MDC Partners Inc Annual Report 2009

FY2009 Annual Report · MDC Partners Inc
Loading PDF…
                                                  “WHERE GREAT TALENT LIVES” 

2009 ANNUAL REPORT 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dear Fellow Shareholders:   

I am writing this letter to you just a short time after celebrating our 30th anniversary as a 
business.  I am so proud of our accomplishments over these past three decades, but am especially 
proud of where our business stands now, and how we are prepared to take advantage of the many 
growth opportunities we have in front of us.  In last year’s letter to you, we made a promise to 
manage risk across our businesses, to preserve our capital and to outperform the industry on a 
relative basis.  Over the course of 2009, we accomplished these goals and in so doing, solidified 
our standing as the best-in-class strategic marketing company, and a refreshing alternative to the 
stodgy, silo-ed traditional advertising agency model that is now way past its prime. 

As Bill Parcells famously said, “You are what your record says you are.” And I would put our 
record over the last several years up against anyone’s in the media industry.  In 2009 we were the 
only company in the advertising and marketing sector to grow EBITDA margins, earnings, free 
cash flow and, in the fourth quarter, return to organic growth.   

More specifically, despite a very difficult market environment, our Strategic Marketing Services 
Segment grew for the year by three percent, led by our retainer revenue based businesses, which 
was up almost nine percent.  We also grew EBITDA six percent and free cash flow by 24 
percent, despite an overall revenue decline for the year.  The $40.9 million we generated in free 
cash flow does not include $14.3 million of cash generated from working capital and other 
improvements – this means we generated $55.2 million of cash in total during the year, well 
ahead of our initial expectations.  Perhaps most impressive, over the last two years we have 
generated over $100 million of cash from the business, placing us in an enviable financial 
position. 

Our selling proposition is more relevant than ever with clients clamoring for a partner that is 
entrepreneurial and nimble.  We’ve been successful because we’ve been able to build a business 
that acts quickly in an industry that is moving and changing every day.  On that note, we were 
pleased to report that in a stagnant new business environment and despite the loss of two key 
clients, net new business wins for the year totaled $24 million and we were successful in 
bringing on additional work with many of our existing client relationships. However, we will not 
rest on our laurels and will continue to invest in our talent and in new partner firms to further 
enhance our capabilities in areas like digital and analytics.  In fact, our digital strategy is working 
and importantly, we have not had to make big bets on acquisitions to achieve our goals in this 
area.  At year-end, run rate digital revenues reached 37 percent of our business and we are well 
ahead of pace to reach our stated goal of 40 percent.  This puts us well ahead of our competitors 
and leads to enhanced revenue and profits in a world where more and more advertising spend is 
dedicated to this part of the marketing portfolio. 

Additionally, in 2009 we realigned our reporting segments to better line up our creative thinking 
with real accountability.  The creation of our Performance Marketing Services Segment 
underscores that analytics and measurable advertising and marketing solutions are becoming the 

 
 
 
 
 
 
 
 
 
 
critical components of marketing spend and decision making going forward.  With today's tools, 
no client should ever accept awareness as the only goal of a campaign.  We believe that this type 
of thinking and action enables us to act as portfolio managers of our clients’ marketing 
investment and puts us in a strong position to continue to gain market share.  

Our solid financial standing did not only come from our operational successes, but also from our 
strict financial discipline.  In October, 2009 we successfully bullet-proofed our balance sheet by 
extending the term of our long-term debt for 7 years through the issuance of $225 million of 
Senior Notes, redeeming early our convertible debentures, and prepaying early and at a discount 
the bulk of our earnout obligations.  And, as part of our commitment to continue to provide 
shareholder value, we implemented our company’s first ever dividend.  Our goal going forward 
is to increase the dividend as our free cash flow increases, which we expect it to do. 

The strength of our balance sheet puts us in a solid position to enhance our organic growth 
through strategic, accretive acquisitions.  It’s important to remind you that we will not pursue 
any acquisition unless we believe that it will become accretive in the very short-term, and that it 
meets or exceeds our stringent standard of a 20 percent hurdle rate.  That said, because both 
strategic and financial buyers have largely remained on the sidelines, we believe that we are well 
positioned to take advantage of an M&A environment that continues to present businesses that 
are underpriced relative to their growth potential.  Our acquisition pipeline is robust with cutting 
edge firms, entrenched in areas such as digital, social media and analytics, which we believe will 
help drive the next incremental leg of growth for MDC.  

Over the last few months alone, we have made several strategic acquisitions that meet our high 
standards.  For example, we successfully acquired Daddy as a European platform for Crispin 
Porter + Bogusky; Attention, a leading social media marketing agency; Communifx, a premier 
data analytics and customer engagement agency which bolsters our Performance Marketing 
Services Segment and our industry leading digital capabilities; TEAM Enterprises, a leading 
national experiential marketing platform; and Sloane & Company, a strategic corporate public 
relations firm at the forefront of financial communications, crisis management and public affairs.   

We also continue to attract the best talent in the industry – thought leaders who do not want to be 
encumbered by the silos and legacy infrastructure of our competitors.  This Talent Revolution is 
being led by the many entrepreneurial executives we have added to our partnership.  We are 
investing behind our mantra that MDC is “Where Great Talent Lives.”  At a time when our 
competitors have been aggressively cutting staff to address financial shortfalls, we remain 
committed to developing the leadership of the future.  

Looking ahead, our future looks bright and we believe we can continue to gain market share as 
we have many of the right tools in place to further solidify our leadership role in an ever 
changing media landscape.  Our new business pipeline is strong, and we are in an ideal spot to 
take advantage of meaningful, yet reasonable improvements to consumer spending and client 
budgets.  However, we will not forget the lessons we learned during the market downturn and 
will remain financially disciplined even as we seek smart acquisitions to help us drive further 
growth.  We look forward to sharing our future successes with you. 

 
 
 
 
 
 
In  closing,  I  would  like  to  thank  our  management  team,  our  dedicated  group  of  roughly  7,000 
talented  employees  and  partners,  and  our  board  of  directors  for  their  ongoing  support.    As 
always, I would like to thank you for your continued confidence and investment in our business.  
I look forward to another strong year in 2010.   

Best regards, 

Miles S. Nadal 
Chairman, Chief Executive Officer, 
and President 

 
 
 
 
 
 
 
 
 
 
 
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 (December 31st) 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 

$150

$100

$50

$0

S&P 500 
Peer Group 

MDC Partners

2004

2005

2006

2007

2008

2009

 
 
 
 
 
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, 2009

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

Name of Each Exchange on Which Registered

Class A Subordinate Voting Shares, no par value

NASDAQ; Toronto Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

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 whether the registrant has submitted electronically and posted on its corporate Website, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such ﬁles). Yes (cid:1) No (cid:2)

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, a non-accelerated ﬁler or a smaller

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

(Check one):
Large Accelerated Filer □
Indicate by check mark whether the registrant is a shell company (as deﬁned in Rule 12b-2 of the Act). Yes (cid:1) No (cid:2)

Accelerated Filer (cid:2)

Non-Accelerated □

Smaller reporting company □

The aggregate market value of the shares of all classes of voting and non-voting common stock of the registrant held by

non-affiliates as of June 30, 2009 was approximately $136.2 million, computed upon the basis of the closing sales price ($5.45/share)
of the Class A subordinate voting shares on that date.

As of March 1, 2010, there were 28,626,204 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.

[This page intentionally left blank.] 

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

Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

1

6

10

10

10

10

11

13

15

40

41

91

91

92

93

94

94

94

94

95

97

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

June 3, 2010, 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
reference 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

Committee, 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 severe 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; and

foreign currency ﬂuctuations;

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

interests in entities in the marketing communications services industry. The Company intends to ﬁnance these
acquisitions by using available cash from operations, through incurrence of bridge or other debt ﬁnancing,
either of which may increase the Company’s leverage ratios, or by issuing equity, which may have a dilutive
impact on existing shareholders proportionate ownership. At any given time, the Company may be engaged in
a number of discussions that may result in one or more material acquisitions. These opportunities require
conﬁdentiality and may involve negotiations that require quick responses by the Company. Although there is
uncertainty that any of these discussions will result in deﬁnitive agreements or the completion of any
transactions, the announcement of any such transaction may lead to increased volatility in the trading price of
the Company’s securities.

Investors should carefully consider these risk factors and the 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 management
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.

iii

[This page intentionally left blank.] 

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 and Jamaica.

MDC’s subsidiaries provide a comprehensive range of marketing communications and consulting
services, 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 marketing communications and consulting companies (or Partners) whose strategic, creative
and innovative solutions are media-agnostic, challenge the status quo and achieve measurable 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, talent and tuck under acquisitions, 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 group as a whole. The Corporate Group uses this leverage to provide
various shared services to help reduce costs across the group.

The MDC model is driven by three key elements:

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

performance. 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 noncontrolling equity or economic ownership
position in the hands of operating management to incentivize long-term growth; (3) providing access to more
resources and leveraging the network’s scale; and (4) focusing on 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.

1

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

Strategic Marketing Services

The Strategic Marketing Services segment generally consists of ﬁrms that offer a full suite of integrated

marketing communication and consulting services, including advertising and media, interactive marketing,
direct marketing, public relations, corporate communications, market research, corporate identity and branding,
and sales promotion to national and global clients. The Strategic Marketing Services segment is comprised of
the following agencies: Allard Johnson; Attention, Bruce Mau Design; Colle + McVoy; Company C; Crispin
Porter + Bogusky; Fletcher Martin; Hello Design; henderson bas; HL Group Partners; kirshenbaum bond
senecal + partners; Mono Advertising; Redscout; Skinny NYC; Veritas Communications; VitroRobertson;
Yamamoto Moss MacKenzie; Zig; and Zyman Group.

Performance Marketing Services

The Performance Marketing Services segment includes ﬁrms that provide consumer insights to satisfy the

growing need for targetable, measurable solutions or cost effective means of driving return on marketing
investment and growth for regional, national and global clients. The Performance Marketing Services segment
is comprised of the following agencies: Accent; Accumark Communications, Bryan Mills Iradesso; Computer
Composition; Northstar Research Partners; Onbrand; Source Marketing; and TargetCom.

Marketing Communications Equity

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: advertising, retail and event
marketing and consumer promotions.

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 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 exercised 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 — Other-
Balance Sheet Commitments — Put Rights of Subsidiaries’ Noncontrolling 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.

2

MDC PARTNERS INC.

SCHEDULE OF CURRENT AND POTENTIAL MARKETING
COMMUNICATIONS COMPANY OWNERSHIP

Company

Consolidated:

Strategic Marketing Services

Allard Johnson Communications Inc. . . . . . . . . . .
Attention Partners LLC . . . . . . . . . . . . . . . . . . .
Bruce Mau Design Inc. . . . . . . . . . . . . . . . . . . .
Colle & McVoy, LLC . . . . . . . . . . . . . . . . . . . .
Crispin Porter & Bogusky, LLC . . . . . . . . . . . . .
Company C Communications LLC . . . . . . . . . . .
Fletcher Martin, LLC . . . . . . . . . . . . . . . . . . . .
Hello Design, LLC . . . . . . . . . . . . . . . . . . . . . .
henderson bas partnership . . . . . . . . . . . . . . . . .
HL Group Partners, LLC . . . . . . . . . . . . . . . . . .
kirshenbaum bond & partners, LLC . . . . . . . . . . .
Mono Advertising, LLC. . . . . . . . . . . . . . . . . . .
Redscout, LLC . . . . . . . . . . . . . . . . . . . . . . . . .
Skinny NYC, LLC . . . . . . . . . . . . . . . . . . . . . .
Veritas Communications Inc.
. . . . . . . . . . . . . . .
Vitro Robertson, LLC . . . . . . . . . . . . . . . . . . . .
Yamamoto Moss Mackenzie . . . . . . . . . . . . . . . .
Zig Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zyman Group, LLC . . . . . . . . . . . . . . . . . . . . .

Performance Marketing Services

Accent Marketing Services, LLC. . . . . . . . . . . . .
Accumark Communications Inc. . . . . . . . . . . . . .
Bryan Mills Iradesso Corp.. . . . . . . . . . . . . . . . .
Computer Composition of Canada Inc.. . . . . . . . .
Northstar Research Partners Inc. . . . . . . . . . . . . .
Onbrand . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Source Marketing, LLC . . . . . . . . . . . . . . . . . . .
TargetCom, LLC. . . . . . . . . . . . . . . . . . . . . . . .

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

% Owned at
12/31/09

Year of
Initial
Investment

Put/Call Options

2010

Thereafter

(See Notes)

75.9%
51.0%
50.1%
95.0%
100%
90.0%
85.0%
51.0%
65.0%
64.9%
100.0%
49.9%
60.0%
50.1%
64.1%
82.0%
100.0%
74.0%
94.1%

100.0%
55.0%
62.8%
100.0%
70.0%
89.0%
83.0%
100.0%

1992
2009
2004
1999
2001
2000
1999
2004
2004
2007
2004
2004
2007
2008
1993
2004
2000
2004
2005

1999
1993
1989
1988
1998
1992
1998
2000

89.0%
—
—
—
—
—
100.0%
—
100.0%
—
—
54.9%
—
—
78.4%
—
—
88.4%
—

—
61.7%
88.2%
—
—
—
—
—

Note 1
Note 2

Note 3

Note 4
Note 5

Note 6

Note 7
Note 8
Note 9
Note 10
Note 11

Note 12
Note 13

Note 14
Note 15

Note 16

Note 17
Note 18

49.9%

2007

—

Note 19

Notes
(1) MDC has the right to increase its ownership interest in Allard Johnson Communications Inc. through

acquisition of an incremental interest, and the other holders have the right to put to MDC the same
incremental interest up to 89% of this entity in 2010 and 100% only upon termination.

(2) Attention Partners LLC is owned by HL Group Partners, LLC. HL Group Partners, LLC has the right to

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

3

(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 economic ownership in Company C Communications, LLC through

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

(5) Effective January 1, 2010, MDC acquired the remaining 15% membership interest.
(6) MDC has the right to increase its ownership in HL Group Partners, LLC through acquisitions of

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

(7) MDC has the right to increase its ownership in Mono Advertising, LLC through acquisitions of

incremental interests, and the other interest holders have the right to put to MDC the same incremental
interests, up to 54.9% of this entity in 2010, up to 60.0% in 2011, up to 65.0% in 2012, up to 70.0% in
2013 and up to 75.0% in 2014.

(8) 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.

(9) MDC has the right to increase its ownership in Skinny NYC, LLC through acquisition of incremental

interests, and the other interest holders have the right to put to MDC the same incremental interest, up to
60.1% of this entity in 2014, up to 70.1% of this entity in 2015 and up to 80.1% of this entity in 2016.

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

incremental interests, and the other interest holders have the right to put to MDC the same incremental
interests, up to 78.4% of this in 2010, up to 81.5% in 2011, up to 95.1% in 2012 and up to 100% in
2013.

(11) MDC has the right to increase its ownership in Vitro Robertson, LLC through acquisition of an

incremental interest, and the other interest holder has the right to put to MDC the same incremental
interest, up to 95% of this entity in 2011, up to 97.5% in 2012 and up to 100% in 2013.

(12) MDC has the right to increase its ownership in Zig Inc. through acquisitions of incremental interests, and
the other interest holders have the right to put to MDC the same incremental interest, up to 88.4% of this
entity in 2010, and up to 90.45% of this entity in 2012. Effective July 1, 2008, ACLC was merged into
Zig.

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

(14) 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%.

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

(16) MDC has the right to increase its ownership in Northstar Research Partners Inc. through acquisitions of
incremental interests, and the other holders have the right to put to MDC the same incremental interests
up to 100% only upon termination.

(17) MDC has the right to increase its ownership in Source Marketing, LLC through acquisitions of

incremental interests, and the other interest holders have the right to put to MDC the same incremental
interests up 87.1% of this entity in 2011 and 91.3% in 2012 and 100% in 2013.

(18) Effective January 1, 2009, Targetcom LLC is operating as a division of Accent Marketing Services, LLC.
(19) 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.

4

Financial Information Relating to Business Segments and Geographic Regions

For ﬁnancial information relating to the Company’s Marketing Communications Businesses and the
geographic regions the businesses operate within, refer to Note 16 (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
marketing 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.

A partner agency’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
industry. 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 and
database marketing and analytics are consuming a growing portion of marketing dollars. The Company
believes 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 2009, 2008 and 2007, the Company’s largest client, Sprint, accounted for approximately 16%,

19% and 17% of revenues, respectively. In addition, MDC’s ten largest clients (measured by revenue
generated) accounted for 49%, 45% and 39% of 2009, 2008 and 2007 revenues, respectively.

5

Employees

As of December 31, 2009, MDC and its subsidiaries had the following number of employees within its

reportable segments:

Segment

Strategic Marketing Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Marketing Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

1,964
2,935
26
4,925

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
communications 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
operations 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.’’

Deteriorating economic and ﬁnancial conditions could adversely impact our ﬁnancial condition and results.

Economic and ﬁnancial conditions deteriorated sharply in the latter part of 2008, and these deteriorating

conditions continued in 2009. The effects could adversely affect our ﬁnancial condition and results of
operations in 2010.

a. As a marketing services company, our revenues are highly susceptible to declines as a result of

unfavorable economic conditions.

The current economic downturn has affected the advertising and marketing services industry more
severely than other industries, and any recovery of the advertising and marketing services industry could lag
that of the economy generally. In the past, some clients have responded to weakening economic conditions
with reductions to their marketing budgets, which include discretionary components that are easier to reduce
in the short term than other operating expenses. This pattern may recur in the future. Further decreases in our
revenue would negatively affect our ﬁnancial results, including a reduction of our estimates of free cash ﬂow
from operations.

b. If our clients experience ﬁnancial distress, their weakened ﬁnancial position could negatively affect our

own ﬁnancial position and results.

We have a diverse client base, and at any given time, one or more of our clients may experience ﬁnancial
difficulty, ﬁle for bankruptcy protection or go out of business. The current unfavorable economic and ﬁnancial
conditions that are impacting most sectors of the economy could result in an increase in client ﬁnancial
difficulties that affect us. The direct impact on us could include reduced revenues and write-offs of accounts
receivable. If these effects were severe, the indirect impact could include impairments of goodwill, credit
agreement covenant violations or reduced liquidity. Our largest single client accounted for approximately 16%
of revenue in 2009, and our 10 largest clients (measured by revenue generated) accounted for 49% of revenue
in 2009.

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.
MDC is, however, smaller than several of its larger industry competitors. Competitive factors include creative

6

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
marketing services businesses up for competitive review from time to time, including at times when clients
enter into strategic transactions. From year to year, the identities of MDC’s 10 largest customers may change,
as a result of client losses and additions and other factors; however, the proportion of MDC’s business derived
from its 10 largest clients does not vary signiﬁcantly from year to year. 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.

The loss of lines of credit under our Credit Agreement, and compliance with the covenants in the indenture
governing our 11% notes, 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, 2009, MDC had not utilized its Credit Agreement, other than for outstanding letters
of credit. MDC uses amounts available under the Credit 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 Credit 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 Credit Agreement, MDC could 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

interests 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 shareholders. 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
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

7

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. MDC’s ability to grow
its business and to increase its revenues will be limited.

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
competitiveness 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
compensation 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. If key executives were to leave our
operating units, the relationships that MDC has with its clients could be adversely affected.

MDC is exposed to the risk of client defaults.

MDC’s agencies often incurs expenses on behalf of its clients for productions and 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 production and media and the net revenue earned by us can be signiﬁcant. While MDC takes
precautions against default on payment for these services (such as credit analysis and advance billing of
clients) and has historically had a very low incidence of default, MDC is still exposed to the risk of
signiﬁcant uncollectible receivables from our clients. This risk is enhanced by the current distress in the credit
markets which could impact our client’s ability to ﬁnance their businesses.

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.

Goodwill may become impaired.

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

with U.S. GAAP resulting from our acquisition activities, which principally represents the specialized know-
how of the workforce at the agencies we have acquired. We test, at least annually, the carrying value of
goodwill for impairment, as discussed in Note 2 to our 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 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

domestic 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

8

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 and usage of personally identiﬁable information. 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.

The indenture governing the 11% Notes and the Credit Agreement governing our secured line of credit
contain various covenants that limit our discretion in the operation of our business.

The indenture governing the 11% Notes and the Credit Agreement governing our lines of credit contain

various provisions that limit our discretion in the operation of our business by restricting our ability to:

•

•

•

•

•

•

•
•
•
•

sell assets;

pay dividends and make other distributions;

redeem or repurchase our capital stock;

incur additional debt and issue capital stock;

create liens;

consolidate, merge or sell substantially all of our assets;

undergo a change in control;
enter into certain transactions with our affiliates;
engage in new lines of business; and
enter into sale and leaseback transactions.

These restrictions on our ability to operate our business in our discretion could seriously harm our
business by, among other things, limiting our ability to take advantage of ﬁnancing, merger and acquisition
and other corporate opportunities. The Credit Agreement is subject to various additional covenants, including a
senior leverage ratio, a ﬁxed charges ratio and a minimum EBITDA level. Events beyond our control could
affect our ability to meet these ﬁnancial tests, and we cannot assure you that we will meet them.

Our substantial indebtedness could adversely affect our cash ﬂow and prevent us from fulﬁlling our
obligations, including the 11% Notes.

As of December 31, 2009, MDC had $217.9 million net of original issue discount of indebtedness. In
addition, we expect to make additional drawings under the Credit Agreement from time to time. Our ability to
pay principal and interest on our indebtedness is dependent on the generation of cash ﬂow by our subsidiaries.
Our subsidiaries’ business may not generate sufficient cash ﬂow from operations to meet MDC’s debt service
and other obligations. If we are unable to meet our expenses and debt service obligations, we may need to
obtain additional debt, reﬁnance all or a portion of our indebtedness on or before maturity, sell assets or raise
equity. We may not be able to obtain additional debt, reﬁnance any of our indebtedness, sell assets or raise
equity on commercially reasonable terms or at all, which could cause us to default on our obligations and
impair our liquidity. Our inability to generate sufficient cash ﬂow to satisfy our debt obligations, to obtain
additional debt or to reﬁnance our obligations on commercially reasonable terms would have a material
adverse effect on our business, ﬁnancial condition and results of operations.

If we cannot make scheduled payments on our debt, we will be in default and, as a result, our debt
holders could declare all outstanding principal and interest to be due and payable; the lenders under the Credit
Agreement could terminate their commitments to loan us money and foreclose against the assets securing our
borrowings; and we could be forced into bankruptcy or liquidation. Our level of indebtedness could have
important consequences. For example it could:

•

•

•

make it more difficult for us to satisfy our obligations with respect to the 11% Notes;

increase our vulnerability to general adverse economic and industry conditions;

require us to dedicate a substantial portion of our cash ﬂow from operations to payments on our
indebtedness, thereby reducing the availability of our cash ﬂow to fund working capital and other
activities;

9

•

•

limit our ﬂexibility in planning for, or reacting to, changes in our business and the advertising
industry, which may place us at a competitive disadvantage compared to our competitors that have
less debt; and

limit, particularly in concert with the ﬁnancial and other restrictive covenants in our indebtedness,
our ability to borrow additional funds or take other actions.

Despite our current debt levels, we may be able to incur substantially more indebtedness, which could
further increase the risks associated with our leverage.

We may incur substantial additional indebtedness in the future. The terms of our Credit Agreement and

the indenture governing the11% Notes will permit us and our subsidiaries to incur additional indebtedness
(subject to certain limitations). If we or our subsidiaries incur additional indebtedness, the related risks that we
face could increase.

