Capital Structure | Capital Structure Common Stock Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held. Dividends on common stock will be paid when, and if, declared by the Company’s Board of Directors. No dividends have ever been declared or paid by the Company. Common Stock Offering On June 29, 2021, the Company closed its underwritten public offering of common stock, par value $0.0001 per share. The offering was conducted pursuant to an underwriting agreement (the “Underwriting Agreement”) dated June 24, 2021, by and between the Company and B. Riley Securities, Inc., as representative of the several underwriters (the “Underwriters”) for net proceeds of $102.3 million. At the closing, the Company issued 42,307,692 shares of common stock, inclusive of 3,846,154 shares of common stock issued pursuant to the full exercise of the Underwriters’ option to purchase additional shares of common stock. The Company used the net proceeds for the redemption of the Series A Convertible Preferred Stock. Shelf Registration Statement On August 19, 2020, the Company filed a universal shelf registration statement with the SEC for the issuance of common stock, preferred stock, debt securities, guarantees of debt securities, warrants and units up to an aggregate amount of $250.0 million (“the 2020 Shelf Registration Statement”). On August 28, 2020, the 2020 Shelf Registration Statement was declared effectiv e by the SEC. As of June 30, 2022, except for the Common Stock offering and the issuance of Senior Notes, the Company has not raised additional capital using the 2020 Shelf Registration Statement. Preferred Stock The Company’s Board of Directors (the “Board”) is authorized to issue preferred shares and has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of preferred stock. Series B Non-Convertible Preferred Stock On June 30, 2021, the Company closed a private placement of 75,000 shares of its Series B Perpetual Non-Convertible Preferred Stock, par value $0.0001 per share, with an initial liquidation preference of $1,000 per share (the “Series B Preferred Stock”), for net proceeds of $72.5 million (the “Series B Transaction”). The sale of the Series B Preferred Stock was pursuant to the Series B Preferred Stock Purchase Agreement, dated as of June 24, 2021 (the “Series B Purchase Agreement”), between the Company and B. Riley Principal Investments, LLC (“BRPI”). In connection with the closing of the Series B Transaction, the Company (i) filed a Certificate of Designation with the State of Delaware setting forth the rights, preferences, privileges, qualifications, restrictions and limitations on the Series B Preferred Stock (the “Series B Certificate”) and (ii) entered into an Investor Rights Agreement with B. Riley Financial, Inc. (“B. Riley Financial”) and BRPI setting forth certain governance and registration rights of B. Riley Financial with respect to the Company. Certificate of Designation of the Series B Preferred Stock The rights, preferences, privileges, qualifications, restrictions and limitations of the shares of Series B Preferred Stock are set forth in the Series B Certificate. Under the Series B Certificate, the holders of the Series B Preferred Stock are entitled to receive, on each share of Series B Preferred Stock on a quarterly basis, an amount equal to the dividend rate, as described in the following sentence, divided by four and multiplied by the then-applicable Liquidation Preference per share of Series B Preferred Stock (collectively, the “Preferred Dividends”). The dividend rate is (1) 9.5% per annum for the period commencing on June 30, 2021 and ending on and including December 31, 2021, (2) 13% per annum for the year commencing on January 1, 2022 and ending on and including December 31, 2022; and (3) 14% per annum for the year commencing on January 1, 2023 and thereafter. The Preferred Dividends will be due in cash on January 1, April 1, July 1 and October 1 of each year (each, a “Series B Dividend Payment Date”). The Company may choose to pay the Series B Preferred Dividends in cash or in additional shares of Series B Preferred Stock. In the event the Company does not declare and pay a dividend in cash on any Series B Dividend Payment Date, the unpaid amount of the Preferred Dividend will be added to the Liquidation Preference. As of June 30, 2022, the Liquidation Value and Redemption Value of the Series B Preferred Shares was $73.0 million. On and after the fifth anniversary of the date of issuance, holders of shares of Series B Preferred Stock will have the right to cause the Company to redeem each share of Series B Preferred Stock for cash in an amount equal to the sum of the current liquidation preference and any accrued dividends. Each share of Series B Preferred Stock will also be redeemable at the option of the holder upon the occurrence of a “Fundamental Change” at (i) par in the case of a payment in cash or (ii) 1.5 times par in the case of payment in shares of Common Stock (such shares being, “Registrable Securities”), subject to certain limitations on the amount of stock that could be issued to the holders of Series B Stock. In addition, the Company will be permitted to redeem outstanding shares of the Series B Preferred Stock at any time for the sum of the then-applicable Liquidation Preference and the accrued but unpaid dividends. Pursuant