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, 2016
Commission File Number 001-13718
 
 
MDC PARTNERS INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Canada
 
98-0364441
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
745 Fifth Avenue, 19th Floor
New York, New York, 10151
(646) 429-1800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
 
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
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 o No ý
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 o No ý
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 ý No o
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 ý No o
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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (Check one):
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated o
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No ý
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, 2016 was approximately $932.2 million , computed upon the basis of the closing sales price ( $18.29 /share) of the Class A subordinate voting shares on that date.
As of February 27, 2017, there were 55,304,347 outstanding shares of Class A subordinate voting shares without par value, and 3,755 outstanding shares of Class B multiple voting shares without par value, of the registrant.


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MDC PARTNERS INC. 

TABLE OF CONTENTS

 
 
Page
PART I
PART II
PART III
PART IV
 

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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. References in the Annual Report on Form 10-K to “Partner Firms” generally refer to the Company’s subsidiary agencies.
All dollar amounts are stated in U.S. 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 7, 2017, are incorporated by reference in Parts I and III: “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Executive Compensation,” “Report of the Human Resources and Compensation Committee on Executive Compensation,” “Outstanding Shares,” “Appointment of Auditors,” and “Certain Relationships and Related Transactions.”
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 (the “SEC”). The information found on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this Annual Report or Form 10-K. 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 operation of 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 and Compensation Committee and 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., 745 Fifth Avenue, 19th Floor, New York, New York 10151, Attention: Investor Relations.

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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, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, 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:
successful completion of the convertible preference financing with Goldman Sachs on the anticipated terms and conditions;
risks associated with the one Canadian securities class action litigation claim;
risks associated with severe effects of international, national and regional economic conditions;
the Company’s ability to attract new clients and retain existing clients;
the spending patterns and 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 redeemable noncontrolling interests 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 acquisitions of ownership interests in entities in the marketing communications services industry. The Company intends to finance these acquisitions by using available cash from operations, from borrowings under the Credit Agreement (as defined below) and through incurrence of bridge or other debt financing, any 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 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 Item 1A, 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 of the United States of America (“U.S. GAAP”). However, the Company has included certain non-U.S. 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 U.S. 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 U.S. GAAP.

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PART I
Item 1. Business
MDC PARTNERS INC.
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 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 address is located at 33 Draper Street, Toronto, Ontario, M5V 2M3, and its head office address is located at 745 Fifth Avenue, 19th Floor, New York, New York 10151.
About Us
MDC is a leading provider of global marketing, advertising, activation, communications and strategic consulting solutions. MDC and its Partner Firms (as defined below) deliver a wide range of customized services, including (1) global advertising and marketing services, (2) media buying, planning and optimization, (3) interactive and mobile marketing, (4) direct marketing, (5) database and customer relationship management, (6) sales promotion, (7) corporate communications, (8) market research, (9) data analytics and insights, (10) corporate identity, design and branding services, (11) social media communications, (12) product and service innovation and (13) e-commerce management.
Market Strategy
MDC’s strategy is to build, grow and acquire market-leading businesses that deliver innovative, value-added marketing, activation, communications and strategic consulting services to their clients. By doing so, MDC strives to be a partnership of marketing communications and consulting companies (or “Partner Firms”) whose strategic, creative and innovative solutions are media-agnostic, challenge the status quo, achieve measurable superior returns on investment, and drive transformative growth and business performance for its clients and stakeholders.
The MDC model is driven by three key elements:
Perpetual Partnership.   The perpetual partnership model creates ongoing alignment of interests between MDC and its Partner Firms to drive the Company’s overall performance by (1) identifying the “right” Partner Firms with a sustainable differentiated position in the marketplace, (2) creating the “right” partnership structure 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 succession planning support and compensation models to incentivize future leaders and second-generation executives, (4) leveraging the network's scale to provide access to strategic resources and best practices and (5) focusing on delivering financial results.
Entrepreneurialism.   The entrepreneurial spirit of both MDC and its Partner Firms is optimized through (1) its unique perpetual partnership model that incentivizes senior-level involvement and ambition, (2) access to shared resources within the Corporate Group that allow individual firms to focus on client business and company growth and (3) MDC’s collaborative creation of customized solutions to support and grow Partner Firm businesses.
Human and Financial Capital.   The perpetual partnership model balances accountability with financial flexibility and meaningful incentives to support growth.
Financial Reporting Segments
MDC conducts its business through its network of Partner Firms, the “Advertising and Communications Group”, who provide a comprehensive array of marketing and communications services for clients both domestically and globally. The Partner Firms provide a wide range of service offerings, which in some cases are the same or similar service offerings. The core or principal service offerings are the key factors that distinguish the Partner Firms from one another. Each Partner Firm represents an operating segment and the Company aggregates its Partner Firms to report in one Reportable segment along with an “all other” segment.
The Reportable segment is comprised of the Company’s integrated advertising, media, and public relation service firms. Firms within this segment include Allison & Partners, Anomaly, Crispin Porter + Bogusky, Doner, Forsman & Bodenfors, Hunter PR, kbs, MDC Media Partners, and 72andSunny, among others. These core or principal service offerings are similar and/or complementary in many respects and the Partner Firms that provide these service offerings both compete and/or collaborate with each other for new business. Although each Partner Firm in the Reportable segment may be recognized for their core/primary service offering, the Partner Firms also offer an array of services in order to drive results for their clients.


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The “all other” segment is comprised of the firms that provide the Company’s specialist marketing offerings such as direct marketing, sales promotion, market research, strategic communications, database and customer relationship management, data analytics and insights, corporate identity, design and branding, and product and service innovation. Firms within this segment include Gale Partners, Kingsdale Advisors, Relevent, Team, Redscout and Y Media Labs. The service offerings that these firms provide may include some that relate to advertising, PR, and media services; however, these Partner Firms provide more specialized offerings that generally are complementary and are provided to round out the service offerings. Many of these service offerings are project-based with a high level of billable expenses and thus pass-thru revenue, which has a direct impact on margins. In addition, there are some areas of specialization and pricing that lead to a more targeted client base.
MDC also reports results for the “Corporate Group.” The Corporate Group provides shared services to the Company and the Partner Firms, including accounting, administrative, strategic, financial, human resource and legal functions. The Corporate Group ensures that MDC is the most partner-responsive marketing services network through its strategic mandate to help Partner Firms accelerate their growth. The Corporate Group leverages the collective expertise and scale of MDC’s network to (1) provide business development support, talent, business planning, IT, procurement, real estate, communications, and legal to the Partner Firms, (2) help the Partner Firms source and execute tuck-under acquisitions, (3) facilitate cross-selling among the Partner Firms and (4) expand the Partner Firms’ service offerings and geographic footprints.
For further information relating to the Company’s advertising and communications businesses, refer to Note 14 (Segment Information) of the Notes to the Consolidated Financial Statements included in this Annual Report and to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Ownership Information
The following table includes certain information about MDC’s operating subsidiaries as of December 31, 2016 .

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MDC PARTNERS INC.
SCHEDULE OF ADVERTISING AND COMMUNICATIONS COMPANIES
 
 
Year of Initial
 
 
Company
 
Investment
 
Locations
Consolidated:
 
 
 
 
Reportable Segment:
 
 
 
 
72andSunny
 
2010
 
Los Angeles, New York, Netherlands, UK
Allison & Partners
 
2010
 
San Francisco, Los Angeles, New York, China, France, Singapore, UK, Japan, Germany, and other global locations
Anomaly
 
2011
 
New York, Los Angeles, Netherlands, Canada, UK, China
Colle + McVoy
 
1999
 
Minneapolis
Concentric Partners
 
2011
 
New York, UK
Crispin Porter + Bogusky
 
2001
 
Miami, Boulder, Los Angeles, UK, Sweden,
Denmark, Brazil, China
Doner
 
2012
 
Detroit, Cleveland, Los Angeles, UK
Forsman & Bodenfors
 
2016
 
Sweden
HL Group Partners
 
2007
 
New York, Los Angeles, China
Hunter PR
 
2014
 
New York, UK
kbs
 
2004
 
New York, Canada, China, UK, Los Angeles
Albion
 
2014
 
UK
Attention
 
2009
 
New York, Los Angeles
Kenna
 
2010
 
Canada
The Media Kitchen
 
2004
 
New York, Canada, UK
Kwittken
 
2010
 
New York, UK, Canada
Laird + Partners
 
2011
 
New York
MDC Media Partners
 
2010
 
 
Assembly
 
2010
 
New York, Detroit, Atlanta, Los Angeles
EnPlay
 
2015
 
New York
LBN Partners
 
2013
 
Detroit, Los Angeles
Trade X
 
2011
 
New York
Unique Influence
 
2015
 
Austin
Varick Media Management
 
2008
 
New York
Mono Advertising
 
2004
 
Minneapolis, San Francisco
Sloane & Company
 
2010
 
New York
Union
 
2013
 
Canada
Veritas
 
1993
 
Canada
Vitro
 
2004
 
San Diego, Austin
Yamamoto
 
2000
 
Minneapolis
All Other:
 
 
 
 
6degrees Communications
 
1993
 
Canada
Boom Marketing
 
2005
 
Canada
Bruce Mau Design
 
2004
 
Canada
Civilian
 
2000
 
Chicago
Gale Partners
 
2014
 
Canada, New York, India
Hello Design
 
2004
 
Los Angeles
Rumble Fox
 
2014
 
New York
Kingsdale
 
2014
 
Canada, New York
Luntz Global
 
2014
 
Washington, D.C.
Northstar Research Partners
 
1998
 
Canada, New York, UK, Indonesia
Redscout
 
2007
 
New York, San Francisco, UK
Relevent
 
2010
 
New York
Source Marketing
 
1998
 
Connecticut, Pennsylvania
TEAM
 
2010
 
Ft. Lauderdale
Y Media Labs
 
2015
 
Redwood City, New York, India

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Competition
In the competitive, highly fragmented marketing and communications industry, MDC’s Partner Firms compete for business and talent with the operating subsidiaries of large global holding companies such as Omnicom Group Inc., Interpublic Group of Companies, Inc., WPP plc, Publicis Groupe SA, Dentsu Inc. and Havas SA. 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 Partner Firms also faces competition from numerous independent agencies that operate in multiple markets, as well as newer competitors such as IT consulting, tech platforms, and other services firms that have begun to offer marketing-related services. MDC’s Partner Firms must compete with all of these other companies to maintain existing client relationships and to obtain new clients and assignments. MDC’s Partner Firms compete at this level by providing clients with disruptive 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 its entrepreneurial Partner Firms through referrals and the sharing of both services and expertise, which enables MDC to service clients’ varied marketing needs around the world by crafting custom integrated solutions.
A Partner Firm’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
There are several recent economic and industry trends that affect or may be expected to affect the Company’s results of operations. 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 these changes in the way consumers interact with media is increasing the demand for a broader range of non-advertising marketing communications services (i.e., direct marketing, sales promotion, interactive, mobile, strategic communications and public relations), which we expect could have a positive impact on our results of operations. In addition, the rise of technology and data solutions have rendered scale less crucial as it once was in areas such as media buying, creating significant opportunities for agile and modern players. Global marketers now demand breakthrough and integrated creative ideas, and no longer require traditional brick-and-mortar communications partners in every market to optimize the effectiveness of their marketing efforts. Combined with the fragmentation of the media landscape, these factors provide new opportunities for small to mid-sized communications companies like those in the MDC network. In addition, marketers now require ever greater speed-to-market to drive financial returns on their marketing and media investment, causing them to turn to more nimble, entrepreneurial and collaborative communications firms like MDC Partner Firms.
As client procurement departments have focused increasingly on marketing services company fees in recent years, the Company has invested in resources to work with client procurement departments to ensure that we are able to deliver against client goals in a mutually beneficial way. For example, the Company has explored new compensation models, such as performance-based incentive payments and equity, in order to greater align our success with our clients. These incentive payments may offset negative pricing pressure from client procurement departments.
Clients
The Company serves clients in virtually every industry, and in many cases, the same clients in various locations, and through several Partner Firms and across many disciplines. Representation of a client rarely means that MDC handles marketing communications for all brands or product lines of the client in every geographical location. For further information regarding revenues and long-lived assets on a geographical basis for each of the last three years, see Note 14 of the Notes to the Consolidated Financial Statements.
MDC’s agencies have written contracts with many of their clients. As is customary in the industry, these contracts generally provide for termination by either party on relatively short notice, usually 90 days. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Overview” for a further discussion of MDC’s arrangements with its clients.
During 2016 , 2015 and 2014 , the Company did not have a client that accounted for 5% or more of revenues. In addition, MDC’s ten largest clients (measured by revenue generated) accounted for 23% , 24% and 24% of 2016 , 2015 and 2014 revenues, respectively.

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Employees
As of December 31, 2016 , MDC and its subsidiaries had the following number of employees:
Segment
 
Total
Reportable Segment
 
5,086

All Other
 
974

Corporate Group
 
78

Total
 
6,138

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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 its 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 “Forward-Looking Statements.”
The pending preferred equity financing may not be completed, which could adversely affect our business, results of operations and/or financial condition or the price of our Class A shares.
On February 14, 2017, we entered into a securities purchase agreement (the “Purchase Agreement”) with Broad Street Principal Investments, L.L.C., an affiliate of The Goldman Sachs Group Inc. (the “Purchaser”), pursuant to which we have agreed to issue and sell to the Purchaser and the Purchaser has agreed to purchase 95,000 newly authorized Series 4 convertible preference shares for an aggregate purchase price of $95.0 million (the “Preference Shares”). The transaction is expected to close in the first quarter of 2017, subject to the conditions set forth in the Purchase Agreement. Although the Purchase Agreement requires the parties to use reasonable efforts to consummate the transaction, we cannot assure you that all closing conditions will be satisfied or waived. The Purchase Agreement will expire if the closing has not occurred by the sixtieth day following the date of the Purchase Agreement. If the transaction is not completed, we will be subject to a number of risks, including: we must pay costs related to the transaction, including legal and financial advisory fees, whether the transaction is completed or not; the trading price of our Class A shares may decline if the transaction is not completed, to the extent that the market price reflects a market assumption that the transaction will be completed; we may be required to seek alternative sources of liquidity, as to the availability or terms of which we cannot provide assurance, and we could be subject to litigation related to the failure to complete the transaction or other factors, all of which may adversely affect our business, results of operations and/or financial results and the price of our Class A shares.
Future economic and financial conditions could adversely impact our financial condition and results.
Advertising, marketing and communications expenditures are sensitive to global, national and regional macroeconomic conditions, as well as specific budgeting levels and buying patterns. Adverse developments including heightened uncertainty could reduce the demand for our services, which could adversely affect our revenue, results of operations, and financial position in 2017 .
a. As a marketing services company, our revenues are highly susceptible to declines as a result of unfavorable economic conditions.
Global economic conditions affect the advertising and marketing services industry more severely than other industries. 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. 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 unfavorable economic and financial conditions that have impacted many sectors of the global economy could result in an increase in client financial difficulties that affect us. The direct impact on us could include

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reduced revenues and write offs of accounts receivable. If these effects were severe, the indirect impact could include impairments of goodwill, covenant violations relating to MDC’s senior secured revolving credit agreement (the “Credit Agreement”) or the $900 million aggregate principal amount of 6.50% notes due 2024 (the “6.50% Notes”), or reduced liquidity. Our ten largest clients (measured by revenue generated) accounted for 23% of our revenue in 2016 .
c. Conditions in the credit markets could adversely impact our results of operations and financial position.
Turmoil in the credit markets or a contraction in the availability of credit would make it more difficult for businesses to meet their capital requirements and could lead clients to change their financial relationship with their vendors, including us. If that were to occur, it could materially adversely impact our results of operations and financial position.
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 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 or experienced senior management changes. From year to year, the identities of MDC’s ten largest customers may change, as a result of client losses and additions and other factors. 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 the Credit Agreement could adversely affect MDC’s liquidity and our ability to implement MDC’s acquisition strategy and fund any put options if exercised.
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, including through contingent deferred acquisition payments.
The Company is currently in compliance with all of the terms and conditions of the Credit Agreement. If, however, events were to occur, which result in MDC losing all or a substantial portion of its available credit under the Credit Agreement, or if MDC was prevented from accessing such lines of credit due to other restrictions such as those in the indenture governing the 6.50% Notes, 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 or contingent deferred acquisition payments would be materially adversely affected.
We have significant contingent obligations related to deferred acquisition consideration and noncontrolling interests in our subsidiaries, which will require us to utilize our cash flow and/or to incur additional debt to satisfy.
The Company has made a number of acquisitions for which it has deferred payment of a portion of the purchase price, usually for a period between one to five years after the acquisition. The deferred acquisition consideration is generally payable based on achievement of certain thresholds of future earnings of the acquired company and, in certain cases, also based on the rate of growth of those earnings. Once any contingency is resolved, the Company may pay the contingent consideration over time.
The Company records liabilities on its balance sheet for deferred acquisition payments at their estimated value based on the current performance of the business, which are re-measured each quarter. At December 31, 2016 , these aggregate liabilities were $229.6 million , of which $108.3 million , $40.0 million , $40.4 million and $40.8 million would be payable in 2017, 2018, 2019 and thereafter, respectively.
In addition to the Company’s obligations for deferred acquisition consideration, managers of certain of the Company’s acquired subsidiaries hold noncontrolling interests in such subsidiaries. In the case of certain noncontrolling interests related to acquisitions, such managers are entitled to a proportionate distribution of earnings from the relevant subsidiary, which is recognized on the Company’s consolidated income statement under “Net income attributable to the noncontrolling interests.”
Noncontrolling shareholders often have the right to require the Company to purchase all or part of its interest, either at specified dates or upon the termination of such shareholder’s employment with the subsidiary or death (put rights). In addition, the Company usually has rights to call noncontrolling shareholders’ interests at a specified date. The purchase price for both puts and calls is typically calculated based on specified formulas tied to the financial performance of the subsidiary.
The Company recorded $60.2 million on its December 31, 2016 balance sheet as redeemable noncontrolling interests for its estimated obligations in respect of noncontrolling shareholder put and call rights based on the current performance of the subsidiaries, $12.5 million of which related to put rights for which, if exercised, the payments are due at specified dates, with the

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remainder of redeemable noncontrolling interests attributable to put or call rights exercisable only upon termination of employment or death. No estimated obligation is recorded on the balance sheet for noncontrolling interests for which the Company has a call right but the noncontrolling holder has no put right.
Payments to be made by the Company in respect of deferred acquisition consideration and noncontrolling shareholder put rights may be significantly higher than the estimated amounts described above because the actual obligation adjusts based on the performance of the acquired businesses over time, including future growth in earnings from the calculations made at December 31, 2016 . Similarly, the payments made by the Company under call rights would increase with growth in earnings of the acquired businesses. The Company expects that deferred contingent consideration and noncontrolling interests for managers may be features of future acquisitions that it may undertake and that it may also grant similar noncontrolling interests to managers of its subsidiaries unrelated to acquisitions.
The Company expects that its obligations in respect of deferred acquisition consideration and payments to noncontrolling shareholders under put and call rights will be a significant use of the Company’s liquidity in the foreseeable future, whether in the form of free cash flow or borrowings under the Company’s revolving credit agreement or from other funding sources, including the anticipated proceeds from the issuance and sale of $95.0 million of Preference Shares. For further information, see the disclosure under the heading “Business — Ownership Information” and the heading “Liquidity and Capital Resources.”
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.
Our expenses have, in recent periods, increased at a greater rate than revenues, which in part reflects both the increase in expenses for deferred acquisition consideration and from our investment in headcount for certain growth initiatives. Should our acquisitions continue to outperform current expectations, expenses for deferred acquisition consideration could increase as well in future periods. If our growth initiatives do not provide sufficient revenue to offset the incremental costs in future periods, profits could be reduced and severance expense could be incurred in order to return to targeted profit margins over time.
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 or executives.
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 Partner Firms and the Company as a whole. Management succession at our operating units is very important to the ongoing results of the Company because, as in any service business, the success of a particular agency is dependent upon the leadership of key executives and management personnel. If key executives were to leave our operating units, the relationships that MDC has with its clients could be adversely affected.
MDC’s ability to generate new business from new and existing clients may be limited.
To increase its revenues, MDC needs to obtain additional clients or generate demand for additional services from existing clients. MDC’s ability to generate initial demand for its services from new clients and additional demand from existing clients is subject to such clients’ and potential clients’ requirements, pre-existing vendor relationships, financial conditions, 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

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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 incur expenses on behalf of their clients for productions in order to secure a variety of media time and space, in exchange for which they receive 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. The risk of a material loss could significantly increase in periods of severe economic downturn. Such a loss could have a material adverse effect on our results of operations and financial position.
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 U.S. 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 and intangible assets may become impaired.
We have recorded a significant amount of goodwill and intangible assets 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 of the Notes to the Consolidated Financial Statements included herein. 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. As discussed in Note 2 and Note 8 of the Notes to the Consolidated Financial Statements included herein, for the year ended December 31, 2016, we have recorded goodwill impairment of $48.5 million. We have concluded for the years ended December 31, 2015 and 2014 that our goodwill and intangible assets relating to continuing operations are 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. For the year ended December 31, 2016, a goodwill write off of $0.8 million was included in other income (expense) related to the sale of its ownership interests in Bryan Mills Iradesso Corporation (“Bryan Mills”) to the noncontrolling shareholders. For the year ended December 31, 2014, a goodwill write off of $15.6 million was included in the loss from discontinued operations as a result of MDC’s decision to strategically sell the net assets of Accent Marketing Services, L.L.C. (“Accent”).
MDC is subject to regulations and litigation risk that could restrict our activities or negatively impact our 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 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 the 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.
Certain of MDC’s agencies produce software and e-commerce tools for their clients, and these product offerings have become increasingly subject to litigation based on allegations of patent infringement or other violations of intellectual property rights. As we expand these product offerings, the possibility of an intellectual property claim against us grows. Any such claim, with or without merit, could result in costly litigation and distract management from day-to-day operations and may result in us deciding to enter into license agreements to avoid ongoing patent litigation costs. If we are not successful in defending such claims, we could be required to stop offering these services, pay monetary amounts as damages, enter into royalty or licensing arrangements, or satisfy indemnification obligations that we have with some of our clients. Such arrangements may cause our operating margins to decline.
In addition, laws and regulations related to user privacy, use of personal information and internet tracking technologies have been proposed or enacted in the United States and certain international markets. These laws and regulations could affect the acceptance of the internet as an advertising medium. These actions could affect our business and reduce demand for certain of our services, which could have a material adverse effect on our results of operations and financial position.
We rely extensively on information technology systems.
We rely on information technologies and infrastructure to manage our business, including digital storage of client marketing and advertising information, developing new business opportunities and processing business transactions. Our information technology systems are potentially vulnerable to system failures and network disruptions, malicious intrusion and random attack.

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While we have taken what we believe are prudent measures to protect our data and information technology systems, we cannot assure you that our efforts will prevent system failures or network disruptions or breaches in our systems.  Any such breakdowns or breaches in our systems or data-protection policies could adversely affect our reputation or business.   
The Company is subject to an ongoing securities class action litigation claim and a government investigation.
The Company remains subject to an ongoing securities class action litigation claim in Canada, although the U.S. securities class action was dismissed, with prejudice.  We maintain insurance for a lawsuit of this nature; however, our insurance coverage does not apply in all circumstances and may be insufficient to cover the fees and potential damages and/or settlement costs relating to this class action lawsuit. Moreover, adverse publicity associated with this litigation claim could decrease client demand for our partner agencies’ services. As a result, the securities class action lawsuit described in more detail under “Item 3 - Legal Proceedings,” could have a material adverse effect on our business, reputation, financial condition, results of operations, liquidity and the trading price of our Class A shares.
In addition, one of the Company’s subsidiary agencies received a subpoena from the U.S. Department of Justice Antitrust Division concerning its ongoing investigation of production practices in the advertising industry. The Company and its subsidiary are fully cooperating with this confidential investigation. Although the ultimate effect of this investigation is inherently uncertain, we do not at this time believe that the investigation will have a material adverse effect on our results of operations or financial position. However, the ultimate resolution of this investigation could be materially different from our current assessment.
Future issuances of equity securities, which may include securities that would rank senior to our Class A shares, may cause dilution to our existing shareholders and adversely affect the market price of our Class A shares.
The market price of our Class A shares could decline as a result of sales of a large number of our Class A shares in the market, or the sale of securities convertible into a large number of our Class A shares. The perception that these sales could occur may also depress the market price of our Class A shares. On February 14, 2017, we entered into the Purchase Agreement pursuant to which, subject to the terms and conditions thereof, we expect to issue 95,000 Series 4 convertible preference shares with an initial aggregate liquidation preference of $95.0 million, which will be convertible into Class A shares or our Series 5 convertible preference shares at an initial conversion price of $10.00 per share. The terms of the Preference Shares will provide that the conversion price may be reduced, which would result in the Preference Shares being convertible into additional Class A shares, upon certain events including distributions on our Class A shares or issuances of additional Class A shares or equity-linked securities at a price less than the then-applicable conversion price. The conversion of the Preference Shares may adversely affect the market price of our Class A shares, and the market price of our Class A shares may be affected by factors, such as whether the market price is near or above the conversion price, that could make conversion of the Preference Shares more likely. In addition, the Preference Shares will rank senior to the Class A shares, which could affect the value of the Class A shares on liquidation or, as a result of contractual provisions, on a change in control transaction. For example, pursuant to the Purchase Agreement, the Company has agreed with the Purchaser, with certain exceptions, not to become party to certain change in control transactions that are approved by the Board other than a qualifying transaction in which holders of Preference Shares are entitled to receive cash or qualifying listed securities with a value equal to the then-applicable liquidation preference plus accrued and unpaid dividends. See Note 22 of the Notes to the Consolidated Financial Statements for more information regarding the terms of the Preference Shares.
Additionally, any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our Class A shares, and may result in dilution to owners of our Class A shares. Because our decision to issue additional debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future issuances. Also, we cannot predict the effect, if any, of future issuances of our Class A shares on the market price of our Class A shares.
The indenture governing the 6.50% 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 6.50% 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;

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enter into certain transactions with our affiliates;
make loans, investments or advances;
repay subordinated indebtedness;
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, mergers and acquisitions and other corporate opportunities. The Credit Agreement is subject to various additional covenants, including a senior leverage ratio, a total leverage ratio, a fixed charge coverage ratio, and a minimum EBITDA level (as defined). Events beyond our control could affect our ability to meet these financial tests, and we cannot assure you that they will be met.
Our substantial indebtedness could adversely affect our cash flow and prevent us from fulfilling our obligations, including the 6.50% Notes.
As of December 31, 2016 , MDC had $936.4 million , net of debt issuance costs, 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 6.50% Notes;
make it difficult for us to meet our obligations with respect to our contingent deferred acquisition payments;
limit our ability to increase our ownership stake in our Partner Firms;
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;
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 the 6.50% Notes 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 service our debt and pay dividends.
MDC is a holding company with no operations of our own. Consequently, our ability to service our debt and to pay cash dividends on our common stock 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. Although our operating subsidiaries have generally agreed to allow us to consolidate and “sweep” cash, subject to the timing of payments due to noncontrolling interest holders, any distribution of earnings

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to us from our subsidiaries is contingent upon the subsidiaries’ earnings and various other business considerations. Also, 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” 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, Europe, Asia and South America. 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-U.S. businesses are denominated in currencies other than U.S. dollars and are therefore subject to changes in foreign exchange rates.
Item 3. Legal Proceedings
Final Settlement of SEC Investigation
MDC Partners remains committed to the highest standards of corporate governance and transparency in its reporting practices. In April 2015, the Company announced it was actively cooperating in connection with an SEC investigation of the Company. On January 18, 2017, the Company announced that it reached a final settlement agreement with the Philadelphia Regional Office of the SEC, and that the SEC entered an administrative Order concluding its investigation of the Company.
Under the Order, without admitting or denying liability, the Company agreed that it will not in the future violate Section 17(a)(2) of the Securities Act of 1933 and Sections 13(a), 13(b) and 14(a) of the Securities Exchange Act of 1934 and related rules requiring that periodic filings be accurate; that accurate books and records and a system of internal accounting controls be maintained; and that solicitations of proxies comply with the securities laws. In addition, the Company agreed to comply with all requirements under Regulation G relating to the disclosure and reconciliation of non-GAAP financial measures. Pursuant to the Order, and based upon the Company’s full cooperation with the investigation, the SEC imposed a civil penalty of $1.5 million on the Company to resolve all potential claims against the Company relating to these matters. There will be no restatement of any of the Company’s previously-filed financial statements.
Class Action Litigation
On July 31, 2015, North Collier Fire Control and Rescue District Firefighter Pension Plan (“North Collier”) filed a putative class action suit in the Southern District of New York, naming as defendants MDC, CFO David Doft, former CEO Miles Nadal, and former CAO Mike Sabatino. On December 11, 2015, North Collier and co-lead plaintiff Plymouth County Retirement Association filed an amended complaint, adding two additional defendants, Mitchell Gendel and Michael Kirby, a former member of MDC’s Board of Directors. The plaintiff alleges in the amended complaint violations of § 10(b), Rule 10b-5, and § 20 of the Securities Exchange Act of 1934, based on allegedly materially false and misleading statements in the Company’s SEC filings and other public statements regarding executive compensation, goodwill accounting, and the Company’s internal controls. By order granted on September 30, 2016, the U.S. District Court presiding over the case granted the Company’s motion to dismiss the plaintiffs’ amended complaint in its entirety with prejudice. On November 2, 2016, the lead plaintiffs filed a notice to appeal the U.S. District Court's ruling to the U.S. Court of Appeals for the Second Circuit. On February 21, 2017, the plantiffs voluntarily dismissed their appeal.
On August 7, 2015, Roberto Paniccia issued a Statement of Claim in the Ontario Superior Court of Justice in the City of Brantford, Ontario seeking to certify a class action suit naming the following as defendants: MDC, former CEO Miles S. Nadal, former CAO Michael C. Sabatino, CFO David Doft and BDO U.S.A. LLP. The Plaintiff alleges violations of section 138.1 of the Ontario Securities Act (and equivalent legislation in other Canadian provinces and territories) as well as common law misrepresentation based on allegedly materially false and misleading statements in the Company’s public statements, as well as omitting to disclose material facts with respect to the SEC investigation. The Company intends to continue to vigorously defend this suit. A case management judge has now been appointed but a date for an initial case conference has not yet been set.

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Antitrust Subpoena
One of the Company’s subsidiaries received a subpoena from the U.S. Department of Justice Antitrust Division concerning the Division’s ongoing investigation of production practices in the advertising industry. The Company and its subsidiary are fully cooperating with this confidential investigation.
Item 4. Mine Safety Disclosures
Not applicable.

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PART II
Item 5. Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders of Class A Subordinate Voting Shares
The principal market on which the Company’s Class A subordinate voting shares are traded is the NASDAQ National Market (“NASDAQ”) (symbol: “MDCA”). As of February 21, 2017, the approximate number of registered holders of our Class A subordinate voting shares, including those whose shares are held in nominee name, was 800. Quarterly high and low sales prices per share of the Company’s Class A subordinate voting shares, as reported on NASDAQ, for each quarter in the years ended December 31, 2016 and 2015 , were as follows:
NASDAQ
Quarter Ended
 
High
 
Low
 
 
 
 
 
  
 
($ per Share)
March 31, 2015
 
28.65

 
21.20

June 30, 2015
 
28.64

 
18.00

September 30, 2015
 
20.99

 
16.15

December 31, 2015
 
22.55

 
18.25

March 31, 2016
 
23.85

 
16.32

June 30, 2016
 
23.90

 
15.94

September 30, 2016
 
18.64

 
10.42

December 31, 2016
 
11.10

 
2.75

As of February 17, 2017, the last reported sale price of the Class A subordinate voting shares was $9.00 on NASDAQ. Effective November 11, 2015, the Company voluntarily delisted its shares from the Toronto Stock Exchange (“TSX”). The Company determined that the relatively low trading volume of its shares on the TSX did not justify the financial and administrative costs associated with a dual listing.
Dividend Practice
On November 3, 2016, the Company announced that it was suspending its quarterly dividend indefinitely.
In 2016 , MDC’s board of directors declared the following dividends: a $0.21 per share quarterly dividend to all shareholders of record as of the close of business on March 4, 2016; a $0.21 per share quarterly dividend to all shareholders of record as of the close of business on May 24, 2016; a $0.21 per share quarterly dividend to all shareholders of record as of the close of business on August 10, 2016.
In 2015, MDC’s board of directors declared the following dividends: a $0.21 per share quarterly dividend to all shareholders of record as of the close of business on March 5, 2015; a $0.21 per share quarterly dividend to all shareholders of record as of the close of business on May 8, 2015; a $0.21 per share quarterly dividend to all shareholders of record as of the close of business on August 18, 2015; and a $0.21 per share quarterly dividend to all shareholders of record as of the close of business on November 11, 2015.
In 2014, MDC’s board of directors declared the following dividends: a $0.18 per share quarterly dividend to all shareholders of record as of the close of business on March 4, 2014; a $0.18 per share quarterly dividend to all shareholders of record as of the close of business on May 5, 2014; a $0.19 per share quarterly dividend to all shareholders of record as of the close of business on August 5, 2014; and a $0.19 per share quarterly dividend to all shareholders of record as of the close of business on November 10, 2014.
The payment of any future dividends will be at the discretion of MDC’s board of directors and will depend upon limitations contained in our Credit Agreement and the indenture governing the 6.50% Notes, future earnings, capital requirements, our general financial condition and general business conditions.

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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, 2016 :
 
Number of Securities to
Be Issued Upon
Exercise of Outstanding
Options, Warrants and Rights
 
Weighted Average
Exercise Price of
Outstanding Options, Warrants
and Rights
 
Number of Securities
Remaining Available for
Future Issuance
[Excluding Column (a)]
  
(a)
 
(b)
 
(c)
Equity compensation plans approved by stockholders
37,500

 
$
5.83

 
1,934,861

Equity compensation plans not approved by stockholders

 

 

Total
37,500

 
5.83

 
1,934,861

On May 26, 2005, the Company’s shareholders approved the 2005 Stock Incentive Plan, which provides for the issuance of 3.0 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 6.75 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 (the “SARS Plan”). On May 30, 2008, the Company’s shareholders approved the 2008 Key Partner Incentive Plan, which provides for the issuance of 900,000 Class A shares. On June 1, 2011, the Company’s shareholders approved the 2011 Stock Incentive Plan, which provides for the issuance of up to 3.0 million Class A shares. In June 2013, the Company’s shareholders approved an amendment to the SARS Plan to permit the Company to issue shares authorized under the SARS Plan to satisfy the grant and vesting of awards under the 2011 Stock Incentive Plan. In June 2016, the Company's shareholders approved the 2016 Stock Incentive Plan, which provides for the issuance of up to 1,500,000 Class A shares.
See also Note 12 of the Notes to the Consolidated Financial Statements included herein.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
For the twelve months ended December 31, 2016 , the Company made no open market purchases of its Class A shares or its Class B shares. Pursuant to its Credit Agreement and the indenture governing the 6.50% Notes, the Company is currently limited from repurchasing its shares in the open market.
During 2016 , the Company’s employees surrendered 205,876 Class A shares valued at approximately $3.4 million in connection with the required tax withholding resulting from the vesting of restricted stock. The Company paid these withholding taxes on behalf of the related employees. These Class A shares were subsequently retired and no longer remain outstanding as of December 31, 2016 .
Transfer Agent and Registrar for Common Stock
The transfer agent and registrar for the Company’s common stock is Canadian Stock Transfer Trust Company (f/k/a CIBC Mellon Trust Company). Canadian Stock Transfer 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 Canadian Stock Transfer Trust Company
P.O. Box 4202, Postal Station A
Toronto, Ontario M5W 0E4

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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 related notes that are included in this Annual Report on Form 10-K.
 
Years Ended December 31,
  
2016
 
2015
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
  
(Dollars in Thousands, Except per Share Data)
Operating Data
  

 
  

 
  

 
  

 
  

Revenues
$
1,385,785

 
$
1,326,256

 
$
1,223,512

 
$
1,062,478

 
$
972,973

Operating income (loss)
$
48,431

 
$
72,110

 
$
87,749

 
$
(34,594
)
 
$
(17,969
)
Income (loss) from continuing operations
$
(42,724
)
 
$
(22,022
)
 
$
4,093

 
$
(133,202
)
 
$
(73,448
)
Stock-based compensation included in income (loss) from continuing operations
$
21,003

 
$
17,796

 
$
17,696

 
$
100,405

 
$
32,197

Loss per Share
  

 
  

 
  

 
  

 
  

Basic
  

 
  

 
  

 
  

 
  

Continuing operations attributable to MDC Partners Inc. common shareholders
$
(0.93
)
 
$
(0.62
)
 
$
(0.06
)
 
$
(2.96
)
 
$
(1.74
)
Diluted
  

 
  

 
  

 
  

 
  

Continuing operations attributable to MDC Partners Inc. common shareholders
$
(0.93
)
 
$
(0.62
)
 
$
(0.06
)
 
$
(2.96
)
 
$
(1.74
)
Cash dividends declared per share
$
0.63

 
$
0.84

 
$
0.74

 
$
0.46

 
$
0.38

Financial Position Data
  

 
  

 
  

 
  

 
  

Total assets
$
1,577,378

 
$
1,577,625

 
$
1,633,751

 
$
1,408,711

 
$
1,335,422

Total debt
$
936,436

 
$
728,883

 
$
727,988

 
$
648,612

 
$
422,180

Redeemable noncontrolling interests
$
60,180

 
$
69,471

 
$
194,951

 
$
148,534

 
$
117,953

Deferred acquisition consideration
$
229,564

 
$
347,104

 
$
205,368

 
$
153,913

 
$
196,446

Fixed charge coverage ratio
N/A

 
N/A

 
1.23

 
N/A

 
N/A

Fixed charge deficiency
$
49,593

 
$
16,764

 
N/A

 
$
134,754

 
$
63,240

A number of factors that should be considered when comparing the annual results shown above are as follows:
Year Ended December 31, 2016
During 2016, the Company completed one acquisition and a number of transactions with majority owned subsidiaries. Please see Note 4 of the Notes to the Consolidated Financial Statements included herein for a summary of these acquisitions.
On March 23, 2016, the Company issued and sold $900 million aggregate principal amount of the 6.50% Notes. The 6.50% Notes are guaranteed on a senior unsecured basis by all of MDC’s existing and future restricted subsidiaries that guarantee, or are co-borrowers under or grant liens to secure the Credit Agreement. The 6.50% Notes bear interest at a rate of 6.50% per annum, accruing from March 23, 2016. Interest is payable semiannually in arrears on May 1 and November 1 of each year, beginning November 1, 2016. The 6.50% Notes mature on May 1, 2024, unless earlier redeemed or repurchased. The 6.50% Notes were sold in a private placement in reliance on exceptions from registration under the the Securities Act of 1933. The Company received net proceeds from the offering of the 6.50% Notes equal to approximately $880 million. The Company used the net proceeds to redeem all of its existing 6.75% Notes, together with accrued interest, related premiums, fees and expenses and recorded a charge for the loss on redemption of such notes of $33.3 million, including write offs of unamortized original issue premium and debt issuance costs. Remaining proceeds were used for general corporate purposes, including funding of deferred acquisition consideration.

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Year Ended December 31, 2015
During 2015, the Company completed two acquisitions and a number of transactions with majority owned subsidiaries. Please see Note 4 of the Notes to the Consolidated Financial Statements included herein for a summary of these acquisitions.
In May 2015, the Company completed its previously announced sale of the net assets of Accent. For further information, please see Note 10 of the Notes to the Consolidated Financial Statements included herein.
Year Ended December 31, 2014
During 2014, the Company completed a number of acquisitions and a number of transactions with majority owned subsidiaries. Please see Note 4 of the Notes to the Consolidated Financial Statements included herein for a summary of these acquisitions.
On April 2, 2014, the Company issued an additional $75 million aggregate principal amount of its 6.75% Notes. The additional notes were issued under the indenture governing the 6.75% Notes and treated as a single series with the original 6.75% Notes. We received net proceeds from the offering of approximately $77.5 million, and we used the proceeds for general corporate purposes, including the funding of deferred acquisition consideration, working capital, acquisitions, and the repayment of the amount outstanding under our senior secured revolving credit agreement.
During the quarter ended December 31, 2014, the Company made the decision to strategically sell the net assets of Accent. All periods reflect these discontinued operations. For further information, please see Note 10 of the Notes to the Consolidated Financial Statements included herein.
Year Ended December 31, 2013
During 2013, the Company completed an acquisition and a number of transactions with majority owned subsidiaries. Please see Note 4 of the Notes to the Consolidated Financial Statements included herein for a summary of these acquisitions.
On March 20, 2013, the Company issued and sold $550 million aggregate principal amount of the 6.75% Notes. The 6.75% Notes are guaranteed on a senior unsecured basis by all of MDC’s existing and future restricted subsidiaries that guarantee, or are co-borrowers under or grant liens to secure the Credit Agreement. The 6.75% Notes bear interest at a rate of 6.75% per annum, accruing from March 20, 2013. Interest is payable semiannually in arrears in cash on May 1 and November 1 of each year, beginning on October 1, 2013. The 6.75% Notes will mature on April 1, 2020, unless earlier redeemed or repurchased. The 6.75% Notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of 1933, as amended (the “Securities Act”). The Company received net proceeds from the offering of the 6.75% Notes equal to approximately $537.6 million. The Company used the net proceeds to redeem all of its existing 11% Notes, together with accrued interest, related premiums, fees and expenses and recorded a charge for loss on redemption of notes of $55.6 million, including write offs of unamortized original issue premium and debt issuance costs. Remaining proceeds were used for general corporate purposes. In addition, the Company entered into an amended and restated $225 million senior secured revolving credit agreement due 2018.
In November 2013, stock-based compensation included a charge of $78.0 million relating to the cash settlement of the outstanding Stock Appreciation Rights (“SAR’s”).
On November 15, 2013, the Company issued an additional $110 million aggregate principal amount of the 6.75% Notes. The additional notes were issued under the indenture governing the 6.75% Notes and treated as a single series with the original 6.75% Notes.
During 2013, the Company discontinued two subsidiaries and an operating division. All periods reflect these discontinued operations. For further information, please see Note 10 of the Notes to the Consolidated Financial Statements included herein.
Year Ended December 31, 2012
During 2012, the Company completed a number of acquisitions.
On December 10, 2012, the Company and its wholly-owned subsidiaries, as guarantors, issued and sold an additional $80 million aggregate principal amount of 11% Notes due 2016 (the “11% Notes”). The additional notes were issued under the indenture governing the 11% Notes and treated as a single series with the original 11% Notes. The additional notes were sold in a private placement in reliance on exceptions from registration under the Securities Act. The Company received net proceeds before expenses of $83.2 million, which included an original issue premium of $4.8 million, and underwriter fees of $1.6 million. The Company used the net proceeds of the offering to repay the outstanding balance under the Company’s revolving credit agreement described elsewhere herein, and for general corporate purposes.
During 2012, the Company discontinued a subsidiary and certain operating divisions. All periods reflect these discontinued operations. For further information, please see Note 10 of the Notes to the Consolidated Financial Statements included herein.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated, 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 year 2016 means the period beginning January 1, 2016 , and ending December 31, 2016 ).
The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”) of the United States of America (“U.S. GAAP”). In addition, the Company has included certain non-U.S. GAAP financial measures and ratios, which it believes provide useful supplemental 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 U.S. GAAP and should not be construed as an alternative to other titled measures determined in accordance with U.S. GAAP.
Two such non-U.S. GAAP measures are “organic revenue growth” or “organic revenue decline” that refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition) component is calculated by aggregating the prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of in the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the Partner Firms which the Company has held throughout each of the comparable periods presented and (b) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (c) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year or same period as the current reportable period, taking into account their respective pre-acquisition revenues for the applicable periods and (d) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year. The Company believes that isolating the impact of acquisition activity and foreign currency impacts is an important and informative component to understand the overall change in the Company’s consolidated revenue. The change in the consolidated revenue that remains after these adjustments illustrates the underlying financial performance of the Company’s businesses. Specifically, it represents the impact of the Company’s management oversight, investments and resources dedicated to supporting the businesses’ growth strategy and operations. In addition, it reflects the network benefit of inclusion in the broader portfolio of firms that includes, but is not limited to, cross-selling and sharing of best practices. This approach isolates changes in performance of the business that take place under the Company’s stewardship, whether favorable or unfavorable, and thereby reflects the potential benefits and risks associated with owning and managing a talent-driven services business.
Accordingly, during the first twelve months of ownership by the Company, the organic growth measure may credit the Company with growth from an acquired business that is dependent on work performed prior to the acquisition date, and may include the impact of prior work in progress, existing contracts and backlog of the acquired businesses. It is the presumption of the Company that positive developments that may have taken place at an acquired business during the period preceding the acquisition will continue to result in value creation in the post-acquisition period.
While the Company believes that the methodology used in the calculation of organic revenue change is entirely consistent with our closest U.S. competitors, the calculations may not be comparable to similarly titled measures presented by other publicly traded companies in other industries. Additional information regarding the Company’s acquisition activity as it relates to potential revenue growth is provided in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Certain Factors Affecting our Business.”
Amounts reported in millions herein are computed based on the amounts in thousands. As a result, the sum of the components, and related calculations, reported in millions may not equal the total amounts due to rounding.
Executive Summary
The Company’s objective is to create shareholder value by building, growing and acquiring market-leading Partner Firms that deliver innovative, value-added marketing, activation, 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 its business by monitoring several financial and non-financial performance indicators. The key indicators that we focus on are the areas of revenues and operating expenses and capital expenditures. Revenue growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) existing growth by major discipline (organic revenue growth), (iii) growth from currency changes and (iv) growth from acquisitions. In addition to monitoring the foregoing financial indicators, the Company assesses and monitors several non-financial performance indicators relating to the business performance of our Partner Firms. These indicators may include a Partner Firm's recent new client win/loss record; the depth and scope of a pipeline of potential new client account activity; the overall quality of the services provided to clients; and the relative strength of the Company's next generation team that is in place as part of a potential succession plan to succeed the current senior executive team.