We are a holding company dependent on our subsidiaries for our ability to pay dividends and service our
debt.

MDC is a holding company with no operations of our own. Consequently, our ability to pay dividends on

our common stock and to service our debt is dependent upon the earnings from the businesses conducted by
our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation to provide us
with funds for our payment obligations, whether by dividends, distributions, loans or other payments. Any
distribution of earnings to us from our subsidiaries, or advances or other distributions of funds by these
subsidiaries to us, all of which are subject to statutory or contractual restrictions, are contingent upon the
subsidiaries’ earnings and are subject to various business considerations. Our right to receive any assets of any
of our subsidiaries upon their liquidation or reorganization, and therefore the right of the holders of common
stock to participate in those assets, will be structurally subordinated to the claims of that subsidiary’s creditors.
In addition, even if we were a creditor of any of our subsidiaries, our rights as a creditor would be
subordinate to any security interest in the assets of our subsidiaries and any indebtedness of our subsidiaries
senior to that held by us.

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, Europe, and Jamaica. This space is primarily used for office and administrative purposes 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 operating 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. Reserved

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 March 1, 2010, 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, 2009 and 2008 are as follows:

Quarter Ended

Nasdaq Market

March 31, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Quarter Ended

The Toronto Stock Exchange

March 31, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

High

9.57
9.09
8.76
6.72
3.87
6.00
8.10
9.00

High

9.71
9.25
8.76
8.70
4.75
6.85
8.74
9.98

Low

($ per Share)

6.65
6.77
5.93
2.19
2.50
3.24
5.44
6.88

Low

(C$ per Share)

6.50
6.78
6.50
2.25
3.22
4.00
6.27
7.50

As of March 1, 2010, the last reported sale price of the Class A subordinate voting shares was $9.49 on

NASDAQ and C$9.66 on the Toronto Stock Exchange.

Dividend Policy

Prior to January 2010, MDC had not declared nor paid any dividends on its Class A subordinate voting

shares since its incorporation in 1986. On January 25, 2010, the Company announced its declaration of a
$0.10 per share cash dividend, payable for the quarter ended December 31, 2009. The dividend was paid to
shareholders of record as of February 12, 2010. The Company expects to pay quarterly dividends of $0.10 per
share for each of the next three quarters of 2010, although there can be no assurance that any such dividends
will in fact be paid. Any future payment of dividends, if permitted pursuant to the terms of the Company’s
ﬁnancing agreements, will be determined by the Board of Directors of the Company on the basis of 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, 2009.

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 . . . . . . .

239,992
1,899,288(1)

Not approved by stockholders:

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

—

$9.55
$3.80

—

2,412,595
995,333

—

(1) Based on December 31, 2009 closing Class A subordinate voting share price on the Nasdaq of $8.25.

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 2, 2009 and June 1, 2007, the Company’s
shareholders approved amendments to the 2005 Stock Incentive Plan, which increased the number of shares
available for issuance to 4.5 million Class A shares. In addition, the plan was amended to allow shares under
this plan to be used to satisfy share obligations under the Stock Appreciation Rights Plan. On May 30, 2008,
the Company’s shareholders approved the 2008 Key Partner Incentive Plan, which provides for the issuance of
600,000 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

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold
$225 million aggregate principal amount of 11% Senior Notes due 2016 (the ‘‘11% Notes’’). The 11% Notes
were initially sold to Goldman, Sachs & Co. and seven co-managers (collectively, the ‘‘initial purchasers’’).
The 11% Notes bear interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable
semiannually in arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11%
Notes will mature on November 1, 2016, unless earlier redeemed or repurchased. The Company received net
proceeds of approximately $206 million from the sale of the 11% Notes to the initial purchasers, after
deducting the initial purchaser’s discount, OID and other offering expenses. The Company used the net
proceeds of this offering to repay the outstanding balance and terminate its prior Fortress Financing
Agreement, and redeemed its outstanding 8% C$45 million convertible debentures. The Company used the
remaining net proceeds for general corporate purposes. The 11% Notes were sold to the initial purchasers in a
private placement and were resold to qualiﬁed institutional buyers in reliance on the exemption from
registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder.

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, 2009, the Company made no open market purchases of its
Class A shares or its Class B shares. Pursuant to its Credit Agreement, the Company is currently restricted
from repurchasing its shares.

During 2009, the Company’s employees surrendered 156,481 Class A shares valued at $0.6 million in
connection with the required tax withholding resulting from the vesting of restricted stock. These Class A
shares were subsequently retired and no longer remain outstanding as of December 31, 2009.

12

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

Item 6. Selected Financial Data

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

2009

2008

2007
(Dollars in Thousands, Except per Share Data)

2006

2005

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

operations . . . . . . . . . . . . . . . .
Stock-based compensation included

in income from continuing
operations . . . . . . . . . . . . . . . .

Earnings (Loss) per Share
Basic
Continuing operations attributable to
MDC Partners Inc.. . . . . . . . . . .

Diluted
Continuing operations attributable to

MDC Partners Inc. common
shareholders . . . . . . . . . . . . . . .

Financial Position Data
Total assets . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . .
Fixed charge coverage ratio . . . . . .
Fixed charge deﬁciency . . . . . . . . .

$545,924
$ 20,244

$584,648
$ 20,344

$533,883
$ 23,377

$403,086
$ 23,423

$341,000
$ 21,659

$ (12,092)

$ 18,284

$

2,335

$

8,403

$ 14,048

$ 15,444

$ 14,437

$ 10,217

$

8,361

$

3,272

$

(0.64)

$

0.38

$

(0.73)

$

(0.35)

$

(0.32)

$

(0.64)

$

0.37

$

(0.73)

$

(0.35)

$

(0.32)

$604,519
$217,946
N/A
$ 3,350

$529,239
$181,498
2.01
N/A

$520,698
$164,754
1.43
N/A

$493,501
$ 95,454
2.03
N/A

$507,315
$123,149
2.48
N/A

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

as follows:

Year Ended December 31, 2009

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold
$225 million aggregate principal amount of 11% Senior Notes due 2016 (the ‘‘11% Notes’’). The 11% Notes
bear interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable semiannually in
arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11% Notes will
mature on November 1, 2016, unless earlier redeemed or repurchased. In addition, the Company entered into a
new $75 million Revolving Credit Facility, expiring in October 2014. The Company used the net proceeds of
this offering to repay the outstanding balance and terminate its prior Fortress Financing Agreement, and
redeemed its outstanding 8% C$45 million convertible debentures. As a result, the Company incurred

13

$4.5 million of early termination fees and the write off of the remaining deferred ﬁnancing costs relating to its
prior Financing Agreement and convertible debentures.

Year Ended December 31, 2008

During the year ended December 31, 2008, MDC recognized $13.3 million of primarily non-cash,
unrealized, foreign exchange gains due primarily to the strengthening of the US dollar as compared to the
Canadian dollar on its intercompany balances that are denominated in the US dollar.

Effective December 31, 2008, three of the Company’s operating subsidiaries, Clifford/Bratskeir Public

Relations LLC, Ito Partners, LLC and Mobium Creative Group (a division of Colle + McVoy) have been
deemed discontinued operations. All periods have been restated to reﬂect these discontinued operations.
See Note 10 of the notes to the consolidated ﬁnancial statements included herein.

Year Ended December 31, 2007

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 $4.5 million in 2007. The Company also recorded an impairment charge
relating to MFP of $6.3 million 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 $0.6 million was deemed impaired and written off.

In December 2007, due to continued operating losses and the lack of new business wins the Company
ceased Banjo Strategic Entertainment, LLC (‘‘Banjo’’) operations. All periods have been restated to reﬂect
these discontinued operations. See Note 10 of the notes to the 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.

Year Ended December 31, 2005

On June 28, 2005, 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 were redeemed on November 26, 2009. 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.

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.

14

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 2009 means the period beginning January 1, 2009, and ending
December 31, 2009).

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

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 and capital
expenditures. Revenue growth is analyzed by reviewing the components and mix of the growth, including:
growth by major geographic location; existing growth by major reportable segment (organic); growth from
currency changes; and growth from acquisitions.

MDC conducts its businesses through the Marketing Communications Group. Within the Marketing

Communications Group, there are two reportable operating segments: Strategic Marketing Services and
Performance Marketing Services. In addition, MDC has a ‘‘Corporate Group’’ which provides certain
administrative, accounting, ﬁnancial and legal functions.

Marketing Communications Businesses

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

management, and specialized communication services to clients throughout the United States, Canada, Europe
and Jamaica.

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

15

We measure capital expenditures as either maintenance or investment related. Maintenance capital

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

Certain Factors Affecting Our Business

Acquisitions and Dispositions. Our strategy includes acquiring ownership stakes in well-managed
businesses with strong reputations in the industry. We engaged in a number of acquisition and disposal
transactions during the 2007 to 2009 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 10 ‘‘Discontinued Operations’’ in the notes to the consolidated
ﬁnancial statements.

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

Seasonality. Historically, with some exceptions, we generate the highest quarterly revenues during the

fourth quarter in each year. The fourth quarter has historically been the period in the year in which the highest
volumes of media placements and retail related consumer marketing occur.

Fourth Quarter Results. Revenues for the fourth quarter of 2009 increased to $149.7 million, compared

to the 2008 fourth quarter revenues of $144.7 million. The increase consisted of organic growth of
$2.0 million and a $3.0 million increase due to foreign currency ﬂuctuations. The Strategic Marketing
Services segment had revenue growth of $13.2 million, which is primarily retainer fee based. The
Performance Marketing Services segment had a revenue decline of $8.2 million in 2009. This decline in
revenues is related to clients continuing to cut back and not spend on discretionary projects and other
activities, which they had traditionally engaged the Company to perform. Operating results for the fourth
quarter of 2009 resulted in a loss of $0.9 million compared to a proﬁt of $1.4 million. The decrease in proﬁts
in 2009 is related to increased amortization expense relating to the recording of the ﬁnal earnout payment
relating to CPB and the related backlog that was amortized in December 2009 of $4.0 million. Income (loss)
from continuing operations for the fourth quarter of 2009 was a loss of $16.2 million compared to income of
$9.7 in 2008. The 2009 fourth quarter loss is attributable to a decrease in foreign exchange gains of $6.7
million, an increase in interest expense of $7.0 million, and an increase in income tax expense of $9.2 million.
Interest expense increased due to the Company’s reﬁnancing of its outstanding debt. Income tax expense
increased primarily due to additional valuation allowance reserves and non-deductible stock-based
compensation.

Summary of Key Transactions

Recent Transactions

On March 5, 2010, the Company acquired a 60% equity interest in TEAM Holdings LLC (‘‘TEAM’’).
TEAM is an experiential marketing services company based in Fort Lauderdale, Florida. The purchase price
consisted of $11 million in cash paid at closing. In addition, the Company will make contingent payments of
up to $8 million in aggregate if TEAM achieves speciﬁed ﬁnancial targets in calendar years 2010 and 2011,
together with other potential additional payments contingent on TEAM’s ﬁnancial performance. The remaining
40% of the equity interests in TEAM are held by Todd Graham, Dan Gregory, Stephen Groth, Sean O’Toole,
Kevin Berg, and Vincent Parinello. In connection with the acquisition, the Company and each of the minority
equity holders of TEAM entered into an operating agreement that speciﬁes the parties’ respective economic,
governance and liquidity rights, including the Company’s right to priority distributions from TEAM for the
period through 2015. TEAM also entered into new employment agreements with Todd Graham, Dan Gregory,
Stephen Groth, and Sean O’Toole.

16

Year Ended December 31, 2009

New Financing

On October 23, 2009, the Company completed a $300 million reﬁnancing of its existing debt
arrangements. The Company issued $225 million of 11% senior notes and obtained a new $75 million
revolving credit facility. The proceeds were used to pay off the existing Fortress Facility, consisting of the
$130 million term loan, and the C$45 million convertible debentures. The proceeds were also used for the
early payment of $46.0 million of deferred acquisition consideration relating to kirshenbaum bond & partners
LLC (‘‘KBSP’’) and Crispin Porter & Bogusky LLC (‘‘CPB’’). In connection with the repayment of its prior
indebtedness, the Company incurred termination fees and expenses of $2.0 million and wrote off deferred
ﬁnancing costs of $2.5 million.

Effective October 5, 2009, MDC acquired the remaining 6% equity interest in CPB from the minority
holder. In accordance with the terms of the underlying limited liability company agreement, the estimated
contingent purchase price of $8.5 million will be paid in future periods beginning in April 2011. Following
the closing of this transaction, MDC’s ownership in CPB is 100%.

Year Ended December 31, 2008

Step-Up Acquisitions of Key Partners

On November 10, 2008, the Company acquired an additional 17% equity interest in CPB from certain
noncontrolling holders. The purchase price consisted of a cash payment equal to $6.4 million plus the issuance
of 105,000 newly-issued Class A shares of the Company, plus an additional contingent purchase price payment
due in April 2010 based on 2007, 2008 and 2009 performance. Following the closing of this transaction, the
Company’s ownership in CPB was 94%.

On December 31, 2008, the Company acquired the remaining 6.3% of Accent Marketing Services
(‘‘Accent’’). The aggregate purchase price was equal to $4.8 million and was satisﬁed as follows: on closing,
the extinguishment of $1.8 million of outstanding loans, and payment of $1.0 million in cash and an
additional payment of $2.0 million paid in 2009.

Discontinued Operations

Effective December 3, 2008, Colle & McVoy, LLC completed the sale of certain assets of its Mobium

division. The purchase price consisted of minimal cash received at closing plus additional potential payments
to be received through 2010. As of December 31, 2008, Mobium is treated as a discontinued operation.

In December 2008, the Company entered into negotiations with the management of Clifford/Bratskeir

Public Relations LLC (‘‘Bratskeir’’) to sell certain remaining assets to management. This transaction was
completed in April 2009. As of December 31, 2008, Bratskeir has been treated as a discontinued operation.

Year Ended December 31, 2007

Financing Agreement

On June 18, 2007, MDC and its material subsidiaries entered into a $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. Proceeds from the
Financing Agreement were used to repay in full the outstanding balances on the Company’s prior credit
facility, which was terminated.

The Financing Agreement consisted 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 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.

Step-Up Acquisitions in Key Partners

On November 1, 2007, the Company acquired an additional 28% of CPB from certain noncontrolling
holders. The purchase price consisted of a payment of approximately $22.6 million in cash and the issuance of

17

514,025 newly-issued shares of the Company’s Class A stock valued at approximately $5.5 million. Following
this transaction, the Company’s ownership in CPB was 77%.

On October 18, 2007, the Company acquired the remaining 40% equity interest in KBSP. 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 stock valued at approximately $2.9 million. In addition, the
Company was required to pay contingent amounts to the selling noncontrolling holder in 2009 and 2010,
based on KBSP’s ﬁnancial performance in 2007, 2008 and 2009. Based on 2008 results, an additional
payment of $16 million was paid as follows: $14.1 million in November 2008 and $1.9 million in 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 continues to provide services to the Company as its Chief Executive Officer.

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 for 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.

18

Results of Operations for the Years Ended December 31, 2009, 2008 and 2007:

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

. . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . .
Loss from continuing operations before
equity in affiliates and noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of affiliates . . . . . . . . . .
Loss from continuing operations . . . . . . . .
Loss from discontinued operations

attributable to MDC Partners Inc., net of
taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling

interests . . . . . . . . . . . . . . . . . . . . . . .
.

Net loss attributable to MDC Partners Inc.

For the Year Ended December 31, 2009

Strategic
Marketing
Services
$371,398
222,015
87,908
25,577
35,898

Performance
Marketing
Services
$174,526
132,297
30,898
8,466
2,865

Corporate
—
$
—
18,091
428
(18,519)

Total
$545,924
354,312
136,897
34,471
20,244

(91)
(1,947)
(21,754)

(3,548)
(8,536)

(12,084)
(8)
(12,092)

(876)
(12,968)

(5,356)
$ (18,324)

(4,641)

(715)

—

Stock-based compensation . . . . . . . . . . . .

$

8,742

$

868

$ 5,834

$ 15,444

19

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

income taxes and equity in affiliates . . . .
Income tax expense . . . . . . . . . . . . . . . . .
Income from continuing operations before
equity in affiliates and noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of affiliates . . . . . . . . . .
Income from continuing operations . . . . . .
Loss from discontinued operations

attributable to MDC Partners Inc., net of
taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the

For the Year Ended December 31, 2008

Strategic
Marketing
Services
$363,580
226,699
84,408
24,814
27,659

Performance
Marketing
Services
$221,068
165,446
35,725
9,189
10,708

Corporate
—
$
—
17,622
401
(18,023)

Total
$584,648
392,145
137,755
34,404
20,344

(14)
13,257
(13,255)

20,332
(2,397)

17,935
349
18,284

(10,015)
8,269

noncontrolling interests . . . . . . . . . . . . .

(5,302)

(2,834)

—

(8,136)

Net income attributable to MDC Partners

Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .

$

133

Stock-based compensation . . . . . . . . . . . .

$

6,162

$

3,697

$ 4,578

$ 14,437

20

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 tax and equity in affiliates. . . . . .
Income tax expense . . . . . . . . . . . . . . . . .
Income from continuing operations before
equity in affiliates and noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of affiliates . . . . . . . . . .
Income from continuing operations . . . . . .
Loss from discontinued operations

attributable to MDC Partners Inc., net of
taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the

noncontrolling interests . . . . . . . . . . . . .
.

Net loss attributable to MDC Partners Inc.

For the Year Ended December 31, 2007

Strategic
Marketing
Services
$338,524
201,172
83,644
21,045
32,663

Performance
Marketing
Services
$195,359
142,125
32,442
7,672
13,120

Corporate
—
$
—
22,148
258
(22,406)

Total
$533,883
343,297
138,234
28,975
23,377

3,165
(7,192)
(11,099)

8,251
(6,081)

2,170
165
2,335

(8,173)
(5,838)

(20,517)
$ (26,355)

(17,457)

(3,060)

—

Stock-based compensation . . . . . . . . . . . .

$

5,199

$

575

$ 4,443

$ 10,217

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Revenue was $545.9 million for the year ended 2009, representing a decrease of $38.7 million, or 6.6%,
compared to revenue of $584.6 million for the year ended 2008. This decrease relates primarily to a decrease
in organic revenue of $32.2 million. In addition, a weakening of the US Dollar, primarily versus the Canadian
dollar during the year ended December 31, 2009, resulted in a further reduction of revenues of $6.5 million.

Operating proﬁt for the year ended 2009 was $20.2 million compared to $20.3 million in 2008. Operating

proﬁt increased $8.2 million in the Strategic Marketing Services, which was offset by a decrease of
$7.8 million, within the Performance Marketing Services segment. Corporate operating expenses increased by
$0.5 million.

Income (loss) from continuing operations was ($12.1) million in 2009, compared to income of $18.3

million in 2008. This decrease in income of $30.4 million was primarily attributed to the result of an
unrealized foreign exchange loss of $3.2 million, offset by a realized foreign exchange gain of $1.3 million in
2009, compared to an unrealized foreign exchange gain of $13.3 million in 2008 and net interest expense
increased by $8.5 million primarily due to the termination fees and expenses, write-off of the remaining
deferred ﬁnancing costs and increased interest expense resulting from the reﬁnancing of existing debt. Income
tax expense increased $6.1 million from $2.4 million in 2008 to $8.5 million in 2009. Equity in earnings of
non-consolidated affiliates decreased by $0.4 million.

21

Marketing Communications Group

Revenues in 2009 attributable to the Marketing Communications Group, which consists of two reportable
segments — Strategic Marketing Services and Performance Marketing Services, were $545.9 million compared
to $584.6 million in 2008, representing a year-over-year decrease of 6.6%.

The components of the revenue decline for 2009 are shown in the following table:

Year ended December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Revenue

$000’s
$584,648
(32,184)
(6,540)
$545,924

%
—
(5.5)%
(1.1)%
(6.6)%

The geographic mix in revenues was relatively consistent between 2009 and 2008 and is demonstrated in

the following table:

US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UK, Europe, and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2009

83%
15%
2%

2008

83%
15%
2%

The operating proﬁt of the Marketing Communications Group increased by approximately 0.1% to
$38.8 million from $38.4 million. Operating margins increased to 7.1% for 2009 compared to 6.6% for 2008.
The increase in operating margin is primarily attributable to a decrease in direct costs (excluding staff costs)
as a percentage of revenues from 14.5% of revenue in 2008 to 14.0% of revenue in 2009 due to a decrease in
reimbursed client related direct costs. Total staff costs as a percentage of revenues was 60.3% in both 2008
and 2009 despite a reduction of staff cost dollars of $23.0 million. Depreciation and amortization expenses
increased as a percentage of revenue from 5.8% in 2008 to 6.2% in 2009 despite being relatively ﬂat at
$34.0 million.

Marketing Communications Businesses

Strategic Marketing Services

Revenues attributable to Strategic Marketing Services in 2009 were $371.4 million compared to
$363.6 million in 2008. The year-over-year increase of $7.8 million, or 2.2%, was attributable primarily to
organic growth of $11.0 million or 3.0%. This organic growth was driven by net new business wins, offset by
foreign exchange conversion of $3.2 million due to the weakening of the US dollar compared to the Canadian
dollar.

The operating proﬁt of Strategic Marketing Services increased by approximately 29.8% to $35.9 million
in 2009, from $27.7 million in 2008, while operating margins increased to 9.7% in 2009 from 7.6% in 2008.
The increase in operating proﬁt and margin is primarily related to a decrease in direct costs (excluding staff
costs) as a percentage of revenues from 11.6% of revenue in 2008 to 10.9% of revenue in 2009, primarily due
to a decrease in reimbursed client related direct costs. Total staff costs as a percentage of revenue decreased
from 58.7% in 2008 to 58.5% in 2009. Depreciation and amortization represented 6.9% and 6.8% of revenues
during 2009 and 2008, respectively.

Performance Marketing Services

Performance Marketing Services generated revenues of $174.5 million for 2009, which was a decrease of

$46.5 million, or 21.1%, compared to revenues of $221.1 million in 2008. The year-over-year decrease was
attributable primarily to organic revenue declines of $43.2 million. Revenue declines were also attributable to
a weakening of the US dollar versus the Canadian dollar and British pound in 2009 compared to 2008
resulted in a $3.3 million decrease in revenues from the division’s Canadian and UK-based operations.
Revenues declined due to customers reducing their outsourcing needs and reducing client project spending.

22

The operating proﬁt of Performance Marketing Services decreased by $7.8 million to $2.9 million in
2009, from an operating proﬁt of $10.7 million in 2008, with operating margins of 1.6% in 2009 compared to
4.8% in 2008. The decrease in operating margin in 2009 was due primarily to an increase in total staff costs
as a percentage of revenues from 62.7% in 2008 to 64.1% in 2009. Direct costs (excluding staff costs) as a
percentage of revenue increased from 19.4% in 2008 to 20.6% in 2009. This increase is a result of the timing
of when expected clients’ projects were expected to begin, while maintaining the appropriate staffing levels to
properly service those projects; however, staff costs did decrease by $26.9 million. Margins were also
impacted by an increase in office and general expenses as a percent of revenue, which increased from 16.2%
in 2008 to 17.7% in 2009 and an increase in depreciation and amortization from 4.2% in 2008 to 4.9% in
2009. Office and general expenses costs decreased $4.8 million; however, due to their relatively ﬁxed nature,
the decrease in revenue outpaced this decrease in costs.

