﬁxed assets as of December 31:

2007
Accumulated
Depreciation

Cost

Net Book
Value

Cost

2006
Accumulated
Depreciation

Net Book
Value

Computers, furniture

and ﬁxtures . . . . . . . $ 70,342
—
. . . . . . . . .

Equipment
Leasehold

$(44,053)
—

$26,289
—

$59,357
7,103

$(37,221)
(2,643)

$22,136
4,460

improvements

. . . . .

35,920
$106,262

(14,769)
$(58,822)

21,151
$47,440

30,324
$96,784

(12,495)
$(52,359)

17,829
$44,425

Included in ﬁxed assets are assets under capital lease obligations with a cost of $7,373, (2006 — $6,506)

and accumulated depreciation of $4,838 (2006 — $4,454). Included in equipment is a plane acquired in the
Zyman acquisition with a net book value of $4,218. This plane was sold during 2007 and resulted in again on
sale of $1,846 and is reﬂected in other income. Depreciation expense for the years ended December 31, 2007,
2006 and 2005 was $14,638, $12,297 and $9,217, respectively.

60

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

6. Accrued and Other Liabilities

At December 31, 2007 and 2006, accrued and other liabilities included amounts due to minority interest

holders, for their share of proﬁts, which will be distributed within the next twelve months of $7,916 and
$11,129, respectively.

7. Financial Instruments

Financial assets, which include cash and cash equivalents and accounts receivable, have carrying values

which approximate fair value due to the short-term nature of these assets. Financial liabilities with carrying
values approximating fair value due to short-term maturities include accounts payable, accrued and other
liabilities, advance billings, and deferred acquisition consideration. Bank debt and long-term debt are variable
rate debt, the carrying value of which approximates fair value. The Company’s convertible debt and note
payable are ﬁxed rate debt instruments, the carrying values of which approximates fair value. The fair value
of ﬁnancial commitments, guarantees and letters of credit, are based on the stated value of the underlying
instruments. Guarantees have been issued in conjunction with the disposition of businesses in 2001 and 2003
and letters of credit have been issued in the normal course of business.

8. Goodwill and Intangible Assets

As of December 31, the gross and net amounts of acquired intangible assets were as follows:

2007

2006

Goodwill:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beginning of the year
Acquired goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction for disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment − discontinued operations . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Intangibles:

. . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks (indeﬁnite lived)
Customer relationships − gross
. . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships − net . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles − gross
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles − net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intangible assets − net

$203,693
14,383
(175)
(4,475)
4,300
$217,726

$ 17,780
$ 56,619
(28,703)
$ 27,916
$ 23,581
(13,878)
$ 9,703
$ 97,980
(42,581)
$ 55,399

$195,026
15,838
(1,037)
(5,984)
(150)
$203,693

$ 17,780
$ 41,455
(17,494)
$ 23,961
$ 17,887
(10,695)
$
7,192
$ 77,122
(28,189)
$ 48,933

During 2007 and 2006, the Company recorded a goodwill impairment charge relating to MFP. MFP’s

business operations have been discontinued as of December 31, 2007. In addition, the Company recognized
losses in connection with an equity transaction of one of its consolidated subsidiaries in 2007 and another
subsidiary in 2006 and reduced the carrying value of the goodwill related to the respective subsidiaries by
$175 and $1,037, respectively.

The weighted average amortization periods for customer relationships and other intangible assets are
5 years and 5 years in total. The amortization expense of amortizable intangible assets for the year ended

61

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. Goodwill and Intangible Assets − (continued)

December 31, 2007, was $14,608 (2006 — $10,787; 2005 — $13,481) before tax and the estimated amortiza-
tion expense for the ﬁve succeeding years before tax, per year is:

Year

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amortization

$14,797
$ 9,427
$ 4,940
$ 4,219
$ 2,552

9. Income Taxes

The components of the Company’s income (loss) from continuing operations before income taxes, equity

in affiliates and minority interests by taxing jurisdiction for the years ended December 31, were:

Income (loss):
US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2007

2006

2005

$12,834
(5,892)
$ 6,942

$13,024
1,920
$14,944

$21,929
(6,334)
$15,595

The provision (beneﬁt) for income taxes by taxing jurisdiction for the years ended December 31, were:

Current tax provision

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
US federal
US state and local . . . . . . . . . . . . . . . . . . . . . . . .
Non-US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax provision (beneﬁt):

US federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
US state and local . . . . . . . . . . . . . . . . . . . . . . . .
Non-US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax provision . . . . . . . . . . . . . . . . . . . . . .

2007

2006

2005

$ —
(343)
710
367

3,145
867
1,241
5,253
$5,620

$ —
1,523
740
2,263

5,550
(844)
151
4,857
$7,120

$ —
1,331
1,883
3,214

(1,477)
823
688
34
$ 3,248

62

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

9. Income Taxes − (continued)

A reconciliation of income tax expense using the statutory Canadian federal and provincial income tax

rate compared with actual income tax expense for the years ended December 31, is as follows:

Income from continuing operations before income
taxes, equity in affiliates and minority interest

. . . . .
Statutory income tax rate . . . . . . . . . . . . . . . . . . . . .
Tax expense using statutory income tax rate . . . . . . . .
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible stock-based compensation . . . . . . . . .
Other non-deductible expense . . . . . . . . . . . . . . . . . .
Change to valuation allowance on items affecting

taxable income . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . .

See Note 10 for income taxes for discontinued operations.

2007

2006

2005

$ 6,942

$14,944

$15,595

36.12%
2,508
508
3,065
577

36.12%
5,398
1,086
3,017
407

36.12%
5,633
2,264
1,182
540

6,870
(7,428)
(480)
$ 5,620

3,038
(6,035)
209
$ 7,120

943
(7,655)
341
$ 3,248

80.9%

47.6%

20.8%

Income taxes receivable were $579 and $263 at December 31, 2007 and 2006, respectively, and were

included in accounts receivable on the balance sheet. Income taxes payable were $987 and $2,629 at
December 31, 2007 and 2006, respectively, and were included in accrued and other liabilities on the balance
sheet. It is the Company’s policy to classify interest and penalties arising in connection with the under pay-
ment of income taxes as a component of income tax expense. For the years ended 2007, 2006 and 2005,
income tax expense does not include any amounts for interest and penalties.

63

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

9. Income Taxes − (continued)

The tax effects of signiﬁcant temporary differences representing deferred tax assets and liabilities at

December 31, were as follows:

Deferred tax assets:
Capital assets and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital loss carry forwards
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets

Deferred tax liabilities:
Capital assets and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred ﬁnance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset

Disclosed as:
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2007

2006

$ 1,631
65,077
252
8,383
461
2,548
20,123
3,033
101,508
(86,125)
15,383

(981)
(609)
(4,813)
(6,403)
$ 8,980

$ 1,891
61,472
1,281
7,492
—
—
10,827
4,416
87,379
(65,790)
21,589

(3,192)
(553)
(5,744)
(9,489)
$ 12,100

$ 9,883
(903)
8,980

$

13,332
(1,232)
$ 12,100

Included in accrued and other liabilities at December 31, 2007 and 2006 is a deferred tax liability of $84

and $92, respectively. Included in other current assets at December 31, 2007 is a deferred tax asset of $707.

The Company has US federal net operating loss carry forwards of $37,469 and non-US net operating loss

carry forwards of $134,386, these carry forwards expire in years 2008 through 2027. The Company also has
total indeﬁnite loss carry forwards of $136,017. These indeﬁnite loss carry forwards consist of $24,221 relat-
ing to the US and $111,796 which are related to capital losses from the Canadian operations. In addition, the
Company has net operating loss carry forwards for various state taxing jurisdictions of approximately $88,236.

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 real-
ized. Management considers factors such as the reversal of deferred income tax liabilities, projected future
taxable income, the character of the income tax asset; tax planning strategies, changes in tax laws and other
factors. A change to these factors could impact the estimated valuation allowance and income tax expense.

The valuation allowance has been recorded to reduce our deferred tax asset to an amount that is more
likely than not to be realized, and is based upon the uncertainty of the realization of certain non-US and state
deferred tax assets. The increase in the Company’s valuation allowance charged to the statement of operations
for each of the years ended December 31, 2007, 2006 and 2005 was $6,870, $3,038 and $943, respectively.

64

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

9. Income Taxes − (continued)

Deferred taxes are not provided for temporary differences representing earnings of non-Canadian subsid-
iaries that are intended to be permanently reinvested. The potential deferred tax liability associated with these
undistributed earnings is not material.

On January 1, 2007, the Company adopted the provisions of FIN48. We have classiﬁed certain liabilities

as unrecognized tax beneﬁts as well as any applicable penalties and interest.

The following table summarizes the activity related to our unrecognized tax beneﬁts:

Balance at January 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of statute of limitations for the assessment of taxes . . . . . . . . . . . . . . . .
Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

$617
—
—
$617

We do not expect our unrecognized tax beneﬁts to change signiﬁcantly over the next 12 months.

10. Discontinued Operations

In March 2007, due to continued operating and client losses, the Company ceased Margeotes Fertitta
Powell, LLC (‘‘MFP’’) current operations and spun off a new operating business and as a result incurred a
goodwill impairment charge of $4,475, in 2007. The Company also recorded an impairment charge relating to
MFP of $6,306 in 2006. After reviewing the 2008 projections of the new operating business the Company
decided to cease the operations of the new operating business as well. As a result, the Company has classiﬁed
these operations as discontinued. In addition, an additional intangible relating to an employment contract of
$629 was deemed impaired and written off. The results of operations of MFP and the new operating business,
net of income tax beneﬁts, was a loss of $7,123 in 2007, a loss of $5,986 in 2006 and a loss of $624 in 2005.

In December 2007, due to continued operating losses and the lack of new business wins the Company
ceased Banjo Strategic Entertainment, LLC (‘‘Banjo’’) operations. The results of operations of Banjo, net of
income tax beneﬁts, was a loss of $154 in 2007, a loss of $114 in 2006 and a loss of $621 in 2005. MFP and
Banjo had been previously included in the Company’s specialized communication services segment.

In June 2006, the Company’s Board of Directors made the decision to sell or otherwise divest the Com-

pany’s Secure Paper Businesses and Secure Card Businesses (collectively, Secured Products International or
‘‘SPI’’).

On November 14, 2006, the Company completed its sale of SPI, resulting in net proceeds of $27,000.

Consideration was received in the form of cash of $20,000 and ﬁve additional annual payments of $1,000. In
addition, the Company received a 7.5% equity interest in the newly formed entity acquiring SPI. The Com-
pany has recorded the present value of the ﬁve additional payments of $3,724 as Other Assets. Also included
in Other Assets is the estimated value of the 7.5% equity interest received of $1,924. During 2006, the Com-
pany had previously recorded an impairment charge of $19,498 relating to SPI’s long lived assets to adjust
them to fair market value. The sale of SPI has resulted in a gain of $2,856 ($1,824, net of taxes). The results
of operations of SPI for 2006 was a loss of $21,569. During 2005, the results of operations of SPI was
income of $561.