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MDC conducts its businesses through its Partner Firm network, the Advertising and Communications Group, providing value-added marketing, activation, and communications and strategic consulting services to clients throughout the world. As discussed in Note 1 and Note 14 of the Notes to the Consolidated Financial Statements included herein, during the third quarter of 2016, the Company reassessed its determination of operating segments and concluded that each Partner Firm represents an operating segment and aggregated Partner Firms that met the aggregation criteria into one Reportable segment and combined and disclosed those Partner Firms that did not meet the aggregation criteria as an “all other” segment. In addition, MDC has a “Corporate Group” which provides client and business development support to the Partner Firms as well as certain strategic resources, including accounting, administrative, financial, real estate, human resource and legal functions.
The Partner Firms 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 included herein.
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 office and general expenses are the changes of the estimated value of our contingent purchase price obligations, including the accretion of present value and acquisition related costs. Depreciation and amortization are also included in operating expenses.
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 as a significant portion of these expenses are relatively fixed in nature.
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, and 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
Overall Factors Affecting our Business and Results of Operations .  The most significant factors include national, regional and local economic conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our ability to retain and attract key employees. New business wins and client losses occur due to a variety of factors. The two most significant factors are (i) our clients’ desire to change marketing communication firms, and (ii) the creative product that our Partner Firms offer. A client may choose to change marketing communication firms for a number of reasons, such as a change in top management and the new management wants to retain an agency that it may have previously worked with. In addition, if the client is merged or acquired by another company, the marketing communication firm is often changed. Further, global clients are trending to consolidate the use of numerous marketing communication firms to just one or two. Another factor in a client changing firms is the agency’s campaign or work product is not providing results and they feel a change is in order to generate additional revenues.
Clients will generally reduce or increase their spending or outsourcing needs based on their current business trends and profitability.
Acquisitions and Dispositions . The Company’s strategy includes acquiring ownership stakes in well-managed businesses with world class expertise and strong reputations in the industry. Through the Strategic Resources Group, the Company provides post-acquisition support to Partner Firms in order to help accelerate growth, including in areas such as business and client development (including cross-selling), corporate communications, corporate development, talent recruitment and training, procurement, legal services, human resources, financial management and reporting, and real estate utilization, among other areas. As most of the Company’s acquisitions remain as stand-alone entities post acquisition, integration is typically implemented promptly, and new Partner Firms can begin to tap into the full range of MDC’s resources immediately. Often the acquired businesses may begin to tap into certain MDC resources in the pre-acquisition period, such as talent recruitment or real estate. The Company engaged in a number of acquisition and disposition transactions during the 2009 to 2016 period, which affected revenues, expenses, operating income and net income. Additional information regarding acquisitions is provided in Note 4 “Acquisitions” and information on dispositions is provided in Note 10 “Discontinued Operations” of the Notes to the Consolidated Financial Statements.
Foreign Exchange Fluctuation .  Our financial results and competitive position are affected by fluctuations in the exchange rate between the U.S. dollar and non-U.S. dollar, primarily the Canadian dollar. See also “Item 7A - Quantitative and Qualitative Disclosures About Market Risk - Foreign Exchange.”

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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 were $390.4 million for the fourth quarter of 2016 , representing an increase of $31.4 million or 8.8% , compared to revenue of $359.0 million in fourth quarter of 2015 . Revenue from acquisitions for the fourth quarter of 2016 was $24.7 million or 6.9%, inclusive of a $3.3 million contribution to organic revenue growth. A negative impact $0.5 million is also included to reflect the effect of a disposition. Excluding the effect of the acquisitions and disposition, revenue growth was $10.3 million or 2.9% , partially offset by a foreign exchange impact of $3.0 million or 0.8% . The increase in operating profits was attributable to a decrease in deferred acquisition consideration expense of $51.1 million due to certain Partner Firms under-performance in comparison to the Company’s prior expectations, partially offset by a goodwill impairment expense increase of $18.9 million pertaining to a strategic communication unit. Income from continuing operations for the fourth quarter of 2016 was $9.8 million , compared to a loss from continuing operations of $24.5 million in 2015 . Other income, net decreased by $6.0 million or 88.9% from $6.8 million in 2015 , to $0.8 million in 2016 . Of this amount, $6.5 million was due to income from the sale of certain investments in 2015 . Unrealized losses increased $0.6 million or 5.8% due to foreign currency fluctuations. Interest expense increased $1.6 million or 10.9% from $14.8 million in 2015 , to $16.4 million in 2016 . Income tax benefit increased $15.4 million from an expense of $6.2 million in 2015 , compared to a benefit of $9.2 million in 2016 .
Results of Operations for the Years Ended December 31, 2016, 2015 and 2014:
 
For the Year Ended December 31, 2016
  
Reportable Segment
 
All Other
 
Corporate
 
Total
Revenue
$
1,147,173

 
$
238,612

 
$

 
$
1,385,785

Cost of services sold
775,129

 
161,004

 

 
936,133

Office and general expenses
223,823

 
39,895

 
42,533

 
306,251

Depreciation and amortization
33,848

 
11,013

 
1,585

 
46,446

Goodwill impairment

 
48,524

 

 
48,524

Operating profit (loss)
114,373

 
(21,824
)
 
(44,118
)
 
48,431

Other income (expense):
  

 
 
 
  

 
  

Other income, net
  

 
 
 
  

 
414

Foreign exchange loss
  

 
 
 
  

 
(213
)
Interest expense, finance charges, and loss on redemption of notes, net
 
 
 
 
 
 
(98,348
)
Loss from continuing operations before income taxes and equity in earnings of non-consolidated affiliates
  

 
 
 
  

 
(49,716
)
Income tax benefit
 
 
 
 
 
 
(7,301
)
Loss from continuing operations before equity in earnings of non-consolidated affiliates
  

 
 
 
  

 
(42,415
)
Equity in losses of non-consolidated affiliates
 
 
 
 
 
 
(309
)
Net loss
  

 
 
 
  

 
(42,724
)
Net income attributable to noncontrolling
interests
(3,676
)
 
(1,542
)
 

 
(5,218
)
Net loss attributable to MDC Partners Inc.
 
 
 
 
 
 
$
(47,942
)
Stock-based compensation
$
14,143

 
$
4,335

 
$
2,525

 
$
21,003


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For the Year Ended December 31, 2015
  
Reportable Segment
 
All Other
 
Corporate
 
Total
Revenue
$
1,101,675

 
$
224,581

 
$

 
$
1,326,256

Cost of services sold
724,749

 
154,967

 

 
879,716

Office and general expenses
208,837

 
49,972

 
63,398

 
322,207

Depreciation and amortization
32,501

 
17,948

 
1,774

 
52,223

Operating profit (loss)
135,588

 
1,694

 
(65,172
)
 
72,110

Other income (expense):
  

 
  

 
  

 
  

Other income, net
  

 
  

 
  

 
7,238

Foreign exchange loss
  

 
  

 
  

 
(39,328
)
Interest expense and finance charges, net
 
 
 
 
 
 
(57,436
)
Loss from continuing operations before income taxes and equity in earnings of non-consolidated affiliates
  

 
  

 
  

 
(17,416
)
Income tax expense
 
 
 
 
 
 
5,664

Loss from continuing operations before equity in earnings of non-consolidated affiliates
  

 
  

 
  

 
(23,080
)
Equity in earnings of non-consolidated affiliates
 
 
 
 
 
 
1,058

Loss from continuing operations
  

 
  

 
  

 
(22,022
)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes
 
 
 
 
 
 
(6,281
)
Net loss
  

 
  

 
  

 
(28,303
)
Net income attributable to noncontrolling interests
(7,202
)
 
(1,822
)
 
(30
)
 
(9,054
)
Net loss attributable to MDC Partners Inc.
 
 
 
 
 
 
$
(37,357
)
Stock-based compensation
$
10,231

 
$
4,825

 
$
2,740

 
$
17,796


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For the Year Ended December 31, 2014
  
Reportable Segment
 
All Other
 
Corporate
 
Total
Revenue
$
991,245

 
$
232,267

 
$

 
$
1,223,512

Cost of services sold
631,635

 
166,883

 

 
798,518

Office and general expenses
188,757

 
35,024

 
66,292

 
290,073

Depreciation and amortization
30,631

 
14,756

 
1,785

 
47,172

Operating profit (loss)
140,222

 
15,604

 
(68,077
)
 
87,749

Other income (expense):
  

 
  

 
  

 
  

Other income, net
  

 
  

 
  

 
689

Foreign exchange loss
  

 
  

 
  

 
(18,482
)
Interest expense and finance charges, net
 
 
 
 
 
 
(54,847
)
Income from continuing operations before income taxes and equity in earnings of non-consolidated affiliates
  

 
  

 
  

 
15,109

Income tax expense
 
 
 
 
 
 
12,422

Income from continuing operations before equity in earnings of non-consolidated affiliates
  

 
  

 
  

 
2,687

Equity in earnings of non-consolidated affiliates
 
 
 
 
 
 
1,406

Income from continuing operations
  

 
  

 
  

 
4,093

Loss from discontinued operations attributable to MDC Partners Inc., net of taxes
 
 
 
 
 
 
(21,260
)
Net loss
  

 
  

 
  

 
(17,167
)
Net income attributable to noncontrolling interests
(5,398
)
 
(1,492
)
 

 
(6,890
)
Net loss attributable to MDC Partners Inc.
 
 
 
 
 
 
$
(24,057
)
Stock-based compensation
$
8,559

 
$
3,474

 
$
5,663

 
$
17,696

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenue was $1.39 billion for the year ended December 31, 2016 , representing an increase of $59.5 million , or 4.5% , compared to revenue of $1.33 billion for the year ended December 31, 2015 . Revenue from acquisitions for 2016 was $51.1 million or 3.8%, inclusive of a $10.1 million contribution to organic revenue growth. Additionally, a negative impact of $0.5 million is included to reflect a disposition. Excluding the effect of the acquisitions and disposition, revenue growth was $20.0 million or 1.5%, partially offset by a foreign exchange impact of $11.0 million or 0.8%.
Operating profit for the year ended 2016 was $48.4 million , compared to $72.1 million in 2015 . Operating profit decreased by $44.7 million in the Advertising and Communications Group, while Corporate operating expenses decreased by $21.1 million in 2016 .
Loss from continuing operations was $42.7 million in 2016 , compared to a loss of $22.0 million in 2015 . This increase of $20.7 million was primarily attributable to (1) a decrease in operating profits of $23.7 million , primarily due to goodwill impairment expense of $48.5 million , (2) an increase in net interest expense of $40.9 million , partially offset by (3) a decrease in foreign exchange loss of $39.1 million , (4) an decrease in other income, net, of $6.8 million , and (5) an increase in the income tax benefit of $13.0 million .
Advertising and Communications Group
Revenue was $1.39 billion for the year ended December 31, 2016 , representing an increase of $59.5 million , or 4.5% , compared to revenue of $1.33 billion for the year ended December 31, 2015 . Revenue from acquisitions for 2016 was $51.1 million or 3.8%, inclusive of a $10.1 million contribution to organic revenue growth. Additionally, a negative impact of $0.5 million is included to reflect a disposition. Excluding the effect of the acquisitions and disposition, revenue growth was $20.0 million or 1.5%, partially offset by a foreign exchange impact of $11.0 million or 0.8% which was attributable to new client wins partially offset by client losses and reductions in spending by some clients. There was mixed performance by client sector, with strength in communications, food & beverage and auto, offset by declines led by retail, technology, and financial services. The performance by disciplines was mixed with strength led by technology & data science, and public relations partially offset by declines primarily in design firms. For the year ended December 31, 2016 , revenue was negatively impacted by decreased billable pass-through costs incurred on client’s behalf from the Company acting as principal in experiential and other businesses.

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Revenue growth was driven by the Company’s business outside of North America primarily consisting of revenue from acquisitions of $40.4 million or 3.1%, inclusive of a $6.2 million contribution to organic revenue growth. Revenue growth excluding acquisitions was $12.3 million or 0.9%, partially offset by foreign exchange impact of $6.9 million or 0.5%. The majority of the revenue growth was attributable to the Company’s European and Asian operations. The revenue growth derived from the North America region was comprised of revenue from acquisitions of $10.7 million or 0.8%, in addition to revenue growth of $8.0 million or 0.6% excluding acquisitions from the United States, offset by a minimal revenue decrease from Canada. United States saw modest growth due to client wins partially offset by client losses and reduction in client spending, as well as decrease in billable pass-through cost.
The Company also utilizes a non-GAAP metric called organic revenue growth (decline), defined in Item 7. For the year ended December 31, 2016 organic revenue growth was $30.1 million or 2.3% , of which $20.0 million pertained to Partner Firms which the Company has held throughout each of the comparable periods presented, while the remaining $10.1 million were contributions from acquisitions. The increase in revenue was also a result of non-GAAP acquisition (disposition) net adjustments of $42.0 million or 3.2% , which was partially offset by a foreign exchange impact of $12.5 million or 0.9% .
The components of the change in revenues for the year ended December 31, 2016 are as follows:
 
 
 
 
2016 Non-GAAP Activity
 
 
 
Change
Advertising and Communications
Group
 
2015 Revenue
 
Foreign
Exchange
 
Non-GAAP Acquisitions
(Dispositions), net
 
Organic
Revenue
Growth
(Decline)
 
2016 Revenue
 
Foreign
Exchange
 
Non-GAAP Acquisitions
(Dispositions), net
 
Organic
Revenue
Growth
(Decline)
 
Total
Revenue
 
 
(Dollars in Millions)
 
 
 
 
 
 
 
 
United States
 
$
1,085.1

 
$

 
$
6.8

 
$
11.9

 
$
1,103.7

 
 %
 
0.6
 %
 
1.1
 %
 
1.7
 %
Canada
 
129.0

 
(4.1
)
 
(0.5
)
 
(0.3
)
 
124.1

 
(3.2
)%
 
(0.4
)%
 
(0.2
)%
 
(3.8
)%
Other
 
112.2

 
(8.4
)
 
35.7

 
18.5

 
158.0

 
(7.5
)%
 
31.9
 %
 
16.5
 %
 
40.8
 %
Total
 
$
1,326.3

 
$
(12.5
)
 
$
42.0

 
$
30.1

 
$
1,385.8

 
(0.9
)%
 
3.2
 %
 
2.3
 %
 
4.5
 %
The below is a reconciliation between the non-GAAP acquisitions (dispositions), net to revenue from acquired businesses in the statement of operations for the year ended December 31, 2016:
 
Reportable Segment
 
All Other
 
Total
 
(Dollars in Millions)
Revenue from acquisitions (dispositions), net (1)
$
44.4

 
$
6.7

 
$
51.1

Foreign exchange impact
1.5

 

 
1.5

Contribution to organic revenue (growth) decline (2)
(7.3
)
 
(2.8
)
 
(10.1
)
Prior year revenue from dispositions

 
(0.5
)
 
(0.5
)
Non-GAAP acquisitions (dispositions), net
$
38.5

 
$
3.4

 
$
42.0

(1)
For the year ended December 31, 2016, revenue from acquisitions was comprised of $11.5 million from 2015 acquisitions and $39.6 million from 2016 acquisitions.
(2)
Contributions to organic revenue growth (decline) represents the change in revenue, measured on a constant currency basis, relative to the comparable pre-acquisition period for acquired businesses that is included in the Company’s organic revenue growth (decline) calculation.
The geographic mix in revenues for the years ended December 31, 2016 and 2015 is as follows:
 
2016
 
2015
United States
79.6
%
 
81.8
%
Canada
9.0
%
 
9.7
%
Other
11.4
%
 
8.5
%
The Company's business outside of North America continued to be a driver of growth for the overall Company, with organic revenue growth of 16.5% . This growth was driven by new client wins and increased spend from existing clients as we extended the Company's capabilities into new markets throughout Europe, Asia, and South America. For the year ended December 31,

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2016 , 11.4% of the Company's total revenue came from outside North America, up from 8.5% for the year ended December 31, 2015 . Additional revenue growth came from acquisitions of firms that helped expand the Company's capabilities in mobile development and digital media buying, as well as expand the Company's global footprint.
The adverse currency impact was primarily due to the weakening of the British Pound and the Canadian dollar against the U.S. dollar during the twelve months ended December 31, 2016 , as compared to the twelve months ended December 31, 2015 .
The change in expenses as a percentage of revenue in the Advertising and Communications Group for the years ended December 31, 2016 and 2015 was as follows:
 
 
2016
 
2015
 
Change
Advertising and Communications
Group
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Revenue
 
$
1,385.8

 
 
 
$
1,326.3

 
 
 
$
59.5

 
4.5
 %
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
936.1

 
67.6
%
 
879.7

 
66.3
%
 
56.4

 
6.4
 %
Office and general expenses
 
263.7

 
19.0
%
 
258.8

 
19.5
%
 
4.9

 
1.9
 %
Depreciation and amortization
 
44.9

 
3.2
%
 
50.4

 
3.8
%
 
(5.6
)
 
(11.1
)%
Goodwill impairment
 
48.5

 
3.5
%
 

 
%
 
48.5

 
NA

 
 
$
1,293.2

 
93.3
%
 
$
1,189.0

 
89.6
%
 
$
104.3

 
8.8
 %
Operating profit
 
$
92.5

 
6.7
%
 
$
137.3

 
10.4
%
 
$
(44.7
)
 
(32.6
)%
The change in the categories of expenses as a percentage of revenue in the Advertising and Communications Group for the years ended December 31, 2016 and 2015 was as follows:
 
 
2016
 
2015
 
Change
Advertising and Communications
Group
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Direct costs  (1)
 
$
212.3

 
15.3
%
 
$
195.3

 
14.7
%
 
$
17.0

 
8.7
 %
Staff costs (2)
 
781.9

 
56.4
%
 
732.4

 
55.2
%
 
49.5

 
6.8
 %
Administrative
 
179.2

 
12.9
%
 
159.4

 
12.0
%
 
19.8

 
12.4
 %
Deferred acquisition consideration
 
8.0

 
0.6
%
 
36.3

 
2.7
%
 
(28.4
)
 
(78.1
)%
Stock-based compensation
 
18.5

 
1.3
%
 
15.1

 
1.1
%
 
3.4

 
22.7
 %
Depreciation and amortization
 
44.9

 
3.2
%
 
50.4

 
3.8
%
 
(5.6
)
 
(11.1
)%
Goodwill impairment
 
48.5

 
3.5
%
 

 
%
 
48.5

 
NA

Total operating expenses
 
$
1,293.2

 
93.3
%
 
$
1,189.0

 
89.6
%
 
$
104.3

 
8.8
 %
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
Operating profit for the Advertising and Communications Group for the year ended December 31, 2016 was $92.5 million , compared to $137.3 million for the year ended December 31, 2015 . Operating margins decreased from 10.4% in 2015 to 6.7% in 2016 . The decrease in operating profit and margin was largely due to the goodwill impairment charge of $48.5 million , and increases in staff costs as a percentage of revenue, partially offset by decreased deferred acquisition consideration expense.
Direct costs increased by $17.0 million , or 8.7% , and as a percentage of revenue increased from 14.7% for the year ended December 31, 2015 to 15.3% for the year ended December 31, 2016 . This increase was largely due to an acquisition during the year.
Staff costs increased by $49.5 million , or 6.8% , and as a percentage of revenue increased from 55.2% for the year ended December 31, 2015 to 56.4% for the year ended December 31, 2016 . The increase in staff costs was due to increased headcount driven by certain Partner Firms to support the growth of their businesses, as well as additional increases from acquisitions. The increase in staff costs as a percentage of revenue, was due to an increase in staffing levels in advance of revenue at certain Partner Firms, as well as slower reductions in staffing at other Partner Firms.

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Administrative costs increased year over year and as a percentage of revenue primarily due to higher occupancy expenses and other general and administrative expenses. These increases were incurred to support the growth and expansion of certain Partner Firms, as well as some real estate consolidation initiatives.
Deferred acquisition consideration was an expense of $8.0 million for the year ended December 31, 2016 , compared to expense of $36.3 million for the year ended December 31, 2015 . The decrease in deferred acquisition consideration expense was due to the aggregate under-performance of certain Partner Firms in 2016, as compared to forecasted expectations in comparison to 2015. This decrease was partially offset by expenses pertaining to amendments to purchase agreements of previously acquired incremental ownership interests entered into during 2016, as well as increased estimated liability driven by the decrease in the Company's estimated future stock price, pertaining to an acquisition in which the Company used its equity as purchase consideration.
Stock-based compensation remained consistent at approximately 1% of revenue.
Depreciation and amortization expense decreased by $5.6 million primarily due to lower amortization from intangibles related to prior year acquisitions.
Goodwill impairment of $48.5 million was comprised of $27.9 million relating to an experiential reporting unit, a partial impairment of goodwill of $1.7 million relating to a non-material reporting unit, and a partial impairment of goodwill of $18.9 million relating to a strategic communications reporting unit. (For more information see Note 8 of our consolidated financial statements.)
Reportable Segment
Revenue was $1.15 billion for the year ended December 31, 2016 , representing an increase of $45.5 million or 4.1% , compared to revenue of $1.10 billion for the year ended December 31, 2015 . This increase related to revenue from acquisitions of $44.4 million or 4.0%, as well as revenue growth of $9.1 million or 0.8% excluding the effect of the acquisitions. These increases were partially offset by a decrease in foreign exchange of $8.0 million or 0.7%.
The change in expenses as a percentage of revenue in the Reportable segment for the years ended December 31, 2016 and 2015 was as follows:
 
 
2016
 
2015
 
Change
Reportable Segment
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Revenue
 
$
1,147.2

 
 
 
$
1,101.7

 
 
 
$
45.5

 
4.1
 %
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
775.1

 
67.6
%
 
724.7

 
65.8
%
 
50.4

 
7.0
 %
Office and general expenses
 
223.8

 
19.5
%
 
208.8

 
19.0
%
 
15.0

 
7.2
 %
Depreciation and amortization
 
33.8

 
3.0
%
 
32.5

 
3.0
%
 
1.3

 
4.1
 %
 
 
$
1,032.8

 
90.0
%
 
$
966.1

 
87.7
%
 
$
66.7

 
6.9
 %
Operating profit
 
$
114.4

 
10.0
%
 
$
135.6

 
12.3
%
 
$
(21.2
)
 
(15.6
)%

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The change in the categories of expenses as a percentage of revenue in the Reportable segment for the years ended December 31, 2016 and 2015 was as follows:
 
 
2016
 
2015
 
Change
Reportable Segment
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Direct costs (1)
 
$
148.2

 
12.9
%
 
$
132.4

 
12.0
%
 
$
15.8

 
11.9
 %
Staff costs (2)
 
673.2

 
58.7
%
 
634.2

 
57.6
%
 
39.0

 
6.1
 %
Administrative
 
156.3

 
13.6
%
 
138.8

 
12.6
%
 
17.4

 
12.6
 %
Deferred acquisition consideration
 
7.2

 
0.6
%
 
18.0

 
1.6
%
 
(10.8
)
 
(59.9
)%
Stock-based compensation
 
14.1

 
1.2
%
 
10.2

 
0.9
%
 
3.9

 
38.2
 %
Depreciation and amortization
 
33.8

 
3.0
%
 
32.5

 
3.0
%
 
1.3

 
4.1
 %
Total operating expenses
 
$
1,032.8

 
90.0
%
 
$
966.1

 
87.7
%
 
$
66.7

 
6.9
 %
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
Operating profit for the Reportable segment for the year ended December 31, 2016 was $114.4 million , compared to $135.6 million for the year ended December 31, 2015 . Operating margins decreased from 12.3% in 2015 to 10.0% in 2016 . The decrease in operating profit and margin was largely due to increases in staff costs as a percentage of revenue as well as administrative costs, partially offset by decreased deferred acquisition consideration expense.
Direct costs remained consistent as a percentage of revenue at approximately 13%, slight year-over-year increase due to an acquisition completed during the year of a firm with a high component of direct costs, as well as increases in pass-through costs incurred on clients’ behalf, from some of the Company's Partner Firms acting as Principal verses Agent.
Staff costs increased by $39.0 million , or 6.1% , and as a percentage of revenue increased from 57.6% for the year ended December 31, 2015 to 58.7% for the year ended December 31, 2016 . The increase in staff costs was due to increased headcount driven by certain Partner Firms to support the growth of their businesses, as well as additional contributions from acquisitions. The increase in staff costs as a percentage of revenue was due to an increase in staffing levels in advance of revenue at certain Partner Firms, as well as slower reductions in staffing at other Partner Firms.
Administrative costs increased year over year and as a percentage of revenue primarily due to higher occupancy expenses and other general and administrative expenses. These increases were incurred in 2016 to support the growth and expansion of certain Partner Firms, as well as some real estate consolidation initiatives.
Deferred acquisition consideration was an expense of $7.2 million for the year ended December 31, 2016 , compared to expense of $18.0 million for the year ended December 31, 2015 . The decrease in deferred acquisition consideration expense was due to the aggregate under-performance of certain Partner Firms in 2016 as compared to forecasted expectations in comparison to 2015 aggregate out-performance as compared to forecasted expectations. This decrease was partially offset by expenses pertaining to an amendment to a purchase agreement of previously acquired incremental ownership interest entered into during 2016, as well as increased estimated liability driven by the decrease in the company's estimated future stock price, pertaining to an equity funded acquisition.
Stock-based compensation remained consistent as a percentage of revenue at approximately 1%.
Depreciation and amortization expense also remained consistent as a percentage of revenue at approximately 3%.
All Other
Revenue was $238.6 million for the year ended December 31, 2016 , representing an increase of $14.0 million or 6.2% , compared to revenue of $224.6 million for the year ended December 31, 2015 . This increase related to revenue from acquisitions of $6.7 million or 3.0%, as well as revenue growth of $10.8 million or 4.8% excluding the effect of the acquisitions. These increases were partially offset by a decrease in foreign exchange of $3.0 million or 1.3%, as well as disposition adjustment of $0.5 million or 0.2%.

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The change in expenses as a percentage of revenue in the All Other segment for the years ended December 31, 2016 and 2015 was as follows:
 
 
2016
 
2015
 
Change
All Other
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Revenue
 
$
238.6

 
 
 
$
224.6

 
 
 
$
14.0

 
6.2
 %
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
161.0

 
67.5
 %
 
155.0

 
69.0
%
 
6.0

 
3.9
 %
Office and general expenses
 
39.9

 
16.7
 %
 
50.0

 
22.3
%
 
(10.1
)
 
(20.2
)%
Depreciation and amortization
 
11.0

 
4.6
 %
 
17.9

 
8.0
%
 
(6.9
)
 
(38.6
)%
Goodwill impairment
 
48.5

 
20.3
 %
 
$

 
%
 
48.5

 
NA

 
 
$
260.4

 
109.1
 %
 
$
222.9

 
99.2
%
 
$
37.5

 
16.8
 %
Operating profit (loss)
 
$
(21.8
)
 
(9.1
)%
 
$
1.7

 
0.8
%
 
$
(23.5
)
 
(1388.3
)%
The change in the categories of expenses as a percentage of revenue in the All Other segment for the years ended December 31, 2016 and 2015 was as follows:
 
 
2016
 
2015
 
Change
All Other
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Direct costs (1)
 
$
64.1

 
26.9
%
 
$
62.9

 
28.0
%
 
$
1.2

 
1.9
 %
Staff costs (2)
 
108.8

 
45.6
%
 
98.2

 
43.7
%
 
10.6

 
10.8
 %
Administrative
 
22.9

 
9.6
%
 
20.6

 
9.2
%
 
2.3

 
11.2
 %
Deferred acquisition consideration
 
0.8

 
0.3
%
 
18.4

 
8.2
%
 
(17.6
)
 
(95.8
)%
Stock-based compensation
 
4.3

 
1.8
%
 
4.8

 
2.1
%
 
(0.5
)
 
(10.4
)%
Depreciation and amortization
 
11.0

 
4.6
%
 
17.9

 
8.0
%
 
(6.9
)
 
(38.4
)%
Goodwill impairment
 
48.5

 
20.3
%
 
$

 
%
 
48.5

 
NA

Total operating expenses
 
$
260.4

 
109.1
%
 
$
222.9

 
99.2
%
 
$
37.6

 
16.9
 %
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
Operating profit for the All Other segment for the year ended December 31, 2016 was a loss of $21.8 million , compared to profit of $1.7 million for the year ended December 31, 2015 . Operating margins declined from 0.8% in 2015 to a negative 9.1% in 2016 . The decrease in operating profit and margin was largely due to the goodwill impairment charge of $48.5 million , partially offset by decreased deferred acquisition consideration expense.
Direct costs increased by $1.2 million , or 1.9% , and as a percentage of revenue decreased from 28.0% for the year ended December 31, 2015 to 26.9% for the year ended December 31, 2016 . This decrease as a percentage of revenue was due to a decline in pass-through costs incurred on clients’ behalf from some of the Company's Partner Firms acting as principal verses agent.
Staff costs increased by $10.6 million , or 10.8% , and as a percentage of revenue increased from 43.7% for the year ended December 31, 2015 to 45.6% for the year ended December 31, 2016 . The increase in staff costs was due to increased headcount driven by certain Partner Firms to support the growth of their businesses, as well as contributions from a 2015 acquisition. The increase in staff costs as a percentage of revenue, was due to increased levels of staffing at certain Partner Firms to support their growing businesses.
Administrative costs increased year over year and as a percentage of revenue primarily due to higher occupancy expenses and other general and administrative expenses. These increases were incurred to support the growth and expansion of certain Partner Firms.

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Deferred acquisition consideration was an expense of $0.8 million for the year ended December 31, 2016 , compared to expense of $18.4 million for the year ended December 31, 2015 . The decrease in deferred acquisition consideration expense was due to the 2015 aggregate out performance as compared to forecast expectations of certain Partner Firms that did not reoccur in 2016.
Stock-based compensation decreased slightly as a percentage of revenue.
Depreciation and amortization expense decreased by $6.9 million primarily due to lower amortization from intangibles related to prior year acquisitions.
Goodwill impairment of $48.5 million in the aggregate was comprised of a partial impairment of goodwill of $27.9 million relating to an experiential reporting unit, a partial impairment of goodwill of $18.9 million relating to a strategic communications reporting unit, and a partial impairment of goodwill of $1.7 million relating to a non-material reporting unit. Refer to Note 8 of the Notes to the Consolidated Financial Statements included herein for additional information.
Corporate Group
The change in operating expenses for the years ended December 31, 2016 and 2015 was as follows:
 
 
 
 
 
 
Variance
Corporate
 
2016
 
2015
 
$
 
%
 
 
(Dollars in Millions)
Staff costs (1)
 
$
27.8

 
$
42.4

 
$
(14.6
)
 
(34.4
)%
Administrative
 
12.2

 
18.2

 
(6.1
)
 
(33.3
)%
Stock-based compensation
 
2.5

 
2.7

 
(0.2
)
 
(7.8
)%
Depreciation and amortization
 
1.6

 
1.8

 
(0.2
)
 
(10.7
)%
Total operating expenses
 
$
44.1

 
$
65.2

 
$
(21.1
)
 
(32.3
)%
(1)
Excludes stock-based compensation.
Total operating expenses related to the Corporate Group’s operations decreased by $21.1 million to $44.1 million for the year ended December 31, 2016 , compared to $65.2 million for the year ended December 31, 2015 .
Staff costs decreased on a year-over-year basis by $14.6 million , or 34.4% . The decrease was primarily related to a 2015 one-time charge of $5.8 million for the balance of prior cash bonus award amounts that were paid to the former Chief Executive Officer (“CEO”) and Chief Accounting Officer (“CAO”) but will not be recovered pursuant to the repayment terms of the applicable Separation Agreements. In addition, there was lower executive compensation expense in 2016.
Administrative costs decreased by $6.1 million primarily due to 2016 reductions in the following categories: (1) legal fees related to the class-action litigation and SEC investigation of $9.6 million , (2) advertising and promotional expenses of $1.4 million , (3) professional fees of $1.0 million , (4) travel and entertainment expenses of $0.3 million (5) occupancy costs of $0.6 million and (6) various other administrative costs of $1.1 million . In addition, the Company received $5.9 million of insurance proceeds for the year ended December 31, 2016 compared to $1.0 million for the year ended December 31, 2015 relating to the class-action litigation and SEC investigation. These reductions in administrative costs and receipt of insurance proceeds were partially offset by the $11.3 million of perquisite reimbursements from the former CEO received for the year ended December 31, 2015 and the one-time SEC civil penalty payment of $ 1.5 million for the year ended December 31, 2016 .
Other Income, Net
Other income, net, decreased by $6.8 million from income of $7.2 million for the year ended December 31, 2015 to income of $0.4 million for the year ended December 31, 2016 . The decrease pertains to the gain on sale of certain investments completed in 2015 of $6.5 million compared to the gain on sale of investments of $1.9 million completed in 2016 , as well as a loss of $0.8 million related to the sale of Bryan Mills to the noncontrolling shareholders. In addition, the Company had other income of $0.4 million in 2016 compared to other income of $0.1 million in 2015.
Foreign Exchange
Foreign exchange loss was $0.2 million in 2016 compared to a foreign exchange loss of $39.3 million in 2015 . The foreign exchange losses in both 2016 and 2015 primarily relate to U.S. dollar denominated indebtedness that is an obligation of the Company's Canadian parent company and were driven by the appreciation of the U.S. dollar against the Canadian dollar in the period.

27

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Interest Expense, finance charges, and loss on redemption of notes, net
Interest expense and finance charges, net, for the year ended December 31, 2016 was $65.9 million , an increase of $8.0 million over the $57.9 million of interest expense and finance charges, net, incurred for the year ended December 31, 2015 . This increase was due to higher average outstanding debt in 2016 . In addition, the Company incurred a $33.3 million loss on redemption of the 6.75% Notes in March 2016.
Income Tax Expense (Benefit)
Income tax benefit for the year ended December 31, 2016 was $7.3 million compared to an expense of $5.7 million for the year ended December 31, 2015 . The Company’s effective rate in 2016 and 2015 was lower than the statutory rate due to losses in certain tax jurisdictions where a valuation allowance was deemed necessary.
The Company’s U.S. 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 profits.
Equity in Earnings (Losses) of Non-Consolidated Affiliates
Equity in earnings (losses) of non-consolidated affiliates represents the income attributable to equity-accounted affiliate operations. For the year ended December 31, 2016 , the Company recorded a loss of $0.3 million compared to earnings of $1.1 million for the year ended December 31, 2015 .
Noncontrolling Interests
The effects of noncontrolling interests was $5.2 million for the year ended December 31, 2016 , a decrease of $3.9 million from the $9.1 million for the year ended December 31, 2015 . This decrease related to an increase in ownership in Partner Firms where there are noncontrolling shareholders.
Discontinued Operations
The loss, net of taxes, from discontinued operations was $6.3 million , for the year ended December 31, 2015 . There was no impact for the year ended December 31, 2016 .
Net Loss Attributable to MDC Partners Inc.
As a result of the foregoing, the net loss attributable to MDC Partners Inc. for the year ended December 31, 2016 was $47.9 million or a loss of $0.93 per diluted share, compared to a net loss of $37.4 million , or $0.75 per diluted share reported for the year ended December 31, 2015 .
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Revenue was $1.33 billion for the year ended December 31, 2015 , representing an increase of $102.7 million , or 8.4% , compared to revenue of $1.22 billion for the year ended December 31, 2014 . Revenue from acquisitions for 2015 was $45.8 million or 3.7%, inclusive of a $0.8 million contribution to organic revenue growth. Revenue from acquisitions was composed of $32.0 million pertaining to acquisitions completed in 2014 and $13.8 million relating to acquisitions completed in 2015 . Excluding the effect of the acquisitions and disposition, revenue growth was $85.9 million or 7.0%, partially offset by a foreign exchange impact of $28.9 million or 2.4%.
Operating profit for the year ended 2015 was $72.1 million , compared to $87.7 million in 2014 . Operating profit decreased by $18.5 million in the Advertising and Communications Group. Corporate operating expenses decreased by $2.9 million in 2015 .
Loss from continuing operations was $22.0 million in 2015 , compared to income of $4.1 million in 2014. This decrease of $26.1 million was primarily attributable to (1) a decrease in operating profits of $15.6 million, primarily due to increased deferred acquisition expense of $19.9 million, (2) an increase in foreign exchange loss of $20.8 million, (3) an increase in net interest expense of $2.6 million, (4) offset by a decrease in income tax expense of $6.7 million and (5) an increase in other income, net, of $6.5 million.
Advertising and Communications Group
Revenue was $1.33 billion for the year ended December 31, 2015 , representing an increase of $102.7 million , or 8.4% , compared to revenue of $1.22 billion for the year ended December 31, 2014 . Revenue from acquisitions for 2015 was $45.8 million or 3.7%, inclusive of a $0.8 million contribution to organic revenue growth. Excluding the effect of the acquisitions and disposition, revenue growth was $85.9 million or 7.0%, partially offset by a foreign exchange impact of $28.9 million or 2.4%.

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The Company's revenue growth was attributable to new client wins and increased spend by existing clients. There was broad strength across most disciplines, with growth led by the Company's integrated advertising agencies, and media buying and planning platform, offset by a decline in the Company's promotions and experiential businesses. The promotions and experiential businesses were impacted by decreased billable pass-through costs incurred on the client’s behalf from the Company acting as principal which was due to a different mix of programs that had a smaller component of billable pass-through costs as compared to 2014 . The Comapny's strongest client sectors were automobile, technology, consumer products, and healthcare, while revenue in the the financial and retail sectors declined.
Revenue growth was driven by the Company’s business in the North American region primarily consisting of revenue from acquisitions of $33.5 million or 2.7%, as well as revenue growth excluding acquisitions of $58.1 million or 4.7% from the United States, partially offset by foreign exchange impact of $20.6 million or 1.7% in Canada. The revenue growth derived outside of the North American region was comprised of revenue from acquisitions of $10.9 million or 0.9%. Revenue growth excluding acquisitions was $29.9 million or 2.4%, partially offset by foreign exchange impact of $8.3 million or 0.7%. In 2015 , approximately 8.5% of the Company's total revenue came from outside of North America, up from approximately 6.5% in 2014 .
The Company also utilizes a non-GAAP metric called organic revenue growth (decline), defined in Item 7. For the year ended December 31, 2015 organic revenue growth was $86.7 million or 7.1% , of which $85.9 million pertained to Partner Firms which the Company has held throughout each of the comparable periods presented, while the remaining $0.8 million were contributions from acquisitions. The increase in revenue was also a result of non-GAAP acquisition (disposition) net adjustments of $46.3 million or 3.8% , which was partially offset by a foreign exchange impact of $30.2 million or 2.5% .
The components of the change in revenues for the year ended December 31, 2015 are as follows:
 
 
 
 
2015 Non-GAAP Activity
 
 
 
Change
Advertising and Communications Group
 
2014 Revenue
 
Foreign
Exchange
 
Non-GAAP Acquisitions
(Dispositions), net
 
Organic
Revenue
Growth
(Decline)
 
2015 Revenue
 
Foreign
Exchange
 
Non-GAAP Acquisitions
(Dispositions), net
 
Organic
Revenue
Growth
(Decline)
 
Total
Revenue
 
 
(Dollars in Millions)
 
 
 
 
 
 
 
 
United States
 
$
993.5

 
$

 
$
28.2

 
$
63.4

 
$
1,085.1

 
 %
 
2.8
%
 
6.4
 %
 
9.2
 %
Canada
 
150.4

 
(20.6
)
 
1.4

 
(2.1
)
 
129.0

 
(13.7
)%
 
0.9
%
 
(1.4
)%
 
(14.2
)%
Other
 
79.6

 
(9.6
)
 
16.7

 
25.4

 
112.2

 
(12.1
)%
 
21.0
%
 
31.9
 %
 
40.8
 %
Total
 
$
1,223.5

 
$
(30.2
)
 
$
46.3

 
$
86.7

 
$
1,326.3

 
(2.5
)%
 
3.8
%
 
7.1
 %
 
8.4
 %
The below is a reconciliation by segment between the non-GAAP acquisitions (dispositions), net to revenue from acquired businesses included in the Statement of Operations for the year ended December 31, 2015 :
 
Reportable Segment
 
All Other
 
Total
 
(Dollars in Millions)
Revenue from acquisitions (dispositions), net (1)
$
31.4

 
$
14.4

 
$
45.8

Foreign exchange impact
1.3

 

 
1.3

Deductions from (contributions to) organic revenue growth (decline) (2)
4.9

 
(5.7
)
 
(0.8
)
Non-GAAP acquisitions (dispositions), net
$
37.6

 
$
8.7

 
$
46.3

(1)
For the year ended December 31, 2015 , revenue from acquisitions was comprised of $32.0 million from 2014 acquisitions and $13.8 million from 2015 acquisitions.
(2)
Deductions from (contributions to) organic revenue growth (decline) represents the change in revenue, measured on a constant currency basis, relative to the comparable pre-acquisition period for acquired businesses that is included in the Company’s organic revenue growth (decline) calculation.

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The geographic mix in revenues for the years ended December 31, 2015 and 2014 are as follows:
Advertising and Communications Group
 
2015
 
2014
United States
 
81.8
%
 
81.2
%
Canada
 
9.7
%
 
12.3
%
Other
 
8.5
%
 
6.5
%
The Company's business outside of North America continued to be a driver of growth for the overall company, with organic revenue growth of 31.9% , primarily driven by new client wins and increased spend from existing clients as we extended the Company's capabilities into new markets throughout Europe, Asia, and to a lesser degree, South America. Additional revenue growth came from multiple acquisitions of firms that helped us expand the Company's capabilities in the advertising, public relations, and mobile development areas.
The adverse currency impact was primarily due to the weakening of the Canadian dollar, the British Pound, and the Euro against the U.S. dollar.
The change in expenses as a percentage of revenue in the Advertising and Communications Group for the years ended December 31, 2015 and 2014 was as follows:
 
 
2015
 
2014
 
Change
Advertising and Communications Group
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Revenue
 
$
1,326.3

 
 
 
$
1,223.5

 
 
 
$
102.7

 
8.4
 %
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
879.7

 
66.3
%
 
798.5

 
65.3
%
 
81.2

 
10.2
 %
Office and general expenses
 
258.8

 
19.5
%
 
223.8

 
18.3
%
 
35.0

 
15.7
 %
Depreciation and amortization
 
50.4

 
3.8
%
 
45.4

 
3.7
%
 
5.1

 
11.2
 %
 
 
1,189.0

 
89.6
%
 
1,067.7

 
87.3
%
 
121.3

 
11.4
 %
Operating profit (loss)
 
$
137.3

 
10.4
%
 
$
155.8

 
12.7
%
 
$
(18.5
)
 
(11.9
)%
The change in the categories of expenses as a percentage of revenue in the Advertising and Communications Group for the years ended December 31, 2015 and 2014 was as follows:
 
 
2015
 
2014
 
Change
Advertising and Communications Group
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Direct costs (1)
 
$
195.3

 
14.7
%
 
$
192.7

 
15.8
%
 
$
2.5

 
1.3
%
Staff costs (2)
 
732.4

 
55.2
%
 
652.8

 
53.4
%
 
79.6

 
12.2
%
Administrative
 
159.4

 
12.0
%
 
148.3

 
12.1
%
 
11.1

 
7.5
%
Deferred acquisition consideration
 
36.3

 
2.7
%
 
16.5

 
1.3
%
 
19.9

 
120.7
%
Stock-based compensation
 
15.1

 
1.1
%
 
12.0

 
1.0
%
 
3.0

 
25.1
%
Depreciation and amortization
 
50.4

 
3.8
%
 
45.4

 
3.7
%
 
5.1

 
11.2
%
Total operating expenses
 
$
1,189.0

 
89.6
%
 
$
1,067.7

 
87.3
%
 
$
121.3

 
11.4
%
(1)
Exclude staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
Operating profit for the Advertising and Communications Group in 2015 was $137.3 million compared to $155.8 million for 2014 , with operating margins declining by approximately 240 basis points from 12.7% to 10.4% . The decrease in operating profit and margins was largely due to increases in staff costs as a percentage of revenue, an increase in expenses pertaining to deferred acquisition consideration adjustments, partially offset by a decrease in direct costs as a percentage of revenue.