to the Series B Certificate, the Company will be required to use (i) the first $50.0 million of proceeds from certain transactions (i.e., disposition, sale of assets, tax refunds) received by the Company to redeem for cash, shares of the Series B Preferred Stock, on a pro rata basis among each holder of Series B Preferred Stock and (ii) the next $25.0 million of proceeds from certain transactions received by the Company may be used by the Company to buy back shares of Common Stock and to the extent, not used for such purpose by the Company, to redeem, for cash, shares of the Series B Preferred Stock, on a pro rata basis among each holder of the Series B Preferred Stock. The Company shall be required to obtain the prior written consent of the holders holding at least a majority of the outstanding shares of the Series B Preferred Stock before taking certain actions, including: (i) certain dividends, repayments and redemptions; (ii) any amendment to the Company’s certificate of incorporation that adversely affects the rights, preferences, privileges or voting powers of the Series B Preferred Stock; and (iii) issuances of stock ranking senior or equivalent to shares of the Series B Preferred Stock (including additional shares of the Series B Preferred Stock) in the priority of payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company. Other than with respect to the foregoing consent rights, the Series B Preferred Stock is non-voting stock. Investor Rights Agreement On June 30, 2021, the Company, B. Riley Financial and BRPI entered into an Investor Rights Agreement (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, for so long as affiliates of B. Riley Financial beneficially own at least 10% of the outstanding shares of common stock (unless such equity threshold percentage is not met due to dilution from equity issuances), B. Riley Financial is entitled to nominate one Class II director (the “B. Riley Nominee”) to the Company’s board of directors (the “Board”), who shall be an employee of B. Riley Financial or its affiliates and is approved by the Board, such approval not to be unreasonably withheld. For so long as affiliates of B. Riley Financial beneficially own 5% or more but less than 10% of the outstanding shares of common stock (unless such equity threshold percentage is not met due to dilution from equity issuances), B. Riley Financial is entitled to certain board observer rights. A summary of the Company’s Series B Perpetual Non-Convertible Preferred Stock balance at June 30, 2022 and changes during the six months ended June 30, 2022, are presented below: Series B Preferred Stock Shares Amount Balance at December 31, 2021 75 $ 72,505 Issuance of Series B preferred stock — — Issuance costs related to preferred stock — — Amortization of preferred stock issuance costs — 143 Issuance of preferred PIK dividend 3 2,438 Redemption of Series B preferred shares (7) (6,738) Balance at June 30, 2022 71 $ 68,348 On April 1, 2022 the Company paid in-kind the accrued Series B Perpetual Non-Convertible Preferred Stock dividend of $2.4 million. On April 18, 2022, the Company made a $2.5 million principal and interest payment to redeem 2,438 shares of Series B Preferred Stock. On May 10, 2022, the Company made an additional $4.4 million principal and interest payment to redeem 4,300 shares of Series B Preferred Stock. On July 1, 2022 the Company paid the accrued Series B Perpetual Non-Convertible Preferred Stock dividend of $2.3 million in form of cash. Series A Convertible Preferred Stock In accordance with the terms of the Share Purchase Agreement dated as of October 17, 2017 (the “PIPE Purchase Agreement”), with Silver Private Holdings I, LLC, an affiliate of Siris (“Silver”), on February 15, 2018, the Company issued to Silver 185,000 shares of its newly issued Series A Convertible Participating Perpetual Preferred Stock (the “Series A Preferred Stock”), par value $0.0001 per share, with an initial liquidation preference of $1,000 per share, in exchange for $97.7 million in cash and the transfer from Silver to the Company of the 5,994,667 shares of the Company’s common stock held by Silver (the “Preferred Transaction”). Redemption of Series A Preferred Stock The net proceeds from the common stock public offering, Senior Note offering and the Series B transaction was used in part to fully redeem all outstanding shares of the Company’s Series A Preferred Stock on June 30, 2021 (the “Redemption”). The Company redeemed in full all of the 268,917 outstanding shares of the Series A Preferred Stock for an aggregate Redemption Price of $278.7 million and all rights under the Investor Rights Agreement relating to the Series A Preferred Stock were terminated effective with the Redemption. No Series A Preferred Stock remain outstanding or authorized as of June 30, 2022. Registration Rights The Investor Rights Agreement entered into on June 30, 2021 provides that in the event Synchronoss issues Registrable Securities to the holders of Series B Preferred Stock, such holders will have certain demand and piggy-back registration rights with respect to such Registrable Securities. In addition, on June 30, 2021, in connection with the redemption of the Series A Preferred Stock, the Investor Rights Agreement between the Company and Silver terminated. Stock Plans At the annual