Based on the net proceeds and average borrowing rate for each period, the Company has allocated inter-
est expense to discontinued operations of $1,393 and $1,096 for the years ended 2006 and 2005, respectively.

During July 2005, LifeMed Media, Inc., (‘‘LifeMed’’) a variable interest entity whose operations had
been consolidated by the Company, completed a private placement issuing approximately 12.5 million shares
at a price of $0.4973 per share. LifeMed received net proceeds of approximately $6,200. Consequently, the

65

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

10. Discontinued Operations − (continued)

Company’s ownership interest in LifeMed was reduced to 18.3% from this transaction. As a result of the
equity transaction of LifeMed, the Company recorded a gain of $1,300. This gain represents the Company’s
reversal of a liability related to funding obligations that the Company is no longer obligated to fund. The
Company no longer has any signiﬁcant continuing involvement in the management or operations of LifeMed,
and has not participated in the purchase of signiﬁcant new equity offerings of LifeMed. Consequently, as of
July 2005, the Company no longer consolidates the operations of LifeMed, commenced accounting for its
remaining investment in LifeMed on a cost basis, and has reported the results of operations of LifeMed as
discontinued operations for all periods presented. During 2005, LifeMed had income of $147. In Febru-
ary 2006, the Company sold 27% of its remaining ownership in LifeMed as partial settlement of a put
obligation.

In November 2004, the Company’s management reached a decision to discontinue the operations of a
component of its business. This component is comprised of the Company’s UK based marketing communica-
tions business, a wholly owned subsidiary Mr. Smith Agency, Ltd. (formerly known as Interfocus Networks
Limited). The Company decided to dispose of the operations of this business due to its unfavorable econom-
ics. Substantially all of the net assets of the discontinued business were sold during the fourth quarter of 2004
with the disposition of all activities of Mr. Smith and remaining sale of assets was substantially complete by
the end of the ﬁrst quarter of 2005. No signiﬁcant one-time termination beneﬁts were incurred or are expected
to be incurred. No further signiﬁcant other charges are expected to be incurred. During 2005, Mr. Smith had
income of $426.

Included in discontinued operations in the Company’s consolidated statements of operations for the years

ended December 31 were the following:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charge . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . .
Income tax recovery . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest recovery . . . . . . . . . . . . . . . . . . . .
Net loss from discontinued operations . . . . . . . . . . . .

Years Ended December 31,

2007
$ 3,491
5,104
$(9,683)
(772)
3,178
—
$(7,277)

2006
$ 78,869
25,804
$(28,407)
625
2,959
7
$(24,816)

2005
$96,577
473
$ (829)
(1,138)
1,201
655
$ (111)

The statutory income tax rate differs from the effective rate for 2006 due to the operating loss of SPI,
which had a valuation allowance recorded against that amount. The 2005 effective rate was different from the
statutory rate due to losses from certain Canadian entities in SPI which had a valuation allowance recorded
against those amounts.

11. Comprehensive Income (Loss)

Total comprehensive income (loss) and its components for the years ended December 31, were:

Net loss for the year . . . . . . . . . . . . . . . . . . . . . . . .
. . .
Foreign currency cumulative translation adjustment
. . . . . . . . .
Comprehensive income (loss) for the year

$(26,355)
5,587
$(20,768)

$(33,539)
(2,210)
$(35,749)

$(7,949)
(181)
$(8,130)

2007

2006

2005

66

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. Bank Debt, Long-Term Debt and Convertible Notes

At December 31, the Company’s indebtedness was comprised as follows:

Short term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8% convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loans
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note payable and other bank loans . . . . . . . . . . . . . . . . . . . . . . . .

Obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . .

Less:
Short term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2007

2006

$

—
1,901
45,395
111,500
3,285
162,081
2,673
164,754

—
—
1,796
$162,958

$ 4,910
45,000
38,613
—
5,206
93,729
1,725
95,454

4,910
45,000
1,177
$44,367

Interest expense related to long-term debt for the years ended December 31, 2007, 2006 and 2005 was

$11,342, $9,025 and $6,472, respectively.

The amortization of deferred ﬁnance costs included in interest expense were $2,330, $2,213 and $1,305

for the years ended December 31, 2007, 2006, and 2005, respectively.

Short term debt represents the swing line under the revolving credit facility and outstanding checks at the

end of the reporting period.

New Financing Agreement

On June 18, 2007, MDC Partners Inc. (the ‘‘Company’’) and its material subsidiaries entered into a new

$185,000 senior secured ﬁnancing agreement (the ‘‘Financing Agreement’’) with Fortress Credit, an affiliate of
Fortress Investment Group, as collateral agent and Wells Fargo Bank, as administrative agent, and a syndicate
of lenders. This facility replaced the Company’s existing $96,500 credit facility that was originally expected to
mature on September 21, 2007. Proceeds from the Financing Agreement were used to repay in full the out-
standing balances on the Company’s existing credit facility. All of these repaid credit facilities have been
terminated.

The new Financing Agreement consists of a $55,000 revolving credit facility, a $60,000 term loan and a

$70,000 delayed draw term loan. Borrowings under the Financing Agreement will bear interest as follows:
(a) LIBOR Rate Loans bear interest at applicable interbank rates and Reference Rate Loans bear interest at the
rate of interest publicly announced by the Reference Bank in New York, New York, plus (b) a percentage
spread ranging from 0% to a maximum of 4.75% depending on the type of loan and the Company’s Senior
Leverage Ratio. In addition, the Company is required to pay a facility fee of 50 basis points. At December 31,
2007, the weighted average interest rate was 9.22%.

At December 31, 2007, $64,624 remains available under the Financing Agreement to support the Compa-
ny’s future cash requirements. The new Financing Agreement is guaranteed by the material subsidiaries of the
Company and matures on June 17, 2012. The Financing Agreement is subject to various covenants, including
a senior leverage ratio, ﬁxed charges ratio, limitations on debt incurrence, limitation on liens and limitation on
dividends and other payments.

67

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

The Company is currently in compliance with all of the terms and conditions of its Financing Agreement,

and management believes, based on its current ﬁnancial projections, that the Company will be in compliance
with covenants over the next twelve months.

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 will mature on June 30,
2010. The Debentures will bear interest at an annual rate of 8.00% payable semi-annually, in arrears, on
June 30 and December 31 of each year, commencing December 31, 2005. Unless an event of default has
occurred and is continuing, the Company may elect, from time to time, subject to applicable regulatory
approval, to issue and deliver Class A subordinate voting shares to the Debenture trustee in order to raise
funds to satisfy all or any part of the Company’s obligations to pay interest on the Debentures in accordance
with the indenture in which holders of the Debentures will be entitled to receive a cash payment equal to the
interest payable from the proceeds of the sale of such Class A subordinate voting shares by the Debenture
trustee.

The Debentures are convertible at the holder’s option into fully-paid, non-assessable and freely tradeable
Class A subordinate voting shares of the Company, at any time prior to maturity or redemption, subject to the
restrictions on transfer, at a conversion price of $14.12 (C$14.00) per Class A subordinate voting share being
a ratio of approximately 71.4286 Class A subordinate voting shares per $1,009.00 (C$1,000.00) principal
amount of Debentures.

The Debentures may not be redeemed by the Company on or before June 30, 2008. Thereafter, but prior
to June 30, 2009, the Debentures may be redeemed, in whole or in part from time to time, at a price equal to
the principal amount of the Debenture plus accrued and unpaid interest, provided that the volume weighted
average trading price of the Class A subordinate voting shares on the Toronto Stock Exchange during a speci-
ﬁed period is not less than 125% of the conversion price. From July 1, 2009 until the maturity of the
Debentures the Debentures may be redeemed by the Company at a price equal to the principal amount of the
Debenture plus accrued and unpaid interest, if any. The Company may elect to satisfy the redemption consid-
eration, in whole or in part, by issuing Class A subordinate voting shares of the Company to the holders, the
number of which will be determined by dividing the principal amount of the Debenture by 95% of the current
market price of the Class A subordinate voting shares on the redemption date. Upon the occurrence of a
change of control of the Company involving the acquisition of voting control or direction over 50% or more
of the outstanding Class A subordinate voting shares prior to June 30, 2008, the Company shall be required to
make an offer to purchase all of the then outstanding Debentures at a price equal to 100% of the principal
amount thereof plus an amount equal to the interest payments not yet received on the Debentures calculated
from the date of the change of control to June 30, 2008, discounted at a speciﬁed rate. Upon the occurrence
of a change of control on or after June 30, 2008, the Company shall be required to make an offer to purchase
all of the then outstanding Debentures at a price equal to 100% of the principal amount of the Debentures
plus accrued and unpaid interest to the purchase date.

68

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

Future principal repayments, including capital lease obligations, for the years ended December 31, and in

aggregate are as follows:

Period

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$ 1,796
1,404
46,611
928
114,015
$164,754

Capital Leases

Future minimum capital lease payments for the years ended December 31 and in aggregate are as fol-

lows:

Period

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$1,075
906
666
340
14
—
3,001
(328)
2,673
(911)
$1,762

13. Share Capital

The authorized share capital of the Company is as follows:

(a) Authorized Share Capital

Class A Shares

An unlimited number, subordinate voting shares, carrying one vote each, entitled to dividends equal to or

greater than Class B shares, convertible at the option of the holder into one Class B share for each Class A
share after the occurrence of certain events related to an offer to purchase all Class B shares.

Class B Shares

An unlimited number, carrying 20 votes each, convertible at any time at the option of the holder into one

Class A share for each Class B share.

Preference Shares

An unlimited number, non-voting, issuable in series.

The Company has not paid dividends on any class of shares during the three years ended December 31,

2007.

69

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Share Capital − (continued)

(b) 2007 Share Capital Transactions

During the year ended December 31, 2007, Class A share capital increased by $23,260, as the Company
issued 1,096,491 shares related to business acquisitions and 1,215,916 shares related to the exercise of stock
options, vested restricted stock and stock appreciation rights.

Additional paid-in capital increased by $527, of which $9,088 related to an increase from stock-based
compensation that was expensed during 2007 partially offset by $8,479 related to the exercise of stock appre-
ciation right awards, stock options and vested restricted stock and $82 related to the resolution of a
contingency based on the Company’s share price relating to a previous acquisition.

(c) 2006 Share Capital Transactions

During the year ended December 31, 2006, Class A share capital increased by $6,188, as the Company

issued 345,305 shares related to business acquisitions and 130,244 shares related to the exercise of stock
options and stock appreciation rights. In addition, during 2006, 10,358 Class A Shares were issued in connec-
tion with the 2003 privatization of Maxxcom. As of December 31, 2006, 30,954 Class A Shares remain to be
issued upon the presentation of the Maxxcom shares which, based on the privatization of this subsidiary in
2003, were exchanged into the Company’s Class A shares. Certain option prices have been retroactively
corrected to comply with provisions in the option plan. As a result, the Company has recorded a stock sub-
scription receivable of $674, included in shareholders equity.

(d) 2005 Share Capital Transactions

During the year ended December 31, 2005, Class A share capital increased by $14,825, as the Company

issued 1,494,486 shares related to business acquisitions and 5,258 shares related to the exercise of stock
options.