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Direct costs increased by $2.5 million , or 1.3% , and as a percentage of revenue declined from 15.8% to 14.7% as pass-through costs incurred on the clients’ behalf decreased, most notably in the promotions and experiential businesses in conjunction with their revenue decline.
Staff costs increased by $79.6 million , or 12.2% , and as a percentage of revenue increased from 53.4% in 2014 to 55.2% in 2015 . Headcount increased in areas directly servicing clients as well as in administrative rolls, in order to support Partner Firm growth. This increase was primarily attributable to headcount expansion. In addition, severance costs increased approximately $6.0 million from 2014 to 2015 .
Deferred acquisition consideration expense increased $19.9 million or 120.7% from $16.5 million in 2014 to $36.3 million in 2015. The aggregate out performance of certain Partner Firms as compared to forecasted expectations was at a higher magnitude as compared to the 2014 aggregate out performance as compared to forecasted expectations.
Stock-based compensation increased by $3.0 million but was consistent at approximately 1.0% of revenue.
Depreciation and amortization expense increased by $5.1 million primarily due to the impact of acquisitions.
Reportable Segment
Revenue was $1.10 billion for the year ended December 31, 2015 , representing an increase of $110.4 million or 11.1% , compared to revenue of $991.2 million for the year ended December 31, 2014 . This increase related to revenue from acquisitions of $31.4 million or 3.2%, as well as revenue growth of $98.7 million or 10.0% excluding the effect of the acquisitions. These increases were partially offset by a decrease in foreign exchange of $19.7 million or 2.0%.
The change in expenses as a percentage of revenue in the Reportable segment for the years ended December 31, 2015 and 2014 was as follows:
 
 
2015
 
2014
 
Change
Reportable Segment
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Revenue
 
$
1,101.7

 
 
 
$
991.2

 
 
 
$
110.4

 
11.1
 %
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
724.7

 
65.8
%
 
631.6

 
63.7
%
 
93.1

 
14.7
 %
Office and general expenses
 
208.8

 
19.0
%
 
188.8

 
19.0
%
 
20.1

 
10.6
 %
Depreciation and amortization
 
32.5

 
3.0
%
 
30.6

 
3.1
%
 
1.9

 
6.1
 %
 
 
$
966.1

 
87.7
%
 
$
851.0

 
85.9
%
 
$
115.1

 
13.5
 %
Operating profit
 
$
135.6

 
12.3
%
 
$
140.2

 
14.1
%
 
$
(4.6
)
 
(3.3
)%
The change in the categories of expenses as a percentage of revenue in the Reportable segment for the years ended December 31, 2015 and 2014 was as follows:
 
 
2015
 
2014
 
Change
Reportable Segment
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Direct costs (1)
 
$
132.4

 
12.0
%
 
$
110.8

 
11.2
%
 
$
21.6

 
19.5
%
Staff costs (2)
 
634.2

 
57.6
%
 
561.4

 
56.6
%
 
72.8

 
13.0
%
Administrative
 
138.8

 
12.6
%
 
128.5

 
13.0
%
 
10.3

 
8.0
%
Deferred acquisition consideration
 
18.0

 
1.6
%
 
11.2

 
1.1
%
 
6.8

 
61.0
%
Stock-based compensation
 
10.2

 
0.9
%
 
8.6

 
0.9
%
 
1.7

 
19.5
%
Depreciation and amortization
 
32.5

 
3.0
%
 
30.6

 
3.1
%
 
1.9

 
6.1
%
Total operating expenses
 
$
966.1

 
87.7
%
 
$
851.0

 
85.9
%
 
$
115.1

 
13.5
%
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.

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Operating profit for the Reportable segment for the year ended December 31, 2015 was $135.6 million , compared to $140.2 million for the year ended December 31, 2014 . Operating margins from 14.1% in 2014 to 12.3% in 2015 . The decrease in operating profit and margin was largely due to increases in staff costs as a percentage of revenue, as well as increases in direct costs and deferred acquisition consideration expenses.
Direct costs increased $21.6 million or 19.5% , and as a percentage of revenue increased from 11.2% to 12.0% primarily due to the full year contribution of an acquisition with a high component of direct costs completed in the second half of 2014.
Staff costs increased by $72.8 million , or 13.0% , and as a percentage of revenue increased from 56.6% for the year ended December 31, 2014 to 57.6% for the year ended December 31, 2015 . The increase in staff costs was due to increased headcount driven by certain Partner Firms to support the growth of their businesses, as well as additional contributions from acquisitions. The increase in staff costs as a percentage of revenue was due to an increase in staffing levels in advance of revenue at certain Partner Firms, as well as slower staffing decreases at other Partner Firms.
Deferred acquisition consideration was an expense of $18.0 million for the year ended December 31, 2015 , compared to an expense of $11.2 million for the year ended December 31, 2014 . The increase was due to larger out-performance relative to forecasted expectations of certain Partner Firms as compared to 2014 .
Stock-based compensation remained consistent as a percentage of revenue at approximately 1% .
Depreciation and amortization expense also remained consistent as a percentage of revenue at approximately 3% .
All Other
Revenue was $224.6 million for the year ended December 31, 2015 , representing a decrease of $7.7 million or 3.3% , compared to revenue of $232.3 million for the year ended December 31, 2014 . This decrease related to revenue decline of $12.9 million or 5.5% excluding the effect of the acquisitions, as well as a decrease in foreign exchange of $9.2 million or 4.0%. These decreases were partially offset by revenue from acquisitions of $14.4 million or 6.2%.
The change in expenses as a percentage of revenue in the All Other for the years ended December 31, 2015 and 2014 was as follows:
 
 
2015
 
2014
 
Change
All Other
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Revenue
 
$
224.6

 
 
 
$
232.3

 
 
 
$
(7.7
)
 
(3.3
)%
Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
155.0

 
69.0
%
 
166.9

 
71.8
%
 
(11.9
)
 
(7.1
)%
Office and general expenses
 
50.0

 
22.3
%
 
35.0

 
15.1
%
 
14.9

 
42.7
 %
Depreciation and amortization
 
17.9

 
8.0
%
 
14.8

 
6.4
%
 
3.2

 
21.6
 %
 
 
$
222.9

 
99.2
%
 
$
216.7

 
93.3
%
 
$
6.2

 
2.9
 %
Operating profit
 
$
1.7

 
0.8
%
 
$
15.6

 
6.7
%
 
$
(13.9
)
 
(89.1
)%

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The change in the categories of expenses as a percentage of revenue in the All Other segment for the years ended December 31, 2015 and 2014 was as follows:
 
 
2015
 
2014
 
Change
All Other
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Millions)
Direct costs (1)
 
$
62.9

 
28.0
%
 
$
81.9

 
35.3
%
 
$
(19.0
)
 
(23.2
)%
Staff costs (2)
 
98.2

 
43.7
%
 
91.4

 
39.3
%
 
6.8

 
7.5
 %
Administrative
 
20.6

 
9.2
%
 
19.8

 
8.5
%
 
0.8

 
4.1
 %
Deferred acquisition consideration
 
18.4

 
8.2
%
 
5.3

 
2.3
%
 
13.1

 
246.3
 %
Stock-based compensation
 
4.8

 
2.1
%
 
3.5

 
1.5
%
 
1.4

 
38.9
 %
Depreciation and amortization
 
17.9

 
8.0
%
 
14.8

 
6.4
%
 
3.2

 
21.6
 %
Total operating expenses
 
$
222.9

 
99.2
%
 
$
216.7

 
93.3
%
 
$
6.2

 
2.9
 %
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
Operating profit for the All Other segment for the year ended December 31, 2015 was $1.7 million , compared to $15.6 million for the year ended December 31, 2014 . Operating margins decreased from 6.7% in 2014 to 0.8% in 2015 . The decrease in operating profit and margin was largely due to increases in staff costs as a percentage of revenue and an increase in deferred acquisition consideration expenses, partially offset by a decrease in direct costs.
Direct costs decreased by $19.0 million , or 23.2% , and as a percentage of revenue declined from 35.3% to 28.0% as pass-through costs incurred on the clients’ behalf decreased, most notably in the promotions and experiential businesses in conjunction with their revenue decline.
Staff costs increased by $6.8 million , or 7.5% , and as a percentage of revenue increased from 39.3% for the year ended December 31, 2014 to 43.7% for the year ended December 31, 2015 . The increase in staff costs was primarily due to additional contributions from an acquisition, in addition to increased headcount driven by certain Partner Firms to support the growth of their businesses. The increase in staff costs as a percentage of revenue was due to an increase in staffing levels in advance of revenue at certain Partner Firms, as well as slower staffing decreases at other Partner Firms.
Deferred acquisition consideration was an expense of $18.4 million for the year ended December 31, 2015 , compared to an expense of $5.3 million for the year ended December 31, 2014 . The increase was due to larger out-performance relative to forecasted expectations of certain Partner Firms as compared to 2014 .
Stock-based compensation remained consistent as a percentage of revenue at approximately 2%.
Depreciation and amortization expense increased by $3.2 million or 21.6% driven by an acquisition completed during 2015.
Corporate Group
The change in operating expenses for the years ended December 31, 2015 and 2014 was as follows:
 
 
 
 
 
 
Variance
Corporate Group
 
2015
 
2014
 
$
 
%
 
 
(Dollars in Millions)
Staff costs (1)
 
$
42.4

 
$
37.9

 
$
4.5

 
11.9
 %
Administrative
 
18.2

 
22.7

 
(4.5
)
 
(19.7
)%
Stock-based compensation
 
2.7

 
5.7

 
(2.9
)
 
(51.6
)%
Depreciation and amortization
 
1.8

 
1.8

 

 
(0.6
)%
Total operating expenses
 
$
65.2

 
$
68.1

 
$
(2.9
)
 
(4.3
)%
(1)
Excludes stock-based compensation.
Total operating expenses related to the Corporate Group’s operations decreased by $2.9 million to $65.2 million in 2015 , compared to $68.1 million in 2014

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TABLE OF CONTENTS




First, the increase in staff costs was due to a one-time charge of $5.8 million in 2015 for the balance of the prior year cash bonus awards that were previously paid to the Company’s former CEO and former CAO, but will not be recovered pursuant to the repayment terms of the applicable Separation Agreements. This one-time charge was offset by a general reduction of staff costs of $1.3 million in 2015 , and a reduction in stock-based compensation expense of $2.9 million in 2015 , each as compared to 2014
Second, there was a meaningful decrease in administrative costs of $4.5 million in 2015, which was due to the following cost reductions as compared to 2014 : (i) travel and entertainment expenses of $2.8 million, (ii) advertising and promotional expenses of $2.5 million, (iii) legal expenses of $1.1 million (excluding legal fees related to the ongoing SEC inquiry), and (iv) various other administrative expenses of $0.6 million.  The foregoing reductions in administrative costs were impacted by other one-time items, including the following: (a) a reduction in administrative costs of $11.3 million as a result of repayments the Company received from the Company’s former CEO; (b) incurrence of $12.7 million of legal fees related to the ongoing SEC inquiry (net of $1.0 million insurance proceeds); and (c) the write off of certain assets related to the termination of the former CEO and former CAO of $1.1 million.
Other Income, Net
Other income, net, increased by $6.5 million from income of $0.7 million in 2014 to income of $7.2 million in 2015 . The increase related to the 2015 gain on sale of certain equity and cost method investments.
Foreign Exchange
The foreign exchange loss was $39.3 million for 2015 , compared to a loss of $18.5 million recorded in 2014 . This unrealized loss was due primarily to the fluctuation in the U.S. dollar during 2015 and 2014 compared to the Canadian dollar relating to the Company’s U.S. dollar denominated intercompany balances with its Canadian subsidiaries.
Interest Expense and Finance Charges, Net
Interest expense and finance charges, net for 2015 were $57.4 million, an increase of $2.6 million over the $54.8 million of interest expense and finance charges, net incurred during 2014 . The increase in interest expense in 2015 was due to the issuance of the additional $75 million in principal amount of the 6.75% Notes in April 2014 and borrowings on the revolver.
Income Tax Expense
Income tax expense in 2015 was $5.7 million compared to $12.4 million for 2014 . The Company’s effective rate was substantially higher than the statutory rate in 2015 , primarily due to non-deductible stock-based compensation, an increase in the valuation allowance, and the effect of the difference in the U.S. and foreign federal rates compared to the Canadian statutory rate, offset in part by noncontrolling interest charges. The Company’s effective tax rate was substantially higher than the statutory rate in 2014 due to non-deductible stock-based compensation, an increase in the Company’s valuation allowance, and the effect of the differences in the U.S. and foreign federal rates compared to the Canadian statutory rate, offset in part by noncontrolling interest charges.
The Company’s U.S. 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 Earnings of Non-Consolidated Affiliates
Equity in non-consolidated affiliates represents the income attributable to equity-accounted affiliate operations. In 2015 , the Company recorded earnings of $1.1 million compared to earnings of $1.4 million in 2014 .
Noncontrolling Interests
The effects of noncontrolling interest was $9.1 million in 2015 , an increase of $2.2 million from the $6.9 million during 2014 . This increase related to the overall increase in profits in Partner Firms where there are noncontrolling shareholders.
Discontinued Operations
The loss net of taxes from discontinued operations for 2015 was $6.3 million, compared to a loss of $21.3 million in 2014 . The decrease in the loss from discontinued operations was due to a goodwill write off of $15.6 million in 2014 that was included in the loss from discontinued operations as a result of the Company's decision to strategically sell the net assets of Accent.
Net Loss Attributable to MDC Partners Inc.
As a result of the foregoing, the net loss attributable to MDC Partners Inc. for 2015 was $37.4 million or a loss of $0.75 per diluted share, compared to a net loss of $24.1 million or $0.49 per diluted share reported for 2014 .

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TABLE OF CONTENTS




Liquidity and Capital Resources
The following table provides information about the Company’s liquidity position:
Liquidity
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
  
 
(In Thousands, Except for Long-Term Debt to Shareholders’ Equity Ratio)
Cash and cash equivalents
 
$
27,921

 
$
61,458

 
$
113,348

Working capital (deficit)
 
$
(313,239
)
 
$
(417,997
)
 
$
(275,987
)
Cash from operating activities
 
$
5,424

 
$
162,805

 
$
127,523

Cash used in investing activities
 
$
(25,196
)
 
$
(29,893
)
 
$
(99,686
)
Cash used in financing activities
 
$
(15,893
)
 
$
(190,020
)
 
$
(15,428
)
Ratio of long-term debt to shareholders’ deficit
 
(1.86
)
 
(1.50
)
 
(2.09
)
As of December 31, 2016 , 2015 and 2014 , $5.3 million, $5.2 million, and $6.5 million, respectively, of the Company’s 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 Agreement by using available cash.
Working Capital
At December 31, 2016 , the Company had a working capital deficit of $313.2 million compared to a deficit of $418.0 million at December 31, 2015 . Working capital deficit decreased by $104.8 million primarily due to the net proceeds from the issuance of the 6.50% Notes, offset by the redemption of the 6.75% Notes, payments of deferred acquisition consideration and from a mix shift in the media business. The Company’s working capital is impacted by seasonality in media buying, amounts spent by clients, and timing of amounts received from clients and subsequently paid to suppliers. Media buying is impacted by the timing of certain events, such as major sporting competitions and national holidays, and there can be a quarter to quarter lag between the time amounts received from clients for the media buying are subsequently paid to suppliers. At December 31, 2016 , the Company had $54.4 million of borrowings outstanding under its Credit Agreement. The Company includes amounts due to noncontrolling interest holders, for their share of profits, in accruals and other liabilities. During 2016 , 2015 and 2014 , the Company made distributions to these noncontrolling interest holders of $7.8 million , $9.5 million and $6.5 million , respectively. At December 31, 2016 , $4.2 million remains outstanding to be distributed to noncontrolling interest holders over the next twelve months.
The Company intends to maintain sufficient cash or availability of funds under the Credit Agreement at any particular time to adequately fund working capital should there be a need to do so from time to time.
Operating Activities
Cash flows provided by continuing operations for 2016 were $5.4 million . This was attributable primarily to depreciation and amortization of $55.6 million , goodwill impairment of $48.5 million , a loss on the redemption of the 6.75% Notes of $26.9 million , stock-based compensation of $21.0 million , a net decrease in other and non-current assets and liabilities of $13.5 million , a decrease in expenditures billable to clients of $13.0 million , an increase in advanced billings of $11.4 million , adjustments to deferred acquisition consideration of $8.2 million , and losses of non-consolidated affiliates of $0.3 million . This was partially offset by a decrease in accounts payable, accruals and other current liabilities of $103.4 million primarily driven by the timing of payments to suppliers, a loss from continuing operations of $42.7 million , an increase in accounts receivable of $16.8 million , an increase in prepaid expenses and other current assets of $13.6 million , foreign exchange of $8.2 million , deferred income taxes of $7.9 million , and a gain on the sale of assets of $0.4 million .
Cash flows provided by continuing operations for 2015 were $164.1 million . This was attributable primarily to an increase in accounts payable, accruals and other current liabilities of $76.5 million , depreciation and amortization of $54.5 million , adjustments to deferred acquisition consideration of $38.9 million , foreign exchange of $30.2 million , stock-based compensation of $17.8 million , a decrease in other and non-current assets and liabilities of $4.7 million , deferred income taxes of $1.8 million , and an decrease in prepaid expenses and other current assets of $1.6 million . This was partially offset by an decrease in advanced billings of $23.5 million , a loss from continuing operations of $22.0 million , a gain on sale of investments of $6.5 million , an increase in accounts receivable of $4.8 million , an increase in expenditures billable to clients of $3.9 million , and earnings of non-consolidated affiliates of $1.1 million . Discontinued operations used cash of $1.3 million .
Cash flows provided by continuing operations for 2014 were $129.4 million . This was attributable primarily to an increase in accounts payable, accruals and other current liabilities of $51.1 million , depreciation and amortization of $49.4 million , a decrease in expenditures billable to clients of $23.4 million , adjustments to deferred acquisition consideration of $18.7 million , stock-based compensation of $17.7 million , foreign exchange of $14.8 million , deferred income taxes of $11.0 million , and income

35





from continuing operations of $4.1 million . This was partially offset by an increase in accounts receivable of $35.8 million , a decrease in advanced billings of $13.8 million , an increase in other and non-current assets and liabilities of $7.8 million , an increase in prepaid expenses and other current assets of $1.9 million , and earnings of non-consolidated affiliates of $1.4 million . Discontinued operations used cash of $1.8 million .
Investing Activities
Cash flows used in investing activities were $25.2 million for 2016 , compared with $29.9 million for 2015 , and $99.7 million in 2014 .
In the year ended December 31, 2016 , capital expenditures totaled $29.4 million , of which $26.9 million was incurred by the Reportable segment and $2.5 million was incurred by the All Other segment. These expenditures consisted primarily of computer equipment, furniture and fixtures, and leasehold improvements. Additionally, the Company paid $3.8 million for other investments and $2.5 million for deposits on capital expenditures not yet placed into service. These outflows were partially offset by $7.4 million of profit distributions from non-consolidated affiliates, $2.5 million of net cash acquired from acquisitions and $0.7 million of proceeds from the sale of assets.
In the year ended December 31, 2015 , capital expenditures totaled $23.6 million , of which $21.4 million was incurred by the Reportable segment, $1.8 million was incurred by the All Other segment, and $0.4 million was incurred by corporate. These expenditures consisted primarily of computer equipment, furniture and fixtures, and leasehold improvements. Additionally, the Company paid $24.8 million , net of cash acquired, for acquisitions and $7.3 million for other investments. These outflows were partially offset by $8.6 million of proceeds from the sale of assets. The Company also received $17.1 million of cash proceeds in 2015 from the sale of Accent.
In the year ended December 31, 2014 , capital expenditures totaled $26.4 million , of which $23.3 million was incurred by the Reportable segment, $1.8 million was incurred by the All Other segment, and $1.3 million was incurred by corporate. These expenditures consisted primarily of computer equipment, furniture and fixtures, and leasehold improvements. Additionally, the Company paid $68.3 million , net of cash acquired for acquisitions and $6.3 million for other investments. These outflows were partially offset by $3.4 million of profit distributions from non-consolidated affiliates and $0.1 million of proceeds from the sale of assets and investments. Discontinued operations used cash of $2.1 million in 2014 related to capital expenditures.
Financing Activities
During the year ended December 31, 2016 , cash flows used in financing activities were $15.9 million , and consisted of the redemption of the 6.75% Notes of $735.0 million , a premium paid in connection with such redemption of $26.9 million including accrued interest through the settlement date, $135.7 million of acquisition related payments, payment of dividends of $32.9 million , $21.6 million of debt issuance costs paid in connection with the issuance of the 6.50% Notes, distributions to noncontrolling partners of $7.8 million , $6.6 million of cash overdrafts, the purchase of treasury shares for income tax withholding requirements of $3.4 million , and repayments of long-term debt of $0.5 million . These amounts were partially offset by $900.0 million in proceeds from the issuance of the 6.50% Notes and $54.4 million in net borrowings under the Credit Agreement.
During the year ended December 31, 2015 , cash flows used in financing activities were $190.0 million , and consisted of $134.1 million of acquisition related payments, payment of dividends of $42.3 million , distributions to noncontrolling partners of $9.5 million , the purchase of treasury shares for income tax withholding requirements of $2.4 million , cash overdrafts of $1.4 million , and repayments of long-term debt of $0.5 million . These amounts were partially offset by proceeds from other financing activities of $0.2 million .
During the year ended December 31, 2014 , cash flows used in financing activities were $15.4 million , and consisted of $78.3 million of acquisition related payments, payment of dividends of $37.7 million , distributions to noncontrolling partners of $6.5 million , the purchase of treasury shares for income tax withholding requirements of $5.4 million , deferred financing costs of $3.7 million , and repayments of long-term debt of $0.7 million . These amounts were partially offset by proceeds from the issuance of additional 6.75% Notes of $78.9 million , cash overdrafts of $37.8 million , and proceeds from other financing activities of $0.1 million .
Total Debt
6.50% Senior Notes Due 2024
On March 23, 2016, MDC entered into an indenture (the “Indenture”) among MDC, its existing and future restricted subsidiaries that guarantee, or are co-borrowers under or grant liens to secure, the Credit Agreement, as guarantors (the “Guarantors”) and The Bank of New York Mellon, as trustee, relating to the issuance by MDC of its $900 million aggregate principal amount of 6.50% senior unsecured notes due 2024. The 6.50% Notes were sold in a private placement in reliance on exceptions from registration under the ’33 Act. The 6.50% Notes bear interest at a rate of 6.50% per annum, accruing from March 23, 2016. Interest is payable semiannually in arrears on May 1 and November 1 of each year, beginning November 1, 2016. The 6.50% Notes mature on May 1, 2024, unless earlier redeemed or repurchased. The Company received net proceeds from the offering of the 6.50% Notes equal to

36





approximately $880,000. The Company used the net proceeds to redeem all of its existing 6.75% Notes, together with accrued interest, related premiums, fees and expenses and recorded a charge for the loss on redemption of such notes of $33,298, including write offs of unamortized original issue premium and debt issuance costs. Remaining proceeds were used for general corporate purposes, including funding of deferred acquisition consideration.
The 6.50% Notes are guaranteed on a senior unsecured basis by all of MDC’s existing and future restricted subsidiaries that guarantee, or are co-borrowers under or grant liens to secure, the Credit Agreement. The 6.50% Notes are unsecured and unsubordinated obligations of MDC and rank (i) equally in right of payment with all of MDC’s or any Guarantor’s existing and future senior indebtedness, (ii) senior in right of payment to MDC’s or any Guarantor’s existing and future subordinated indebtedness, (iii) effectively subordinated to all of MDC’s or any Guarantor’s existing and future secured indebtedness to the extent of the collateral securing such indebtedness, including the Credit Agreement, and (iv) structurally subordinated to all existing and future liabilities of MDC’s subsidiaries that are not Guarantors.
MDC may, at its option, redeem the 6.50% Notes in whole at any time or in part from time to time, on and after May 1, 2019 (i) at a redemption price of 104.875% of the principal amount thereof if redeemed during the twelve-month period beginning on May 1, 2019, (ii) at a redemption price of 103.250% of the principal amount thereof if redeemed during the twelve-month period beginning on May 1, 2020, (iii) at a redemption price of 101.625% of the principal amount thereof if redeemed during the twelve-month period beginning on May 1, 2021, and (iv) at a redemption price of 100% of the principal amount thereof if redeemed on May 1, 2022 and thereafter.
Prior to May 1, 2019, MDC may, at its option, redeem some or all of the 6.50% Notes at a price equal to 100% of the principal amount of the 6.50% Notes plus a “make whole” premium and accrued and unpaid interest. MDC may also redeem, at its option, prior to May 1, 2019, up to 35% of the 6.50% Notes with the proceeds from one or more equity offerings at a redemption price of 106.50% of the principal amount thereof.
If MDC experiences certain kinds of changes of control (as defined in the Indenture), holders of the 6.50% Notes may require MDC to repurchase any 6.50% Notes held by them at a price equal to 101% of the principal amount of the 6.50% Notes plus accrued and unpaid interest. In addition, if MDC sells assets under certain circumstances, it must apply the proceeds from such sale and offer to repurchase the 6.50% Notes at a price equal to 100% of the principal amount plus accrued and unpaid interest.
The Indenture includes covenants that, among other things, restrict MDC’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; create restrictions on the payment of dividends or other amounts from MDC’s restricted subsidiaries; sell assets; enter into transactions with affiliates; create liens; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of MDC’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The 6.50% Notes are also subject to customary events of default, including a cross-payment default and cross-acceleration provision.
Redemption of 6.75% Senior Notes Due 2020
On March 23, 2016, the Company redeemed the 6.75% Notes in whole at a redemption price of 103.375% of the principal amount thereof with the proceeds from the issuance of the 6.50% Notes.
Revolving Credit Agreement
On March 20, 2013, MDC, Maxxcom Inc. (a subsidiary of MDC) and each of their subsidiaries party thereto entered into an amended and restated $225 million senior secured revolving credit agreement due 2018 (the “Credit Agreement”) with Wells Fargo Capital Finance, LLC, as agent, and the lenders from time to time party thereto. Advances under the Credit Agreement will be used for working capital and general corporate purposes, in each case pursuant to the terms of the Credit Agreement. Capitalized terms used in this section and not otherwise defined have the meanings set forth in the Credit Agreement.
Effective October 23, 2014, MDC, Maxxcom Inc. and each of their subsidiaries entered into an amendment of its Credit Agreement. The amendment: (i) expanded the commitments under the facility by $100 million, from $225 million to $325 million; (ii) extended the date by an additional eighteen months to September 30, 2019; (iii) reduced the base borrowing interest rate by 25 basis points (the applicable margin for borrowing is 1.00% in the case of Base Rate Loans and 1.75% in the case of LIBOR Rate Loans) ; and (iv) modified certain covenants to provide the Company with increased flexibility to fund its continued growth and other general corporate purposes.
Effective May 3, 2016, MDC and its subsidiaries entered into an additional amendment to its Credit Agreement. The amendment: (i) extends the date by an additional nineteen months to May 3, 2021; (ii) reduces the base borrowing interest rate by 25 basis points; (iii) provides the Company the ability to borrow in foreign currencies; and (iv) certain other modifications to provide additional flexibility in operating the Company’s business.
Advances under the Credit Agreement bear interest as follows: (a)(i) Non-Prime Rate Loans bear interest at the Non-Prime Rate and (ii) all other Obligations bear interest at the Prime Rate, plus (b) an applicable margin. The applicable margin for borrowing

37





is 1.50% in the case of Non-Prime Rate Loans and Prime Rate Loans that are European Advances, and 0.75% on all other Obligations. In addition to paying interest on outstanding principal under the Credit Agreement, MDC is required to pay an unused revolver fee of 0.25% to lenders under the Credit Agreement in respect of unused commitments thereunder.
The Credit Agreement is guaranteed by substantially all of MDC’s present and future subsidiaries, other than immaterial subsidiaries and subject to customary exceptions. The Credit Agreement includes covenants that, among other things, restrict MDC’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 MDC’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 MDC’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The Credit Agreement also contains financial covenants, including a total leverage ratio, a senior leverage ratio, a fixed charge coverage ratio and a minimum earnings level (each as more fully described in the Credit Agreement). The Credit Agreement is also subject to customary events of default.
The foregoing descriptions of the Indenture and the Credit Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the agreements.
Debt, net of debt issuance costs, as of December 31, 2016 was $936.4 million , an increase of $213.4 million , compared with $723.0 million outstanding at December 31, 2015 . This increase in debt was a result of proceeds received from the 6.50% Notes of $900.0 million and net borrowings under the Credit Agreement of $54.4 million , partially offset by the repayment of the 6.75% Notes of $735.0 million and additional incremental debt issuance costs, net of amortization of $5.8 million . At December 31, 2016 , approximately $266.2 million of commitments under the Credit Agreement were undrawn.
The Company is currently in compliance with all of the terms and conditions of the Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with its covenants over the next twelve months.
If the Company loses all or a substantial portion of its lines of credit under the Credit Agreement, or if the Company uses the maximum available amount under the Credit Agreement, it will 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 acquisitions and redeemable noncontrolling interests would be adversely affected.
Pursuant to the Credit Agreement, the Company must comply with certain financial covenants including, among other things, covenants for (i) senior leverage ratio, (ii) total leverage ratio, (iii) fixed charges ratio, and (iv) 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, 2016 , the Company’s calculation of each of these covenants, and the specific requirements under the Credit Agreement, respectively, were calculated based on the trailing twelve months as follows:
 
December 31, 2016
Total Senior Leverage Ratio
0.28

Maximum per covenant
2.00

Total Leverage Ratio
5.03

Maximum per covenant
5.50

Fixed Charges Ratio
1.95

Minimum per covenant
1.00

Earnings before interest, taxes, depreciation and amortization
$190.4 million

Minimum per covenant
$105.0 million

These ratios are not based on generally accepted accounting principles and are not presented as alternative measures of operating performance or liquidity. Some of these measures include, among other things, pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement. They are presented here to demonstrate compliance with the covenants in the Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.

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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, 2016 will be repaid with new financing, equity offerings and/or cash flow from operations (in thousands):
 
 
Payments Due by Period
Contractual Obligations
 
Total
 
Less than
1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After
5 Years
Indebtedness (1)
 
$
954,425

 
$

 
$

 
$
54,425

 
$
900,000

Capital lease obligations
 
431

 
228

 
177

 
26

 

Operating leases
 
391,847

 
57,294

 
107,303

 
92,765

 
134,485

Interest on debt
 
429,040

 
58,520

 
117,018

 
117,002

 
136,500

Deferred acquisition consideration (2)
 
229,564

 
108,290

 
80,452

 
40,822

 

Other long-term liabilities
 
14,176

 
5,530

 
7,721

 
925

 

Total contractual obligations (3)
 
$
2,019,483

 
$
229,862

 
$
312,671

 
$
305,965

 
$
1,170,985

(1)
Indebtedness includes $54,425 of borrowings under the Credit Agreement due in 2021.
(2)
Deferred acquisition consideration excludes future payments with an estimated fair value of $36,437 that are contingent upon employment terms as well as financial performance and will be expensed as stock-based compensation over the required retention period. Of this amount, the Company estimates $3,535 will be paid in less than one year, $11,717 will be paid in one to three years, $18,077 will be paid in three to five years, and $3,108 will be paid after five years.
(3)
Pension obligations of $16,257 are not included since the timing of payments are not known.
The following table provides a summary of other commercial commitments (in thousands) at December 31, 2016 :
 
 
Payments Due by Period
Other Commercial Commitments
 
Total
 
Less than
1 Year
 
1 – 3 Years
 
3 – 5 Years
 
After
5 Years
Lines of credit
 
$

 
$

 
$

 
$

 
$

Letters of credit
 
$
4,360

 
4,360

 

 

 

Total Other Commercial Commitments
 
$
4,360

 
$
4,360

 
$

 
$

 
$

For further detail on MDC’s long-term debt principal and interest payments, see Note 11 Debt and Note 16 Commitments, Contingents and Guarantees of the Company’s consolidated financial statements included in this Form 10-K. See also “ Deferred Acquisition Consideration ” and “ Other-Balance Sheet Commitments ” below.
Capital Resources
At December 31, 2016 , there were $54.4 million of borrowings under the Credit Agreement and $4.4 million of undrawn outstanding letters of credit. Cash and undrawn commitments available to support the Company’s future cash requirements at December 31, 2016 was approximately $294.1 million .
The Company expects to incur approximately $28.0 million of capital expenditures in 2017 . 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, funds available under the Credit Agreement and other initiatives will be sufficient to meet its ongoing working capital, capital expenditures and other cash needs over the next twelve months. If the Company spends capital on future acquisitions, management expects that the Company may need to obtain additional financing in the form of debt and/or equity financing.
Other-Balance Sheet Commitments
Media and Production
The Company’s agencies enter into contractual commitments with media providers and agreements with production companies on behalf of our clients at levels that exceed the revenue from services. Some of our agencies purchase media for clients and act as an agent for a disclosed principal. These commitments are included in accounts payable when the media services are delivered by the media providers. MDC takes precautions against default on payment for these services and has historically had a very low

39





incidence of default. MDC is still exposed to the risk of significant uncollectible receivables from our clients. The risk of a material loss could significantly increase in periods of severe economic downturn.
Deferred Acquisition Consideration
Acquisitions of a business, or a majority interest of a business, by the Company may include future additional contingent purchase price obligations payable to the seller, which are recorded as deferred acquisition consideration liabilities on the Company’s balance sheet at the estimated acquisition date fair value and are remeasured at each reporting period. 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, the rate of growth of those earnings. The actual amount that the Company pays in connection with such contingent purchase obligations may differ materially from this estimate.
In connection with such contingent purchase obligations, the Company may have the option or, in some cases, the requirement, to purchase the remaining interest. Generally, the Company’s option or requirement to purchase the incremental ownership interest coincides with the final payment of the purchase price obligation related to the Company’s initial majority acquisition. If the Company subsequently acquires the remaining incremental ownership interest, the acquisition fair value of the purchase price, net of any cash paid at closing, is recorded as a liability, any noncontrolling interests are removed and any difference between the purchase price and noncontrolling interest is recorded to additional paid-in capital.
The deferred acquisition consideration and redeemable noncontrolling interests are impacted by (i) present value adjustments to accrete the acquisition date fair value of the obligation to the estimated future payment amount at the reporting date, (ii) changes in the estimated future payment obligation resulting from the underlying subsidiary’s financial performance, and (iii) amendments to purchase agreements of previously acquired incremental ownership interests. As it relates to the acquisition of Forsman & Bodenfors AB completed in 2016, the deferred acquisition is impacted by the market performance of the Company’s stock price. Redeemable noncontrolling interests are not adjusted below the related initial redemption value. Significant changes in actual results and metrics, such as profit margins and growth rates among others, relative to expectations would result in a higher or lower redemption value adjustment. In addition, the deferred acquisition consideration and redeemable noncontrolling interests could be materially impacted by future acquisition activity, if any, and the particular structure of such acquisitions.
As a result, and due to the factors noted above, the Company does not have a view of the future trajectory and quantification of potential changes in the deferred acquisition consideration and redeemable noncontrolling interests.

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The following table presents the changes in the deferred acquisition consideration by segment for the years ended December 31, 2016 and 2015 :
 
December 31, 2016
 
December 31, 2015
 
Reportable
Segment
 
All Other
 
Total
 
Reportable
Segment
 
All Other
 
Total
Beginning Balance of contingent payments
$
213,211

 
$
93,523

 
$
306,734

 
$
112,635

 
$
59,592

 
$
172,227

Payments (1)
(66,759
)
 
(38,410
)
 
(105,169
)
 
(62,461
)
 
(14,840
)
 
(77,301
)
Additions (2)
16,132

 

 
16,132

 
142,800

 
31,730

 
174,530

Redemption value adjustments (3)
11,683

 
2,247

 
13,930

 
20,493

 
21,143

 
41,636

Other (4)
(2,360
)
 
(4,052
)
 
(6,412
)
 

 

 

Foreign translation adjustment
(1,762
)
 
1,301

 
(461
)
 
(256
)
 
(4,102
)
 
(4,358
)
Ending Balance of contingent payments
170,145

 
54,609

 
224,754

 
213,211

 
93,523

 
306,734

Fixed payments (5)
3,596

 
1,214

 
4,810

 
32,780

 
7,590

 
40,370

 
$
173,741

 
$
55,823

 
$
229,564

 
$
245,991

 
$
101,113

 
$
347,104

(1)
For the year ended December 31, 2016, payments include $10.5 million of deferred acquisition consideration settled through the issuance of 691,559 MDC Class A subordinate voting shares in lieu of cash.
(2)
Additions are the initial estimated deferred acquisition payments of new acquisitions and step-up transactions completed within that fiscal period.
(3)
Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments, including the accretion of present value and stock-based compensation charges relating to acquisition payments that are tied to continued employment. For the year ended December 31, 2016, redemption value adjustments include $2.4 million of expense related to 100,000 MDC Class A subordinate voting shares to be issued.
(4)
Other is comprised of (i) $2.4 million transfered to shares to be issued related to 100,000 MDC Class A subordinate voting shares that are contingent on specific thresholds of future earnings that management expects to be attained; and, (ii) $4.1 million of contingent payments eliminated through the acquisition of incremental ownership interests.
(5)
The reduction in the fixed payments for the year ended December 31, 2016, was attributable to payments of approximately $40.1 million , partially offset by redemption value and foreign translation adjustments.
Deferred acquisition consideration excludes future payments with an estimated fair value of $36.4 million that are contingent upon employment terms as well as financial performance and will be expensed as stock-based compensation over the required retention period. Of this amount, the Company estimates $3.5 million will be paid in the current year, $11.7 million will be paid in one to three years, $18.1 million will be paid in three to five years, and $3.1 million will be paid after five years.
Put Rights of Subsidiaries’ Noncontrolling Shareholders
As noted above, noncontrolling shareholders in certain subsidiaries have the right in certain circumstances to require the Company to acquire the remaining ownership interests held by them. The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specific employment termination conditions. 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 2017 to 2023 . 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 contractual 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, 2016 perform over the relevant future periods at their trailing twelve-month earnings level, that these rights, if all are exercised, could require the Company to pay an aggregate amount of approximately $12.5 million to the owners of such rights in future periods to acquire such ownership

41





interests in the relevant subsidiaries. Of this amount, the Company is entitled, at its option, to fund approximately $0.1 million by the issuance of share capital.
In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $43.1 million only upon termination of such owner's employment with the applicable subsidiary or death.
The amount the Company would be required to pay to the holders should the Company acquire the remaining ownership interests is $4.6 million less than the initial redemption value recorded in redeemable noncontrolling interests.
The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the Credit Agreement (and refinancings thereof), proceeds from the anticipated closing of the sale of the Preference Shares, and, if necessary, through the incurrence of additional debt and/or issuance of additional equity. 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 $3.2 million of the estimated $12.5 million that the Company would be required to pay subsidiaries noncontrolling shareholders upon the exercise of outstanding contractual rights, relates to rights exercisable within the next twelve months. Upon the settlement of the total amount of such options to purchase, the Company estimates that it would receive incremental operating income before depreciation and amortization of $4.9 million .
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)
 
2017
 
2018
 
2019
 
2020
 
2021 &
Thereafter
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
(Dollars in Millions)
 
Cash
 
$
3.2

 
$
3.0

 
$
2.0

 
$
2.6

 
$
1.6

 
$
12.4

 
Shares
 

 

 
0.1

 

 

 
0.1

 
  
 
$
3.2

 
$
3.0

 
$
2.1

 
$
2.6

 
$
1.6

 
$
12.5

(1)  
Operating income before depreciation and amortization to be received (2)
 
$
2.8

 
$
0.9

 
$
0.1

 
$
1.1

 
$

 
$
4.9

 
Cumulative operating income before depreciation and amortization (3)
 
$
2.8

 
$
3.7

 
$
3.8

 
$
4.9

 
$
4.9

 
 
(5)  
(1)
This amount is in addition to $43.1 million of (i) options to purchase only exercisable upon termination not within the control of the Company, or death, and (ii) the excess of the initial redemption value recorded in redeemable noncontrolling interests over the amount the Company would be required to pay to the holders should the Company acquire the remaining ownership interests.
(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 operating results. This amount represents additional amounts to be attributable to MDC Partners Inc., 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
Generally, the Company has indemnified the purchasers of certain of its assets 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.

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Transactions With Related Parties
Employee Relationships
Scott L. Kauffman is Chairman and Chief Executive Officer of the Company. His daughter, Sarah Kauffman, has been employed by Partner Firm kbs since July 2011, and currently acts as Director of Operations, Attention Partners. In 2016 and 2015, her total compensation, including salary, bonus and other benefits, totaled approximately $145,000 and $125,000 , respectively. Her compensation is commensurate with that of her peers.
The Company’s Board of Directors, through its Audit Committee, reviewed and approved this related party transaction.
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 herein for a more complete understanding of accounting policies discussed below.
Estimates .  The preparation of the Company’s financial statements in conformity with “U.S. 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, deferred income tax assets and stock-based compensation, as well as the reported amounts of revenue and expenses during the reporting period. 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 Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”). 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. 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 records revenue net of sales and other taxes, when persuasive evidence of an arrangement exists, 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 recognizes the incentive portion of revenue under these arrangements when specific quantitative goals are assured, 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. In the majority of the Company’s businesses, the Company acts as an agent and records revenue equal to the net amount retained, when the fee or commission is earned. In certain arrangements, the Company acts as principal and contracts directly with suppliers for third party media and production costs. In these arrangements, revenue is recorded at the gross amount billed. Additional information about our revenue recognition policy appears in Note 2 of the Notes to the Consolidated Financial Statements included herein.
Business Combinations.   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.
Valuations 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 include an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent purchase price obligations for these transactions are recorded as a liability and are derived from the performance of the acquired entity and are based on predetermined formulas. These various contractual valuation formulas may be dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period, and, in some cases, the currency exchange rate on the date of payment. The liability is adjusted quarterly based on changes in current information affecting each subsidiary’s current operating results and the impact this information will have on future results included in the calculation of the estimated liability. In addition, changes in various contractual valuation formulas as well as adjustments to present value impact quarterly

43





adjustments. These adjustments are recorded in results of operations. In addition, certain acquisitions also include options to purchase additional equity ownership interests. The estimated value of these interests are recorded as redeemable noncontrolling interests.
For each of the Company’s acquisitions, a detailed review is undertaken to identify other intangible assets and a valuation is performed for all such identified assets. The Company uses 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 the Company acquires 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 the Company acquires 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.
Acquisitions, Goodwill and Other Intangibles.   The Company reviews goodwill and other intangible assets with indefinite lives not subject to amortization for impairment annually as of October 1st of each year or more frequently if indicators of potential impairment exist.
For the annual impairment testing the Company has the option of assessing qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value or performing the two-step goodwill impairment test. Qualitative factors considered in the assessment include industry and market considerations, the competitive environment, overall financial performance, changing cost factors such as labor costs, and other factors specific to each reporting unit such as change in management or key personnel.
If the Company elects to perform the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is more than its carrying amount, then goodwill is not considered impaired and the two-step goodwill impairment test is not necessary. For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount and for reporting units for which the qualitative assessment is not performed, the Company will perform the first step of the goodwill impairment test, which compares the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired and additional analysis is not required. However, if the carrying amount of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the second step of the goodwill impairment test must be performed to determine the implied fair value of the reporting unit’s goodwill.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The Company’s goodwill impairment test uses the income approach to estimate a reporting unit’s fair value. The income approach is based on a discounted cash flow (“DCF”) method, which requires the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.
The DCF estimates incorporate expected cash flows that represent a spectrum of the amount and timing of possible cash flows of each reporting unit from a market participant perspective. The expected cash flows are developed as part of the Company’s routine long-range planning process using projections of revenue and expenses and related cash flows based on assumed long-term growth rates and demand trends and appropriate discount rates based on a reporting units weighted average cost of capital (“WACC”) as determined by considering the observable WACC of comparable companies and factors specific to the reporting unit (for example, size). The terminal value is estimated using a constant growth method which requires an assumption about the expected long-term growth rate. The estimates are based on historical data and experience, industry projections, economic conditions, and the Company’s expectations. The assumptions used for the long-term growth rate and WACC in the annual goodwill impairment tests are as follows:
 
October 1,
 
2016
 
2015
Long-term growth rate
3%
 
3%
WACC
10.39% - 13.45%
 
8.92% - 11.95%
The Company’s reporting units vary in size with respect to revenue and operating profits. These differences drive variations in fair value of the reporting units. In addition, these differences as well as differences in book value, including goodwill, cause variations in the amount by which fair value exceeds the carrying amount of the reporting units. The reporting unit goodwill balances vary by reporting unit primarily because it relates specifically to the Partner Firm’s goodwill which was determined at the date of acquisition.
Under the second step of the goodwill impairment test, the Company utilizes both a market approach and income approach to estimate the implied fair value of a reporting unit’s goodwill. For the market approach, the Company utilizes both the guideline

44





public company method and the precedent transaction method. For the income approach, the Company utilizes a DCF method. The Company weights the market and income approaches to arrive at an implied fair value of goodwill. If the Company determines that the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded.
For the 2015 annual goodwill impairment testing, the Company had 13 reporting units. All of the reporting units were subject to the two-step test. As the fair value of all reporting units were in excess of their respective carrying amounts, there was no impairment of goodwill. The range of the excess of the fair value over the carrying amount was from 7% to over 100% . The Company performed a sensitivity analysis which included a 1% increase to the WACC. Based on the results of that analysis, one reporting unit, which was comprised of the marketing experiential businesses, was at risk of failing.
The Company noted no significant events or conditions during the first and second quarter of 2016 that would have affected the conclusions from the annual assessment. During the third quarter of 2016, the Company changed its operating segments, as a result of the management structure change as discussed in Note 14, which resulted in a corresponding change to the Company’s reporting units. Each Partner Firm now represents an operating segment as well as a reporting unit for goodwill impairment testing. As a result of the changes in the reporting units, the Company performed further analysis to assess whether the results of the 2015 testing would have been different had it been performed at the Partner Firm level. This change in operating segments, coupled with a decline in operating performance required the Company to perform interim goodwill testing on one of its experiential reporting units. Additionally, a triggering event occurred during the third quarter of 2016 that required the Company to perform interim goodwill testing on one non-material reporting unit. These two reporting units failed the first step of the goodwill impairment testing, and the second step of the goodwill impairment testing resulted in a partial impairment of goodwill of $27,893 and $1,738 relating to the experiential reporting unit and non-material reporting unit, respectively. See Note 8 for further information.
For the 2016 annual goodwill impairment test, the Company had 31 reporting units, all of which were subject to the two-step test.
For the 2016 annual goodwill impairment test, the carrying amount of one of the Company’s strategic communications reporting unit exceeded its fair value and the second step of the goodwill impairment test was performed, resulting in a partial impairment of goodwill of $18,893 . The fair value for all other reporting units were in excess of their respective carrying amounts and as a result there was no additional impairment of goodwill. The range of the excess of the fair value over the carrying amount was from 5% to over 100% . The Company performed a sensitivity analysis which included a 1% increase to the WACC. Based on the results of that analysis, the non-material reporting unit for which a partial impairment of goodwill was recorded during the third quarter of 2016 would be at risk of failing; however, there were no events or circumstances that would more likely than not reduce the fair value of such reporting unit below its respective carrying value between the interim and annual goodwill impairment testing performed.
The Company believes the estimates and assumptions used in the calculations are reasonable. However, if there was an adverse change in the facts and circumstances, then an impairment charge may be necessary in the future. The Company will monitor its reporting units to determine if there is an indicator of potential impairment. Should the fair value of any of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market declines, changes in the discount rate, or other conditions, charges for impairment may be necessary. Subsequent to the annual impairment test at October 1, 2016 , there were no events or circumstances that triggered the need for an interim impairment test.
Redeemable Noncontrolling Interests.   The noncontrolling interest shareholders of certain subsidiaries have the right to require the Company to acquire their ownership interests 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 and the growth rate of the earnings of the relevant subsidiary through the date of exercise.
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.
Interest Expense .  Interest expense primarily consists of the cost of borrowing on the Company’s previously outstanding 6.75% Notes; the Company’s 6.50% Notes; and the Company’s revolving Credit Agreement. The Company uses the effective interest method to amortize the deferred financing costs on the 6.50% Notes and previously outstanding 6.75% Notes as well as

45





the original issue premium on the previously outstanding 6.75% Notes and the straight-line method to amortize the deferred financing costs related to the revolving Credit Agreement.
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. Awards based on performance conditions are recorded as compensation expense when the performance conditions are expected to be met. 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 reporting period and recorded as compensation cost over the service period in operating income.
The Company treats amounts paid by shareholders to employees as a stock-based compensation charge with a corresponding credit to additional paid-in capital.
From time to time, certain acquisitions and step-up transactions include an element of compensation related payments. The Company accounts for those payments as stock-based compensation.
New Accounting Pronouncements
Information regarding new accounting guidance can be found in Note 17 of the Notes to the Consolidated Financial Statements included herein.