meeting of stockholders the Company held on June 16, 2022, the stockholders of the Company approved and adopted the Certificate of Amendment of the Company’s restated certificate of incorporation to increase the total number of shares of authorized common stock from 100 million shares to 150 million shares. As of June 30, 2022, there were 12.7 million shares available for the grant or award under the Company’s 2015 Equity Incentive Plan and 0.5 million shares available for the grant or award under the Company’s 2017 New Hire Equity Incentive Plan. The Company’s performance cash awards granted to executives under the Long Term Incentive (“LTI”) Pla ns have been accounted for as liability awards, due to the Company’s intent and the ability to settle such awards in cash upon vesting and the Company has reflected such awards in accrued expenses. As of June 30, 2022, the liability for such awards is approximately $0.5 million. Stock-Based Compensation The following table summarizes stock-based compensation expense related to all of the Company’s stock awards included by operating expense categories, as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Cost of revenues $ 139 $ 379 $ 360 $ 857 Research and development 316 696 872 1,551 Selling, general and administrative 509 1,270 1,659 2,658 Total stock-based compensation expense $ 964 $ 2,345 $ 2,891 $ 5,066 The following table summarizes stock-based compensation expense related to all of the Company’s stock awards included by award type, as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Stock options $ 446 $ 893 $ 1,240 $ 1,848 Restricted stock awards 509 1,329 1,387 3,039 Performance Based Cash Units 9 123 264 179 Total stock-based compensation before taxes $ 964 $ 2,345 $ 2,891 $ 5,066 Tax benefit $ 190 $ 440 $ 567 $ 937 The total stock-based compensation cost related to unvested equity awards as of June 30, 2022 was approximately $8.1 million. The expense is expected to be recognized over a weighted-average period of approximately 2.0 years. The total stock-based compensation cost related to unvested performance based cash units as of June 30, 2022 was approximately $0.5 million. The expense is expected to be recognized over a weighted-average period of approximately 1.1 years. Stock Options The Company uses the Black-Scholes option pricing model for determining the estimated fair value for stock options. The weighted-average assumptions used in the Black-Scholes option pricing model are as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Expected stock price volatility 74.1 % 83.1 % 74.1 % 83.1 % Risk-free interest rate 3.2 % 0.6 % 3.2 % 0.6 % Expected life of options (in years) 4.13 4.25 4.13 4.24 Expected dividend yield 0.0 % 0.0 % 0.0 % 0.0 % Weighted-average fair value (PSV) of the options $ 0.73 $ 1.81 $ 0.73 $ 1.89 The following table summarizes information about stock options outstanding as of June 30, 2022: Options Number of Weighted-Average Weighted-Average Aggregate Outstanding at December 31, 2021 4,715 $ 6.53 Options Granted 1,198 1.26 Options Exercised — — Options Cancelled (532) 12.57 Outstanding at June 30, 2022 5,381 $ 4.76 5.25 $ — Vested and exercisable at June 30, 2022 2,036 $ 8.12 3.94 $ — The total intrinsic value of stock options exercisable was nil at June 30, 2022 and 2021, respectively. The total intrinsic value of stock options exercised was nil and $0.6 thousand during the six months ended June 30, 2022 and 2021, respectively. Awards of Restricted Stock and Performance Stock A summary of the Company’s unvested restricted stock at June 30, 2022, and changes during the six months ended June 30, 2022, is presented below: Unvested Restricted Stock Number of Weighted- Average Unvested at December 31, 2021 2,574 $ 3.57 Granted 979 1.41 Vested (718) 4.30 Forfeited (173) 3.41 Unvested at June 30, 2022 2,662 $ 2.56 Restricted stock awards are granted subject to other service conditions or service and performance conditions (“Performance-Based Awards”). Restricted stock and Performance-Based Awards are measured at the closing stock price at the date of grant and are recognized straight line over the requisite service period. Performance Based Cash Units Performance based cash units generally vest at the end of a three-year period based on service and achievement of certain performance objectives determined by the Company’s Board of Directors. A summary of the Company’s unvested performance-based cash units at June 30, 2022 and changes during the six months ended June 30, 2022, is presented below: Unvested Cash Units Number of Period End Fair Value Unvested at December 31, 2021 1,996 $ 2.44 Granted — — Granted adjustment 1 (73) — Vested — — Forfeited (91) — Unvested at June 30, 2022 1,832 $ 1.15 ___________________________ 1 Includes changes in the unvested units due to performance adjustments Performance based cash units are measured at the closing stock price at the reporting period end date and are recognized straight line over the requisite service period. The expense for the period will increase or decrease based on updated fair values of these awards at each reporting da te. Unvested units fluctuations are shown as adjustments to units granted in the table above. These fluctuations are based on the percentage achievement of the performance metrics at the end of each reporting period. |