(e) Employee Stock Incentive Plan

On May 26, 2005, the Company’s shareholders approved the Company’s 2005 Stock Incentive Plan (the

‘‘2005 Incentive Plan’’). The 2005 Incentive Plan authorizes the issuance of awards to employees, officers,
directors and consultants of the Company with respect to 2,000,000 shares of MDC Partners’ Class A Subordi-
nate Voting Shares or any other security in to which such shares shall be exchanged. On June 1, 2007, the
Company’s shareholders approved an additional 1,000,000 authorized Class A Shares to be added to the 2005
Incentive Plan for a total of 3,000,000 authorized Class A Shares. As of December 31, 2007, the Company has
granted 200,000 Director options, (of which 65,000 were forfeited) which option grants were for a ten-year
term and vests over ﬁve (5) years from the grant date under this plan.

70

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Share Capital − (continued)

The following table summarizes information about time based and ﬁnancial performance-based restricted

stock and restricted stock unit awards granted under the 2005 Incentive Plan:

Performance Based Awards

Time Based Awards

Weighted
Average
Grant Date
Fair Value

—
$8.56
8.55
8.56
7.80
8.56
8.55
$8.10

Shares

—
737,500
(7,500)
730,000
553,729
(367,500)
(2,500)
913,729

Weighted
Average
Grant Date
Fair Value

—
$8.78
—
8.78
9.87
—
8.54
$9.78

Shares

—
59,000
—
59,000
439,149
—
(16,000)
482,149

Balance at December 31, 2005 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2006 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2007 . . . . . . .

The total fair value of restricted stock and restricted stock unit awards, which vested during the year
ended December 31, 2007, was $2,841. In connection with the vesting of these awards, the Company realized
a tax beneﬁt of $340. At December 31, 2007, the weighted average remaining contractual life for performance
based awards is 1.3 years and for time based awards is 1.9 years. At December 31 2007, the fair value of all
restricted stock and restricted stock unit awards is $13,596. The term of these awards is three years with
vesting up to three years. At December 31, 2007, the unrecognized compensation expense for performance
based awards was $3,032 and time based awards was $4,193. At December 31, 2007, there are 1,111,622
awards available to grant.

The Company’s Board of Directors adopted the 2005 Incentive Plan as a replacement for MDC Partners’
Amended and Restated Stock Option Incentive Plan (the ‘‘Prior 2003 Plan’’). Following approval of the 2005
Incentive Plan, the Company ceased making awards under the Prior 2003 Plan.

Prior to adoption of the 2005 Incentive Plan, the Company’s Prior 2003 Plan provided for grants of up to

1,890,786 options to employees, officers, directors and consultants of the Company. All the options granted
were for a term of ﬁve years from the date of the grant and vest 20% on the date of grant and a further 20%
on each anniversary date. In addition, the Company granted 534,960 options, on the privatization of Maxx-
com, with a term of no more than 10 years from initial date of grant by Maxxcom and vest 20% in each of
the ﬁrst two years with the balance vesting on the third anniversary of the initial grant.

71

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Share Capital − (continued)

Information related to share option transactions grant under all plans over the past three years is summa-

rized as follows:

Options Outstanding

Options Exercisable

Balance, December 31, 2004
Granted . . . . . . . . . . . . .
Exercised . . . . . . . . . . . .
Expired and cancelled . . . .
Balance, December 31, 2005
Vested . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . .
Exercised . . . . . . . . . . . .
Expired and cancelled . . . .
Balance, December 31, 2006
Vested . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . .
Exercised . . . . . . . . . . . .
Expired and cancelled . . . .
Balance, December 31, 2007

Number
Outstanding
1,884,615
25,000
(5,258)
(111,153)
1,793,204
—
125,000
(30,400)
(154,724)
1,733,080
—
50,000
(592,000)
(216,052)
975,028

Weighted
Average
Price Per
Share
$ 6.78
6.89
5.87
10.29
6.79
—
8.95
4.92
7.96
8.57
—
8.48
7.59
9.08
$11.14

Number
Outstanding
979,900

Weighted
Average
Price Per
Share
$ 6.65

Non Vested
Options

1,241,773

6.41

1,369,056
—

8.25
—

851,216

$11.31

551,431
(304,407)
125,000
—
(8,000)
364,024
(207,009)
50,000
—
(83,203)
123,812

At December 31, 2007, the intrinsic value of vested options was $198 and the intrinsic value of all
options was $261. For options exercised during 2007, the Company received cash proceeds of $4,689. The
Company did not receive any windfall tax beneﬁts. The intrinsic value of options exercised during 2007 was
$1,550. At December 31, 2007, the weighted average remaining contractual life of all outstanding options was
1.7 years and for all vested options was 1.2 years. At December 31, 2007, the unrecognized compensation
expense of all options was $515 and will be recognized over the next 2.4 years.

For options exercised during 2006, the Company received cash proceeds of $146. The Company did not

receive any windfall tax beneﬁts. The intrinsic value of options exercised during 2006 was $119.

Share options outstanding as of December 31, 2007 are summarized as follows:

Options Outstanding

Options Exercisable

Range of Exercise
Prices

Outstanding
Number

Weighted
Average
Contractual
Life

Weighted
Average
Price Per
Share

$5.30 − $7.94 . . . .
$7.95 − $9.27 . . . .
$9.28 − $10.75 . . .
$10.76 − $15.84 . .
$15.85 − $56.93 . .

8,982
193,830
535,400
230,148
6,668

4.56
3.87
0.90
1.65
3.75

$ 6.81
$ 8.53
$10.61
$14.17
$30.71

Exercisable
Number

8,982
143,830
475,400
217,289
5,715

Weighted
Average
Price Per
Share

Weighted
Average
Contractual
Life

$ 6.81
$ 8.55
$10.70
$14.08
$32.46

4.56
1.89
0.59
1.68
4.17

72

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Share Capital − (continued)

(f) Stock Appreciation Rights

During 2003, the Compensation Committee of the Board of Directors approved a stock appreciation

rights (‘‘SAR’s’’) compensation program for senior officers and directors of the Company. SARS’s granted
prior to 2006 have a term of four years, for SAR’s granted in 2006 and after they have a term of up to 10
years and all awards vest one-third on each anniversary date.

SAR’s granted and outstanding are as follows:

SAR’s Outstanding

SAR’s Exercisable

Weighted
Average
Number
Outstanding

1,940,479
285,000
—
(5,000)

2,220,479
—
40,000
(215,000)
(35,166)

2,010,313
—
—
(1,364,866)
(30,447)

Weighted
Average
Price Per
Share

$ 7.02
9.87
—
7.81

7.58
—
8.09
4.42
8.52

7.91
—
—
6.84
8.68

Number
Outstanding

Price
Per Share

Non Vested
SAR’s

548,493

$ 6.21

1,211,986

6.91

1,700,313

7.48

1,008,493
(728,438)
40,000
—
(10,055)

310,000
(206,666)
—
—
—

Balance at December 31,

2004 . . . . . . . . . . . . .
Granted . . . . . . . . . . . .
Exercised . . . . . . . . . . .
Expired and cancelled . . .

Balance at December 31,

2005 . . . . . . . . . . . . .
Vested . . . . . . . . . . . .
Granted . . . . . . . . . . . .
Exercised . . . . . . . . . . .
Expired and cancelled . . .

Balance at December 31,

2006 . . . . . . . . . . . . .
Vested . . . . . . . . . . . .
Granted . . . . . . . . . . . .
Exercised . . . . . . . . . . .
Expired and cancelled . . .

Balance at December 31,

2007 . . . . . . . . . . . . .

615,000

$11.33

511,666

$11.72

103,334

SAR’s outstanding as at December 31, 2007 are summarized as follows:

At December 31, 2007, the aggregate amount of shares to be issued on vested SAR’s was 4,971 shares

with an intrinsic value of $48 and for all outstanding SAR’s, the aggregate amount of shares to be issued was
10,647 with an intrinsic value of $104. During 2007, the aggregate value of SAR’s exercised was $2,909. The
Company did not receive any windfall tax beneﬁts. At December 31, 2007, the weighted average remaining
contractual life of all outstanding SAR’s was 1.5 years and for all vested SAR’s was 1.1 years. At
December 31, 2007, the unrecognized compensation expense of all SAR’s was $93 and will be recognized
over the next 1.3 years. During 2006, the aggregate value of SAR’s exercised was $813. The Company did
not receive any windfall tax beneﬁts.

Range of Exercise Prices
$7.80 . . . . . . . . . . .
$7.81 − $10.00 . . . .
$10.01 − $16.14 . . . .

Outstanding
Number
30,000
230,000
355,000

SAR’s Outstanding

SAR’s Exercisable

Weighted
Average
Contractual
Life
8.92
1.99
0.57

Weighted
Average
Price Per
Share
$ 7.80
$ 9.71
$12.68

Exercisable
Number
9,999
151,667
350,000

Weighted
Average
Price Per
Share
$ 7.80
$ 9.72
$12.70

Weighted
Average
Contractual
Life
8.92
1.92
0.56

73

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

13. Share Capital − (continued)

(g) Restricted Stock Units

During the year ended December 31, 2004, the Company issued 50,000 restricted stock units of which

16,500 vest on each of the ﬁrst and second anniversary dates with the remaining 17,000 vesting on
September 6, 2007.

In 2007, 2006 and 2005, the recipient of these shares of restricted stock exercised his contractual right to

receive a cash payment of $185, $127 and $121, respectively, in lieu of the 17,000 shares of restricted stock
that vested in 2007, 16,500 shares of restricted stock that vested in 2006 and 2005, and as a result the under-
lying shares of restricted stock in each year were cancelled.

(h) Warrants

The Company measures the fair value of warrants using the Black-Scholes option pricing model on the

date of grant.

Warrants outstanding as at December 31, 2007 are summarized as follows:

Warrants Outstanding

Warrants Exercisable

Range of Exercise Prices
$13.66 − 15.34 . . . . . . . .
$15.35 − $17.95 . . . . . . .
$17.96 − $19.71 . . . . . . .

Number
Outstanding
102,426
466,394
160,087

Weighted
Average
Contractual
Life
1.13
1.09
1.17

Weighted
Average
Price Per
Share
$14.89
$16.12
$19.43

Exercisable
Number
87,409
448,394
145,070

Weighted
Average Price
Per Share
$14.82
$16.04
$19.46

Information related to warrant transactions over the past three years is summarized as follows:

Warrants Outstanding

Warrants Exercisable

Balance December 31, 2004 .
Granted . . . . . . . . . . . .
Expired and cancelled . . .
Balance, December 31, 2005
Vested . . . . . . . . . . . .
Granted . . . . . . . . . . . .
Expired and cancelled . . .
Balance, December 31, 2006
Vested . . . . . . . . . . . .
Granted . . . . . . . . . . . .
Expired and cancelled . . .
Balance, December 31, 2007

Number
Outstanding
1,020,672
—
(30,000)
990,672
—
—
(257,146)
733,526
—
—
(4,619)
728,907

Weighted
Average
Price Per
Share
$13.10
—
13.54
13.53
—
—
11.62
14.20
—
—
17.96
$16.67

Number
Outstanding
648,159

Weighted
Average
Price Per
Share
$12.20

Non Vested
Warrants

768,168

13.06

603,685

14.02

680,873

$16.61

222,504
—
(92,843)
129,661
(81,627)
—
—
48,034

At December 31, 2007, there was no intrinsic value of vested warrants and outstanding warrants.