46





Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to interest rates, and foreign currencies and impairment risk.
Debt Instruments:   At December 31, 2016 , the Company’s debt obligations consisted of amounts outstanding under its Credit Agreement and the Senior Notes. The Senior Notes bear a fixed 6.50% interest rate. The Credit Agreement bears interest at variable rates based upon the Eurodollar rate, U.S. bank prime rate and U.S. 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 were  $54.4 million borrowings under the Credit Agreement, as of December 31, 2016 , a 1% increase or decrease in the weighted average interest rate, which was 4.50% at December 31, 2016 , would have an interest impact of $0.5 million .
Foreign Exchange:   While the Company primarily conducts business in markets that use the U.S. dollar, the Canadian dollar, the Euro and the British Pound, its non-U.S. operations transact business in numerous different currencies. The Company’s results of operations are subject to risk from the translation to the U.S. dollar of the revenue and expenses of its non-U.S. operations. The effects of currency exchange rate fluctuations on the translation of the Company’s results of operations are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2 of the Notes to the Consolidated Financial Statements. For the most part, revenues and expenses incurred related to the non-U.S. 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 U.S. and Canada. For every one cent change in the foreign exchange rate between the U.S. and Canada, the impact to the Company’s financial statements would be approximately $3.7 million .
Impairment Risk:   At December 31, 2016 , the Company had goodwill of $844.8 million and other intangible assets of $85.1 million . The Company will assess the net realizable value of the goodwill and other intangible assets on a regular basis, but at least annually on October 1, to determine if the Company incurs any declines in the value of its capital investment. As discussed in Note 2 and Note 8 of the Notes to the Consolidated Financial Statements included herein, for the year ended December 31, 2016, the Company recorded goodwill impairment of $48.5 million. Additionally, the Company may incur additional impairment charges in future periods.

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Item 8. Financial Statements and Supplementary Data
MDC PARTNERS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
Page
Financial Statements:
  
Financial Statement Schedules:
  

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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
MDC Partners Inc.
New York, New York

We have audited the accompanying consolidated balance sheets of MDC Partners Inc. as of December 31, 2016 and 2015 and the related consolidated statements of operations, comprehensive loss, shareholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2016 . These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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. at December 31, 2016 and 2015 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016 , in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, in 2016 the Company changed its methods of accounting related to the classification of deferred income taxes due to the adoption of Accounting Standards Update No. 2015-17 (Topic 740), Balance Sheet Classification of Deferred Taxes and the presentation of debt issuance costs due to the adoption of Accounting Standards Update No. 2015-03, Interest - Imputation of Interest.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), MDC Partners Inc.’s internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 1, 2017 expressed an unqualified opinion thereon.
/s/ BDO USA LLP
New York, New York
March 1, 2017

49





MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of United States Dollars, Except per Share Amounts)
 
Years Ended December 31,
  
2016
 
2015
 
2014
Revenue:
  

 
  

 
  

Services
$
1,385,785

 
$
1,326,256

 
$
1,223,512

Operating Expenses:
  

 
  

 
  

Cost of services sold
936,133

 
879,716

 
798,518

Office and general expenses
306,251

 
322,207

 
290,073

Depreciation and amortization
46,446

 
52,223

 
47,172

Goodwill impairment
48,524

 

 

  
1,337,354

 
1,254,146

 
1,135,763

Operating income
48,431

 
72,110

 
87,749

Other Income (Expenses):
  

 
  

 
  

Other, net
414

 
7,238

 
689

Foreign exchange loss
(213
)
 
(39,328
)
 
(18,482
)
Interest expense and finance charges
(65,858
)
 
(57,903
)
 
(55,265
)
Loss on redemption of Notes
(33,298
)
 

 

Interest income
808

 
467

 
418

  
(98,147
)
 
(89,526
)
 
(72,640
)
Income (loss) from continuing operations before income taxes and equity in earnings of non-consolidated affiliates
(49,716
)
 
(17,416
)
 
15,109

Income tax (benefit) expense
(7,301
)
 
5,664

 
12,422

Income (loss) from continuing operations before equity in earnings of non-consolidated affiliates
(42,415
)
 
(23,080
)
 
2,687

Equity in earnings (losses) of non-consolidated affiliates
(309
)
 
1,058

 
1,406

Income (loss) from continuing operations
(42,724
)
 
(22,022
)
 
4,093

Loss from discontinued operations attributable to MDC Partners Inc., net of taxes

 
(6,281
)
 
(21,260
)
Net loss
(42,724
)
 
(28,303
)
 
(17,167
)
Net income attributable to the noncontrolling interests
(5,218
)
 
(9,054
)
 
(6,890
)
Net loss attributable to MDC Partners Inc.
$
(47,942
)
 
$
(37,357
)
 
$
(24,057
)
Loss Per Common Share:
  

 
  

 
  

Basic and Diluted
  

 
  

 
  

Loss from continuing operations attributable to MDC Partners Inc. common shareholders
$
(0.93
)
 
$
(0.62
)
 
$
(0.06
)
Discontinued operations attributable to MDC Partners Inc. common shareholders

 
(0.13
)
 
(0.43
)
Net loss attributable to MDC Partners Inc. common shareholders
$
(0.93
)
 
$
(0.75
)
 
$
(0.49
)
 
 
 
 
 
 
Weighted Average Number of Common Shares Outstanding:
  

 
  

 
  

Basic and Diluted
51,345,807

 
49,875,282

 
49,545,350

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes to the consolidated financial statements are an integral part of these statements.
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Stock-based compensation expense is included in the following line items above:
  

 
  

 
  

Cost of services sold
$
14,237

 
$
11,710

 
$
9,883

Office and general expenses
6,766

 
6,086

 
7,813

Total
$
21,003

 
$
17,796

 
$
17,696

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

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MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Thousands of United States Dollars)
 
Years Ended December 31,
  
2016
 
2015
 
2014
Comprehensive Loss
  

 
  

 
  

Net loss
$
(42,724
)
 
$
(28,303
)
 
$
(17,167
)
Other comprehensive income (loss), net of applicable tax:
  

 
  

 
  

Foreign currency translation adjustment
(4,586
)
 
9,564

 
1,736

Benefit plan adjustment, net of income tax benefit, nil for 2016, nil for 2015, and income tax benefit of $1,112 for 2014
(3,101
)
 
(423
)
 
(10,403
)
Other comprehensive income (loss)
(7,687
)
 
9,141

 
(8,667
)
Comprehensive loss for the year
(50,411
)
 
(19,162
)
 
(25,834
)
Comprehensive income attributable to the noncontrolling interests
(5,612
)
 
(4,186
)
 
(5,178
)
Comprehensive loss attributable to MDC Partners Inc.
$
(56,023
)
 
$
(23,348
)
 
$
(31,012
)
The accompanying notes to the consolidated financial statements are an integral part of these statements.

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MDC PARTNERS INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of United States Dollars)
 
December 31,
  
2016
 
2015
ASSETS
  

 
  

Current Assets:
  

 
  

Cash and cash equivalents
$
27,921

 
$
61,458

Cash held in trusts
5,341

 
5,122

Accounts receivable, less allowance for doubtful accounts of $1,523 and $1,306
388,340

 
361,044

Expenditures billable to clients
33,118

 
44,012

Other current assets
34,862

 
22,728

Total Current Assets
489,582

 
494,364

Fixed assets, at cost, less accumulated depreciation of $105,134 and $96,554
78,377

 
63,557

Investment in non-consolidated affiliates
4,745

 
6,263

Goodwill
844,759

 
870,301

Other intangible assets, net
85,071

 
72,382

Deferred tax assets
41,793

 
29,748

Other assets
33,051

 
41,010

Total Assets
$
1,577,378

 
$
1,577,625

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT
  

 
  

Current Liabilities:
  

 
  

Accounts payable
$
251,456

 
$
359,568

Trust liability
5,341

 
5,122

Accruals and other liabilities
303,581

 
297,701

Advance billings
133,925

 
119,100

Current portion of long-term debt
228

 
470

Current portion of deferred acquisition consideration
108,290

 
130,400

Total Current Liabilities
802,821

 
912,361

Long-term debt, less current portion
936,208

 
728,413

Long-term portion of deferred acquisition consideration
121,274

 
216,704

Other liabilities
56,012

 
44,905

Deferred tax liabilities
103,443

 
92,844

Total Liabilities
2,019,758

 
1,995,227

Redeemable Noncontrolling Interests (Note 2)
60,180

 
69,471

Commitments, Contingencies and Guarantees (Note 16)


 


Shareholders’ Deficit:
  

 
  

Preferred shares, unlimited authorized, none issued

 

Class A Shares, no par value, unlimited authorized, 52,798,303 and 49,986,705 shares issued and outstanding in 2016 and 2015, respectively
317,783

 
269,841

Class B Shares, no par value, unlimited authorized, 3,755 issued and outstanding in 2016 and 2015, respectively, convertible into one Class A share
1

 
1

Shares to be issued, 100,000 shares in 2016
2,360

 

Charges in excess of capital
(311,581
)
 
(315,261
)
Accumulated deficit
(574,932
)
 
(526,990
)
Accumulated other comprehensive income (loss)
(1,824
)
 
6,257

MDC Partners Inc. Shareholders’ Deficit
(568,193
)
 
(566,152
)
Noncontrolling Interests
65,633

 
79,079

Total Shareholders’ Deficit
(502,560
)
 
(487,073
)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Deficit
$
1,577,378

 
$
1,577,625

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

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MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of United States Dollars)
 
Years Ended December 31,
  
2016
 
2015
 
2014
Cash flows from operating activities:
  

 
  

 
  

Net loss
$
(42,724
)
 
$
(28,303
)
 
$
(17,167
)
Loss from discontinued operations

 
(6,281
)
 
(21,260
)
Income (loss) from continuing operations
(42,724
)
 
(22,022
)
 
4,093

Adjustments to reconcile income (loss) from continuing operations to cash provided by operating activities:
  

 
  

 
  

Stock-based compensation
21,003

 
17,796

 
17,696

Depreciation
22,293

 
18,871

 
16,462

Amortization of intangibles
24,153

 
33,352

 
30,710

Amortization of deferred finance charges and debt discount
9,135

 
2,270

 
2,247

Goodwill impairment
48,524

 

 

Loss on redemption of Notes
26,873

 

 

Adjustment to deferred acquisition consideration
8,227

 
38,887

 
18,652

Deferred income taxes
(7,935
)
 
1,824

 
10,963

Gain on sale of assets
(424
)
 
(6,526
)
 

Earnings (losses) of non-consolidated affiliates
309

 
(1,058
)
 
(1,406
)
Other and non-current assets and liabilities
13,527

 
4,680

 
(7,805
)
Foreign exchange
(8,240
)
 
30,185

 
14,821

Changes in working capital:
  

 
  

 
  

Accounts receivable
(16,752
)
 
(4,796
)
 
(35,800
)
Expenditures billable to clients
13,048

 
(3,879
)
 
23,351

Prepaid expenses and other current assets
(13,608
)
 
1,550

 
(1,949
)
Accounts payable, accruals and other current liabilities
(103,382
)
 
76,521

 
51,120

Advance billings
11,397

 
(23,508
)
 
(13,805
)
Cash flows provided by continuing operating activities
5,424

 
164,147

 
129,350

Discontinued operations

 
(1,342
)
 
(1,827
)
Net cash provided by operating activities
5,424

 
162,805

 
127,523

Cash flows used in investing activities:
  

 
  

 
  

Capital expenditures
(29,432
)
 
(23,575
)
 
(26,416
)
Deposits
(2,528
)
 

 

Proceeds from sale of assets
666

 
8,631

 
85

Acquisitions, net of cash acquired
2,531

 
(24,778
)
 
(68,344
)
Distributions from non-consolidated affiliates
7,402

 

 
3,409

Other investments
(3,835
)
 
(7,272
)
 
(6,312
)
Cash flows used in continuing investing activities
(25,196
)
 
(46,994
)
 
(97,578
)
Discontinued operations

 
17,101

 
(2,108
)
Net cash used in investing activities
(25,196
)
 
(29,893
)
 
(99,686
)
The accompanying notes to the consolidated financial statements are an integral part of these statements.

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MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of United States Dollars) – (continued)
 
Years Ended December 31,
  
2016
 
2015
 
2014
Cash flows used in financing activities:
  

 
  

 
  

Proceeds from issuance of 6.50% Notes
900,000

 

 

Repayment of 6.75% Notes
(735,000
)
 

 

Proceeds from issuance of 6.75% Notes

 

 
78,937

Repayments of revolving credit facility
(1,790,108
)
 
(703,020
)
 
(378,985
)
Proceeds from revolving credit facility
1,844,533

 
703,020

 
378,985

Acquisition related payments
(135,693
)
 
(134,056
)
 
(78,322
)
Cash overdrafts
(6,636
)
 
(1,410
)
 
37,835

Distributions to noncontrolling interests
(7,772
)
 
(9,503
)
 
(6,523
)
Payment of dividends
(32,918
)
 
(42,313
)
 
(37,698
)
Repayment of long-term debt
(507
)
 
(534
)
 
(656
)
Premium paid on redemption of Notes
(26,873
)
 

 

Deferred financing costs
(21,569
)
 

 
(3,659
)
Purchase of shares
(3,350
)
 
(2,388
)
 
(5,414
)
Other

 
224

 
112

Cash flows used in continuing financing activities
(15,893
)
 
(189,980
)
 
(15,388
)
Discontinued operations

 
(40
)
 
(40
)
Net cash used in financing activities
(15,893
)
 
(190,020
)
 
(15,428
)
Effect of exchange rate changes on cash and cash equivalents
2,128

 
5,218

 
(1,068
)
(Decrease) increase in cash and cash equivalents
(33,537
)
 
(51,890
)
 
11,341

Cash and cash equivalents at beginning of year
61,458

 
113,348

 
102,007

Cash and cash equivalents at end of year
$
27,921

 
$
61,458

 
$
113,348

Supplemental disclosures:
  

 
  

 
  

Cash income taxes paid
$
2,895

 
$
1,887

 
$
431

Cash interest paid
$
64,671

 
$
52,666

 
$
49,253

Change in cash held in trusts
$
219

 
$
(1,297
)
 
$
6,419

Non-cash transactions:
  

 
  

 
  

Capital leases
$
265

 
$
140

 
$
773

Note receivable exchanged for shares of subsidiary
$

 
$

 
$
1,746

Dividends payable
$
739

 
$
912

 
$
1,347

Deferred acquisition consideration settled through issuance of shares
$
10,458

 
$

 
$

Value of shares issued for acquisition
$
34,219

 
$

 
$

Leasehold improvements paid for by landlord
$
7,250

 
$

 
$

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

55

TABLE OF CONTENTS




MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(Thousands of United States Dollars)
 
Common Stock
 
Share Capital
to Be Issued
 
Additional
Paid-in Capital
 
Charges
in Excess
of Capital
 
Accumulated
Deficit
 
Stock
Subscription
Receivable
 
Accumulated Other
Comprehensive
Loss
 
MDC Partners Inc.
Shareholders’
Deficit
 
Noncontrolling
Interests
 
Total
Shareholders’
Deficit
  
Class A
 
Class B
 
  
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance at December 31, 2013
49,092,427

 
$
262,655

 
3,755

 
$
1

 
42,000

 
$
424

 
$

 
$
(126,352
)
 
$
(465,576
)
 
$
(55
)
 
$
(797
)
 
$
(329,700
)
 
$
53,088

 
$
(276,612
)
Net loss attributable to MDC Partners

 

 

 

 

 

 

 

 
(24,057
)
 

 

 
(24,057
)
 

 
(24,057
)
Other comprehensive loss

 

 

 

 

 

 

 

 

 

 
(6,955
)
 
(6,955
)
 
(1,712
)
 
(8,667
)
Shares acquired and canceled
(216,004
)
 
(5,414
)
 

 

 

 

 

 

 

 

 

 
(5,414
)
 

 
(5,414
)
Issuance of restricted stock
761,686

 
7,661

 

 

 

 

 
(7,661
)
 

 

 

 

 

 

 

Stock subscription receipts

 

 

 

 

 

 

 

 

 
55

 

 
55

 

 
55

Stock-based compensation

 

 

 

 

 

 
9,868

 

 

 

 

 
9,868

 

 
9,868

Changes in redemption value of redeemable noncontrolling interests

 

 

 

 

 

 
(38,850
)
 

 

 

 

 
(38,850
)
 

 
(38,850
)
Decrease in noncontrolling interests and redeemable noncontrolling interests from business acquisitions and step-up transactions

 

 

 

 

 

 
(8,992
)
 

 

 

 

 
(8,992
)
 
(8,839
)
 
(17,831
)
Increase in noncontrolling interests from business acquisitions

 

 

 

 

 

 

 

 

 

 

 

 
50,118

 
50,118

Dividends paid and to be paid

 

 

 

 

 

 
(37,244
)
 

 

 

 

 
(37,244
)
 

 
(37,244
)
Other
42,000

 
915

 

 

 
(42,000
)
 
(424
)
 
(437
)
 

 

 

 

 
54

 

 
54

Transfer to charges in excess of capital

 

 

 

 

 

 
83,316

 
(83,316
)
 

 

 

 

 

 

Balance at December 31, 2014
$
49,680,109

 
$
265,817

 
3,755

 
$
1

 

 
$

 
$

 
$
(209,668
)
 
$
(489,633
)
 
$

 
$
(7,752
)
 
$
(441,235
)
 
$
92,655

 
$
(348,580
)
The accompanying notes to the consolidated financial statements are an integral part of these statements.


56

TABLE OF CONTENTS




MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(Thousands of United States Dollars) – (continued)
 
Common Stock
 
Share Capital to Be Issued
 
Additional Paid-in Capital
 
Charges in Excess of Capital
 
Accumulated Deficit
 
Stock Subscription Receivable
 
Accumulated Other Comprehensive Income (Loss)
 
MDC Partners Inc.
Shareholders’
Deficit
 
Noncontrolling
Interests
 
Total
Shareholders’
Deficit
  
Class A
 
Class B
 
  
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance at December 31, 2014
49,680,109

 
$
265,817

 
3,755

 
$
1

 

 
$

 
$

 
$
(209,668
)
 
$
(489,633
)
 
$

 
$
(7,752
)
 
$
(441,235
)
 
$
92,655

 
$
(348,580
)
Net loss attributable to MDC Partners

 

 

 

 

 

 

 

 
(37,357
)
 

 

 
(37,357
)
 

 
(37,357
)
Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 
14,009

 
14,009

 
(4,868
)
 
9,141

Issuance of restricted stock
365,873

 
6,069

 

 

 

 

 
(6,069
)
 

 

 

 

 

 

 

Shares acquired and canceled
(96,777
)
 
(2,388
)
 

 

 

 

 

 

 

 

 

 
(2,388
)
 

 
(2,388
)
Options exercised
37,500

 
343

 

 

 

 

 
(119
)
 

 

 

 

 
224

 

 
224

Stock-based compensation

 

 

 

 

 

 
8,437

 

 

 

 

 
8,437

 

 
8,437

Changes in redemption value of redeemable noncontrolling interests

 

 

 

 

 

 
(22,809
)
 

 

 

 

 
(22,809
)
 

 
(22,809
)
Decrease in noncontrolling interests and redeemable noncontrolling interests from business acquisitions and step-up transactions

 

 

 

 

 

 
(42,780
)
 

 

 

 

 
(42,780
)
 
(8,708
)
 
(51,488
)
Dividends paid and to be paid

 

 

 

 

 

 
(42,253
)
 

 

 

 

 
(42,253
)
 

 
(42,253
)
Transfer to charges in excess of capital

 

 

 

 

 

 
105,593

 
(105,593
)
 

 

 

 

 

 

Balance at December 31, 2015
49,986,705

 
$
269,841

 
3,755

 
$
1

 

 
$

 
$

 
$
(315,261
)
 
$
(526,990
)
 
$

 
$
6,257

 
$
(566,152
)
 
$
79,079

 
$
(487,073
)
The accompanying notes to the consolidated financial statements are an integral part of these statements.


57

TABLE OF CONTENTS




MDC PARTNERS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(Thousands of United States Dollars) – (continued)
 
Common Stock
 
Share Capital to Be Issued
 
Additional Paid-in Capital
 
Charges in Excess of Capital
 
Accumulated Deficit
 
Stock Subscription Receivable
 
Accumulated Other Comprehensive Income (Loss)
 
MDC Partners Inc.
Shareholders’
Deficit
 
Noncontrolling
Interests
 
Total
Shareholders’
Deficit
  
Class A
 
Class B
 
  
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance at December 31, 2015
49,986,705

 
$
269,841

 
3,755

 
$
1

 

 
$

 
$

 
$
(315,261
)
 
$
(526,990
)
 
$

 
$
6,257

 
$
(566,152
)
 
$
79,079

 
$
(487,073
)
Net loss attributable to MDC Partners

 

 

 

 

 

 

 

 
(47,942
)
 

 

 
(47,942
)
 

 
(47,942
)
Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 
(8,081
)
 
(8,081
)
 
394

 
(7,687
)
Deferred acquisition consideration settled through issuance of shares
691,559

 
10,458

 

 

 
100,000

 
2,360

 

 

 

 

 

 
12,818

 

 
12,818

Issuance of restricted stock and stock options
425,915

 
6,615

 

 

 

 

 
(6,615
)
 

 

 

 

 

 

 

Shares issued, acquisition
1,900,000

 
34,219

 

 

 

 

 

 

 

 

 

 
34,219

 

 
34,219

Shares acquired and canceled
(205,876
)
 
(3,350
)
 

 

 

 

 

 

 

 

 

 
(3,350
)
 

 
(3,350
)
Stock-based compensation

 

 

 

 

 

 
10,662

 

 

 

 

 
10,662

 

 
10,662

Changes in redemption value of redeemable noncontrolling interests

 

 

 

 

 

 
9,604

 

 

 

 

 
9,604

 

 
9,604

Changes in noncontrolling interests and redeemable noncontrolling interests from business acquisitions and step-up transactions

 

 

 

 

 

 
22,776

 

 

 

 

 
22,776

 
(13,840
)
 
8,936

Dividends paid and to be paid

 

 

 

 

 

 
(32,747
)
 

 

 

 

 
(32,747
)
 

 
(32,747
)
Transfer to charges in excess of capital

 

 

 

 

 

 
(3,680
)
 
3,680

 

 

 

 

 

 

Balance at December 31, 2016
52,798,303

 
$
317,783

 
3,755

 
$
1

 
100,000

 
$
2,360

 
$

 
$
(311,581
)
 
$
(574,932
)
 
$

 
$
(1,824
)
 
$
(568,193
)
 
$
65,633

 
$
(502,560
)
The accompanying notes to the consolidated financial statements are an integral part of these statements.

58

TABLE OF CONTENTS




MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Except per Share Amounts)

1. Basis of Presentation
MDC Partners Inc. (the “Company” or “MDC”) 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 of the United States of America (“U.S. GAAP”).
During the third quarter of 2016, the Company reassessed its determination of operating segments and concluded that each Partner Firm represents an operating segment. Pursuant to the guidance of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (the “ASC”) Topic 280, Segment Reporting, the Company aggregated Partner Firms that met the aggregation criteria into one Reportable segment and combined and disclosed those Partner Firms that did not meet the aggregation criteria as an “all other” segment. For further information, see Note 14, “Segment Information.”
Nature of Operations
MDC is a leading provider of global marketing, advertising, activation, communications and strategic consulting solutions. MDC’s Partner Firms deliver a wide range of customized services in order to drive growth and business performance for its clients.
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 operates primarily in the U.S., Canada, Europe, Asia, and Latin America.
2. Significant Accounting Policies
The Company’s significant accounting policies are summarized as follows:
Accounting Changes. On December 31, 2016, the Company retrospectively adopted the FASB Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740). This update requires that deferred tax assets and liabilities be classified as non-current. As a result of the adoption of ASU 2015-17, the balance sheet at December 31, 2015 was adjusted to reflect the reclassification of $14,381 from other current assets to long-term deferred tax assets and $263 from accruals and other liabilities to long-term deferred tax liabilities.
On January 1, 2016, the Company retrospectively adopted the FASB ASU 2015-03, Interest - Imputation of Interest. This update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. As a result of the adoption of this update, the balance sheet at December 31, 2015 was adjusted to reflect the reclassification of $12,625 from other assets to long-term debt.
Additionally, the Company prospectively adopted the FASB ASU 2016-09, Stock Compensation (Topic 718). As a result of the adoption, there was no material impact.
Principles of Consolidation .  The accompanying consolidated financial statements include the accounts of MDC Partners Inc. and its domestic and international controlled subsidiaries that are not considered variable interest entities, and variable interest entities for which the Company is the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation.
Reclassifications. Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation.
Use of Estimates .  The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities including goodwill, intangible assets, contingent deferred acquisition consideration, valuation allowances for receivables, deferred tax assets and the amounts of revenue and expenses reported during the period. These estimates are evaluated on an ongoing basis and are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances. Actual results could differ from these estimates.
Fair Value .  The Company applies the fair value measurement guidance of the FASB Accounting Standards Codification (the “ASC”) Topic 820, Fair Value Measurements, for financial assets and liabilities that are required to be measured at fair value and for non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis, including goodwill and other identifiable intangible assets. The measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The inputs create the following fair value hierarchy:
Level 1 - Quoted prices for identical instruments in active markets.

59

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
2. Significant Accounting Policies – (continued)

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.
Level 3 - Instruments where significant value drivers are unobservable to third parties.
When available, the Company uses quoted market prices to determine the fair value of its financial instruments and classifies such items in Level 1. In some cases, quoted market prices are used for similar instruments in active markets and the Company classifies such items in Level 2.
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. No client accounted for more than 10% of the Company’s consolidated accounts receivable as of December 31, 2016 and 2015 . No clients accounted for 10% of the Company's revenue in each of the years ended December 31, 2016 , 2015 , and 2014 .
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.
Cash in Trust. A subsidiary of the Company holds restricted cash in trust accounts related to funds received on behalf of clients. Such amounts are held in escrow under depositary service agreements and distributed at the direction of the clients.  The funds are presented as a corresponding liability on the balance sheet.
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 vendor costs incurred on behalf of clients when providing advertising, marketing and corporate communications services that have not yet been invoiced to clients. 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. Computers, furniture and fixtures are depreciated on a straight-line basis over periods of three to seven 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 ASC, 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 such 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 (“WACC”), 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, (i) over the operating and financial policies of the affiliate or (ii) has an ownership interest 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 include a 30% undivided interest in a real estate joint venture and various interests in investment funds. The Company’s management periodically evaluates these investments to determine if there has been a decline in value that is other than temporary. These investments are included in investments in non-consolidated affiliates.
During the year ended December 31, 2016 , the Company sold its ownership in two of these equity method investments for $4,023 and recognized a gain of $623 in Other income.

60

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
2. Significant Accounting Policies – (continued)

During the year ended December 31, 2015 , the Company sold its ownership in one of these equity method investments for $2,094 and recognized a gain of $1,086 in Other income.
Cost Method Investments .  From time to time, the Company makes non-material cost based investments in start-up advertising technology companies and innovative consumer product 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 is included in Other Assets on the balance sheet, as of December 31, 2016 and 2015 was $10,132 and $11,763 , respectively. These investments are periodically evaluated to determine whether a significant event or change in circumstances has occurred that may impact the fair value of each investment other than temporary declines below book value. A variety of factors are considered when determining if a decline is other than temporary, including, among others, the financial condition and prospects of the investee, as well as the Company’s investment intent.
During the year ended December 31, 2016 , the Company sold its ownership in three of these cost method investments for an aggregate purchase price of $4,074 and recognized a gain of $1,309 in Other income.
During the year ended December 31, 2015 , the Company sold its ownership in six of these cost method investments for an aggregate purchase price of $11,364 and recognized a gain of $5,440 in Other income.
In addition, the Company’s partner agencies may receive noncontrolling equity interests from start-up companies in lieu of fees. During the year ended December 31, 2014, the Company liquidated two such equity interest positions in exchange for an aggregate purchase price equal to $8,248 . The purchasers of these equity investments were current investors in such entities and two executive officers of our subsidiary partner agencies.
Goodwill and Indefinite Lived Intangibles .  In accordance with the FASB ASC 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 as of October 1st of each year, or more frequently if indicators of potential impairment exist. For goodwill, impairment is assessed at the reporting unit level.
For the annual impairment testing the Company has the option of assessing qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value or performing the two-step goodwill impairment test. Qualitative factors considered in the assessment include industry and market considerations, the competitive environment, overall financial performance, changing cost factors such as labor costs, and other factors specific to each reporting unit such as change in management or key personnel.
If the Company elects to perform the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is more than its carrying amount, then goodwill is not considered impaired and the two-step goodwill impairment test is not necessary. For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount and for reporting units for which the qualitative assessment is not performed, the Company will perform the first step of the goodwill impairment test, which compares the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired and additional analysis is not required. However, if the carrying amount of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the second step of the goodwill impairment test must be performed to determine the implied fair value of the reporting unit’s goodwill.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The Company’s goodwill impairment test uses the income approach to estimate a reporting unit’s fair value. The income approach is based on a discounted cash flow (“DCF”) method, which requires the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.
The DCF estimates incorporate expected cash flows that represent a spectrum of the amount and timing of possible cash flows of each reporting unit from a market participant perspective. The expected cash flows are developed as part of the Company’s routine long-range planning process using projections of revenue and expenses and related cash flows based on assumed long-term growth rates and demand trends and appropriate discount rates based on a reporting unit’s WACC as determined by considering the observable WACC of comparable companies and factors specific to the reporting unit (for example, size). The terminal value is estimated using a constant growth method which requires an assumption about the expected long-term growth rate. The estimates are based on historical data and experience, industry projections, economic conditions, and the Company’s expectations.

61

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
2. Significant Accounting Policies – (continued)

The assumptions used for the long-term growth rate and WACC in the annual goodwill impairment tests are as follows:
 
October 1,
 
2016
 
2015
Long-term growth rate
3%
 
3%
WACC
10.39% - 13.45%
 
8.92% - 11.95%
The Company’s reporting units vary in size with respect to revenue and operating profits. These differences drive variations in fair value of the reporting units. In addition, these differences as well as differences in book value, including goodwill, cause variations in the amount by which fair value exceeds the carrying amount of the reporting units. The reporting unit goodwill balances vary by reporting unit primarily because it relates specifically to the Partner Firm’s goodwill which was determined at the date of acquisition.
Under the second step of the goodwill impairment test, the Company utilizes both a market approach and income approach to estimate the implied fair value of a reporting unit’s goodwill. For the market approach, the Company utilizes both the guideline public company method and the precedent transaction method. For the income approach, the Company utilizes a DCF method. The Company weights the market and income approaches to arrive at an implied fair value of goodwill. If the Company determines that the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded.
For the 2015 annual goodwill impairment testing, the Company had 13 reporting units. All of the reporting units were subject to the two-step test. As the fair value of all reporting units were in excess of their respective carrying amounts, there was no impairment of goodwill. The range of the excess of the fair value over the carrying amount was from 7% to over 100% . The Company performed a sensitivity analysis which included a 1% increase to the WACC. Based on the results of that analysis, one reporting unit, which was comprised of the marketing experiential businesses, was at risk of failing.
The Company noted no significant events or conditions during the first and second quarter of 2016 that would have affected the conclusions from the annual assessment. During the third quarter of 2016, the Company changed its operating segments, as a result of the management structure change as discussed in Note 14, which resulted in a corresponding change to the Company’s reporting units. Each Partner Firm now represents an operating segment as well as a reporting unit for goodwill impairment testing. As a result of the changes in the reporting units, the Company performed further analysis to assess whether the results of the 2015 testing would have been different had it been performed at the Partner Firm level. This change in operating segments, coupled with a decline in operating performance required the Company to perform interim goodwill testing on one of its experiential reporting units. Additionally, a triggering event occurred during the third quarter of 2016 that required the Company to perform interim goodwill testing on one non-material reporting unit. These two reporting units failed the first step of the goodwill impairment testing, and the second step of the goodwill impairment testing resulted in a partial impairment of goodwill of $27,893 and $1,738 relating to the experiential reporting unit and non-material reporting unit, respectively. See Note 8 for further information.
For the 2016 annual goodwill impairment test, the Company had 31 reporting units, all of which were subject to the two-step test.
For the 2016 annual goodwill impairment test, the carrying amount of one of the Company’s strategic communications reporting unit exceeded its fair value and the second step of the goodwill impairment test was performed, resulting in a partial impairment of goodwill of $18,893 . The fair value for all other reporting units were in excess of their respective carrying amounts and as a result there was no additional impairment of goodwill. The range of the excess of the fair value over the carrying amount was from 5% to over 100% . The Company performed a sensitivity analysis which included a 1% increase to the WACC. Based on the results of that analysis, the non-material reporting unit for which a partial impairment of goodwill was recorded during the third quarter of 2016 would be at risk of failing; however, there were no events or circumstances that would more likely than not reduce the fair value of such reporting unit below its respective carrying value between the interim and annual goodwill impairment testing performed.
The Company believes the estimates and assumptions used in the calculations are reasonable. However, if there was an adverse change in the facts and circumstances, then an impairment charge may be necessary in the future. The Company will monitor its reporting units to determine if there is an indicator of potential impairment. Should the fair value of any of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market declines, changes in the discount rate, or

62

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
2. Significant Accounting Policies – (continued)

other conditions, charges for impairment may be necessary. Subsequent to the annual impairment test at October 1, 2016 , there were no events or circumstances that triggered the need for an interim impairment test. See Note 8 for further information.
Definite Lived Intangible Assets .  In accordance with the FASB ASC, 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.
Business   Combinations. Business combinations are accounted for using the acquisition method and accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values. The Company’s acquisition model typically provides for an initial payment at closing and for future additional contingent purchase price obligations. Contingent purchase price obligations are recorded as deferred acquisition consideration on the balance sheet at the acquisition date fair value and are remeasured at each reporting period. Changes in such estimated values are recorded in the results of operations. For the years ended December 31, 2016 , 2015 and 2014 , $7,972 , $36,344 and $16,467 , respectively, related to changes in estimated value was recorded as operating expenses. For further information, see Note 4 and Note 13. For the years ended December 31, 2016 , 2015 , and 2014 , $2,640 , $2,912 and $6,133 , respectively, of acquisition related costs were charged to operations.
For each acquisition, the Company undertakes a detailed review to identify other intangible assets and a valuation is performed for all such identified assets. The Company uses 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 the Company acquires 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 acquired is derived from customer relationships, including the related customer contracts, as well as trade names. In executing the Company’s overall acquisition strategy, one of the primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand the existing client relationships. The expected benefits of the Company’s acquisitions are typically shared across multiple agencies and regions.
Redeemable Noncontrolling Interests .  Many of the Company’s acquisitions include contractual arrangements where the noncontrolling shareholders have an option to purchase, or may require the Company to purchase, such noncontrolling shareholders’ incremental ownership interests under certain circumstances and the Company has similar call options under the same contractual terms. The amount of consideration under these contractual arrangements is not a fixed amount, but rather is dependent upon various valuation formulas as described in Note 16. In the event that an incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity on the balance sheet at their acquisition date fair value and adjusted for changes to their estimated redemption value through additional paid-in capital (but not less than their initial redemption value), except for foreign currency translation adjustments. These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values. For the three years ended December 31, 2016 , 2015 , and 2014 , there was no impact on the Company's earnings (loss) per share calculation.
The following table presents changes in redeemable noncontrolling interests:
 
Years Ended December 31,
  
2016
 
2015
 
2014
Beginning Balance as of January 1,
$
69,471

 
$
194,951

 
$
148,534

Redemptions
(1,708
)
 
(155,042
)
 
(4,820
)
Granted (1)
2,274

 
7,703

 
13,327

Changes in redemption value
(9,604
)
 
22,809

 
38,850

Currency translation adjustments
(253
)
 
(950
)
 
(940
)
Ending Balance as of December 31,
$
60,180

 
$
69,471

 
$
194,951

(1)
Grants in 2015 consisted of transfers from noncontrolling interests related to step-up transactions and new acquisitions.
Subsidiary and Equity Investment Stock Transactions. Transactions involving the purchase, sale or issuance of stock of a subsidiary where control is maintained are recorded as a reduction in the redeemable noncontrolling interests or noncontrolling

63

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
2. Significant Accounting Policies – (continued)

interests, as applicable. Any difference between the purchase price and noncontrolling interest is recorded to additional paid-in capital. In circumstances where the purchase of shares of an equity investment results in obtaining control, the existing carrying value of the investment is remeasured to the acquisition date fair value and any gain or loss is recognized in results of operations.
Variable Interest Entity .  Effective March 28, 2012, the Company invested in Doner Partners LLC (“Doner”). The Company acquired a 30% voting interest and convertible preferred interests that allow the Company to increase ordinary voting ownership to 70% at the Company’s option. The Company has determined that (i) this entity is a variable interest entity and (ii) the Company is the primary beneficiary because it receives a disproportionate share of profits and losses as compared to its ownership percentage. As such, Doner is consolidated for all periods subsequent to the date of investment.
Doner is a full service integrated creative agency that is included as part of the Company’s portfolio in the Reportable segment. The Company’s Credit Agreement (see Note 11) is guaranteed and secured by all of Doner’s assets.
Total assets and total liabilities of Doner included in the Company’s consolidated balance sheet at December 31, 2016 and 2015 , were $102,456 and $57,622 , and $122,558 and $86,047 , respectively.
Guarantees .  Guarantees issued or modified by the Company to third parties after January 1, 2003 are generally recognized, at the inception or modification of the 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 16.)
Revenue Recognition .  The Company’s revenue recognition policies are established in accordance with the Revenue Recognition topics of the FASB ASC, and accordingly, revenue is recognized when all of the following criteria are satisfied: (i) persuasive evidence of an arrangement exists; (ii) the selling price is fixed or determinable; (iii) services have been performed or upon delivery of the products when ownership and risk of loss has transferred to the client; and (iv) collection of the resulting receivable is reasonably assured.
The Company follows the Multiple-Element Arrangement topic of the FASB ASC, which 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 follows the Principal Agent Consideration topic of the FASB ASC which addresses (i) whether revenue should be recorded at the gross amount billed because it has earned revenue from the sale of goods or services, or recorded at the net amount retained because it has earned a fee or commission, and (ii) that reimbursements received for out-of-pocket expenses incurred should be characterized in the income statement as revenue. Accordingly, the Company has included such reimbursed expenses in revenue.
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 arrangement. 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 a limited number of 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.
Fees billed to clients in excess of fees recognized as revenue are classified as Advanced Billings on the Company’s balance sheet.
A small portion of the Company’s contractual arrangements with customers includes performance incentive provisions, which allow the Company to earn additional revenue 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 assured, 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 .  Cost of services sold do not include depreciation charges for fixed assets.

64

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
2. Significant Accounting Policies – (continued)

Interest Expense .  Interest expense primarily consists of the cost of borrowing on the Company’s previously outstanding 6.75% Senior Notes due 2020 (the “6.75% Notes”); the Company’s 6.50% senior unsecured notes due 2024 (the “6.50% Notes”); and the Company’s $325 million senior secured revolving credit agreement due 2021 (the “Credit Agreement”). The Company uses the effective interest method to amortize the deferred financing costs as well as the original issue premium on the previously outstanding 6.75% Notes. The Company also uses the straight-line method to amortize the deferred financing costs on the Credit Agreement. For the years ended December 31, 2016, 2015, and 2014, interest expense included $255 , $2,543 , and $2,186 , respectively, relating to present value adjustments for fixed deferred acquisition consideration payments.
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.
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, in this case the award’s vesting period. The Company recognized forfeitures as they occur. 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.
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 in operating income over the service period, in this case the awards vesting period. Changes in the Company’s payment obligation prior to the settlement date of a stock-based award are recorded as compensation cost in operating income 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, in this case the award's vesting period.
For the years ended December 31, 2016 , 2015 , and 2014 , the Company issued no 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 to deliver 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. The Company commences recording compensation expense related to awards that are based on performance conditions under the straight-line attribution method when it is probable that such performance conditions will be met. The fair value at the grant date for performance based awards granted in 2016 , 2015 , and 2014 was $140 , $1,741 , and $3,026 , respectively.
The Company treats benefits paid by shareholders or equity members to employees as a stock-based compensation charge with a corresponding credit to additional paid-in capital.
From time to time, certain acquisitions and step-up transactions include an element of compensation related payments. The Company accounts for those payments as stock-based compensation.
Pension Costs .  Several of the Company’s U.S. 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 $10,026 , $6,731 and $7,503 for the years ended December 31, 2016 , 2015 , and 2014 , respectively. The Company also has a defined benefit plan. See Note 18.

65

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
2. Significant Accounting Policies – (continued)

Income (loss) per Common Share .  Basic income (loss) per share is based upon the weighted average number of common shares outstanding during each period. “Share capital to be issued” as reflected in the Shareholders’ Equity on the balance sheet are also included if there is no circumstance under which those shares would not be issued. Diluted income (loss) per share is based on the above, in addition, if dilutive, common share equivalents, which include outstanding options, stock appreciation rights, and unvested restricted stock units.
Foreign Currency Translation .  The Company’s financial statements were prepared in accordance with the requirements of the Foreign Currency Translation topic of the FASB ASC. The functional currency of the Company is the Canadian dollar and it has decided to use U.S. dollars as its reporting currency for consolidated reporting purposes. Generally, 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-U.S. dollar based subsidiaries to U.S. dollar statements are included as cumulative 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-U.S. dollar based subsidiaries are translated at the period end rate. The income statements of non-U.S. 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 the Accounting for Derivative Instruments and Hedging Activities topic of the FASB ASC, which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts and debt instruments) be recorded on 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: (i) a cash flow hedge, (ii) a fair value hedge, and (iii) 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.