Corporate

Operating costs related to the Company’s Corporate operations increased by $0.5 million to $18.5 million

in 2009 compared to $18.0 million in 2008. Stock based compensation expense increased $1.3 million, while
cash staff costs decreased by $0.5 million and other administrative costs decreased by $0.03 million.

Other Expense, Net

Other expense, net increased $0.1 million in 2009 from almost nil in 2008.

Foreign Exchange

The foreign exchange loss was $1.9 million for 2009 compared to a gain of $13.3 million recorded in
2008, and was due primarily to an unrealized loss due to a weakening in the US dollar during 2009 compared
to the Canadian dollar primarily on its US dollar denominated intercompany balances with its Canadian
subsidiaries. During 2009, the Company recorded a $1.3 million realized gain on foreign exchange
transactions, which reduced the unrealized loss. At December 31, 2009, the exchange rate was 1.05 Canadian
dollars to one US dollar, compared to 1.22 at the end of 2008 and 0.99 at the end of 2007.

Net Interest Expense

Net interest expense for 2009 was $21.8 million, an increase of $8.5 million over the $13.3 million net

interest expense incurred during 2008. Interest expense increased $7.1 million in 2009 due to termination fees
and expenses and the write-off of deferred ﬁnancing costs of $4.5 million as a result of the $300 million
reﬁnancing completed in October 2009. Interest expense also increased due to the higher debt outstanding and
higher interest rates on the reﬁnanced debt. Interest income was $0.3 million for 2009, as compared to
$1.7 million in 2008. This decrease was primarily due to the interest income recognized from the notes related
to the sale of SPI, which was received in full in May 2009.

Income Taxes

Income tax expense in 2009 was $8.5 million compared to $2.4 million for 2008. The Company’s
effective tax rate was substantially higher than the statutory rate in 2009 due to non-deductible stock-based
compensation and an increase in the Company’s valuation allowance, offset in part by noncontrolling interest
charges. In 2008, the Company’s effective tax rate was substantially lower than the statutory tax rate due to a
decrease in the Company’s valuation allowance, a reversal of withholding taxes due to a change in the tax
law, and noncontrolling interest charges. These amounts were offset in part by non-deductible stock based
compensation.

The Company’s US operating units are generally structured as limited liability companies, which are

treated as partnerships for tax purposes. The Company is only taxed on its share of proﬁts, while
noncontrolling holders are responsible for taxes on their share of the proﬁts.

Equity in Affiliates

Equity in affiliates represents the income attributable to equity-accounted affiliate operations. For 2009

and 2008, a loss and income of almost nil and $0.3 million was recorded, respectively.

23

Noncontrolling Interests

Noncontrolling interest expense was $5.4 million for 2009, down $2.8 million from the $8.1 million of

noncontrolling interest expense incurred during 2008. The decrease was primarily due to a decrease in
proﬁtability of subsidiaries within the Performance Marketing Service operating segment, which are not 100%
owned.

Discontinued Operations

The loss net of taxes from discontinued operations for 2009 was $0.9 million and is comprised of the
operating results of Clifford/Bratskeir Public Relations LLC (‘‘Bratskeir’’) and Margeotes Fertitta Powell, LLC
(‘‘MFP’’).

The loss net of taxes from discontinued operations for 2008 was $10.0 million and is comprised of the

operating results of Mobium, a division of Colle & McVoy, LLC (‘‘Colle’’), Bratskeir, The Ito Partnership
(‘‘Ito’’) and MFP. MFP was previously discontinued in 2007; the other entities were discontinued in 2008.

Effective December 3, 2008, Colle completed the sale of certain assets of its Mobium division. The

Company recorded a loss on sale of $1.2 million ($0.8 million net of taxes) and an operating loss of
$3.4 million ($2.3 million net of taxes).

In December 2008, the Company entered into negotiations to sell certain remaining assets in Bratskeir to

management. This transaction was completed in April 2009. As a result of this expected transaction, the
Company recorded an impairment charge of $1.9 million ($1.3 million net of taxes). In addition, Bratskeir
recorded an operating loss of $3.8 million ($2.5 million net of taxes) in 2008.

Effective June 30, 2008, the Company completed the sale of its interests in Ito. The sale resulted in a loss

of $0.8 million ($0.5 million net of taxes.)

As a result, the Company has classiﬁed the MFP, Mobium, Bratskeir and Ito operations as discontinued.

Net Income

As a result of the foregoing, the net loss recorded for 2009 was $18.3 million or loss of $0.67 per diluted

share, compared to net income of $0.1 million or $0.01 per diluted share reported for 2008.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenue was $584.6 million for the year ended 2008, representing an increase of $50.7 million, or 9.5%,

compared to revenue of $533.9 million for the year ended 2007. This increase relates primarily to organic
growth of $45.0 million or 8.4%, and $6.6 million relates to acquisitions. In addition, a strengthening of the
US Dollar, primarily versus the British pound during the year ended December 31, 2008, resulted in decreased
revenues of $0.8 million.

Operating proﬁt for the year ended 2008 was $20.3 million, compared to $23.4 million for the year
ended 2007. The decrease in operating proﬁt was primarily the result of decreases in operating proﬁt of
$5.0 million in the Strategic Marketing Services and $2.4 million, within the Performance Marketing Services
segment offset by a decrease in Corporate operating expenses of $4.4 million.

The income from continuing operations for 2008 was $18.3 million, compared to $2.3 million in 2007.

This increase in income of $16.0 million was primarily the result of a decrease in other expenses of
$15.1 million, which includes a $20.4 million increase in unrealized gains on foreign currency transactions;
and decreased income taxes of $3.7 million. These amounts were offset by the decrease in operating proﬁts of
$3.0 million.

24

Marketing Communications Group

Revenues in 2008 attributable to the Marketing Communications Group, which consists of two reportable
segments — Strategic Marketing Services and Performance Marketing Services, were $584.6 million compared
to $533.9 million in 2007, representing a year-over-year increase of 9.5%.

The components of revenue growth for 2008 are shown in the following table:

Year ended December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Revenue

$000’s
$533,883
44,972
6,581
(788)
$584,648

%
—
8.4%
1.2%
(0.1)%
9.5%

The geographic mix in revenues was relatively consistent between 2008 and 2007 and is demonstrated in

the following table:

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

2008

83%
15%
2%

2007

80%
17%
3%

The operating proﬁt of the Marketing Communications Group decreased by approximately 16.2% to
$38.4 million from $45.8 million. Operating margins decreased to 6.6% for 2008 compared to 8.6% for 2007.
The decrease in operating margin is primarily attributable to an increase in direct costs (excluding staff costs)
as a percentage of revenues from 13.4% of revenue in 2007 to 14.5% of revenue in 2008 due to an increase
in reimbursed client related direct costs. In addition, total staff costs as a percentage of revenues increased
from 59.1% in 2007 to 60.3% in 2008. This was offset in part by a decrease in office and general costs as a
percentage of revenue from 21.7% in 2007 to 20.5% in 2008. Depreciation and amortization expenses
increased as a percentage of revenue from 5.4% in 2007 to 5.8% in 2008.

Marketing Communications Businesses

Strategic Marketing Services

Revenues attributable to Strategic Marketing Services in 2008 were $363.6 million compared to
$338.5 million in 2007. The year-over-year increase of $25.1 million or 7.4% was attributable primarily to
organic growth of $19.3 million or 5.7% as a result of net new business wins, and $5.8 million of the increase
related to the 2007 acquisitions of HL Group Partners and Redscout.

The operating proﬁt of Strategic Marketing Services decreased by approximately 15.3% to $27.7 million
in 2008, from $32.7 million in 2007, while operating margins decreased to 7.6% in 2008 from 9.6% in 2007.
The decrease in margin is primarily related to an increase in direct costs (excluding staff costs) as a
percentage of revenues from 10.5% of revenue in 2007 to 11.6% of revenue in 2008, primarily due to an
increase in reimbursed client related direct costs. Total staff costs as a percentage of revenue increased from
57.8% in 2007 to 58.7% in 2008. In addition, staff costs increased in 2008 due to a $1.0 million increase in
non-cash stock based compensation, primarily as a result of an increase of $0.9 million in the charge resulting
from the 2008 contingent payment relating to the 2007 purchase of the remaining 40% equity interest in
kirshenbaum bond + partners and other phantom equity plans at certain partner ﬁrms. Depreciation and
amortization represented 6.8% and 6.2% of revenues during 2008 and 2007, respectively, as certain intangibles
resulting from the CPB and KBSP step acquisitions have a full year of amortized expense.

25

Performance Marketing Services

Performance Marketing Services generated revenues of $221.1 million for 2008, which was $25.7 million

or 13.2% higher than revenues of $195.4 million in 2007. The year-over-year increase was attributable
primarily to organic growth of $25.7 million as a result of net new business wins, and $0.8 million relating to
acquisitions. A strengthening of the US dollar versus the British pound in 2008 compared to 2007 resulted in
a $0.8 million decrease in revenues from the division’s UK-based operations.

The operating proﬁt of Performance Marketing Services decreased by $2.4 million to $10.7 million in
2008, from an operating proﬁt of $13.1 million in 2007, with operating margins of 4.8% in 2008 compared to
6.7% in 2007. The decrease in operating margin in 2008 was due primarily to an increase in direct costs
(excluding staff costs) as a percentage of revenues from 18.4% in 2007 to 19.4% in 2008. In addition, there
was an increase in non-cash stock based compensation of $2.3 million in 2008 relating to the acquisition on
December 31, 2008, of the remaining 6.3% of Accent. Excluding this charge, operating proﬁt would have
decreased by $0.1 million, and margins would have been 5.9% in 2008 compared to 6.7% in 2007, staff costs
as a percentage of revenue increased to 62.7% in 2008, 61.7% excluding the non-cash stock based
compensation charge, from 61.4% in 2007. This increase is a result of the timing of when expected clients’
projects were expected to begin, while maintaining the appropriate staffing levels to properly service those
projects. Margins were also impacted by an increase in depreciation and amortization from 3.9% in 2007 to
4.2% in 2008. Office and general expenses decreased as a percentage of revenue from 16.6% in 2007 to
16.2% in 2008, due primarily from the relatively ﬁxed nature of these costs.

Corporate

Operating costs related to the Company’s Corporate operations decreased by $4.4 million to $18.0 million
in 2008, compared to $22.4 million in 2007. This decrease in Corporate expenses was a result of 2007 charges
of $1.9 million of costs associated with the Company’s separation agreement with its 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, the Company reduced Corporate salaries expense,
insurance costs, professional and consulting fees and travel and entertainment costs by an aggregate amount
equal to $2.5 million. These decreases were offset by increases in non-cash stock based compensation and
increased promotional expenses and other expenses of $0.4 million.

Other Income, Net

Other income decreased $3.2 million in 2008 to almost nil compared to $3.2 million in 2007. 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 2008 expense is comprised of losses on the sale of assets.

Foreign Exchange

The foreign exchange gain was $13.3 million for 2008 compared to the loss of $7.2 million recorded in

2007, and was due primarily to an unrealized gain due to a strengthening in the US dollar during 2008
compared to the Canadian dollar primarily on its US dollar denominated intercompany balances with its
Canadian subsidiaries. At December 31, 2008, the exchange rate was 1.22 Canadian dollars to one US dollar,
compared to 0.99 at the end of 2007 and 1.17 at the end of 2006.

Net Interest Expense

Net interest expense for 2008 was $13.3 million, an increase of $2.2 million over the $11.1 million net
interest expense incurred during 2007. Interest expense increased $2.2 million in 2008 due to higher average
outstanding debt in 2008, offset by lower interest rates. Interest income was $1.7 million for 2008, as
compared to $2.7 million in 2007. This decrease 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.

26

Income Taxes

Income tax expense in 2008 was $2.4 million compared to $6.1 million for 2007. In 2008, the
Company’s effective tax rate was substantially lower than the statutory tax rate due to a decrease in the
Company’s valuation allowance, a reversal of withholding taxes due to a change in the tax law, and
noncontrolling interest charges. These amounts were offset in part by non-deductible stock based
compensation. The Company’s effective tax rate was substantially higher than the statutory rate in 2007 due to
non-deductible stock-based compensation and an increase in the Company’s valuation allowance, offset in part
by noncontrolling 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
noncontrolling 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 2008

and 2007, income of $0.3 and $0.2 million was recorded, respectively. Included in 2007 is an impairment
charge of $0.2 million relating to the Company’s investment in Cliff Freeman.

Noncontrolling Interests

Noncontrolling interest expense was $8.1 million for 2008, down $12.4 million from the $20.5 million of

noncontrolling interest expense incurred during 2007. Such decrease was primarily due to the Company’s
fourth quarter 2007 step-up in ownership of CPB and KBSP, and a decrease in proﬁtability of subsidiaries
within the SCS operating segment, which are not 100% owned.

Discontinued Operations

The loss net of taxes from discontinued operations for 2008 was $10.0 million and is comprised of the

operating results of Mobium, a division of Colle & McVoy, LLC (‘‘Colle’’), Clifford/Bratskeir Public
Relations LLC (‘‘Bratskeir’’), The Ito Partnership (‘‘Ito’’) and Margeotes Fertitta Powell, LLC (‘‘MFP’’).
MFP was previously discontinued in 2007; the other entities were discontinued in 2008.

Effective December 3, 2008, Colle completed the sale of certain assets of its Mobium division. The

Company recorded a loss on sale of $1.2 million ($0.8 million net of taxes) and an operating loss of
$3.4 million ($2.3 million net of taxes).

In December 2008, the Company entered into negotiations to sell certain remaining assets in Bratskeir to

management. This transaction was completed in April 2009. As a result of this expected transaction, the
Company recorded an impairment charge of $1.9 million ($1.3 million net of taxes). In addition, Bratskeir
recorded an operating loss of $3.8 million ($2.5 million net of taxes) in 2008.

Effective June 30, 2008, the Company completed the sale of its interests in Ito. The sale resulted in a loss

of $0.8 million ($0.5 million net of taxes.)

As a result, the Company has classiﬁed the Mobium, Bratskeir and Ito operations as discontinued.

In 2007, the Company ceased operation of MFP. In 2008, the Company recorded a loss of $4.0 million
($2.6 million net of taxes) resulting primarily from the accrual of lease abandonment costs and severance at
MFP.

The aggregate loss from discontinued operations for 2007 was $8.2 million and is comprised of the

operating results of Mobium, Bratskeir, Ito, MFP and Banjo Strategic Entertainment, LLC (‘‘Banjo’’).

The 2007 loss from discontinued operations consists of net income of $0.3 million from Mobium, income

of $0.1 million from Ito and a net loss of $1.3 million from Bratskeir.

In addition, in March 2007, due to continued operating and client losses, the Company ceased MFP’s

current operations 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

27

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.

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.

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

Net Income

As a result of the foregoing, the net income recorded for 2008 was $0.1 million or income of $0.01 per

diluted share, compared to a net loss of $26.4 million or $1.05 per diluted share reported for 2007.

Liquidity and Capital Resources

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

Liquidity

2009

2008

2007

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

(In Thousands, Except for Long-Term
Debt to Shareholders’ Equity Ratio)
$ 41,331
$(12,091)
$ 57,446
$(50,186)
$ 23,510
1.42

$ 51,926
$(40,152)
$ 59,903
$(66,199)
$ 20,037
2.31

$ 10,410
$(22,364)
$ 4,132
$(60,914)
$ 60,929
1.29

As at December 31, 2009, 2008 and 2007, $14.1 million, $8.4 million and $3.5 million, respectively, of

the consolidated cash position was held by subsidiaries. Although this amount is available for the subsidiaries’
use, it 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 Credit
Facility by using available cash.

Working Capital

At December 31, 2009, the Company had a working capital deﬁcit of $40.1 million, compared to a
deﬁcit of $12.1 million at December 31, 2008. Working capital deﬁcit increased by $28.0 million primarily
due to an increase in deferred acquisition consideration of $25.1 million. Working capital, excluding deferred
acquisition consideration for 2009, is a deﬁcit of $9.5 million compared to a deﬁcit of $6.6 million in 2008.
The Company includes amounts due to noncontrolling interest holders, for their share of proﬁts, in accrued
and other liabilities. During 2009, 2008 and 2007, the Company made distributions to these noncontrolling
interest holders of $7.8 million, $11.6 million and $25.0 million, respectively. At December 31, 2009,
$4.1 million remains outstanding to be distributed to noncontrolling interest holders over the next
twelve months.

The Company expects that available borrowings under its Revolving Credit 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.

Operating Activities

Cash ﬂow provided by continuing operations for 2009 was $60.7 million. This was attributable primarily

to a loss from continuing operations of $17.5 million, plus non-cash stock based compensation of
$14.2 million, depreciation and amortization of $38.5 million, deferred income taxes of $7.0 million, an
increase in accounts payable, accruals and other liabilities of $8.7 million and an increase in advance billings
of $15.7 million. This was partially offset by increases in accounts receivable of $10.0 million and
expenditures billable to clients of $7.1 million. Discontinued operations used cash of $0.8 million.

28

Cash ﬂow provided by continuing operations for 2008 was $60.9 million. This was attributable primarily

to income from continuing operations of $10.1 million, plus non-cash stock based compensation of
$13.5 million, depreciation and amortization of $35.8 million, a decrease in accounts receivable and
expenditures billable to clients of $28.5 million and a decrease in prepaid expenses and other current assets of
$1.6 million. This was partially offset by foreign exchange gains of $14.6 million, deferred taxes of $1.0
million, changes in other non-current assets and liabilities of $1.3 million and decreases in accounts payable,
accruals and other current liabilities of $11.7 million. Discontinued operations used cash of $3.5 million.

Cash ﬂow provided by continuing operations for 2007 was $3.1 million. This was attributable primarily

to a loss from continuing operations of $18.2 million, plus non-cash stock based compensation of $9.1
million, depreciation and amortization of $31.3 million, foreign exchange losses of $7.3 million, deferred
income taxes of $5.3 million, a decrease in expenditures billable to clients of $8.9 million and a decrease in
other non-current assets and liabilities of $3.7 million. This was partially offset by decreases in accounts
payable, accruals and other current liabilities of $26.2 million and an increase in accounts receivable of $11.6
million. Discontinued operations generated cash of $1.0 million.

Investing Activities

Cash ﬂows used in investing activities were $66.2 million for 2009, compared with $50.2 million in

2008, and $60.9 million in 2007.

Cash used in acquisitions during 2009 was $60.0 million, of which $54.0 million related to earnout and

deferred acquisition payments, $3.4 million related to acquisition payments and $2.6 million related to
acquisition of additional equity interests pursuant to put/calls.

Expenditures for capital assets in 2009 were equal to $6.2 million. Of this amount, $3.6 million was

incurred by the Strategic Marketing Services segment, $2.4 million was incurred by the Performance
Marketing Services segment. These expenditures consisted primarily of computer equipment, leasehold
improvements, furniture and ﬁxtures, and $0.2 million related to the purchase of Corporate assets.

Cash used in acquisitions during 2008 was $35.8 million of which $19.1 million was paid in the

acquisition of equity interests in Crispin Porter & Bogusky, Texture Media, Clifford PR, Core Strategy Group,
DMG Inc., Skinny NY, Source Marketing, Allard Johnson, Zig and Accent Marketing. In addition, the
Company paid $16.7 million as contingent deferred payments from prior acquisitions.

The proceeds of $0.2 million from dispositions in 2008 primarily relate to proceeds received from the

sale of capital assets.

Expenditures for capital assets in 2008 were equal to $14.4 million. Of this amount, $9.2 million was

incurred by the Strategic Marketing Services segment and $5.1 million was incurred by the Performance
Marketing Services segment. These expenditures consisted primarily of computer equipment, leasehold
improvements, furniture and ﬁxtures, and $0.1 million related to the purchase of Corporate assets, primarily
software.

Cash used in acquisitions during 2007 was equal to $47.4 million. This amount included cash paid in the
acquisition of equity interests in Crispin Porter & Bogusky, kirshenbaum bond + partners, HL Group Partners
and Redscout.

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 equal to $19.5 million. Of this amount, $10.3 million was

incurred by the Strategic Marketing Services segment, $9.0 million was incurred by the Performance
Marketing Services 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.

Proﬁt distributions received from affiliates amounted to $0.2 million in 2009, $0.4 million for 2008, and

nil for 2007.

29

Discontinued operations used cash of $0.5 million and $0.9 million in 2008 and 2007, respectively,
relating to expenditures for capital assets, and in 2008 and 2007 such payments also related to acquisitions
and earnout payments.

Financing Activities

During the year ended December 31, 2009, cash ﬂows provided by ﬁnancing activities amounted to
$20.0 million and primarily consisted of $225 million of proceeds from the 11% senior notes issuance, offset
by the original issue discount of $10.5 million and $10.1 million of deferred ﬁnancing costs relating to the
senior notes and new revolving credit facility. The proceeds were offset by repayments of $130.0 million term
loans, $42.5 million convertible notes and $9.7 million relating to the old credit facility.

During the year ended December 31, 2008, cash ﬂows provided by ﬁnancing activities amounted to

$23.5 million, and primarily consisted of $26.3 million of proceeds from borrowings under the Company’s
previous Financing Agreement. These proceeds were partially offset by $1.9 million of net repayments of
long-term debt and $0.9 million relating to the repurchase of treasury shares for income tax withholding
requirements.

During the year ended December 31, 2007, cash ﬂows provided by ﬁnancing activities amounted to
$60.9 million, and primarily consisted of $113.4 million of proceeds from the current 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 previous 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. The Company also repurchased treasury shares of $0.8 million for income tax withholding
requirements. Discontinued operations used cash of $0.1 million for payments under capital leases.

Total Debt
11% Senior Notes Due 2016

On October 23, 2009, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold
$225 million aggregate principal amount of 11% Senior Notes due 2016 (the ‘‘11% Notes’’). The 11% Notes
bear interest at a rate of 11% per annum, accruing from October 23, 2009. Interest is payable semiannually in
arrears in cash on May 1 and November 1 of each year, beginning on May 1, 2010. The 11% Notes will
mature on November 1, 2016, unless earlier redeemed or repurchased. The Company received net proceeds
before expenses of $209 million which included an original issue discount of approximately 4.7% or
$10.5 millions and underwriter fees of $5.5 million. The 11% Notes were sold in a private placement in
reliance on exemptions from registration under the Securities Act of 1933, as amended. The Company used
the net proceeds of this offering to repay the outstanding balance and terminate its prior Fortress Financing
Agreement consisting of repayments of $130 million term loans, a $70 million delayed draw term loan, and
$9.7 outstanding on the $55 million revolving credit facility. The Company also used the net proceeds to
redeem its outstanding 8% C$45 million convertible debentures.

The Company may, at its option, redeem the 11% Notes in whole at any time or in part from time to
time, on and after November 1, 2013 at a redemption price of 105.5% of the principal amount thereof. If
redeemed during the twelve-month period beginning on November 1, 2014, the Company must pay a
redemption price of 102.75% of the principal amount thereof. If redeemed during the twelve-month period
beginning on November 1, 2015, the Company must pay a redemption price of 100% of the principal amount
thereof. Prior to November 1, 2013, the Company may, at its option, redeem some or all of the 11% Notes at
a price equal to 100% of the principal amount of the Notes plus a ‘‘make whole’’ premium and accrued and
unpaid interest. The Company may also redeem, at its option, prior to November 1, 2012, up to 35% of the
11% Notes with the proceeds from one or more equity offerings at a redemption price of 111% of the
principal amount thereof. If the Company experiences certain kinds of changes of control (as deﬁned in the
Indenture), holders of the 11% Notes may require the Company to repurchase any 11% Notes held by them at
a price equal to 101% of the principal amount of the 11% Notes plus accrued and unpaid interest. The
indenture governing the 11% Notes contains various covenants restricting our operations in certain respects.
See ‘‘Risk Factors.’’