The Company has reserved a total of 5,259,330 Class A shares in order to meet its obligations under

various conversion rights, warrants and employee share related plans. At December 31, 2007 there were
1,111,622 shares available for future option and similar grants.

74

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

14. Gain on Sale of Assets and Other

The gain on sale of assets and other for the years ended December 31 were as follows:

Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend income(b) . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on disposition of assets(a) . . . . . . . . . . . . .
Gain (loss) on equity transactions of affiliates . . . . . . .
Gain on sale of cross currency swap . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Gain on recovery of investment

2007

$ 117
820
1,709
—
—
419
$3,065

2006

$ 101
—
617
(626)
192
962
$1,246

2005

$ 100

(200)
39
—
790
$ 729

(a) The gain on the dispositions of assets in 2007 primarily relates to the sale of the plane that was acquired
in connection with the Zyman acquisition for consideration equal to $6,368. In connection with the sale,
the Company repaid the loan relating to the plane in an amount equal to $5,001 and recorded a gain on
the sale of $1,846.

(b) The Company received a dividend payment of $820 from the purchaser of the Secured Products Interna-

tional Group.

15. Segmented Information

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

•

•

•

The Strategic Marketing Services (‘‘SMS’’) segment includes Crispin Porter & Bogusky,
kirshenbaum bond + partners, Zyman Group LLC 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 SMS share similar economic characteris-
tics, 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 busi-
nesses, they exhibit similar long term ﬁnancial performance and have been aggregated together.

The Customer Relationship Management (‘‘CRM’’) segment provides marketing services that inter-
face directly with the consumer of a client’s product or service. These services include the design,
development and implementation of a complete customer service and direct marketing initiative
intended to acquire, retain and develop a client’s customer base. This is accomplished using several
domestic and a foreign-based customer contact facilities.

The Specialized Communication Services (‘‘SCS’’) segment includes all of the Company’s other
marketing services ﬁrms that are normally engaged to provide a single or a few speciﬁc marketing
services to regional, national and global clients. These ﬁrms provide niche solutions by providing
world class expertise in select marketing services.

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 SCS segment is an ‘‘Other’’ segment pursuant SFAS 131 ‘‘Disclosures about Segments of an Enter-

prise and Related Information’’.

75

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

15. Segmented Information − (continued)

For the Year Ended December 31, 2007

Revenue . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . .
Office and general expenses . . . . . . .
Depreciation and amortization . . . . .
. . . . . . . . . .
Operating Proﬁt (Loss)
Other Income (Expense):
Other income, net . . . . . . . . . . . . . .
Foreign exchange loss . . . . . . . . . . .
. . . . . . . . . . . .
Interest expense, net
Income from continuing operations
before income taxes, equity in
affiliates and minority interest

. . . .
Income taxes . . . . . . . . . . . . . . . . .
Income from continuing operations
before equity in affiliates and
minority interests . . . . . . . . . . . . .
Equity in earnings of non-consolidated
affiliates . . . . . . . . . . . . . . . . . . .

Minority interests in income of con-

solidated subsidiaries . . . . . . . . . .
Loss from continuing operations . . . .
Loss from discontinued operations . . .
Net Loss . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . .
Capital expenditures . . . . . . . . . . . .
Goodwill intangibles . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . .

Strategic
Marketing
Services
$313,813
186,993
76,884
20,321
$ 29,615

Customer
Relationship
Management
$112,958
81,826
21,306
6,488
$ 3,338

Specialized
Communication
Services
$120,548
83,032
22,868
2,180
$ 12,468

Total

Corporate
$

— $547,319
351,851
—
143,207
22,149
29,246
257
$ 23,015
$(22,406)

3,065
(7,192)
(11,946)

6,942
5,620

1,322

165

$ (15,663)

$

(122)

$ (4,780)

$

— $ (20,565)
(19,078)
(7,277)
$ (26,355)
$ 10,217
$ 20,072
— $273,125
$520,698

$ 4,443
210
$
$
$ 9,075

$
5,194
$ 9,025
$200,408
$329,169

$
91
$ 7,936
$ 29,257
$ 73,133

$
489
2,901
$
$ 43,460
$109,321

76

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

15. Segmented Information − (continued)

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

tables:

Restated for Discontinued Operations

For the Year Ended December 31, 2006

Strategic
Marketing
Services
$241,481
118,018
71,589
17,567
$ 34,307

Customer
Relationship
Management
$84,917
61,419
16,531
5,003
1,964

Specialized
Communication
Services
$85,809
57,479
15,165
1,308
$11,857

Corporate
—
$
—
24,062
284
$(24,346)

Revenue . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . .
Office and general expenses
. . .
Depreciation and amortization . .
Operating Proﬁt (Loss) . . . . . . .
Other Income (Expense):
Other income, net
. . . . . . . . . .
Foreign exchange gain . . . . . . .
Interest expense, net . . . . . . . . .
Income from continuing opera-
tions before income taxes,
equity in affiliates and
minority interest . . . . . . . . . .
Income taxes . . . . . . . . . . . . . .
Income from continuing opera-

tions before equity in affiliates
and minority interests . . . . . .

Equity in earnings of non-
consolidated affiliates

. . . . . .

Minority interests in income of

consolidated subsidiaries . . . .

$ (13,077)

$

(73)

$ (3,565)

$

—

Loss from continuing operations
Loss from discontinued

operations . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . .

Stock-based compensation . . . . .
Capital expenditures . . . . . . . . .
. . . . .
Goodwill and intangibles
Total assets . . . . . . . . . . . . . . .

$ 1,010
$
9,165
$185,033
$297,636

$
24
$11,646
$37,823
$63,577

$ 2,339
$ 1,210
$29,770
$93,838

$ 4,988
377
$
—
$
$ 38,450

77

Total
$412,207
236,916
127,347
24,162
$ 23,782

1,246
614
(10,698)

14,944
7,120

7,824

168

$ (16,715)
(8,723)

(24,816)
$ (33,539)

$
8,361
$ 22,398
$252,626
$493,501

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

15. Segmented Information − (continued)

Restated for Discontinued Operations

For the Year Ended December 31, 2005

Strategic
Marketing
Services
$203,944
97,316
54,810
17,892
$ 33,926

Customer
Relationship
Management
$67,240
51,913
10,427
3,578
$ 1,322

Specialized
Communication
Services
$78,640
52,204
13,068
804
$12,564

Corporate
—
$
—
25,138
362
$(25,500)

Revenue . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . .
Office and general expenses
. . .
Depreciation and amortization . .
Operating Proﬁt (Loss) . . . . . . .
Other Income (Expense):
Other income, net
. . . . . . . . . .
Foreign exchange gain . . . . . . .
Interest expense, net . . . . . . . . .
Income from continuing opera-
tions before income taxes,
equity in affiliates and
minority interest . . . . . . . . . .
Income taxes . . . . . . . . . . . . . .
Income from continuing opera-

tions before equity in affiliates
and minority interests . . . . . .

Equity in earnings of non-
consolidated affiliates

. . . . . .

Minority interests in income of

consolidated subsidiaries . . . .

$ (18,205)

$

(84)

$ (3,298)

$

—

Loss from continuing operations
Loss from discontinued

operations . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . .
Capital expenditures . . . . . . . . .
. . . . .
Goodwill and intangibles
Total assets . . . . . . . . . . . . . . .

$
519
$ 5,762
$187,977
$289,011

$
81
$ 4,028
$28,761
$50,362

$ —
$
636
$35,366
$91,914

$ 2,672
$
286
61
$
$ 76,028

Total
$349,824
201,433
103,443
22,636
$ 22,312

729
80
(7,526)

15,595
3,248

12,347

1,402

$ (21,587)
(7,838)

(111)
$ (7,949)
$
3,272
$ 10,712
$252,165
$507,315

78

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

15. Segmented Information − (continued)

A summary of the Company’s long-lived assets, comprised of ﬁxed assets, goodwill and intangibles, net,

as at December 31, is set forth in the following table.

United States

Canada

Other

Total

Long-lived Assets

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 40,808
$ 38,933

Goodwill and Intangible Assets

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$241,410
$228,065

$ 5,196
$ 3,871

$31,715
$24,561

$1,437
$1,621

$ —
$ —

$ 47,441
$ 44,425

$273,125
$252,626

A summary of the Company’s revenue as at December 31 is set forth in the following table.

Revenue:

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$439,495
$345,310
$290,493

$94,401
$58,927
$51,880

$13,423
$ 7,970
$ 7,451

$547,319
$412,207
$349,824

United States

Canada

Other

Total

16. Related Party Transactions

(a) The Company incurred fees and paid incentive awards totaling $2,471, $2,394 and $2,375 in 2007, 2006
and 2005, respectively, relating to companies controlled by the Chairman and Chief Executive Officer
(‘‘CEO’’) of the Company in respect of services rendered pursuant to a management services agreement
and incentive plans.

On April 27, 2007, the Company entered into a new Management Services Agreement (the ‘‘Services
Agreement’’) with Miles Nadal and with Nadal Management, Inc. to set forth the terms and conditions
on which Mr. Nadal will continue to provide services to the Company as its Chief Executive Officer. Mr.
Nadal’s prior services agreement with the Company was scheduled to expire on October 31, 2007, sub-
ject to two-year annual renewals. If the Company were not going to enter into a new agreement with Mr.
Nadal and did not intend to allow the prior agreement to renew, it would have been required to give Mr.
Nadal notice of such non-renewal by April 30, 2007.

The Services Agreement has a three-year term with automatic one-year extensions. Pursuant to the Agree-
ment, the base compensation for Mr. Nadal’s services will continue through 2007 at the current rate of
$950, with annual increases of $25 in each of 2008 and 2009. The Services Agreement also provides for
an annual bonus with a targeted payout of up to 250% of the base compensation. The Company will also
make an annual cash payment of $500 in respect of retirement beneﬁts, employee health beneﬁts and
perquisites. In addition, in the discretion of the Compensation Committee, the Company may grant equity
incentives with a targeted grant-date value of up to 300% of the then current base retainer.

As an incentive to enter into the Services Agreement, the Company paid a one-time non-renewal fee of
$3,500 upon execution of the Services Agreement, which has been expensed during the second quarter of
2007. Mr. Nadal used a portion of the proceeds to repay to the Company the $2,677 (C$3,000) note
receivable due on November 1, 2007 from Nadal Management, Inc. In addition during 2007, in accor-
dance with this new agreement Mr. Nadal repaid an additional $458 of loans due to the Company.