66

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

3. Loss per Common Share
The following table sets forth the computation of basic and diluted loss per common share from continuing operations for the years ended December 31:
 
2016
 
2015
 
2014
Numerator
  

 
  

 
  

Numerator for diluted loss per common share – income (loss) from continuing operations
$
(42,724
)
 
$
(22,022
)
 
$
4,093

Net income attributable to the noncontrolling interests
(5,218
)
 
(9,054
)
 
(6,890
)
Loss attributable to MDC Partners Inc. common shareholders from continuing operations
(47,942
)
 
(31,076
)
 
(2,797
)
Effect of dilutive securities

 

 

Numerator for diluted loss per common share – loss attributable to MDC Partners Inc. common shareholders from continuing operations
$
(47,942
)
 
$
(31,076
)
 
$
(2,797
)
Denominator
  

 
  

 
  

Denominator for basic loss per common share – weighted average common shares
51,345,807

 
49,875,282

 
49,545,350

Effect of dilutive securities:
 
 
 
 
 
Dilutive potential common shares

 

 

Denominator for diluted loss per common share – adjusted weighted shares and assumed conversions
51,345,807

 
49,875,282

 
49,545,350

Basic and Diluted loss per common share from continuing operations
$
(0.93
)
 
$
(0.62
)
 
$
(0.06
)
At December 31, 2016 , 2015 , and 2014 , warrants, options and other rights to purchase 1,391,456 , 947,465 and 1,114,681 shares of common stock, respectively, were not included in the computation of diluted loss per common share because doing so would have had an antidilutive effect. Additionally, the 523,321 of restricted stock and restricted stock unit awards which are contingent upon the Company meeting an undefined cumulative three year earnings target and continued employment are also excluded from the computation of diluted loss per common share.
4. Acquisitions
Valuations of acquired companies are based on a number of factors, including specialized know-how, reputation, competitive position and service offerings. The Company’s acquisition strategy has been focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of its various strategic business platforms to better serve the Company’s clients. The Company’s strategy includes acquiring ownership stakes in well-managed businesses with strong reputations in the industry. The Company’s model of “Perpetual Partnership” often involves acquiring a majority interest rather than a 100% interest and leaving management owners with a significant financial interest in the performance of the acquired entity for a minimum period of time, typically not less than five years. The Company’s acquisition model in this scenario typically provides for (i) an initial payment at the time of closing, (ii) additional contingent purchase price obligations based on the future performance of the acquired entity, and (iii) an option by the Company to purchase (and in some instances a requirement to so purchase) the remaining interest of the acquired entity under a predetermined formula.
Contingent purchase price obligations. The Company’s contingent purchase price obligations are generally payable within a five year period following the acquisition date, and are based on (i) the achievement of specific thresholds of future earnings, and (ii) in certain cases, the growth rate of those earnings. Contingent purchase price obligations are recorded as deferred acquisition consideration on the balance sheet at the acquisition date fair value and adjusted at each reporting period through operating income or net interest expense, depending on the nature of the arrangement. See Note 13 for additional information on deferred acquisition consideration.
Options to purchase . When acquiring less than 100% ownership, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the option to purchase the incremental ownership is within the Company’s control, the amounts are recorded as noncontrolling interests in the equity section of the Company’s balance sheet. Where the incremental purchase may be required

67

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
4. Acquisitions  – (continued)

of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity at their acquisition date estimated redemption value and adjusted at each reporting period for changes to their estimated redemption value through additional paid-in capital (but not less than their initial redemption value), except for foreign currency translation adjustments. On occasion, the Company may initiate a renegotiation to acquire an incremental ownership interest and the amount of consideration paid may differ materially from the balance sheet amounts. See Note 16 for additional information on redeemable noncontrolling interests.
Employment conditions. From time to time, specifically when the projected success of an acquisition is deemed to be dependent on retention of specific personnel, such acquisition may include deferred payments that are contingent upon employment terms as well as financial performance. The Company accounts for those payments through operating income as stock-based compensation over the required retention period. For the years ended December 31, 2016, 2015 and 2014, stock-based compensation included $10,341 , $9,359 , and $7,802 , respectively, of expense relating to those payments.
Distributions to noncontrolling shareholders. If noncontrolling shareholders have the right to receive distributions based on the profitability of an acquired entity, the amount is recorded as income attributable to noncontrolling interests. However, there are circumstances when the Company acquires a majority interest and the selling shareholders waive their right to receive distributions with respect to their retained interest for a period of time, typically not less than five years.  Under this model, the right to receive such distributions typically begins concurrently with the purchase option period and, therefore, if such option is exercised at the first available date the Company may not record any noncontrolling interest over the entire period from the initial acquisition date through the acquisition date of the remaining interests.
Included in the Company’s consolidated statement of operations for the year ended December 31, 2016 was revenue of $39,569 , and net loss of $3,815 , related to 2016 acquisitions. The net loss was attributable to an increase in the deferred acquisition payment liability driven by the decrease in the future market performance of the Company’s stock price and the amortization of the intangibles identified in the allocation of the purchase price consideration.
2016 Acquisitions
Effective July 1, 2016, the Company acquired 100% of the equity interests of Forsman & Bodenfors AB (“F&B”), an advertising agency based in Sweden, for an approximate purchase price range of $35,000 to $55,000 . The estimated aggregate purchase price at acquisition date of $49,837 , which is subject to adjustments, consisted of a closing payment of 1,900,000 MDC Class A subordinate voting shares with an acquisition date fair value of $34,219 , plus additional deferred acquisition payments with an estimated present value at acquisition date of $15,618 . The amount of additional payments will be calculated based on the financial results of the acquired business for 2015 and 2016 as well as the value of the Company’s shares from July 1, 2016 up to and including the close of business on November 2, 2016. At December 31, 2016 , the estimated present value of the additional deferred acquisition payments was $18,857 . The additional deferred acquisition payments are payable in 2017 at the Company’s option through the payment of cash or the issuance of additional Class A subordinate voting shares. In the event the Company elects to settle the additional deferred payments through the issuance of Class A subordinate voting shares, such settlement amount will be subject to adjustment based on the value of the Company’s shares determined at the close of business on the final trading day of the seller’s applicable 90 day trading window.
An allocation of excess purchase price consideration of this acquisition to the fair value of the net assets acquired resulted in identifiable intangibles of $36,698 , consisting primarily of customer lists, trade names and covenants not to compete, and goodwill of $24,778 , including the value of the assembled workforce. The identified assets have a weighted average useful life of approximately 10.8 years and will be amortized in a manner represented by the pattern in which the economic benefits of such assets are expected to be realized. In addition, the Company has recorded $2,275 as the present value of redeemable noncontrolling interests and $5,514 as the present value of noncontrolling interests both relating to the noncontrolling interest of F&B's subsidiaries. None of the intangibles and goodwill are tax deductible and the Company recorded a deferred tax liability of $8,074 related to the intangibles. F&B's results are included in the Reportable segment.
The actual adjustments that the Company will ultimately make in finalizing the allocation of purchase price to fair value of the net assets acquired will depend on a number of factors.

68

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
4. Acquisitions  – (continued)

The following unaudited pro forma results of operations of the Company for the years ended December 31, 2016 and 2015 assume that the acquisition of F&B occurred on January 1, 2015. These unaudited pro forma results are not necessarily indicative of either the actual results of operations that would have been achieved had the acquisition of F&B taken place on January 1, 2015, or are they necessarily indicative of future results of operations.
 
Year Ended December 31,
 
2016
 
2015
Revenues
$
1,426,770

 
$
1,398,756

Net loss attributable to MDC Partners Inc.
$
(41,859
)
 
$
(36,301
)
Loss per common share:
 
 
 
Basic and Diluted
 
 
 
Net loss attributable to MDC Partners Inc. common shareholders

$
(0.80
)
 
$
(0.70
)
Effective April 1, 2016, the Company acquired the remaining 40% ownership interests of Luntz Global Partners LLC. In 2016, the Company also entered into various non-material transactions in connection with other majority-owned entities. As a result of the foregoing, the Company made total cash closing payments of $1,581 , eliminated the contingent deferred acquisition payments of $4,052 and fixed deferred acquisition payments of $467 related to certain initial acquisition of the equity interests, reduced other assets by $428 , reduced redeemable noncontrolling interests by $1,005 , reduced noncontrolling interests by $19,354 , increased accruals and other liabilities by $94 , and increased additional paid-in capital by $22,775 . Additional deferred payments with an estimated present value at acquisition date of $2,393 that are contingent upon service conditions have been excluded from deferred acquisition consideration and will be expensed as stock-based compensation over the required service period.
2015 Acquisitions
Effective May 1, 2015, the Company acquired a majority of the equity interests of Y Media Labs LLC, such that following the transaction, the Company’s effective ownership was 60% . Effective October 31, 2015, the Company acquired substantially 100% of the assets of Unique Influence, LLC (and certain other affiliated entities). The aggregate purchase price of these acquisitions had an estimated present value at acquisition date of $55,279 and consisted of total closing cash payments of $23,000 and additional deferred acquisition payments that will be based on the future financial results of the underlying businesses from 2015 to 2020 with final payments due in 2022 . These additional deferred payments have an estimated present value at acquisition date of $32,279 . An allocation of excess purchase price consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $16,721 , consisting primarily of customer lists, trade names and covenants not to compete, and goodwill of $43,654 , including the value of the assembled workforce. The identified assets have a weighted average useful life of approximately 6.3 years and will be amortized in a manner represented by the pattern in which the economic benefits of such assets are expected to be realized. In addition, the Company has recorded $1,999 as the present value of redeemable noncontrolling interests. The Company expects intangibles and goodwill of $9,720 to be tax deductible.
In 2015, the Company acquired incremental ownership interests of Sloane & Company LLC, Anomaly Partners LLC, Allison & Partners LLC, Relevent Partners LLC, Kenna Communications LP and 72andSunny Partners LLC. In addition, the Company also entered into various non-material transactions in connection with other majority owned entities.
The aggregate purchase price for these 2015 acquisitions of incremental ownership interests had an estimated present value at transaction date of $200,822 and consisted of total closing cash payments of $37,467 and additional deferred acquisition payments that are both fixed and based on the future financial results of the underlying businesses from 2015 to 2021 with final payments due in 2022. These additional deferred payments had an estimated present value at acquisition date of $163,355 . The Company reduced redeemable noncontrolling interests by $149,335 and noncontrolling interests by $8,708 . The difference between the purchase price and the noncontrolling interests of $42,780 was recorded in additional paid-in capital.
2014 Acquisitions
During 2014, the Company entered into several acquisitions and various non-material transactions with certain majority owned entities. Effective January 1, 2014, the Company acquired 60% of the equity interests of Luntz Global Partners LLC. Effective February 14, 2014, the Company acquired 65% of the equity interests of Kingsdale Partners LP. On June 3, 2014, the Company acquired a 100% equity interest in The House Worldwide Ltd. On July 31, 2014, Union Advertising Canada LP acquired 100% of the issued and outstanding stock of Trapeze Media Limited (“Trapeze”). Effective August 1, 2014, the Company acquired 65%

69

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
4. Acquisitions  – (continued)

of the equity interests of Hunter PR LLC. Effective August 18, 2014, the Company acquired a 75% interest in Albion Brand Communication Limited. In addition, in June 2014 and August 2014, the Company (through a subsidiary) entered into other non-material acquisitions.
The aggregate purchase price of these acquisitions had an estimated present value at acquisition date of $151,202 and consisted of total closing cash payments of $67,236 , and additional deferred acquisition payments that are based on the financial results of the underlying businesses from 2014 to 2018 with final payments due in 2019. These additional deferred payments had an estimated present value at acquisition date of $83,966 . An allocation of excess purchase price consideration of these acquisitions to the fair value of the net assets acquired resulted in identifiable intangibles of $64,733 , consisting primarily of customer lists, a technology asset and covenants not to compete, and goodwill of $146,806 , including the value of the assembled workforce. The identified assets will be amortized over a five to six year period in a manner represented by the pattern in which the economic benefits of such assets are expected to be realized. In addition, the Company has recorded $50,552 as the present value of noncontrolling interests and $13,327 as the present value of redeemable noncontrolling interests. The Company expects intangibles and goodwill of $149,232 to be tax deductible. In addition the Company recorded other income of $908 representing a gain on the previously held 18% interest in Trapeze.
Noncontrolling Interests
Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three years ended December 31, were as follows:
Net Loss Attributable to MDC Partners Inc. and
Transfers (to) from the Noncontrolling Interests
 
Year Ended December 31,
  
2016
 
2015
 
2014
Net loss attributable to MDC Partners Inc.
$
(47,942
)
 
$
(37,357
)
 
$
(24,057
)
Transfers (to) from the noncontrolling interests
  

 
  

 
  

Increase (decrease) in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of noncontrolling interests and redeemable noncontrolling interests
22,776

 
(42,780
)
 
(8,992
)
Net transfers (to) from noncontrolling interests
$
22,776

 
$
(42,780
)
 
$
(8,992
)
Change from net loss attributable to MDC Partners Inc. and transfers (to) from noncontrolling interests
$
(25,166
)
 
$
(80,137
)
 
$
(33,049
)

70

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



5. Fixed Assets  
The following is a summary of the Company’s fixed assets as of December 31:
 
2016
 
2015
  
Cost
 
Accumulated Depreciation
 
Net Book Value
 
Cost
 
Accumulated Depreciation
 
Net Book Value
Computers, furniture and fixtures
$
91,909

 
$
(64,030
)
 
$
27,879

 
$
87,213

 
$
(62,901
)
 
$
24,312

Leasehold improvements
91,601

 
(41,103
)
 
50,498

 
72,898

 
(33,653
)
 
39,245

  
$
183,510

 
$
(105,133
)
 
$
78,377

 
$
160,111

 
$
(96,554
)
 
$
63,557

At December 31, 2016 and 2015, included in fixed assets are assets under capital lease obligations with a cost of $1,967 and $1,959 , respectively, and accumulated depreciation of $1,316 and  $1,378 , respectively. Depreciation expense for the years ended December 31, 2016 , 2015 , and 2014 was $22,293 , $18,871 and $16,462 , respectively.
6. Accruals and Other Liabilities
At December 31, 2016 and 2015 , accruals and other liabilities included accrued media of $201,872 and $187,540 , respectively; and amounts due to noncontrolling interest holders for their share of profits, which will be distributed within the next twelve months, of $4,154 and $5,473 , respectively.
Changes in noncontrolling interest amounts included in accrued and other liabilities for the three years ended December 31, were as follows:
 
Noncontrolling Interests
Balance at December 31, 2013
$
5,210

Income attributable to noncontrolling interests
6,890

Distributions made
(6,523
)
Other (1)
437

Balance at December 31, 2014
$
6,014

Income attributable to noncontrolling interests
9,054

Distributions made
(9,503
)
Other (1)
(92
)
Balance at December 31, 2015
$
5,473

Income attributable to noncontrolling interests
5,218

Distributions made
(7,772
)
Other (1)
1,235

Balance at December 31, 2016
$
4,154

(1)
Other consists primarily of business acquisitions, sale of a business, step-up transactions, and cumulative translation adjustments.
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. Deferred acquisition consideration is recorded at fair value. The revolving credit agreement is a variable rate debt, the carrying value of which approximates fair value. The Company’s notes are a fixed rate debt instrument recorded at the carrying value. See Note 13 for the 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.

71

MDC PARTNERS INC.
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:
Goodwill
Reportable Segment
 
All Other
 
Total
Balance at December 31, 2014
$
660,793

 
$
190,580

 
$
851,373

Acquired goodwill
6,253

 
37,401

 
43,654

Acquisition purchase price adjustments
(1,744
)
 
(684
)
 
(2,428
)
Foreign currency translation
(10,263
)
 
(12,035
)
 
(22,298
)
Balance at December 31, 2015
$
655,039

 
$
215,262

 
$
870,301

Acquired goodwill
24,778

 

 
24,778

Disposition

 
(764
)
 
(764
)
Impairment loss recognized

 
(48,524
)
 
(48,524
)
Foreign currency translation
(2,973
)
 
1,941

 
(1,032
)
Balance at December 31, 2016
$
676,844

 
$
167,915

 
$
844,759

 
 
For the Year Ended December 31,
Intangible Assets
 
2016
 
2015
Trademarks (indefinite life)
 
$
17,780

 
$
17,780

Customer relationships – gross
 
$
121,408

 
$
135,919

Less accumulated amortization
 
(80,432
)
 
(97,604
)
Customer relationships – net
 
$
40,976

 
$
38,315

Other intangibles – gross
 
$
43,656

 
$
33,638

Less accumulated amortization
 
(17,341
)
 
(17,351
)
Other intangibles – net
 
$
26,315

 
$
16,287

Total intangible assets
 
$
182,844

 
$
187,337

Less accumulated amortization
 
(97,773
)
 
(114,955
)
Total intangible assets – net
 
$
85,071

 
$
72,382

The results of the annual goodwill impairment test performed as of October 1, 2015, indicated fair values in excess of carrying amounts for each of the Company’s reporting units. The Company noted no significant events or conditions during the first and second quarter of 2016 that would have affected the conclusions from the annual assessment.
During the third quarter of 2016, the Company changed its operating segments, as a result of the management structure change as discussed in Note 14, which resulted in a corresponding change to the Company’s reporting units. The Company performed interim goodwill testing on one of its experiential reporting units and one non-material reporting unit, resulting in a partial impairment of goodwill of $27,893 and $1,738 relating to the experiential reporting unit and non-material reporting unit, respectively. Additionally, as a result of the annual goodwill impairment test performed as of October 1, 2016, the Company recognized a partial impairment of goodwill of $18,893 relating to one of the Company’s strategic communications reporting units. See Note 2 for further information.
The total accumulated goodwill impairment charges are $95,407 through December 31, 2016 . During the year for 2016, the Company wrote off goodwill of $764 related to the sale of its ownership interests in Bryan Mills to the noncontrolling shareholders. This write off is included in other income (expense).
The weighted average amortization periods for customer relationships are six years and other intangible assets are eight years . In total, the weighted average amortization period is seven years . Amortization expense related to amortizable intangible assets for the years ended December 31, 2016 , 2015 , and 2014 was $21,726 $30,024 , and $29,749 , respectively.

72

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


The estimated amortization expense for the five succeeding years is as follows:
Year
 
Amortization
2017
 
$
16,677

2018
 
$
11,525

2019
 
$
7,346

2020
 
$
4,999

2021
 
$
3,411

9. Income Taxes
The components of the Company’s income (loss) from continuing operations before income taxes and equity in earnings of non-consolidated affiliates by taxing jurisdiction for the years ended December 31, were:
 
2016
 
2015
 
2014
Income (Loss):
  

 
  

 
  

U.S.
$
(16,661
)
 
$
23,180

 
$
46,728

Non-U.S.
(33,055
)
 
(40,596
)
 
(31,619
)
  
$
(49,716
)
 
$
(17,416
)
 
$
15,109

The provision (benefit) for income taxes by taxing jurisdiction for the years ended December 31, were:
 
2016
 
2015
 
2014
Current tax provision
  

 
  

 
  

U.S. federal
$

 
$

 
$

U.S. state and local
(1,520
)
 
1,375

 
907

Non-U.S.
2,154

 
2,465

 
552

  
634

 
3,840

 
1,459

Deferred tax provision (benefit):
  

 
  

 
  

U.S. federal
7,624

 
6,944

 
13,402

U.S. state and local
(3,286
)
 
3,195

 
1,971

Non-U.S.
(12,273
)
 
(8,315
)
 
(4,410
)
  
(7,935
)
 
1,824

 
10,963

Income tax provision (benefit)
$
(7,301
)
 
$
5,664

 
$
12,422


73

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
9. Income Taxes – (continued)

A reconciliation of income tax expense (benefit) 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:
 
2016
 
2015
 
2014
Income (loss) from continuing operations before income taxes, equity in non-consolidated affiliates and noncontrolling interest
$
(49,716
)
 
$
(17,416
)
 
$
15,109

Statutory income tax rate
26.5
%
 
26.5
 %
 
26.5
%
Tax expense (benefit) using statutory income tax rate
(13,175
)
 
(4,615
)
 
4,004

State and foreign taxes
(94
)
 
3,524

 
1,459

Non-deductible stock-based compensation
4,060

 
3,354

 
1,982

Other non-deductible expense
(1,170
)
 
(2,102
)
 
2,151

Change to valuation allowance on items affecting taxable income
8,707

 
5,468

 
2,003

Effect of the difference in federal and statutory rates
(4,579
)

1,906


2,222

Noncontrolling interests
(1,287
)
 
(2,399
)
 
(1,826
)
Other, net
237

 
528

 
427

Income tax expense (benefit)
$
(7,301
)
 
$
5,664

 
$
12,422

Effective income tax rate
14.7
%
 
(32.5
)%
 
82.2
%
The 2016 effective income tax rate was lower than the statutory rate due primarily to non-deductible stock-based compensation of $4,060 , an increase in the valuation allowance of $8,707 , and the effect of the difference in the U.S. and foreign federal rates and the Canadian statutory rate of $(4,579) . All of this resulted in a lower tax benefit.
The 2015 effective income tax rate was higher than the statutory rate due primarily to non-deductible stock-based compensation of $3,354 and an increase in the valuation allowance of $5,468 , and the effect of the difference in the U.S. and foreign federal rates and the Canadian statutory rate of $1,906 . All of this resulted in a tax expense verses a tax benefit.
The 2014 effective income tax rate was higher than the statutory rate due primarily to non-deductible stock-based compensation of $1,982 , an increase in the valuation allowance of $2,003 , and the effect of the difference in the U.S. and foreign federal rates and the Canadian statutory rate of $2,222 .
Income taxes receivable were $1,506 and $615 at December 31, 2016 and 2015 , respectively, and were included in other current assets on the balance sheet. Income taxes payable were $4,547 and $7,019 at December 31, 2016 and 2015 , 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.

74

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except 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:
 
2016
 
2015
Deferred tax assets:
  

 
  

Capital assets and other
$
41,443

 
$
43,031

Net operating loss carry forwards
41,989

 
37,490

Interest deductions
17,227

 
17,347

Refinancing charge
7,413

 
144

Deferred acquisition consideration
26,203

 
16,197

Stock compensation
2,581

 
3,033

Pension plan
5,095

 
3,770

Unrealized foreign exchange
15,237

 
15,548

Capital loss carry forwards
10,957

 
10,630

Accounting reserves
7,138

 
6,701

Gross deferred tax asset
175,283

 
153,891

Less: valuation allowance
(133,490
)
 
(124,143
)
Net deferred tax assets
41,793

 
29,748

Deferred tax liabilities:
  

 
  

Deferred finance charges
(333
)
 
(323
)
Capital assets and other
(388
)
 
(797
)
Goodwill amortization
(102,722
)
 
(91,724
)
Total deferred tax liabilities
(103,443
)
 
(92,844
)
Net deferred tax asset (liability)
$
(61,650
)
 
$
(63,096
)
Disclosed as:
  

 
  

Deferred tax assets
$
41,793

 
$
29,748

Deferred tax liabilities
(103,443
)
 
(92,844
)
  
$
(61,650
)
 
$
(63,096
)
The Company has U.S. federal net operating loss carry forwards of $21,339 and non-U.S. net operating loss carry forwards of $70,517 . These carry forwards expire in years 2016 through 2031 . The Company also has total indefinite loss carry forwards of $118,413 . These indefinite loss carry forwards consist of $35,723 relating to the U.S. and $82,691 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 $188,367 .
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 U.S., non-U.S. and state deferred tax assets. The increase in the Company’s valuation allowance charged to the statement of operations for each of the years ended December 31, 2016 , 2015 and 2014 was $8,707 , $5,468 and $2,003 , respectively. In addition, a benefit of $1,112 has been recorded in accumulated other comprehensive loss relating to the defined pension plan for the years ended December 31, 2014. There was no benefit or expense related to the defined pension plan recorded in 2015 and 2016.

75

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
9. Income Taxes – (continued)

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.
As of December 31, 2016 and 2015 , the Company recorded a liability for unrecognized tax benefits as well as applicable penalties and interest in the amount of $1,543 and $4,200 . As of December 31, 2016 and 2015 , accrued penalties and interest included in unrecognized tax benefits were approximately $78 and $595 . The Company identified an uncertainty relating to the future tax deductibility of certain intercompany fees. 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. If these unrecognized tax benefits were to be recognized, it would affect the Company’s effective tax rate.
Changes in the Company’s reserve is as follows:
 
Balance at December 31, 2013
$
3,073

Charges to income tax expense

Balance at December 31, 2014
3,073

Charges to income tax expense
960

   Settlement of uncertainty
(428
)
Balance at December 31, 2015
3,605

Charges to income tax expense
(1,261
)
Settlement of uncertainty
(879
)
Balance at December 31, 2016
$
1,465

The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months .
The Company has completed U.S. federal tax audits through 2013 and has completed a non-U.S. tax audit through 2009.
10. Discontinued Operations
In the fourth quarter of 2014, the Company made the decision to strategically sell the net assets of Accent. Effective May 31, 2015, the Company completed the sale of Accent for an aggregate selling price of $17,102 , net of transaction expenses. There were no discontinued operations for the year ended December 31, 2016.
Included in discontinued operations in the Company’s consolidated statements of operations for the years ended December 31, 2015 and 2014 were the following:
 
Years Ended December 31,
  
 
2015
 
2014
Revenue
 
$
27,025

 
$
70,041

Operating loss
 
(322
)
 
(4,704
)
Other expense
 
(752
)
 
(458
)
Loss on disposal
 
(5,207
)
 
(16,098
)
Net loss from discontinued operations
 
$
(6,281
)
 
$
(21,260
)
For the year ended December 31, 2014, the loss on disposal included a goodwill write off of $15,564 .
At December 31, 2016 and 2015, the Company had no assets held for sale.

76

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

11. Debt
As of December 31, the Company’s indebtedness was comprised as follows:
 
2016
 
2015
Revolving credit facility
$
54,425

 
$

6.50% Notes due 2024
900,000

 

6.75% Notes due 2020

 
735,000

Original issue premium

 
5,838

Debt issuance costs
(18,420
)
 
(12,625
)
  
936,005

 
728,213

Obligations under capital leases
431

 
670

  
936,436

 
728,883

Less:
 
 
  

Current portion
228

 
470

  
$
936,208

 
$
728,413

Interest expense related to long-term debt for the years ended December 31, 2016 , 2015 , and 2014 was $56,468 , $53,090 and $50,832 , respectively. For the year ended December 31, 2016 , the Company recorded a charge for the loss on redemption of the 6.75% Notes of $33,298 , which included accrued interest, related premiums, fees and expenses, write offs of unamortized original issue premium, and unamortized debt issuance costs. For the years ended December 31, 2016 , 2015 , and 2014 , interest expense included income of $312 , $1,178 , $975 , related to the amortization of the original issue premium. For the years ended December 31, 2016 , 2015 , and 2014 , interest expense included $255 , $2,543 and $2,186 , respectively, of present value adjustments for fixed deferred acquisition payments.
The amortization of deferred finance costs included in interest expense were $3,022 , $3,448 and $3,222 for the years ended December 31, 2016 , 2015 , and 2014 , respectively.
6.50% Senior Notes
On March 23, 2016, MDC entered into an indenture (the “Indenture”) among MDC, its existing and future restricted subsidiaries that guarantee, or are co-borrowers under or grant liens to secure, the Credit Agreement, as guarantors (the “Guarantors”) and The Bank of New York Mellon, as trustee, relating to the issuance by MDC of $900,000 aggregate principal amount of the 6.50% Notes. The 6.50% Notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of 1933. The 6.50% Notes bear interest at a rate of 6.50% per annum, accruing from March 23, 2016. Interest is payable semiannually in arrears on May 1 and November 1 of each year, beginning November 1, 2016. The 6.50% Notes mature on May 1, 2024, unless earlier redeemed or repurchased. The Company received net proceeds from the offering of the 6.50% Notes equal to approximately $880,000 . The Company used the net proceeds to redeem all of its existing 6.75% Notes, together with accrued interest, related premiums, fees and expenses and recorded a charge for the loss on redemption of such notes of $33,298 , including write offs of unamortized original issue premium and debt issuance costs. Remaining proceeds were used for general corporate purposes, including funding of deferred acquisition consideration.
The 6.50% Notes are guaranteed on a senior unsecured basis by all of MDC’s existing and future restricted subsidiaries that guarantee, or are co-borrowers under or grant liens to secure, the Credit Agreement. The 6.50% Notes are unsecured and unsubordinated obligations of MDC and rank (i) equally in right of payment with all of MDC’s or any Guarantor’s existing and future senior indebtedness, (ii) senior in right of payment to MDC’s or any Guarantor’s existing and future subordinated indebtedness, (iii) effectively subordinated to all of MDC’s or any Guarantor’s existing and future secured indebtedness to the extent of the collateral securing such indebtedness, including the Credit Agreement, and (iv) structurally subordinated to all existing and future liabilities of MDC’s subsidiaries that are not Guarantors.
MDC may, at its option, redeem the 6.50% Notes in whole at any time or in part from time to time, on and after May 1, 2019 (i) at a redemption price of 104.875% of the principal amount thereof if redeemed during the twelve-month period beginning on May 1, 2019 , (ii) at a redemption price of 103.250% of the principal amount thereof if redeemed during the twelve-month period beginning on May 1, 2020 , (iii) at a redemption price of 101.625% of the principal amount thereof if redeemed during the twelve-

77

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
11. Debt – (continued)

month period beginning on May 1, 2021 , and (iv) at a redemption price of 100% of the principal amount thereof if redeemed on May 1, 2022 and thereafter.
Prior to May 1, 2019 , MDC may, at its option, redeem some or all of the 6.50% Notes at a price equal to 100% of the principal amount of the 6.50% Notes plus a “make whole” premium and accrued and unpaid interest. MDC may also redeem, at its option, prior to May 1, 2019 , up to 35% of the 6.50% Notes with the proceeds from one or more equity offerings at a redemption price of 106.50% of the principal amount thereof.
If MDC experiences certain kinds of changes of control (as defined in the Indenture), holders of the 6.50% Notes may require MDC to repurchase any 6.50% Notes held by them at a price equal to 101% of the principal amount of the 6.50% Notes plus accrued and unpaid interest. In addition, if MDC sells assets under certain circumstances, it must apply the proceeds from such sale and offer to repurchase the 6.50% Notes at a price equal to 100% of the principal amount plus accrued and unpaid interest.
The Indenture includes covenants that, among other things, restrict MDC’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; create restrictions on the payment of dividends or other amounts from MDC’s restricted subsidiaries; sell assets; enter into transactions with affiliates; create liens; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of MDC’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The 6.50% Notes are also subject to customary events of default, including a cross-payment default and cross-acceleration provision.
Redemption of 6.75% Senior Notes
On March 23, 2016, the Company redeemed the 6.75% Notes in whole at a redemption price of 103.375% of the principal amount thereof with the proceeds from the issuance of the 6.50% Notes.
Credit Agreement
On March 20, 2013, MDC, Maxxcom Inc. (a subsidiary of MDC) and each of their subsidiaries party thereto entered into an amended and restated, $225 million senior secured revolving credit agreement due 2018 (the “Credit Agreement”) with Wells Fargo Capital Finance, LLC, as agent, and the lenders from time to time party thereto. Advances under the Credit Agreement are to be used for working capital and general corporate purposes, in each case pursuant to the terms of the Credit Agreement. Capitalized terms used in this section and not otherwise defined have the meanings set forth in the Credit Agreement.
Effective October 23, 2014, MDC and its subsidiaries entered into an amendment to its Credit Agreement. The amendment: (i) expanded the commitments under the facility by $100 million , from $225 million to $325 million ; (ii) extended the date by an additional eighteen months to September 30, 2019 ; (iii) reduced the base borrowing interest rate by 25 basis points (the applicable margin for borrowing is 1.00% in the case of Base Rate Loans and 1.75% in the case of LIBOR Rate Loans) ; and (iv) modified certain covenants to provide the Company with increased flexibility to fund its continued growth and other general corporate purposes.
Effective May 3, 2016, MDC and its subsidiaries entered into an additional amendment to its Credit Agreement. The amendment: (i) extends the date by an additional nineteen months to May 3, 2021 ; (ii) reduces the base borrowing interest rate by 25 basis points; (iii) provides the Company the ability to borrow in foreign currencies; and (iv) certain other modifications to provide additional flexibility in operating the Company’s business.
Advances under the Credit Agreement 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 1.00% in the case of Base Rate Loans and 1.75% in the case of LIBOR Rate Loans. In addition to paying interest on outstanding principal under the Credit Agreement, MDC is required to pay an unused revolver fee to lenders under the Credit Agreement in respect of unused commitments thereunder.
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 the covenants over the next twelve months. At December 31, 2016 , there were $54,425 of borrowings under the Credit Agreement.
At December 31, 2016 , the Company had issued $4,360 of undrawn letters of credit.
At December 31, 2016 and 2015 , accounts payable included $80,193 and $73,558 , respectively, of outstanding checks.

78

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
11. Debt – (continued)

Future Principal Repayments
Future principal repayments, including capital lease obligations, for the years ended December 31, and in aggregate, are as follows:
 
 
 
Period
 
Amount
2016
 
$
228

2017
 
91

2018
 
86

2019
 
22

2020
 
54,429

2021 and thereafter
 
900,000

  
 
$
954,856

Capital Leases
Future minimum capital lease payments for the years ended December 31 and in aggregate, are as follows:
Period
 
Amount
2016
 
$
248

2017
 
102

2018
 
93

2019
 
23

2020
 
5

2021 and thereafter
 

  
 
471

Less: imputed interest
 
(40
)
  
 
431

Less: current portion
 
(228
)
  
 
$
203

12. Share Capital
The authorized share capital of the Company is as follows:
(a) Authorized Share Capital
Class A Shares
An unlimited number of 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.

79

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
12. Share Capital – (continued)

(b) 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 3,000,000 shares of MDC Partners’ Class A Subordinate Voting Shares or any other security into 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 3,750,000 to be added to the 2005 Incentive Plan for a total of 6,750,000 authorized 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 (the “SARS” Plan”). On May 30, 2008, the Company’s shareholders approved the 2008 Key Partner Incentive Plan, which provides for the issuance of 900,000 Class A Shares. On June 1, 2011, the Company’s shareholders approved the 2011 Stock Incentive Plan, which provides for the issuance of up to 3,000,000 Class A Shares. In June 2013, the Company's shareholders approved an amendment to the SARS Plan to permit the Company to issue shares authorized under the SARS Plan to satisfy the grant and vesting awards under the 2011 Stock Incentive Plan. On June 1, 2016, the Company's shareholders approved the 2016 Stock Incentive Plan, which provides for the issuance of up to 1,500,000 Class A shares.
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, 2008 Key Partner Incentive Plan, 2011 Stock Incentive Plan and 2016 Stock Incentive Plan:
 
Performance Based Awards
 
Time Based Awards
  
Shares
 
Weighted Average Grant Date Fair
Value
 
Shares
 
Weighted Average
Grant Date
Fair Value
Balance at December 31, 2013
462,666

 
$
9.79

 
913,788

 
$
12.54

Granted
120,578

 
25.09

 
293,705

 
21.99

Vested
(497,214
)
 
9.62

 
(264,478
)
 
10.88

Forfeited

 

 
(26,874
)
 
11.52

Balance at December 31, 2014
86,030

 
$
23.14

 
916,141

 
$
16.36

Granted
80,000

 
21.76

 
191,155

 
20.42

Vested
(68,067
)
 
25.21

 
(297,794
)
 
12.35

Forfeited

 

 
(35,000
)
 
21.69

Balance at December 31, 2015
97,963

 
$
19.61

 
774,502

 
$
18.71

Granted
10,000

 
14.00

 
392,500

 
12.53

Vested
(17,963
)
 
10.02

 
(380,367
)
 
16.02

Forfeited

 

 
(46,000
)
 
20.39

Balance at December 31, 2016
90,000

 
$
20.90

 
740,635

 
$
16.71

The total fair value of restricted stock and restricted stock unit awards, which vested during the years ended December 31, 2016 , 2015 and 2014 was $6,272 , $5,394 and $7,659 , respectively. In connection with the vesting of these awards, the Company included in the taxable loss the amounts of $5,429 , $4,678 and $11,874 in 2016 , 2015 and 2014 , respectively. At December 31, 2016 , the weighted average remaining contractual life for performance based awards was 1.87 years and for time based awards was 1.65 years. At December 31, 2016 , the fair value of all restricted stock and restricted stock unit awards was $5,441 . The term of these awards is three years with vesting up to three years . At December 31, 2016 , the unrecognized compensation expense for these awards was $7,105 and will be recognized through 2019. At December 31, 2016 , there were 1,934,861 awards available to grant under all equity plans.
In addition, the Company awarded restricted stock and restricted stock unit awards of which 523,321 awarded shares were outstanding as of December 31, 2016 . The vesting of these awards are contingent upon the Company meeting a cumulative three year earnings target and continued employment through the vesting date. Once the Company defines the earnings target, the grant date is established and the Company will record the compensation expense over the vesting period.
Prior to adoption of the 2005 Incentive Plan, the Company’s Prior 2003 Plan provided for grants of up to 2,836,179 options to employees, officers, directors and consultants of the Company. All the options granted were for a term of five years from the

80

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
12. Share Capital – (continued)

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 802,440 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.
Information related to share option transactions grant under all plans over the past three years is summarized as follows:
 
Options Outstanding
 
Options Exercisable
 
Non Vested Options
  
Number Outstanding
 
Weighted Average
Price per
Share
 
Number Outstanding
 
Weighted Average
Price per
Share
 
 
Balance at December 31, 2013
112,500

 
$
6.03

 
112,500

 
$
6.03

 

Vested

 

 
  

 
  

 

Granted

 

 
  

 
  

 

Exercised

 

 
  

 
  

 

Expired and cancelled

 

 
  

 
  

 

Balance at December 31, 2014
112,500

 
$
5.70

 
112,500

 
$
5.70

 

Vested

 

 
  

 
  

 

Granted

 

 
  

 
  

 

Exercised
37,500

 
4.72

 
  

 
  

 

Expired and cancelled

 

 
  

 
  

 

Balance at December 31, 2015
75,000

 
$
5.28

 
75,000

 
$
5.28

 

Vested

 

 
  

 
  

 

Granted

 

 
  

 
  

 

Exercised
37,500

 
5.97

 
  

 
  

 

Expired and cancelled

 

 
  

 
  

 

Balance at December 31, 2016
37,500

 
$
5.83

 
37,500

 
$
5.83

 

At December 31, 2016 , the intrinsic value of vested options and the intrinsic value of all options was $27 . For options exercised during 2016 , 2015 and 2014 , the Company received cash proceeds of nil , $224 and nil , respectively. The Company did not receive any windfall tax benefits. The intrinsic value of options exercised during 2016 , 2015 and 2014 was $471 , $471 and nil , respectively. At December 31, 2016 , the weighted average remaining contractual life of all outstanding options was 0.5 years and for all vested options was 0.5 years. At December 31, 2016 , the unrecognized compensation expense of all options was nil .
Share options outstanding as of December 31, 2016 are summarized as follows:
 
 
Options Outstanding
 
Options Exercisable
Exercise Price
 
Outstanding Number
 
Weighted Average Contractual
Life
 
Weighted Average
Price per
Share
 
Exercisable Number
 
Weighted Average
Price per
Share
 
Weighted Average Contractual
Life
$5.83
 
37,500

 
0.50
 
$
5.83

 
37,500

 
$
5.83

 
0.50
The Company has reserved a total of 2,753,496 Class A shares in order to meet its obligations under various conversion rights, warrants and employee share related plans. At December 31, 2016 there were 781,135 shares available for future option and similar grants.

81

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


13. Fair Value Measurements
 Authoritative guidance for fair value establishes a framework for measuring fair value. 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.
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.
Financial Liabilities Measured at Fair Value on a Recurring Basis
The following tables present certain information for our financial assets that is measured at fair value on a recurring basis at December 31:
 
Level 1 2016
 
Level 1 2015
  
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Liabilities:
  

 
  

 
  

 
  

6.50% Senior Notes due 2024
900,000

 
812,250

 

 

6.75% Senior Notes due 2020

 

 
740,838

 
765,319

Our long-term debt includes fixed rate debt. The fair value of this instrument is based on quoted market prices.

82

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
13. Fair Value Measurements – (continued)

The following table presents changes in deferred acquisition consideration for the years ended December 31:
 
Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
  
2016
 
2015
Beginning balance of contingent payments
$
306,734

 
$
172,227

Payments (1)
(105,169
)
 
(77,301
)
Additions (2)
16,132

 
174,530

Redemption value adjustments (3)
13,930

 
41,636

Other (4)
(6,412
)
 

Foreign translation adjustment
(461
)
 
(4,358
)
Ending balance of contingent payments
$
224,754

 
$
306,734

(1)
For the year ended December 31, 2016, payments include $10,458 of deferred acquisition consideration settled through the issuance of 691,559 MDC Class A subordinate voting shares in lieu of cash.
(2)
Additions are the initial estimated deferred acquisition payments of new acquisitions and step-up transactions completed within that fiscal period.
(3)
Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments, including the accretion of present value and stock-based compensation charges relating to acquisition payments that are tied to continued employment.
(4)
Other is comprised of (i) $2,360 transfered to shares to be issued related to 100,000 MDC Class A subordinate voting shares to be issued contingent on specific thresholds of future earnings that management expects to be attained; and, (ii) $4,052 of contingent payments eliminated through the acquisition of incremental ownership interests. See Note 4.
In addition to the above amounts, there are fixed payments of $4,810 and $40,370 for total deferred acquisition consideration of $229,564 and $347,104 , which reconciles to the consolidated balance sheets at December 31, 2016 and 2015 , respectively.
The Company includes the payments of all deferred acquisition consideration in financing activities in the Company’s consolidated statement of cash flows, as the Company believes these payments to be seller-related financing activities, which is the predominant source of cash flows. The FASB recently issued new guidance regarding the classification of cash flows for contingent consideration that is effective January 1, 2018. See Note 17 for further information.
Level 3 payments relate to payments made for deferred acquisition consideration. Level 3 grants relate to contingent purchase price obligations related to acquisitions and are recorded on the balance sheet at the acquisition date fair value. The estimated liability is determined in accordance with various contractual valuation formulas that may be dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and, in some cases, the currency exchange rate as of the date of payment. Level 3 redemption value adjustments relate to the remeasurement and change in these various contractual valuation formulas as well as adjustments of present value.
 At December 31, 2016 and 2015 , the carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximated fair value because of their short-term maturity. The Company does not disclose the fair value for equity method investments or investments held at cost as it is not practical to estimate fair value since there is no readily available market data.
Non-financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
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

83

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
13. Fair Value Measurements – (continued)

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 3 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.
14. Segment Information
The Company determines an operating segment if a component (1) engages in business activities from which it earns revenues and incurs expenses, (2) has discrete financial information and that is (3) regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions regarding resource allocation for the segment and assess its performance. During June of 2016, the Company entered into a Separation and Release Agreement with its former Chief Operating Officer in connection with a limited restructuring of the Company’s corporate department. This change to the Company’s management structure was designed to provide the CODM greater visibility into the operating performance of individual Partner Firms and has resulted in a corresponding change in the level at which the CODM reviews the operating results of such Partner Firms. As a result, in the third quarter of 2016, the Company reassessed its determination of operating segments and concluded that each Partner Firm represents an operating segment. The Company assessed the average long-term gross margins expected for each Partner Firm together with the qualitative characteristics set forth in ASC 280-10-50 and aggregated the Partner Firms that meet the aggregation criteria into one Reportable segment and combined and disclosed those Partner Firms that do not meet the aggregation criteria as an “all other” segment. The Company also reports the Corporate Group.
The Reportable segment is comprised of the Company’s integrated advertising, media, and public relations service firms. These core or principal service offerings are similar and/or complementary in many respects and the firms that provide these service offerings both compete and/or collaborate with each other for new business. Each Partner Firm represents an operating segment and the Company aggregates its Partner Firms to report in one Reportable segment along with an “all other” segment. Firms within this segment include Allison & Partners, Anomaly, Crispin Porter + Bogusky, Doner, Forsman & Bodenfors, Hunter PR, kbs, MDC Media Partners, and 72andSunny, among others. These firms share similar characteristics related to the nature of their services as well as the type of clients and the methods used to provide their services. In addition, the class of customer is also common among the Partner Firms in this Reportable segment. This results in the firms having similar economics of their business and the Company believes the average long-term gross margin expectations are similar among the firms aggregated in the Reportable segment.
The “all other” segment is comprised of the firms that provide the Company’s specialist marketing offerings such as direct marketing, sales promotion, market research, strategic communications, database and customer relationship management, data analytics and insights, corporate identity, design and branding, and product and service innovation. Firms within this segment include Gale Partners, Kingsdale, Relevent, Team, Redscout and Y Media Labs. The nature of the specialized services provided by these firms vary from those firms aggregated into the Reportable segment in that such services are generally complimentary and are provided to round out the portfolio of services offered by the Company. This results in these firms having different current and long-term performance expectations from those firms aggregated in the Reportable segment.
The Corporate Group consists of corporate office expenses incurred in connection with the strategic resources provided to the Partner Firms, as well as certain other centrally managed expenses that are not fully allocated to the Reportable segments. These office and general expenses include (1) salaries and related expenses for corporate office employees including employees dedicated to supporting the Partner Firms, (2) occupancy expense relating to properties occupied by all corporate office employees, (3) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (4) certain other professional fees managed by the corporate office. Additional expenses managed by the corporate office that are directly related to the Partner Firms are allocated to the Reportable and “all other” segments.
Prior year results have been recast to reflect the new segment reporting.