30

New Credit Agreement

On October 23, 2009, the Company and its subsidiaries entered into a new $75 million ﬁve year senior

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

The WF Credit Agreement is guaranteed by all of the Company’s present and future subsidiaries, other

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

Debt as of December 31, 2009 was $217.9 million, which includes $10.3 million for an Original Issue

Discount. Exclusive of the Original Issue Discount, 2009 debt was $228.2, an increase of $46.7 million
compared with the $181.5 million outstanding at December 31, 2008, primarily as a result of proceeds from
the bond issuance to fund seasonal working capital requirements, earnout obligations, and acquisitions. At
December 31, 2009, $70.3 million is available under the Credit Facility plus cash of $37.9 million which is
available to fund working capital requirements.

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

be required to seek other sources of liquidity. If the Company were unable to ﬁnd these sources of liquidity,
for example through an equity offering or access to the capital markets, the Company’s ability to fund its
working capital needs and any contingent obligations with respect to put options would be adversely affected.

Pursuant to the Credit Agreement, the Company must comply with certain ﬁnancial covenants including,

among other things, covenants for (i) total debt ratio, (ii) ﬁxed charges ratio, and (iii) minimum earnings
before interest, taxes and depreciation and amortization, in each case as such term is speciﬁcally deﬁned in the
Credit Agreement. For the period ended December 31, 2009, the Company’s calculation of each of these
covenants, and the speciﬁc requirements under the Credit Agreement, respectively, were as follows:

Total Senior Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum per covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Charges Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum per covenant
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum earnings before interest, taxes, depreciation and amortization . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum per covenant

December 31,
2009

(0.47)
2.0
3.86
1.25
$70.1 million
$50.0 million

31

These ratios are not based on generally accepted accounting principles and are not presented as

alternative measures of operating performance or liquidity. They are presented here to demonstrate compliance
with the covenants in the Company’s Credit Facility, as non-compliance with such covenants could have a
material adverse effect on the Company.

Disclosure of Contractual Obligations and Other Commercial Commitments

The following table provides a payment schedule of present and future obligations. Management
anticipates that the obligations outstanding at December 31, 2009 will be repaid with new ﬁnancing, equity
offerings and/or cash ﬂow from operations (in thousands):

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

Total
$226,800
1,437
73,311
169,276
30,645
1,500
$502,969

Payments Due by Period

Less than
1 Year

$

600
856
15,459
24,834
20,478
1,500
$63,727

1 − 3 Years
$ 1,200
558
25,660
49,567
694
—
$77,679

3 − 5 Years
$ —
21
16,668
49,500
2,301
—
$68,490

After
5 Years
$225,000
2
15,524
45,375
7,172
—
$293,073

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

December 31, 2009:

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

Total
$ —
4,696

Payments Due by Period

Less than
1 Year
$—
—

1 − 3 Years
$ —
4,696

3 − 5 Years
$—
—

After
5 Years
$—
—

Commitments . . . . . . . . . . . . . .

$4,696

$—

$4,696

$—

$—

For further detail on MDC’s long-term debt principal and interest payments, see Note 12 and Note 18 of
the Company’s consolidated ﬁnancial statements included in this Form 10-K. See also ‘‘Deferred Acquisition
and Contingent Consideration (Earnouts)’’ and ‘‘Off-Balance Sheet Commitments’’ below.

Capital Resources

At December 31, 2009, the Company had only utilized the Credit Agreement in the form of letters of
credit of $4.7 million. Cash and undrawn available bank credit facilities to support the Company’s future cash
requirements at December 31, 2009 was approximately $108.2 million.

The Company expects to incur approximately $8 million of capital expenditures in 2010. 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 Credit Agreement. Management
believes that the Company’s cash ﬂow from operations and funds available under the Credit 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.

Deferred Acquisition and Contingent Consideration (Earnouts)

Acquisitions of businesses by the Company may include commitments to contingent deferred purchase
consideration payable to the seller. These contingent purchase obligations are generally payable within a one
to ﬁve-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

32

consideration is recorded as an obligation of the Company when the contingency is resolved and the amount
is reasonably determinable for acquisitions prior to January 1, 2009. Based on various assumptions, all
deferred consideration estimates based on future operating results of the relevant entities are recorded on the
Company’s balance sheet at December 31, 2009. The actual amount that the Company pays in connection
with the deferred and contingent obligations may be materially different from this estimate. The Accounting
Standards Codiﬁcation’s revised guidance on business combinations now requires that contingent purchase
obligations are recorded as a liability and included in the original acquisition accounting. At December 31,
2009, there was $30.6 million of deferred consideration included in the Company’s balance sheet.

Other-Balance Sheet Commitments

Put Rights of Subsidiaries’ Noncontrolling Shareholders

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

The amount payable by the Company in the event such put option rights are exercised is dependent on

various valuation formulas and on future events, such as the average earnings of the relevant subsidiary
through that date of exercise, the growth rate of the earnings of the relevant subsidiary during that period,
and, in some cases, the currency exchange rate at the date of payment.

Management estimates, assuming that the subsidiaries owned by the Company at December 31, 2009,
perform over the relevant future periods at their 2009 earnings levels, that these rights, if all exercised, could
require the Company, in future periods, to pay an aggregate amount of approximately $29.5 million to the
owners of such rights to acquire such ownership interests in the relevant subsidiaries. Of this amount, the
Company is entitled, at its option, to fund approximately $2.8 million by the issuance of the Company’s
Class A subordinate voting shares. In addition, the Company is obligated under similar put option rights to
pay an aggregate amount of approximately $5.4 million only upon termination of such owner’s employment
with the applicable subsidiary. The Company intends to ﬁnance the cash portion of these contingent payment
obligations using available cash from operations, borrowings under its Credit Facility (and reﬁnancings
thereof) and, if necessary, through incurrence of additional debt. The ultimate amount payable and the
incremental operating income in the future relating to these transactions will vary because it is dependent on
the future results of operations of the subject businesses and the timing of when these rights are exercised.
Approximately $8.2 million of the estimated $29.5 million that the Company would be required to pay
subsidiaries noncontrolling shareholders’ upon the exercise of outstanding ‘‘put’’ rights, relates to rights
exercisable within the next twelve months. Upon the settlement of the total amount of such put options, the
Company estimates that it would receive incremental operating income before depreciation and amortization
of $5.1 million.

33

The following table summarizes the potential timing of the consideration and incremental operating

income before depreciation and amortization based on assumptions as described above.

Consideration(4)

2010

2011

2012

2013

2014 &
Thereafter

Total

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

Operating income before

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

Cumulative operating income
before depreciation and
amortization(3). . . . . . . . . . . . .

($ Millions)

$7.9
0.3
$8.2

$1.9
0.7
$2.6

$9.4
0.5
$9.9

$3.2
0.8
$4.0

$4.3
0.5
$4.8

$26.7
2.8
$29.5(1)

$1.7

$0.7

$1.6

$0.6

$0.5

$ 5.1

$1.7

$2.4

$4.0

$4.6

5.1

(5)

(1) This amount in addition to put options only exercisable upon termination of $5.4 million have been

recognized in Redeemable Noncontrolling Interests on the Company balance sheet in conjunction with
the adoption of a new accounting pronouncement.

(2) This ﬁnancial measure is presented because it is the basis of the calculation used in the underlying
agreements relating to the put rights and is based on actual 2009 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
duration and may not be explicitly deﬁned. The Company has also retained certain liabilities for events
occurring prior to sale, relating to tax, environmental, litigation and other matters. Generally, the Company has
indemniﬁed the purchasers in the event that a third party asserts a claim against the purchaser that relates to a
liability retained by the Company. These types of indemniﬁcation guarantees typically extend for several
years.

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
prior services agreement with the Company was scheduled to expire on October 31, 2007, subject to two-year

34

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. In addition, during both 2008 and 2009
and in accordance with this new Services Agreement, Mr. Nadal repaid an additional $0.1 million of loans due
to the Company.

At December 31, 2009, outstanding loans due from Nadal Management to the Company, with no stated

maturity date, amounted to C$6.2 million ($5.9 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
Company’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 2009, 2008 and 2007, Trapeze provided services to certain partner ﬁrms of MDC, and the total
amount of such services provided was $0.1 million, $0.4 million, and $0.4 million, respectively. In addition, in
2009 and 2008, an MDC Partner ﬁrm provided services to Trapeze in exchange for fees equal to $0.3 million
and $0.1 million, respectfully.

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
including goodwill, intangible assets, Redeemable Noncontrolling Interests, and deferred acquisition
consideration, valuation allowances for receivables and deferred income tax assets and stock based
compensation. 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 as required by the Revenue Recognition topics of the
FASB Accounting Standards Codiﬁcation, and accordingly, revenue is generally recognized when 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.

35

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

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

customer contract. Commission revenue is earned and recognized upon the placement of advertisements in
various media when the Company has no further performance obligations. Fixed fees for services are
recognized upon completion of the earnings process and acceptance by the client. Per diem fees are
recognized upon the performance of the Company’s services. In addition, for certain service transactions,
which require delivery of a number of service acts, the Company uses the Proportional Performance model,
which generally results in revenue being recognized based on the straight-line method due to the acts being
non-similar and there being insufficient evidence of fair value for each service provided.

Fees billed to clients in excess of fees recognized as revenue are classiﬁed as advance billings.

A small portion of the Company’s contractual arrangements with clients includes performance incentive

provisions, which allow the Company to earn additional revenues as a result of its performance relative to
both quantitative and qualitative goals. The Company recognizes the incentive portion of revenue under these
arrangements when speciﬁc quantitative goals are achieved, or when the Company’s clients determine
performance against qualitative goals has been achieved. In all circumstances, revenue is only recognized
when collection is reasonably assured.

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

Acquisitions, Goodwill and Other Intangibles. A fair value approach is used in testing goodwill for

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

The Company has historically made and expects to continue to make selective acquisitions of marketing
communications businesses. In making acquisitions, the price paid is determined by various factors, including
service offerings, competitive position, reputation and geographic coverage, as well as prior experience and
judgment. Due to the nature of advertising, marketing and corporate communications services companies; the
companies acquired frequently have signiﬁcant identiﬁable intangible assets, which primarily consist of
customer relationships. The Company has determined that certain intangibles (trademarks) have an indeﬁnite
life, as there are no legal, regulatory, contractual, or economic factors that limit the useful life.

Business Combinations. Valuation of acquired companies are based on a number of factors, including
specialized know-how, reputation, competitive position and service offerings. Our acquisition strategy has been
to focus on acquiring the expertise of an assembled workforce in order to continue building upon the core
capabilities of our various strategic business platforms to better serve our clients. Consistent with our
acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed
in 2009 include an initial payment at the time of closing and provide for future additional contingent purchase

36

price payments. Contingent payments for these transactions, as well as certain acquisitions completed in prior
years, are derived using the performance of the acquired entity and are based on pre-determined formulas.
Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are accrued when
the contingency is resolved and payment is certain. Contingent purchase price obligations related to
acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated value and are
remeasured at each reporting period. Changes in estimated value are recorded in results of operations. There
were no adjustments for remeasurement for the year ended December 31, 2009. In addition, certain
acquisitions also include put/call obligations for additional equity ownership interests. The estimated value of
these interests are recorded as Redeemable Noncontrolling Interests. As of January 1, 2009, the Company
expenses acquisition related costs in accordance with the Accounting Standard’s Codiﬁcation’s new guidance
on acquisition accounting. The year ended December 31, 2009, included $416 of acquisition related costs.

For each of our acquisitions, we undertake a detailed review to identify other intangible assets and a

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

Allowance for Doubtful Accounts. Trade receivables are stated less allowance for doubtful accounts. The

allowance represents estimated uncollectible receivables usually due to customers’ potential insolvency. The
allowance includes amounts for certain customers where risk of default has been speciﬁcally identiﬁed.

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

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

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

The Company treats beneﬁts paid by shareholders to employees as a stock based compensation charge

with a corresponding credit to additional paid-in capital.

New Accounting Pronouncements

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

37

In January 2010, the FASB issued Fair Value Measurements and Disclosures — Improving Disclosures

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

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

In August 2009, the FASB issued an Accounting Standards Update, Fair Value Measurements and
Disclosures — Measuring Liabilities at Fair Value. The fair value measurement of a liability assumes transfer
to a market participant on the measurement date, not a settlement of the liability with the counterparty. This
Guidance describes various valuation methods that can be applied to estimating the fair values of liabilities,
requires the use of observable inputs and minimizes the use of unobservable valuation inputs. This is effective
for the fourth quarter of 2009. The adoption did not have a material impact on our ﬁnancial position, results
of operations or cash ﬂows.

In June 2009, the FASB introduced the FASB Accounting Standards Codiﬁcation and issued the revised

guidance on Hierarchy of Generally Accepted Accounting Principles, which is effective for the Company
July 1, 2009. This standard does not alter current U.S. GAAP, but rather integrates existing accounting
standards with other authoritative guidance. Under this standard there will be a single source of authoritative
U.S. GAAP for nongovernmental entities and will supersede all other previously issued non-SEC accounting
and reporting guidance.

In May 2009, the FASB issued revised guidance on Subsequent Events, which is effective for the
Company June 30, 2009. These standards provide guidance for disclosing events that occur after the balance
sheet date, but before ﬁnancial statements are issued or available to be issued. The adoption of this standard
did not have a signiﬁcant impact on our Consolidated Financial Statements.

In December 2007, FASB issued revised guidance on Business Combinations. These revised standards

retain some fundamental concepts of the current standard, including the acquisition method of accounting
(known as the ‘‘purchase method’’) for all business combinations but revised guidance broadens the
deﬁnitions of both businesses and business combinations, resulting in the acquisition method applying to more
events and transactions. This guidance also requires the acquirer to recognize the identiﬁable assets and
liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values. Both
acquisition-related costs and restructuring costs are required to be recognized separately 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. This revised guidance is to be
applied prospectively for ﬁnancial statements issued for ﬁscal years beginning on or after December 15, 2008.
Early application is prohibited. The adoption of these revised standards did not have a material effect on our
ﬁnancial statements.

In December 2007, FASB issued guidance that now requires the classiﬁcation of noncontrolling

(noncontrolling) 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. The reclassiﬁcations must be applied prospectively for ﬁnancial
statements issued for ﬁscal years beginning on or after December 15, 2008 and interim periods within those

38

years. However, this statement requires companies to apply the presentation and disclosure requirements
retrospectively to comparative ﬁnancial statements. Early application was prohibited. The guidance was
expanded in 2008 to require the recording of put options as a liability and a reduction of equity. The adoption
of these new standards has resulted in the Company recording the estimated redemption amount of its
outstanding put options as a reduction of Additional Paid in Capital and an increase in Redeemable
Noncontrolling Interests of $31,653 as of January 1, 2009. As of December 31, 2008, the Company has
reclassiﬁed $21,751 of noncontrolling interest to Redeemable Noncontrolling Interests, representing
Noncontrolling Interests which could be purchased by the Company pursuant to the exercise of an existing Put
option. In addition, as of December 31, 2008, a portion of noncontrolling interest, which is not subject to put
options, has been reclassiﬁed as part of Equity-Noncontrolling Interest. Changes in the estimated redemption
amounts of the put options are adjusted at each reporting period with a corresponding adjustment to Equity.
For the year ended December 31, 2008 and 2007, the Company reclassiﬁed net income attributable to the
noncontrolling interests below net income (loss), as a result net income for the period was increased by
$8,136 and the net loss was reduced by $20,517, respectively. These adjustments will not impact the
calculation of earnings per share. At December 31, 2009, the Company increased its estimated redemption
amounts by $59.

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

In November 2008, the EITF issued guidance on Equity Method Investment Accounting Considerations,

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

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

In May 2008, the FASB issued standards relating to the Accounting for Convertible Debt Instruments
That May Be Settled In Cash Upon Conversion (Including Partial Cash Settlement), which is now included in
the Accounting Standards Codiﬁcation Topic Debt with Convertible and Other Options. The guidance
addresses the accounting for convertible debt instruments that, by their stated terms, may be settled in cash
upon conversion including partial cash settlement. This guidance is effective for ﬁscal years beginning after
December 15, 2008 and interim periods within those years. The adoption of this guidance did not have a
material effect on our ﬁnancial statements.

In June 2009, the FASB issued revised guidance on the topic of Accounting for Variable Interest Entities,

which we will adopt effective January 1, 2010. This guidance revises factors that should be considered by a
reporting entity when determining whether an entity that is insufficiently capitalized or is not controlled
through voting (or similar rights) should be consolidated and also includes revised ﬁnancial statement
disclosures regarding the reporting entity’s involvement and risk exposure. We believe that this will not have a
material impact on our ﬁnancial statements.

39

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, 2009, the Company’s debt obligations consisted of amounts
outstanding under its Credit Facility. 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 that there is zero balance on our revolving credit facility, as of December 31, 2009, a 1.0%
increase or decrease in the weighted average interest rate, which was 6.3% at December 31, 2009, would not
have an interest expense impact.

Foreign Exchange: The Company conducts business in ﬁve currencies, the US dollar, the Canadian
dollar, Jamaican dollar, the British Pound and the Swedish Krona. Our results of operations are subject to risk
from the translation to the US dollar of the revenue and expenses of our non-US operations. The effects of
currency exchange rate ﬂuctuations on the translation of our results of operations are discussed in the
‘‘Management’s Discussion and Analysis of Financial Condition and Result of Operations’’ 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. Intercompany debt which is not intended to be repaid is included
in cumulative translation adjustments. Translation of intercompany debt, which is not intended to be repaid, is
included in cumulative translation adjustments. Translation of current intercompany balances are included in
net earnings. The Company generally does not enter into foreign currency forward exchange contracts or other
derivative ﬁnancial instruments to hedge the effects of adverse ﬂuctuations in foreign currency exchange rates.

The Company is exposed to foreign currency ﬂuctuations relating to its intercompany balances between
the US and Canada. For every one cent change in the foreign exchange rate between the US and Canada, the
Company will incur an approximate $0.3 million impact to its ﬁnancial statements.

40

Item 8. Financial Statements and Supplementary Data

MDC PARTNERS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements:

Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Operations for the Three Years Ended December 31, 2009. . . . . . . . . .

Consolidated Balance Sheets as of December 31, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2009 . . . . . . . . .

Consolidated Statements of Shareholders’ Equity for the Three Years Ended December 31, 2009 . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Statement Schedules:

Schedule II — Valuation and Qualifying Accounts for the Three Years Ended December 31, 2009 . .

Page

42

43

44

45

47

49

96

41

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

of December 31, 2009 and 2008 and the related consolidated statements of operations, shareholders’ equity,
and cash ﬂows for each of the three years in the period ended December 31, 2009. 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 the standards of the Public Company Accounting Oversight

Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance 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, 2009 and 2008, and the
results of its operations and its cash ﬂows for each of the three years in the period ended December 31, 2009,
in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 20 to the Consolidated Financial Statements, the Company changed the manner in

which it accounts for noncontrolling interests and business combinations effective January 1, 2009.

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, 2009, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
March 10, 2010 expressed an unqualiﬁed opinion thereon.

/s/ BDO Seidman, LLP

New York, New York
March 10, 2010

42

MDC PARTNERS INC. AND SUBSIDIARIES

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

Revenue:

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

545,924

$

584,648

$

533,883

Years Ended December 31,
2008

2007

2009

Operating Expenses:

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

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

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

Income (loss) from continuing operations before income taxes and
equity in affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before equity in affiliates
Equity in earnings (loss) of non-consolidated affiliates . . . . . . . . .
Income (loss) from continuing operations. . . . . . . . . . . . . . . . . .
Loss from discontinued operations attributable to MDC Partners

Inc., net of taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the non-controlling interests . . . . . . . .
Net Income (loss) attributable to MDC Partners Inc. . . . . . . . . . . $
Income (loss) Per Common Share:
Basic

Income (loss) from continuing operations attributable to MDC

354,312
136,897
34,471
525,680
20,244

(91)
(1,947)
(22,098)
344
(23,792)

(3,548)
8,536
(12,084)
(8)
(12,092)

392,145
137,755
34,404
564,304
20,344

(14)
13,257
(14,998)
1,743
(12)

20,332
2,397
17,935
349
18,284

343,297
138,234
28,975
510,506
23,377

3,165
(7,192)
(13,801)
2,702
(15,126)

8,251
6,081
2,170
165
2,335

(876)
(12,968)
(5,356)
(18,324) $

(10,015)
8,269
(8,136)
133

$

(8,173)
(5,838)
(20,517)
(26,355)

Partners Inc. common shareholders. . . . . . . . . . . . . . . . . . . $

(0.64) $

0.38

$

(0.73)

Discontinued operations attributable to MDC Partners Inc.

common shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net Income (loss) attributable to MDC Partners Inc. common

(0.03)

(0.37)

(0.32)

shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(0.67) $

0.01

$

(1.05)

Income (loss) Per Common Share:
Diluted

Income (loss) from continuing operations attributable to MDC

Partners Inc. common shareholders. . . . . . . . . . . . . . . . . . . $

(0.64) $

0.37

$

(0.73)

Discontinued operations attributable to MDC Partners Inc.

common shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income (loss) attributable to MDC Partners Inc. common

(0.03)

(0.36)

(0.32)

shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(0.67) $

0.01

$

(1.05)

Weighted Average Number of Common Shares Outstanding:

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

27,396,463
27,396,463

26,765,839
27,430,162

25,000,582
25,000,582

Non cash stock based compensation expense is included in the following line items above:
Cost of services sold . . . . . . . . . . . . . . . . . . . . . . . .
Office and general expenses. . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,919
10,525
$15,444

$ 7,494
6,943
$14,437

$ 4,245
5,972
$10,217

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

43

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 $2,034 and

$2,179 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures billable to clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance billings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt
Deferred acquisition consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments, Contingencies and Guarantees (Note 18)
Shareholders’ Equity:

Preferred shares, unlimited authorized, none issued. . . . . . . . . . . . . . . . . . .
Class A Shares, no par value, unlimited authorized, 27,566,815 and

December 31,

2009

2008

$ 51,926

$ 41,331

118,211
24,003
8,105
202,245
35,375
1,547
301,632
34,715
12,542
16,463
$ 604,519

$ 77,450
66,967
65,879
1,456
30,645
242,397
216,490
—
—
8,707
9,051
476,645
33,728

106,954
16,949
10,510
175,744
44,021
1,593
238,214
46,852
11,926
10,889
$ 529,239

$ 75,360
55,338
50,053
1,546
5,538
187,835
133,305
9,701
36,946
6,949
4,700
379,436
21,751

—

—

26,987,017 shares issued and outstanding in 2009 and 2008, respectively . .

218,532

213,533

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

outstanding in 2009 and 2008, respectively, convertible into one Class A
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deﬁcit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock subscription receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
MDC Partners Inc. Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities, Redeemable Noncontrolling Interests and Equity . . . . . . . . . .