(b)

In 2000, the Company agreed to provide to its CEO, Miles S. Nadal a bonus of C$10,000 ($10,088) in
the event that the average market price of the Company’s Class A subordinate voting shares is C$30
($30) per share or more for more than 20 consecutive trading days (measured as of the close of trading

79

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

16. Related Party Transactions − (continued)

on each applicable date). This bonus is payable until the date that is three years after the date on which
Mr. Nadal is no longer employed by the Company for any reason. The after-tax proceeds of such bonus
are to be applied ﬁrst as repayment of any outstanding loans due to the Company from this officer and
his related companies in the amount of C$6,351 ($6,407), as at December 31, 2007, which has been
reserved for in the Company’s accounts. These loans have no stated maturity date.

(c)

In 2000, the Company purchased 1,600,000 shares in Trapeze Media Limited (‘‘Trapeze’’) for $215. At
the same time, the Company’s CEO purchased 4,280,000 shares of Trapeze for $576, the Company’s
former Chief Financial Officer and a Managing Director of the Company each purchased 50,000 Trapeze
shares for $7 and a Board Member of the Company purchased 75,000 shares of Trapeze for $10. In
2001, the Company purchased an additional 1,250,000 shares for $161, and the Company’s CEO pur-
chased 500,000 shares for $64. In 2002, the Company’s CEO purchased 3,691,930 shares of Trapeze for
$470. All of these purchases were made at identical prices (i.e., C$.20/share). In 2003, the Company and
the CEO exchanged their units in Trapeze for non-voting shares and entered into a voting trust
agreement.

During 2007, 2006 and 2005, Trapeze provided services to certain subsidiaries, the total amount of such
services provided were $0.4 million, $0.3 million and $0.1 million, respectively.

(d) A subsidiary of the Company charged fees of $33, $149 and $147 in 2007, 2006 and 2005, respectively,

to a trust of which an officer of the Company is a trustee.

17. 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 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 exer-
cise any such ‘‘put’’ 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 exer-
cise 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 2008 to 2015. 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 December 31, 2007,
perform over the relevant future periods at their 2007 earnings levels, that these rights, if all exercised, could
require the Company, in future periods, to pay an aggregate amount of approximately $69,753 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 $11,876 by the issuance of share capital. In addition, the Com-
pany is obligated under similar put option rights to pay an aggregate amount of approximately $8,484 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 and if these rights are exercised.

In January 2008, certain owners of Allard Johnson put to the Company 9.9% of their ownership in Allard

Johnson for approximately $2,300 cash.

80

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

17. Commitments, Contingencies and Guarantees − (continued)

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 year ended December 31, 2007, 2006 and
2005, these operations incurred costs of nil, nil and $128, respectively 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 pur-
chasers in the event that a third party asserts a claim against the purchaser that relates to a liability retained by
the Company. These types of indemniﬁcation guarantees typically extend for a number of years.

In connection with the sale of the Company’s investment in CDI, the amounts of indemniﬁcation guaran-
tees 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. The Company has commitments to fund $447 in an investment fund over a period of up

to two years. At December 31, 2007, the Company has $6,975 of undrawn outstanding letters of credit.

Leases. The Company and its subsidiaries lease certain facilities and equipment. Gross premises rental

expense amounted to $16,990, for 2007, $15,762 for 2006 and $14,689 for 2005, which was reduced by
sublease income of $124 in 2007, $779 in 2006 and $954 in 2005. Where leases contain escalation clauses or
other concessions, the impact of such adjustments is recognized on a straight-line basis over the minimum
lease period.

Minimum rental commitments for the rental of office and production premises and equipment under
non-cancellable leases net of sublease income, some of which provide for rental adjustments due to increased
property taxes and operating costs for 2007 and thereafter, are as follows:

Period
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount
$17,293
15,860
14,690
10,651
9,386
26,238
$94,118

At December 31, 2007, the total future cash to be received on sublease income is $3,740.

81

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

18. New Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB Interpretation No. 48,
‘‘Accounting for Uncertainty in Income Taxes’’. This Interpretation clariﬁes the accounting for uncertainty in
income taxes recognized in an enterprise’s ﬁnancial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. This Interpretation is effective for ﬁscal years beginning after December 15,
2006, with earlier application permitted. The adoption of this interpretation did not have a material effect on
its ﬁnancial statements.

In September 2006, FASB issued SFAS No. 157, ‘‘Fair Value Measurements’’. This statement deﬁnes fair

value, establishes a framework for measuring fair value and expands disclosures about fair value measure-
ments. This statement is effective for all ﬁscal year beginning after November 15, 2007 and interim periods
within those ﬁscal years. Earlier application is encouraged. The Company is currently evaluating the impact of
this new statement on its ﬁnancial statements.

In February 2007, FASB issued SFAS No. 159, ‘‘The Fair Value Option for Financial Assets and Finan-

cial Liabilities’’ (‘‘SFAS 159’’). This statement permits entities to choose to measure many ﬁnancial
instruments and certain other items at fair value. This statement expands the use of fair value measurement
and applies to entities that elect the fair value option. The fair value option established by this Statement
permits all entities to choose to measure eligible items at fair value at speciﬁed election dates. SFAS 159 is
effective as of the beginning of an entity’s ﬁrst ﬁscal year that begins after November 15, 2007. The Company
is currently evaluating the impact of this new statement on its ﬁnancial statements.

In December 2007, FASB issued SFAS No. 141R ‘‘Business Combination’’ (‘‘SFAS 141R’’). This revised

statement retains some fundamental concepts of the current standard, including the acquisition method of
accounting (known as the ‘‘purchase method’’ in Statement 141) for all business combinations but SFAS 141R
broadens the deﬁnitions of both businesses and business combinations, resulting in the acquisition method
applying to more events and transactions. This statement also requires the acquirer to recognize the identiﬁ-
able assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair
values. SFAS 141R will require both acquisition-related costs and restructuring costs to be recognized sepa-
rately from the acquisition and be expensed as incurred. In addition, acquirers will record contingent
consideration at fair value on the acquisition date as either a liability or equity. Subsequent changes in fair
value will be recognized in the income statement for any contingent consideration recorded as a liability.
SFAS 141R is to be applied prospectively for ﬁnancial statements issued for ﬁscal years beginning on or after
December 15, 2008. Early application is prohibited. The Company is currently evaluating the impact of this
new statement on its ﬁnancial statements.

In December 2007, FASB issued SFAS No. 160 ‘‘Non-controlling Interests in Consolidated Financial

Statements’’ (‘‘SFAS 160’’). This statement amends ARB No. 51 Consolidated Financial Statements, to now
require the classiﬁcation of noncontrolling (minority) interests and dispositions of noncontrolling interests as
equity within the consolidated ﬁnancial statements. The income statement will now be required to show net
income/loss with and without adjustments for noncontrolling interests. SFAS 160 is to be applied prospec-
tively for ﬁnancial statements issued for ﬁscal years beginning on or after December 15, 2008 and interim
periods within those years. However, this statement requires companies to apply the presentation and disclo-
sure requirements retrospectively to comparative ﬁnancial statements. Early application is prohibited. The
Company is currently evaluating the impact of this new statement on its ﬁnancial statements.

19. Subsequent Events

In January 2008, the Company through its Zyman subsidiary acquired the net assets of two consulting
ﬁrms. The Company paid an aggregate purchase price of $2,125, comprised of cash equal to $1,000 and the
issuance of 126,478 Class A shares valued at $1,125. The principals of those consulting ﬁrms joined the
Zyman Group as executive officers.

82

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

19. Subsequent Events − (continued)

In February 2008, the Company through its Bratskeir subsidiary acquired the net assets of Clifford Public

Relations LLC, (‘‘Clifford’’). This acquisition will expand the locations and breath of services provided by
Bratskeir. The purchase price of $2,300 was paid in cash equal to $2,050 and the issuance of 30,444 Class A
shares, plus the issuance of 7.5% of the membership interests in the new Bratskeir/Clifford entity.

20. Quarterly Results Of Operations (Unaudited) (Restated for Discontinued Operations)

The following table sets forth a summary of the Company’s consolidated unaudited quarterly results of

operations for the years ended December 31, 2007 and 2006, in thousands of dollars, except per share
amounts.

Quarters

First

Second

Third

Fourth

Revenue:

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$118,080
$ 94,518

$134,497
$ 97,556

$139,135
$ 98,297

$155,607
$121,836

Cost of services sold:

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 76,963
$ 57,005

$ 85,886
$ 58,290

$ 90,468
$ 55,092

$ 98,534
$ 66,529

Loss from continuing operations:

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (4,968)
$ (4,196)

$
$

(929)
(253)

$ (6,060)
$ (2,369)

$ (7,121)
$ (1,905)

Net loss:

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (8,797)
$ (5,133)

$ (2,601)
$ (10,503)

$ (6,773)
$ (12,909)

$ (8,184)
$ (4,994)

Loss per common share:
Basic

Continuing operations:

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net loss:

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted

Continuing operations:

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net loss:

2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

$
$

$
$

$
$

(0.20)
(0.18)

(0.36)
(0.22)

(0.20)
(0.18)

(0.36)
(0.22)

$
$

$
$

$
$

$
$

(0.04)
(0.01)

(0.11)
(0.44)

(0.04)
(0.01)

(0.11)
(0.44)

$
$

$
$

$
$

$
$

(0.24)
(0.10)

(0.27)
(0.54)

(0.24)
(0.10)

(0.27)
(0.54)

$
$

$
$

$
$

$
$

(0.28)
(0.08)

(0.31)
(0.20)

(0.28)
(0.08)

(0.31)
(0.20)

The above revenue, cost of services sold, and income (loss) from continuing operations have primarily

been affected by acquisitions, divestitures and discontinued operations.

Historically, with some exceptions, the Company’s fourth quarter generates the highest quarterly revenues

in a year. The fourth quarter has historically been the period in the year in which the highest volumes of
media placements and retail related consumer marketing occur.

83

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except Share and per Share Amounts)

20. Quarterly Results Of Operations (Unaudited) (Restated for Discontinued Operations) − (continued)

Loss from continuing operations and net loss have been affected as follows:

•

•

The fourth quarter of 2007 includes a $2,603 non-cash stock based compensation charge relating to
the KBP acquisition. See Note 4.

The fourth quarter of 2006 includes a one time reversal of a termination of a prior commitment of
$1,980 and the elimination of potential liabilities of $1,251 relating to a change in estimate.

84

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Not Applicable.

Item 9A. Controls and Procedures

(a) 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 our 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.

We conducted an evaluation, under the supervision and with the participation of our management, includ-

ing 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 proce-
dures were effective.

(b) Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over ﬁnancial
reporting (as deﬁned in Rules 13a-15(f) under the Exchange Act). Because of its inherent limitations, internal
control over ﬁnancial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We evaluated the effectiveness of our internal control over ﬁnancial reporting as of December 31, 2007.
In making this assessment, we used the criteria set forth in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assess-
ment, we believe that, as of December 31, 2007, we maintained effective internal control over ﬁnancial
reporting based on these criteria.

The effectiveness of our internal control over ﬁnancial reporting as of December 31, 2007, has been
independently audited by BDO Seidman LLP, an independent registered public accounting ﬁrm, as stated in
their report which is included herein.

(c) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over ﬁnancial reporting during the ﬁscal quarter
ended December 31, 2007, that has materially affected, or is reasonably likely to materially affect, our internal
control over ﬁnancial reporting.