84

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
14. Segment Information – (continued)


 
For the year ended December 31, 2016
  
Reportable Segment
 
All Other
 
Corporate
 
Total
Revenue
$
1,147,173

 
238,612

 

 
1,385,785

Cost of services sold
775,129

 
161,004

 

 
936,133

Office and general expenses
223,823

 
39,895

 
42,533

 
306,251

Depreciation and amortization
33,848

 
11,013

 
1,585

 
46,446

Goodwill impairment

 
48,524

 

 
48,524

Operating profit (loss)
114,373

 
(21,824
)
 
(44,118
)
 
48,431

Other Income (Expense):
  

 
 
 
  

 
  

Other income, net
  

 
 
 
  

 
414

Foreign exchange loss
  

 
 
 
  

 
(213
)
Interest expense, finance charges, and loss on redemption of notes, net
 
 
 
 
 
 
(98,348
)
Loss from continuing operations before income taxes and equity in earnings of non-consolidated affiliates
  

 
 
 
  

 
(49,716
)
Income tax benefit
 
 
 
 
 
 
(7,301
)
Loss from continuing operations before equity in earnings of non-consolidated affiliates
  

 
 
 
  

 
(42,415
)
Equity in losses of non-consolidated affiliates
 
 
 
 
 
 
(309
)
Net loss
  

 
 
 
  

 
(42,724
)
Net income attributable to noncontrolling interests
(3,676
)
 
(1,542
)
 

 
(5,218
)
Net loss attributable to MDC Partners Inc.
 
 
 
 
 
 
(47,942
)
Stock-based compensation
$
14,143

 
$
4,335

 
$
2,525

 
$
21,003

Capital expenditures from continuing operations
$
26,856

 
$
2,543

 
$
33

 
$
29,432

Goodwill and intangibles
$
742,454

 
$
187,376

 
$

 
$
929,830

Total assets
$
1,150,318

 
$
266,316

 
$
160,744

 
$
1,577,378


85

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
14. Segment Information – (continued)


 
For the year ended December 31, 2015
  
Reportable Segment
 
All other
 
Corporate
 
Total
Revenue
$
1,101,675

 
$
224,581

 
$

 
$
1,326,256

Cost of services sold
724,749

 
154,967

 

 
879,716

Office and general expenses
208,837

 
49,972

 
63,398

 
322,207

Depreciation and amortization
32,501

 
17,948

 
1,774

 
52,223

Operating profit (loss)
135,588

 
1,694

 
(65,172
)
 
72,110

Other Income (Expense):
 
 
 
 
 
 
 
Other income, net
 
 
 
 
 
 
7,238

Foreign exchange loss
 
 
 
 
 
 
(39,328
)
Interest expense and finance charges, net
 
 
 
 
 
 
(57,436
)
Loss from continuing operations before income taxes and equity in earnings of non-consolidated affiliates
 
 
 
 
 
 
(17,416
)
Income tax expense
 
 
 
 
 
 
5,664

Loss from continuing operations before equity in earnings of non-consolidated affiliates
 
 
 
 
 
 
(23,080
)
Equity in earnings of non-consolidated affiliates
 
 
 
 
 
 
1,058

Loss from continuing operations
 
 
 
 
 
 
(22,022
)
Loss from discontinued operations attributable to MDC Partners Inc., net of taxes
 
 
 
 
 
 
(6,281
)
Net loss
 
 
 
 
 
 
(28,303
)
Net income attributable to noncontrolling interests
(7,202
)
 
(1,822
)
 
(30
)
 
(9,054
)
Net loss attributable to MDC Partners Inc.
 
 
 
 
 
 
$
(37,357
)
Stock-based compensation
$
10,231

 
$
4,825

 
$
2,740

 
$
17,796

Capital expenditures from continuing operations
$
21,434

 
$
1,770

 
$
371

 
$
23,575

Goodwill and intangibles
$
699,730

 
$
242,953

 
$

 
$
942,683

Total assets
$
1,057,512

 
$
317,861

 
$
202,252

 
$
1,577,625


86

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
14. Segment Information – (continued)


 
For the year ended December 31, 2014
  
Reportable Segment
 
All other
 
Corporate
 
Total
Revenue
$
991,245

 
$
232,267

 
$

 
$
1,223,512

Cost of services sold
631,635

 
166,883

 

 
798,518

Office and general expenses
188,757

 
35,024

 
66,292

 
290,073

Depreciation and amortization
30,631

 
14,756

 
1,785

 
47,172

Operating profit (loss)
140,222

 
15,604

 
(68,077
)
 
87,749

Other Income (Expense):
 
 
 
 
 
 
 
Other income, net
 
 
 
 
 
 
689

Foreign exchange loss
 
 
 
 
 
 
(18,482
)
Interest expense and finance charges, net
 
 
 
 
 
 
(54,847
)
Income from continuing operations before income taxes and equity in earnings of non-consolidated affiliates
 
 
 
 
 
 
15,109

Income tax expense
 
 
 
 
 
 
12,422

Income from continuing operations before equity in earnings of non-consolidated affiliates
 
 
 
 
 
 
2,687

Equity in earnings of non-consolidated affiliates
 
 
 
 
 
 
1,406

Income from continuing operations
 
 
 
 
 
 
4,093

Loss from discontinued operations attributable to MDC Partners Inc., net of taxes
 
 
 
 
 
 
(21,260
)
Net loss
 
 
 
 
 
 
(17,167
)
Net income attributable to noncontrolling interests
(5,398
)
 
(1,492
)
 

 
(6,890
)
Net loss attributable to MDC Partners Inc.
 
 
 
 
 
 
$
(24,057
)
Stock-based compensation
$
8,559

 
$
3,474

 
$
5,663

 
$
17,696

Capital expenditures from continuing operations
$
23,280

 
$
1,799

 
$
1,337

 
$
26,416

Goodwill and intangibles
$
715,092

 
$
222,402

 
$

 
$
937,494

Total assets
$
1,052,419

 
$
315,717

 
$
280,754

 
$
1,648,890

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
  

 
  

 
  

 
  

2016
$
67,617

 
$
5,887

 
$
4,873

 
$
78,377

2015
$
52,305

 
$
6,817

 
$
4,435

 
$
63,557

Goodwill and Intangible Assets
  

 
  

 
  

 
  

2016
$
736,334

 
$
121,987

 
$
71,509

 
$
929,830

2015
$
798,746

 
$
122,821

 
$
21,116

 
$
942,683


87

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
14. Segment Information – (continued)


A summary of the Company’s revenue as at December 31 is set forth in the following table.
 
United States
 
Canada
 
Other
 
Total
Revenue:
  

 
  

 
  

 
  

2016
$
1,103,714

 
$
124,101

 
$
157,970

 
$
1,385,785

2015
$
1,085,051

 
$
129,039

 
$
112,166

 
$
1,326,256

2014
$
993,474

 
$
150,390

 
$
79,648

 
$
1,223,512

15. Related Party Transactions
Scott L. Kauffman is Chairman and Chief Executive Officer of the Company. His daughter, Sarah Kauffman, has been employed by Partner Firm kbs since July 2011, and currently acts as Director of Operations, Attention Partners. In 2016 and 2015 , her total compensation, including salary, bonus and other benefits, totaled approximately $145 and $125 , respectively. Her compensation is commensurate with that of her peers.
16. 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.
Options to Purchase .  Noncontrolling shareholders in certain subsidiaries have the right in certain circumstances to require the Company to acquire the remaining ownership interests held by them. The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specific employment termination conditions. 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 2017 to 2023 . 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, 2016 perform over the relevant future periods at their trailing twelve-month earnings levels, that these rights, if all exercised, could require the Company to pay an aggregate amount of approximately $12,510 to the owners of such rights in future periods to acquire such ownership interests in the relevant subsidiaries. Of this amount, the Company is entitled, at its option, to fund approximately $124 by the issuance of share capital.
In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $43,085 only upon termination of such owner’s employment with the applicable subsidiary or death.
The amount the Company would be required to pay to the noncontrolling interest holders should the Company acquire the remaining ownership interests is $4,585 less than the initial redemption value recorded in redeemable noncontrolling interests.
Included in redeemable noncontrolling interests at December 31, 2016 was $60,180 of these put options because they are not within the control of the Company. 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 these rights are exercised.
Natural Disasters .  Certain of the Company’s operations are located in regions of the United States which typically are subject to hurricanes. During the years ended December 31, 2016 , 2015 , and 2014 , these operations did not incur any material costs related to damages resulting from hurricanes.
Guarantees .  Generally, the Company has indemnified the purchasers of certain assets 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. 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

88

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
16. Commitments, Contingencies and Guarantees – (continued)

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.
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. In addition, the Company is involved in class action suits as described below.
MDC Partners remains committed to the highest standards of corporate governance and transparency in its reporting practices. In April 2015, the Company announced it was actively cooperating in connection with an SEC investigation of the Company. On January 18, 2017, the Company announced that it reached a final settlement agreement with the Philadelphia Regional Office of the SEC, and that the SEC entered an administrative Order concluding its investigation of the Company.
Under the Order, without admitting or denying liability, the Company agreed that it will not in the future violate Section 17(a)(2) of the Securities Act of 1933 and Sections 13(a), 13(b) and 14(a) of the Securities Exchange Act of 1934 and related rules requiring that periodic filings be accurate; that accurate books and records and a system of internal accounting controls be maintained; and that solicitations of proxies comply with the securities laws. In addition, the Company agreed to comply with all requirements under Regulation G relating to the disclosure and reconciliation of non-GAAP financial measures. Pursuant to the Order, and based upon the Company’s full cooperation with the investigation, the SEC imposed a civil penalty of $1,500 on the Company to resolve all potential claims against the Company relating to these matters. In 2016, the Company recorded a charge of $1,500 related to such penalty. There will be no restatement of any of the Company’s previously-filed financial statements.
On July 31, 2015, North Collier Fire Control and Rescue District Firefighter Pension Plan (“North Collier”) filed a putative class action suit in the Southern District of New York, naming as defendants MDC, CFO David Doft, former CEO Miles Nadal, and former CAO Mike Sabatino. On December 11, 2015, North Collier and co-lead plaintiff Plymouth County Retirement Association filed an amended complaint, adding two additional defendants, Mitchell Gendel and Michael Kirby, a former member of MDC’s Board of Directors. The plaintiff alleges in the amended complaint violations of § 10(b), Rule 10b-5, and § 20 of the Securities Exchange Act of 1934, based on allegedly materially false and misleading statements in the Company’s SEC filings and other public statements regarding executive compensation, goodwill accounting, and the Company’s internal controls. The Company filed a motion to dismiss the amended complaint on February 9, 2016, the lead plaintiffs filed an opposition to that motion on April 8, 2016, and the Company filed a reply brief on May 9, 2016. By order granted on September 30, 2016, the U.S. District Court presiding over the case granted the Company’s motion to dismiss the plaintiffs’ amended complaint in its entirety with prejudice. On November 2, 2016, the lead plaintiffs filed a notice to appeal the U.S. District Court's ruling to the U.S. Court of Appeals for the Second Circuit. On February 21, 2017, the lead plaintiffs voluntarily dismissed their appeal.
On August 7, 2015, Roberto Paniccia issued a Statement of Claim in the Ontario Superior Court of Justice in the City of Brantford, Ontario seeking to certify a class action suit naming the following as defendants: MDC, former CEO Miles S. Nadal, former CAO Michael C. Sabatino, CFO David Doft and BDO U.S.A. LLP. The Plaintiff alleges violations of section 138.1 of the Ontario Securities Act (and equivalent legislation in other Canadian provinces and territories) as well as common law misrepresentation based on allegedly materially false and misleading statements in the Company’s public statements, as well as omitting to disclose material facts with respect to the SEC investigation. The Company intends to continue to vigorously defend this suit. A case management judge has now been appointed but a date for an initial case conference has not yet been set.
One of the Company’s subsidiaries received a subpoena from the U.S. Department of Justice Antitrust Division concerning the Division’s ongoing investigation of production practices in the advertising industry. The Company and its subsidiary are fully cooperating with this confidential investigation.
Commitments .  At December 31, 2016 , the Company had $4,360 of undrawn letters of credit. In addition, the Company has commitments to fund investments in an aggregate amount of $738 .
Leases .  The Company and its subsidiaries lease certain facilities and equipment. For the years ended December 31, 2016 , 2015 , and 2014 , gross premises rental expense amounted to $56,725 , $47,583 , and $42,657 , respectively, which was reduced by sublease income of $3,027 , $1,739 , and $1,449 , respectively. 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.

89

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
16. Commitments, Contingencies and Guarantees – (continued)

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 the years ending December 31, 2017 and thereafter, are as follows:
Period
 
Amount
2017
 
$
57,294

2018
 
55,445

2019
 
51,858

2020
 
49,068

2021
 
43,697

2022 and thereafter
 
134,485

  
 
$
391,847

At December 31, 2016 , the total future cash to be received on sublease income is $11,599 .
17. New Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which eliminates step two from the two-step goodwill impairment test. Under the new guidance, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value provided the loss recognized does not exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019. The Company does not expect the application of this guidance to have a significant impact on its consolidated financial position or results of operations.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows. This new guidance is intended to reduce diversity in practice regarding the classification of certain transactions in the statement of cash flows. This guidance is effective January 1, 2018 and requires a retrospective transition method. Early adoption is permitted. The Company currently classifies all cash outflows for contingent consideration as a financing activity. Upon adoption the Company is required to classify only the original estimated liability as a financing activity and any changes as an operating activity.
In February 2016, the FASB issued ASU 2016-02, which amends the ASC and creates Topic 842, Leases. Topic 842 will require lessees to recognize right-to-use assets and lease liabilities for those leases classified as operating leases under previous U.S. GAAP on the balance sheet. This guidance is effective for annual periods beginning after December 15, 2018 and early adoption is permitted. While not yet in a position to assess the full impact of the application of the new standard, the Company expects that the impact of recording the lease liabilities and the corresponding right-to-use assets will have a significant impact on its total assets and liabilities with a minimal impact on equity.
In January 2016, the FASB issued ASU 2016-01,   Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities which will require equity investments, except equity method investments, to be measured at fair value and any changes in fair value will be recognized in results of operations. This guidance is effective for annual and interim periods beginning after December 15, 2017 and early application is not permitted. Additionally, this guidance provides for the recognition of the cumulative effect of retrospective application of the new standard in the period of initial application. The Company does not expect the application of this guidance to have a significant impact on its consolidated financial position or results of operations.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will replace all existing revenue guidance under U.S GAAP. The core principle of ASU 2014-09 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received in exchange for those goods or services. On July 9, 2015, the FASB approved a one year deferral of the effective date of ASU 2014-09 to all annual and interim periods beginning after December 15, 2017. ASU 2014-09 provides for one of two methods of transition: (i) retrospective application to each prior period presented; or (ii) recognition of the cumulative effect of retrospective application of the new standard as of the beginning of the period of initial application. The Company plans to apply ASU 2014-09 on the effective date of January 1, 2018. Presently, the Company is not yet in a position to conclude on the transition method it will choose. Based on the Company’s initial assessment, the impact of the application of the new standard will likely result in a change in the timing of our revenue recognition for performance incentives received from clients. Performance incentives are currently recognized in revenue when specific quantitative goals are achieved, or when the Company’s performance against qualitative goals is determined by the client. Under

90

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
17. New Accounting Pronouncements – (continued)

the new standard, the Company will be required to estimate the amount of the incentive that will be earned at the inception of the contract and recognize such incentive over the term of the contract. While performance incentives are not material to the Company’s revenue, this will result in an acceleration of revenue recognition for certain contract incentives compared to the current method. Additionally, in certain businesses, the Company records revenue as a principal and includes certain third-party-pass-through and out-of-pocket costs, which are billed to clients in connection with the services provided. In March 2016, the FASB issued further guidance on principal versus agent considerations. The Company is currently evaluating the impact of the principal versus agent guidance on its revenue and cost of services; however, such change is not expected to have a material effect on the Company’s results of operations.
18. Employee Benefit Plans
A subsidiary acquired in 2012 sponsors a defined benefit plan. The benefits under the defined benefit plans are based on each employee’s years of service and compensation. Effective March 1, 2006, the plan was frozen to all new employees. The Company’s policy is to contribute the minimum amounts required by the Employee Retirement Income Security Act of 1974 (ERISA), as amended. The assets of the plans are invested in an investment trust fund and consist of investments in money market funds, bonds and common stock, mutual funds, preferred stock, and partnership interests.
Net periodic pension cost consists of the following components for the years ended December 31:
 
Pension
Benefits
 
Pension
Benefits
  
2016
 
2015
Service cost
$

 
$

Interest cost on benefit obligation
1,855

 
1,864

Expected return on plan assets
(1,863
)
 
(2,069
)
Curtailment and settlements
929

 

Amortization of prior service cost

 

Amortization of actuarial (gains) losses
137

 
103

Net periodic benefit cost (benefit)
$
1,058

 
$
(102
)
ASC 715-30-25 requires an employer to recognize the funded status of its defined pension benefit plan as a net asset or liability in its statement of financial position with an offsetting amount in accumulated other comprehensive income, and to recognize changes in that funded status in the year in which changes occur through comprehensive income.
Other changes in plan assets and benefit obligation recognized in Other Comprehensive Loss consist of the following components for the years ended December 31:
 
Pension
Benefits
 
Pension
Benefits
  
2016
 
2015
Curtailment/settlement
$

 
$

Current year actuarial (gain) loss
3,238

 
526

Amortization of actuarial gain (loss)
(137
)
 
(103
)
Current year prior service (credit) cost

 

Amortization of prior service credit (cost)

 

Amortization of transition asset (obligation)

 

Total recognized in other comprehensive (income) loss
$
3,101

 
$
423

Total recognized in net periodic benefit cost and other comprehensive (income) loss
4,159

 
$
321


91

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
18. Employee Benefit Plans - (continued)

The following table summarizes the change in benefit obligations and fair values of plan assets for the years ended December 31:
 
Pension
Benefits
 
Pension
Benefits
  
2016
 
2015
Change in benefit obligation:
  

 
  

Benefit obligation, Beginning balance
$
40,296

 
$
43,799

Service Cost

 

Interest Cost
1,855

 
1,864

Change in Mortality

 

Plan amendments

 

Curtailment/settlement

 

Actuarial (gains) losses
2,502

 
(2,774
)
Benefits paid
(3,931
)
 
(2,593
)
Benefit obligation, Ending balance
40,722

 
40,296

Change in plan assets:
  

 
  

Fair value of plan assets, Beginning balance
25,190

 
28,360

Actual return on plan assets
198

 
(1,232
)
Employer contributions
3,025

 
655

Benefits paid
(3,931
)
 
(2,593
)
Fair value of plan assets, Ending balance
24,482

 
25,190

Unfunded status
$
16,240

 
$
15,106

Amounts recognized in the balance sheet at December 31 consist of the following:
 
Pension
Benefits
 
Pension
Benefits
  
2016
 
2015
Non-current liability
$
16,240

 
$
15,106

Net amount recognized
$
16,240

 
$
15,106

Amounts recognized, net of tax, in Accumulated Other Comprehensive Loss consists of the following components for the years ended December 31:
 
Pension
Benefits
 
Pension
Benefits
  
2016
 
2015
Accumulated net actuarial losses
$
12,320

 
$
9,219

Accumulated prior service cost

 

Accumulated transition obligation

 

Amount recognized, net of tax
$
12,320

 
$
9,219

The preceding table presents two measures of benefit obligations for the pension plan. Accumulated benefit obligation generally measures the value of benefits earned to date. Projected benefit obligation also includes the effect of assumed future compensation increases for plans in which benefits for prior service are affected by compensation changes. This pension plan has asset values less than these measures. Plan funding amounts are calculated pursuant to ERISA and Internal Revenue Code rules.

92

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
18. Employee Benefit Plans - (continued)

The following weighted average assumptions were used to determine benefit obligations as of December 31:
 
Pension
Benefits
 
Pension
Benefits
  
2016
 
2015
Discount rate
4.32
%
 
4.69
%
Rate of compensation increase
N/A

 
N/A

The discount rate assumptions at December 31, 2016 and 2015 were determined independently. A yield curve was produced for a universe containing the majority of U.S.-issued AA-graded corporate bonds, all of which were non-callable (or callable with make-whole provisions). The discount rate was developed as the level equivalent rate that would produce the same present value as that using spot rates aligned with the projected benefit payments.
The following weighted average assumptions were used to determine net periodic costs at December 31:
 
Pension
Benefits
 
Pension
Benefits
  
2016
 
2015
Discount rate
4.69
%
 
4.38
%
Expected return on plan assets
7.40
%
 
7.40
%
Rate of compensation increase
N/A

 
N/A

The expected return on plan assets is a long-term assumption established by considering historical and anticipated returns of the asset classes invested in by the pension plan and the allocation strategy currently in place among those classes.
Fair Value of Plan Assets
The Defined Benefit plan assets fall into any of three fair value classifications as defined in the FASB ASC Topic 820, Fair Value Measurements. There are no Level 3 assets held by the plan. The fair value of the plan assets as of December 31 is as follows:
 
December 31, 2016
 
Level 1
 
Level 2
 
Level 3
Asset Category:
  

 
  

 
  

 
  

Money Market Fund – Short Term Investments
$
1,687

 
$
1,687

 
$

 
$

Common Stock

 

 

 

Corporate Bonds

 

 

 

Mutual Funds
22,795

 
22,795

 

 

Foreign Stock

 

 

 

Total
$
24,482

 
$
24,482

 
$

 
$

 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
Asset Category:
  

 
  

 
  

 
  

Money Market Fund – Short Term Investments
$
1,580

 
$
145

 
$
1,435

 
$

Common Stock
9,479

 
9,479

 

 

Corporate Bonds
3,834

 

 
3,834

 

Mutual Funds
10,006

 
10,006

 

 

Foreign Stock
291

 
291

 

 

Total
$
25,190

 
$
19,921

 
$
5,269

 
$


93

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
18. Employee Benefit Plans - (continued)

The pension plans weighted-average asset allocation for the years ended December 31, 2016 and 2015 are as follows:
 
Target Allocation
 
Actual Allocation
 
Actual Allocation
  
2016
 
2016
 
2015
Asset Category:
  

 
  

 
  

Equity Securities
68.0
%
 
65.5
%
 
68.0
%
Debt Securities
31.0
%
 
27.6
%
 
25.7
%
Cash/Cash Equivalents and Short Term Investments
1.0
%
 
6.9
%
 
6.3
%
  
100
%
 
100
%
 
100
%
The investment policy for the plans is formulated by the Company’s Pension Plan Committee (the “Committee”). The Committee is responsible for adopting and maintaining the investment policy, managing the investment of plan assets and ensuring that the plans’ investment program is in compliance with all provisions of ERISA, as well as the appointment of any investment manager who is responsible for implementing the plans’ investment process.
The goals of the pension plan investment program are to fully fund the obligation to pay retirement benefits in accordance with the plan documents and to provide returns that, along with appropriate funding from the Company, maintain an asset/liability ratio that is in compliance with all applicable laws and regulations and assures timely payment of retirement benefits.
The Company’s overall investment strategy is to achieve a mix of approximately 50 percent of investments for long-term growth and 50 percent for near-term benefit payments with a wide diversification of asset types and fund strategies.
Equity securities primarily include investments in large-cap and mid-cap companies primarily located in the United States, as well as a smaller percentage invested in large-cap and mid-cap companies located outside of the United States. Fixed income securities are diversified across different asset types with bonds issued in the United States as well as outside the United States.
The target allocation of plan assets is 50 percent equity securities and 50 percent corporate bonds and U.S. Treasury securities.
The Plan invests in various investment securities. The investments are primarily invested in corporate equity and bond securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the preceding tables.
The above tables present information about the pension plan assets measured at fair value at December 31, 2016 and the valuation techniques used by the Company to determine those fair values.
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets that the Plan has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each plan asset.
The net of investment manager fee asset return objective is to achieve a return earned by passively managed market index funds, weighted in the proportions identified in the strategic asset allocation matrix. Each investment manager is expected to perform in the top one-third of funds having similar objectives over a full market cycle.
The investment policy is reviewed by the Committee at least annually and confirmed or amended as needed. Under ASC 715-30-25, the transition obligation, prior service costs, and actuarial (gains)/losses are recognized in Accumulated Other Comprehensive Income each December 31 or any interim measurement date, while amortization of these amounts through net

94

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
18. Employee Benefit Plans - (continued)

periodic benefit cost will occur in accordance with ASC 715-30 and ASC 715-60. The estimated amounts that will be amortized in 2017 are as follows:
 
 
Pension
Benefits
Estimated Amortization:
 
2017
Prior service cost (credit) amortization
 
$

Net loss amortization
 
222

Total
 
$
222

The following estimated benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years ending December 31:
Period
 
Amount
2017
 
$
1,613

2018
 
$
1,762

2019
 
$
1,858

2020
 
$
2,028

2021
 
$
2,020

2022 and thereafter
 
$
11,269

The pension plan contributions are deposited into a trust, and the pension plan benefit payments are made from trust assets.
19. Changes in Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) for the year ended December 31 were:
 
Defined
Benefit
Pension
 
Foreign Currency Translation
 
Total
Balance December 31, 2014
$
(8,796
)
 
$
1,044

 
$
(7,752
)
Other comprehensive income before reclassifications

 
14,432

 
14,432

Amounts reclassified from accumulated other comprehensive income (loss)
(423
)
 

 
(423
)
Other comprehensive income (loss)
$
(423
)
 
$
14,432

 
$
14,009

Balance December 31, 2015
$
(9,219
)
 
$
15,476

 
$
6,257

Other comprehensive income before reclassifications

 
(4,980
)
 
(4,980
)
Amounts reclassified from accumulated other comprehensive income (loss)
(3,101
)
 

 
(3,101
)
Other comprehensive income (loss)
(3,101
)
 
(4,980
)
 
(8,081
)
Balance December 31, 2016
$
(12,320
)
 
$
10,496

 
$
(1,824
)

95

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


Reclassifications for the years ended December 31 were as follows:
 
2016
 
2015
Amortization of defined pension plan:
  

 
 
Prior service cost
$

 
$

Actuarial losses
137

 
103

Net periodic benefit cost
137

 
103

Income tax expense
55

 
41

Net of tax
$
82

 
$
62


96

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


20. Quarterly Results of Operations (Unaudited)
The following table sets forth a summary of the Company’s consolidated unaudited quarterly results of operations for the years ended December 31, in thousands of dollars, except per share amounts.
 
Quarters
 
 
First
 
Second
 
Third
 
Fourth
 
Revenue:
 
 
 
 
 
 
 
 
2016
$
309,042

 
$
337,047

 
$
349,254

 
$
390,442

 
2015
$
302,222

 
$
336,606

 
$
328,415

 
$
359,013

 
Cost of services sold:
 
 
 
 
 
 
 
 
2016
$
211,446

 
$
228,835

 
$
235,659

 
$
260,193

 
2015
$
210,419

 
$
225,042

 
$
212,925

 
$
231,330

 
Income (loss) from continuing operations:
 
 
 
 
 
 
 
 
2016
$
(22,434
)
 
$
2,427

 
$
(32,471
)
 
$
9,754

 
2015
$
(23,417
)
 
$
31,072

 
$
(5,166
)
 
$
(24,511
)
 
Net income (loss) attributable to MDC Partners Inc.:
 
 
 
 
 
 
 
 
2016
$
(23,293
)
 
$
1,173

 
$
(33,530
)
 
$
7,708

 
2015
$
(32,091
)
 
$
29,560

 
$
(8,604
)
 
$
(26,222
)
 
Income (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
 
 
2016
$
(0.47
)
 
$
0.02

 
$
(0.64
)
 
$
0.15

 
2015
$
(0.52
)
 
$
0.57

 
$
(0.15
)
 
$
(0.52
)
 
Net income (loss):
 
 
 
 
 
 
 
 
2016
$
(0.47
)
 
$
0.02

 
$
(0.64
)
 
$
0.15

 
2015
$
(0.65
)
 
$
0.60

 
$
(0.17
)
 
$
(0.52
)
 
Diluted
 
 
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
 
 
2016
$
(0.47
)
 
$
0.02

 
$
(0.64
)
 
$
0.15

(1)  
2015
$
(0.52
)
 
$
0.56

 
$
(0.15
)
 
$
(0.52
)
 
Net income (loss):
 
 
 
 
 
 
 
 
2016
$
(0.47
)
 
$
0.02

 
$
(0.64
)
 
$
0.15

(1)  
2015
$
(0.65
)
 
$
0.59

 
$
(0.17
)
 
$
(0.52
)
 
(1)
The diluted income per share calculation for the fourth quarter of 2016 excludes the Company's option to settle the deferred acquisition consideration in shares related to F&B. If such shares were included, the diluted income per common share would be $0.14 .
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 2016 and 2015 included a foreign exchange loss of $10,081 and $9,531 , respectively.

97

MDC PARTNERS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of United States Dollars, Unless Otherwise Stated Except per Share Amounts)
20. Quarterly Results of Operations (Unaudited) - (continued)



The fourth quarter of 2016 and 2015 included stock-based compensation charges of $5,560 and $4,771 , respectively.
The fourth quarter of 2016 and 2015 included deferred acquisition adjustments of $(9,211) and $41,913 , respectively.
The third and fourth quarter of 2016 included goodwill impairment charges of $29,631 and $18,893 , respectively.
21. Other Events
On January 18, 2017, the Company announced that it reached a final settlement agreement with the Philadelphia Regional Office of the SEC in connection with its prior investigation of the Company, and that the SEC entered an administrative Order concluding its investigation of the Company. Pursuant to the Order, and based upon the Company’s full cooperation with the investigation, the SEC imposed a civil penalty of $1,500 on the Company to resolve all potential claims against the Company relating to these matters. There will be no restatement of any of the Company’s previously-filed financial statements.
In connection with the investigation, Miles Nadal resigned from his position as CEO and as a Director of the Company’s Board of Directors, effective July 20, 2015, and agreed to repay to the Company specified expenses paid by the Company on his behalf and prior cash bonus awards. Specifically, as of December 31, 2015, Mr. Nadal repaid to the Company an aggregate amount equal to  $11,285  in respect of perquisites and improper payments identified by the Special Committee. The Company recorded this amount as a reduction of office and general expenses in 2015. In addition, Mr. Nadal agreed to repay to the Company  $10,582  in connection with amounts required to be repaid pursuant to cash bonus awards previously paid to Mr. Nadal, with such repayments to be made in five installments, with the last to be paid on December 31, 2017. Mr. Nadal repaid to the Company the first installment of  $1,000  in September 2015, the second installment of $1,500 in December 2015, and an additional payment of $2,000 in December 2016. An additional $6,082 is due in 2017. In 2015, the Company recorded a charge of approximately   $5,338  for the balance of prior cash bonus award amounts that will not be recovered.
For the twelve months ended December 31, 2016, the Company has incurred  $4,065 of professional expenses and $1,500 of civil penalty payments relating to the prior SEC investigation, which were offset by $5,919 of proceeds from the Company’s D&O insurance policy.   
22. Subsequent Events
On February 14, 2017, the Company entered into a securities purchase agreement with Broad Street Principal Investments, L.L.C., an affiliate of The Goldman Sachs Group Inc. (the “Purchaser”), pursuant to which the Company has agreed to issue and sell to the Purchaser, and the Purchaser has agreed to purchase, 95,000 newly authorized Series 4 convertible preference shares for an aggregate purchase price in cash of $95.0 million , subject to the terms and conditions set forth in the securities purchase agreement. The closing of the transaction is expected to occur in the first quarter of 2017, subject to the conditions set forth in the securities purchase agreement.
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, our disclosure controls and procedures provide reasonable assurance, but not absolute assurance, of achieving their 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 CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective.
(b) Management’s Report on Internal Control Over Financial Reporting

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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.
Management (with the participation of our CEO and CFO) conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the criteria set forth in Internal Control —  Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this evaluation, our CEO and CFO concluded that our internal control over financial reporting was effective as of December 31, 2016 .
The effectiveness of our internal control over financial reporting as of December 31, 2016 , has been independently audited by BDO USA 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, 2016 , that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

99





(d) Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
MDC Partners Inc.
New York, New York
Toronto, Canada
We have audited MDC Partners Inc. internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). MDC Partners Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of 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. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016 , based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheets of MDC Partners Inc. as of December 31, 2016 and 2015 , and the related consolidated statements of operations, comprehensive loss, shareholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2016 and our report dated March 1, 2017 expressed an unqualified opinion thereon.
/s/ BDO USA LLP
New York, New York
March 1, 2017

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Item 9B. Other Information
On February 28, 2017, the Company entered into an agreement to issue 568,182 Class A subordinate voting shares to the founders of a subsidiary in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.  These shares will be issued in satisfaction of the Company’s obligation to pay $5 million of deferred purchase payments relating to a prior acquisition, and therefore will not result in any proceeds to the Company. No commissions were or will be paid to any person in connection with the issuance of these Class A shares.


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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Reference is made to the sections captioned “Nomination of Directors,” “Information Concerning Nominees for Election as Directors,” “Information Concerning Executive Officers,” “Audit Committee,” “Ethical Conduct” and “Compliance with Section 16(a) of the Exchange Act” in our Proxy Statement for the 2017 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, 2016 , which sections are incorporated herein by reference.
Executive Officers of MDC Partners
The executive officers of MDC Partners as of March 1, 2017 are:
Name
 
Age
 
Office
Scott L. Kauffman (1)
 
61
 
Chairman of the Board and Chief Executive Officer
David B. Doft
 
45
 
Chief Financial Officer
Mitchell S. Gendel
 
51
 
Executive Vice President, General Counsel and Corporate Secretary
Bob Kantor
 
59
 
Executive Vice President, Global Chief Marketing Officer
David C. Ross
 
36
 
Executive Vice President, Strategy and Corporate Development
Alexandra Delanghe Ewing
 
37
 
Chief Communications Officer
____________
(1)
Also a member of MDC’s Board of Directors.
There is no family relationship among any of the executive officers or directors.
Mr. Kauffman joined MDC Partners in April 2006 as a director on the board of directors and, effective July 20, 2015, assumed the role of Chairman and Chief Executive Officer of MDC Partners.  From April 2013 until May 2014, Mr. Kauffman served as the President and Chief Executive Officer, and a member of the Board of Directors, of New Engineering University. From April 2011 until January 2013, Mr. Kauffman was a Board member and then Chairman of LookSmart, Ltd, a publicly-traded, syndicated pay-per-click search network. From January 2009 to August 2010, Mr. Kauffman was President and Chief Executive Officer, and a member of the board, of GeekNet, Inc., a publicly-traded open source software application developer and e-commerce website operator.
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 a Managing Director.
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. Kantor joined MDC Partners in May 2009, and currently serves as Global Chief Marketing Officer. Prior to joining MDC Partners, he served as CEO of Publicis NY and President of Lowe & Partners NA, and also founded and built Rotter Kantor, an integrated communications company, as well as Hanger Network, the country’s largest green-marketing platform.
Mr. Ross j oined MDC Partners in March 2010 and currently serves as Executive Vice President, Strategy and Corporate Development.  Prior to joining MDC Partners, Mr. Ross was an attorney at Skadden Arps LLP where he represented global clients in a wide range of capital markets offerings, M&A transactions, and general corporate matters.
Ms. Ewing joined MDC Partners in January 2012, and currently serves as Chief Communications Officer. Prior to joining MDC Partners, Ms. Ewing served as U.S. Director of Communications for DDB, managing national communications efforts on behalf of the network and its agencies.
Additional information about our directors and executive officers appears under the captions “Election of Directors” and “Executive Compensation” in the Company’s Proxy Statement for the 2016 Annual General Meeting of Stockholders.

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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., 745 Fifth Avenue, 19th Floor, New York, New York, 10151, Attention: Investor Relations.
Item 11. Executive Compensation
Reference is made to the sections captioned “Compensation of Directors” and “Executive Compensation” in the Company’s next Proxy Statement for the 2017 Annual General Meeting of Stockholders, which are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Reference is made to Item 5 of this Form 10-K and to the sections captioned “Section 16 (a) Beneficial Ownership Reporting Compliance” in the Company’s next Proxy Statement for the 2017 Annual General Meeting of Stockholders, which are incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
Reference is made to the section captioned “Transactions with Related Parties” in this Form 10-K, and to “Certain Relationships and Related Transactions” in the Company’s Proxy Statement for the 2017 Annual General Meeting of Stockholders, which is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Reference is made to the section captioned “Appointment of Auditors” in the Company’s Proxy Statement for the 2016 Annual General Meeting of Stockholders, which is incorporated herein by reference.

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PART IV
Item 15. Exhibits and Financial Statement Schedules.

Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
MDC Partners Inc. New York, New York

The audits referred to in our report dated March 1, 2017 relating to the consolidated financial statements of MDC Partners Inc., which is contained in Item 8 of this Form 10-K also included the audit of the financial statement Schedule II for years ended 2016 , 2015 and 2014 . 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 on our audits.
In our opinion such financial statement Schedule II, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/ BDO USA LLP
New York, New York
March 1, 2017

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(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,
(Dollars in Thousands)
Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
Description
 
Balance at
Beginning
of Period
 
Charged to
Costs and
Expenses
 
Removal of Uncollectible Receivables
 
Translation Adjustments
Increase
(Decrease)
 
Balance at
the End of
Period
Valuation accounts deducted from assets to which they apply –  allowance for doubtful accounts:
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
$
1,306

 
$
1,053

 
$
(830
)
 
$
(6
)
 
$
1,523

December 31, 2015
 
$
1,409

 
$
750

 
$
(799
)
 
$
(54
)
 
$
1,306

December 31, 2014
 
$
2,011

 
$
556

 
$
(1,127
)
 
$
(31
)
 
$
1,409

Schedule II — 2 of 2
MDC PARTNERS INC. & SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended December 31,
(Dollars in Thousands)
Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
Description
 
Balance at
Beginning
of Period
 
Charged to
Costs and
Expenses
 
Other (1)
 
Translation Adjustments
Increase
(Decrease)
 
Balance at
the End of
Period
Valuation accounts deducted from assets to which they apply – valuation allowance for deferred income taxes:
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
$
124,143

 
$
9,004

 
$
16

 
$
327

 
$
133,490

December 31, 2015
 
$
119,117

 
$
9,381

 
$
(149
)
 
$
(4,206
)
 
$
124,143

December 31, 2014
 
$
137,961

 
$
(10,437
)
 
$
(7,062
)
 
$
(1,345
)
 
$
119,117

____________
(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, adjustment for net operating loss relating to sale of business and pension plan adjustment.
(b) Exhibits
The exhibits listed on the accompanying Exhibits Index are filed as a part of this report.

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Item 16. Form 10-K Summary
None.

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SIGNATURES
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.
By:
MDC PARTNERS INC.
Date:
March 1, 2017
 
/s/ Scott L. Kauffman
 
 
 
Name: Scott L. Kauffman
Title: Chairman and Chief Executive Officer
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/ Scott L. Kauffman
 
Chairman and Chief Executive Officer
 
March 1, 2017
Scott L. Kauffman
 
 
 
 
/s/ David Doft
 
Chief Financial Officer (Principal Accounting Officer)
 
March 1, 2017
David Doft
 
 
 
 
/s/ Clare Copeland
 
Director
 
March 1, 2017
Clare Copeland
 
 
 
 
/s/ Daniel Goldberg
 
Director
 
March 1, 2017
Daniel Goldberg
 
 
 
 
/s/ Lawrence S. Kramer
 
Director
 
March 1, 2017
Lawrence S. Kramer

 
 
 
 
/s/ Anne Marie O'Donovan
 
Director
 
March 1, 2017
Anne Marie O'Donovan


 
 
 
 
/s/ Irwin D. Simon
 
Director
 
March 1, 2017
Irwin D. Simon
 
 
 
 

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EXHIBIT INDEX
Exhibit No.
 
Description
3.1
 
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);
3.1.1
 
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);
3.1.2
 
Articles of Amalgamation, dated July 1, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on July 30, 2010);
3.1.3
 
Articles of Amalgamation, dated May 1, 2011 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on May 2, 2011);
3.1.4
 
Articles of Amalgamation, dated January 1, 2013 (incorporated by reference to Exhibit 3.1.4 to the Company’s Form 10-K filed on March 10, 2014);
3.1.5
 
Articles of Amalgamation, dated April 1, 2013 (incorporated by reference to Exhibit 3.1.5 to the Company’s Form 10-K filed on March 10, 2014);
3.1.6
 
Articles of Amalgamation, dated July 1, 2013 (incorporated by reference to Exhibit 3.1.6 to the Company’s Form 10-K filed on March 10, 2014);
3.2
 
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);
4.1
 
Indenture, dated as of March 23, 2016, among the Company, the Guarantors and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on March 23, 2016);
4.1.1
 
6.50% Senior Notes due 2024 (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on March 23, 2016);
10.1
 
Second Amended and Restated Credit Agreement, dated as of May 3, 2016, among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 3, 2016);
10.2
 
Employment Agreement between the Company and Scott Kauffman, dated as of August 6, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-K filed on February 26, 2016);
10.3
 
Separation Agreement, by and among the Company, Nadal Management Limited, Nadal Financial Corporation and Miles Nadal, dated as of July 20, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 20, 2015);
10.4
 
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);
10.4.1
 
Amendment No. 1 dated March 7, 2011, to the Amended and Restated Employment Agreement made as of July 19, 2007, by and between the Company and David Doft (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on May 2, 2011);
10.5
 
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);
10.5.1
 
Amendment No. 1 dated March 7, 2011, to the Amended and Restated Employment Agreement made as of July 6, 2007, by and between the Company and Mitchell Gendel (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on May 2, 2011);
10.6
 
Amended and Restated Employment Agreement between the Company and Robert Kantor, dated as of May 5, 2014 (incorporated by reference to Exhibit 10.2 to the Company’s 10-Q filed on May 4, 2016);
10.7
 
Second Amended and Restated Employment Agreement between the Company and David Ross, dated as of February 27, 2017*;
10.8
 
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);
10.8.1
 
Form of Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.2 to the Company’s 10-Q filed on May 5, 2006);
10.9
 
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);
10.10
 
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);
10.11
 
2011 Stock Incentive Plan of the Company, as approved and adopted by the shareholders of the Company on June 1, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 1, 2011);

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10.11.1
 
Form of Restricted Stock Grant Agreement (2011 Plan) (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 1, 2011);
10.11.2
 
Form of Restricted Stock Unit (RSU) Grant Agreement (2011 Plan) (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed on June 1, 2011);
10.11.3
 
Form of Restricted Stock Grant Agreement (2012) (incorporated by reference to Exhibit 10.13.3 of the Company’s Form 10-K filed on March 15, 2012);
10.11.4
 
Form of Restricted Stock Unit (RSU) Grant Agreement (2012) (incorporated by reference to Exhibit 10.13.4 of the Company’s Form 10-K filed on March 15, 2012);
10.11.5
 
Form of 2014 Financial-Performance Based Restricted Stock Grant Agreement (incorporated by reference to Exhibit 10.10.5 to the Company’s Form 10-K filed on March 10, 2014);
10.11.6
 
Form of Financial-Performance Based Restricted Stock Grant Agreement (2016) under the 2011 Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to the Company’s Form 10-K filed on February 26, 2016);
10.12
 
Form of Incentive/Retention Payment letter agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 1, 2011);
10.13
 
MDC Partners Inc. 2014 Long Term Cash Incentive Compensation Plan, as adopted March 6, 2014, including forms of 2014 Award Agreement (incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K filed on March 10, 2014);
10.14
 
2016 Stock Incentive Plan, as adopted by the shareholders of the Company at the 2016 Annual and Special Meeting of Shareholders on June 1, 2016*;
10.14.1
 
Form of Financial-Performance Based Restricted Stock Grant Agreement (2017) under the 2016 Stock Incentive Plan*;
12
 
Statement of computation of ratio of earnings to fixed charges*;
14
 
Code of Conduct of MDC Partners Inc. (as amended, November 2015) (as amended, February 2016) (incorporated by reference to Exhibit 14 to the Company’s Form 10-K filed on February 26, 2016);
14.1
 
MDC Partners’ Corporate Governance Guidelines (as amended, February 2016) (incorporated by reference to Exhibit 14.1 to the Company’s Form 10-K filed on February 26, 2016);
21
 
Subsidiaries of Registrant*;
23
 
Consent of Independent Registered Public Accounting Firm BDO USA LLP*;
31.1
 
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*;
31.2
 
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*;
32.1
 
Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*;
32.2
 
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.

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Exhibit 10.7



SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS SECOND AMENDED AND RESTATED AGREEMENT, dated as of February 27, 2017 (this “ Agreement ”), by and between MDC PARTNERS INC., a corporation existing under the laws of Canada (the “ Company ”), and DAVID ROSS (the “ Executive ”).