1
9,174
(131,160)
(341)
(5,880)
90,326
3,820
94,146
$ 604,519

1
33,470
(112,836)
(354)
(6,633)
127,181
871
128,052
$ 529,239

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

44

MDC PARTNERS INC. AND SUBSIDIARIES

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

Years Ended December 31,
2008

2007

2009

Cash ﬂows from operating activities:

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the noncontrolling interests . . . . . . . . . . . . . . .
Net income (loss) attributable to MDC Partners Inc.. . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile loss from continuing operations to cash provided by

operating activities:
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization primarily intangibles . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred ﬁnance charges and debt discount . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on disposition of assets. . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (earnings) of non consolidated affiliates. . . . . . . . . . . . . . . . . . . .
Other non-current assets and liabilities . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase/decrease in operating assets and liabilities

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . .
Proﬁt distributions from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows from continuing investing activities . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows from ﬁnancing activities:

Proceeds from issuance of 11% Senior Note, net of debt discount . . . . . . .
Decrease in bank indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of revolving credit facility . . . . . . . . . . . . . . . . . . . . . . .
Proceeds (repayment of) term loans . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from revolving credit facility . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred ﬁnancing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock subscription receivable . . . . . . . . . . . . . . . . . . . .
Issuance of share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash ﬂows from continuing ﬁnancing activities . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by ﬁnancing activities . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . .
Increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . .

(12,968)
(5,356)
$ (18,324)
(876)
(17,448)

8,269
(8,136)
$
133
(10,015)
10,148

(5,838)
(20,517)
$(26,355)
(8,173)
(18,182)

14,186
16,278
18,193
4,041
6,972
53
8
3,122
6,339

(9,953)
(7,054)
1,555
8,697
15,719
60,708
(805)
59,903

(6,212)
20
(60,042)
198
(163)
(66,199)
—
(66,199)

214,506
—
(9,701)
(130,000)
(42,470)
—
—
(2,000)
(10,085)
13
370
(596)
20,037
—
20,037
(3,146)
10,595
41,331
$ 51,926

13,543
16,759
17,645
1,348
(960)
142
(349)
(1,284)
(14,567)

26,316
2,154
1,637
(11,745)
158
60,945
(3,499)
57,446

(14,395)
242
(35,841)
440
(85)
(49,639)
(547)
(50,186)

—
—
—
18,500
—
7,800
—
(1,884)
—
—
—
(906)
23,510
—
23,510
151
30,921
10,410
$ 41,331

9,088
14,478
14,497
2,330
5,253
(1,709)
(165)
3,739
7,278

(11,559)
8,868
(2,339)
(26,202)
(2,251)
3,124
1,008
4,132

(19,453)
8,270
(47,398)
—
(1,464)
(60,045)
(869)
(60,914)

—
(4,910)
(45,000)
111,500
—
1,901
3,250
(5,843)
(3,946)
286
4,607
(769)
61,076
(147)
60,929
(328)
3,819
6,591
$ 10,410

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

45

MDC PARTNERS INC. AND SUBSIDIARIES

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

Years Ended December 31,
2008

2007

2009

Supplemental disclosures:

Cash paid to noncontrolling partners . . . . . . . . . . . . . . . . . . . . . . . . .
Cash income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash transactions:
Share capital issued on acquisitions . . . . . . . . . . . . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note receivable exchanged for shares of subsidiary . . . . . . . . . . . . . . . .
Deferred acquisition consideration payable . . . . . . . . . . . . . . . . . . . . .

$ 7,784
$
384
$14,243

$ —
$
340
$ —
$30,645

$11,649
$ 1,037
$13,196

$ 1,889
$
349
$ 1,872
$ 5,538

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

$10,302
$ 1,756
$
125
$ 2,511

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

46

MDC PARTNERS INC. AND SUBSIDIARIES

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

2009

2008

2007

Number of
Shares

Amount

Number of
Shares

Amount

Number of
Shares

Amount

Class A Shares
Balance at beginning of year . . 26,987,017
Stock appreciation rights

$213,533

26,235,932

$207,958

23,923,522

$184,698

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

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

Shares issued as deferred

acquisition consideration . . .

Shares issued on privatization

68,261
47,625
(156,481)

202
370
(596)

—
—
(124,492)

—
—
(1,009)

350,264
592,000
(93,848)

4,948
4,993
(770)

—

—

—

—

306,922

1,889

988,394

10,088

27,545

214

108,097

856

—
of Maxxcom . . . . . . . . . . .
Issuance of restricted stock . . .
620,393
Balance at end of year . . . . . . 27,566,815

—
5,023
$218,532

—
541,110
26,987,017

—
4,481
$213,533

3
367,500
26,235,932

—
3,145
$207,958

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. . . .
Reclassiﬁcation related to

redeemable noncontrolling
interests (Note 2) . . . . . . . .

Changes in redemption value

of redeemable
noncontrolling interests . . . .

Acquisition of noncontrolling

interests . . . . . . . . . . . . . .

Acquisition contingency

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

Acquisition purchase price

consideration . . . . . . . . . . .
Share options exercised . . . . .
Issuance of restricted stock . . .
Share appreciation rights

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

2,503

—
2,503

$

$

$

1

—
1

—

—

—
—

$ 33,470
13,720

(31,653)

(58)

(923)

—

—
—
(5,023)

(203)
(156)
9,174

$

2,503

—
2,503

$

$

$

1

—
1

214

—

(214)
—

2,502

1
2,503

$

$

$

$

1

—
1

—

214

—
214

$ 26,743
10,129

$ 26,216
9,088

—

—

—

—

1,001
—
(4,481)

—
78
$ 33,470

—

—

—

(82)

—
(364)
(3,145)

(4,970)
—
$ 26,743

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

47

MDC PARTNERS INC. AND SUBSIDIARIES

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

2009

Amount

2008

Amount

2007

Amount

Accumulated Deﬁcit
Balance at beginning of year . .
Income (Loss) for the year . . .
Balance at end of year . . . . . .

Stock Subscription

Receivable

Balance at beginning of year . .
Receipts . . . . . . . . . . . . . . . .
Balance at end of year . . . . . .

Accumulated Other

Comprehensive Income
(Loss)

Balance at beginning of year . .
Foreign currency translation

adjustments . . . . . . . . . . . .
Balance at end of year . . . . . .

MDC Partners Inc.

$(112,836)
(18,324)
$(131,160)

$

$

(354)
13
(341)

$

(6,633)

753
(5,880)

$(112,969)
133
$(112,836)

$

$

(357)
3
(354)

6,343

(12,976)
(6,633)

$ (86,614)
(26,355)
$(112,969)

$

$

(643)
286
(357)

$

756

5,587
6,343

Shareholders’ Equity . . . . .

$ 90,326

$ 127,181

$ 127,933

Noncontrolling interests
Balance at beginning of year,

restated (Note 2) . . . . . . . .
Acquisitions . . . . . . . . . . . . .
Disposition of noncontrolling

interests . . . . . . . . . . . . . .
Foreign currency translation . .
Balance at end of year . . . . . .
Total Equity. . . . . . . . . . . . .

$

871
3,039

(106)
16
$
3,820
$ 94,146

$

731
178

—
(38)
$
871
$ 128,052

$

352
358

—
21
$
731
$ 128,664

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

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)

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’’).

On July 1, 2009, the Company adopted the Financial Accounting Standards Board (‘‘FASB’’) Accounting

Standards Codiﬁcation. This does not alter current U.S. GAAP, but rather integrated existing accounting
standards with other authoritative guidance. It provides a single source of authoritative U.S. GAAP for non
governmental entities and supersedes all other previously issued non SEC accounting and reporting guidance.
The adoption did not have any effect on our ﬁnancial statements. All prior references to U.S. GAAP have
been revised to conform with the Accounting Standards Codiﬁcation.

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, Europe, and in the United Kingdom. See Note 16, ‘‘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. Intercompany balances and
transactions have been eliminated on consolidation.

Use of Estimates. The preparation of ﬁnancial statements in conformity with US GAAP requires

management to make estimates and assumptions. These estimates and assumptions affect the reported amounts
of assets and liabilities including goodwill, intangible assets, valuation allowances for receivables and deferred
tax assets and the reported amounts of revenue and expenses during the reporting period. The estimates are
evaluated on an ongoing basis and estimates are based on historical experience, current conditions and various
other assumptions believed to be reasonable under the circumstances. Actual results could differ from those
estimates.

Fair Value of Financial Instruments. The Company adopted Financial Accounting Standards related to

the fair value measurements of nonﬁnancial assets and nonﬁnancial liabilities effective January 1, 2009. These
standards deﬁne fair value, establish a framework for measuring fair value in GAAP, and expand disclosures
about fair value measurements. These standards will apply whenever another standard requires (or permits)
assets or liabilities to be measured at fair value. The standard does not expand the use of fair value to any
new circumstances. The effect of adopting these standards did not have a material impact on the Company’s
ﬁnancial position or results of operations.

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, no client accounted for more than 10% of the Company’s consolidated
accounts receivable as of December 31, 2009. At December 31, 2008, one client accounted for approximately
17% of the Company’s consolidated accounts receivable. This client also accounted for 16%, 19% and 17% of
revenue for the years ended December 31, 2009, 2008 and 2007, respectively.

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)

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, 2009 and 2008, is $67 and $51, respectively of cash restricted as
to withdrawal pursuant to a collateral agreement and a customer’s contractual requirement.

Allowance for Doubtful Accounts. Trade receivables 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.

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
ﬁxtures 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 the FASB Accounting Standards Codiﬁcation

topic, Accounting for the Impairment or Disposal of Long-lived Assets, a long-lived asset or asset group is
tested for recoverability 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 noncontrolling 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 venture. The Company’s management periodically evaluates these investments to determine if there has
been a decline in value that is other than temporary.

Cost Method Investments. The Company’s cost-based investments at December 31, 2009 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, 2009 and 2008 was
$3,888 and $3,387, 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

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)

a decline in fair value below book value is other than temporary, including, among others, the ﬁnancial
condition and prospects of the investee, as well as the Company’s investment intent. In addition, the Company
has a 7.5% interest in the entity which purchased the Secured Products International Group. See Note 10.

Goodwill and Indeﬁnite Lived Intangible.

In accordance with the FASB Accounting Standards

Codiﬁcation topic, Goodwill and Other Intangible Assets, 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 recognized to the extent that the carrying amount exceeds the asset’s fair
value. For goodwill, this determination 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 multiples 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 the FASB Accounting Standards Codiﬁcation topic, Business Combinations. The residual fair
value after this allocation is the implied fair value of the reporting unit goodwill.

The fair value of a reporting unit was estimated using a combination of the income approach, which
incorporates the use of the discounted cash ﬂow method, and the market approach, which incorporates the use
of earnings and revenue multiples based on market data.

The Company has determined that each partner ﬁrm that has reported goodwill will be tested separately

as each partner ﬁrm qualiﬁes as a reporting unit under the Accounting Standards Codiﬁcation guidance.

Impairment losses, where applicable, will be charged to operating proﬁt. The Company 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. As of December 31, 2009, there was no impairment of goodwill.

Deﬁnite Lived Intangible Assets.

In accordance with the FASB Accounting Standards Codiﬁcation,

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 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 certain tax carryover
beneﬁts and 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 or income for ﬁnancial statement purposes in excess of the amount for tax
purposes. The effect of changes in tax rates is recognized in the period the rate change is enacted.

Business Combinations. Valuation of acquired companies are based on a number of factors, including
specialized know-how, reputation, competitive position and service offerings. Our acquisition strategy has been
focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core

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)

capabilities of our various strategic business platforms to better serve our clients. Consistent with our
acquisition strategy and past practice of acquiring a majority ownership position, most acquisitions completed
in 2009 included an initial payment at the time of closing and provide for future additional contingent
purchase price payments. Contingent payments for these transactions, as well as certain acquisitions completed
in prior years, are derived using the performance of the acquired entity and are based on pre-determined
formulas. Contingent purchase price obligations for acquisitions completed prior to January 1, 2009 are
accrued when the contingency is resolved and payment is certain. Contingent purchase price obligations
related to acquisitions completed subsequent to December 31, 2008 are recorded as liabilities at estimated
value and are remeasured at each reporting period and changes in estimated value are recorded in results of
operations. There were no adjustments for remeasurement for the year ended December 31, 2009. In addition,
certain acquisitions also include put/call obligations for additional equity ownership interests. The estimated
value of these interests are recorded as Redeemable Noncontrolling Interests. As of January 1, 2009, the
Company expenses acquisition related costs in accordance with the Accounting Standard’s Codiﬁcation’s new
guidance on acquisition accounting. The year ended December 31, 2009, included $416 of acquisition related
costs.

For each of our acquisitions, we undertake a detailed review to identify other intangible assets and a

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

Redeemable Noncontrolling Interest. The minority interest shareholders of certain subsidiaries have the

right to require the Company to acquire their ownership interest under certain circumstances pursuant to a
contractual arrangement and the Company has similar call options under the same contractual terms. The
amount of consideration under the put and call rights is not a ﬁxed amount, but rather is dependent upon
various valuation formulas and on future events, such as the average earnings of the relevant subsidiary
through the date of exercise, the growth rate of the earnings of the relevant subsidiary through the date of
exercise, etc. as described in Note 17.

The Company has recorded its put options as mezzanine equity at their current estimated redemption
amounts. The Company accounts for the put options with a charge to noncontrolling interests to reﬂect the
excess, if any, of the estimated exercise price over the estimated fair value of the noncontrolling interest
shares at the date of the option being exercised. Changes in the estimated redemption amounts of the put
options are adjusted at each reporting period with a corresponding adjustment to equity. These adjustments
will not impact the calculation of earnings per share. In accordance with the updated Accounting Standards
Codiﬁcation topic on Redeemable Noncontrolling Interest, the Company has reclassiﬁed the December 31,
2008 minority interest of $22,622 to redeemable noncontrolling interests of $21,751 which represents minority
interest equity that is subject to put obligations. The remaining $871, which is not subject to put obligations,
was reclassiﬁed to noncontrolling interests in equity.

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)

The following table presents changes in Redeemable Noncontrolling Interests.

Beginning Balance as of January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassiﬁcation related to Redeemable Noncontrolling Interests . . . . . . . . . .
Redemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in redemption value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency Translation Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ending Balance as of December 31,

Years Ended December 31,

2009
$ 21,751
31,653
(28,242)
6,441
58
107
1,960
$ 33,728

2008
$24,187
—
(2,296)
—
—
156
(296)
$21,751

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
guarantees is not signiﬁcant. (See Note 18.)

Revenue Recognition

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

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

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

customer contract. Commission revenue is earned and recognized upon the placement of advertisements in
various media when the Company has no further performance obligations. Fixed fees for services are
recognized upon completion of the earnings process and acceptance by the client. Per diem fees are
recognized upon the performance of the Company’s services. In addition, for certain service transactions,

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)

2. Signiﬁcant Accounting Policies − (continued)

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
incentive provisions, which allows the Company to earn additional revenues as a result of its performance
relative to both quantitative and qualitative goals. The Company recognizes the incentive portion of revenue
under these arrangements when speciﬁc quantitative goals are achieved, or when the company’s clients
determine performance against qualitative goals has been achieved. In all circumstances, revenue is only
recognized when collection is reasonably assured. The Company records revenue net of sales and other taxes
due to be collected and remitted to governmental authorities.

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

Interest Expense.

Interest expense primarily consists of the cost of borrowing on the revolving credit
facility and the 11% Senior Notes. The Company uses the effective interest method to amortize the original
issue discount on the 11% Senior Notes. At December 31, 2009, $204 was amortized. The Company amortizes
deferred ﬁnancing costs straight line over the life of the revolving credit facility and the 11% Senior Notes.
The total net deferred ﬁnancing costs, included in Other Assets on the balance sheet, as of December 31, 2009
and 2008 was $9,790, and $3,523, net of accumulated amortization of $295 and $2,852, respectively.

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

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

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

Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair

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

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)

2. Signiﬁcant Accounting Policies − (continued)

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 . . . . . . . . . .

Year Ended December 31,

2009
$0
39.8% − 44.5%
1.76% − 2.49%
4
$1.18

2007
$0
65.6% − 66.7%
4.95% − 5.0%
7.5
$5.75

For the year ended December 31, 2008, the Company did not issue any stock options or similar 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.

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 fair value at the grant
date for performance based awards granted in 2008 and 2007 was $6,547 and $4,318, respectively. There were
no performance based awards granted during 2009.

The Company treats beneﬁts paid by shareholders to employees as a stock based compensation charge

with a corresponding credit to additional paid-in capital.

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 $1,026, $2,736 and $2,238 for the years ended December 31,
2009, 2008 and 2007, 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.

Subsidiary and Affıliate Stock Transactions.

In accordance with Accounting Standards Codiﬁcation

Topic on Business combinations, effective January 1, 2009, transactions involving purchases, sales or
issuances of stock of a subsidiary where control is maintained are recorded as an increase or decrease in
additional paid-in capital. In transactions involving subsidiary stock where control is lost, gains and losses are
recorded in results of operations. Gains and losses from transactions involving stock of an affiliate are
recorded in results of operations until control is achieved.

Foreign Currency Translation. The Company’s ﬁnancial statements were prepared in accordance with
the requirements of the Foreign Currency Translation topic of the FASB Accounting Standards Codiﬁcation.
The functional currency of the Company is the Canadian dollar and it has decided to use US dollars as its
reporting currency for consolidated reporting purposes. All of the Company’s subsidiaries use their local
currency as their functional currency. 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

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)

2. Signiﬁcant Accounting Policies − (continued)

translation adjustments in accumulated other comprehensive income. Translation of intercompany debt, which
is not intended to be repaid, is included in cumulative translation adjustments. 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. Translation of
current intercompany balances are included in net earnings. 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.

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) are included as
cumulative translation adjustments in accumulated other comprehensive income.

Derivative Financial Instruments. The Company follows Accounting for Derivative Instruments and
Hedging Activities. Topic of the FASB Accounting Standards Codiﬁcation establishes accounting and reporting
standards requiring that every derivative instrument (including certain derivative instruments embedded in
other contracts 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 qualiﬁes 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 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.

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)

3. Income (Loss) per Common Share

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

continuing operations for the years ended December 31:

Numerator
Numerator for diluted income (loss) per common

share − income (loss) from continuing operations . . . $

Net income attributable to the noncontrolling interests .
Income (loss) attributable to MDC Partners Inc.

common shareholders from continuing operations . . .
Effect of dilutive securities . . . . . . . . . . . . . . . . . . . .
Numerator for diluted income per common share −
income (loss) attributable to MDC Partners Inc.
common shareholders from continuing operations . . . $

Denominator
Denominator for basic income (loss) per common

2009

2008

2007

(12,092) $
(5,356)

18,284
(8,136)

$

2,335
(20,517)

(17,448)
—

10,148
—

(18,182)
—

(17,448) $

10,148

$

(18,182)

share − weighted average common shares. . . . . . . . .

27,396,463

26,765,839

25,000,582

Effect of dilutive securities:
Employee stock options, warrants, and stock

appreciation rights . . . . . . . . . . . . . . . . . . . . . . . .
Employee restricted stock units . . . . . . . . . . . . . . . . .
Dilutive potential common shares . . . . . . . . . . . . . .
Denominator for diluted income (loss) per common
share − adjusted weighted shares and assumed
conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic income (loss) per common share from continuing

—
—
—

1,710
662,613
664,323

—
—
—

27,396,463

27,430,162

25,000,582

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

(0.64) $

Diluted income (loss) per common share from

continuing operations . . . . . . . . . . . . . . . . . . . . . . $

(0.64) $

0.38

0.37

$

$

(0.73)

(0.73)

At December 31, 2009, 2008 and 2007 convertible notes, warrants, options and other rights to purchase

5,240,879, 4,547,390 and 6,929,101 shares of common stock, respectively, were not included in the
computation of diluted income (loss) per common share because doing so would have had an antidilutive
effect.

4. Acquisitions

2009 Acquisitions

In December 2009, the Company paid an additional $38,974 pursuant to the CPB purchase agreement

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

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)

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

On December 1, 2009, the Company agreed to make an early payment to KBP Management Partners

LLC originally due in March 2010 pursuant to the purchase agreement entered into in November 2007. The
additional payment totaled $14,870, of which $10,140 was paid in cash in December 2009 and $4,230 is due
to be paid in March 2010 with the balance potentially due in March 2011, recorded as deferred acquisition
consideration. This additional payment was accounted for as additional goodwill. In addition, pursuant to an
existing phantom stock arrangement, a stock-based compensation charge of $3,028 has been recorded for
amounts paid by KBP Management Partners to phantom equity holders. The Goodwill will be tax deductible.

On October 5, 2009, the Company purchased the remaining 6% outstanding interest in CPB for an
estimated ﬁxed and contingent purchase price. The estimated purchase price of $9,818 is included in deferred
acquisition consideration and includes $518 of ﬁxed payments to be paid in 2013. The Company recorded a
reduction of $8,596 to Redeemable Noncontrolling Interests and $704 to additional paid in capital. The ﬁxed
payments of $518 are allocated to identiﬁable intangibles and will be amortized over 3 years.

On August 31, 2009, the Company, through HL Group Partners LLC (‘‘HL Group’’), acquired a 51%
interest in Attention Partners LLC (‘‘Attention’’), a social media agency that further expands HL Group’s
business capabilities. At closing, the HL Group paid $1,000 and made a capital contribution of $400 to
Attention. In addition, HL Group recorded estimated contingent payments totaling $1,313 due in 2010 and
2011 as deferred acquisition consideration. The allocation of the excess purchase consideration of this
acquisition to the fair value of the net assets acquired resulted in identiﬁable intangibles of $544 (consisting of
primarily of customer lists and a covenant not to compete) and goodwill of $3,057 representing the value of
the assembled workforce. The fair value of the noncontrolling interests not acquired at the acquisition date
was $2,431 based on the Company’s evaluation of the Company being acquired, the purchase paid by the
Company. The identiﬁed intangibles will be amortized up to a three-year period in a manner represented by
the pattern in which the economic beneﬁts of the customer contracts/relationships are realized. The intangibles
and goodwill are tax deductible.

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

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)

Effective January 22, 2009, the Company acquired an additional 8.9% of equity interests in HL Group,

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

2008 Acquisitions

Effective December 31, 2008, the Company acquired an additional 6.3% of equity interests in Accent

Marketing LLC, increasing the Company’s ownership to 100%. The aggregate purchase price totaled $4,830
and was paid in cash of $995 at closing and repayment of outstanding loans of $1,830. The balance aggregate
of $2,005 was paid in 2009. In addition, an additional contingent performance payment of $96 was paid in
December 2009 based on Accent’s 2009 ﬁnancial results. The allocation of the excess purchase consideration
of these step acquisitions to the fair value of the net assets acquired resulted in identiﬁable intangibles of
$1,900 (consisting of customer lists), goodwill of $365 and a stock based compensation charge of $2,285,
relating to the amount paid in excess of the fair value of the equity purchase. The identiﬁed intangibles will
be amortized over a seven year period in a manner represented by the pattern in which the economic beneﬁts
of the customer contracts/relationships are realized. This payment was also classiﬁed as a stock-based
compensation charge. The intangibles, goodwill and stock based compensation charge are tax deductible.