(d) Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
MDC Partners, Inc.
New York, New York

We have audited MDC Partners, Inc. and subsidiaries’ internal control over ﬁnancial reporting as of
December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). MDC Partners,
Inc. and subsidiaries’ management is responsible for maintaining effective internal control over ﬁnancial
reporting included in the accompanying Item 9A, ‘‘Management’s Report on Internal Control Over Financial
Reporting.’’ Our responsibility is to express an opinion on the company’s internal control over ﬁnancial report-
ing based on our audit.

85

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight

Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assur-
ance about whether effective internal control over ﬁnancial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assur-

ance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
ﬁnancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reﬂect the transactions and dispositions of the assets of the com-
pany; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
ﬁnancial statements in accordance with generally accepted accounting principles, and that receipts and expen-
ditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the ﬁnancial
statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, MDC Partners, Inc., and subsidiaries maintained, in all material respects, effective internal

control over ﬁnancial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of MDC Partners Inc. and subsidiaries as of Decem-
ber 31, 2007 and 2006 and the related consolidated statement of operations, shareholders’ equity, and cash
ﬂows for the years ended December 31, 2007 and 2006 and our report dated March 7, 2008 expressed an
unqualiﬁed opinion thereon.

/s/ BDO SEIDMAN, LLP

New York, New York
March 7, 2008

Item 9B. Other Information

Not Applicable.

86

PART III

Item 10. Directors and Executive Officers of the Registrant

Reference is made to the sections captioned ‘‘Election of Directors,’’ ‘‘Information Concerning Nomi-

nees,’’ ‘‘Information Concerning Executive Officers’’, ‘‘Audit Committee Financial Expert’’, ‘‘Code of Ethics
for Senior Financial Officers’’ and ‘‘Compliance with Section 16(a) of the Exchange Act’’ in our Proxy State-
ment for the 2008 Annual General Meeting of Stockholders, which will be ﬁled with the Commission within
120 days of the close of our ﬁscal year ended December 31, 2007, which sections are incorporated herein by
reference.

Executive Officers of MDC Partners

The executive officers of MDC Partners as of March 6, 2008 are:

Name
Miles S. Nadal(1)
Steven Pustil(1)
David Doft
Charles K. Porter
Robert E. Dickson
Mitchell S. Gendel
Graham L. Rosenberg
Michael Sabatino
Gavin Swartzman

Age

50
64
36
63
49
42
45
43
43

Office

Chairman of the Board, and Chief Executive Officer
Vice Chairman
Chief Financial Officer
Chief Strategist
Managing Director
General Counsel & Corporate Secretary
Managing Director
Senior Vice President, Chief Accounting Officer
Managing Director

(1) Also a director

There is no family relationship among any of the executive officers.

Mr. Nadal was the founder of MDC and has held the positions of Chairman of the Board and Chief
Executive Officer of MDC since 1986 and, until November 2005, the position of President of the Company.
Mr. Nadal is active in supporting various business and community organizations including Mount Sinai Hospi-
tal, Junior Achievement of Canada, The Young Presidents Association and the Schulich School of Business.

Mr. Pustil has been a director of MDC since 1992, and Vice Chairman of MDC since 1992. Mr. Pustil is
President of Penwest Development Corporation Ltd. — a real estate development and construction ﬁrm that he
established in 1972. Mr. Pustil is a chartered accountant and serves on the Board of Mount Sinai Hospital.

Mr. Doft joined MDC Partners in August 2007 as Chief Financial Officer. Prior to joining MDC Partners,

he oversaw media and Internet investments at Cobalt Capital Management Inc. from July 2005 to July 2007.
Prior thereto, he worked at Level Global Investors from October 2003 to March 2005 investing in media and
Internet companies. Before that, Mr. Doft was a sell side analyst for ten years predominately researching the
advertising and marketing services sector for CIBC World Markets where he served as Executive Director and
ABN AMRO/ING Barings Furman Selz where he was Managing Director.

Mr. Dickson has been a Managing Director of the Company since September 2003. Mr Dickson joined

Maxxcom Inc., a subsidiary of MDC Partners, in November 2000 as Executive Vice President, Corporate
Development. He is responsible for corporate development for MDC and its operating companies. Prior to
joining Maxxcom, Mr. Dickson was a partner of Fraser Milner Casgrain, a Canadian business law ﬁrm, where
he practiced law for 17 years. Mr. Dickson is a trustee of H&R Real Estate Investment Trust.

Mr. Gendel joined MDC Partners in November 2004 as General Counsel and Corporate Secretary. Prior

to joining MDC Partners, he served as Vice President and Assistant General Counsel at The Interpublic Group
of Companies, Inc. from December 1999 until September 2004.

Mr. Porter has been the Chief Strategist of the Company since September of 2003. He is responsible for

identifying future agency partnerships as well as strategic assistance for MDC and its operating companies.
Mr. Porter is also the chairman of Crispin Porter + Bogusky, one of the top creative shops in the country. Mr.

87

Porter served as a creative director and partner of Crispin Porter +Bogusky. Crispin Porter + Bogusky joined
Maxxcom Inc., a subsidiary of MDC Partners, in January 2001.

Mr. Rosenberg joined MDC in October 2002 as Executive Vice President and has been a Managing

Director of the Company since July 2003. He is responsible for the corporate development of MDC and its
operating companies. Prior to that, Mr. Rosenberg served as Executive Vice President of Maxxcom Inc., a
subsidiary of MDC Partners, which he joined in November 2001. Before joining Maxxcom, Mr. Rosenberg
was Executive Vice President of Amadeus Capital Corporation, a privately held investment ﬁrm which he
joined in July 2001, after spending eight years as a Managing Partner at Clairvest Group Inc., a publicly
traded merchant bank.

Mr. Sabatino joined MDC Partners on April 1, 2005 as Senior Vice President and Chief Accounting
Officer. Prior to joining MDC Partners, he was an audit partner with the accounting ﬁrm of Eisner LLP from
April 2004. Prior to that, from December 2001 to March 2004, he was the Co-CFO/Senior Vice President
Finance of JAKKs Paciﬁc, Inc., a publicly-held toy company. Before that, Mr. Sabatino was an audit partner
at BDO Seidman, LLP, a public accounting ﬁrm.

Mr. Swartzman has been a Managing Director of the Company since October 2004. He is responsible for

corporate development and real estate for MDC and its operating companies. Mr. Swartzman served as an
officer in a similar capacity for the Company from September 2002 until February 2003. Prior thereto, Mr.
Swartzman joined Amadeus Capital Corporation in 2000 as Senior Vice President where he was responsible
for various corporate development activities of that company and its affiliates, including serving as the Vice
President, Corporate Development from February 2003 to October 2004 for First Asset Management Inc., a
Toronto based asset management company. Prior thereto, he was Executive Vice President of Pet Valu Interna-
tional Inc., a retail chain.

Additional information about our directors and executive officers appears under the captions ‘‘Election of

Directors’’ and ‘‘Executive Compensation’’ in our Proxy Statement.

Code of Conduct

The Company has adopted a Code of Conduct, which applies to all directors, officers (including the
Company’s Chief Executive Officer and Chief Financial Officer) and employees of the Company and its
subsidiaries. The Company’s policy is to not permit any waiver of the Code of Conduct for any director or
executive officer, except in extremely limited circumstances. Any waiver of this Code of Conduct for directors
or officers of the Company must be approved by the Company’s Board of Directors. Amendments to and
waivers of the Code of Conduct will be publicly disclosed as required by applicable laws, rules and regula-
tions. The Code of Conduct is available free of charge on the Company’s website at
http://www.mdc-partners.com, or by writing to MDC Partners Inc., 950 Third Avenue, New York, NY, 10022,
Attention: Investor Relations.

Item 11. Executive Compensation

Reference is made to the sections captioned ‘‘Directors’ Compensation’’ and ‘‘Compensation of Executive

Officers’’ in our next Proxy Statement, which are incorporated herein by reference.

Item 12. Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder
Matters

Reference is made to Part II – Item 5 of this Form 10-K and to the sections captioned ‘‘Common Share

Ownership by Directors and Executive Officers and Principal Stockholders’’ in the Company’s next Proxy
Statement, which are incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Reference is made to the section captioned ‘‘Certain Relationships and Related Transactions’’ in our next

Proxy Statement, which is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Reference is made to the section captioned ‘‘Independent Public Accountants’’ in our next Proxy State-

ment, which is incorporated herein by reference.

88

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders MDC Partners Inc. New York, New York

The audits referred to in our report dated March 7, 2008 relating to the consolidated ﬁnancial statements

of MDC Partners Inc. and subsidiaries which is contained in Item 8 of this Form 10-K also included the
audits of the ﬁnancial statement Schedule II for years ending 2006 and 2007. This ﬁnancial statement sched-
ule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the
ﬁnancial statement schedule based upon our audits.

In our opinion such ﬁnancial statement Schedule II when considered in relation to the basic consolidated
ﬁnancial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ BDO SEIDMAN, LLP

New York, New York
March 7, 2008

89

Item 15. Exhibits and Financial Statements Schedules

(a) Financial Statements and Schedules

PART IV

The Financial Statements and schedules listed in the accompanying index to Consolidated Financial

Statements in Item 8 are ﬁled as part of this report. Schedules not included in the index have been omitted
because they are not applicable.

Schedule II − 1 of 2

MDC PARTNERS INC. & SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

For the Three Years Ended December 31, 2007
(Dollars in Thousands)

Column A

Column B

Column C

Column D

Column E

Column F

Description

Valuation accounts deducted
from assets to which they
apply − allowance for doubtful
accounts:

December 31, 2007 . . . . . . . . .
December 31, 2006 . . . . . . . . .
December 31, 2005 . . . . . . . . .

Balance at
Beginning of
Period

Charged to
Costs and
Expenses

Removal of
Uncollectable
Receivables

Translation
Adjustments
Increase
(Decrease)

Balance at the
End of Period

$1,633
$1,250
$1,521

$529
$716
$595

$ (872)
$ (332)
$(1,002)

$ 67
$ (1)
$136

$1,357
$1,633
$1,250

Schedule II − 2 of 2

MDC PARTNERS INC. & SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

For the Three Years Ended December 31, 2007 (Dollars in Thousands)

Column A

Column B

Column C

Column D

Column E

Column F

Balance at
Beginning of
Period

Charged to
Costs and
Expenses

Other

Translation
Adjustments
Increase
(Decrease)

Balance at the
End of Period

Description

Valuation accounts deducted
from assets to which they
apply − valuation allowance
for deferred income taxes:

December 31, 2007 . . . . . . . . .
December 31, 2006 . . . . . . . . .
December 31, 2005 . . . . . . . . .

$65,790
$44,721
$42,555

$6,870
$3,038
$ 943

$ 6,853(1)
$18,226(1)
(225)
$

$6,612
$ (195)
$1,448

$86,125
$65,790
$44,721

(1) Adjustment to reconcile actual net operating loss carry forwards to prior year tax accrued, which were

fully reserved and adjustment for net operating loss relating to sale of business.

(b) Exhibits

The exhibits listed on the accompanying Exhibits Index are ﬁled as a part of this report.