W I T N E S S E T H:

WHEREAS, the Company and the Executive are parties to that certain Amended and Restated Employment Agreement dated as of March 15, 2014 (the “ Original Employment Agreement ”);

WHEREAS, the parties wish to amend and restate the Original Employment Agreement on the terms and conditions hereinafter set forth;

NOW, THEREFORE , in consideration of the premises and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows:

1.      Employment

The Company agrees to continue to employ the Executive during the Term specified in paragraph 2, and the Executive agrees to accept such continued employment, upon the terms and conditions hereinafter set forth.

2 .     Term

Subject to the provisions contained in Sections 6 and 7 , the Executive's employment by the Company shall be for a term (the “ Term ”) continuing from the date hereof for an indefinite period thereafter unless and until (i) either the Executive shall give to the Company 30 days advance written notice of resignation (a “ Notice of Termination ”) or (ii) the Company terminates the Executive’s employment without “Cause” (as defined herein). Any Notice of Termination given by the Executive under this Section 2 shall specify the date of termination and the fact that the notice is being delivered pursuant to Section 2 of this Agreement. The Company shall have the right at any time during such 30-day notice period to relieve the Executive of all or any portion of his offices, duties and responsibilities and to place him on a paid leave-of-absence status. The date on which the Executive ceases to be employed by the Company, regardless of the reason therefore is referred to in this Agreement as the " Termination Date ".

3.     Duties and Responsibilities

(a)     Title . Effective as of January 20, 2017, and continuing during the Term, the Executive shall have the position of Executive Vice President, Strategy and Corporate Development, of the Company.

(b)     Duties . The Executive shall report directly to the Company’s Chief Executive Officer (the " MDC Executive "), at such times and in such detail as the MDC Executive shall reasonably require. The Executive shall perform such duties consistent with his position as Executive Vice President, Strategy and Corporate Development, or as may be directed by the Chief Executive Officer of the Company, including overseeing all mergers and acquisitions, agency partnership agreements and agency executive incentive planning; advising on investments and capital markets transactions; and leading the development and execution of corporate strategies together with other senior executives of the Company.

(c)     Scope of Employment . The Executive's employment by the Company as described herein shall be full-time and exclusive, and during the Term, the Executive agrees that he will (i) devote all of his business time and attention, his reasonable best efforts, and all his skill and ability to promote the interests of the Company; and







(ii) carry out his duties in a competent manner and serve the Company faithfully and diligently under the direction of the MDC Executive. Notwithstanding the foregoing, the Executive shall be permitted to (A) upon prior written consent of the MDC Executive, serve on the board of directors of two companies unaffiliated with the Company; provided that such companies are not engaged in any activity which is competitive with the Company or its subsidiaries and affiliates (collectively, the “ MDC Group ”), and (B) engage in charitable and civic activities and manage his personal passive investments, provided that such passive investments are not in a company which transacts business with the Company or its affiliates or engages in business competitive with that conducted by the Company (or, if such company does transact business with the Company, or does engage in a competitive business, it is a publicly held corporation and the Executive's participation is limited to owning less than 1% of its outstanding shares), and further provided that such activities (individually or collectively) do not materially interfere with the performance of his duties or responsibilities under this Agreement.

(d)     Office Location . During the Term, the Executive's services hereunder shall be performed at the offices of the Company, which shall be within a twenty-five (25) mile radius of New York, NY, subject to necessary travel requirements to the Company’s offices in Toronto, Canada and other MDC Group company locations in order to carry out his duties in connection with his position hereunder.

4.     Compensation

(a) Base Salary . As compensation for his services hereunder, effective as of January 20, 2017 and continuing during the Term, the Company shall pay the Executive in accordance with its normal payroll practices, an annualized base salary of $500,000, subject to periodic review by the Human Resources & Compensation Committee of the Board of Directors of the Company (the “ Compensation Committee ”) to determine appropriate increases, if any, in accordance with the Company’s practices and policies for other senior executives (“ Base Salary ”).

(b) Annual Discretionary Bonus . During the Term, in respect of all calendar years beginning January 1, 2012, the Executive shall be eligible to receive an annual discretionary bonus in an amount equal to up to 100% of the then current Base Salary, based upon criteria determined by the MDC Executive and the Compensation Committee, which criteria shall include the Executive’s performance, the overall financial performance of the Company and such other factors as the MDC Executive and the Compensation Committee shall deem reasonable and appropriate (the “ Annual Discretionary Bonus ”). The MDC Executive shall communicate the criteria for the Annual Discretionary Bonus to the Executive within a reasonable period of time after such criteria have been established. The Annual Discretionary Bonus will be paid in accordance with the Company’s normal bonus payment procedures, and may be paid in the form of equity incentive awards.

(c) Participation in Equity Incentive Programs . The Executive shall also be eligible to ongoing participation in all current and future equity and/or cash incentive plans of the Company, including but not limited to potential awards of stock options, stock appreciation rights and/or awards of restricted shares of the Company.

5.      Expenses; Fringe Benefits

(a)     Expenses . The Company agrees to pay or to reimburse the Executive for all reasonable, ordinary, necessary and documented business or entertainment expenses incurred during the Term in the performance of his services hereunder in accordance with the policy of the Company as from time to time in effect. The Executive, as a condition precedent to obtaining such payment or reimbursement, shall provide to the Company any and all statements, bills or receipts evidencing the travel or out-of-pocket expenses for which the Executive seeks payment or reimbursement, and any other information or materials, as the Company may from time to time reasonably require.

(b) Benefit Plans . During the Term, the Executive and, to the extent eligible, his dependents, shall be eligible to participate in and receive all benefits under any group health plans, welfare benefit plans and programs (including without limitation, disability, group life (including accidental death and dismemberment) and business travel insurance plans and programs) provided by the Company to its senior executives and, without duplication, its employees generally, subject, however, to the generally applicable eligibility and other provisions of the various plans and programs in effect from time to time.

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(c)     Retirement Plans . During the Term, the Executive shall be eligible to participate in all retirement plans and programs (including without limitation any profit sharing plan) provided by the Company to its senior executives generally and, without duplication, its employees generally, subject, however, to the generally applicable eligibility and other provisions of the various plans and programs in effect from time to time. In addition, during the Term, the Executive shall be eligible to receive fringe benefits and perquisites in accordance with the plans, practices, programs and policies of the Company from time to time in effect which are made available to the senior executives of the Company generally and, without duplication, to its employees generally.

(d)     Vacation . The Executive shall be entitled to four weeks of vacation in accordance with the Company's policies, with no right of carry over, to be taken at such times as shall not materially interfere with the Executive's fulfillment of his duties hereunder, and shall be entitled to as many holidays, sick days and personal days as are in accordance with the Company's policy then in effect generally for its employees.

6.      Termination

(a)     Termination for Cause . The Company, by direction of the Compensation Committee, the Board of Directors or the MDC Executive, shall be entitled to terminate the Term and to discharge the Executive for “ Cause ” effective upon the giving of written notice to the Executive. For purposes of this Agreement, the term “Cause” shall mean:

(i)    the Executive's failure or refusal to materially perform his duties and responsibilities as set forth in paragraph 3 hereof (other than as a result of a Disability (as defined in paragraph 6(d) hereof), provided that the Executive or a representative on his behalf has provided notice to the Company not more than 20 days following the onset of Executive’s illness or physical or mental incapacity or disability) or abide by the reasonable directives of the MDC Executive, or the failure of the Executive to devote all of his business time and attention exclusively to the business and affairs of the Company in accordance with the terms hereof, in each case if such failure or refusal is not cured (if curable) within 20 days after written notice thereof to the Executive by the Company;

(ii)    the willful and unauthorized misappropriation of the funds or property of the Company;

(iii)    the use of alcohol or illegal drugs, interfering with the performance of the Executive's obligations under this Agreement, continuing after written warning;

(iv)    the conviction in a court of law of, or entering a plea of guilty or no contest to, any felony or any crime involving moral turpitude, dishonesty or theft;

(v)    the material nonconformance with the Company's policies against racial or sexual discrimination or harassment, which nonconformance is not cured (if curable) within 10 days after written notice to the Executive by the Company;

(vi)    the commission in bad faith by the Executive of any act which materially injures or could reasonably be expected to materially injure the reputation, business or business relationships of the Company;

(vii)    the resignation by the Executive on his own initiative (other than pursuant to a termination by the Executive for "Good Reason" (as defined in paragraph 6(b) hereof);

(viii)    any breach (not covered by any of the clauses (i) through (vii) above) of paragraphs 8, 9, 11 and 24, if such breach is not cured (if curable) within 20 days after written notice thereof to the Executive by the Company.

Any notice required to be given by the Company pursuant to clause (i), (v) or (viii) above shall specify the nature of the claimed breach and the manner in which the Company requires such breach to be cured (if curable). In the event

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that the Executive is purportedly terminated for Cause and the arbitrator appointed pursuant to paragraph 18 determines that Cause as defined herein was not present, then such purported termination for Cause shall be deemed a termination without Cause pursuant to paragraph 6(c) and the Executive's rights and remedies will be governed by paragraph 7(b), in full satisfaction and in lieu of any and all other or further remedies the Executive may have under this Agreement.

(b)     Termination for Good Reason . Provided that a Cause event has not occurred and has not been cured (if curable), the Executive shall be entitled to terminate this Agreement and the Term hereunder for Good Reason (as defined below) at any time during the Term by written notice to the Company not more than 20 days after the occurrence of the event constituting such Good Reason. For purposes of this Agreement, “ Good Reason ” shall be limited to (i) a breach by the Company of a material provision of this Agreement, which breach remains uncured (if curable) for a period of 20 days after written notice of such breach from the Executive to the Company (such notice to specify the nature of the claimed breach and the manner in which the Executive requires such breach to be cured)); (ii) a material diminution of the Executive’s duties and responsibilities as set forth in paragraph 3, without his prior written consent, which breach remains uncured (if curable) for a period of 20 days after written notice of such breach from the Executive to the Company (such notice to specify the nature of the claimed breach and the manner in which the Executive requires such breach to be cured); (iii) relocation of the Executive’s principal office to a location more than 25 miles outside New York, N.Y.; or (iv) the Company’s failure to pay any compensation or benefits, as set forth in paragraphs 4 or 5, which action is not reversed within 10 days after written notice of the breach from the Executive to the Company. In the event that the Executive purportedly terminates his employment for Good Reason and the arbitrator appointed pursuant to paragraph 18 determines that Good Reason as defined herein was not present, then such purported termination for Good Reason shall be deemed a termination for Cause pursuant to paragraph 6(a)(vii) and the Executive’s rights and remedies will be governed by paragraph 7(a), in full satisfaction and in lieu of any and all other or further remedies the Executive may have under this Agreement.

(c)     Termination without Cause . The Company, by direction of the Board or the MDC Executive, shall have the right at any time during the Term to terminate the employment of the Executive without Cause by giving written notice to the Executive setting forth a Date of Termination.

(d)     Termination for Death or Disability . In the event of the Executive's death, the Date of Termination shall be the date of the Executive's death. In the event the Executive shall be unable to perform his duties hereunder by virtue of illness or physical or mental incapacity or disability (from any cause or causes whatsoever) in substantially the manner and to the extent required hereunder prior to the commencement of such disability and the Executive shall fail to perform such duties for periods aggregating 120 days, whether or not continuous, in any continuous period of 360 days (such causes being herein referred to as “ Disability ”), the Company shall have the right to terminate the Executive's employment hereunder as at the end of any calendar month during the continuance of such Disability upon at least 30 days' prior written notice to him.

7.     Effect of Termination of Employment .

(a)     Termination by the Company for Cause; by the Executive without Good Reason; by Death or Disability; or pursuant to a Notice of Termination delivered by the Executive pursuant to paragraph 2 above . In the event of the termination of the employment of the Executive (1) by the Company for Cause; (2) by the Executive without Good Reason; (3) by reason of death or Disability pursuant to paragraph 6(d); or (4) pursuant to a Notice of Termination delivered by the Executive pursuant to paragraph 2 above, the Executive shall be entitled to the following, subject to any appropriate offsets, as permitted by applicable law, for debts or money due and payable by the Executive to the Company or an affiliate thereof (collectively, “ Offsets ”):

(i)    unpaid Base Salary through, and any unpaid reimbursable expenses outstanding as of, the Date of Termination; and

(ii) all benefits, if any, that had accrued to the Executive through the Date of Termination under the plans and programs described in paragraphs 5(b) and (c) above, or any other applicable plans and programs in which he participated as an employee of the Company, in the manner and in accordance with the terms of such plans and programs; it being understood that any and all rights that the Executive may have to severance

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payments by the Company shall be determined and solely based on the terms and conditions of this Agreement and not based on the Company's severance policy then in effect, if any.

In the event of termination of the employment of Executive in the circumstances described in this paragraph 7(a), except as expressly provided in this paragraph, the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance or other amounts of whatever nature, directly or indirectly, arising out of or otherwise related to this Agreement and the Executive's employment or cessation of employment with the Company, provided that the foregoing shall not apply to any outstanding indemnification obligations of the Company in respect of the Executive’s good faith actions in his capacity as a member, director or officer thereof arising on or prior to the Date of Termination (“ Outstanding Indemnification Obligations ”).

(b)     Termination by the Company without Cause; or by the Executive for Good Reason . In the event of a termination (1) by the Company without Cause; (2) by the Executive for Good Reason, the Executive shall be entitled to the following payments and benefits, subject to any Offsets:

(i)
a severance payment (the “ Severance Amount ”) in an amount equal to the product of one (1) multiplied by the Executive’s “Total Remuneration”. For purposes of this Agreement, “ Total Remuneration ” shall mean the sum of the Executive’s current Base Salary, plus the highest annual discretionary bonus earned by the Executive in the three (3) years ending December 31 of the year immediately preceding the Date of Termination. The Severance Amount described in this Section 7(b)(i), less applicable withholding of any tax amounts, shall be paid by the Company to the Executive not later than 10 business days after the applicable Date of Termination;

(ii)
his Annual Discretionary Bonus with respect to the calendar year prior to the Date of Termination, when otherwise payable, but only to the extent not already paid;

(iii)
eligibility for a pro-rata portion of his Annual Discretionary Bonus with respect to the calendar year in which the Date of Termination occurs, when otherwise payable, (such pro-rata amount to be equal to the product of (A) the amount of the Annual Discretionary Bonus for such calendar year, times (B) a fraction, (x) the numerator of which shall be the number of calendar days commencing January 1 of such year and ending on the Date of Termination, and (y) the denominator of which shall equal 365;

(iv)
unpaid Base Salary through, and any unpaid reimbursable expenses outstanding as of, the Date of Termination;

(v)
all benefits, if any, that had accrued to the Executive through the Date of Termination under the plans and programs described in paragraphs 5(b) and (c) above, or any other applicable benefit plans and programs in which the Executive participated as an employee of the Company, in the manner and in accordance with the terms of such plans and programs; it being understood that any and all rights that the Executive may have to severance payments by the Company shall be determined and solely based on the terms and conditions of this Agreement (without duplication) and not based on the Company's severance policy then in effect, if any; and

(vi)
continued participation on the same basis in the plans and programs set forth in paragraph 5(b) and to the extent permitted under applicable law, paragraph 5(c) (such benefits collectively called the " Continued Plans ") in which the Executive was participating on the Date of Termination (as such Continued Plans are from time to time in effect at the Company) for a period to end on the earlier of (A) the one-year anniversary of the Date of Termination and (B) the date on which the Executive is eligible to receive coverage and benefits under the same type of plan of a subsequent employer; provided, however, if the Executive is precluded from continuing his participation in any

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Continued Plan, then the Company will be obligated to pay his the economic equivalent of the benefits provided under the Continued Plan in which he is unable to participate, for the period specified above, it being understood that the economic equivalent of a benefit foregone shall be deemed the lowest cost in New York, N.Y. that would be incurred by the Executive in obtaining such benefit himself on an individual basis.

In the event of termination of this Agreement in the circumstances described in this paragraph 7(b), except as expressly provided in this paragraph, the Company shall have no further liability to the Executive or the Executive’s heirs, beneficiaries or estate for damages, compensation, benefits, severance or other amounts of whatever nature, directly or indirectly, arising out of or otherwise related to this Agreement and the Executive’s employment or cessation of employment with the Company, provided that the foregoing shall not apply to any Outstanding Indemnification Obligations.

The Executive shall be under no duty to mitigate damages hereunder. The making of any severance payments and providing the other benefits as provided in this paragraph 7(b) is conditioned upon the Executive signing and not revoking a separation agreement in a form reasonably satisfactory to the Company (the " Separation Agreement "). In the event the Executive breaches any provisions of the Separation Agreement or the provisions of paragraph 8 of this Agreement, in addition to any other remedies at law or in equity available to it, the Company may cease making any further payments and providing the other benefits provided for in this paragraph 7(b), without affecting its rights under this Agreement or the Separation Agreement.

(c)     Termination by the Company without Cause; by the Executive for Good Reason, following a Change of Control . If within one (1) year after the closing date of any Change of Control transaction, the Executive’s employment is terminated: (1) by the Company without Cause; (2) by the Executive for Good Reason, the Executive shall be entitled to the following payments and benefits, subject to any Offsets:

(i)
a severance payment (the “ Change in Control Severance Amount ”) in an amount equal to the product of two (2) multiplied by the Executive’s Total Remuneration. The Change in Control Severance Amount described in this Section 7(c)(i), less applicable withholding of any tax amounts, shall be paid by the Company to the Executive not later than 10 business days after the applicable Date of Termination;

(ii)
his Annual Discretionary Bonus with respect to the calendar year prior to the Date of Termination, when otherwise payable, but only to the extent not already paid;

(iii)
eligibility for a pro-rata portion of his Annual Discretionary Bonus with respect to the calendar year in which the Date of Termination occurs, when otherwise payable, (such pro-rata amount to be equal to the product of (A) the amount of the Annual Discretionary Bonus for such calendar year, times (B) a fraction, (x) the numerator of which shall be the number of calendar days commencing January 1 of such year and ending on the Date of Termination, and (y) the denominator of which shall equal 365;

(iv)
unpaid Base Salary through, and any unpaid reimbursable expenses outstanding as of, the Date of Termination;

(v)
all benefits, if any, that had accrued to the Executive through the Date of Termination under the plans and programs described in paragraphs 5(b) and (c) above, or any other applicable benefit plans and programs in which the Executive participated as an employee of the Company, in the manner and in accordance with the terms of such plans and programs; it being understood that any and all rights that the Executive may have to severance payments by the Company shall be determined and solely based on the terms and conditions of this Agreement (without duplication) and not based on the Company's severance policy then in effect, if any; and


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(vi)
continued participation on the same basis in the Continued Plans in which the Executive was participating on the Date of Termination (as such Continued Plans are from time to time in effect at the Company) for a period to end on the earlier of (A) the one-year anniversary of the Date of Termination and (B) the date on which the Executive is eligible to receive coverage and benefits under the same type of plan of a subsequent employer; provided, however, if the Executive is precluded from continuing his participation in any Continued Plan, then the Company will be obligated to pay his the economic equivalent of the benefits provided under the Continued Plan in which he is unable to participate, for the period specified above, it being understood that the economic equivalent of a benefit foregone shall be deemed the lowest cost in New York, N.Y. that would be incurred by the Executive in obtaining such benefit himself on an individual basis.

For the purposes of this Agreement, a “ Change of Control ” shall be limited to the closing of a transaction which results in (i) any person(s) or company(ies) acting jointly or in concert owning, directly or indirectly, equity of the Company representing greater than 50% of the voting power of the Company's outstanding securities, or (ii) the Company selling all or substantially all of its assets (in each instance other than any transfer by the Company or any of its affiliates of their respective interest in the Company to another wholly-owned subsidiary of another MDC Group company).

In the event of termination of this Agreement in the circumstances described in this paragraph 7(c), except as expressly provided in this paragraph, the Company shall have no further liability to the Executive or the Executive's heirs, beneficiaries or estate for damages, compensation, benefits, severance or other amounts of whatever nature, directly or indirectly, arising out of or otherwise related to this Agreement and the Executive's employment or cessation of employment with the Company, provided that the foregoing shall not apply to any Outstanding Indemnification Obligations.

The Executive shall be under no duty to mitigate damages hereunder. The making of any severance payments and providing the other benefits as provided in this paragraph 7(c) is conditioned upon the Executive signing and not revoking a Separation Agreement. In the event the Executive breaches any provisions of the Separation Agreement or the provisions of paragraph 8 of this Agreement, in addition to any other remedies at law or in equity available to it, the Company may cease making any further payments and providing the other benefits provided for in this paragraph 7(c), without affecting its rights under this Agreement or the Separation Agreement.

The Company represents and warrants to the Executive that the provisions set forth in Sections 7(a)(iii), 7(b)(vii), 7(b)(viii), 7(c)(vii) and 7(c)(viii) of this Agreement, have been or will be approved by the Company’s Compensation Committee.

8.     Non-Solicitation/Non-Servicing Agreement and Protection of Confidential Information
        
(a)     Non-Solicitation/Non-Servicing. The parties hereto agree that the covenants given in this paragraph 8 are being given incident to the agreements and transactions described herein, and that such covenants are being given for the benefit of the Company. Accordingly, the Executive acknowledges (i) that the business and the industry in which the Company competes is highly competitive; (ii) that as a key executive of the Company he has participated in and will continue to participate in the servicing of current clients and/or the solicitation of prospective clients, through which, among other things, the Executive has obtained and will continue to obtain knowledge of the "know-how" and business practices of the Company, in which matters the Company has a substantial proprietary interest; (iii) that his employment hereunder requires the performance of services which are special, unique, extraordinary and intellectual in character, and his position with the Company places and placed his in a position of confidence and trust with the clients and employees of the Company; and (iv) that his rendering of services to the clients of the Company necessarily required and will continue to require the disclosure to the Executive of confidential information (as defined in paragraph 8(b) hereof) of the Company. In the course of the Executive's employment with the Company, the Executive has and will continue to develop a personal relationship with the clients of the Company and a knowledge of those clients' affairs and requirements, and the relationship of the Company with its established

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clientele will therefore be placed in the Executive's hands in confidence and trust. The Executive consequently agrees that it is a legitimate interest of the Company, and reasonable and necessary for the protection of the confidential information, goodwill and business of the Company, which is valuable to the Company, that the Executive make the covenants contained herein and that the Company would not have entered into this Agreement unless the covenants set forth in this paragraph 8 were contained in this Agreement. Accordingly, the Executive agrees that during the period that he is employed by the Company and for a period of eighteen (18) months thereafter (such period being referred to as the " Restricted Period "), he shall not, as an individual, employee, consultant, independent contractor, partner, shareholder, or in association with any other person, business or enterprise, except on behalf of the Company, directly or indirectly, and regardless of the reason for his ceasing to be employed by the Company:

(i)    attempt in any manner to solicit or accept from any client business of the type performed by the Company or to persuade any client to cease to do business or to reduce the amount of business which any such client has customarily done or is reasonably expected to do with the Company, whether or not the relationship between the Company and such client was originally established in whole or in part through the Executive’s efforts; or

(ii)    employ as an employee or retain as a consultant any person, firm or entity who is then or at any time during the preceding twelve months was an employee of or exclusive consultant to the Company, or persuade or attempt to persuade any employee of or exclusive consultant to the Company to leave the employ of the Company or to become employed as an employee or retained as a consultant by any person, firm or entity other than the Company; or

(iii)    render to or for any client any services of the type which are rendered by the Company.

As used in this paragraph 8, the term " Company " shall include any subsidiaries of the Company and the term " client " shall mean (1) anyone who is a client of the Company on the Date of Termination, or if the Executive's employment shall not have terminated, at the time of the alleged prohibited conduct (any such applicable date being called the " Determination Date "); (2) anyone who was a client of the Company at any time during the one year period immediately preceding the Determination Date; (3) any prospective client to whom the Company had made a new business presentation (or similar offering of services) at any time during the one year period immediately preceding the Date of Termination; and (4) any prospective client to whom the Company made a new business presentation (or similar offering of services) at any time within six months after the Date of Termination (but only if initial discussions between the Company and such prospective client relating to the rendering of services occurred prior to the Date of Termination, and only if the Executive participated in or supervised such discussions). For purposes of this clause, it is agreed that a general mailing or an incidental contact shall not be deemed a "new business presentation or similar offering of services" or a "discussion". In addition, "client" shall also include any clients of other companies operating within the MDC group of companies to whom the Executive rendered services (including supervisory services) at any time during the six-month period prior to the Determination Date. In addition, if the client is part of a group of companies which conducts business through more than one entity, division or operating unit, whether or not separately incorporated (a " Client Group "), the term "client" as used herein shall also include each entity, division and operating unit of the Client Group where the same management group of the Client Group has the decision making authority or significant influence with respect to contracting for services of the type rendered by the Company.

(b)     Confidential Information . In the course of the Executive's employment with the Company (and its predecessor), he has acquired and will continue to acquire and have access to confidential or proprietary information about the Company and/or its clients, including but not limited to, trade secrets, methods, models, passwords, access to computer files, financial information and records, computer software programs, agreements and/or contracts between the Company and its clients, client contacts, client preferences, creative policies and ideas, advertising campaigns, creative and media materials, graphic design materials, sales promotions and campaigns, sales presentation materials, budgets, practices, concepts, strategies, methods of operation, financial or business projections of the Company and information about or received from clients and other companies with which the Company does business. The foregoing shall be collectively referred to as " confidential information ". The Executive is aware that the confidential information is not readily available to the public and accordingly, the Executive also agrees that he will not at any time (whether during the Term or after termination of this Agreement), disclose to anyone (other than his

8






counsel in the course of a dispute arising from the alleged disclosure of confidential information or as required by law) any confidential information, or utilize such confidential information for his own benefit, or for the benefit of third parties. The Executive agrees that the foregoing restrictions shall apply whether or not any such information is marked "confidential" and regardless of the form of the information. The term "confidential information" does not include information which (i) is or becomes generally available to the public other than by breach of this provision or (ii) the Executive learns from a third party who is not under an obligation of confidence to the Company or a client of the Company. In the event that the Executive becomes legally required to disclose any confidential information, he will provide the Company with prompt notice thereof so that the Company may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this paragraph 8(b) to permit a particular disclosure. In the event that such protective order or other remedy is not obtained, or that the Company waives compliance with the provisions of this paragraph 8(b) to permit a particular disclosure, the Executive will furnish only that portion of the confidential information which he is legally required to disclose and, at the Company's expense, will cooperate with the efforts of the Company to obtain a protective order or other reliable assurance that confidential treatment will be accorded the confidential information. The Executive further agrees that all memoranda, disks, files, notes, records or other documents, whether in electronic form or hard copy (collectively, the " material ") compiled by him or made available to him during his employment with the Company (whether or not the material constitutes or contains confidential information), and in connection with the performance of his duties hereunder, shall be the property of the Company and shall be delivered to the Company on the termination of the Executive's employment with the Company or at any other time upon request. Except in connection with the Executive's employment with the Company, the Executive agrees that he will not make or retain copies or excerpts of the material; provided that the Executive shall be entitled to retain his personal files.

(c)     Remedies . If the Executive commits or threatens to commit a breach of any of the provisions of paragraphs 8(a) or (b), the Company shall have the right to have the provisions of this Agreement specifically enforced by the arbitrator appointed under paragraph 18 or by any court having jurisdiction without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. In addition, the Company may take all such other actions and remedies available to it under law or in equity and shall be entitled to such damages as it can show it has sustained by reason of such breach.

(d)     Acknowledgments . The parties acknowledge that (i) the type and periods of restriction imposed in the provisions of paragraphs 8(a) and (b) are fair and reasonable and are reasonably required in order to protect and maintain the proprietary interests of the Company described above, other legitimate business interests and the goodwill associated with the business of the Company; (ii) the time, scope and other provisions of this paragraph 8 have been specifically negotiated by sophisticated commercial parties, represented by legal counsel, and are given as an integral part of the transactions contemplated by this Agreement; and (iii) because of the nature of the business engaged in by the Company and the fact that clients can be and are serviced by the Company wherever they are located, it is impractical and unreasonable to place a geographic limitation on the agreements made by the Executive herein. The Executive specifically acknowledges that his being restricted from soliciting and servicing clients and prospective clients as contemplated by this Agreement will not prevent him from being employed or earning a livelihood in the type of business conducted by the Company. If any of the covenants contained in paragraphs 8(a) or (b), or any part thereof, is held to be unenforceable by reason of it extending for too great a period of time or over too great a geographic area or by reason of it being too extensive in any other respect, the parties agree (x) such covenant shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographic areas as to which it may be enforceable and/or over the maximum extent in all other respects as to which it may be enforceable, all as determined by the court or arbitration panel making such determination and (y) in its reduced form, such covenant shall then be enforceable, but such reduced form of covenant shall only apply with respect to the operation of such covenant in the particular jurisdiction in or for which such adjudication is made. Each of the covenants and agreements contained in this paragraph 8 (collectively, the " Protective Covenants ") is separate, distinct and severable. All rights, remedies and benefits expressly provided for in this Agreement are cumulative and are not exclusive of any rights, remedies or benefits provided for by law or in this Agreement, and the exercise of any remedy by a party hereto shall not be deemed an election to the exclusion of any other remedy (any such claim by the other party being hereby waived). The existence of any claim, demand, action or cause of action of the Executive against the Company, whether

9






predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of each Protective Covenant. The unenforceability of any Protective Covenant shall not affect the validity or enforceability of any other Protective Covenant or any other provision or provisions of this Agreement.

(e)     Notification of Restrictive Covenants . Prior to accepting employment with any person, firm or entity during the Restricted Period, the Executive shall notify the prospective employer in writing of his obligations pursuant to this paragraph 8 and shall simultaneously provide a copy of such notice to the Company (it being agreed by the Company that such notification required under this paragraph 8(e) shall not be deemed a breach of the confidentiality provisions of this Agreement).

(f)     Tolling . The temporal duration of the non-solicitation/non-servicing covenants set forth in this Agreement shall not expire, and shall be tolled, during any period in which the Executive is in violation of any of the non-solicitation/non-servicing covenants set forth herein, and all restrictions shall automatically be extended by the period of the Executive's violation of any such restrictions.

9.     Intellectual Property

During the Term, the Executive will disclose to the Company all ideas, inventions and business plans developed by him during such period which relate directly or indirectly to the business of the Company, including without limitation, any design, logo, slogan, advertising campaign or any process, operation, product or improvement which may be patentable or copyrightable. The Executive agrees that all patents, licenses, copyrights, tradenames, trademarks, service marks, planning, marketing and/or creative policies and ideas, advertising campaigns, promotional campaigns, media campaigns, budgets, practices, concepts, strategies, methods of operation, financial or business projections, designs, logos, slogans and business plans developed or created by the Executive in the course of his employment hereunder, either individually or in collaboration with others, will be deemed works for hire and the sole and absolute property of the Company. The Executive agrees, that at the Company's request and expense, he will take all steps necessary to secure the rights thereto to the Company by patent, copyright or otherwise.

10.     Enforceability

The failure of any party at any time to require performance by another party of any provision hereunder shall in no way affect the right of that party thereafter to enforce the same, nor shall it affect any other party's right to enforce the same, or to enforce any of the other provisions in this Agreement; nor shall the waiver by any party of the breach of any provision hereof be taken or held to be a waiver of any subsequent breach of such provision or as a waiver of the provision itself.

11.     Assignment

The Company and the Executive agree that the Company shall have the right to assign this Agreement in connection with any asset assignment of all or substantially all of the Company’s assets, stock sale, merger, consolidation or other corporate reorganization involving the Company and, accordingly, this Agreement shall inure to the benefit of, be binding upon and may be enforced by, any and all successors and such assigns of the Company. The Company and Executive agree that Executive's rights and obligations under this Agreement are personal to the Executive, and the Executive shall not have the right to assign or otherwise transfer his rights or obligations under this Agreement, and any purported assignment or transfer shall be void and ineffective, provided that the rights of the Executive to receive certain benefits upon death as expressly set forth under paragraph 7(a) of this Agreement shall inure to the Executive’s estate and heirs. The rights and obligations of the Company hereunder shall be binding upon and run in favor of the successors and assigns of the Company.

12.     Modification

This Agreement may not be orally canceled, changed, modified or amended, and no cancellation, change, modification or amendment shall be effective or binding, unless in writing and signed by the parties to this Agreement, and approved in writing by the MDC Executive.

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13.     Severability; Survival

In the event any provision or portion of this Agreement is determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as though the invalid or unenforceable part had been severed and deleted or reformed to be enforceable. The respective rights and obligations of the parties hereunder shall survive the termination of the Executive's employment to the extent necessary to the intended preservation of such rights and obligations, specifically paragraphs 7, 8, 9, 10, 11, 12, 13, 14, 15, 18, 23 and 24.
    
14.     Notice

Any notice, request, instruction or other document to be given hereunder by any party hereto to another party shall be in writing and shall be deemed effective (a) upon personal delivery, if delivered by hand, or (b) three days after the date of deposit in the mails, postage prepaid if mailed by certified or registered mail, or (c) on the next business day, if sent by prepaid overnight courier service or facsimile transmission (if electronically confirmed), and in each case, addressed as follows:

If to the Executive :


Mr. David Ross
250 West 94th Street, Apt. 12G
New York NY 10025

If to the Company :
            
c/o MDC Partners Inc.
745 Fifth Avenue, 19 th Floor
New York, NY 10151
Attention: General Counsel    
Fax: (212) 937-4365

Any party may change the address to which notices are to be sent by giving notice of such change of address to the other party in the manner herein provided for giving notice.

15.     Applicable Law

This Agreement shall be governed by, enforced under, and construed in accordance with the laws of the State of New York, NY applicable therein.

16.     No Conflict

The Executive represents and warrants that he is not subject to any agreement, instrument, order, judgment or decree of any kind, or any other restrictive agreement of any character, which would prevent him from entering into this Agreement or which would be breached by the Executive upon his performance of his duties pursuant to this Agreement.

17.     Entire Agreement

This Agreement and the documents referenced herein represent the entire agreement between the Company and the Executive with respect to the employment of the Executive by the Company, and all prior agreements

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(including, without limitation, the Original Employment Agreement), plans and arrangements relating to the employment of the Executive by the Company are nullified and superseded hereby.

18.     Arbitration

(a)    The parties hereto agree that any dispute, controversy or claim arising out of, relating to, or in connection with this Agreement (including, without limitation, any claim regarding or related to the interpretation, scope, effect, enforcement, termination, extension, breach, legality, remedies and other aspects of this Agreement or the conduct and communications of the parties regarding this Agreement and the subject matter of this Agreement) shall be settled in private by binding arbitration, to be held in the Borough of Manhattan in New York City, in accordance with the Commercial Arbitration Rules (and not the National Rules for the Resolution of Employment Disputes) of the American Arbitration Association and this Section 18. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Pending the resolution of any arbitration proceeding, the Executive (and his beneficiaries) shall continue to receive all payments and benefits due under this Agreement or otherwise. No party or arbitrator shall disclose in whole or in part to any other person, firm or entity any confidential information submitted in connection with the arbitration proceedings, except to the extent reasonably necessary to assist counsel in the arbitration or preparation for arbitration of the dispute. Confidential Information may be disclosed to (i) attorneys, (ii) parties, and (iii) outside experts requested by either party’s counsel to furnish technical or expert services or to give testimony at the arbitration proceedings, subject, in the case of such experts, to execution of a legally binding written statement that such expert is fully familiar with the terms of this provision, agree to comply with the confidentiality terms of this provision, and will not use any confidential information disclosed to such expert for personal or business advantage. The prevailing party in any arbitration shall be entitled to receive its reasonable attorneys’ fees and costs from the other party(ies) as may be awarded by the arbitrator.

(b)     The Executive has read and understands this paragraph 18. The Executive understands that by signing this Agreement, the Executive agrees to submit any claims arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach or termination thereof, or his employment or the termination thereof, to binding arbitration, and that this arbitration provision constitutes a waiver of the Executive’s right to a jury trial and relates to the resolution of all disputes relating to all aspects of the employer/employee relationship .

(c)    To the extent that any part of this paragraph 18 is found to be legally unenforceable for any reason, that part shall be modified or deleted in such a manner as to render this paragraph 18 (or the remainder of this paragraph 18) legally enforceable and as to ensure that except as otherwise provided in clause (a) of this paragraph 18, all conflicts between the Company and the Executive shall be resolved by neutral, binding arbitration. The remainder of this paragraph 18 shall not be affected by any such modification or deletion but shall be construed as severable and independent. If a court finds that the arbitration procedures of this paragraph 18 are not absolutely binding, then the parties hereto intend any arbitration decision to be fully admissible in evidence, given great weight by any finder of fact, and treated as determinative to the maximum extent permitted by law.

19.     Headings

The headings contained in this Agreement are for reference purposes only, and shall not affect the meaning or interpretation of this Agreement.


20.     Withholdings

The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

21.     Counterparts


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This Agreement may be executed in two counterparts or by facsimile transmission, both of which taken together shall constitute one instrument.

22.     No Strict Construction

The language used in this Agreement will be deemed to be the language chosen by the Company and the Executive to express their mutual intent, and no rule of law or contract interpretation that provides that in the case of ambiguity or uncertainty a provision should be construed against the draftsman will be applied against any party hereto.


23.      Publicity     

Subject to the provisions of the next sentence, no party to this Agreement shall issue any press release or other public document or make any public statement relating to this Agreement or the matters contained herein without obtaining the prior approval of the Company and the Executive. Notwithstanding the foregoing, the foregoing provision shall not apply to the extent that the Company is required to make any announcement relating to or arising out of this Agreement by virtue of applicable securities laws or other stock exchange rules, or any announcement by any party pursuant to applicable law or regulations.

24.     Non- Disparagement

Following the date hereof, the Executive and the Company shall each use their reasonable best efforts not to disparage, criticize or make statements to the detriment of the other.


*        *        *        *        *



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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Employment Agreement as of the day and year first above written.

                        
MDC PARTNERS INC.

                    
By: _________________________________
    


_____________________________________
David Ross
 

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Exhibit 10.14
    

MDC PARTNERS INC.

2016 STOCK INCENTIVE PLAN
(As Adopted on June 1, 2016)


1.     Purpose of the Plan
This MDC Partners Inc. 2016 Stock Incentive Plan is intended to promote the interests of the Company and its shareholders by providing the employees and consultants of the Company and eligible non-employee directors of MDC Partners Inc., who are largely responsible for the management, growth and protection of the business of the Company, with incentives and rewards to encourage them to continue in the service of the Company. The Plan is designed to meet this intent by providing such employees, consultants and eligible non-employee directors with a proprietary interest in pursuing the long-term growth, profitability and financial success of the Company.
2.     Definitions
As used in the Plan, the following definitions apply to the terms indicated below:
(a)    “Board of Directors” means the Board of Directors of MDC Partners Inc.
(b)    “Change in Control” means the occurrence of any of the following:
(i)    Any Person becoming the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act, a “Beneficial Owner”) of fifty percent (50%) or more of the combined voting power of MDC's then outstanding voting securities (“Voting Securities”); provided , however that a Change in Control shall not be deemed to occur by reason of an acquisition of Voting Securities directly from MDC or by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) MDC or any Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by MDC (the “MDC Group”), (B) any member of the MDC Group, or (C) any Person in connection with a Non-Control Transaction (as such term is hereinafter defined);
(ii)    The individuals who, as of April 22, 2016, are members of the Board of Directors (the "Incumbent Board"), cease for any reason to constitute at least a majority of the members of the Board of Directors; provided , however that if the election, or nomination for election by MDC's shareholders, of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall, for purposes of the Plan, be considered as a member of the Incumbent Board; provided , further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or
(iii)    The consummation of:
(A)    A merger, consolidation or reorganization with or into MDC or in which securities of MDC are issued, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" is a merger, consolidation or reorganization with or into MDC or in which securities of MDC are issued where:
(I)    the stockholders of MDC, immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization,

 
 
 
 
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(II)    the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least a majority of the members of the board of directors of the Surviving Corporation, or a corporation beneficially owning a majority of the voting securities of the Surviving Corporation,
(III)    no Person other than (1) any member of the MDC Group, (2) any employee benefit plan (or any trust forming a part thereof) maintained immediately prior to such merger, consolidation or reorganization by any member of the MDC Group, or (3) any Person who, immediately prior to such merger, consolidation or reorganization Beneficially Owns twenty-five percent (25%) or more of the then outstanding Voting Securities, owns, directly or indirectly, fifty percent (50%) or more of the combined voting power of the Surviving Corporation's voting securities outstanding immediately following such transaction;
(B)    A complete liquidation or dissolution of the Company; or
(C)    The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a member of the MDC Group).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") becomes the Beneficial Owner of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.
(c)    “Class A Shares” means MDC’s Class A subordinate voting shares, without par value, or any other security into which such shares shall be changed pursuant to the adjustment provisions of Section 10 of the Plan.
(d)    “Code” means the Internal Revenue Code of 1986, as amended from time to time.
(e)    “Committee” means the Human Resources & Compensation Committee of the Board of Directors or such other committee as the Board of Directors shall appoint from time to time to administer the Plan and to otherwise exercise and perform the authority and functions assigned to the Committee under the terms of the Plan.
(f)    “Company” means MDC and each of its Subsidiaries, collectively.
(g)    “Covered Employee” means a Participant who at the time of reference is a “covered employee” as defined in Code Section 162(m) and the regulations promulgated under Code Section 162(m), or any successor statute.
(h)    “Director” means a member of the Board of Directors who is not at the time of reference an employee of the Company.
(i)    “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(j)    “Fair Market Value” means, with respect to a Class A Share, as of the applicable date of determination (i) the closing sales price on the immediately preceding business day of Class A Shares as reported on the principal securities exchange on which such shares are then listed or admitted to trading or (ii) if not so reported, the average of the closing bid and ask prices on the immediately preceding business day as reported on the National Association of Securities Dealers Automated Quotation System or (iii) if not so reported, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Committee. In the event that the price of Class A Shares shall not be so reported, the Fair Market Value of Class A Shares shall be determined by the Committee in its absolute discretion.


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(k)    “Incentive Award” means an Option, SAR or Other Stock-Based Award granted to a Participant pursuant to the terms of the Plan.
(l)    “MDC” means MDC Partners Inc., a corporation established under the Canadian Business Corporation Act, and any successor thereto.
(m)    “Option” means a non-qualified stock option to purchase Class A Shares granted to a Participant pursuant to Section 6.
(n)    “Other Stock-Based Award” means an equity or equity-related award granted to a Participant pursuant to Section 8, including without limitation a restricted stock award.
(o)    “Participant” means a Director, employee or consultant of the Company, including any person or company engaged to provide ongoing management or consulting services for the Company and, at the discretion of any of the foregoing persons, and subject to any required regulatory approvals and conditions, a personal holding company controlled by such person, who or which is eligible to participate in the Plan and to whom one or more Incentive Awards have been granted pursuant to the Plan and, following the death of any such natural person, his successors, heirs, executors and administrators, as the case may be.
(p)    “Performance-Based Compensation” means compensation that satisfies the requirements of Section 162(m) of the Code for deductibility of remuneration paid to Covered Employees.
(q)    “Performance Measures” means such measures as are described in Section 9 on which performance goals are based in order to qualify certain awards granted hereunder as Performance-Based Compensation.
(r)    “Performance Period” means the period of time during which the performance goals must be met in order to determine the degree of payout and/or vesting with respect to an Incentive Award that is intended to qualify as Performance-Based Compensation.
(s)    “Permitted Acceleration Event” means (i) with respect to any Incentive Award that is subject to performance-based vesting, the full or partial vesting of such Incentive Award based on satisfaction of the applicable performance-based conditions, (ii) the occurrence of a Change in Control or an event described in Section 10(b), (c) or (d) or (iii) any termination of the employment of a Participant, other than a termination for cause (as defined by the Committee) or voluntary termination prior to retirement (as defined by the Committee).
(t)    “Person” means a “person” as such term is used in Section 13(d) and 14(d) of the Exchange Act.
(u)    “Plan” means this MDC Partners Inc. 2016 Stock Incentive Plan, as it may be amended from time to time.
(v)    “SAR” means a stock appreciation right granted to a Participant pursuant to Section 7.
(w)    “Securities Act” means the Securities Act of 1933, as amended.
(x)    “Subsidiary” means any “subsidiary corporation” within the meaning of Section 424(f) of the Code or any other entity that the Committee determines from time to time should be treated as a subsidiary corporation for purposes of this Plan.
3.
Stock Subject to the Plan; Additional Limitations
(a)     In General
Subject to adjustment as provided in Section 10 and the following provisions of this Section 3, the maximum number of Class A Shares that may be covered by Incentive Awards granted under the Plan shall not exceed 1,500,000


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Class A Shares . Class A Shares issued under the Plan may be either authorized and unissued shares or treasury shares, or both, at the discretion of the Committee. In addition, at the discretion of the Compensation Committee, Class A Shares authorized for issuance under this Plan may be issued to employees of the Company to satisfy the exercise of SARS Awards under the Company’s Stock Appreciation Rights Plan, as amended.
For purposes of the preceding paragraph, Class A Shares covered by Incentive Awards shall only be counted as used to the extent they are actually issued and delivered to a Participant (or such Participant’s permitted transferees as described in the Plan) pursuant to the Plan. For purposes of clarification, in accordance with the preceding sentence if Class A Shares are withheld to satisfy any tax withholding requirement in connection with an Other Stock-Based Award only the shares issued (if any), net of the shares withheld, will be deemed delivered for purposes of determining the number of Class A Shares that are available for delivery under the Plan.
Subject to adjustment as provided in Section 10, the maximum number of Class A Shares that may be covered by Incentive Awards granted under the Plan to any single Participant in any fiscal year of the Company shall not exceed 300,000 shares, prorated on a daily basis for any fiscal year of the Company that is shorter than 365 days.
(b)     Prohibition on Substitutions and Repricings
In no event shall any new Incentive Awards be issued in substitution for outstanding Incentive Awards previously granted to Participants, nor shall any repricing (within the meaning of US generally accepted accounting practices or any applicable stock exchange rule) of Incentive Awards issued under the Plan be permitted at any time under any circumstances, in each case unless the shareholders of the Company expressly approve such substitution or repricing.
(c) Annual Limitation on Grants .
The Committee shall limit annual grants of equity awards under this Plan to executive officers of the Company to an aggregate amount equal to not more than two percent (2%) of the number of issued and outstanding shares of the Company’s capital stock at the beginning of the Company’s fiscal year. In addition, each independent Director shall not receive Incentive Awards (including option grants) with a current market value in excess of $150,000 or option grants with a current market value in excess of $100,000 in any given fiscal year.