Effective December 1, 2008, the Company acquired an additional 3% of equity interests in Source

Marketing LLC, increasing the Company’s ownership to 83%. The purchase price totaled $1,286 and was paid
in cash less $42 of outstanding loans. The allocation of the excess purchase consideration of this step
acquisition to the fair value of the net assets acquired resulted in identiﬁable intangibles of $300 (consisting of
customer lists), goodwill of $504 and a stock based compensation charge of $524, relating to the amount paid
in excess of the fair value of the equity purchase. The identiﬁed intangibles will be amortized over a ﬁve year
period in a manner represented by the pattern in which the economic beneﬁts of the customer
contracts/relationships are realized. The intangibles, goodwill and stock based compensation charge are tax
deductible.

On November 24, 2008, the Company agreed to make an early payment to KBP Management Partners

LLC of the contingent payment originally due in 2009 pursuant to the purchase agreement entered into in
November 2007. The additional payment totaled $16,005, of which $14,124 was paid in cash in
November 2008 and $1,881 was paid in 2009. This additional payment was accounted for as additional
goodwill. In addition, pursuant to an existing phantom stock arrangement a 2008 stock based compensation
charge of $3,548 has been recorded for amounts paid to the phantom equity holders. In December 2009, the
Company determined the ﬁnal earnout payment to be $14,870 of which $10,140 was paid in December 2009
and the balance will be paid in 2010. This ﬁnal amount was accounted for as additional goodwill. In addition,
pursuant to an existing phantom stock arrangement, a 2009 stock based compensation charge of $3,028 has
been recorded for amounts paid to the phantom equity holders. The goodwill is tax deductible.

Effective November 10, 2008, the Company acquired an additional 17% of equity interests in Crispin
Porter & Bogusky LLC (‘‘CPB’’), increasing the Company’s ownership to 94%. The purchase price totaled
$6,823 plus a contingent payment in April of 2010 based on the ﬁnancial performance of 2009. This
contingent payment will be calculated in accordance with CPB’s existing limited liability company agreement.
The consideration was paid in cash of $6,430 and the issuance of 105,000 newly-issued shares of the
Company’s Class A subordinated voting stock valued at $393. 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 of two days before and after the November 10, 2008 announcement date. This
acquisition represented an accelerated exercise of the Company’s existing call option that was otherwise
exercisable in April 2010. The allocation of the excess purchase consideration of this acquisition to the fair

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)

value of the net assets acquired resulted in $5,008 being allocated to identiﬁable intangibles, existing backlog.
This intangible will be amortized over 14.5 month period. This intangible is tax deductible.

Effective October 10, 2008, MDC acquired an additional 8.56% of Zig Inc and an additional 13.17% of

an affiliate of Zig Inc for cash of $1,320. These transactions increased the Company’s equity ownership in
Zig Inc to 74.07%. The allocation of the excess purchase consideration of these step acquisitions to the fair
value of the net assets acquired resulted in identiﬁable intangibles of $176 (consisting of customer lists and
existing backlog) and goodwill of $1,196. The identiﬁed intangibles will be amortized over 30 months in a
manner represented by the pattern in which the economic beneﬁts of the customer contracts/relationships are
realized. The tax deductible portion of these transactions amounts to $253.

On June 16, 2008, CPB, acquired certain assets and assumed certain liabilities of Texture Media, Inc.
Texture Media is a digital agency specializing in website development, and is based in Boulder, Colorado with
approximately 50 employees. The purchase price consisted of $2,500 in cash and a non-contingent cash
payment of $940 in one year, which $400 is included in deferred acquisition consideration. The allocation of
the excess purchase consideration of this acquisition to the fair value of the net assets acquired resulted in
identiﬁable intangibles of $150 (consisting of customer lists and covenants not to compete) and goodwill of
$3,111. The identiﬁed intangibles will be amortized up to a two year period in a manner represented by the
pattern in which the economic beneﬁts of the customer contracts/relationship are realized. The intangibles and
goodwill are tax deductible.

On February 12, 2008, the Company’s Bratskeir subsidiary purchased the net assets of Clifford PR for

$2,050 in cash and the issuance of 30,444 newly issued shares of the Company’s Class A stock valued at
$249, plus a 10% membership interest in Clifford/Bratskeir. 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 on the date of the acquisition. The accounting value of the 10% membership interest in
Clifford/Bratskeir was valued at $400. The allocation of the excess purchase consideration of this acquisition
to the fair value of the net assets acquired resulted in identiﬁable intangibles of $1,031 (consisting of customer
lists, backlog and covenants not to compete) and goodwill of $1,432. The identiﬁed intangibles will be
amortized over a period of up to ﬁve years in a manner represented by the pattern in which the economic
beneﬁts of the customer contracts/relationship are realized. Effective December 31, 2008, the Company
transferred the ownership of the Clifford PR assets to HL Group Partners, LLC. As part of this transfer, the
Company issued 45,000 Class A Shares valued at $137 which have been recorded as stock based
compensation expense. In connection with that transaction, the Company purchased the 10% membership
interest in Clifford/Bratskeir for $400 less an adjustment for working capital of $88. This net amount will be
paid over a three-year period and is included in deferred acquisition consideration. The intangibles and
goodwill are tax deductible.

In January 2008, the Company’s 62% owned subsidiary, Zyman Group, purchased certain assets of
Core Strategy Group and DMG Inc. The aggregate purchase price paid at closing consisted of $1,000 paid in
cash and the issuance of 126,478 newly issued shares of the Company’s Class A stock valued at $1,110. In
addition, the principals of Core Strategy Group and DMG received 1,000,000 newly-issued Restricted Class C
units of Zyman Group, which will entitle them to a proﬁt interest of 15% of Zyman Group’s pre-tax income
in excess of a speciﬁed threshold amount. 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 share on the date
of the acquisitions. The accounting value of the Restricted Class C units of Zyman Group was determined
based on a Black-Scholes value of $1,001. The allocation of the excess purchase consideration of these
acquisitions to the fair value of the net assets acquired resulted in identiﬁable intangibles of $497 (consisting
of customer lists and covenants not to compete) and goodwill of $2,626. The identiﬁed intangibles will be
amortized up to a ﬁve year period in a manner represented by the pattern in which the economic beneﬁts of
the customer contracts/relationship are realized. The intangibles and goodwill are tax deductible.

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)

4. Acquisitions − (continued)

Throughout 2008, the Company completed 16 equity acquisitions with various shareholders of Allard
Johnson Communications Inc. (‘‘Allard’’). The aggregate purchase price for the 16 transactions was cash equal
to $3,442. These transactions increased the Company’s equity ownership in Allard to 75.06%, an increase of
14.8%. The allocation of the excess purchase consideration of these step acquisitions to the fair value of the
net assets acquired resulted in identiﬁable intangibles of $247 (consisting of customer lists and existing
backlog), goodwill of $2,752 and a stock based compensation charge of $467, relating to amounts paid in
excess of the fair value of the equity purchased. The identiﬁed intangibles will be amortized over a ﬁve year
period in a manner represented by the pattern in which the economic beneﬁts of the customer
contracts/relationship are realized. The intangible and goodwill are not tax deductible.

2007 Acquisitions

On November 1, 2007, the Company acquired an additional 28% of Crispin Porter & Bogusky LLC,
(‘‘CPB’’) from certain noncontrolling 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
announcement 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 represented customer backlog and is
being amortized over a ﬁve month period and the balance of $2,637 represents customer relationships and will
be amortized over a ﬁve year period in a manner represented by the pattern in which the economic beneﬁts of
the customer contractual relationships are realized. 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,
(‘‘KBSP’’) from KBSP Management Partners LLC (‘‘Noncontrolling 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
Company’s Class A shares on the date of the acquisition. In addition, the Company expects to pay a
contingent amount to the Noncontrolling Holder in 2009 and 2010, based on KBSP’s ﬁnancial performance in
2008 and 2009. These additional contingent payments will be calculated in accordance with KBSP’s existing
limited liability company agreement. In connection with this acquisition, certain key executives of KBSP
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 allocation of the excess purchase consideration of this acquisition to the fair value of
net assets acquired resulted in 100% or $14,494 of the excess consideration being allocated to identiﬁable
intangible assets. Approximately $2,711 represented customer backlog and is being amortized over a six and
one-half month period and the balance of $11,783 represented customer relationships and will be amortized
over a ﬁve year period in a manner represented by the pattern in which the economic beneﬁts of the customer
contractual relationships are realized. 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 Noncontrolling Holder to certain
employees of KBSP pursuant to an existing phantom equity plan between those employees and the

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)

4. Acquisitions − (continued)

Noncontrolling 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. In May 2008, it was determined
that an additional payment of $814 was due. This additional payment has been allocated to backlog and
written off during the second quarter of 2008. This amount was paid in cash in December 2008. In addition,
the Company incurred a non-cash stock based compensation charge of $142 resulting from this payment to the
phantom equity holders.

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
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. During 2008, it was determined that only one payment of $75 was due. The amount was paid in
January 2009, at December 31, 2008, this amount was included in deferred acquisition consideration.

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
Company’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 $214 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
amortizable intangible assets of $1,275 and goodwill of $2,706 and is based on estimates of fair values and
certain assumptions that the Company believed were reasonable. The intangibles and goodwill are tax
deductible in future years. As of December 31, 2008, it has been determined that no additional payments are
due.

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 believed were 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

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)

4. Acquisitions − (continued)

$320 was 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 purchase
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 believed were reasonable. The intangibles and goodwill are tax
deductible in future years.

Proforma Information

The following unaudited pro forma results of operations of the Company for the years ended

December 31, 2008 and 2007 assume that the acquisition of the operating assets of the signiﬁcant businesses
acquired during 2008 and 2007 had occurred on January 1st of the respective year in which the business was
acquired and for the comparable period only (i.e., 2008 acquisitions are reﬂected in 2007). During 2009, there
were no signiﬁcant businesses acquired. These unaudited pro forma results are not necessarily indicative of
either the actual results of operations that would have been achieved had the companies been combined during
these periods, or are they necessarily indicative of future results of operations. These unaudited pro forma
results for the year December 31, 2007, include an adjustment for the non-cash stock based compensation
charge of $2,603 resulting from the KBSP acquisition.

Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to MDC Partners Inc.
. . . . . . . . . . . . . . . . . . .
Income (loss) per common share:
Basic − net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted − net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net Income Attributable to MDC Partners Inc. and
Transfers (to) from the Noncontrolling Interest

Year Ended
December 31,
2008

Year Ended
December 31,
2007

$584,648
1,097
$

$533,883
$ (24,168)

$
$

0.04
0.04

$
$

(0.94)
(0.94)

For the Year
Ended
December 31, 2009

Net Loss attributable to MDC Partners Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(18,324)

Transfers (to) from the noncontrolling interest

Decrease in MDC Partners Inc. paid-in capital for purchase of equity interests in

excess of Redeemable Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transfers (to) from noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . .

(913)
(913)

Change from net income attributable to MDC Partners Inc. and transfers (to) from

noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(19,237)

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)

5. Fixed Assets

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

2009

2008

Cost

Accumulated
Depreciation

Net Book
Value

Cost

Accumulated
Depreciation

Net Book
Value

Computers, furniture

and ﬁxtures . . . . .

$ 79,036

$(60,090)

$18,946

$ 74,593

$(50,743)

$23,850

Leasehold

improvements . . . .

39,091
$118,127

(22,662)
$(82,752)

16,429
$35,375

38,446
$113,039

(18,275)
$(69,018)

20,171
$44,021

Included in ﬁxed assets are assets under capital lease obligations with a cost of $3,383, (2008 — $3,731)

and accumulated depreciation of $2,018 (2008 — $1,707). Depreciation expense for the years ended
December 31, 2009, 2008 and 2007 was $16,278, $16,759 and $14,478, respectively.

6. Accrued and Other Liabilities

At December 31, 2009 and 2008, accrued and other liabilities included amounts due to noncontrolling
interest holders, for their share of proﬁts, which will be distributed within the next twelve months of $4,058
and $4,856, 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. The fair value for the 11% senior
notes was $230,625 as of December 31, 2009.

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)

8. Goodwill and Intangible Assets

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

Performance
Marketing
Services

Discontinued
Operations

Goodwill

Balance of December 31, 2007 . . . . . . .
Acquired goodwill . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . .
Foreign currency translation. . . . . . . .
Balance as of December 31, 2008 . . . . .
Acquired goodwill . . . . . . . . . . . . . .
Foreign currency translation. . . . . . . .
Balance as of December 31, 2009 . . . . .

Strategic
Marketing
Services

$161,847
28,248
—
(4,042)
$186,053
59,053
3,008
$248,114

$53,152
962
—
(1,953)
$52,161
—
1,357
$53,518

Intangibles:

Trademarks (indeﬁnite life) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

See Note 2 for Accounting for Business Combinations.

$ 2,727
—
(2,727)
—
$ —
—
—
$ —

$ 17,780
$ 48,125
(35,843)
$ 12,282
$ 19,352
(14,699)
$ 4,653
$ 85,257
(50,542)
$ 34,715

Total

$217,726
29,210
(2,727)
(5,995)
$238,214
59,053
4,365
$301,632

$ 17,780
$ 59,075
(39,145)
$ 19,930
$ 29,729
(20,587)
$
9,142
$106,584
(59,732)
$ 46,852

During 2008, the Company recorded a goodwill impairment charge of $1,590 relating to

Clifford/Bratskeir Public Relations LLC (‘‘Bratskeir’’). Bratskeir’s business operations have been treated as
discontinued as of December 31, 2008. In addition, the Company completed the sale of certain assets of its
Mobium division resulting in a $1,137 reduction of goodwill.

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)

8. Goodwill and Intangible Assets − (continued)

The weighted average amortization periods for customer relationships are 6 years and other intangible

assets are 8 years. In total, the weighted average amortization period is 6 years. The amortization expense of
amortizable intangible assets for the year ended December 31, 2009, was $18,025 (2008 — $17,515;
2007 — $14,497) the estimated amortization expense for the ﬁve succeeding years is:

Year

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amortization

$6,010
$4,878
$3,114
$1,164
$ 868

9. Income Taxes

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

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

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

2009

2008

2007

$ 1,401
(4,949)
$(3,548)

13,425
6,907
20,332

$14,143
(5,892)
$ 8,251

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

2009

2008

2007

$ —
1,246
318
1,564

8,681
2,347
(4,056)
6,972
$ 8,536

$ 4,948
328
(1,919)
3,357

(5,057)
189
3,908
(960)
$ 2,397

$ 461
(343)
710
828

3,145
867
1,241
5,253
$6,081

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)

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 (loss) from continuing operations before

income taxes, equity in affiliates and noncontrolling
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statutory income tax rate . . . . . . . . . . . . . . . . . . . . .
Tax expense using statutory income tax rate . . . . . . . .
State and foreign taxes . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible stock-based compensation . . . . . . . . . .
Other non-deductible expense . . . . . . . . . . . . . . . . . .
Change to valuation allowance on items affecting

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

See Note 10 for income taxes for discontinued operations.

2009

2008

2007

$(3,548)
33.0%
(1,171)
3,045
5,160
732

2,656
(1,767)
(119)
$ 8,536

$20,332

$ 8,251

33.5%
6,811
(960)
2,796
876

(4,149)
(2,726)
(251)
$ 2,397

36.12%
2,980
508
3,065
577

6,870
(7,428)
(491)
$ 6,081

240.6%

11.8%

73.7%

The 2009 effective income tax rate was signiﬁcantly higher than the statutory rate due primarily from the
increase in the Company’s valuation allowance of $2,656, non-deductible stock-based compensation of $5,160
and State and foreign income taxes of $1,564.

The 2008 effective income tax rate was signiﬁcantly lower than the statutory rate due primarily from the

reversal of Canadian withholding taxes due to a change in Canadian tax law of $2,088 (included in other
taxes above) and a decrease in the Company’s valuation allowance of $4,149, primarily due to utilization of
net operating loss carry forwards.

Income taxes receivable were $622 and $1,312 at December 31, 2009 and 2008, respectively, and were

included in accounts receivable on the balance sheet. Income taxes payable were $1,215 and $1,056 at
December 31, 2009 and 2008, 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
payment of income taxes as a component of income tax expense. For the years ended 2009, 2008 and 2007,
income tax expense does not include any amounts for interest and penalties.

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)

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, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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:
Deferred ﬁnance charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Disclosed as:
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2009

2008

$ 5,296
45,292
—
5,743
970
227
17,417
2,751
77,696
(65,896)
11,800

(530)
—
(8,521)
(9,051)
$ 2,749

$ 4,404
41,498
99
10,406
682
—
15,240
6,111
78,440
(59,781)
18,659

(464)
(3,739)
(4,516)
(8,719)
$ 9,940

$ 14,950
(12,201)
$ 2,749

14,852
(4,912)
$ 9,940

Included in accrued and other liabilities at December 31, 2009 and 2008 is a deferred tax liability of
$3,150 and $212, respectively. Included in other current assets at December 31, 2009 and 2008 is a deferred
tax asset of $2,408 and $2,925, respectively.

The Company has US federal net operating loss carry forwards of $42,655 and non-US net operating loss

carry forwards of $73,312, these carry forwards expire in years 2010 through 2029. The Company also has
total indeﬁnite loss carry forwards of $150,288. These indeﬁnite loss carry forwards consist of $44,729
relating to the US and $105,559 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
$110,743.

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 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 US, non-US and
state deferred tax assets. The increase in the Company’s valuation allowance charged to the statement of

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)

9. Income Taxes − (continued)

operations for each of the years ended December 31, 2009 and 2007 was $2,656 and $6,870, respectively. In
2008, the Company reduced its valuation and recorded a beneﬁt in the statement of operations of $4,149.

Deferred taxes are not provided for temporary differences representing earnings of subsidiaries that are

intended to be permanently reinvested. The potential deferred tax liability associated with these undistributed
earnings is not material.

The Company recorded a liability for unrecognized tax beneﬁts as well as applicable penalties and
interest in the amount of $617. This amount has not changed for the last three years. The Company identiﬁed
an uncertainty relating to the future tax deductability of certain intercompany interest, to the extent that such
future beneﬁt will be established, the resolution of this position will have no effect with respect to the
ﬁnancial statements.

We do not expect our unrecognized tax beneﬁts to change signiﬁcantly over the next 12 months.

The Company has completed US federal tax audits through 2006 and has completed a non-US tax audit

through 2004.

10. Discontinued Operations

The loss net of taxes from discontinued operations for 2009 was $0.9 million and is comprised of the
operating results of Clifford/Bratskeir Public Relations LLC (‘‘Bratskeir’’) of $361 and Margeotes Fertitta
Powell, LLC (‘‘MFP’’) of $515 relates to an adjustment to a previously recorded liability.

In December 2008, the Company entered into negotiations to sell certain remaining assets in Bratskeir to

management. This transaction was completed in April 2009. As a result of this expected transaction, the
Company recorded a goodwill and intangibles impairment charge of $1,945. Including the impairment charge
Bratskeir’s results of operations, net of income tax beneﬁts, for the years ended 2008 and 2007 were losses of
$3,815 and $1,217, respectively.

Effective December 3, 2008, Colle & McVoy, LLC (‘‘Colle’’), completed the sale of certain assets of its
Mobium division. The Company recorded a loss on sale of $1,159 ($765 net of taxes). Including the loss on
sale, Mobium’s results of operations, net of income tax beneﬁts for the year ended 2008 was a loss of $3,022.
The results of operations net of income taxes for Mobium for the year ended 2007 was income of $283.

Effective June 30, 2008, the Company sold its 60% interest in The Ito Partnership (‘‘Ito’’), a start-up
operation formed in 2006. The sale resulted in a loss of $877, ($579 net of taxes). Including the loss on sale,
Ito’s results of operations, net of income tax beneﬁts for the year ended 2008 was a loss of $533. The results
of operations net of income taxes for Ito for the year ended 2007 was income of $38.

In March 2007, due to continued operating and client losses, the Company ceased MFP current
operations and spun off a new operating business and as a result incurred a goodwill impairment charge of
$4,475, in 2007. 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. In 2008, the Company recorded a loss of $2,645 net of
income taxes resulting primarily from the accrual of lease abandonment costs and severance.

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)

10. Discontinued Operations − (continued)

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. MFP and Banjo had been previously included in the
Company’s Specialized Communication Service segment.

Included in discontinued operations in the Company’s consolidated statements of operations for the years

ended December 31 were the following:

Years Ended December 31,

2009

Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

481

Impairment charge . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax recovery . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest expense recovery . . . . . . . . . .
Net loss from discontinued operations. . . . . . . . . . . . .

—

(1,146)
—
270
—
$ (876)

2008
$ 5,700

1,945

(11,810)
(3,364)
5,159
—
$(10,015)

2007
$ 16,926

5,104

(10,046)
(1,719)
3,640
(48)
$ (8,173)

Included in other expense is a loss on sale of assets of $2,036 in 2008. There was no loss on sale of

assets for 2007.

At December 31, 2008, $408, $323 and $2,139 was included in current assets, other assets and accrual

and other liabilities, respectively, which represent assets held for sale and related liabilities.

11. Comprehensive Income (Loss)

Total comprehensive income (loss) and its components for the years ended December 31, were:

Net income (loss) for the year . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax:
Foreign currency cumulative translation adjustment
. . .
Comprehensive loss for the year . . . . . . . . . . . . . . . .
Comprehensive loss attributable to the noncontrolling

2009

2008

2007

$(12,968)

$ 8,269

$ (5,838)

769
(12,199)

(12,938)
(4,669)

5,566
(272)

interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.

Comprehensive loss attributable to MDC Partners Inc.

(5,372)
$(17,571)

(8,174)
$(12,843)

(20,496)
$(20,768)

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)

12. Bank Debt, Long-Term Debt and Convertible Notes

At December 31, the Company’s indebtedness was comprised as follows:

Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11% senior notes due 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Original issue discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8% convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note payable and other bank loans. . . . . . . . . . . . . . . . . . . . . . . . .

Obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less:
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2009

2008

$

—
225,000
(10,291)
—
—
1,800
216,509
1,437
217,946

$

9,701
—
—
36,946
130,000
2,789
179,436
2,062
181,498

1,456
$216,490

1,546
$179,952

Interest expense related to long-term debt for the years ended December 31, 2009, 2008 and 2007 was
$18,057, $13,650 and $11,470, respectively. For the year ended December 31, 2009, interest expense included
$204 amortization of the original issue discount.

The amortization and write off of deferred ﬁnance costs included in interest expense were $3,837, $1,348

and $2,330 for the years ended December 31, 2009, 2008, and 2007 respectively.

Issuance of 11% Senior Notes

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

The Company may, at its option, redeem the 11% Notes in whole at any time or in part from time to

time, on and after November 1, 2013 at a redemption price of 105.500% of the principal amount thereof. If
redeemed during the twelve-month period beginning on November 1, 2014, at a redemption price of
102.750% of the principal amount thereof if redeemed during the twelve-month period beginning on or after
November 1, 2015 and equal to redemption price of 100% of the principal amount thereof. (Prior to
November 1, 2013, the Company may, at its option, redeem some or all of the 11% Notes at a price equal to
100% of the principal amount of the Notes plus a ‘‘make whole’’ premium and accrued and unpaid interest.)
The Company may also redeem, at its option, prior to November 1, 2012, up to 35% of the 11% Notes with
the proceeds from one or more equity offerings at a redemption price of 11% of the principal amount thereof.
If the Company experiences certain kinds of changes of control (as deﬁned in the Indenture), holders of the
11% Notes may require the Company to repurchase any 11% Notes held by them at a price equal to 101% of
the principal amount of the 11% Notes plus accrued and unpaid interest.