90

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the regis-

trant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

MDC PARTNERS INC.

By: s/ Miles S. Nadal

Name: Miles S. Nadal
Title: Chairman, Chief Executive Officer and President

Date: March 7, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below

by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

/s/ Miles S. Nadal
Miles S. Nadal

/s/ Robert Kamerschen
Robert Kamerschen

/s/ Clare Copeland
Clare Copeland

/s/ Thomas N. Davidson
Thomas N. Davidson

/s/ Jeffrey Epstein
Jeffrey Epstein

/s/ Scott Kauffman
Scott Kauffman

/s/ Michael J. Kirby
Michael J. Kirby

/s/ Stephen M. Pustil
Stephen M. Pustil

/s/David Doft
David Doft

/s/Michael Sabatino
Michael Sabatino

Chairman, Chief Executive Officer and President

March 7, 2008

Title

Date

Presiding Director

Director

Director

Director

Director

Director

Director, Vice Chairman

Chief Financial Officer

March 7, 2008

March 7, 2008

March 7, 2008

March 7, 2008

March 7, 2008

March 7, 2008

March 7, 2008

March 7, 2008

Senior Vice President and Chief Accounting Officer

March 7, 2008

91

Exhibit No.

EXHIBIT INDEX

Description

3.1

3.1.1

3.2

4.1

10.1

10.2

10.3

10.3.1

10.4

10.5

10.6

10.7

10.7.1

10.8

10.8.1

10.9

10.10

Articles of Amalgamation, dated January 1, 2004 (incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-Q ﬁled on May 10, 2004);
Articles of Continuance, dated June 28, 2004 (incorporated by reference to Exhibit 3.3 to the
Company’s Form 10-Q ﬁled on August 4, 2004);
General By-law No. 1, as amended on April 29, 2005 (incorporated by reference to Exhibit 3.2
to the Company’s Form 10-K ﬁled on March 16, 2007);
Trust Indenture, dated as of June 28, 2005, by and between the Company and Computershare
Trust Company of Canada Inc. relating to the issuance of the Company’s 8% convertible deben-
tures (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-Q ﬁled on August 9,
2005);
Underwriting Agreement, dated June 10, 2005, by and among the Company and four underwrit-
ers, for the purchase of 8% convertible unsecured debentures of the Company (incorporated by
reference to Exhibit 10.1 to the Company’s Form 8-K ﬁled on June 16, 2005);
Stock Purchase Agreement, dated November 3, 2006, by and among the Company (as seller),
Secured Products (Cayman), Inc. (as purchaser) and H.I.G. Capital Management, Inc., relating to
the sale of the Company’s Secure Products International Group (incorporated by reference to
Exhibit 10.3 to the Company’s Form 10-Q ﬁled on November 9, 2006);
Management Services Agreement relating to the employment of Miles Nadal as Chief Executive
Officer, dated April 27, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s Form
10-Q ﬁled May 8, 2007);
Letter Agreement between the Company and Miles Nadal dated April 11, 2005, (incorporated by
reference to Exhibit 10.6.1 to the Company’s Form 10-K ﬁled on April 18, 2005);
Employment Agreement between the Company and Stephen M. Pustil, dated as of August 20,
2007 (incorporated by reference to Exhibit 10.1 to the Company’s 10-Q ﬁled on November 8,
2007);
Employment Agreement between the Company and David Doft, dated as of July 19, 2007 (effec-
tive August 10, 2007) (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q
ﬁlled on August 7, 2007);
Employment Agreement between the Company and Gavin Swartzman, dated as of September 5,
2007 (incorporated by reference to Exhibit 10.2 to the Company’s 10-Q ﬁled on November 8,
2007);
Amended and Restated Employment Agreement between the Company and Graham Rosenberg,
dated as of December 26, 2005 (incorporated by reference to Exhibit 10.5 to the Company’s
Form 10-K ﬁled on March 15, 2006);
Amendment to Employment Agreement between the Company and Graham Rosenberg, dated
November 14, 2007*
Employment Agreement between the Company and Robert Dickson, dated July 26, 2002 (incor-
porated by reference to Exhibit 10.5 to the Company’s Form 10-Q ﬁled on May 10, 2004);
Amendment to Employment Agreement between the Company and Robert Dickson, dated
November 20, 2007*
Amended and Restated Employment Agreement between the Company and Mitchell Gendel,
dated as of July 6, 2007 (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q
ﬁled on August 7, 2007);
Amended and Restated Employment Agreement between the Company and Michael Sabatino,
dated as of July 6, 2007 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q
ﬁled on August 7, 2007);

92

Exhibit No.

10.11

10.12

10.13

10.13.1

10.13.2

10.14

10.14.1

10.14.2

10.14.3

10.14.4

10.14.5

10.15

10.15.1

10.15.2

10.16

12
14
14.1

21
23.1
23.2
31.1

31.2

Description

Separation Agreement and Release between the Company and Steven Berns, dated as of July 23,
2007 (incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q ﬁlled on August 7,
2007);
Amended and Restated Stock Option Incentive Plan (incorporated by reference to Exhibit 10.9 to
the Company’s Form 10-Q ﬁled on May 10, 2004);
Stock Appreciation Rights Plan dated as of April 22, 2004 (incorporated by reference to Exhibit
10.10 to the Company’s Form 10-Q ﬁled on May 10, 2004);
Amended and Restated Stock Appreciation Rights Plan, as amended on April 28, 2006 (incorpo-
rated by reference to Exhibit 10.1 to the Company’s Form 10-Q ﬁled on May 5, 2006);
Form of Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.2 to the
Company’s 10-Q ﬁled on May 5, 2006);
Amended 2005 Stock Incentive Plan of the Company, as approved and adopted by the sharehold-
ers of the Company at the 2007 Annual and Special Meeting of Shareholders on June 1, 2007
(incorporated by reference to Exhibit 10.1 to the Company’s 10-Q ﬁled on August 7, 2007);
Form of Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Form 10-Q ﬁled on November 9, 2005);
Form of Restricted Stock Grant Agreement (incorporated by reference to Exhibit 10.3 to the
Company’s Form 10-Q ﬁled on November 9, 2005);
Form of Financial Performance-Based Restricted Stock Grant Agreement (incorporated by refer-
ence to Exhibit 10.1 to the Company’s Form 8-K ﬁled on March 2, 2006);
Form of Financial Performance-Based Restricted Stock Unit Grant Agreement (incorporated by
reference to Exhibit 10.2 to the Company’s Form 8-K ﬁled on March 2, 2006);
Form of Service–Based and Financial Performance-Based Restricted Stock Unit Agreement
(incorporated by reference to Exhibit 10.4 of the Company’s Form 10-Q ﬁled on November 8,
2007).
Membership Unit Purchase Agreement (the ‘‘Zyman Purchase Agreement’’), dated as of April 1,
2005 among the Company, and ZG Acquisition Inc., Zyman Group, LLC, Zyman Company, Inc.
and certain employees of Zyman Group, LLC (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K ﬁled on April 1, 2005);
Amendment No. 1, dated as of August 8, 2005, to the Zyman Purchase Agreement (incorporated
by reference to Exhibit 10.3.2 to the Company’s Form 10-Q ﬁled on August 9, 2005);
Second Amended and Restated Limited Liability Company Agreement of Zyman Group, LLC
dated as of January 11, 2008*;
Financing Agreement, dated as of June 18, 2007 by and among MDC Partners Inc., Maxxcom
Inc., and Fortress Credit Corp., as Collateral Agent (incorporated by reference to Exhibit 10.1 to
the Company’s Form 8-K ﬁled on June 19, 2007);
Statement of computation of ratio of earnings to ﬁxed charges*;
Code of Conduct of MDC Partners Inc.*;
MDC Partners’ Corporate Governance Guidelines adopted on March 6, 2006 (incorporated by
reference to Exhibit 14.2 to the Company’s Form 10-K ﬁled on March 15, 2006);
Subsidiaries of Registrant*;
Consent of Independent Registered Public Accounting Firm [KPMG LLP]*;
Consent of Independent Registered Public Accounting Firm [BDO Seidman LLP]*;
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*;
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*;

93

Exhibit No.

32.1

32.2

Description

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

*

Filed electronically herewith.

94

MDC Partners Inc. – Directory 

Toronto Office 
45 Hazelton Avenue 
Toronto, Ontario  
M5R 2E3 
416-960-9000 
Fax: 416-960-9555 
www.mdc-partners.com 
Chairman,  
President & CEO: 
Miles S. Nadal 

New York Office 
950 Third Avenue, 5th Floor 
New York, New York 
10022 
Tel: 646-429-1800 
Fax: 212-937-4365 
Chief Financial Officer: 
David B. Doft 

Allard Johnson 
Communications 
2 Bloor Street East 
Suite 2600 
Toronto, Ontario  
M4W 3J4 
Tel: 416-260-7000 
Fax: 416-260-7100 
www.allard-johnson.com 
President & CEO: 
Terry Johnson 

Bruce Mau Design 
197 Spadina Avenue 
Suite 501 
Toronto, Ontario  
M5T 2C8 
Tel: 416-260-5777 
Fax: 416-260-2770 
www.brucemaudesign.com 
Creative Director 
and Chairman:  
Bruce Mau 

Chicago 
36 South Wabash Avenue 
Room 714 
Chicago, Illinois 60603 
Tel: 312-629-6850 

Bryan Mills Iradesso 
1129 Leslie Street 
Toronto, Ontario  
M3C 2K5 
Tel: 416-447-4740 
Fax: 416-447-4760 
www.bmir.com 
Chairman & CEO: 
Nancy Ladenheim 

Calgary 
400, 805 – 10th Avenue SW 
Calgary, Alberta  
T2R 0B4 
www.iradesso.com 
President: 
Peter Knapp 

ACCENT 
400 Missouri Avenue 
Suite 107 
Jeffersonville, Indiana 47130 
Tel: 812-206-6200 
Fax: 812-206-6201 
www.accentonline.com 
President: 
Kevin Foley 

Accumark  
Communications 
240 Duncan Mill Rd. 
Suite 101 
North York, Ontario  
M3B 1Z4 
Tel: 416-446-7758 
Fax: 416-446-1923 
www.accumark.ca 
President:  
Tom Green 

ACLC  
469A King St. West 
Toronto, Ontario  
M5V 3M4 
Tel: 416-425-8200 
Fax: 416-425-5962 
www.aclc.ca 
Chairman & CEO:  
Esmé Carroll 

Push Interactive 
a division of ACLC 
469A King St. West 
Toronto, Ontario  
M5V 3M4 
Tel: 416-422-7292 
www.pushfarther.ca 
Creative Director &  
Managing Partner:  
Cameron Wykes 

Adrenalina  
160 Varick Street, 6th Fl. 
New York, New York 10013 
Tel. 212-337-4881 
Fax: 212-633-1711 
www.adrenalina-ny.com 
Founders and Partners: 
José Arandia 
Manuel Wernicky 

Clifford / Bratskeir  
Public Relations 
411 Lafayette Street, 5th Floor 
New York, New York 10003 
Tel: 212-679-2233 
Fax: 212-982-5401 
www.cpbprusa.com 
CEO: 
Mike Clifford 