(d)     Minimum Vesting Period of One (1) Year for All Incentive Awards .
In no event shall any new Incentive Award granted under this Plan vest or otherwise become payable earlier than one (1) year following the date on which it is granted, other than upon the occurrence of a Permitted Acceleration Event.
(e)     Effect of Change of Control
Any new Incentive Award granted under this Plan that is subject to time-based vesting terms and conditions shall not become fully and immediately vested and exercisable solely as a result of the occurrence of a Change of Control, absent a termination of employment without cause or for good reason following any such Change of Control. Any new Incentive Award granted under this Plan that is subject to performance-based vesting terms and conditions shall not become fully and immediately vested and exercisable solely as a result of the occurrence of a Change of Control, absent a termination of employment without cause or for good reason following any such Change of Control and shall be adjusted on a pro-rata basis as determined by the Committee.
4.     Administration of the Plan
The Plan shall be administered by a Committee of the Board of Directors consisting of two or more persons, each of whom qualify as non-employee directors (within the meaning of Rule 16b-3 promulgated under Section 16 of the Exchange Act), and as “outside directors” within the meaning of Treasury Regulation Section 1.162-27(e)(3). The


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Committee shall, consistent with the terms of the Plan, from time to time designate those who shall be granted Incentive Awards under the Plan and the amount, type and other terms and conditions of such Incentive Awards. All of the powers and responsibilities of the Committee under the Plan may be delegated by the Committee, in writing, to any subcommittee thereof. In addition, the Committee may from time to time authorize a committee consisting of one or more Directors to grant Incentive Awards to persons who are not “executive officers” of MDC (within the meaning of Rule 16a-1 under the Exchange Act), subject to such restrictions and limitation as the Committee may specify. In addition, the Board of Directors may, consistent with the terms of the Plan, from time to time grant Incentive Awards to Directors.
The Committee shall have full discretionary authority to administer the Plan, including discretionary authority to interpret and construe any and all provisions of the Plan and the terms of any Incentive Award (and any agreement evidencing any Incentive Award) granted thereunder and to adopt and amend from time to time such rules and regulations for the administration of the Plan as the Committee may deem necessary or appropriate. Without limiting the generality of the foregoing, (i) the Committee shall determine whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment and (ii) the employment of a Participant with the Company shall be deemed to have terminated for all purposes of the Plan if such person is employed by or provides services to a Person that is a Subsidiary of the Company and such Person ceases to be a Subsidiary of the Company, unless the Committee determines otherwise. Decisions of the Committee shall be final, binding and conclusive on all parties.
On or after the date of grant of an Incentive Award under the Plan, the Committee may (i) extend the term of any such Incentive Award, including, without limitation, extending the period following a termination of a Participant’s employment during which any such Incentive Award may remain outstanding, (ii) waive any conditions to the exercisability or transferability, as the case may be, of any such Incentive Award or (iii) provide for the payment of dividends or dividend equivalents with respect to any such Incentive Award.
No member of the Committee shall be liable for any action, omission, or determination relating to the Plan, and MDC shall indemnify and hold harmless each member of the Committee and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any action, omission or determination relating to the Plan, unless, in either case, such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company.
5.     Eligibility
The Persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be those Directors and employees of the Company, including any person or company engaged to provide ongoing management or consulting services for the Company and, at the discretion of any of the foregoing persons, and subject to any required regulatory approvals and conditions, a personal holding company controlled by such person, whom the Committee shall select from time to time. All Incentive Awards granted under the Plan shall be evidenced by a separate written agreement entered into by the Company and the recipient of such Incentive Award.
6.     Options
The Committee may from time to time grant Options, subject to the following terms and conditions:
(a)     Exercise Price
The exercise price per Class A Share covered by any Option shall be not less than 100% of the Fair Market Value of a Class A Share on the date on which such Option is granted.
(b)     Term and Exercise of Options


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(1)    Each Option shall become vested and exercisable on such date or dates, during such period and for such number of Class A Shares as shall be determined by the Committee on or after the date such Option is granted; provided , however that no Option shall be exercisable after the expiration of ten years from the date such Option is granted; provided , further that no Option shall become exercisable earlier than one year after the date on which it is granted, other than upon the occurrence of a Permitted Acceleration Event; and, provided , further , that each Option shall be subject to earlier termination, expiration or cancellation as provided in the Plan or in the agreement evidencing such Option.
(2)    Each Option may be exercised in whole or in part; provided , however that no partial exercise of an Option shall be for an aggregate exercise price of less than $1,000. The partial exercise of an Option shall not cause the expiration, termination or cancellation of the remaining portion thereof.
(3)    An Option shall be exercised by such methods and procedures as the Committee determines from time to time, including without limitation through net physical settlement or other method of cashless exercise.
(4)    Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of a Participant, only by the Participant.
(c)     Effect of Termination of Employment or other Relationship
The agreement evidencing the award of each Option shall specify the consequences with respect to such Option of the termination of the employment, service as a director or other relationship between the Company and the Participant holding the Option.
7.     Stock Appreciation Rights
The Committee may from time to time grant SARs, subject to the following terms and conditions:
(a)     Stand-Alone and Tandem; Cash and Stock-Settled
SARs may be granted on a stand-alone basis or in tandem with an Option. Tandem SARs may be granted contemporaneously with or after the grant of the Options to which they relate. SARs may be settled in Class A Shares or in cash.
(b)     Exercise Price
The exercise price per Class A Share covered by any SAR shall be not less than 100% of the Fair Market Value of a Class A Share on the date on which such SAR is granted; provided , however that the exercise price of an SAR that is tandem to an Option and that is granted after the grant of such Option may have an exercise price less than 100% of the Fair Market Value of a Class A Share on the date on which such SAR is granted provided that such exercise price is at least equal to the exercise price of the related Option.
(c)     Benefit Upon Exercise
The exercise of an SAR with respect to any number of Class A Shares prior to the occurrence of a Change in Control shall entitle the Participant to (i) a cash payment, for each such share, equal to the excess of (A) the Fair Market Value of a Class A Share on the effective date of such exercise over (B) the per share exercise price of the SAR, (ii) the issuance or transfer to the Participant of the greatest number of whole Class A Shares which on the date of the exercise of the SAR have an aggregate Fair Market Value equal to such excess or (iii) a combination of cash and Class A Shares in amounts equal to such excess, as determined by the Committee. The exercise of an SAR with respect to any number of Class A Shares upon or after the occurrence of a Change in Control shall entitle the Participant to a cash payment, for each such share, equal to the excess of (i) the greater of (A) the highest price per share of Class A Shares


6
 
 
 



paid in connection with such Change in Control and (B) the Fair Market Value of Class A Shares on the effective date of exercise over (ii) the per share exercise price of the SAR. Such payment, transfer or issuance shall occur as soon as practical, but in no event later than five business days, after the effective date of exercise.
(d)     Term and Exercise of SARs
(1)    Each SAR shall become vested and exercisable on such date or dates, during such period and for such number of Class A Shares as shall be determined by the Committee on or after the date such SAR is granted; provided , however that no SAR shall be exercisable after the expiration of ten years from the date such SAR is granted; provided , further that no SAR shall become exercisable earlier than one year after the date on which it is granted, other than upon the occurrence of a Permitted Acceleration Event; and, provided , further , that each SAR shall be subject to earlier termination, expiration or cancellation as provided in the Plan or in the agreement evidencing such SAR.
(2)    Each SAR may, to the extent vested and exercisable, be exercised in whole or in part; provided , however that no partial exercise of an SAR shall be for an aggregate exercise price of less than $1,000. The partial exercise of an SAR shall not cause the expiration, termination or cancellation of the remaining portion thereof.
(3)    An SAR shall be exercised by such methods and procedures as the Committee determines from time to time.
(4)    SARs may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of a Participant, only by the Participant.
(5)    The exercise with respect to a number of Class A Shares of an SAR granted in tandem with an Option shall cause the immediate cancellation of the Option with respect to the same number of shares. The exercise with respect to a number of Class A Shares of an Option to which a tandem SAR relates shall cause the immediate cancellation of the SAR with respect to an equal number of shares.
(e)     Effect of Termination of Employment or other Relationship
The agreement evidencing the award of each SAR shall specify the consequences with respect to such SAR of the termination of the employment, service as a director or other relationship between the Company and Participant holding the SAR.
8.     Restricted Stock Awards and Other Stock-Based Awards
The Committee may grant equity-based or equity-related awards not otherwise described herein in such amounts and subject to such terms and conditions as the Committee shall determine. Without limiting the generality of the preceding sentence, each such Other Stock-Based Award may (i) involve the transfer of actual Class A Shares to Participants, either at the time of grant or thereafter, or payment in cash or otherwise of amounts based on the value of Class A Shares, (ii) be subject to performance-based and/or service-based conditions, (iii) be in the form of phantom stock, restricted stock, restricted stock units, performance shares, or share-denominated performance units and (iv) be designed to comply with applicable laws of jurisdictions other than the United States.
9.     Performance Measures
(a)     Performance Measures
The performance goals upon which the payment or vesting of any Incentive Award (other than Options and SARs) to a Covered Employee that is intended to qualify as Performance-Based Compensation depends shall relate to one or more of the following Performance Measures: revenue growth, achievement of EBITDA targets, operating


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income, operating cash flow, net income, earnings per share, cash earnings per share, return on sales, return on assets, return on equity, return on invested capital and total shareholder return.
Performance Periods may be equal to or longer than, but not less than, one fiscal year of the Company. Within 90 days after the beginning of a Performance Period, and in any case before 25% of the Performance Period has elapsed, the Committee shall establish (a) performance goals and objectives for the Company for such Performance Period, (b) target awards for each Participant, and (c) schedules or other objective methods for determining the applicable performance percentage to be applied to each such target award.
The measurement of any Performance Measure(s) may exclude the impact of charges for restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring items, and the cumulative effects of accounting changes, each as defined by generally accepted accounting principles and as identified in the Company’s audited financial statements, including the notes thereto. Any Performance Measure(s) may be used to measure the performance of the Company or a Subsidiary as a whole or any business unit of the Company or any Subsidiary or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparator companies, or a published or special index that the Committee, in its sole discretion, deems appropriate.
Nothing in this Section 9 is intended to limit the Committee’s discretion to adopt conditions with respect to any Incentive Award that is not intended to qualify as Performance-Based Compensation that relate to performance other than the Performance Measures.
(b)     Committee Discretion
In the event that the requirements of Section 162(m) and the regulations thereunder change to permit Committee discretion to alter the Performance Measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval.
10.     Adjustment Upon Changes in Class A Shares
(a)      Shares Available for Grants
In the event of any change in the number of Class A Shares outstanding by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, the maximum aggregate number of Class A Shares with respect to which the Committee may grant Incentive Awards and the maximum aggregate number of Class A Shares with respect to which the Committee may grant Incentive Awards to any individual Participant in any year shall be appropriately adjusted by the Committee. In the event of any change in the number of Class A Shares outstanding by reason of any other similar event or transaction, the Committee may, but need not, make such adjustments in the number and class of Class A Shares with respect to which Incentive Awards may be granted as the Committee may deem appropriate.
(b)     Increase or Decrease in Issued Shares Without Consideration
Subject to any required action by the shareholders of MDC, in the event of any increase or decrease in the number of issued Class A Shares resulting from a subdivision or consolidation of Class A Shares or the payment of a stock dividend (but only on the Class A Shares), or any other increase or decrease in the number of such shares effected without receipt or payment of consideration by the Company, the Committee shall proportionally adjust the number of Class A Shares subject to each outstanding Incentive Award and the exercise price per Class A Share of each such Incentive Award.


8
 
 
 



(c)     Certain Mergers
Subject to any required action by the shareholders of MDC, in the event that MDC shall be the surviving corporation in any merger or consolidation (except a merger or consolidation as a result of which the holders of Class A Shares receive securities of another corporation), each Incentive Award outstanding on the date of such merger or consolidation shall pertain to and apply to the securities which a holder of the number of Class A Shares subject to such Incentive Award would have received in such merger or consolidation.
(d)     Certain Other Transactions
In the event of (i) a dissolution or liquidation of MDC, (ii) a sale of all or substantially all of MDC’s assets, (iii) a merger or consolidation involving MDC in which MDC is not the surviving corporation or (iv) a merger or consolidation involving MDC in which MDC is the surviving corporation but the holders of Class A Shares receive securities of another corporation and/or other property, including cash, the Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such event, each Incentive Award (whether or not then exercisable), and, in full consideration of such cancellation, pay to the Participant to whom such Incentive Award was granted an amount in cash, for each Class A Share subject to such Incentive Award equal to the value, as determined by the Committee in its reasonable discretion, of such Incentive Award, provided that with respect to any outstanding Option or SAR such value shall be equal to the excess of (A) the value, as determined by the Committee in its reasonable discretion, of the property (including cash) received by the holder of Class A Shares as a result of such event over (B) the exercise price of such Option or SAR; or
(ii) provide for the exchange of each Incentive Award (whether or not then exercisable or vested) for an incentive award with respect to, as appropriate, some or all of the property which a holder of the number of Class A Shares subject to such Incentive Award would have received in such transaction and, incident thereto, make an equitable adjustment as determined by the Committee in its reasonable discretion in the exercise price of the incentive award, or the number of shares subject to the incentive award or, if appropriate, provide for a cash payment to the Participant to whom such Incentive Award was granted in partial consideration for the exchange of the Incentive Award.
(e)     Other Changes
In the event of any change in the capitalization of MDC or corporate change other than those specifically referred to in paragraphs (b), (c) or (d), the Committee may, in its absolute discretion, make such adjustments in the number and class of shares subject to Incentive Awards outstanding on the date on which such change occurs and in such other terms of such Incentive Awards as the Committee may consider appropriate to prevent dilution or enlargement of rights.
(f)     No Other Rights
Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger or consolidation of MDC or any other corporation. Except as expressly provided in the Plan, no issuance by MDC of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of Class A Shares subject to any Incentive Award.
11.     Rights as a Stockholder
No person shall have any rights as a stockholder with respect to any Class A Shares covered by or relating to any Incentive Award granted pursuant to the Plan until the date of the issuance of a stock certificate with respect to


9
 
 
 



such shares. Except as otherwise expressly provided in Section 10 hereof, no adjustment of any Incentive Award shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued.
12.     No Special Employment Rights; No Right to Incentive Award
(a) Nothing contained in the Plan or any Incentive Award shall confer upon any Participant any right with respect to the continuation of his/her employment by or service to the Company or interfere in any way with the right of the Company at any time to terminate such employment or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Incentive Award.
(b) No person shall have any claim or right to receive an Incentive Award hereunder. The Committee’s granting of an Incentive Award to a Participant at any time shall neither require the Committee to grant an Incentive Award to such Participant or any other Participant or other person at any time nor preclude the Committee from making subsequent grants to such Participant or any other Participant or other person.
13.     Securities Matters

(a)    MDC shall be under no obligation to effect the registration pursuant to the Securities Act of any Class A Shares to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, MDC shall not be obligated to cause to be issued or delivered any certificates evidencing Class A Shares pursuant to the Plan unless and until MDC is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which Class A Shares are traded and that the Participant has delivered all notices and documents required to be delivered to the Company in connection therewith. The Committee may require, as a condition to the issuance and delivery of certificates evidencing Class A Shares pursuant to the terms hereof, that the recipient of such shares make such covenants, agreements and representations, and that such certificates bear such legends, as the Committee deems necessary or desirable.

(b)    The exercise of any Option granted hereunder shall only be effective at such time as counsel to MDC shall have determined that the issuance and delivery of Class A Shares pursuant to such exercise is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which Class A Shares are traded. MDC may, in its sole discretion, defer the effectiveness of an exercise of an Option hereunder or the issuance or transfer of Class A Shares pursuant to any Incentive Award pending or to ensure compliance under federal or state securities laws. MDC shall inform the Participant in writing of its decision to defer the effectiveness of the exercise of an Option or the issuance or transfer of Class A Shares pursuant to any Incentive Award. During the period that the effectiveness of the exercise of an Option has been deferred, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto.

14.     Withholding Taxes

(a)     Cash Remittance

Whenever Class A Shares are to be issued upon the exercise of an Option or the grant or vesting of an Incentive Award, MDC shall have the right to require the Participant to remit to MDC in cash an amount sufficient to satisfy federal, state and local withholding tax requirements, if any, attributable to such exercise, grant or vesting prior to the delivery of any certificate or certificates for such shares or the effectiveness of the lapse of such restrictions. In addition, upon the exercise or settlement of any Incentive Award in cash, MDC shall have the right to withhold from any cash payment required to be made pursuant thereto an amount sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise or settlement.

(b)     Stock Remittance

At the election of the Participant, subject to the approval of the Committee, when Class A Shares are to be issued upon the exercise, grant or vesting of an Incentive Award, the Participant may tender to MDC a number of Class


10
 
 
 



A Shares that have been owned by the Participant for at least six months (or such other period as the Committee may determine) having a Fair Market Value at the tender date determined by the Committee to be sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise, grant or vesting but not greater than such withholding obligations. Such election shall satisfy the Participant’s obligations under Section 14(a) hereof, if any.

(c)     Stock Withholding

At the election of the Participant, subject to the approval of the Committee, when Class A Shares are to be issued upon the exercise, grant or vesting of an Incentive Award, MDC shall withhold a number of such shares having a Fair Market Value at the exercise date determined by the Committee to be sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise, grant or vesting but not greater than such withholding obligations. Such election shall satisfy the Participant’s obligations under Section 14(a) hereof, if any.

15.     Amendment or Termination of the Plan

The Board of Directors may at any time suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided , however , that without approval of the shareholders no revision or amendment shall except as provided in Section 10 hereof, (i) increase the number of Class A Shares that may be issued under the Plan or (ii) materially modify the requirements as to eligibility for participation in the Plan. Nothing herein shall restrict the Committee’s ability to exercise its discretionary authority hereunder pursuant to Section 4 hereof, which discretion may be exercised without amendment to the Plan. No action hereunder may, without the consent of a Participant, reduce the Participant’s rights under any previously granted and outstanding Incentive Award. Nothing herein shall limit the right of the Company to pay compensation of any kind outside the terms of the Plan.

16.     No Obligation to Exercise

The grant to a Participant of an Option or SAR shall impose no obligation upon such Participant to exercise such Option or SAR.

17.     Transfers Upon Death

Upon the death of a Participant, outstanding Incentive Awards granted to such Participant may be exercised only by the executors or administrators of the Participant’s estate or by any person or persons who shall have acquired such right to exercise by will or by the laws of descent and distribution. No transfer by will or the laws of descent and distribution of any Incentive Award, or the right to exercise any Incentive Award, shall be effective to bind MDC unless the Committee shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Incentive Award that are or would have been applicable to the Participant and to be bound by the acknowledgements made by the Participant in connection with the grant of the Incentive Award.

18.     Expenses and Receipts

The expenses of the Plan shall be paid by MDC. Any proceeds received by MDC in connection with any Incentive Award will be used for general corporate purposes.

19.     Governing Law

The Plan and the rights of all persons under the Plan shall be construed and administered in accordance with the laws of the State of New York, without regard to its conflict of law principles, except to the extent that the application of New York law would result in a violation of the Canadian Business Corporation Act.




11
 
 
 



20.     Effective Date and Term of Plan

The Plan was adopted by the Board of Directors on April 22, 2016, subject to the approval of the Plan by the shareholders of MDC, and duly approved by shareholders effective June 1, 2016. No grants may be made under the Plan after April 22, 2026.



12
 
 
 

Exhibit 10.14.1


                            
FINANCIAL-PERFORMANCE BASED
RESTRICTED STOCK GRANT AGREEMENT (2017)

THIS AGREEMENT , made as of January 30, 2017 (the “ Grant Date ”), between MDC Partners Inc., a Canadian corporation (the “ Corporation ”), and [NAME] (the “ Grantee ”).
    
WHEREAS , the Corporation has adopted the 2016 Stock Incentive Plan (the “ Plan ”) for the purpose of providing employees of the Corporation and eligible non-employee directors of the Corporation’s Board of Directors a proprietary interest in pursuing the long-term growth, profitability and financial success of the Corporation (except as otherwise expressly set forth herein, capitalized terms used in this Agreement shall have the definitions set forth in the Plan).

WHEREAS , the Human Resources & Compensation Committee (the “ Committee ”) of the Board of Directors has determined that it is in the best interests of the Corporation to make the award set forth herein, which award will vest upon achievement by the Corporation of the specified financial growth target during the cumulative three (3) year financial performance period of calendar years 2017, 2018 and 2019.

WHEREAS , pursuant to the Plan, the Committee has determined to grant an Other Stock-Based Award to the Grantee in the form of shares of Class A subordinate voting shares, subject to the terms, conditions and limitations provided herein, including achievement of financial performance targets, and in the Plan (the “ Restricted Stock ”);

NOW, THEREFORE, the parties hereto agree as follows:

1.      Grant of Restricted Stock .

1.1 The Corporation hereby grants to the Grantee, on the terms and conditions set forth in this Agreement, the number of shares of Restricted Stock set forth under the Grantee's name on the signature page hereto (the “ 2017 Restricted Stock Award ”).

1.2 The Grantee's rights with respect to all the shares of Restricted Stock underlying the 2017 Restricted Stock Award shall not vest and will remain forfeitable at all times prior to the Vesting Date (as defined below). At any time, reference to the 2017 Restricted Stock Award shall be deemed to be a reference to the Restricted Shares granted under Section 1.1 that have neither vested nor been forfeited pursuant to the terms of this Agreement.

1.3 This Agreement shall be construed in accordance with, and subject to, the terms of the Plan (the provisions of which are incorporated herein by reference).

2.      Rights of Grantee .

Except as otherwise provided in this Agreement, the Grantee shall be entitled, at all times on and after the Grant Date, to exercise all rights of a shareholder with respect to the 2017 Restricted Stock Award, including the right to vote the shares of Restricted Stock. Prior to the Vesting Date, the Grantee shall not be entitled to transfer, sell, pledge, hypothecate or assign any portion of the 2017 Restricted Stock Award (collectively, the “ Transfer Restrictions ”).

3.      Vesting; Lapse of Restrictions .

3.1 The 2017 Restricted Stock Award shall not vest, and the Transfer Restrictions shall not lapse, unless the Corporation achieves the Minimum EBITDA Threshold, as determined by the Committee on or prior to March 1, 2020 (the “ Vesting Date ”), and the Grantee continues to be serving as an employee of the Corporation on such Vesting Date; provided , that the 2017 Restricted Stock Award shall vest, and the Transfer Restrictions with respect to all the shares of the 2017 Restricted Stock Award shall lapse, if sooner, on the date of any one of the following “ Permitted Acceleration Events ”: (i) termination of Grantee’s employment without “Cause” or for “Good Reason” within one (1) year following the occurrence of a Change in Control (as defined in the Plan); (ii) a Change in Control in which the Company’s Class A Shares are no longer outstanding and publicly traded immediately follow any such Change in Control; or (iii) the Grantee’s death.


 
 
 



In the event the Grantee (i) is terminated by the Corporation without Cause or (ii) resigns for "Good Reason” (if defined in the Grantee’s employment agreement), the number of shares of Restricted Stock under the 2017 Restricted Stock Award in which the Grantee shall vest on any Vesting Date shall be the product of (a) the number of shares of Restricted Stock under the 2017 Restricted Stock Award that would otherwise vest in accordance with Section 3.3 hereof, if any and (b) a fraction, the numerator of which shall be the number of full months of service completed by the Grantee prior to his or her termination without Cause or resignation for “Good Reason”, as applicable and after the Grant Date, and the denominator of which shall be the number of months in the 2017-2019 Performance Period. Any portion of the 2017 Restricted Stock Award that does not and, as a result of the application of Section 3.3 cannot, vest in accordance with Section 3.3 hereof shall be forfeited and automatically transferred to and reacquired by the Corporation at no cost to the Corporation, and neither the Grantee nor any heirs, executors or successors of such Grantee shall thereafter have any right or interest in such shares of Restricted Stock.

3.2 Notwithstanding anything in this Agreement to the contrary, upon (i) any termination of the Grantee for Cause; (ii) resignation by the Grantee without Good Reason; or (ii) the failure by the Corporation to achieve the Minimum EBITDA Threshold, the 2017 Restricted Stock Award shall be forfeited and automatically transferred to and reacquired by the Corporation at no cost to the Corporation, and neither the Grantee nor any heirs, executors or successors of such Grantee shall thereafter have any right or interest in such shares of Restricted Stock.

3.3    The 2017 Restricted Stock Award shall vest based upon the Corporation’s level of achievement of “ Actual Cumulative EBITDA ” (as defined below) during the performance period commencing on January 1, 2017 and ending on December 31, 2019 (the “ 2017-2019 Performance Period ”), as described in this Section 3.3. All determinations required to be made hereunder shall be made by the Committee:

(i)
If the Corporation achieves Actual Cumulative EBITDA for the 2017-2019 Performance Period, in an amount equal to at least the sum of (A) the 2017 EBITDA Target, plus (B) the 2018 EBITDA Target, plus (C) the 2019 EBITDA Target (the “ Cumulative EBITDA Target ”), then 100% of the 2017 Restricted Stock Award shall be deemed fully vested; and
(ii)
If the Corporation achieves Actual Cumulative EBITDA for the 2017-2019 Performance Period, in an amount equal to or greater than 90% but less than 100% of the Cumulative EBITDA Target (the “ Minimum EBITDA Threshold ”), then an amount equal to 75% of the 2017 Restricted Stock Award shall be deemed vested; and
(iii)
Notwithstanding anything to the contrary set forth herein, in the event that the Corporation achieves Actual Cumulative EBITDA for the three (3) years ended December 31, 2017 in an amount less than the Minimum EBITDA Threshold, then no part of the 2017 Restricted Stock Award shall vest.
For purposes of the foregoing, the following terms shall have the meanings indicated below. Capitalized terms used in this Agreement but not defined herein shall have the meaning assigned to them in the Plan.

(a)
2017 EBITDA Target ” shall mean $205 million.
(b)
2018 EBITDA Target ” shall mean the EBITDA target as set forth in the Corporation’s annual budget for the Corporation’s 2018 fiscal year, as determined by the Committee.
(c)
2019 EBITDA Target ” shall mean the EBITDA target as set forth in the Corporation’s annual budget for the Corporation’s 2019 fiscal year, as determined by the Committee.

(d)
Actual Cumulative EBITDA ” shall mean the sum of the Corporation’s actual annual EBITDA for the Corporation’s 2017, 2018 and 2019 fiscal years, as determined by the Committee.

 
2
 



(e)
Cause ” shall have the meaning set forth in the Grantee’s employment agreement. If such term is not defined in the Grantee’s employment agreement, then Cause means the Grantee’s termination by reason of (i) his/her continued or willful failure substantially to perform his/her duties for the Corporation, (ii) his/her willful and serious misconduct in connection with the performance of his/her duties for the Corporation, (iii) the Grantee’s conviction of, or entering a plea of guilty to, a crime that constitutes a felony or a crime involving moral turpitude, (iv) his/her fraudulent or dishonest conduct or (v) his/her material breach of any of his/her obligations or covenants under any written policies of the Corporation or any written agreement between such Grantee and the Corporation.
(f)
Change in Control ” shall have the meaning set forth in Section 2(b) of the Plan.
(g)
Disability shall mean a mental or physical condition of the Grantee rendering him/her unable to perform his/her duties for the Corporation for a period of six (6) consecutive months or for 180 days within any consecutive 365-day period and which is reasonably expected to continue indefinitely; provided that if, as of the date of determination, the Grantee is a party to an effective employment agreement with a different definition of “Disability”, the definition of “Disability” (or its derivation) contained in such employment agreement shall be substituted for the definition set forth above for all purposes hereunder.
(h)
EBITDA shall mean , for any measurement period, the Corporation’s consolidated earnings before interest, taxes, depreciation and amortization, plus any non-cash charges for stock-based compensation which were deducted in the calculation of EBITDA. For purposes of clarification, (i) EBITDA will not be adjusted for incremental EBITDA due to acquisitions with respect to the applicable year of closing any such acquisition by the Corporation; and (ii) in determining EBITDA, consolidated earnings shall not be reduced by compensation expenses attributable to the 2014 Cash LTIP Plan but shall be reduced (or with respect to losses, increased), by compensation expenses attributable to any other compensation plan, program or arrangement of the Corporation, to the extent such expenses are recorded in accordance with GAAP.
(i)
Good Reason ” shall have the meaning set forth in the Grantee’s employment agreement, if any.
4.     Escrow and Delivery of Shares .

4.1 Certificates (or an electronic "book entry" on the books of the Corporation's stock transfer agent) representing the shares of Restricted Stock shall be issued and held by the Corporation (or its stock transfer agent) in escrow (together with any stock transfer powers which the Corporation may request of Grantee) and shall remain in the custody of the Corporation (or its stock transfer agent) until (i) their delivery to the Grantee as set forth in Section 4.2 hereof, or (ii) their forfeiture and transfer to the Corporation as set forth in Section 3.2 hereof. The appointment of an independent escrow agent shall not be required.

4.2    (a) Certificates (or an electronic "book entry") representing those shares of Restricted Stock in respect of which the Transfer Restrictions have lapsed pursuant to Section 3.1 hereof shall be delivered to the Grantee as soon as practicable following the Vesting Date.

(b) The Grantee, or the executors or administrators of the Grantee's estate, as the case may be, may receive, hold, sell or otherwise dispose of those shares of Restricted Stock delivered to him or her pursuant to this Section 4.2 free and clear of the Transfer Restrictions, but subject to compliance with all federal and state securities laws.

4.3     (a) Each stock certificate issued pursuant to Section 4.1 shall bear a legend in substantially the following form:

THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS APPLICABLE TO RESTRICTED STOCK CONTAINED IN THE 2016 STOCK INCENTIVE PLAN

 
3
 



(THE "PLAN") AND A RESTRICTED STOCK AGREEMENT (THE "AGREEMENT") BETWEEN THE CORPORATION AND THE REGISTERED OWNER OF THE SHARES REPRESENTED HEREBY. RELEASE FROM SUCH TERMS AND CONDITIONS SHALL BE MADE ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE PLAN(S) AND THE AGREEMENT, COPIES OF WHICH ARE ON FILE IN THE OFFICE OF THE SECRETARY OF THE CORPORATION.

(b)     As soon as practicable following a Vesting Date, the Corporation shall issue a new certificate (or electronic "book entry") for shares of the Restricted Stock which have become non-forfeitable in relation to such Vesting Date, which new certificate (or electronic "book entry") shall not bear the legend set forth in paragraph (a) of this Section 4.3 and shall be delivered in accordance with Section 4.2 hereof.

5. Dividends . All dividends declared and paid by the Corporation on shares underlying the 2017 Restricted Stock Award shall be deferred until the lapsing of the Transfer Restrictions pursuant to Section 3.1 and shall be distributed only to the extent the underlying shares of Restricted Stock vest and are distributed in accordance with Section 3. The deferred dividends shall be held by the Corporation for the account of the Grantee until the Vesting Date, at which time the dividends shall be paid to the Grantee. Upon the forfeiture of the shares of Restricted Stock pursuant to Section 3, any deferred dividends shall also be forfeited to the Corporation.

6. No Right to Continued Retention . Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Grantee any right with respect to continuance as an employee, nor shall this Agreement or the Plan interfere in any way with the right of the Corporation to terminate the Grantee's service as an employee at any time.

7. Adjustments Upon Change in Capitalization . If, by operation of Section 10 of the Plan, the Grantee shall be entitled to new, additional or different shares of stock or securities of the Corporation or any successor corporation, such new, additional or different shares or other property shall thereupon be subject to all of the conditions and restrictions which were applicable to the shares of Restricted Stock immediately prior to the event and/or transaction.

8.     Modification of Agreement . Except as set forth in the Plan and herein, this Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto.

9. Severability . Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force and effect in accordance with their terms.


10.     Governing Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflict of laws principle, except to the extent that the application of New York law would result in a violation of the Canadian Business Corporation Act.

11.     Successors in Interest . This Agreement shall inure to the benefit of and be binding upon any successor to the Corporation. This Agreement shall inure to the benefit of the Grantee's heirs, executors, administrators and successors. All obligations imposed upon the Grantee and all rights granted to the Corporation under this Agreement shall be binding upon the Grantee's heirs, executors, administrators and successors.
       

MDC PARTNERS INC.

By:                             
Name: Christine LaPlaca
Title: Senior Vice President






 
4
 



MDC PARTNERS INC.

By:                             
Name: Mitchell Gendel    
Title: General Counsel


GRANTEE: [NAME]

By:                             
Name:

Number of Shares of Restricted
Stock Hereby Granted: [NUMBER OF SHARES]

 
5
 

Exhibit 12
Statement of Computation of Ratio of Earnings to Fixed Charges


 
Twelve Months Ended December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
Earnings:
 
 
 
 
 
 
 
 
 
Loss from continuing operations attributable to MDC Partners Inc.
$
(47,942
)
 
$
(31,076
)
 
$
(2,797
)
 
$
(139,663
)
 
$
(80,311
)
Additions:
 
 
 
 
 
 
 
 
 
Income taxes (recovery)
(7,301
)
 
5,664

 
12,422

 
(4,367
)
 
9,553

Noncontrolling interest in earnings of consolidated subsidiaries
5,218

 
9,054

 
6,890

 
6,461

 
6,863

Fixed charges, as shown below
117,055

 
73,184

 
69,001

 
113,188

 
55,453

Distributions received from equity-method investees
123

 
652

 
726

 
3,096

 
1,288

 
115,095

 
88,554

 
89,039

 
118,378

 
73,157

Subtractions:
 
 
 
 
 
 
 
 
 
Equity in income (loss) of nonconsolidated affiliates
(309
)
 
1,058

 
1,406

 
281

 
633

Noncontrolling interest in earnings of consolidated subsidiaries that have not incurred fixed charges

 

 

 

 

 
(309
)
 
1,058

 
1,406

 
281

 
633

Earnings (loss) as adjusted
67,462

 
56,420

 
84,836

 
(21,566
)
 
(7,787
)
Fixed charges:
 
 
 
 
 
 
 
 
 
Interest on indebtedness, expensed or capitalized
90,021

 
55,633

 
53,018

 
92,936

 
42,003

Amortization of debt discount and expense and premium on indebtedness, expensed or capitalized
9,135

 
2,270

 
2,247

 
7,762

 
2,249

Interest within rent expense
17,899

 
15,281

 
13,736

 
12,490

 
11,201

Total fixed charges
$
117,055

 
$
73,184

 
$
69,001

 
$
113,188

 
$
55,453

Ratio of earnings to fixed charges
N/A

 
N/A

 
1.23

 
N/A

 
N/A

Dollar amount deficiency
$
49,593

 
$
16,764

 
N/A

 
$
134,754

 
$
63,240








Exhibit 21
MDC PARTNERS INC.
 
SUBSIDIARIES OF THE REGISTRANT

Name
 
Jurisdiction of Incorporation/Formation
1208075 Ontario Limited
 
Ontario
2329640 Ontario Inc.
 
Ontario
2340432 Ontario Inc.
 
Ontario
6 Degrees Integrated Communications Corp.
 
Ontario
72andSunny NL B.V.
 
Netherlands
72andSunny Partners LLC
 
Delaware
72andSunny Partners LLC
 
New York
72andSunny Pte. Ltd.
 
Republic of Singapore
72andSunny Pty Ltd
 
New South Wales
7thfl LLC
 
Delaware
939GP Inc.
 
Ontario
Accumark Partners Inc.
 
Ontario
ACE Content LLC
 
Delaware
Albion Brand Communication Limited
 
United Kingdom
Allegory LLC
 
Delaware
Allison & Partners Holdings (Thailand) Limited
 
Bangkok
Allison & Partners LLC
 
Delaware
Allison & Partners Thailand Limited
 
unknown
Allison and Partners K.K.
 
Tokyo
Allison Kommunikation GmbH
 
Berlin
Allison Partners Limited
 
Wanchai
Allison PR (Beijing) Limited
 
Beijing
Allison+Partners Singapore Pte Ltd
 
Republic of Singapore
Allison+Partners UK Limited
 
England
Alveo LLC
 
Delaware
Anomaly (Shanghai) Advertising Co., Ltd.
 
Shanghai
Anomaly B.V.
 
Netherlands
Anomaly Inc.
 
Ontario
Anomaly London LLP
 
United Kingdom
Anomaly Partners LLC
 
Delaware
Anomaly UK Limited
 
United Kingdom
Antidote 360 LLC
 
Delaware
Attention Partners LLC
 
Delaware
Boom Marketing Inc.
 
Ontario
Born AI LLC
 
Delaware
Bruce Mau Design (USA) LLC
 
Delaware
Bruce Mau Design Inc.
 
Ontario





Bruce Mau Holdings Ltd.
 
Ontario
Capital C Partners GP Inc.
 
Ontario
Colle & McVoy LLC
 
Delaware
Com.motion Inc.
 
Delaware
Concentric Health Experience Limited
 
United Kingdom
Concentric Partners LLC
 
Delaware
CP+B - Crispin Porter & Bogusky Brasil Publicidade e Participacao Ltda.
 
Sao Paulo
Crispin Porter & Bogusky (Hong Kong) Limited
 
Hong Kong
Crispin Porter & Bogusky LLC
 
Delaware
Crispin Porter & Bogusky Ltd
 
United Kingdom
Crispin Porter + Bogusky Denmark ApS
 
Copenhagen
Crispin Porter + Bogusky Scandinavia AB
 
Sweden
Cultura United Agency LLC
 
Delaware
Doner Limited
 
United Kingdom
Doner Partners LLC
 
Delaware
Dotglu LLC
 
Delaware
Elixir Health Experience LLC
 
Delaware
Enplay Partners LLC
 
Delaware
Expecting Productions, LLC
 
California
Forsman & Bodenfors AB
 
Sweden
Forsman & Bodenfors Factory AB
 
unknown
Forsman & Bodenfors Inhouse AB
 
unknown
Forsman & Bodenfors Studios AB
 
unknown
Gale Creative Agency Private Limited
 
Bangalore
Gale Partners Inc.
 
Ontario
Gale Partners LLC
 
Delaware
Gale Partners LP
 
Ontario
Happy Forsman & Bodenfors AB
 
unknown
Hecho en 72 LLC
 
Delaware
Hello Design, LLC
 
California
HL Group Partners Limited
 
United Kingdom
HL Group Partners LLC
 
Delaware
HPR Partners, LLC
 
Delaware
Hudson and Sunset Media, LLC
 
Delaware
Hunter PR Canada LP
 
Ontario
Hunter PR UK Limited
 
United Kingdom
Hunter Public Relations UK Limited
 
United Kingdom
KBP Holdings LLC
 
Delaware
KBS (Hong Kong) Limited
 
Unknown
KBS (Shanghai) Advertising Co., Ltd.
 
Shanghai
KBS+P Canada LP KBS+P Canada SEC
 
Ontario
KBS+P Ventures LLC
 
Delaware
Kenna Communications GP Inc.
 
Ontario
Kenna Communications LP
 
Ontario
Kingsdale Partners LP
 
Ontario
Kingsdale Shareholder Services US LLC
 
Delaware





Kirshenbaum Bond Senecal & Partners LLC
 
Delaware
KIS Investor Services Inc. (Barbados)
 
Barbados
Kollo AB
 
unknown
Kwittken & Company Limited
 
United Kingdom
Kwittken LLC
 
Delaware
Kwittken LP
 
Ontario
Kwittken Ltd.
 
United Kingdom
Laird + Partners New York LLC
 
Delaware
Laurie, Foard & Wheeler Limited
 
Unknown
Laurie, Ford + Wheeler LLC
 
Delaware
LBN Partners LLC
 
Delaware
Legend PR Partners LLC
 
Delaware
LifeMed Media, Inc.
 
Delaware
Luntz Global Partners LLC
 
Delaware
Main North LP
 
Ontario
Maxxcom (Barbados) Inc.
 
Barbados
Maxxcom (USA) Finance Company
 
Delaware
Maxxcom (USA) Holdings Inc.
 
Delaware
Maxxcom Global Media LLC
 
Delaware
Maxxcom Inc.
 
Delaware
MDC Acquisition Inc.
 
Delaware
MDC Canada GP Inc.
 
Canada
MDC Corporate (US) Inc.
 
Delaware
MDC Europe Ltd.
 
United Kingdom
MDC Gale43 GP Inc.
 
Ontario
MDC Innovation Partners LLC
 
Delaware
MDC Kingsdale GP Inc.
 
Ontario
MDC Partners Inc.
 
Canada
MDC Partners UK Holdings Limited
 
United Kingdom
Mono Advertising, LLC
 
Delaware
New Team LLC
 
Delaware
No Sleep Productions LLC
 
Delaware
Northstar Management Holdco Inc.
 
Ontario
Northstar Research GP LLC
 
Delaware
Northstar Research Holdings Canada Inc.
 
Ontario
Northstar Research Holdings USA LP
 
Delaware
Northstar Research Partners (UK) Limited
 
United Kingdom
Northstar Research Partners (USA) LLC
 
Delaware
Northstar Research Partners Inc. (ON)
 
Ontario
Pictor Digital Creative Services LLC
 
Delaware
Plus Productions, LLC
 
Delaware
Pt. Northstar Business Consulting Partners
 
Republic of Indonesia
Redscout LLC
 
Delaware
Redscout Ltd.
 
United Kingdom
Relevent Partners LLC
 
Delaware
Rumble Fox LLC
 
Delaware





Sloane & Company LLC
 
Delaware
SML Partners Holdings LLC
 
Delaware
Source Marketing LLC
 
New York
Studio Pica Inc.
 
Canada
Sugar Daddy Development, LLC
 
Delaware
TargetCast LLC
 
Delaware
Targetcom LLC
 
Delaware
TC Acquisition Inc.
 
Delaware
TEAM LP
 
Ontario
The Arsenal LLC
 
Delaware
The Path Worldwide Limited
 
United Kingdom
Trade X Partners LLC
 
Delaware
Trailer Productions, LLC
 
California
TS Holdings LP
 
Ontario
Union Advertising Canada LP
 
Ontario
Unique Influence Partners LLC
 
Delaware
Varick Media Management LLC
 
Delaware
Veritas Communications Inc.
 
Ontario
Vitro Partners LLC
 
Delaware
VitroRobertson LLC
 
Delaware
Walker Brook Capital LLC
 
Delaware
Y Media Labs LLC
 
Delaware
Y Media Labs Private Limited
 
unknown
Yamamoto Moss Mackenzie, Inc.
 
Delaware
Zig Management (USA) Inc.
 
Delaware
Zyman Group, LLC
 
Delaware







Exhibit 23

Consent of Independent Registered Public Accounting Firm

MDC Partners Inc.
New York, New York

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-159831 and 333-176059) and Form S-3 (No. 333-194445) of MDC Partners Inc., of our reports dated March 1, 2017 , relating to the consolidated financial statements and financial statement Schedule II, and the effectiveness of MDC Partners Inc.'s internal control over financial reporting which appear in this Form 10-K.
/s/ BDO USA, LLP

BDO USA, LLP
New York, New York

March 1, 2017





Exhibit 31.1
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Scott L. Kauffman, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2016 of MDC Partners Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
March 1, 2017
/s/ Scott L. Kauffman
 
 
  
By:
Scott L. Kauffman
 
 
  
Title:
Chairman and Chief Executive
Officer
 




Exhibit 31.2
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, David Doft, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2016 of MDC Partners Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
March 1, 2017
/s/ David Doft
 
 
  
By:
David Doft
 
 
  
Title:
Chief Financial Officer
 




Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report of MDC Partners Inc. (the “Company”) on Form 10-K for fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott L. Kauffman, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated as of
March 1, 2017
/s/ Scott L. Kauffman
 
 
  
By:
Scott L. Kauffman
 
 
  
Title:
Chairman and Chief Executive Officer
 
This certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.
A signed original of this written statement required by Section 906, or other documents authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.




Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report of MDC Partners Inc. (the “Company”) on Form 10-K for fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Doft, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated as of
March 1, 2017
/s/ David Doft
 
 
  
By:
David Doft
 
 
  
Title:
Chief Financial Officer
 
This certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.
A signed original of this written statement required by Section 906, or other documents authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.