In connection with these transactions, the Company wrote-off $323 of deferred ﬁnancing costs relating to

its prior convertible debentures.

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)

12. Bank Debt, Long-Term Debt and Convertible Notes − (continued)

New Credit Facility

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

The WF Credit Agreement is guaranteed by all of the Company’s present and future subsidiaries, other

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

In connection with these transactions, the Company incurred a termination fee of $1,850 and wrote-off

$2,240 of deferred ﬁnancing costs relating to its prior Fortress Financing Agreement.

The Company is currently in compliance with all of the terms and conditions of its Credit Facility, and

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

Prior Financing Agreement

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

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

Agreement.

8% Convertible Unsecured Subordinated Debentures

On June 28, 2005, the Company completed an offering in Canada of convertible unsecured subordinated

debentures amounting to $36,723 (C$45,000) (the ‘‘Debentures’’). The Debentures required interest at an
annual rate of 8.00% payable semi-annually, in arrears, on June 30 and December 31 of each year.

The Company repaid the Debentures on November 26, 2009.

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)

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

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 and beyond. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$ 1,456
1,075
683
10
11
225,002
$228,237

Capital Leases

Future minimum capital lease payments for the years ended December 31 and in aggregate are as

follows:

Period

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$ 927
493
85
11
11
3
1,530
(93)
1,437
(856)
$ 581

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.

Preferred A 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,

2009.

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)

(b) 2009 Share Capital Transactions

During the year ended December 31, 2009, Class A share capital increased by $4,999. The Company

issued 620,393 shares related to vested restricted stock, 47,625 shares related to the exercise of outstanding
stock options and 68,261 shares related to the exercise of outstanding stock appreciation rights, increasing
share capital by $5,595.

During 2009, the Company’s employees surrendered 156,481 Class A shares valued at $596 in connection

with the required tax withholding resulting from the vesting of various equity awards. These shares were
subsequently retired and no longer remain outstanding as of December 31, 2009.

Additional paid-in capital decreased by $24,296, of which $31,653 related to the recording of existing put
options (Note 2), $5,226 related to the vesting of restricted stock and stock appreciation rights, $923 related to
acquisitions, and other charges of $214. These decreases were offset by $13,720 relating to increase from
stock-based compensation.

(c) 2008 Share Capital Transactions

During the year ended December 31, 2008, Class A share capital increased by $5,575. The Company
issued 334,467 shares related to business acquisitions and 541,110 shares related to vested restricted stock
increasing share capital by 6,584.

During 2008, the Company’s employees surrendered 112,146 Class A shares valued at $909 in connection

with the required tax withholding resulting from the vesting of restricted stock. In addition, during 2008, the
Company received 12,346 Class A shares valued at $100 in connection with a partial repayment of a note
receivable. These 124,492 Class A shares were subsequently retired and no longer remain outstanding as of
December 31, 2008.

Additional paid-in capital increased $6,727, of which $10,129 related to an increase from stock-based

compensation that was expensed during 2008 and $1,001 related to acquisition purchase price consideration
and other changes of $78 partially offset by $4,481 related to the vested restricted stock.

(d) 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
appreciation 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.

(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
Subordinate Voting Shares or any other security in to which such shares shall be exchanged. On June 1, 2007
and on June 2, 2009, the Company’s shareholders approved a total additional authorized Class A Shares of
2,500,000 to be added to the 2005 Incentive Plan for a total of 4,500,000 authorized Class A Shares. On
May 30, 2008, the Company’s shareholders approved the 2008 Key Partner Incentive Plan, which provides for
the issuance of 600,000 Class A Shares. As of December 31, 2009, the Company has granted 200,000 Director
options (of which 100,000 were forfeited), which option grants were for a ten-year term and vests over ﬁve
(5) years from the grant date under the 2005 Incentive Plan.

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)

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 and 2008 Key Partner Incentive
Plan:

Balance at December 31, 2006 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2007 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2008 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2009 . . . . . . .

Performance Based Awards

Time Based Awards

Weighted
Average
Grant Date
Fair Value
$8.56
7.80
8.56
8.55
8.10
8.17
8.30
8.13
8.05
—
7.95
7.88
$8.17

Shares
730,000
553,729
(367,500)
(2,500)
913,729
801,345
(531,610)
(45,601)
1,137,863
—
(545,747)
(34,158)
557,958

Weighted
Average
Grant Date
Fair Value
$ 8.78
9.87
—
8.54
9.78
4.78
9.26
8.85
7.57
7.15
9.19
10.04
$ 7.33

Shares
59,000
439,149
—
(16,000)
482,149
369,882
(9,500)
(13,000)
829,531
179,927
(74,646)
(10,652)
924,160

The total fair value of restricted stock and restricted stock unit awards, which vested during the year

ended December 31, 2009, 2008 and 2007 was $5,022, $4,499 and $2,841, respectively. In connection with
the vesting of these awards, the Company realized a tax deduction of $414, $430 and $340 in 2009, 2008 and
2007, respectively. At December 31, 2009, the weighted average remaining contractual life for performance
based awards is 1.2 years and for time based awards is 1.6 years. At December 31 2009, the fair value of all
restricted stock and restricted stock unit awards is $11,332. The term of these awards is three years with
vesting up to three years. At December 31, 2009, the unrecognized compensation expense for these awards
was $5,101 and will be recognized through 2012. At December 31, 2009, there are 2,412,595 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
Maxxcom, 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.

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)

13. Share Capital − (continued)

Information related to share option transactions grant under all plans over the past three years is

summarized as follows:

Balance, December 31, 2006 . . . . .
Vested. . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . . . .
Balance, December 31, 2007 . . . . .
Vested. . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . . . .
Balance, December 31, 2008 . . . . .
Vested. . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . . . .
Balance, December 31, 2009 . . . . .

Options Outstanding

Options Exercisable

Number
Outstanding
1,733,080
—
50,000
(592,000)
(216,052)
975,028
—
—
—
(516,193)
458,835
—
—
(47,625)
(171,218)
239,992

Weighted
Average
Price
per Share
$ 8.57
—
8.48
7.59
9.08
11.14
—
—
—
8.85
9.49
—
—
8.76
12.22
$ 9.55

Number
Outstanding
1,369,056

Weighted
Average
Price
per Share
$ 8.25

851,216

11.31

393,835

9.69

194,992

$ 9.64

Non Vested
Options
364,024
(207,009)
50,000
—
(83,203)
123,812
(53,812)
—
—
(5,000)
65,000
(20,000)
—
—
—
45,000

At December 31, 2009, the intrinsic value of vested options and the intrinsic value of all options was

$37. For options exercised during 2009 and 2007, the Company received cash proceeds of $370 and $4,689,
respectively. The Company did not receive any windfall tax beneﬁts. The intrinsic value of options exercised
during 2009 and 2007 was $16 and $1,550, respectively. At December 31, 2009, the weighted average
remaining contractual life of all outstanding options was 1.6 years and for all vested options was 1.1 years. At
December 31, 2009, the unrecognized compensation expense of all options was $160 and will be recognized
through 2012.

Share options outstanding as of December 31, 2009 are summarized as follows:

Options Outstanding

Options Exercisable

Weighted
Average
Contractual
Life
2.56
1.64
0.90
0.17

Weighted
Average
Price
per Share
$ 6.43
$ 8.65
$12.61
$53.69

Exercisable
Number
8,982
146,442
37,663
1,905

Weighted
Average
Price
per Share
$ 6.43
$ 8.51
$12.61
$53.69

Weighted
Average
Contractual
Life
2.56
1.09
0.90
0.17

Range of
Exercise Prices
$ 5.00 − $ 7.49
$ 7.50 − $ 9.32
$ 9.33 − $12.61
$12.62 − $53.69

Outstanding
Number
8,982
191,442
37,663
1,905

(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.

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)

13. Share Capital − (continued)

SAR’s granted and outstanding are as follows:

Balance at December 31, 2006 . . . .
Vested . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . .
Balance at December 31, 2007 . . . .
Vested . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . .
Balance at December 31, 2008 . . . .
Vested . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . .
Balance at December 31, 2009 . . . .

SAR’s Outstanding

SAR’s Exercisable

Weighted
Average
Number
Outstanding
2,010,313
—
—
(1,364,866)
(30,447)
615,000
—
—
—
(370,000)
245,000
—
3,744,686
(172,759)
(298,158)
3,518,769

Weighted
Average
Price
per Share
$ 7.91
—
—
6.84
8.68
11.33
—
—
—
12.00
9.74
—
3.76
3.72
8.22
$ 3.80

Number
Outstanding
1,700,313

Price
per Share
$ 7.48

511,666

11.72

238,334

9.80

30,000

$ 8.18

Non Vested
SAR’s
310,000
(206,666)
—
—
—
103,334
(96,668)
—
—
—
6,666
(6,666)
3,744,686
(172,759)
(83,158)
3,488,769

At December 31, 2009, the aggregate amount of shares to be issued on vested SAR’s was 1,091 shares
with an intrinsic value of $9 and for all outstanding SAR’s, the aggregate amount of shares to be issued was
1,899,288 with an intrinsic value of $15,669. During 2009 and 2007, the aggregate value of SAR’s exercised
was $407 and $2,909, respectively. The Company did not receive any windfall tax beneﬁts. At December 31,
2009, the weighted average remaining contractual life of all outstanding SAR’s was 4.2 years and for all
vested SAR’s was 6.7 years. At December 31, 2009, the unrecognized compensation expense of all SAR’s was
$1,916 and will be recognized through 2012.

SAR’s Outstanding

SAR’s Exercisable

Range of
Exercise Prices
$3.72 − $6.60
$6.61 − $8.95

Outstanding
Number
3,488,769
30,000

Weighted
Average
Contractual
Life
4.18
6.72

Weighted
Average
Price
per Share
$3.76
$8.18

Exercisable
Number
—
30,000

Weighted
Average
Price
per Share
$ —
$8.18

Weighted
Average
Contractual
Life
—
6.72

(g) Restricted Stock Units

During the year ended December 31, 2004, the Company issued 50,000 restricted stock units of which

16,500 vested on each of the ﬁrst and second anniversary dates with the remaining 17,000 vesting on
September 6, 2007.

In 2007, the recipient of these shares of restricted stock exercised his contractual right to receive a cash

payment of $185, in lieu of the 17,000 shares of restricted stock that vested in 2007, and as a result, the
underlying shares of restricted stock in each year were cancelled.

77

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)

(h) Warrants

The Company measures the fair value of warrants using the Black-Scholes option pricing model on the

date of grant.

There were no warrants outstanding as at December 31, 2009.

Information related to warrant transactions over the past three years is summarized as follows:

Balance, December 31, 2006 . . . . .
Vested . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . .
Balance, December 31, 2007 . . . . .
Vested . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . .
Balance, December 31, 2008 . . . . .
Vested . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . .
Expired and cancelled . . . . . . . .
Balance, December 31, 2009 . . . . .

Warrants Outstanding

Warrants Exercisable

Number
Outstanding
733,526
—
—
(4,619)
728,907
—
—
(250,000)
478,907
—
—
(478,907)
—

Weighted
Average
Price
per Share
$14.20
—
—
17.96
16.67

12.70
$14.02

$14.02
—

Number
Outstanding
603,685

Weighted
Average
Price
per Share
$14.02

680,873

16.61

478,907

$14.02

Non Vested
Warrants
129,661
(81,627)
—
—
48,034
(48,034)
—
—
—

—

—

—

The Company has reserved a total of 3,230,750 Class A shares in order to meet its obligations under

various conversion rights, warrants and employee share related plans. At December 31, 2009 there were
2,412,595 shares available for future option and similar grants.

14. Fair Value Measurements

Effective January 1, 2008, the Company adopted guidance regarding accounting for Fair Value

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

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

•

•

•

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

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

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

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)

14. Fair Value Measurements − (continued)

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable

inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty
credit risk in its assessment of fair value.

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

15. 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 (expense) . . . . . . . . . . . . . . . . . . . . . .
Dividend income(b) . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) on disposition of assets(a) . . . . . . . . . . . . .
Gain on recovery of investment . . . . . . . . . . . . . . . . .

2009

$(38)
—
(53)
—
$(91)

2008

$ 128
—
(142)
—
$ (14)

2007

$ 217
820
1,709
419
$3,165

(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.
In 2007, the Company received a dividend payment of $820 from the purchaser of the Secured Products
International Group.

(b)

16. Segmented Information

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

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. Segmented Information − (continued)

In order to position this strategic focus along the lines of how the CODM and management will base

their business decisions, the Company has now reorganized its segment reporting. Decisions regarding
allocation of resources are made and will be made based not only on the individual operating results of the
subsidiaries but also on the overall performance of the reportable segments. These reportable segments are the
aggregation of various reporting segments. The Company changed to the current presentation during the fourth
quarter of 2009 and all prior periods have been recasted.

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

•

•

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

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

The signiﬁcant accounting polices of these segments are the same as those described in the summary of

signiﬁcant accounting policies included in the notes to the consolidated ﬁnancial statements. The Company
continues to evaluate its Corporate Group and the services provided by the Corporate Group to the operating
segments. The Company has determined that additional amounts should be allocated to the operating segments
based on additional services provided in 2009. The Company will continue to evaluate the services and
amount of time spent directly on the operating segments business operations, and adjust accordingly.

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)

16. Segmented Information − (continued)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . . . . . . . . . . .
Office and general expenses. . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . .
Operating Proﬁt (Loss) . . . . . . . . . . . . . . . . . . . . . .

Other Income (Expense):
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange loss . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before income taxes,
equity in affiliates and noncontrolling interest . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before equity in

affiliates and noncontrolling interests . . . . . . . . . . .
Equity in earnings of affiliates . . . . . . . . . . . . . . . . .
Loss from continuing operations. . . . . . . . . . . . . . . .
Loss from discontinued operations attributable to

MDC Partners Inc., net of taxes . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . .
Net (loss) attributable to MDC Partners Inc.. . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . .
Capital expenditures from continuing operations . . . . .
Goodwill and intangibles. . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year Ended December 31, 2009

Strategic
Marketing
Services
$371,398
222,015
87,908
25,577
35,898

Performance
Marketing
Services
$174,526
132,297
30,898
8,466
2,865

Corporate
—
$
—
18,091
428
(18,519)

Total
$545,924
354,312
136,897
34,471
20,244

(91)
(1,947)
(21,754)

(3,548)
(8,536)

(12,084)
(8)
(12,092)

(876)
(12,968)
(5,356)
$ (18,324)
$ 15,444
$
6,212
$336,347
$604,519

(4,641)

(715)

—

$
8,742
$
3,620
$277,992
$430,959

$
868
$
2,353
$ 58,355
$112,780

$ 5,834
239
$
$
—
$ 60,780

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)

16. Segmented Information − (continued)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services sold . . . . . . . . . . . . . . . . . . . . .
Office and general expenses . . . . . . . . . . . . . . . .
Depreciation and amortization. . . . . . . . . . . . . . .
Operating Proﬁt (Loss) . . . . . . . . . . . . . . . . . . .

Other Income (Expense):
Other expense, net . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange gain. . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income
taxes and equity in affiliates . . . . . . . . . . . . . .
Income tax expense. . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before equity

in affiliates and noncontrolling interests. . . . . . .
Equity in earnings of affiliates . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . .
Loss from discontinued operations attributable to

MDC Partners Inc., net of taxes. . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the non-controlling

interests . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to MDC Partners Inc. . . . .
Stock-based compensation from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures from continuing operations . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year Ended December 31, 2008

Strategic
Marketing
Services
$363,580
226,699
84,408
24,814
27,659

Performance
Marketing
Services
$221,068
165,446
35,725
9,189
10,708

Corporate
—
$
—
17,622
401
(18,023)

Total
$584,648
392,145
137,755
34,404
20,344

(14)
13,257
(13,255)

20,332
(2,397)

17,935
349
18,284

(10,015)
8,269

(8,136)
133

$

$ 14,437
$ 14,395
$285,066
$529,239

(5,302)

(2,834)

—

$
6,162
$
9,192
$224,793
$358,834

$
3,697
$
5,094
$ 60,273
$132,609

$ 4,578
109
$
$
—
$ 37,796

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)

16. Segmented Information − (continued)

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

tables:

For the Year Ended December 31, 2007
Restated for Discontinued Operations

Strategic
Marketing
Services
$338,524
201,172
83,644
21,045
32,663

Performance
Marketing
Group
$195,359
142,125
32,442
7,672
13,120

Corporate
—
$
—
22,148
258
(22,406)

Total
$533,883
343,297
138,234
28,975
23,377

3,165
(7,192)
(11,099)

8,251
(6,081)

2,170
165
2,335

(8,173)
(5,838)

(20,517)
$ (26,355)

$ 10,217
$ 19,453
$273,125

$520,698

(17,457)

(3,060)

—

5,199
$
$ 10,267
$212,393

575
$
8,976
$
$ 60,732

$152,134

$ 4,443
210
$
—
$

$ 9,075

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
tax and equity in affiliates . . . . . . . . . . . . . . . .
Income tax expense. . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before equity

in affiliates and noncontrolling interests. . . . . . .
Equity in earnings of affiliates . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . .
Loss from discontinued operations attributable to

MDC Partners Inc., net of taxes. . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to the

noncontrolling interests . . . . . . . . . . . . . . . . .
Net loss attributable to MDC Partners Inc. . . . . . .
Stock-based compensation from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures from continuing operations . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . .

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

$359,489

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)

16. 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

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 30,322
$ 39,466

Goodwill and Intangible Assets

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$303,290
$256,120

$ 3,788
$ 3,680

$33,057
$28,946

$1,265
$ 875

$ —
$ —

$ 35,375
$ 44,021

$336,347
$285,066

A summary of the Company’s revenue as at December 31 is set forth in the following table.

Revenue:

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$456,759
$483,122
$426,059

$80,124
$89,230
$94,401

$ 9,041
$12,296
$13,423

$545,924
$584,648
$533,883

United States

Canada

Other

Total

17. Related Party Transactions

(a) The Company incurred fees and paid incentive awards totaling $3,945, $3,413 and $2,471 in 2009, 2008
and 2007, 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 continues to provide services to the Company as its Chief Executive Officer. The
Services Agreement has a three-year term with automatic one-year extensions. Pursuant to the Services
Agreement, the base compensation for Mr. Nadal’s services in 2009 was $1,000. The Services Agreement
also provides for an annual bonus with a targeted payout of up to 250% of the base compensation. The
Company also makes 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.
In addition during 2009, 2008 and 2007, in accordance with the Services Agreement, Mr. Nadal repaid an
additional $95, $83 and $458, respectively, 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
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$6,153 ($5,854), as at December 31, 2009, 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

84

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. Related Party Transactions − (continued)

purchased 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 2009, 2008 and 2007, Trapeze provided services to certain subsidiaries, the total amount of such

services provided were $105, $371 and $369, respectively. In addition, in 2009 and 2008, a subsidiary
provided Trapeze with $304 and $144 of services, respectively.

18. Commitments, Contingencies and Guarantees

Deferred Acquisition Consideration.

In addition to the consideration paid by the Company in respect of

certain of its acquisitions at closing, additional consideration may be payable, or may be potentially payable
based on the achievement of certain threshold levels of earnings. See Note 2 and Note 4.

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

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

Management estimates, assuming that the subsidiaries owned by the Company at December 31, 2009,
perform over the relevant future periods at their 2009 earnings levels, that these rights, if all exercised, could
require the Company, in future periods, to pay an aggregate amount of approximately $29,531 to the owners
of such rights to acquire such ownership interests in the relevant subsidiaries. Of this amount, the Company is
entitled, at its option, to fund approximately $2,765 by the issuance of share capital. In addition, the Company
is obligated under similar put option rights to pay an aggregate amount of approximately $5,366 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. The aggregate amount of these options of
$29,531 has been recorded on the balance sheet at December 31, 2009 and is included in Redeemable
Noncontrolling Interests.

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, 2009, 2008 and
2007, these operations did not incur any costs related to damages resulting from hurricanes.

Guarantees.

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

85

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. Commitments, Contingencies and Guarantees − (continued)

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

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

For guarantees and indemniﬁcations entered into after January 1, 2003, in connection with the sale of the

Company’s investment in CDI, the Company has estimated the fair value of its liability, which was
insigniﬁcant.

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

Commitments. The Company has commitments to fund $15 in an investment fund over a period of up

to two years. At December 31, 2009, the Company has $4,696 of undrawn outstanding letters of credit.

Leases. The Company and its subsidiaries lease certain facilities and equipment. Gross premises rental

expense amounted to $16,116 for 2009, $16,749 for 2008 and $15,718 for 2007, which was reduced by
sublease income of $59 in 2009, $31 in 2008 and $13 in 2007. 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 2010 and thereafter, are as follows:

Period

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$15,459
13,611
12,049
9,447
7,221
15,524
$73,311

At December 31, 2009, the total future cash to be received on sublease income is $805.

19. New Accounting Pronouncements

In January 2010, the FASB issued an Accounts Standards Update on Consolidation — Accounting and
Reporting for Decreases in Ownership of a Subsidiary — A Scope Clariﬁcation. This Guidance clariﬁes the
scope of the decrease in ownership provisions and expands the disclosure requirements about deconsolidation

86

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. New Accounting Pronouncements − (continued)

of a subsidiary or de-recognition of a group of assets. It is effective beginning in the ﬁrst interim of annual
reporting period ending on or after December 15, 2009. The adoption will not have an impact on our ﬁnancial
statements.

In January 2010, the FASB issued Fair Value Measurements and Disclosures — Improving Disclosures

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

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

In August 2009, the FASB issued an Accounting Standards Update, Fair Value Measurements and
Disclosures — Measuring Liabilities at Fair Value. The fair value measurement of a liability assumes transfer
to a market participant on the measurement date, not a settlement of the liability with the counterparty. This
Guidance describes various valuation methods that can be applied to estimating the fair values of liabilities,
requires the use of observable inputs and minimizes the use of unobservable valuation inputs. This is effective
for the fourth quarter of 2009. The adoption did not have a material impact on our ﬁnancial position, results
of operations or cash ﬂows.

In June 2009, the FASB introduced the FASB Accounting Standards Codiﬁcation and issued the revised

guidance on Hierarchy of Generally Accepted Accounting Principles, which is effective for the Company
July 1, 2009. This standard does not alter current U.S. GAAP, but rather integrates existing accounting
standards with other authoritative guidance. Under this standard there will be a single source of authoritative
U.S. GAAP for nongovernmental entities and will supersede all other previously issued non-SEC accounting
and reporting guidance.

In May 2009, the FASB issued revised guidance on Subsequent Events, which is effective for the
Company June 30, 2009. This statement provides guidance for disclosing events that occur after the balance
sheet date, but before ﬁnancial statements are issued or available to be issued. The Company evaluated
subsequent events through the date the accompanying ﬁnancial statements were issued, which was March 10,
2010. The adoption of this standard did not have a signiﬁcant impact on our Consolidated Financial
Statements.

In December 2007, FASB issued revised guidance on Business Combinations. These revised standards

retain some fundamental concepts of the current standard, including the acquisition method of accounting
(known as the ‘‘purchase method’’) for all business combinations but revised guidance broadens the
deﬁnitions of both businesses and business combinations, resulting in the acquisition method applying to more
events and transactions. This guidance also requires the acquirer to recognize the identiﬁable assets and
liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values. Both
acquisition-related costs and restructuring costs are required to be recognized separately from the acquisition

87

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. New Accounting Pronouncements − (continued)

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. This revised guidance is to be
applied prospectively for ﬁnancial statements issued for ﬁscal years beginning on or after December 15, 2008.
Early application is prohibited. The adoption of these revised standards did not have a material effect on our
ﬁnancial statements.