Cliff Freeman and Partners 
36 West 20th Street, 5th Floor 
New York, New York 10011 
Tel: 212-710-8660 
Fax: 212-201-5777 
www.clifffreeman.com 
Chairman:  
Cliff Freeman 
CEO:  
Jeff McClelland 

Colle + McVoy 
400 First Avenue N. 
Suite 700 
Minneapolis, Minnesota 
55401-1954 
Tel: 612-305-6000 
Fax: 612-305-6001 
www.collemcvoy.com 
CEO and President 
Christine Fruechte 

Exponent Public Relations 
a division of  
Colle + McVoy 
Tel: 612-305-6135 
Fax: 612-315-6500 
www.exponentpr.com 
President: 
Riff Yeager 

Mobium Creative Group 
a division of  
Colle + McVoy 
444 North Michigan Ave. 
27th Floor 
Chicago, Illinois 60611 
www.mobium.com 
Tel: 312-527-0500 
Fax: 312-527-7230 
Partner: 
Gordon Hochhalter 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mono Advertising LLC 
2902 Garfield Ave. South 
Minneapolis, Minnesota 55408 
Tel: 612-822-4135 
Fax: 612-822-4136 
www.mono-1.com 
Managing Partner: 
James Scott 

Northstar Research Partners Inc. 
18 King Street East 
Suite 1500 
Toronto, Ontario   
M5C 1C4 
Tel: 416-907-7100 
Fax: 416-907-7149 
www.nsresearch.com 
President:   
Stephen Tile 

Northstar Research Partners 
(USA) LLC 
One Penn Plaza, Suite 1630 
New York, NY 10119 
Tel: 212-986-4077 
Fax: 212-986-4088 
www.nsreasearch-usa.com 
Managing Director: 
James Neuwirth 

Northstar Research Partners 
(UK) Limited 
Studio D 
22 Ebury Street 
London , SW1W OLU 
England, U.K.  
Managing Director: 
Matthew Sell 

Northstar subsidiaries 

Trend Influence 
828 Ralph McGill Blvd. W7 
Atlanta, GA 30306 
Tel: 404-593-2100 
Fax: 404-759-2443 
www.trendinfluence.com 
Founding Partner: 
Richard Leslie 

AppTheory 
Tel:404-593-2100 
www.apptheory.com 
Founding Partner: 
Bryan Andrews 

company c  
(formerly Chinnici) 
411 Lafayette Street 
3rd Floor 
New York, New York 10003 
Tel:  212-561-6000 
Fax: 212-260-3710 
www.companycmarketing.com 
President:  
Nick Nocca 

henderson bas 
479 Wellington St. West 
Main Floor 
Toronto, ON  M5V 1E7 
Tel: 416-977-6660 
Fax: 416-977-2226 
www.theniceagency.com 
President: 
Dawna Henderson 

HL Group Partners LLC 
853 Broadway Ave. 
18th Floor 
New York, NY 10003 
Tel: 212-529-5533 
Fax: 212-529-2131 
www.hlgrp.com 
Founding Partners: 
Hamilton South 
Lynn Tesoro 

Los Angeles 
345 North Maple Drive 
Suite 176 
Beverly Hills, CA 90210 
Tel: 310-278-4552 
Partner and President,  
Los Angeles: 
Karine Joret 

ITO Partnership 
632 W. 28th Street 
New York, NY 10001 
Tel: 212-607-8000 
www.ito-partners.com 
CEO: David Melançon 

kirshenbaum bond 
 & partners  
160 Varick Street 
New York, NY 10013 
www.kb.com 
Tel: 212-633-0080 
Fax: 212-633-8643 
Co-Chairmen: 
Richard Kirshenbaum 
Jon Bond 

kbp divisions  

LIME Public Relations & 
Promotions 
www.limecomm.com 
President:  
Claudia Strauss 

The Media Kitchen 
www.mediakitchen.tv 
CEO:  
Barry Lowenthal 

Dotglu 
www.dotglu.com 
President:  
Steve Thibodeau 

Computer Composition of 
Canada Inc. 
12 Stanley Court 
Whitby, Ontario  
L1N 8P9 
Tel: 905-430-3400 
Fax: 905-430-2412 
www.comptercomposition.ca 
Chairman and CEO: 
Joe Bugelli 

Crispin Porter + Bogusky 
3390 Mary Street 
Office 300 
Coconut Grove, FL 33133 
www.cpbgroup.com 
Co-Chairmen:  
Chuck Porter 
Alex Bogusky 
Tel: 305-859-2070 
Fax: 305-854-3419 

Boulder 
6450 Gunpark Drive 
Boulder, CO 80301 
Tel: 303-628-5100 

Los Angeles 
1410 2nd Street, Suite 200 
Santa Monica, CA 90401 
Tel: 310-822-3063 

London 
The Smokery 
2 Greenhill Rents 
London EC1M 6BN  
England 
Tel: 011-44-(0)-20-7324-8184 

Fletcher Martin LLC 
303 Peachtree Center Ave. 
Suite 625 
Atlanta, GA 30303 
Tel: 404-221-1188 
Fax: 404-223-1136 
www.fletchermartin.com 
President & CEO:   
Andy Fletcher 

Hello Design, LLC 
8684 Washington Blvd. 
Culver City, CA 90232 
Tel: 310-839-4885 
Fax: 310-839-4886 
www.hellodesign.com 
CEO/Creative Director: 
David Lai 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Zyman Group, LLC 
950 East Paces Ferry Road 
Suite 3300 
Atlanta, GA 30326 
Tel: 404-682-5400 
Fax: 404-682-5446 
www.zyman.com 
Founder: 
Sergio Zyman 
Chairman: 
Scott Miller 
Vice Chairman: 
David Morey 

Chicago 
200 North LaSalle Street 
Suite 1720 
Chicago, IL 60601 
Tel: 866-365-8994 

Miami 
601 Brickell Key Drive 
Suite 102 
Miami, FL 33131 
Tel: 305-421-9500 

London 
100 New Kings Road 
London SW6 4LX 
England 
Tel: 011-44-(0)-20-7348-6051 

Mexico City 
Bosque de Radiatas No. 6 
Suite 502 
Colonia Bosque de las Lomas 
Delagacion Cuajimalpa 05100 
Mexico D.F. 
Tel: 011-5255-5005-5900 

VitroRobertson LLC 
625 Broadway, 4th Floor 
San Diego, CA  
 92101-5403 
Tel: 619-234-0408 
Fax: 619-234-4015 
www.vitrorobertson.com 
Founder: 
John Vitro 
President: 
Tom Sullivan 

Yamamoto Moss Mackenzie  
252 First Avenue North 
Minneapolis, MN 55401 
Tel: 612-375-0180 
Fax: 612-342-2424 
www.ymm.com 
CEO: 
Andrew Mackenzie 

Zig Inc. 
296 Richmond St. West 
Suite 600 
Toronto, ON   
M5V 1X2 
Tel: 416-598-4944 
Fax: 416-593-4944 
www.zigideas.com 
President: 
Andy Macaulay 

Zig (USA) LLC 
848 West Eastman 
Suite 204 
Chicago, Il  60622 
Tel: 312-587-3333 
Fax: 312-587-3334 
www.zigideas.com 
Managing Partner: 
Steve Carli 

Onbrand 
43 Davies Avenue 
Toronto, ON  M4M 2A9 
Tel: 416-366-8883 
Fax: 416-366-2151 
www.onbranddesign.com 
General Manager: 
Jeannette Williams 

Redscout 
28 West 25th Street 
10th Floor 
New York, NY 10010 
Tel: 646-336-6028 
Fax: 646-336-6122 
www.redscout.com 
Founding Partner & CEO: 
Jonah Disend   

Source Marketing, LLC 
761 Main Avenue 
Norwalk, Connecticut  06859 
Tel: 203-291-4000 
Fax: 203-229-0865 
www.source-marketing.com 
CEO:  
Derek Correia 

TargetCom, LLC 
444 North Michigan Avenue 
Suite 3300 
Chicago, IL 60611 
Tel: 312-822-1100 
Fax: 312-822-9628 
www.targetcom.com 
President:  
Nora Ligurotis 

Veritas  
Communications Inc. 
370 King Street West 
Suite 800, Box 46 
Toronto, ON  M5V 1J9 
Tel: 416-482-2248 
Toll Free:  
1-888-513-8733 
Fax: 416-482-2292 
Alt. Fax: 416-482-2483 
www.veritascanada.com 
President: 
Beverley Hammond 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Board of Directors and Corporate Officers 

Chairman 

Directors 

Corporate Officers 

Miles S. Nadal 
Chairman, President, 
& Chief Executive Officer 
MDC Partners Inc. 

Thomas N. Davidson (1) (3) 
Chairman, Quarry Hill Group 

Clare Copeland (1) (2) 
Chief Executive Officer, 
Falls Management Company 

Jeffrey Epstein (1) 
Executive Vice President & 
Chief Financial Officer, 
Oberon Media 

Robert J. Kamerschen (2) (3) 
Presiding Director 
Chairman, 
Survey Sampling Inc. 

Scott L. Kauffman (2) (3) 
Corporate Director 

Senator Michael J.L. Kirby (1) (2) (3) 
The Senate of Canada (Ret.) 
Corporate Director 

Stephen M. Pustil 
Vice Chairman 
President, 
Penwest Development Corporation 
Limited 

(1) Audit Committee 

(2) Human Resources & Compensation Committee 
(3) Nominating and Corporate Governance Committee 

Miles S. Nadal 
Chairman, President & 
Chief Executive Officer 

David B. Doft 
Chief Financial Officer 

Rob Dickson 
Managing Director 

Mitchell Gendel 
General Counsel & 
Corporate Secretary 

Glenn Gibson 
Chief Financial Officer, 
Canadian Marketing Communications 

Charles Porter 
Chief Strategist 

Graham L. Rosenberg 
Managing Director 

Michael Sabatino 
Senior Vice President & 
Chief Accounting Officer 

Gavin Swartzman 
Managing Director 

Transfer Agent 

Investor Relations 

Notice of Shareholders’ Meeting 

CIBC Mellon Trust Company 

CIBC Mellon operates a telephone 
information inquiry line available by 
dialing: 
( toll-free) 1-800-387-0825; or 416-643-
5500. 

Correspondence may be addressed to: 
MDC Partners Inc. 
c/o CIBC Mellon Trust Company 
Corporate Trust Services 
P.O. Box 7010 
Adelaide Street Postal Station 
Toronto M5G 2M7 
Ontario, Canada 

For Investor Relations information, 
please call Donna Granato, Director of 
Finance & Investor Relations, at: 646-
429-1809. 

The annual meeting of shareholders will be 
held at the Core Club, 66 E. 55th Street, New 
York, N.Y. on Friday, May 30, 2008 at 10:30 
a.m. E.D.T. 

Stock Exchange Listing 

The Class A shares of the Company are 
listed in Canada on The Toronto Stock 
Exchange under trading symbol 
“MDZ.A”, and in the U.S. on the 
NASDAQ National Market under trading 
symbol “MDCA”.