In December 2007, FASB issued guidance that now requires 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. The reclassiﬁcations must be applied prospectively 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 disclosure requirements retrospectively to
comparative ﬁnancial statements. Early application was prohibited. The guidance was expanded in 2008 to
require the recording of put options as mezzanine equity and a reduction of equity. The adoption of these new
standards has resulted in the Company recording the estimated redemption amount of its outstanding put
options as a reduction of Additional Paid in Capital and an increase in Redeemable Noncontrolling Interests of
$31.7 million as of January 1, 2009. As of December 31, 2008, the Company has reclassiﬁed $21.8 million of
minority interest to Redeemable Noncontrolling Interests, representing Noncontrolling Interests which could be
purchased by the Company pursuant to the exercise of an existing Put option. In addition, as of December 31,
2008, a portion of minority interest, which is not subject to put options, has been reclassiﬁed as part of
Equity-Noncontrolling Interest. Changes in the estimated redemption amounts of the put options are adjusted
at each reporting period with a corresponding adjustment to Equity. For the year ended December 31, 2008
and 2007, the Company reclassiﬁed net income attributable to the noncontrolling interests below net income
(loss), as a result net income for the three month period was increased by $8.1 million and the net loss was
reduced by $20.5 million, respectively. These adjustments will not impact the calculation of earnings per
share. At December 31, 2009, the Company reduced its estimated redemption amounts by $59.

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

In November 2008, the EITF issued guidance on Equity Method Investment Accounting Considerations,

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

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

88

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. New Accounting Pronouncements − (continued)

In May 2008, the FASB issued standards relating to the Accounting for Convertible Debt Instruments

That May Be Settled In Cash Upon Conversion (Including Partial Cash Settlement)’’, which is now included
in the Accounting Standards Codiﬁcation Topic Debt with Convertible and Other Options. The guidance
addresses the accounting for convertible debt instruments that, by their stated terms, may be settled in cash
upon conversion including partial cash settlement. This guidance is effective for ﬁscal years beginning after
December 15, 2008 and interim periods within those years. The adoption of this guidance did not have a
material effect on our ﬁnancial statements.

In May 2009, the FASB issued revised guidance on Subsequent Events, which is effective for the
Company June 30, 2009. This statement provides guidance for disclosing events that occur after the balance
sheet date, but before ﬁnancial statements are issued or available to be issued. The adoption of this standard
did not have a signiﬁcant impact on our Consolidated Financial Statements.

In June 2009, the FASB issued revised guidance on the topic of Accounting for Variable Interest Entities,

which we will adopt effective January 1, 2010. This guidance revises factors that should be considered by a
reporting entity when determining whether an entity that is insufficiently capitalized or is not controlled
through voting (or similar rights) should be consolidated and also includes revised ﬁnancial statement
disclosures regarding the reporting entity’s involvement and risk exposure. This Guidance will not have a
material impact on our ﬁnancial statements.

20. Accounting Changes

As of January 1, 2009, the accounting for Minority Interests, Redeemable Noncontrolling Interests, and

Noncontrolling Interests changed. Effective January 1, 2009, the accounting changed for business
combinations due to the adoption of a new accounting pronouncement. See Notes 2 and 19.

21. Subsequent Events

From January 1, 2010 to March 10, 2010, the Company completed a number of acquisitions and step-ups

in ownership. The Company purchased a 75% equity interest in Communifx Partners LLC, a 60% equity
interest in TEAM Holdings LLC, an additional 15% equity interest in Fletcher Martin, LLC and an additional
1% equity interest in HL Group Partners, LLC. Communifx Partners LLC builds and manages large-scale
customer database solutions to enable the planning, execution, and measurement of multi-channel marketing
and advertising programs. TEAM Holdings LLC produces immersive, interactive brand experiences that
physically engage and inﬂuence consumers at the point of sale. The Company purchased the additional equity
interests in Fletcher Martin, LLC pursuant to the exercise of outstanding puts. The purchase price paid for
these acquisitions and step-up consisted of aggregate cash payments of $15,414 plus additional contingent
payments that are based on actual results from 2010 to 2012 with ﬁnal payments due in 2013. In addition, the
Communifx Partners LLC acquisition has put/call rights that could increase the Company’s ownership to
100% in 2013. At this time, the acquisition accounting has not been ﬁnalized.

89

MDC PARTNERS INC. AND SUBSIDIARIES

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

22. 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, 2009 and 2008, in thousands of dollars, except per share
amounts.

First

Second

Third

Fourth

Quarters

Revenue:

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$126,738
$140,902

$134,882
$156,949

$134,625
$142,089

Cost of services sold:

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 85,879
$ 95,519

$ 88,238
$102,332

$ 85,526
$ 94,559

Income from continuing operations:

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

663
1,767

$
$

1,170
1,463

Net income (loss) attributable to MDC Partners Inc.:

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
29
$ (3,394)

$
79
$ (4,472)

Income (loss) per common share:
Basic

Continuing operations:

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income (loss):

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted

Continuing operations:

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income (loss):

2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

$
$

$
$

$
$

0.01
(0.01)

0.00
(0.13)

0.01
(0.01)

0.00
(0.13)

$
$

$
$

$
$

$
$

0.01
(0.06)

0.01
(0.17)

0.01
(0.06)

0.01
(0.17)

$
$

$
$

$
$

$
$

$
$

$
$

2,240
5,387

36
3,250

0.00
0.15

0.00
0.12

0.00
0.15

0.00
0.12

$149,679
$144,708

$ 94,669
$ 99,735

$ (16,165)
9,667
$

$ (18,468)
4,749
$

$
$

$
$

$
$

$

(0.65)
0.30

(0.67)
0.18

(0.65)
0.29

(0.67)
0.18

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.

Income (loss) from continuing operations and net loss have been affected as follows:

•

•

•

•

•

The fourth quarter of 2008 includes non-cash stock based compensation charges of $6,961 relating
to acquisitions. See Note 4.

The third and fourth quarters of 2008 include unrealized foreign exchange gains of $5,582 and
$7,675, respectively.

The fourth quarter of 2009 includes non-cash stock based compensation charges of $6,472 and
additional amortization of $3,979 relating to acquisitions. See Note 4.

The third quarter of 2009 includes an unrealized foreign exchange loss of $3,079.

The fourth quarter of 2009 interest expense includes termination fees of $1,850 and the write off of
$2,564 deferred ﬁnancing fees relating to the termination of the old ﬁnancing agreement, and $4,870
of interest expense relating to the 11% Notes.

90

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,

including our CEO, our CFO and our management Disclosure Committee, of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-
15(b) of the Exchange Act. Based on that evaluation, the Company has concluded that its disclosure controls
and procedures were effective.

(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, 2009.
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
assessment, we believe that, as of December 31, 2009, 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, 2009, 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, 2009, that has materially affected, or is reasonably likely to materially affect, our internal
control over ﬁnancial reporting.

91

(d) Report of Independent Registered Public Accounting Firm

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

We have audited MDC Partners, Inc. and subsidiaries’ internal control over ﬁnancial reporting as of
December 31, 2009 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
reporting 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
assurance 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

assurance 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
company; (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
expenditures 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, 2009, 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
December 31, 2009 and 2008 and the related consolidated statement of operations, shareholders’ equity, and
cash ﬂows for the years ended December 31, 2009 and 2008 and our report dated March 10, 2010 expressed
an unqualiﬁed opinion thereon.

/s/ BDO Seidman, LLP

New York, New York
March 10, 2010

Item 9B. Other Information

Not Applicable.

92

PART III

Item 10. Directors and Executive Officers of the Registrant

Reference is made to the sections captioned ‘‘Election of Directors,’’ ‘‘Information Concerning

Nominees,’’ ‘‘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
Statement for the 2010 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, 2009, which sections are incorporated
herein by reference.

Executive Officers of MDC Partners

The executive officers of MDC Partners as of March 1, 2010 are:

Name
Miles S. Nadal(1)
Stephen Pustil(1)
David B. Doft
Charles K. Porter
Robert E. Dickson
Mitchell S. Gendel
Michael C. Sabatino
Gavin Swartzman

Age

52
66
38
65
51
44
45
45

Office

Chairman of the Board, Chief Executive Officer and President
Vice Chairman
Chief Financial Officer
Chief Strategist
Managing Director
General Counsel & Corporate Secretary
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 is the founder of MDC and has held the positions of Chairman of the Board and Chief
Executive Officer of MDC since 1986, and the position of President since 2007. Mr. Nadal is also the founder
and a partner of Peerage Capital, a Canadian private equity ﬁrm, Peerage Realty Partners, and Artemis
Investment Management. Mr. Nadal is active in supporting various business and community organizations
including Mount Sinai Hospital, 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 its Vice Chairman since 1992. Mr. Pustil is also a

Managing Partner at Peerage Capital, President of Peerage Realty Partners, and Chairman of Artemis
Investment Management. 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. 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 a chairman of Crispin Porter + Bogusky, one of the top creative shops in the country.
Crispin Porter + Bogusky joined Maxxcom Inc., a subsidiary of MDC Partners, in January 2001.

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.

93

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. Sabatino joined MDC Partners in April 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
International 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
regulations. 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

Statement, which is incorporated herein by reference.

94

Item 15. Exhibits and Financial Statements Schedules

PART IV

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

The audits referred to in our report dated March 10, 2009 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 audit
of the ﬁnancial statement Schedule II for years ending 2009, 2008 and 2007. This ﬁnancial statement schedule
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, presents fairly, in all material respects, the information set forth therein.

/s/ BDO Seidman, LLP

New York, New York
March 10, 2010

95

(a) Financial Statements and Schedules

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, 2009
(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

Removal of
Uncollectable
Receivables

Translation
Adjustments
Increase
(Decrease)

Balance
at the
End of
Period

Description
Valuation accounts deducted from

assets to which they
apply − allowance for doubtful
accounts:

December 31, 2009 . . . . . . . . . . . .
December 31, 2008 . . . . . . . . . . . .
December 31, 2007 . . . . . . . . . . . .

$2,179
$1,357
$1,633

$ 946
$1,891
$ 529

$(1,154)
$ (962)
$ (872)

$ 63
$(107)
$ 67

$2,034
$2,179
$1,357

Schedule II — 2 of 2

MDC PARTNERS INC. & SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31, 2009
(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, 2009 . . . . . . . . . . . .
December 31, 2008 . . . . . . . . . . . .
December 31, 2007 . . . . . . . . . . . .

$59,781
$86,125
$65,790

$ 2,656
$(4,149)
$ 6,870

$(2,705)(1)
$(8,250)(1)
$ 6,853(1)

$ 6,164
$(13,945)
$ 6,612

$65,896
$59,781
$86,125

(1) Adjustment to reconcile actual net operating loss carry forwards to prior year tax accrued, utilization of
net operating loss carry forwards, 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.

96

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Date: March 10, 2010

By: /s/ Miles S. Nadal

MDC PARTNERS INC.

Name: Miles S. Nadal
Title: Chairman, Chief Executive Officer and President

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

Title

Date

/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/ 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 10, 2010

Presiding Director

Director

Director

Director

Director

March 10, 2010

March 10, 2010

March 10, 2010

March 10, 2010

March 10, 2010

Director, Vice Chairman

March 10, 2010

Chief Financial Officer

March 10, 2010

Senior Vice President and Chief Accounting Officer

March 10, 2010

97

Exhibit
No.

3.1

3.1.1

3.2

4.1

10.1

10.1.1

10.2

10.3

10.3.1

10.3.2

10.4

10.5

10.6

10.7

10.7.1

10.8

10.9

EXHIBIT INDEX

Description

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);
Indenture, dated as of October 23, 2009, by and between the Company, the Note Guarantors, and
The Bank of New York Mellon, as trustee, relating to the issuance of the Company’s 11% Senior
Notes due 2016 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K ﬁled on
October 26, 2009);
Purchase Agreement, dated October 20, 2009, by and among the Company and Goldman,
Sachs & Co., as representative of the initial purchasers, relating to the issuance of the Company’s
11% Senior Notes due 2016 (incorporated by reference to Exhibit 1.1 to the Company’s Form 8-
K ﬁled on October 26, 2009);
Exchange and Registration Rights Agreement, dated as of October 23, 2009, by and among the
Company, and Goldman, Sachs & Co., as representative of the initial purchasers, relating to the
issuance of the Company’s 11% Senior Notes due 2016 (incorporated by reference to Exhibit
10.1 to the Company’s Form 8-K ﬁled on October 26, 2009);
Credit Agreement, dated as of October 23, 2009 by and among the Company, Maxxcom Inc., a
Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Foothill, LLC, as
agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s
Form 8-K ﬁled on October 26, 2009);
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 on 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);
Letter Agreement between the Company and Miles Nadal dated April 1, 2008 (incorporated by
reference to Exhibit 10.3.2 to the Company’s Form 10-K ﬁled on March 9, 2009);
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
(effective August 10, 2007) (incorporated by reference to Exhibit 10.7 to the Company’s Form
10-Q ﬁled 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);
Employment Agreement between the Company and Robert Dickson, dated July 26, 2002
(incorporated 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 (incorporated by reference to Exhibit 10.8.1 to the Company’s Form 10-K
ﬁled on March 10, 2008);
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);

98

Exhibit
No.

10.10

10.11

10.11.1

10.12

10.12.1

10.12.2

10.12.3

10.12.4

10.12.5
10.12.6
10.13

10.14

10.14.1

10.14.2

12
14

14.1
21
23
31.1

31.2

32.1

32.2

Description

Agreement of Separation and Release between the Company and Graham Rosenberg, dated
August 31, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-K ﬁled
on November 2, 2009);
Amended and Restated Stock Appreciation Rights Plan, as adopted by the shareholders of the
Company at the 2009 Annual and Special Meeting of Shareholders on June 2, 2009 (incorporated
by reference to Exhibit 10.2 to the Company’s Form 8-K ﬁled on June 5, 2009);
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
shareholders of the Company at the 2009 Annual and Special Meeting of Shareholders on June 2,
2009 (incorporated by reference to Exhibit 10.1 to the Company’s 8-K ﬁled on June 5, 2009);
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 Financial Performance-Based Restricted Stock Grant Agreement (incorporated by
reference 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);
Form of Restricted Stock Grant Agreement (2010)*
Form of Restricted Stock Unit (RSU) Grant Agreement (2010)*
2008 Key Partner Incentive Plan, as approved and adopted by the shareholders of the Company
at the 2008 Annual and Special Meeting of Shareholders on May 30, 2008 (incorporated by
reference to Exhibit 10.1 to the Company’s Form 10-Q ﬁled on July 31, 2008);
Membership Interest Purchase Agreement (17%) dated November 10, 2008, among the Company,
CPB Acquisition Inc., MDC Acquisition Inc., and Crispin Porter & Bogusky LLC (‘‘CPB’’),
Crispin & Porter Advertising Inc., and certain employees of CPB (incorporated by reference to
Exhibit 10.15 of the Company’s Form 10-K ﬁled on March 9, 2009);
Amendment No. 1, dated October 5, 2009, to Membership Interest Purchase Agreement dated
November 10, 2008*
Amendment No. 2, dated December 1, 2009, to Membership Interest Purchase Agreement dated
November 10, 2008*
Statement of computation of ratio of earnings to ﬁxed charges*;
Code of Conduct of MDC Partners Inc. (incorporated by reference to Exhibit 14 to the
Company’s Form 10-K ﬁled on March 10, 2008);
MDC Partners’ Corporate Governance Guidelines, amended in May 2009*;
Subsidiaries of Registrant*;
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*;
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.

99

[This page intentionally left blank.] 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, CEO, & 
President: 
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 

6 Degrees Integrated 
Communications 
(a/k/a Accumark  
Communications) 
1210 Sheppard Ave. East 
Suite 700 
North York, ON  M2K 1E3 
Tel: 416-446-7758 
Fax: 416-446-1923 
www.accumark.ca 
President:  
Tom Green 

BOOM! Marketing 
Tel: 416-446-7720 
www.boommarketing.ca 
President:  
Nicole Gallucci 

ACCENT 
400 Missouri Avenue 
Suite 100 
Jeffersonville, Indiana 
47130 
Tel: 812-206-6200 
Fax: 812-206-6201 
www.accentonline.com 
President: 
Kevin Foley 

Adrenalina  
411 Lafayette Street 
6th Floor 
New York, New York 10013 
Tel. 212-924-2981 
Fax: 212-206-6491 
www.getadrenalina.com 
President & Managing 
Partner: 
Manuel Wernicky 

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 

Attention Partners 
411 Lafayette Street, 5th Floor 
New York, New York 10003 
Tel. 917-512-2121 
Fax: 212-967-1240 
www.attentionusa.com 
Founder & CEO: 
Curtis Hougland 

Bruce Mau Design 
469C King Street West 
Toronto, Ontario  
M5V 2K5 
Tel: 416-306-6401 
www.brucemaudesign.com 
Chairman:  
Bruce Mau 

Chicago 
444 N. Michigan Ave. 
27th Floor 
Chicago, Illinois 60611-3905 
Tel: 312-527-0500 
Fax: 312-896-2401 

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 

Bryan Mills Iradesso 

Calgary 
400, 805 – 10th Avenue SW 
Calgary, Alberta  
T2R 0B4 
www.iradesso.com 
President: 
Peter Knapp 

Colle + McVoy 
400 First Avenue N. 
Suite 700 
Minneapolis, Minnesota 
55401-1954 
Tel: 612-305-6000 
Fax: 612-305-6001 
www.collemcvoy.com 
CEO: 
Christine Fruechte 

Exponent Public Relations 
Tel: 612-305-6135 
www.exponentpr.com 
President: 
Riff Yeager 

Communifx Partners 
1253 Freedom Road 
Cranberry Township 
Pennsylvania  16066 
Tel: 724-935-8655 
www.communifx.com 
COO: 
Gary Cerrone 

Computer Composition of 
Canada Inc. 
12 Stanley Court 
Whitby, Ontario  
L1N 8P9 
Tel: 905-430-3400 
Fax: 905-430-2412 
www.comptercomposition.ca 
General Manager: 
Linda Rowe 

XML Simplicity  
Tel: 905-430-3400 
Fax: 905-430-2412 
www.xml-simplicity.com 
General Manager: 
Keith Matthew 

Crispin Porter + Bogusky 
3390 Mary Street 
Office 300 
Coconut Grove, FL 33133 
www.cpbgroup.com 
Chairman:  
Chuck Porter 
CEO: 
Jeff Hicks 
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 

Gothenburg 
CP+B Europe 
Östra Hamngatan 26-28 
SE-411 09 Gothenburg 
Sweden 
Phone: +46 31 339 60 60 
Fax: +46 31 339 60 61 
www.cpbeurope.com 

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 

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 

kirshenbaum bond senecal 
+ partners  
160 Varick Street 
New York, NY 10013 
www.kb.com 
Tel: 212-633-0080 
Fax: 212-633-8643 
Chairman: 
Richard Kirshenbaum 
President & CEO: 
Lori Senecal 

company c 
www.companycmarketing.com 
President: 
Nick Nocca 

Dotglu 
www.dotglu.com 
President:  
Steve Thibodeau 

LIME Public Relations & 
Promotions 
www.limeprpromo.com 
President:  
Claudia Strauss 

Varick Media Management 
www.varickmm.com 
President & Founder: 
Darren Herman 

The Media Kitchen 
www.mediakitchen.tv 
President:  
Barry Lowenthal 

Trend Influence 
303 Peachtree Center Ave. 
Suite 625 
Atlanta, GA 30303 
Tel: 404-221-1188 
Fax: 404-223-1136 
www.trendinfluence.com 
President:   
Jill Meiser 

Mono Advertising LLC 
3036 Hennepin Avenue 
Minneapolis, Minnesota 55408 
Tel: 612-454-4900 
Fax: 612-822-4136 
www.mono-1.com 
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 & CEO: 
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 

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   

SKINNY 
160 Varick Street 
New York, NY 10013 
www.skinnynyc.com 
Founders & Managing 
Directors: 
Jonas Hallberg 
Tel: 212-337-4709 
Liron Reznik 
Tel: 212-337-4742 

Sloane & Company 
Times Square Towers 
7 Times Square, 17th Floor 
New York, New York 10036 
Tel:212-486-9500 
Fax: 212-486-9094 
www.sloanepr.com 
CEO: 
Elliot Sloane 

Source Marketing, LLC 
761 Main Avenue 
Norwalk, Connecticut  06859 
Tel: 203-291-4000 
Fax: 203-229-0865 
www.source-marketing.com 
CEO:  
Derek Correia 

Humongo 
155 Main Street, 4th Floor 
Danbury, Connecticut  06810 
Tel: 203-730-6300 
Fax: 203-730-6303 
www.humongoagency.com 

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 

TEAM Enterprises 
110 E. Broward Blvd. 
Suite 2450 
Fort Lauderdale, Florida 33301 
Tel: 954-862-2400 
Fax: 954-449-0273 
www.teament.com 
President: 
Daniel Gregory 

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 

Vitro 
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 
Chairman and CEO: 
Andy Macaulay 

Zig (USA) LLC 
848 West Eastman 
Suite 204 
Chicago, Il  60622 
Tel: 312-587-3333 
Fax: 312-587-3334 
www.zigideas.com 

Zyman Group, LLC 
303 Peachtree Center Ave. 
Suite 625 
Atlanta, GA 30303 
Tel: 404-682-5400 
Fax: 404-682-5446 
www.zyman.com 
Chairman: 
Scott Miller 
Vice Chairman: 
David Morey 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Board of Directors and Corporate Officers 

Chairman 

Directors 

Corporate Officers 

Miles S. Nadal 
Chairman, President, 
& Chief Executive Officer, 
MDC Partners Inc. 

Miles S. Nadal 
Chairman, Chief Executive Officer, 
and President 

David B. Doft 
Chief Financial Officer 

Rob Dickson 
Managing Director 

Mitchell Gendel 
General Counsel & 
Corporate Secretary 

Charles Porter 
Chief Strategist 

Michael Sabatino 
Senior Vice President & 
Chief Accounting Officer 

Gavin Swartzman 
Managing Director 

Thomas N. Davidson (1) (3) 
Chairman, 
NuTech Precision Metals, Inc. 
Chairman, 
Quarry Hill Group 

Clare R. Copeland (1) (2) 
Chief Executive Officer, 
Falls Management Company 

Robert J. Kamerschen (2) (3) 
Presiding Director 
Private Investor, Senior Advisor 
and Consultant 

Scott L. Kauffman (2) (3) 
President & Chief Executive Officer, 
Director,  
GeekNet, Inc. 

Hon. Michael J.L. Kirby (1) (2) (3) 
The Senate of Canada (Ret.) 
Corporate Director 

Stephen M. Pustil 
Vice Chairman 
Managing Partner, 
Peerage Capital 
President, 
Peerage Realty Partners 
Chairman, 
Artemis Investment Management 

(1) Audit Committee 

(2) Human Resources & Compensation Committee 
(3) Nominating and Corporate Governance Committee 

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 David B. Doft, Chief 
Financial Officer, at: 646-429-1818. 

The annual meeting of shareholders will be 
held at The Core Club, 66 E. 55th Street, New 
York, N.Y. on Thursday, June 3, 2010 at 
10:00 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”.